GOLIATH GOLD MINING LTD Tel: +27 010 060 5000
Fax: +27 010 060 7000
www.bdo.co.za
22 Wellington Road
Parktown, 2193 Private Bag X60500 Houghton, 2041 Johannesburg South Africa
The Independent Board Goliath Gold Mining Limited
Ground Floor, Bridgeview House Constantia Office Park
Corner 14th Avenue and Hendrik Potgieter Street Weltevreden Park, 1709
4 November 2015
Dear Sirs
In addition to referring Goliath Gold shareholders ('Shareholders') to the announcements released on the Stock Exchange News Service of the JSE Limited ('JSE') ('SENS') on 22 September 2015 and 15 October 2015, and to the circular to Shareholders dated 15 October 2015 ('Circular') pertaining to the proposed scheme of arrangement ('Scheme'), shareholders are referred to the announcement released on SENS on 4 November 2015 wherein the board of directors of Goliath Gold ('the Board') provided Shareholders with an update on certain events which have recently occurred in the ordinary course of the business of the Company ('Operational Update'). This opinion dated 4 November 2015 ('Opinion') uses the terms defined in the Circular unless otherwise stated.
Earlier this year, application was made by the Company's subsidiary, Newshelf 1186 Proprietary Limited ('Newshelf'), to the Department of Mineral Resources ('DMR') for a mining permit for gold over 4.96 hectares ('the mining area') situated on the Remaining Extent of Portion 43 of the Farm Modderfontein 76
I.R. (known as 'West Pit 1') ('Mining Permit').
As set out in the Goliath Gold 2014 Integrated Annual Report, the competent person's report in respect of Goliath Gold's mineral assets compiled by SRK Consulting (South Africa) Proprietary Limited, the effective date of which is 30 June 2015 ('Competent Person's Report'), and the executive summary thereof included as Annexure 8 to the Circular ('Executive Summary'), the mining area falls within the boundaries of Newshelf's Cons Modder Prospecting Right and forms part of the Cons Modder Black Reef Project ('Black Reef').
The Competent Person's Report and the Executive Summary thereof stated that the Mining Permit had been applied for.
On 29 October 2015, the Mining Permit was issued and the requisite rehabilitation guarantee for an amount of R3 725 000 was lodged with the DMR.
New Kleinfontein Gold Mine Proprietary Limited ('NKGM'), an indirectly owned subsidiary of Gold One Africa (which also holds 72.0% of the issued share capital of Goliath Gold), has agreed to toll treat approximately 45 000 tonnes of Black Reef ore at an average anticipated head or feed grade of 8.1 g/t from West Pit 1 ('Newshelf Material') at its gold metallurgical plant ('Plant') once Newshelf receives the Mining Permit ('Toll Treatment Agreement').
BDO Corporate Finance (Pty) Ltd Registration number: 1983/002903/07 VAT number: 4250218718
Director: N Lazanakis
BDO Corporate Finance (Pty) Ltd, a South African company, is an affiliated company of BDO Southern African Co-ordination (Pty) Ltd, a South African company, which is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
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In addition to costs related to the treatment of the Newshelf Material, Newshelf will be required to pay NKGM for the low grade ore which will be used to flush the Plant during the treatment process.
It is anticipated that the gold ore produced by NKGM from the Newshelf Material will be delivered to Rand Refinery Limited for refining and sale by the end of December 2015.
As set out in Annexure 1 to the Circular, BDO Corporate Finance Proprietary Limited ('BDO or the 'Independent Expert') determined a valuation range of R1.72 to R3.24 per Scheme Share with a most likely value of R2.03 per Scheme Share ('Valuation as at 9 October 2015'), by performing a comparative valuation on Goliath Gold in accordance with the SAMVAL Code. BDO has considered the effects of the Mining Permit and Toll Treatment Agreement on the Valuation as at 9 October 2015.
Mineral resources were estimated at 15.01 million SAMREC-compliant gold ounces as per the Mineral Resource Statement, as follows:
Resource class | Million tonnes | Grade Grams per tonne | Gold content Million ounces |
(Mt) | (g/t) | (Moz) | |
Measured | 0.33 | 3.26 | 0.03 |
Indicated | 21.80 | 4.62 | 3.25 |
Inferred | 76.10 | 4.79 | 11.73 |
Total | 98.23 | 4.75 | 15.01 |
The Mining Permit and Toll Treatment Agreement will reduce the Measured Resource by 0.011 Moz.
The valuation of West Pit 1 has been performed by applying the Income Approach. The Income Approach is based on net present value ('NPV') that is derived using a DCF technique applied to the post-tax pre-finance cash flows. The external value driver to the DCF is the price assumption for gold. Key internal value drivers include the quantum of stockpile material, the average anticipated head or feed grade and processing costs. The key input parameters used in the DCF valuation are shown in the table below:
Assumption | West Pit |
Stockpile material | 45,000t |
Grade per plant head feed volume | 8.19g/t |
Plant recovery rate | 87.79% |
Gold produced | 323.55 |
Selling price | R499,000 /kg |
Processing costs, including stockpile loading and plant flushing costs | R361.22 |
Effective mining tax rate | 26.97% |
Royalty rate | 2.66% |
The timeline to achieve delivery of the gold ore produced by NKGM from the Newshelf Material for refining and sale is anticipated to be the end of December 2015 and consequently no NPV factor has been applied to the forecast after-tax cash proceeds. The forecast after-tax cash proceeds have been applied to reduce the expected outstanding loan balance of the Company to the Gold One Group at 31 December 2015, which is expected to be R119 164 792.
VALUATION RESULTSIn undertaking the valuation exercise above, BDO determined a valuation range of R2.13 to R3.66 per Scheme Share with a most likely value of R2.44 per Scheme Share.
The valuation above is provided solely in respect of this Opinion and should not be used for any other purposes.
BDO and the Independent Board have concluded that the aforementioned events have a material effect on the Valuation as at 9 October 2015 (where material means, as defined in Regulation 81(n) of the Takeover
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Regulations, an amount equal to or greater than 10% of the value of any subject matter in relation to an offer).
The newly determined valuation range has been determined to be R2.13 to R3.66 per Scheme Share, being a difference of R0.41 (23.8%) and R0.42 (13.0%) per Scheme Share, respectively, with a most likely value of R2.44 per Scheme Share ('New Valuation').
Accordingly, the opinions of both the Independent Expert and the Independent Board as set out in the Circular remain unchanged in that the Scheme Consideration is still considered to be not fair and not reasonable.
In addition, notwithstanding the New Valuation being a material change to the Valuation as at 9 October 2015, the Independent Board is still satisfied that the Scheme proceeds, given that its opinion has not changed in principle.
We hereby consent to the inclusion of this Fair and Reasonable Opinion, in whole or in part and references thereto in any required regulatory announcement or documentation.
Yours faithfully |
N Lazanakis Director BDO Corporate Finance Proprietary Limited 22 Wellington Road Parktown 2193 |
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