PYX Resources : Raising target price on another year

14 February 2023 Global Equity Research led by Dr. Thomas Kenny, Director of Equity Research and

Charlie Yang, Senior Analyst, Mining and Commodities [e-mail]

Overweight

Price Target:

AU$3.40/GBp195

PYX Resources: Raising Target Price on Another Year of Success with Multiple Operational Milestones Delivered

Introduction

PYX Resources Limited ("PYX" or the "Company") has the world's second-largestJORC-compliant zircon resources among producers currently in production. It is a leading and fast-growing premium zircon producer with enormous potential to grow output and enhance profitability. Its shares are dual-listed on the London Stock Exchange (LSE: PYX) and National Stock Exchange of Australia (NSX: PYX).

On 8 February 2023, PYX announced its latest Operational Update for the financial year ended 31 December 2022 ("FY 2022").

This report highlights the Company's operational and financial performance in FY 2022 with our assessment of its valuation. Analysis made in this report is based on the announced operational milestones achieved by PYX and our view of the market conditions going forward.

Some of PYX's key achievements in FY 2022 are as follows:

1. Raising its premium zircon prices in March 2022 for the fifth time since January 2021, resulting in FY 2022 average sales price of US$2,457 per tonne, representing an increase of 36% year over year (YoY);
2. Beginning the production and sales of titanium dioxide minerals (rutile and ilmenite) after completing the expansion of its Mineral Separation Plant's capacity to 24,000 tonnes per annum ("tpa"), with total titanium dioxide mineral output volume of 7.5 kt (kilotonne) and sales volume of 0.3kt;

Share Price (as of 13 Feb 2023): AU$0.55/GBp17.55

12- to 18-month Target Price: AU$3.40/GBp195

Market Cap (as of 13 Feb 2023):

AU$244.1M/GBP77.9M

Total Shares: 441.3M

Dividend and Yield: N/A

1. Appointed an existing prestigious independent director of the Company with in-depth geological background and executive management experience as a new member to its board of directors; and
2. Obtained investment commitments for GBP20 million and US$13.5 million to accelerate its production volume growth at its Mandiri deposit and development of the Tisma project, both in the prolific Central Kalimantan province in Indonesia.

Recommendation Summary

1. We continue our coverage of PYX and reiterate an Overweight rating with a new 12- to 18-monthprice target of AU$3.40 (up about 1.5% from the previous target of AU$3.35), representing an upside potential of roughly 518% over its closing price of AU$0.55 as of 13 February 2023.
2. PYX is in possession of a total of around 264 million tonnes of JORC-compliant mineral resources, with 10.5 million tonnes of contained zircon. Its Mandiri deposit is the largest zircon discovery worldwide since 2012 with zircon resources of 6 million tonnes. The Company's zircon resources are not only enormous but also with one of the industry's highest weighted average heavy mineral ("HM") assemblage value of US$1,680 per tonne. Due to easy extraction and low mining and processing cost as well as significant exploration potential, PYX should benefit tremendously from its premium zircon assets.

This report has been prepared by Cedrus Investments Ltd.

PLEASE SEE IMPORTANT DISCLOSURES BEGINNING ON PAGE 16

1. Based on our analysis, we see PYX shares trading at the very high end of the valuation range on a per tonne of HM resource basis among its peers in the short term;
2. Importantly, we believe PYX is well positioned to grow further, continue to win investor support, and take advantage of the expected favorable market momentum as a result of its management team's track record of execution in achieving operational targets and milestones, including capacity expansion, new product production and sales, consistent sales volume growth, customer diversification and robust sales price according to plans coupled with meeting expectations of the market and shareholders; and
3. In our view, business prospects for the mineral sands industry remain resilient, while zircon demand continues to be particularly robust, as sustainable long-termdemand is fueled by persistent global economic growth, ongoing improvement in standard of living in developing countries together with widespread applications of innovative and disruptive technologies related to nano-materialsand nano- structures and other areas. Moreover, the resurgent economy of China after its re-openingfrom COVID- related restrictions and lockdowns should bode well for pent-updemand. Furthermore, anticipated tight supply of premium zircon arising from the absence of discovery of sizable zircon deposits in recent years amid strong demand will likely lead to shortages and pushing prices even higher.

Note: Unless otherwise noted, the AU$:US$ exchange rate of 1:0.74 is used in all calculations in this report.

This report has been prepared by Cedrus Investments Ltd. • PLEASE SEE IMPORTANT DISCLOSURES BEGINNING ON PAGE 16

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Table of Contents

I.	OPERATION UPDATES	4
	1.1	Zircon Price Increase	4
	1.2	Sales ofBy-products- Titanium Dioxide Minerals	5
	1.3	Appointment of a New Board Member	6
	1.4	Commencement of the Operations at the Strategic Logistics Facility in Malaysia	7
II.	Company's Achievements	9
	2.1	Positive 1H 2022 Results and Encouraging Operational Performance in FY 2022	9
	2.2	Secured Two Investment Commitments	10
III.	VALUATION ANALYSIS OF PYX	11
	3.1	Discounted Cash Flow (DCF) Valuation	11
	3.2	Comparable Company Analysis - EV/Resources	12
	3.3	Valuation Results	12
	3.4	Valuation Upside Potential	14
IV.	CONCLUSION	14
Important Disclosures	16

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1. OPERATION UPDATES

On 8 February 2023, PYX issued its latest Operational Update for the financial year ended 31 December 2022 (FY 2022), revealing major operational milestones accomplished during the period.

1.1 Zircon Price Increase

During FY 2022, PYX managed to further increase the price of its premium zircon, the Company's core product. This marks one of the critical factors in contributing to PYX's outstanding financial performance in FY 2022. On 21 March 2022, PYX announced another 34% hike to its premium zircon price to US$3,100 per tonne from US$2,305 per tonne with immediate effect. It represented an aggregate increase of 135% since the start of 2021. Overall, the average zircon price rose from US$1,811 per tonne in FY 2021 to US$2,457 per tonne in FY

2022. This latest price increase is the fifth one in a row in just 12-months, which reflects the positive market dynamics for premium zircon and validates PYX's investment focus on advancing its ambitious expansion plans at the Mandiri deposit and bringing the Tisma deposit into production to maximize the economic potential of these assets.

Exhibit I-1: PYX's Yearly Average Premium Zircon Price

+36%

US$2,457 per tonne

US$1,811 per tonne

2021 2022

Source: PYX

The strength in zircon price throughout 2021 and into 2022 was primarily due to the dramatic growth in zircon demand, stemming from increasing adoption of several technology-based applications including renewable energy technologies. Zirconium-based alloys are swiftly becoming the more desirable materials in the global drive to realize low-carbon electricity generation, while zircon compounds are integral to the manufacturing of catalytic converters, which convert pollutant gases produced by motor vehicles into less harmful ones. Meanwhile, global supply capacity growth was lagging owing to several factors such as the continued production setback in South Africa, declining ore grades of known zircon deposits, and the absence of significant new supply entering the market. The resultant imbalance in supply and demand was the principal driving force behind the price surge.

Ongoing supply shortages are expected for the foreseeable future, as strong demand is predicted to persist, particularly from China. The world's second-largest economy has shifted its priority back to economic growth after abruptly dismantled in early December 2022 the almost three-year-oldZero-COVID policy and its 2022

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GDP expansion slumped to 3%, the lowest level in nearly 50 years. To revive demand, China's policymakers intend to materialize domestic consumption power of about 1.4 billion people besides resorting to giving support to key industries and building out infrastructure for growth. World Bank data shows that household consumption in China is almost 20 points below the global average. This data point truly justifies policymakers' intention. In fact, some local governments have already introduced measures to spur domestic demand. Since last December, a few cities in China have offered consumption vouchers and subsidies in the amount of approximately five billion yuan in total.

1.2 Sales of By-products - Titanium Dioxide Minerals

On 7 December 2020, PYX received the approval for its Production Operation Plan and Budget 2021, which covers a lot of areas such as mining operation, processing, marketing and shipping of zircon, rutile and ilmenite, from the Energy and Resource Service Department of the Government of the Province of Central Kalimantan. This represents a milestone for PYX because prior to this approval the Company primarily focused on producing and selling premium zircon. During November 2021, PYX increased the production capacity at its Mineral Separation Plant ("MSP") of the Mandiri project by one-third from 18,000 tpa to 24,000 tpa, allocating the newly installed capacity for the production of rutile, leucoxene and ilmenite.

Commencement of the production and sales of titanium dioxide minerals (both rutile and ilmenite) enables PYX to add to its product offering and diversify its revenue stream during FY 2022. From January 2022, PYX started production and sales activity of natural rutile from its Mandiri deposit in Central Kalimantan, Indonesia as a by-product, augmenting its primary zircon mining operations. Six months later, the Company began the production and sales of natural ilmenite.

As background information, titanium dioxide is a deep colored, dark mineral, which transforms into a white, opaque powder after being processed. It is mostly used as a pigment, which is a key component in the manufacture of paint, plastic, paper, and fiber. It can be found in many aspects of our daily lives, including house and car paints, plastic pipes and packaging, laminates, inks, clothing, sunscreen, toothpaste, and cosmetics.

Moreover, titanium dioxide is also vital in producing titanium metal, which is favored for its durability, sturdiness, chemical impermeability, high melting point,

low conductivity, and the highest strength to weight ratio of all metals. Therefore, it is critical in many high- tech applications in a great variety of fields, including aerospace, military, nanomaterials, solar cells, and medical (implants and cancer treatment). In addition, high-grade titanium feedstocks is also deployed in welding.

More specifically:

• Rutile (TiO2) is used in the manufacture of titanium dioxide, which is increasingly used in many industries such as construction, automotive, packaging, and electronics. It has one of the highest refractive indices at visible wavelengths of all known crystals. Combined with substantial double refraction and high dispersion, it is commonly utilized in the manufacture of certain optical elements,

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