Junior precious metal explorers

Junior precious metal explorers

CANADA

Colorado Precious Metals Summit - highlights Ticker Probe Roxgold Troy MAG Silv er Midas Gold ATAC Gold Std. Eastmain Virginia Strategic Primero

PRB CN ROG CN TRY CN MAG CN MA X CN ATC CN GSV CN ER CN VGQ CN SMD CN P CN

Rating

Target

Price*

O O O O O O O O N O O

C$2.50 C$1.35 C$2.30 C$13.50 C$4.00 C$2.25 C$2.25 C$1.00 C$9.00 C$0.75 C$7.25

C$2.15 C$0.65 C$1.55 C$5.95 C$0.85 C$0.85 C$0.64 C$0.35 C$10.20 C$0.37 C$5.42

*Closing prices as on 23 Sept 2013 Source: Bloomberg, Macquar ie Research, September 2013

Event During September 18–20, the Precious Metals Summit conference was held in Beaver Creek, Colorado, USA, which featured 90 companies (13 producers, the rest explorers) of which 15 are in our coverage universe. A minimum market cap of US$20m was required when they registered to be eligible to attend. The breakdown of delegates included:  170 from presenting companies  67 from the sell side  100 from the buy side  44 corporate development/producers  1 media

This is about the same number of companies as previous years but we note a large uptick in the number of intermediate to senior corporate development attendees along with a higher proportion of private equity firms.

Impact Here are our highlights, themes & takeaways. 1. High grade/high margin a key theme – No surprise here with a focus on smaller high IRR deposits that have easier permitting runways and low capex requirements (similar to our May 2012 conference theme). Selected companies that stood out with such development projects included Probe, Roxgold, Troy (West Omai), MAG Silver. 2. Focus on CEOs – “The Bostonians Panel” drilled down on what makes a good CEO. Key attributes include capital allocation discipline, demonstrating strong leadership, presenting a coherent strategy (and sticking to it), and focusing on increasing value of the business on a per share basis. CEOs such as Troy's Paul Benson and Midas' Steven Quin come to mind. 3. Safe jurisdictions – Of the 90 companies presenting:  57 percent North America assets (51 companies with NA assets – 23 Canada,

12 USA, 13 Mexico, 2 DR, 1 Nicaragua)  17 percent South America assets (15 companies – 8 Columbia, 2 Peru,

3 Brazil, 1 Chile, 1 Argentina)  11 percent Africa assets (10 companies – 5 West Africa, 3 Burkina Faso,

1 Ghana, 1 South Africa)  10 percent Europe assets (9 companies – 4 Turkey and 5 other countries)  4 percent Asia assets (4 companies – PNG, Philippines, Indonesia, Mongolia)  1 percent Australia assets (1 company) 24 September 2013

Macquarie Capit al Markets Canada Ltd. This report was prepared by Macquarie Capital Markets Canada Ltd and is being distributed by Macquarie Private Wealth Inc. Macquarie Private Wealth Inc and Macquarie Capital Markets Canada Ltd are separate affiliated corporate entities that are part of the Macquarie group of companies. Please refer to the important disclosures and analyst certification on the inside back cover of this document.

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Our broad takeaway is that North American projects are likely easier to fund in this lower gold price environment. Amongst our junior companies under coverage the following meet our safe jurisdiction definition: MAG, MAX, PRB, ATC, GSV, ER, VGQ and SMD. Amongst our producing companies under coverage at the conference, P best fits the definition, in our view. 4. High level of interest in this best of the best group – We interviewed numerous companies to get a sense of the number of meetings that were taken in the “speed dating”. We heard a range from 10 to 44 with an average of 30. Interestingly, numerous companies were surprised at the number of producer/corporate development meetings they had and with whom. Will this lead to more strategic activity? If so, we believe GSV, MAG and ER are well positioned. 5. Exploration costs are coming down in most jurisdictions – We asked a number of companies if drilling costs had come down and it ranged from 10–30% reductions for most. Despite these savings, the majority of the companies were sticking with the same exploration budget but drilling more meters for fewer dollars. The main reason for the decline in drill costs relates to the lack of financing for juniors that has resulted in few rigs active for the drilling companies and much more competitive pricing. 6. Very few drill hole plays – As a sign that the market is not paying as much attention to early-stage drill hole plays we only counted 9 amongst the 90 companies. Our takeaway is that these companies have been hit the hardest. This said, the best ones tend to already have a strategic investment from an intermediate or senior providing validation, eg ATC and GSV.

Investment conclusions The Precious Metals summit reinforced our conviction in our view that high margin deposits will be the most sought-after opportunities for funding. Investments and funding will continue to focus on companies with assets in a safe jurisdiction such as Canada, Mexico and the USA in this low gold price environment. Our top picks amongst the conference attendees are for Producers: P and TRY; and for Developers and Explorers: MAG, PRB, ROG, MAX.

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Macquarie Research Important disclosures:


Recommendation definitions

Volatility index definition*

Financial definitions

Macquarie - Australia/New Zealand Outperf orm – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperf orm – return >3% below benchmark return

This is calculated f rom the v olatility of historic al price mov ements.

All "Adjusted" data items hav e had the f ollowing adjustments made: Added back: goodwill amortisation, prov ision f or catastrophe reserv es, IFRS deriv ativ es & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset rev als, property rev als, appraisal v alue uplift, pref erence div idends & minority interests

Benchmark return is determined by long term nominal GDP growth plus 12 month f orward market div idend y ield

Very high–highest risk – Stock should be expected to mov e up or down 60–100% in a y ear – inv estors should be awar e this stock is highly speculativ e. High – stock should be expected to mov e up or down at least 40–60% in a y ear – inv estors should be aware this stock could be speculativ e.

Macquarie – Asia/Europe Outperf orm – expected return >+10% Neutral – expected return f rom -10% to +10% Underperf orm – expected return +10% Neutral – expected return f rom -10% to +10% Underperf orm – expected return 5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperf orm – return >5% below benchmark return Macquarie - USA Outperf orm (Buy ) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperf orm (Sell)– return >5% belo w Russell 3000 index return

Low – stock should be expected to mov e up or down at least 15–25% in a y ear. * Applicable to Asia/Australian/NZ/Canada stocks only

EPS = adjusted net prof it / ef powa* RO A = adjusted ebit / av erage total assets RO A Banks/Insurance = adjusted net prof it /av erage total assets ROE = adjusted net prof it / av erage shareholders f unds Gross cashflow = adjusted net prof it + depreciation *equiv alent f ully paid ordinary weighted av erage number of shares All Reported numbers f or Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendations – 12 months Note: Quant recommendations may differ f rom Fundamental Analy st recommendations

Recommendation proportions – For quarter ending 30 June 2013 Outperf orm Neutral Underperf orm

AU/NZ 49.80% 39.85% 10.35%

Asia 57.68% 24.45% 17.87%

RSA 48.05% 42.86% 9.09%

USA 41.13% 54.70% 4.17%

CA 61.75% 34.42% 3.83%

EUR 47.10% (for US coverage by MCUSA, 8.12% of stocks followed are investment banking clients) 30.89% (for US coverage by MCUSA, 6.60% of stocks followed are investment banking clients) 22.01% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)

Company Specific Disclosures: An associate has vis ited the material operations and development assets of Probe Mines w ithin the past year; the company has furnished local transportation and accommodations as part of these site visits. Macquarie Capital Markets Canada Ltd or one of its affiliates managed or co-managed a public offering of securities of Probe Mines in the past 12 months. Macquarie Capital Markets Canada Ltd has received compens ation for investment advisory services from Probe Mines in the past 12 months. Macquarie Group Limited together w ith its affiliates, beneficially owns 1% or more of a class of common equity securities of Probe Mines. The primary analyst for Roxgold has vis ited the material operations and development assets of that company within the past year; the company has furnis hed local transportation and accommodations as part of these site visits. The primary analyst for Troy Resources has vis ited its material operations and development assets within the past year; the company furnis hed local transportation and accommodations as part of these site visits. Macquarie Capital Markets Canada Ltd or one of its affiliates received compensation for investment advisor y servic es from MAG Silver Corp in the past 12 months. Macquarie Capital Markets Canada Ltd or one of its affiliates managed or co-managed a public offering of securities of MAG Silver Corp in the past 12 months. Macquarie Capital Markets Canada Ltd or one of its affiliates managed or co-managed a public offering of securities of Midas Gold in the past 12 months. Macquarie Capital Markets Canada Ltd or one of its affiliates received compensation for investment advisory services from Midas Gold in the past 12 months. Macquarie Capital Markets Canada Limited or one of its affiliates received compensation for investment advisory services from ATAC Resources in the past 12 months. Macquarie Capital Markets Canada Limited or one of its affiliates managed or co-managed a public offering of securities for ATAC Resources in the past 12 months. Macquarie Capital Markets Canada Ltd or one of its affiliates managed or co-managed a public offering of securities of Eastmain Resources in the past 12 months. Macquarie Capital Markets Canada Ltd or one of its affiliates received compensation for investment advis ory services from Eastmain Resources in the past 12 months. Macquarie Capital Markets Canada Ltd or one of it s affiliates has managed or co-managed an offering of securities of Gold Standard Venture in the past 12 months. Macquarie Capital Markets Canada Ltd or one of its affiliates has receiv ed compensation for investment advisory servic es from Gold Standard Venture in the past 12 months. 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