for immediate release for personal use only · issue price of au$0.10 to raise approximately...

FOR IMMEDIATE RELEASE 20 July 2011 The Manager Company Announcements Office ASX Limited

NON-RENOUNCEABLE RIGHTS ISSUE NOTICE UNDER SECTION 708AA(2)(f) OF THE CORPORATIONS ACT 2001 (CTH)

AS MODIFIED BY ASIC CLASS ORDER 08/35

Meridian Minerals Limited (Meridian or Company) is pleased to announce that it has today lodged an Appendix 3B with ASX in relation to a disclosure exempt, pro-rata non-renounceable rights issue of 68,907,194 new fully paid ordinary shares (New Shares) at an issue price of AU$0.10 to raise approximately AU$6,890,719.40 (before the costs of the offer) (Rights Issue). The Rights Issue is being conducted on the basis of an entitlement to subscribe for 1 New Share for every 7 shares held (Existing Shares) as at 7:00pm (AEST) on 2 August 2011 (Record Date) by shareholders with a registered address in Australia or New Zealand (Eligible Shareholders). The Company confirms that:

1. The New Shares will be offered for issue without disclosure under Part 6D.2 of the Corporations Act 2001 (Cth) (Act).

2. This notice is being given under section 708AA(2)(f) of the Act in compliance with the requirements of sub-section 708AA(7) of the Act, as modified by ASIC Class Order 08/35.

3. As at the date of this notice, the Company has complied with:

(a) the provisions of Chapter 2M of the Act; and

(b) section 674 of the Act,

as they apply to the Company.

4. As at the date of this notice, the Company releases the following excluded information (as that term is defined in section 708AA(8) of the Act):

(a) the Company intends to temporarily suspend the operations on the Lennard Shelf Project pending the completion of the Rights Issue; and

(b) the Company has received an “Independent Mineral Asset Valuation” for the Lennard Shelf Project (Report). The Report was commissioned in preparation for the Company in connection with the proposed sale of the Lennard Shelf Project, as announced to the market on 12 May 2011. A copy of the Report is located at Annexure A to this announcement.

In the Report, the expert opines that the preferred valuation of the Lennard Shelf Project is $54 million, and opines that the Lennard Shelf Project valuation is within a range of $30.5 million to $85 million.

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The valuation has been obtained by considering the defined mineral resources and exploration tenements comprising the Lennard Shelf Project.

5. The potential effect the Rights Issue will have on the control of the Company is as follows:

(a) if all shareholders take up their entitlements under the offer then the Rights Issue will have no effect on the control of the Company; and

(b) if all shareholders do not take up their entitlements, shareholders can apply to take up the shortfall or it may be placed with other investors. The effect the placement of the shortfall may have on control will depend entirely on the demand for the shortfall, including any expressions of interest from current shareholders to take up any shortfall;

(c) if some shareholders do not take up their entitlements, the equity in their existing shares will be diluted. The equity of existing shareholders who only take up part of their entitlement will also be diluted, but to a lesser extent; and

(d) given the Company’s major shareholders (based on substantial holding notices that have been given to Meridian and lodged with ASX on or prior to the date of this notice) the Company notes that:

(i) Northwest Nonferrous International Investment Company Ltd (Northwest) holds 41.34% in Meridian. If Northwest takes up all of its entitlements under the Rights Issue and no other shareholder participates in the Rights Issue, Northwest’s percentage holding in Meridian will increase to 44.61%;

(ii) BZ Minerals (Australia) Pty Ltd (Binani) holds 17.03% in Meridian. If Binani takes up all of its entitlements under the Rights Issue and no other shareholder participates in the Rights Issue, Binani’s percentage holding in Meridian will increase to 19%; and

(e) in the event that no shareholder participates in the Rights Issue and Meridian obtains an underwriter to fully underwrite the Rights Issue, and that underwriter does not already hold an interest in Meridian, that underwriter's percentage holding in Meridian will be 12.49%.

Dated this day of 20 July 2011 Signed for and on behalf of the Company:

Roslynn Shand Company Secretary Meridian Minerals Limited

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ENVIRONMENT GEOLOGY

Lennard Shelf project

Independent Mineral Asset

Ernst & Young Transaction Advisory Services Pty Ltd

XstractGroup.com

Xstract -

MINING PROCESSING VALUATION RISK



Valuation

Prepared for:


XstractGroup.com

- Excellence from the outset

RISK TECHNOLOGIES



Valuation

Prepared for:


June 2011

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Xstract Mining Consultants Pty LtdABN: 62 129 791 279

Brisbane Level 20, 333 Ann Street

P: +61 (7) 3221 2366 F: +61 (7) 3221 2235 M: PO Box 10312 Adelaide Street, Brisbane

QLD 4000 Australia

Project Manager:

Jonathan Bell MSc (Mineral Economics), BSc (Applied Geology)MAIG, GAICD Principal Consultant Corporate Services – Perth Xavier Hill MBA, BSc (Engineering) MAusIMM Senior Consultant Mine Engineering – Perth

Contributing authors:

S. Hackett1

Peer review of technical work by:

J. McKibben2, F. Grobler3

Report reviewed by:

J. McKibben, F. Grobler

Xstract Mining Consultants Pty LtdTransaction Advisory Services Pty Ltdinformation contained in this document must be accompanied by written consent from Mining Consultants Pty Ltd.

© Xstract Mining Consultants Pty Ltd

Document information:Project reference: 1475 Reporting standard/s VALMIN Code 2005Report date: June 2011 Status: Published File: P1475_Lennard_Shelf_Valuation_Final_20110627

1 Principal Consultant, Geology - Perth 2 General Manager, Corporate Services - Brisbane3 Principal Consultant, Corporate Services - Perth

Xstract Mining Consultants Pty Ltd

Perth Level 1, 1110 Hay Street, West Perth

P: +61 (8) 9327 9500 F: +61 (8) 9481 8700 M: PO Box 847, West Perth

WA 6872 Australia

Internet www.XstractGroup.com

[email protected]

MSc (Mineral Economics), BSc (Applied Geology)

eer review of technical work by:

Xstract Mining Consultants Pty Ltd has prepared this report on behalf ofTransaction Advisory Services Pty Ltd. Public disclosure, publication or presentation of any information contained in this document must be accompanied by written consent from

Xstract Mining Consultants Pty Ltd 27/06/2011

Document information:

VALMIN Code 2005, JORC Code 2004

_Lennard_Shelf_Valuation_Final_20110627

Brisbane Perth

.XstractGroup.com

[email protected]

on behalf of Ernst & Young cation or presentation of any

information contained in this document must be accompanied by written consent from Xstract

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Lennard Shelf project | Independent Mineral Asset Valuation

Executive summary 1

Executive summary

At the request of Ernst & Young, Xstract has prepared an Independent Valuation Report relating to Meridian’s Lennard Shelf project.

The Lennard Shelf project is located approximately 80 km southeast of Fitzroy Crossing in the Kimberley region of Western Australia. The project covers a total area of 1,360 km2 of which certain areas were previously subject to zinc-lead mining activity between 1989 and 2008. Since acquiring the project in 2009, Meridian has completed an exploration programme focussed on deposits within the area known to have higher lead:zinc ratios. This exploration programme has been successful in increasing the overall confidence and size of the defined resources at the Kapok West and Cadjebut Splay. Meridian holds a 100% interest in all tenements within the greater Lennard Shelf project area, with the exception of the Napier Range prospect, which covers an area of approximately 50 km2, where its interest is 51%. Based on the total tenement area, Meridian’s equity interest is 99%, or 97% interest when calculated by the equity in the mineral resources contained with the project area. The following table outlines the defined mineral resources within the Lennard Shelf project.

Asset Mineral Resource Classification Size (Mt) Pb % Zn% Ag g/t

Kapok West Indicated and Inferred 4.40 4.6 3.4 10.5

Kapok Measured, Indicated and Inferred 1.51 7.1 8.1 7.1

Cadjebut Splay Inferred 1.60 8.3 2.0 16.4

Gap Creek Inferred 2.52 6.2 3.4 9.7

Kutarta Indicated and Inferred 2.34 0.5 7.2 39.1

Palijippa Inferred 2.62 1.2 5.4 33.6

Fossil Downs Inferred 2.15 2.1 9.5 49.7

Napier Range Inferred 0.59 8.0 8.5 75.0

Lennard Shelf Measured, Indicated and Inferred 17.73 4.1 5.4 24.7

In conjunction with its exploration programme, Meridian has commissioned economic evaluation studies concerning the Kapok, Kapok West, Cadjebut Splay and Gap Creek deposits. Meridian’s conceptual mine plan targets the following :

Asset Size (Mt) Pb % Zn % Ag g/t

Kapok 1.06 5.2 4.7 8

Kapok West 1.92 5.0 3.9 10

Cadjebut Splay 0.64 9.6 0.8 18

Total 3.6 5.9 3.6 10.8 F

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Ernst & Young Transaction Advisory Services Pty Ltd | June 2011

iv 2 Executive summary

The Lennard Shelf project may be amenable to an uphole/downhole bench retreat mining method. The proposed mining method is considered by Xstract to be low risk, as the scheduled mining rate of between 450 to 500 kilo tonnes per annum (ktpa) is achievable, based on the number of mining fronts available. Due to the milling capacity of the recently acquired Galmoy process plant, the production rate may be increased to 750 ktpa, subject to raising the confidence in some of the defined Inferred Resources. A review of mining factors and assumptions shows that industry standard assumptions regarding dilution, ventilation, drill factors, and recoveries were used.

In forming its opinion of the likely fair market value of the mineral assets belonging to the Lennard Shelf project, Xstract has used a variety of valuation methodologies from within the market, income and cost-based approaches. Each methodology has its strengths and weaknesses and it is Xstract’s opinion that guidance should be taken from as many methods as possible, given the prevailing time and circumstance at the time of valuation. On this basis, Xstract’s preferred value of AUD54.5 million (M) is within a range of AUD30.5 M to AUD85.0 M. Xstract’s valuation is summarised in the table below.

Aspect Unit Values (AUD M)*

Low High Preferred

Total AUD M 30.5 85.0 54.5

Metal basis AUD/t Pb Eq 17 48 31

Area basis AUD/km2 26,600 74,000 47,400

*any discrepancies due to rounding errors

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Executive summary 3

Contents

Executive summary ____________________________________________________________________ 1

1 Introduction ____________________________________________________________________ 8

1.1 Background 8

1.2 Terms of reference 8

1.3 Reporting standard 9

1.4 Data sources 10

2 Reliance on other experts _________________________________________________________ 10

3 Project description and location ____________________________________________________ 10

3.1 Location and tenement holding 10

3.2 Environment and community 11

4 Accessibility, climate, local resources, infrastructure and physiograpy _______________________ 12

5 History _______________________________________________________________________ 12

6 Geological setting _______________________________________________________________ 13

7 Deposit type ___________________________________________________________________ 14

8 Mineralisation __________________________________________________________________ 15

8.1 Kapok 16

8.2 Kapok West 17

8.3 Cadjebut Splay 17

8.4 Gap Creek 17

8.5 Kutarta 18

8.6 Palijippa 18

8.7 Fossil Downs prospect 18

8.8 Napier Range prospect 19

9 Exploration ____________________________________________________________________ 19

10 Drilling _______________________________________________________________________ 19

11 Sampling method and approach ____________________________________________________ 20

12 Data verification ________________________________________________________________ 20

13 Adjacent projects _______________________________________________________________ 21

14 Mineral processing and metallurgical testing __________________________________________ 21

15 Mineral Resource estimates _______________________________________________________ 22

15.1 Kapok Central and East 24

15.2 Kapok West 24

15.3 Cadjebut Splay 25

15.4 Palijippa 25

16 Other relevant data and information ________________________________________________ 25

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16.1 Mining assumptions 25

16.2 Capital cost estimates 29

16.3 Operating cost estimates 31

16.4 Market conditions 32

16.5 Previous valuations 33

16.6 Xstract’s valuation technique 34

17 Valuation _____________________________________________________________________ 34

18 Entire project __________________________________________________________________ 34

18.1 Market approach 34

18.2 Cost-based approach 36

19 Sum-of-parts Valuation __________________________________________________________ 37

19.1 Conceptual mine plan - Income approach 37

19.2 Conceptual mine plan - cost-based approach 40

19.3 Conceptual mine plan - Summary 41

19.4 Other resources - Size and grade estimate 42

19.5 Other resources - Market-based approach 42

19.6 Other resources - Cost-based approach 43

19.7 Other resources - summary 44

19.8 Exploration potential - Residual endowment 44

19.9 Exploration Potential - Market approach 46

19.10 Exploration Potential - Cost approach 48

19.11 Exploration Potential - summary 49

20 Valuation summary _____________________________________________________________ 49

21 References ____________________________________________________________________ 51

22 Glossary of terms ______________________________________________________________ 54

Tables

Table 14.1: Surface infrastructure costs 22

Table 15.1: Mineral Resources contained within the Lennard Shelf project area 23

Table 15.2: Resource sources 24

Table 16.1: Expected equipment fleet 28

Table 16.2: Conceptual Mine Plan summary 28

Table 16.3: Site surface infrastructure and facilities cost 29

Table 16.4: Concentrate handling and transport cost 29

Table 16.5: Kapok capital costs 29

Table 16.6: Indirect capital costs 30

Table 16.7: Total capital cost summary 30

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Executive summary 5

Table 16.8: Operating cost summary 31

Table 18.1: Statistics of the lower, similar and higher value data subsets 35

Table 18.2: Market based valuation of the entire Lennard Shelf project 36

Table 19.1: Xstract’s Macro-economic assumptions 39

Table 19.2: Monte Carlo simulation output 39

Table 19.3: ROA value summary 40

Table 19.4: Expected value 41

Table 19.5: Component valuation - Meridian’s conceptual mine plan 41

Table 19.6: Market based valuation of the other resources 42

Table 19.7: Expected value of the Lennard Shelf project’s other resources 43

Table 19.8: Sub-total valuation of the other resources 44

Table 19.9: Market based summary valuation of the Lennard Shelf project’s exploration potential 47

Table 19.10: Expected value of the Lennard Shelf project’s exploration potential 48

Table 19.11: Sub-total valuation of the exploration potential 49

Table 20.1: Valuation summary of the Lennard Shelf project 50

Figures

Figure 3.1: Location map of Meridian’s Lennard Shelf project area 11

Figure 6.1: Regional geological setting of the Lennard Shelf project 14

Figure 7.1: A generic Lennard Shelf MVT formation model 15

Figure 8.1: Schematic of the Lennard Shelf deposits 16

Figure 14.1: Process flowsheet for the Lennard Shelf mineralisation 21

Figure 16.1: Uphole bench retreat mining method 26

Figure 16.2: Downhole bench retreat mining method 26

Figure 16.3: Long section of the conceptual mine plan 27

Figure 16.4: Isometric view of the mine infrastructure 28

Figure 16.5: Cumulative capital expenditure over time 31

Figure 16.6: ASX All Ordinaries and gold prices since January 2008 32

Figure 16.7: Lead, zinc and silver prices since January 2008 33

Figure 18.1: Size-grade distribution of the selected deposit transactions 35

Figure 19.1: Lead equivalent Zipf curve distribution of the deposits in the Lennard Shelf region 45

Figure 19.2: Tonnage Zipf curve distribution of the deposits in the Lennard Shelf region 45

Figure 19.3: Size-unit price distribution of the selected exploration transactions 46

Appendices

Appendix A Tenement Detail

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Appendix B Xstract’s valuation technique

Appendix C Deposit Transactions

Appendix D Tenement expenditure records

Appendix E Sensitivity Analysis

Key abbreviations

º Degree

/ Per

% Percent

A Application

AUD Australian Dollar

Chemical symbols Pb - lead, Zn - zinc, Ag - silver, Fe- iron, Cu – copper

AIG Australian Institute of Geoscientists

ASIC Australian Securities Investment Commission

ASX Australian Securities Exchange

AusIMM Australian Institute of Mining and Metallurgy

EL exploration licence

EPCM Engineering, procurement, construction and management

g/t grams per tonne

IER Independent Expert’s Report

JORC Code 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral

Resources and Ore Reserves

kg Kilogram

km Kilometres

km2 square kilometres

ktpa kilo-tonne per annum

lb Pound

Ltd Limited

m Metre

M Million

Ma Millions of years

Mt million tonnes

ML mining lease

pa per annum

Pb Eq’ lead equivalent

ppm parts per million

ROM run of mine

SAG Semi-autogenous grinding

t Tonne

tpa tonnes per annum

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Executive summary 7

USD United States dollars

VALMIN Code 2005 edition of the Code for the Technical Assessment and Valuation of Mineral and

Petroleum Assets and Securities for Independent Expert Reports

Xstract Xstract Mining Consultants Pty Ltd

A glossary of technical terms is provided on page 54.

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iv 8 Introduction

1 Introduction

At the request of Ernst & Young Transaction Advisory Services Pty Ltd (EY), Xstract Mining Consultants Pty Ltd (Xstract) has prepared an Independent Valuation Report relating to the mineral assets contained with Meridian Minerals Ltd’s (Meridian) Lennard Shelf project. Xstract’s understands that its report will be included as an appendix to EY’s Independent Experts Report (IER) relating to a proposed corporate transaction involving Meridian’s majority shareholder, Northwest Nonferrous International Investment Company Ltd (Northwest). According to EY’s scope of work, Xstract is to provide a valuation of the defined mineral resources and exploration tenements comprising the Lennard Shelf project.

The sole mineral asset considered in this valuation report is a majority ownership in the 1,360 km2 Lennard Shelf project. The project is located approximately 80 km southeast of the regional centre of Fitzroy Crossing in northern Western Australia. The Lennard Shelf project is a former underground mining operation located in a well known base metal province for Mississippi Valley style lead-zinc mineralisation. Previous mining activity was undertaken between 1989 and 2008, during which time a number of moderate to high grade base metal deposits were exploited. Currently limited surface infrastructure remains within the project area, however a processing plant is currently being relocated to site from Ireland. The project contains Mineral Resources reported in accordance with the guidelines of the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). No Ore Reserves are currently reported within the Lennard Shelf project.

The effective valuation date for this report is 27 June 2011 with all values compiled in Australian dollars (AUD).

1.1 Background

In April 2009, Meridian acquired the Lennard Shelf project from Teck Resources Ltd (Teck) and Xstrata Plc (Xstrata) by issuing 25 million (M) new shares. Teck and Xstrata retained a claw-back provision to a 51% interest in any new discovery by funding to the completion of a feasibility study or spending AUD20 M on development or economic assessment. As at the end of May 2011, Meridian held a 100% interest in the project.

In May 2011, Northwest offered to acquire a 100% interest in Meridian’s Lennard Shelf project for AUD78 M cash and by providing AUD7 M in funding to progress the project prior to completion of the sale.

Meridian has commissioned EY to provide an IER to determine whether the proposed transaction is fair and reasonable to Meridian’s shareholders (other than Norwest). EY subsequently engaged Xstract to assist in the provision of technical advice, and a mineral asset valuation in support of its assessment.

1.2 Terms of reference

This technical assessment and valuation report has been prepared at the request of EY to provide an independent opinion on the economic potential, as well as the likely market value of Meridian’s Lennard Shelf project’s mineral assets. Specifically, Xstract was requested to:

• provide a brief technical overview of potential economic viability and exploration potential, including:

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Introduction 9

• approvals and licenses to operate the mine

• geology and exploration, including resource estimates

• progress and status of exploration and development projects

• operating and transport arrangements.

• identify and verify the following technical assumptions within the Lennard Shelf financial model:

• likely mining inventory and production profile

• expected life of mine

• operating cost estimates, including comparison with historical performance

• transport cost estimates

• size and timing of capital cost estimates

• rehabilitation and closure costs

• any other technical assumptions considered relevant.

• opine on:

• potential mineralisation outside of current mining inventory, including expected conversion rates and possible development profile (timing and capital cost)

• alternative technical assumptions, where considered appropriate.

• the value of the associated exploration portfolio.

Xstract’s services exclude any commentary on the fairness or reasonableness of any consideration in relation to the sale of the Lennard Shelf project.

The conclusions expressed in this valuation report are appropriate as at 27 June 2011. The valuation is only appropriate for this date and may change in time in response to variations in economic, market, legal or political factors, in addition to ongoing exploration results. All monetary values outlined in this report are expressed in Australian dollars (AUD) unless otherwise stated.

For the technical assessment outlined in this report, none of the Xstract personnel involved in the valuation undertook a site visit to the Lennard Shelf project. However, as Xstract has previously undertaken extensive technical evaluation work on the Lennard Shelf project on Meridian’s behalf, it has a good understanding of the assets and has no reason to question the validity of the technical information supplied.

1.3 Reporting standard

This report has been prepared in accordance with the following codes:

• The 2005 edition of the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (VALMIN Code)

• The 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code).

For the purposes of this report, value is defined as ‘fair market value’, being the amount for which a mineral asset should change hands between a willing buyer and a willing seller in an arm’s length transaction where each party is assumed to have acted knowledgeably, prudently and without compulsion.

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iv 10 Reliance on other experts

1.4 Data sources

In developing our assumptions for this report, Xstract has relied upon information provided by Meridian, information available in the public domain and technical information made available from Xstract’s Brisbane office. Key sources are outlined in this report and all data included in the preparation of this report has been detailed in the references section of this report.

In the execution of its mandate, Xstract reviewed all relevant technical and corporate information made available by the management of Meridian, which has been accepted in good faith as being true, accurate and complete, after having made due enquiry. Xstract has made due enquiries to the Western Australian Government’s Department of Petroleum and Minerals in order to validate information provided by Meridian. However, Xstract is not qualified to express legal opinion and has not sought any independent legal opinion on the ownership rights and obligations relating to the respective mineral assets under licence or any other fiscal or legal agreements that Meridian may have with any third party in relation to the Lennard Shelf project.

A draft version of this report was provided to the directors of Meridian for comment in respect of omissions and factual accuracy. Meridian has warranted that all material information in its possession has been fully disclosed to Xstract and has agreed to indemnify Xstract from any liability arising from its reliance upon information provided or information not provided.

2 Reliance on other experts

Xstract has not relied on any third party opinion in compiling this valuation report on the Lennard Shelf project. The technical personnel responsible for compiling this report are based entirely in Xstract’s Perth office. Xstract’s Brisbane office has previously undertaken project evaluation, resource estimation and scoping studies on behalf of Meridian on the Lennard Shelf project. To ensure independence, no Xstract personnel previously engaged on the technical assessment of the Lennard Shelf project were involved in the compilation of this valuation report. However, Xstract has held discussions with personnel in its Brisbane office to facilitate an understanding of the Lennard Shelf project.

3 Project description and location

3.1 Location and tenement holding

Meridian’s Lennard Shelf project is located about 80 km southeast of Fitzroy Crossing in the Kimberley region of northern Western Australia. The Lennard Shelf project comprises a significant landholding covering an area of approximately 1,360 km2, stretching from the southeast margin of the Oscar Range (20 km northeast of Fitzroy Crossing) to Mt Talbot (100 km to the southeast). The project lies within the Bruten (4060), Bohemia (4160), Fitzroy Crossing (4061) and Elma (4161) 1:100,000 sheets and the Mt Ramsay (SE51-09) and Noonkanbah (SE51-12) 1:250,000 geology sheets. The project area occurs within the Fossil Downs, Gogo, Christmas Creek, Mt Pierre and Bohemia Downs pastoral leases. F

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Project description and location 11

Figure 3.1: Location map of Meridian’s Lennard Shelf project area

Source: Meridian (modified by Xstract)

The Lennard Shelf Project consists of 37 tenements within the Kimberley and West Kimberley Mineral Fields. The tenement holding includes:

• 21 MLs, nine of which are under application

• 12 ELs, three of which are under application

• 1 Prospecting Licence application

• 5 granted General Purpose Leases and one application

• 3 granted Miscellaneous Licences and one application

Six of the ML applications cover an EL currently undergoing conversion to an ML. The tenement details are summarised in Appendix A.

Meridian holds a 100% interest in all tenements within the greater Lennard Shelf project area, with the exception of the Napier Range prospect, which covers an area of approximately 50 km2, where its interest is 51%. However, the minority interest holder CBH Resources Ltd (CBH), has informed Meridian that it does not intend on contributing to future exploration expenditure and dilute out its interest in the Napier Range project.

3.2 Environment and community

The Lennard Shelf project is located on the traditional land of the indigenous Gooniyandi people. Previously, the traditional owners reportedly comprised up to 10% of the former mine work force and relations with local indigenous groups were good.

Meridian is currently preparing an Environmental Mining Proposal Application through sub-consultants, Martinick Bosch Sell Pty Ltd, which will be submitted in November 2011.

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iv 12Accessibility, climate, local resources, infrastructure

and physiograpy

Approval to commence mine works, including dewatering, is expected to be granted by March 2012.

4 Accessibility, climate, local resources, infrastructure and

physiograpy

The Lennard Shelf project lies within a relatively remote and isolated part of Western Australia, with limited supporting infrastructure. The nearest town is Fitzroy Crossing located about 80 km northwest of the Kapok deposit, which is the main area of interest within the Lennard Shelf project. Fitzroy Crossing has a permanent population of 1,500 people, with the major industries active within the town being agriculture, grazing, and tourism.

Access to the Lennard Shelf project is via the Great Northern Highway, which links the coastal town of Broome to the Northern Territory - Western Australian border. The nearest coastal population centre is Derby, some 338 km northeast of the project, whilst Broome is situated 480 km west of Kapok. The workforce of the former Lennard Shelf mine operated on a commute basis from either Broome or Perth, while consumer goods were transported from either Kununurra, Darwin or Broome.

Access within most of the project area is good as the land surface is characterised by flat alluvial plains. In the wet season, which occurs annually between December and March, vehicle access can be difficult if rainfall is significant. In a small portion of the project area, the land surface is limestone outcrop, which due to erosional features (karst formation, gully formation) is only accessible by foot or via constructed tracks, which are extremely labour intensive to create.

The Kapok deposit lies approximately 170 m above sea level and comprises relatively flat topography. Due to the high rainfall experienced during the wet season, there are a number of seasonal creeks within the area, which are all tributaries to the Fitzroy River. Within the limestone areas frequent weather events during the wet season have resulted in flat, yet rocky outcrops with a number of gullies of varying significance

The area is sparsely vegetated with eucalyptus trees, spinifex bushes and seasonally occurring cane grass (<2 m tall). Apart from mining, the surrounding area is primarily used for pastoral activities, with extensive areas also set aside for Crown Land, Aboriginal Reserve or conservation estate.

5 History

The Lennard Shelf project has a long history of exploration and mining activity, a summary of which is outlined below:

1949 Geological mapping identified surface zinc-lead mineralisation near Pillara Springs some 25 km southeast of Fitzroy Crossing.

1960s Several companies undertook regional exploration programmes, including an induced polarisation (IP) geophysical survey at the Pillara deposit (adjacent to Meridian’s Lennard Shelf project).

1970 to

1974

Systematic regional exploration programmes undertaken, including helicopter-borne gossan searches.

1976 to BHP Ltd (BHP) undertook a systematic drilling programme on the Pillara

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Geological setting 13

1976 deposit, resulting in eight diamond drillholes intersecting high-grade zinc-lead mineralisation.

1977 to

1989

Follow up drilling and regional exploration resulted in the discovery of Cadjebut in 1984, Goongewa in 1987, and Kapok deposits in 1989.

1987 BHP Ltd and Billiton Plc (Billiton) commenced mining at the Cadjebut deposit.

1993 to

2003

Western Metals Ltd (Western Metals) acquired the project from BHP and Billiton and continued mining activity at Goongewa, Pillara and Kapok deposits.

2003 Teck and Xstrata acquired the project from the administrators of Western Metals. The project was subsequently put on care and maintenance.

2006 to

2008

Mining and mineral processing at the Pillara deposit recommenced in late 2006 and closed again in August 2008.

2009 to

2011

Meridian acquired the Lennard Shelf project, exclusive of the Pillara deposit and associated plant an infrastructure. Exploration drilling programmes resulted in the total resource base increasing by 130%. A processing plant was procured and economic evaluation commenced.

2011 Northwest offered to acquire the Lennard Shelf project from Meridian.

6 Geological setting

Meridian’s Lennard Shelf project covers a Devonian-aged (354 Ma to 410 Ma) reef complex located along the northern margin of the Canning Basin in northern Western Australia. The Canning Basin is an intracratonic basin separating the Achaean-aged (2,500 Ma to 4,000 Ma) Pilbara block in the south from the Proterozoic-aged (545 Ma to 2,500 Ma) Kimberley Block to the north (Figure 6.1).

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iv 14 Deposit type

Figure 6.1: Regional geological setting of the Lennard Shelf project

Source: Teck (2005)

The exposed sections of the Lennard Shelf comprise mainly shallow marine carbonates and associated basinal siltstone and shale, and extend over a 350 km length in a west-northwest to east-southeast direction along the southern margin of the Kimberley Block. Locally these rock units unconformably overlie Ordovician-aged (434 Ma to 492 Ma) carbonates. The most economically significant rock units are platform, reef, fore-reef and shelf facies carbonate units, which range in composition from calcareous siltstone and shale, through silty dolomite to clean fossiliferous reef and platform limestone.

The reef complexes of the Lennard Shelf were deposited in two principal cycles. Significant uplift and erosion during the late Carboniferous-age (295-360 Ma) resulted in locally deep karstification of the carbonate succession. This was succeeded by deposition of fluvio-glacial and shallow marine sandstones, which may have buried the Devonian succession to adepth of at least 1 km (Forman & Wales, 1981).

The Lennard Shelf is dominated by several parallel and en-echelon northwest trending listric normal faults, which are associated with the known base metal deposits. Deposits within the Lennard Shelf project are commonly associated with half-graben structures and basement highs. These are linked by a network of normal faults and associated accommodating structures.

7 Deposit type

The deposits within the Lennard Shelf project are of the Mississippi Valley Type (MVT, Murphy, 1990). MVT deposits are carbonate-hosted sulphide bodies composed

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Mineralisation 15

predominantly of sphalerite, galena, iron sulphides (pyrite, marcasite), and carbonates (calcite, dolomite).

MVT deposits typically occur in platform sequences located in relatively undeformed rocks or in foreland thrust belts. The deposits are typically at shallow depths on basin flanks (Figure 7.1). The primary host rock type is dolostone and less commonly limestone or sandstone that are no older than 2,000 M years (Paradis, Hannigan & Dewing, 2007). MVT deposits often occur in clusters to form districts that cover hundreds of square kilometres. The individual deposits within a district are variable in character and shape, and are often interconnected. The mineralisation is stratabound and epigenetic, having been emplaced after the formation of the host rocks.

Figure 7.1: A generic Lennard Shelf MVT formation model

Source: Hills, 2010

MVT mineralisation typically occurs as open-space fillings within breccias and fractures, and/or as replacement of the host rocks. Less commonly, sulphide and gangue minerals occupy pores within carbonate units. The MVT mineralisation is mineralogically simple, being dominated by sphalerite, galena, pyrite, marcasite, dolomite, calcite, and quartz. The sulphide mineral textures are highly variable, ranging from coarsely crystalline to fine-grained, massive to disseminated. Alteration associated with the mineralisation is typically in the form of dolomitisation, brecciation, host-rock dissolution and dissolution/crystallisation of feldspar and clay.

8 Mineralisation

The mineralisation within Meridian’s Lennard Shelf project occurs in a number of deposits. These include the Kapok (West, Central and East), Cadjebut Splay, Gap Creek, Kurtarta, Palijippa, Fossil Downs, and Napier Range. The project also contains a number depleted deposits such as Cadjebut and Goongewa. The primary economic minerals of interest within the Lennard Shelf project are galena (lead sulphide) and sphalerite (zinc sulphide).

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iv 16 Mineralisation

As is typical for MVT districts, there are distinct differences in deposit subtypes present within the Lennard Shelf region, such as:

• fault hosted and hangingwall breccias – Kapok, Cadjebut Splay, Palijippa and Pillara (not located within Merdian’s tenements);

• stratabound replacement – Cadjebut and Kurtata;

• cavity fill – Goongewa and Napier Range; and

• cavity/high angle vein/stratabound - Gap Creek.

The known mineralisation is generally coarse grained with a simple mineralogy comprising galena-sphalerite-marcasite-calcite with minor dolomite, marcasite and pyrite. The mineralogy is distinct in each of the deposits. For example the Cadjebut Splay deposit is galena dominant, whereas the Cadjebut deposit was zinc dominant with a ratio of about 2:1 Zn to Pb.

Although deposits of the Lennard Shelf display a diverse range of geological settings and mineralisation styles, there is a strong association with half-graben structures and basement highs (Figure 8.1).

Figure 8.1: Schematic of the Lennard Shelf deposits

Source: Hills, 2010

8.1 Kapok

The Kapok deposit is located about 60 km southeast of the former Pillara mine (refer to figure A.1 in Appendix A for a location map) and processing facility, and immediately east of the Kapok West deposit. Mineralisation at Kapok is hosted within the Pillara Limestone along the northwest to southeast trending Kapok Fault. The Kapok deposit is largely confined to a single narrow fault breccia zone with limited splay development, but is generally of higher grade. Mineralisation is best developed in zones of maximum dilation, related to curvature in the fault plane and to favourable competent host units.

The Kapok Fault and associated mineralisation dip between 45° and 60° towards the southwest. The planar and southwesterly dipping mineralisation occurs over a strike length of 2,200 m with a down dip extension of 540 m. Four stacked lenses occur immediately above the Kapok Fault mineralisation at the western end of the deposit adjacent to existing

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Mineralisation 17

workings. These stacked lenses occur over a strike length of 140 m extending down dip for 200 m. These lenses range in thickness between 0.1 to 14 m, but are typically around 2.5 m. The Kapok mineralogy includes sphalerite, galena, marcasite and calcite.

8.2 Kapok West

The Kapok West deposit is also hosted within the Pillara Limestone by the east-west trending Cadjebut Fault, which generally occurs above the un-mineralised Emanuel Shale. The Kapok West mineralisation is expressed as fault zone, vein and breccia styles, and occurs at and above the Cadjebut Fault, with the majority of the mineralisation being hosted within the Pillara Limestone. Each fracture zone is usually 2 to 10 m thick with wider zones occurring in brecciated dilation zones. The mineralised zone extends over a 1,500 strike length and dips 50° to 60° to the south with a down dip extension of up to 400 m and is reported to be open at depth in many areas.

The Kapok West mineralisation comprises three high-grade pods, the western zinc pod, the central lead posd and the eastern lead pod. Due to complex structures, the grade and thickness of this mineralisation is highly variable. Late stage replacement carbonate occurs commonly along the Cadjebut Fault and disrupts the ‘Kapok-style’ mineralisation. This has resulted in highly inconsistent distribution and grades of the Kapok West footwall mineralisation. The Kapok West mineralogy mainly comprises sphalerite, galena, marcasite and calcite.

8.3 Cadjebut Splay

The Cadjebut Splay deposit belongs to the fault hosted and hangingwall breccias deposit subtype, similar to the closely spatially related Kapok West deposit. This deposit is hosted within the Cadjebut Splay Fault, which is interpreted to splay off the Cadjebut Fault that contains the Kapok West deposit. Cadjebut Splay Fault trends parallel to but is offset to the north by 200m from the Cadjebut Fault and Kapok West. Due to complex structures, the grade and thickness of this mineralisation is also highly variable. Late stage replacement carbonate also occurs commonly along the Cadjebut Splay Fault and disrupts the ‘Kapok-style’ mineralisation. This has resulted in highly inconsistent distribution and grades of the Cadjebut Splay mineralisation. The Cadjebut Splay mineralogy mainly comprises sphalerite, galena, marcasite and calcite.

8.4 Gap Creek

The Gap Creek deposit lies approximately 20 km northwest of the former Kapok mine. The Gap Creek mineralisation occurs within the Pillara and Saddler Formations in a similar stratigraphic position to the historically mined Goongewa deposit, some 3 km to the southeast. The deposit has an overall dip of 25° to 30° to the west and is characterised by cavity fill mineralisation but is also strongly overprinted by high angle veins, which also contain mineralisation. This complex structural relationship and the fact that the drilling density in the Gap Creek area is widely spaced (100-200m) has resulted in the controls of the known mineralisation being poorly understood at this stage (Milonas & Kubra, 2010). As a consequence there is potential for the currently interpreted mineralisation to consist of a number of discrete lodes/pods rather than a single continuous zone, similar to the spatially associated Goongewa Deposit. However, despite Gap Creek’s proximity, there does not appear to be any of the dolomitisation alteration that characterised the depleted Goongewa deposit. However, the style of cavity fill mineralisation observed in historic drill core indicates the potential for similar large-scale pods at Gap Creek as was mined at Goongewa.

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iv 18 Mineralisation

8.5 Kutarta

The Kutarta deposit is located approximately 1 to 2 km from the Great Northern Highway, some 5 km northwest of the former Cadjebut mine. At Kutarta, disseminated low-grade breccia cavity fill mineralisation forms a broad zone along a dilational bend and within the hangingwall of the Cadjebut Fault. It extends away from the fault as stratabound zones within favourable reefal and fenestral units. The deposit is hosted within competent dolomite and limestone units overlain by a highly weathered zone up to 70 m in thickness comprising units of the Caroline Formation and the Gogo Shale. The top of the deposit lies 166 m vertically below surface and the deposit trends north-northwest. Mineralisation is favourably localised within multi-phase breccia bodies. High-grade mineralisation is associated with dilational splay zones in the hangingwall of the Cadjebut Fault. Deposit geometry is three fold according to style:

• fault hosted, narrow flat dipping (30° to 40°) veins ranging from 0.8 to 4 m in width,

• flat dipping (10° to 20°), 1.5 to 9 m thick stratabound zones, and

• bulk areas which are a combination of wider fault hosted style and stacked bedding parallel zones.

The Kurtata mineralisation appears to have been poorly focussed, comprising a large halo of disseminated mineralisation and marcasite. Like other deposits of the Lennard Shelf, the Kurtata mineralogy comprises sphalerite, galena and marcasite in a calcite/dolomite dominated gangue.

8.6 Palijippa

The Palijippa deposit lies in proximity and to the southwest of the former Cadjebut mine. The Palijippa deposit occurs in a distinctive 1.5 by 0.5 km north-northeast trending fault block comprising limestones and mudstones of the Bugle Gap Formation that overlie the Pillara Formation. The Palijippa deposit lies some 430 m below surface and is associated with the westward dipping Palijippa normal fault which has resulted in a vertical range of intersections over 300 m. The known mineralisation extends over a strike length of approximately 400 m, occurring in zones of uncertain width. The mineralisation includes three types:

• vein and/or solution enhanced fracture mineralisation

• crackle and breccia hosted mineralisation

• massive to semi-massive sulphides with replacement and/or open space fill textures.

The mineralisation is interpreted to occur within two high angle fault zones dipping at 70° or more to the south, associated with significant amounts of open space-filling laminar and colloformal calcite. These mineralised structures are interpreted to represent sub-parallel splay faults to the main Palijippa Fault.

8.7 Fossil Downs prospect

The Fossil Downs prospect comprises a mineralised area covering approximately 2 km2

lying some 20

km north of the third- party held Pillara mine and 70km northwest of the former Cadjebut mine. The

Fossil Downs mineralisation is closely related to the major, northwest trending Fossil Downs Fault and

is also localised around the Pillara Limestone reef spine. It comprises variably narrow to thick high-

grade intersections, generally within partly dolomitised Sadler Limestone and Pillara Limestone.

However, minor mineralisation is also hosted within a 60º to 70º dipping fault breccia zone.

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Exploration 19

In general, the geology is difficult to resolve, as dolomitisation has obscured textures and stratigraphy and the known mineralisation appears relatively poddy. Dolomitisation reportedly occurs at a preferred depth and cross cuts bedding and stratigraphy. The mineralisation is predominantly cavity fill and structural related (brecciation) style comprising massive colloform and fine grained, disseminated sphalerite and marcasite.

8.8 Napier Range prospect

The Napier Range prospect is located approximately 200 km to the northwest of the former Cadjebut Mine. This project contains the Wagon Pass deposit and is poorly understood relative to the other deposits within the Lennard Shelf project. The known mineralisation is relatively flat dipping and of the cavity filling type (Ringrose 1989), containing colloform,

sphalerite and coarsely crystalline galena ± chalcopyrite and bornite. This mineralisation occurs in a vughy dolostone near the top of the Lower Napier Formation. The known mineralisation at Napier Range is notably different to the other deposits within the Lennard Shelf area in that it contains minor copper mineralisation. However, previous research has suggested that the copper may not be recoverable through the processing plant available (Gwatin, 1999).

9 Exploration

Systematic modern exploration for carbonate-hosted lead-zinc deposits on the Lennard Shelf commenced in the late 1960s, when regional exploration was carried out by a number of companies. Subsequent to the commencement of production in 1987, in 1994/95, Western Metals undertook a review and compilation of the previous exploration data. Following that, Western Metals completed extensive exploration programmes including geological and regolith mapping, air photo interpretation, rock chip, stream sediment and soil sampling, gravity surveys, an aeromagnetic survey, induced-polarisation surveys and diamond drilling to test a number of targets. This work was successful in extending the known resources at Cadjebut, Goongewa, Kapok and Kapok West and defined a new resource at Kutarta.

Since acquiring the project in 2009, Meridian has spent approximately AUD27.3 M on the project, which included exploration, procuring a processing plant and commissioning evaluation studies. The majority of this expenditure was focussed on the drill testing and delineation of known deposits such as Kapok West and Cadjebut Splay. Meridian’s exploration activities were successful in increasing the size and confidence in the known mineralisation. Section 15 discusses the quantity, quality and confidence estimates for the deposits within the Lennard Shelf project.

10 Drilling

Since acquiring the Lennard Shelf project in 2009, Meridian has undertaken an aggressive exploration diamond drilling programme. Meridian has exclusively used diamond drilling for all its direct sampling exploration activities. The limestone terrain of the Lennard Shelf provides excellent penetration rates (approximately 85 m/shift on average). Based on its discussions with Meridian, Xstract understands that the contractor costs are around AUD85 to AUD95 per metre including working time and consumables.

In 2009, Meridian drilled eight surface diamond drillholes totalling 3.6 km. This drilling was undertaken entirely on the Kapok West deposit. The 2010 drilling programme comprised 84 diamond drillholes totalling for 36.7 km. This drilling was focussed entirely on the Kapok West (71 holes for 32.6 km) and the Cadjebut Splay (13 holes for 4.1 km) deposits.

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iv 20 Sampling method and approach

11 Sampling method and approach

Samples taken from the historic drill core comprise half core sub-samples, cut using a diamond saw. BHP drill holes were sampled using even one metre samples that did not take geology or mineralisation into account for sample boundaries. The samples taken by Western Metals were also generally one metre in length but were varied to account for geological and mineralisation boundaries. Meridian has followed a similar sampling methodology to Western Metals.

Meridian’s 2009 and 2010 drill cores were halved on site, with half of the core processed and analysed by Genalysis Laboratory Services Pty Ltd, Perth. Samples were digested using a high temperature perchloric acid oxidative attack with a hydrochloric acid final leach finish and analysed with the following detection limits: Zn (1 ppm), Pb (2 ppm), Fe (0.01%), Ag (1 ppm). Samples with greater than 1% Zn or Pb were re-assayed using a multi-acid digest (hydrofluoric, nitric, perchloric and hydrochloric acids) and analysis with the following detection limits: Zn (10 ppm) and Pb (50 ppm). One blank and one standard were inserted for every 25 core samples, with the standard chosen to reflect levels of lead and zinc in surrounding core samples. A duplicate was also inserted every 25 samples. This involved cutting the half core sample that was to be sent to the lab into quarters and sending both quarter core samples to the lab as separate samples.

12 Data verification

Quality controls on sampling and assaying were carried out for each exploration program using the techniques considered best practice at the time. BHP undertook a yearly round robin check sampling procedure. Western Metals conducted regular check sampling including submission of standards and blanks with each laboratory submission. The Cadjebut and Pillara Laboratories ran a check sampling programme that regular checks against external laboratories. Meridian has regularly inserted quality control samples including certified reference material, blanks and field duplicate samples to asses bias and precision. In 2003, Teck Cominco compiled all available drilling data in the region into a drillhole database. The drillhole database utilises the acQuire software suite produced by acQuire Technologies Solutions Pty. Ltd. Thorough checking of the drill data was reportedly carried out during the database compilation.

Most of the mineral resource estimate have included an assessment of the available quality samples and comparisons between the different generations of drilling. Quality issues noted include:

• blank samples with higher than expected analytical results;

• positive bias for Pb and Zn grade for certified reference materials;

• grade bias between underground and surface drillholes;

• grade bias between production face samples and drillholes; and

• grade biases for Pb and Zn have been observed between BHP, Western Metals and Meridian drilling results.

In each case, the observed quality results have been assessed for their potential impact on the resource model and considered in the resource classification.

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Adjacent projects 21

13 Adjacent projects

The only project of significance which falls outside of the Lennard Shelf project area is the former Pillara mine held by Teck and Xstrata. The Pillara deposit is the largest of the known deposits (pre-mining) in the region. Xstract is unaware of any activities or circumstances associated with the Pillara project, which may affect Meridian’s Lennard Shelf project.

14 Mineral processing and metallurgical testing

The Lennard Shelf project’s mineralisation is known to produce very clean concentrates, which require minimal processing and will reportedly attract a premium from smelters. The existing processing plant at Pillara was excluded from Merdian’s 2009 Lennard Shelf purchase agreement. Meridian has subsequently purchased a second hand plant from the Galmoy lead-zinc mine in Ireland. AMEC Minproc (AMEC) was commissioned to complete a full metallurgical study into the milling of material at Lennard Shelf project. AMEC concluded that the Galmoy plant is appropriate to treat the known mineralisation within the Lennard Shelf project, at a rate of 750,000 tpa which is above the Life of Mine (LoM) rate of 650,000/tpa. The proposed process flow sheet for the Lennard Shelf project is shown in Figure 14.1.

Figure 14.1: Process flowsheet for the Lennard Shelf mineralisation

Pb Cleaner 2

01-512

Jaw Crusher

Cyclones

BallMill

SAGMill

01-004/005

Pb Roughers

01-007A/BPb Cleaner 1

01-008A/B

01-021/021A

08-001C/D

Pb Thickener

Pb StockTank

Pb Filter

Zn Roughers

Zn Rougher Conditioners

01-013/530

01-014A/B

01-013/513

Zn Cleaner 1 RegrindMill

Zn Cleaner 2

01-029/529

08-003C/D

Zn Thickener

Zn Filter

CadjebutUnderground

Pb RougherConditioner

Pb CleanerConditioner

01-501A/B

01-152/552

01-534

Zn StockTank

Zn CleanerConditioner

Source: AMEC

The concentrator design is based on a maximum head grade of 8.1% Pb and 5.0% Zn. The concentrator is a two-stage differential float circuit separating the lead from the zinc and producing both lead and zinc high-grade concentrate. The concentrator plant is planned to operate 24 hours per day, 365 days per year with an availability of 91.3% (Xstract 2011). This is equivalent to operating 8,000 hours per annum at a nominal feed rate equivalent to 93.8 tonnes per hour (t/h).

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iv 22 Mineral Resource estimates

Crushing is via a jaw crusher with a ROM bin capacity of 90 t and the SAG mill feeder may operate at 93.8 t/h. The SAG mill will crush to a nominal size of 80% passing 615 microns, whilst the lead and zinc floatation cells will be 6 x 16m3 and 2 x 19m3 in volume respectively. Zinc concentrate will then be reground so 80% of product is 20 microns in size, before passing through a second cleaner floatation circuit. The lead rougher floatation will be followed by a cleaner floatation.

Both lead and zinc concentrate streams are then dewatered and filtered. The Galmoy circuit did not consist of a thickener so procuring a thickener presents a risk to the circuit’s construction schedule; however, the circuit will be able to operate without a thickener if necessary. The original circuit design did not include a thickener, with all tails being pumped into the disused Cadjebut workings. However, the LoM shows that that these old workings are not of sufficient volume, therefore tailings require thickening and a tailings dam will need to be built. The lead thickener is 18 m in diameter and thickens slurry to 60% weight to weight ratio (w/w) solids, with flocculants being added to aid settling. It is estimated that Cadjebut has a total void of 1,500,000 m3, which equates to seven years (or approximately 80% of total LoM) worth of tailings disposal. The existing tailings dam still has some capacity and the scoping study includes an expansion of the existing tailings facility by 25 ha.

There is currently minimal infrastructure within the Lennard Shelf project, with offices, camp expansion and general site infrastructure either being required, or to be expanded. Xstract’s estimate of surface infrastructure costs is provided in Table 14.1.

Table 14.1: Surface infrastructure costs

Site surface infrastructure and facilities Cost (AUD M)

Process plant 62.9

Power supply and distribution 7.9

Water supply and distribution 3.3

Communications 0.0

Admin and supply 4.1

Camp and FIFO facilities 19.6

Tailings storage & decant water return 18.1

Grand total 116.0

Only limited metallurgical work has been undertaken by AMEC; however, the long history of mining within the Lennard Shelf Project area provides a high level of metallurgical certainty to the project. The test work shows the ore will produce the historically clean, high recovery concentrate the Lennard Shelf has in the past. AMEC’s work shows the lead mineral concentrate of 71% Pb at 96% recovery and the zinc concentrate of 61% Zn at 93% recovery.

Xstract consider AMEC’s proposed mineral processing system and associated infrastructure costs to be reasonable.

15 Mineral Resource estimates

Table 15.1 summarises the defined Mineral Resources contained within the Lennard Shelf project. The project does not contain any defined Ore Reserves. The origin of each resource estimate and effective date of the resources are shown in Table 15.2. Using metal prices as at

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Mineral Resource estimates 23

12 May 2011 (MetalPrices, 2011), when Meridian announced the sale of the Lennard Shelf project, the metal equivalent of the above estimates is 1.82 Mt of metal grading 10.27% Pb Eq’. The United States (US) spot prices used in this calculation are USD2,272/t Pb, USD2,104/t Zn and USD32.5/oz Ag. No recovery factors were applied to the metal equivalent calculation in order to ensure comparability with other assets outlined in Appendix C.

Table 15.1: Mineral Resources contained within the Lennard Shelf project area

Resource Cutoff Grade

Measured Indicated Inferred

Cadjebut Splay 3%

Zn+Pb

Tonnes

Zn %

Pb %

1,600,000

2.0

8.3

Gap Creek 3%

Zn+Pb

Tonnes

Zn%

Pb%

2,520,000

3.4

6.2

Kapok West 3% Zn+Pb Tonnes Zn %

Pb %

350,000

5.1

4.2

4,050,000

3.3

4.6

Kapok Central* 5% Zn Eq Tonnes Zn %

Pb %

23,000

7.0

9.4

868,000

8.6

5.5

Kapok East* 5% Zn Eq Tonnes Zn %

Pb %

1,000

2.6

18.2

261,000

6.9

6.6

357,000

8.0

11.2

Kutarta* 5% Zn Eq Tonnes

Zn %

Pb %

1,910,000

7.4

0.6

430,000

6.4

0.3

Palijippa 3% Zn+Pb Tonnes

Zn %

Pb%

2,620,000

5.4

1.2

Fossil Downs 3% Zn Eq Tonnes

Zn %

Pb %

2,150,000

9.5

2.1

Napier Range* 5% Zn Eq Tonnes

Zn %

Pb %

590,000

8.5

8.0

Lennard Shelf

Total

Tonnes

Zn%

Pb%

24,000

6.8

9.8

3,389,000

7.4

2.7

14,317,000

5.1

4.4

The resources marked with an * are reported according to the guidelines of the Australasian Code for Reporting Mineral Resources and Ore Reserves (The JORC Code 1999). Zinc Equivalent (Zn Eq) cut-off grades were calculated using Zn Eq = Zn % + (Pb % / 2). These resources were also reported using a minimum 2 metre downhole thickness cut-off. Cadjebut Splay, Palijippa, Gap Creek and Kapok West are reported according to the guidelines of the JORC Code 2004.

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iv 24 Mineral Resource estimates

Table 15.2: Resource sources

Name Source Date

Gap Creek Xstract August 2010

Cadjebut Splay Xstract March 2011

Kapok West Xstract October 2010

Kapok Central Western Metals June 2003

Kapok East* Western Metals June 2003

Kutarta* Not sited

Palijippa Xstract December 2009

Fossil Downs Not sited

Napier Range* Western Metals January 1999

*reported under the 1999 JORC Code

Xstract has carried out a brief review of the documentation associated of the Kapok, Kapok West and Cadjebut Splay deposits, which account for the majority of Meridian’s conceptual mine plan and which contribute to this valuation. The resources were reviewed in order to summarise potential risks associated with valuation of the projects.

15.1 Kapok Central and East

Kapok Central was previously mined by Western Metals and as such, thorough assessment of the remnant material within and adjacent to the mined areas is required in order to distinguish between material which potentially can be exploited and material which must remain in pillars for support purposes. This assessment was completed by Xstract and determined that all of the measured material plus an additional 0.1 Mt of Indicated Resources may not be exploitable.

Reconciliation carried out on the Kapok Central mined the 1995 Kapok resource and production figures and showed that the mined tonnage was 50% less than predicted (Higgins & Briggs, 2004). In part, the poor mine reconciliation was due to the BHP drillholes due to a fixed one metre sample length. Western Metals carried out limited re-sampling of the BHP drill holes to the geological contacts prior to the estimation of the June 2003 resource. Two unpublished reports on Kapok (Xstract , 2010 and Higgins & Briggs, 2004) demonstrate the potential for increases to the size of the resource.

15.2 Kapok West

The Kapok West deposit was modelled using similar methods to the Kapok Central deposit. The

mineral resource classification applied to the Kapok West project is largely in the Inferred category.

This is predominantly due to the narrow nature of the mineralisation and the difficulty in modelling the

local mineralised width and therefore tonnage at the current drill spacing. The local tonnage variability

together with the reconciliation at Kapok highlight the uncertainty associated with the overall modelled

tonnage on this project. However, Xstract is confident that the current drill spacing demonstrates the

global continuity of the structures, which control the mineralisation. For

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Other relevant data and information 25

15.3 Cadjebut Splay

The Cadjebut Splay project has been modelled using similar processes to the Kapok West project. The mineral resource classification applied to the Cadjebut Splay project is in the inferred category. This is due to the difficulty in modelling the local mineralised width and therefore tonnage at the current drill spacing. The current drill spacing demonstrates the continuity of the geological structures. As with Kapok West, the main risk with Cadjebut Splay is associated with modelling the mineralised tonnage.

15.4 Palijippa

The current drill spacing at Palijippa is insufficient to demonstrate geological continuity between drillholes. The main risk with Palijippa is associated with modelling the mineralised tonnage.

16 Other relevant data and information

16.1 Mining assumptions

Meridian’s conceptual mine plan for the Lennard Shelf project is based on production from the Kapok, Kapok West and Cadjebut Splay deposits, but excludes the Gap Creek deposit. At this stage, only a high-level conceptual assessment has been completed for Gap Creek and production has not been scheduled until 2016. Other prospects have been assessed, including Kutarta and Fossil Downs. These prospects have not been included in the conceptual mine plan or economic assessment.

With the Kapok mineralisation being narrow and variable in width (between 0.5 and 14 m), steep dipping (between 45° and vertical), geotechnically competent and of variable grade, the Lennard Shelf project may be amenable to an uphole/downhole bench retreat mining method. Xstract’s proposed method, uses 20 m level spacings and is common across much of Western Australia. Uphole bench retreat is generally the preferred method as it allows stoping to commence sooner as development does not first need to reach the bottom of the mining panel. The methods are shown in Figure 16.1 and Figure 16.2.

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iv 26 Other relevant data and information

Figure 16.1: Uphole bench retreat mining method

Source: Xstract

Figure 16.2: Downhole bench retreat mining method

Source: Xstract

Underground waste will be used as an unconsolidated backfill for stopes, while some rib pillars will also be necessary, with these being located in low-grade portions of the deposit. Expected recoveries are 85%.

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The mineralisation will be accessed via the existing Kapok decline. The Kapok, Kapok West and Cadjebut Splay underground workings are shown in Figure 16.3, with existing excavations shown in light blue. The Cadjebut Splay deposit will be accessed from a new declined developed off the existing Kapok decline, approximately 300 m from the portal. The Kapok West developments will have two accesses to provide greater production rates and increased mine ventilation.

Figure 16.3: Long section of the conceptual mine plan

Source: Xstract

The existing Kapok mine was stripped of underground infrastructure and flooded upon closure by Western Metals in 2003. The mining plan for Kapok entails dewatering and rehabilitation of Kapok before development can commence. In comparison to underground mines across Australia, Kapok is considered a ‘wet mine’ due to the porosity of the hosting limestone and the sub-tropical climate. There are known aquifers within the Cadjebut Splay deposit and large grouting efforts along with quality pumping infrastructure will be required during mining. In total, the scoping study predicts a mine dewatering rate of 61 L/sec with the dewatering infrastructure able to cope with peaks of 200 L/sec of water inflows. A rising main, along with pumping stations, has been designed and a comprehensive water management plan developed. Due to the volume of water expected to be encountered, evaporation cells are not feasible and a mine discharge licence is currently being sought to discharge mine water into the local creek system. The Kapok underground workings require an estimated one gigalitre of water to be pumped out before mining of the Kapok deposit can commence. Water management has historically been an issue at Lennard Shelf operations and this issue will require close management in order to meet scheduled production rates.

The water entering underground workings is also of high temperature. This coupled with high surface temperatures and more importantly humidity, make mine ventilation another critical issue. High temperatures and mine ventilation were major issues for the previous operators. As a consequence, thorough modelling of the ventilation system has been conducted within the scoping study and a number of works will be required to ventilate any underground operation. Works required will be the rehabilitation of Ventilation Raises (VR) 1 - 3 and 4 additional VRs being developed over the conceptual mine plan to supply a total 450 m3/sec of air to underground workings. Planned ventilation and development works are shown in Figure 16.4. F

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Figure 16.4: Isometric view of the mine infrastructure

Source: Xstract

Mining will be undertaken by a contractor who will manage production, development and associated underground mining infrastructure. The expected equipment fleet is shown in Table 16.1.

Table 16.1: Expected equipment fleet

Description Size Max No. Supplier Model

Development jumbo 45 m2 6 + 1 Spare Atlas Copco Boomer282

Production drill rig 102 mm 3 Atlas Copco Simba M6 C

Development loader 7.3 m3 4 Elphinstone R2900

Stoping loader 5.7 m3 4 Elphinstone R1700

Articulated haul truck 45 t 10 Elphinstone AD45B

Table 16.2 (Xstract, 2011) shows Meridian’s conceptual mine plan extending over seven years at a mining rate ranging between 450 and 500 ktpa.

Table 16.2: Conceptual Mine Plan summary

Area kt Zn% Pb% Ag%

Kapok 1,055 4.7 5.2 8

Kapok West 1,922 3.9 5.0 10

Cadjebut Splay 637 0.8 9.6 18

Total 3,614 3.6 5.9 11

The proposed mining method is considered low risk, due to its frequency of use and success within Western Australia. The scheduled mining rate between 450 to 500 ktpa is achievable, based on the number of mining fronts available.

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A review of mining factors and assumptions shows industry standard assumptions regarding dilution, ventilation, drill factors, and recoveries have been used. Ventilation and dewatering present the largest risks to the project, however the proposed plans to manage these risks are reasonable.

16.2 Capital cost estimates

The capital cost estimates were prepared in January 2011. These costs are expressed in real terms and have not been escalated to account for inflation. No allowance has been included for taxes and statutory charges. These costs were included as capital costs on the following basis:

• All pre-production costs incurred to January 2013

• All infrastructure and equipment costs

• Recommissioning costs

• Decline and associated infrastructure development including ventilation rises and second egress development (but only the direct contractor charges, mobilisation and demobilisation costs.

The capital costs are shown in Table 16.3 to Table 16.7 and the cumulative capital expenditure over the period covered by Meridian’s conceptual mine plan in Figure 16.5.

Table 16.3: Site surface infrastructure and facilities cost

Description Cost (AUD M)

Process plant 62.9

Power Supply and Distribution 7.9

Water Supply and Distribution (including communications) 3.3

Admin and Supply 4.19

Camp and FIFO Facilities 19.6

Tailings storage & decant water return 18.1

Site surface infrastructure & facilities 115.9

Table 16.4: Concentrate handling and transport cost


Concentrate handling & transport 5.4

Table 16.5: Kapok capital costs


Mine surface facilities 6.3

Mine mobile equipment Included in contractor rates

Kapok mine rehab & dewatering 16.3

Cadjebut Splay development 23.4

Kapok West development 53.9

Kapok development 26.3

mine ventilation system 3.0

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underground infrastructure 12.5

Kapok mine 141.6

Table 16.6: Indirect capital costs


EPCM 17.7

Project contingency 49.3

Owner’s costs 13.4

Labour costs prior to start-up 3.5

Light vehicles and plant equipment 5.5

Plant operating costs and power 3.8

Camp and support services Inc in EPCM

Mine safety and technical services 0.7

Replacement capital 6.0

Site closure and rehabilitation 11.2

Total direct capital 292.3

Table 16.7: Total capital cost summary

Total indirect capital 97.7

Site surface infrastructure & facilities 115.9

Concentrate handling & transport 5.4

Kapok mine 151.6

Gap Creek 29.4

Total life-of-mine capital 389.9

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Figure 16.5: Cumulative capital expenditure over time

Source: Xstract

Capital cost assumptions appear reasonable. Quotes and timeframes for works were received from multiple providers and are in line with current industry pricing. The operation’s remote location makes procuring infrastructure difficult.

16.3 Operating cost estimates

Operating costs are based on estimates prepared in January 2011. Costs are expressed in real terms and have not been escalated to account for inflation or exchange rate factors. The operating costs are summarised by year in Table 16.8. Operating costs are based on a July 2011 restart, and are likely to escalate as the restart is delayed.

Table 16.8: Operating cost summary

Item Cost (AUD M)

Mine operating costs 548.9

Kapok mine operations 262.9

Supervision and control 22.5

Development drill blast and support 84.5

Production drill blast and support 41.3

Material handling 92.4

Backfill - development waste 13.8

Mine services 8.4

Processing 160.5

Site administration and technical services 73.4

Camp and facilities 0.0

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Item Cost (AUD M)

Tailings storage and decant water return 0.0

Concentrate loading and transport 53.6

Total operating cost 602.5

Mining inventory kilotonnes 3,614

Unit operating cost/ t 167

Quotes for major operating expenses such as mining costs were sourced from multiple providers and are reasonable for a high-level scoping study.

16.4 Market conditions

In forming its opinion of the Lennard Shelf project’s market value, Xstract has reviewed the macro-economic conditions. Following a major turndown in global financial, securities and metal price markets in the latter half of 2008, there was a recovery in the confidence in the securities markets in March 2009 (Figure 16.6). From September 2009 through until the effective date of this valuation, the securities market has largely tracked sideways, as measured by the Australian Securities Exchange (ASX) All Ordinaries Index. In contrast with the ASX All Ordinaries, gold has been on a continuous rise since November 2008. Presumably, the rise in the gold price is a reflection of investor’s risk-aversion and a weakness in the US dollar. On this basis, Xstract considers that the market is still in a risk-averse state.

Figure 16.6: ASX All Ordinaries and gold prices since January 2008

Source: Xstract

Similar to the ASX All Ordinaries Index, the price for lead and zinc began to recover in March 2009, followed by price volatility, with the net effect being a track sideways, albeit at favourable prices (Figure 16.7). The rapid recovery of the zinc and lead prices is attributable to the strength of the Chinese economy, whose rate of consumption of these metals has

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supported the strengthening in price. In contrast, the silver price has exhibited the behaviour of both industrial commodities like lead and zinc, and a risk-averse investment like gold. The figure below demonstrates how around August 2010, the silver price ceased to broadly track the zinc and lead prices and to rapidly appreciate in value along with gold.

Figure 16.7: Lead, zinc and silver prices since January 2008

Source: Xstract

Metal prices and the ASX All Ordinaries Index suggest that the market may be polarised. The recovery of the zinc, lead and security prices suggest that the market fundamentals are strong. However, the continued strengthening of the gold price, and subsequent rise in the silver price suggest that despite the strong fundamentals, the market is still averse to risk.

On this basis, Xstract considers that the market for mineral projects may also be polarised. Those projects that are close to production or potentially have large margins are likely to be highly desirable. Conversely, projects that are far from yielding a dividend may be heavily discounted by the market.

16.5 Previous valuations

In its entirety, the Lennard Shelf project has not been subject to any recent Independent Mineral Asset Valuations. However, Xstract is aware that a brief valuation on the Napier Range deposit was outlined in the Independent Technical Report on CBH’s assets (Hancock & McIntyre, 2010). The CBH valuation of AUD1.62 for a 49% interest in the Napier Range deposit it is not considered material to this report.

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iv 34 Valuation

16.6 Xstract’s valuation technique

Xstract has used the income, cost and market-based valuation approaches. The methods selected for any given valuation are dependent on the information available and the appropriateness under the given time and circumstance.

For the valuation of the Lennard Shelf project, Xstract used the real options analysis (ROA) and expected value (EV) methods to calibrate the values determined using the comparable transactions and joint venture methods. Furthermore, a replacement method was used to support the minimum values and to provide an insight into the intellectual property (IP) associated with the Lennard Shelf project.

A discussion on valuation standards, nomenclature, approaches and methods is presented in Appendix B.

17 Valuation

In forming its opinion of the Lennard Shelf project, Xstract has:

• Valued the project in its entirety using the market-based approach;

• Valued each of the main components to the project, namely the mining inventory, deposits which falls outside of Meridian’s conceptual mine plan (other resources) and exploration potential; and

• Compared the sum of the components to the total project value.

This dual-technique ensures that the technical information for each component is given due consideration, while ensuring that the sum of the components is not out step with the market.

18 Entire project

This section presents the likely total value for the Lennard Shelf project. The sum of the components is presented in Section 19. By calculation the equity interest in the entire project by weighting the resources, Meridian’s interest in the Lennard Shelf project is 97%.

18.1 Market approach

18.1.1 Comparable transactions and joint venture terms

Xstract has reviewed recent comparable transactions and partial acquisitions involving Australian lead-zinc deposits. To generate a dataset that is relevant under the current time and circumstance, Xstract has only selected transactions, which completed after March 2009 when the ASX All Ordinaries Index and metals prices began to recover (Figure 16.6 and Figure 16.7). By using the spot prices effective as at the date of the transaction announcement, the projects underlying each transaction were expressed in lead equivalent terms (Pb Eq ). Each of the identified transactions had at least 50% of their implied valued derived from lead, zinc and silver. These filters resulted in Xstract identifying 17 transactions to establish the recent market for assets considered broadly comparable to the Lennard Shelf project. The distribution of the selected transactions size, grade and sales price are presented in Figure 18.1, with additional figures on the dataset distributions outlined in Appendix C.

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Entire project 35

Figure 18.1: Size-grade distribution of the selected deposit transactions

Source: Xstract

Xstract’s qualitative review of the 17 transactions selected involved determining the merits of each asset and making a subjective classification as to whether they could reasonably be expected to have a lower, similar or higher unit value (i.e. AUD/t Pb Eq). This process resulted in two transactions being discarded as outliers, eleven being likely to achieve lower unit values, three higher values and one transaction considered comparable to the Lennard Shelf project on a technical basis. The statistics of these data subsets is presented in Table 18.1.

Table 18.1: Statistics of the lower, similar and higher value data subsets

Classification Count

Implied values

Average Median

(AUD)

Low

(AUD)

High

(AUD)

Total dataset 15 22 16 6 48

Lower 11 12 11 6 21

Similar 1 31

Higher 3 37 35 27 48

Given that each transaction is likely to include a component of value attributable to the exploration potential of the underlying asset, Xstract does not consider that any further adjustments are required to these implied values.

Based on its qualitative analysis of the selected transactions, Xstract considers that the current market would attribute a value of between AUD21 to AUD48/t Pb Eq with a preferred value of AUD33/t Pb Eq to the Lennard Shelf project. Xstract’s figures are based on:

• lower value - the maximum of the ‘lower’ data subset. For

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iv 36 Entire project

• upper value - the maximum of the ‘higher’ dataset. This positive bias in the upper limit reflects the market appeal of a type-example province such as the Lennard Shelf, and that none of the transactions with higher technical merits concerned 100% equity interests

• preferred value - the average of the lower and upper values and combining it with the single transaction identified as being similar [i.e. ($31 + ($21 + $48) / 2) / 2].

A summary of Xstract’s market based valuation of the Lennard shelf project is presented in Table 18.2.

Table 18.2: Market based valuation of the entire Lennard Shelf project

Item Size

(Mt)

Grade

(Pb Eq’)

Metal

(Mt Pb Eq’)

Market values (AUD)

Lower Higher Preferred

Lennard Shelf 17.73 10% 1.82 21 / t Pb Eq 48 / t Pb Eq 33 / t Pb Eq

Sub-total (100% equity) 38 M 88 M 60 M

Total (97% equity) 37 M 85 M 58 M

18.2 Cost-based approach

18.2.1 Replacement cost

To validate its value derived using the market based approach, Xstract has reviewed the exploration expenditure history, which has a mixed-nominal total of approximately AUD79.7 M on a weighted equity interest basis (Appendix D). This figure is based on exploration expenditure records lodged with the Western Australian Department of Mines and Petroleum (DoMPa, 2011), and information supplied by Meridian for those tenements where figures have not yet been lodged with the government agency.

In estimating a technical value for the previous exploration expenditure on the Lennard Shelf project, Xstract used:

• Records from the last decade, which encompasses some of the previous mining activity, from which the information collected just prior to closure may be of use in the current context.

• 10% per annum for its value-of-time rate. This rate is consistent with that used in the cashflow model.

• Three years to ‘recollect’ the information for its time discount period. This reflects the benefit of hindsight and the targeted nature of any conceptual replacement programme.

• Consumer price index inflation rates sourced from the Reserve Bank of Australia (RBA, 2011);

• 3% per annum for the industry specific inflation. While qualitative in origin, Xstract considers this to be a reasonable rate over the last decade which was marked by significant industry inflation especially between 2005 and 2008;

• 5% per annum quality degradation rate to reflect the affect of age on the usefulness of data in the mineral estimate process. Xstract understands that much of the historical and current drilling involves diamond drillholes due to the high-penetration rate resulting in this method being highly cost-effective. Diamond drillholes have a long useable life as much information is preserved in the resultant core and can be checked with a high degree of certainty at a later point in time. A range of 2.5% to 7.5% is used to define the upper and lower values respectively.

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Sum-of-parts Valuation 37

• 7.5% per annum replacement factor to account for the proportion of the work which would be reproduced with the benefit of hindsight. This arbitrary figure is based on Xstract’s discussions with Meridian’s management. The figure reflects that much of the prior expenditure is associated with current reserves or mined material. A range of 5% to 12% is used to define the lower and upper values for the replacement value.

Based on the above assumptions, Xstract estimates the replacement value for the Lennard Shelf project’s technical information is approximately AUD33.5 M within a range of AUD23.5 M and AUD47.9 M. Xstract notes Meridian has also procured a processing plant for approximately AUD11.0 M, which is not incorporated into the value derived using the replacement cost approach.

The replacement value represents a technical value that cannot be reliably converted to a market value. As such, Xstract considers it is helpful as a guide to validate its assumptions and conclusions using other valuation methodologies.

19 Sum-of-parts Valuation

To take into account the merits of the Lennard Shelf project, and to validate its valuation of the entire project as outlined in the preceding section, Xstract has valued each of the individual components of Meridian’s conceptual mine plan, other resources and exploration potential. Each component of the sum-of-parts valuation has different equity interests, depending on where they are located an whether it is being calculated on the known resources or tenement holding. In calculating the sum of each part, Xstract has used:

• 100% for the conceptual mine plan. All of the material contained within conceptual mine plan falls entirely within tenements in which Meridian holds a 100% interest.

• 95% for the other resources. For the other resources which fall outside of the conceptual mine plan an equity interest of 95% is used. This is based on a 51% interest in the Napier Range resource and 100% interest in all other resources.

• 99% for the exploration potential. The exploration potential is based on the equity interest for the ELs. On this basis, Meridian has a 99% interest in the exploration potential associated with the Lennard Shelf project.

19.1 Conceptual mine plan - Income approach

19.1.1 Justification for assessing conceptual mine plan

To assess the merits of the Lennard Shelf project, Xstract has separated the defined resources into those contained within Meridian’s conceptual mine plan (i.e. Kapok, Kapok West and Cadjebut Splay) and those which currently reside outside this plan (i.e. all other defined resources). This section assesses the resources comprising Meridian’s conceptual mine plan using an income-based valuation.

Xstract notes that a significant proportion of Meridian’s conceptual mine plan comprises Inferred Mineral Resources (79%). Xstract considers that it is appropriate to value Meridian’s conceptual mine plan using the income-based approach given:

• Xstract has only included Inferred Resources that it considers will readily convert to Indicated Resources with additional data verification and drilling. Furthermore, based on the geometry and depth of mineralisation, diamond drilling from underground positions is likely to be the most cost-effective method to upgrade the majority of the currently defined resources to the Measured category.

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iv 38 Sum-of-parts Valuation

• Xstract has excluded the Gap Creek Inferred Resource as significant additional understanding of the geological controls is required. Xstract notes, that for Meridian’s internal evaluation purposes the Gap Creek deposit was included in the scoping study.

• Appropriate time-risk adjustments are made. Meridian’s internal evaluations used a real discount rate of 8%. In comparison, Xstract’s market based valuation uses a real discount rate of 15% (i.e. 7% above the internal rate) to account for the associated return demanded by the market in exchange for risk that these resources may ultimately become mineable. Consequently, relative to the internal evaluation studies, Xstract has significantly increased the discount rate.

• The DCF and Monte Carlo methods inform the reader as to the current project characteristics and are not directly used in the valuation process. The derivatives of these methods may be used as they incorporate further market risk-adjustments in addition to the tonnage reduction and elevated discount rate.

• The Lennard Shelf project has a long operational history. The existing infrastructure (e.g. underground declines) and historical records add value and de-risk the project compared to areas where there is no previous production history. For example, during the mid-1990s the mined material was significantly less (approximately 50%) than predicted (Higgins & Briggs, 2004). Since then, thicker drill intersections were used in the modelling to reflect the pinch-and-swell morphology of the deposits. Accordingly, this knowledge is used in the current mineral estimates and as such removes some of the project risk.

• The purchase of the Galmoy processing plant (AUD11 M) is a sign of Meridian’s faith in the economic viability of the project.

ased on these points, Xstract is of the opinion that it is appropriate to use the income-based approach in valuing Meridian’s conceptual mine plan on the provision that it is suitably risk-adjusted. Furthermore, Xstract considers it reasonable to expect mining to occur within the Lennard Shelf project, given:

• The purchase of the Galmoy processing plant. This long-lead time item will enable a mining operation to be rapidly commissioned if the prevailing conditions warrant this.

• A resource base, which comprises a number of deposits, some of which may be accessed from the same decline. The distribution of such deposits, with different qualities allows a number of scenarios on a number of fronts to be considered, thereby increasing the chance of an economically viable option being identified and commissioned.

• The knowledge gained from preliminary economic evaluation studies to date reduces the amount of time to evaluate the possible mining scenarios.

Consequently, Xstract considers that the Lennard Shelf project is well positioned to rapidly commission a mining operation in light of new technical or macro-economic conditions.

19.1.2 Discounted cashflow and Monte Carlo simulation

As part of the scoping studies into the Lennard Shelf project’s economic viability, conceptual cashflow models were created. Xstract notes that in the internal studies, a 750 ktpa project was envisioned using the Gap Creek Inferred Resource. However, Xstract is of the opinion that the confidence of the Gap Creek mineralisation is too low to be included within a cashflow model and therefore is excluded from its DCF analysis for public reporting purposes. Xstract’s technical assumptions for these models are outlined in Sections 16.1 to 16.3. The macro-economic assumptions used by Xstract in its DCF analysis are outlined in Table 19.1.

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Table 19.1: Xstract’s Macro-economic assumptions

Item Unit

Value

Comment Low High Base

Lead and

zinc

USD/t 1,500 2,500 2,000 The bulk of the daily spot prices have traded in this

range since March 2009 (refer to Figure 16.7). As it

is uncertain when the project could come into

production, the range reflects both worst (global

financial crisis) and positive (current) price

environments.

silver USD/oz Excluded from the cashflow model, however credits

for the silver content would be payable.

USD:AUD # 0.7 1.0 0.85 The bulk of the daily spot prices have traded in this

range since March 2009. Note that the lower limit of

is conservative, assuming that in a low commodity

price environment the Australian dollar could be

weaker than 0.7.

State royalty % 5 DoMPb, 2011

Corporate

tax

% 30 Australian Tax Office

Discount

rate (real)

% 15 Arbitrarily 7% higher than the 8% used in the

internal scoping study reflect the use of Inferred

Mineral Resources.

Using the assumptions outlined above, 100% equity and no gearing, Meridian’s conceptual mine plan has a technical NPV15% real of -AUD65 M, within a range of -AUD73 M and -AUD60 M. To analyse how this analysis reacts under a range of input assumptions, Xstract has undertaken a Monte Carlo simulation using the assumptions outlined in Table 19.1; ±20% of the capital and operating costs; and ±1% of the metal recovery rates. Xstract elected to use truncated normal distributions of its simulation input variables. The results of this simulation are presented in Table 19.2 and its sensitivities in Appendix E.

Table 19.2: Monte Carlo simulation output

Item Unit Output

Mean AUD M -62.7

Standard deviation AUD M 15.3

Mean standard error AUD M 0.09

Minimum AUD M 99.4

First quartile AUD M -73.8

Median AUD M -63.4

Third quartile AUD M -53.3

Maximum AUD M 1.7

Skewness # 0.2697

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The negative values determined from the DCF and Monte Carlo simulation are unsurprising given that the Gap Creek mineralisation is excluded from the analysis and that a 15% discount rate was applied to the conceptual mine plan. It is also important to remember using a high discount rate has the potential to make a project, which is cashflow positive, appear as though it is losing money (negative NPV). Therefore Xstract has elected not to use the DCF and Monte Carlo methods to determine a market value. Notwithstanding this, projects with a negative NPV continue to command significant market value. Presumably, the market value is a reflection of the potential for changes in the macro-economic environment or additional technical information to change the project metrics (e.g. increased confidence in the Gap Creek deposit or definition of additional resources).

19.1.3 Real options analysis

To account for the notion that a project with a negative NPV may attract a market value higher than implied by discounting cashflows, Xstract has under taken a binomial real option analysis (ROA) on Meridian’s conceptual mine plan. Xstract has performed a simple out-of-the-money option analysis on the project to reflect the potential time taken to commission a mining project.

Xstract used the volatility cashflows within its Monte Carlo simulation to determine the appropriate volatility rate (29%). Xstract has used a three year option period to reflect a reasonable time frame during which additional drilling could be undertaken and under which assumptions used in the scoping study remain broadly relevant. To reflect the risk-free rate of return for the option period, Xstract used the Australian Government three year bond rate of 6.25% (Bloomberg, 2011). The initial capital expenditure requirement is used as the exercise price of the option. Using these inputs, Xstract determined that the Lennard Shelf scoping study project’s real option value is AUD30.5 M within a range of AUD24.2 M to AUD38.2 M.

Table 19.3: ROA value summary

Approach Method Market Value (AUD)

Low High Preferred

Income ROA 24.2 38.2 30.5

19.2 Conceptual mine plan - cost-based approach

19.2.1 Expected value

As a cross check to its ROA value, Xstract considered the EV of a future mining operation. Broadly speaking, an EV is a simple, more subjective ROA and therefore the two methods may yield similar values.

In forming its opinion on the EV of mining inventory, Xstract has:

• designed a simple one-step scenario involving a decision to mine;

• used AUD251 M for the implementation cost (ie the start-up capital expenditure requirement);

• assigned target values of AUD100 M, AUD50 M and –AUD38 M (after the implementation cost has been accounted for). The high-case scenario is based on Meridian’s apparent corporate objective as outlined in Meridian (2011). The low case is based on the results of the base case DCF outlined in section 0; and

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• applied a negative probability weighting to the favourable scenarios to reflect the additional work or change in circumstances required before mining would be initiated.

In order to estimate the EV, Xstract created a decision tree based on likely probabilities, cost and pay-off for the conversion of resources to reserves. Based on the assumptions outlined in Table 19.4, Xstract estimates an EV for Meridian’s conceptual mine plan of AUD29.8 M, within a range of AUD18.5 M to AUD41.1 M.

Table 19.4: Expected value

Programme Type Input

Payoff Low High Preferred

Capital

expenditure

Cost -5.4

Economic outcome

Pay-off (large) 25% 35% 30% AUD351 M

Pay-off (medium) 25% 35% 30% AUD301 M

Pay-off (small) 50% 40% 40% AUD213 M

Value AUD18.5 M AUD41.1 M AUD29.8 M

19.3 Conceptual mine plan - Summary

Xstract’s opinion of the possible market value of Meridian’s conceptual mine plan using ROA and EV methods is summarised in Table 19.5.

Table 19.5: Component valuation - Meridian’s conceptual mine plan

Approach Method Values (AUD M)

Low High Preferred

Income-based Real options 24.2 38.2 30.5

Cost-based Expected value 18.5 41.1 29.8

Value 18.5 38.2 30.2

In determining its value, Xstract has relied on both the ROA and EV methods. The concept behind the ROA valuation method is the same as the textbook example set out by Guj (2006) and accounts for projects with a negative NPV being marketable. The EV method, while more subjective than the ROA produced similar values using more tangible input assumptions.

Xstract’s preferred value is based on the average of the ROA and EV methods. The ranges’ lower limit is based on the EV method. The upper limit is defined by the ROA as it is less subjective than the EV method. As Meridian has spent in the order of AUD13.0 M directly on the Lennard Shelf project, much of which was focussed on the mining inventory, Xstract considers that its preferred value of AUD30.2 M within a range of AUD18.5 M to AUD38.2 M is reasonable given that the previous expenditure has added intrinsic value to the project.

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19.4 Other resources - Size and grade estimate

To determine the amount of material that falls outside of Meridian’s conceptual mine plan, Xstract has considered the Gap Creek, Kutarta, Palijippa, Fossil Downs and Napier Range estimates of:

• Indicated Mineral Resources - 1.91 Mt grading 7.4% Zn, 0.6% Pb and 36 g/t Ag

• Inferred Mineral Resource - 8.31 Mt grading 6.1% Zn, 3.4% Pb and 35 g/t Ag.

Using the spot metal prices as at 12 May 2011 (date of the transaction announcement), these other resources contained an aggregate of approximate 1.06 Mt of metal at grade of 10.6% Pb Eq.

Xstract did not include any material from the Cadjebut Splay, Kapok West or Kapok deposits which fall outside of Meridian’s conceptual mine plan. The value of this material is accounted for in the ROA valuation methodology (section 19.1.3 on page 40).

19.5 Other resources - Market-based approach


To establish the market value for defined resources at Gap Creek, Kutarta, Palijippa, Fossil Downs and Napier Range, Xstract has taken guidance from the Australian lead deposit transactions discussed in section 0 on page 34.

Based on its qualitative analysis of lower, similar and higher value datasets, Xstract considers that the implied value of these other resources lies in the range of AUD11 to AUD35/t Pb Eq with a preferred value of AUD23/t Pb Eq. Xstract’s values are based on:

• lower value - the median of the ‘lower’ data subset;

• upper value - the median of the ‘higher’ dataset; and

• preferred value – the average of the range between its lower and upper values.

These implied values are lower than those used in Section 0 (page 34), to reflect that they lie outside of the conceptual mine plan and do not account for the value attributable to exploration potential.

A summary of Xstract’s market based valuation of these other resources is presented in Table 19.8.

Table 19.6: Market based valuation of the other resources

Item Size

(Mt)

Grade

(% Pb Eq’)

Metal

(Mt Pb Eq’)

Market values (AUD)

Lower Higher Preferred

Lennard Shelf 10.22 10.4% 1.06 11 / t Pb Eq 35 / t Pb Eq 23 / t Pb Eq

Sub-total (100% equity interest) 11.5 M 37.1 M 24.3 M

Total (95% equity interest) 10.9 M 35.1 M 23.0 M

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19.6 Other resources - Cost-based approach

19.6.1 Expected value

Xstract considers the EV of the conceptual incorporation of these resources into a future mining operation has merit as a valuation technique given Meridian’s previous and near term exploration programme is focussed such a conversion of these known deposits. Furthermore, previous internal evaluation studies determined that the Kurtata deposit requires only a marginal improvement in metal prices to be included in a future mining operation.

In forming its opinion on the EV, a conceptual resource conversion programme was undertaken. Xstract has:

• designed a conceptual exploration programme over two years;

• used AUD9.7 M and AUD5.4 M costs for each programme. In the calendar year 2011, Meridian budgeted approximately AUD10.8 M for its total exploration budget. Based on its discussions with Meridian, Xstract considers that the majority of this expenditure would be allocated to defining known deposits for inclusion in a future mine plan. On this basis, Xstract used a figure of AUD9.7 M (i.e. 90% x AUD10.8 M) for the first year’s expenditure programme. The cost of the second year’s expenditure programme is arbitrarily set at half the next year’s annual budget;

• assigned a resource to mine plan conversion factor ranging from 40% to 60%;

• assigned an operating margin of AUD240/t Pb Eq’ within a range of AUD180 to AUD290/t Pb Eq. The operation margin was derived by dividing the undiscounted cashflows by the lead equivalent metal in Meridian’s conceptual mine plan; and

• applied a discount rate of 15% over seven years to reflect the possible timing to bring this material into production.

In order to estimate the EV, Xstract created a decision tree based on likely probabilities, cost and pay-off. Based on the assumptions outlined in Table 19.7 and a 95% equity interest, Xstract estimates an EV for the other resources within the Lennard Shelf project is AUD15.3 M, within a range of AUD8.4 M to AUD23.3 M.

Table 19.7: Expected value of the Lennard Shelf project’s other resources



Infill drilling Cost -9.7

Probability 50% 70% 60%

Resource: mining

inventory

conversion

Cost -5.4




Sub-total (100% equity interest) 8.8 24.6 16.1

Technical value (95% equity interest) AUD8.4 M AUD23.3 M AUD15.3 M

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19.6.2 Other resources - Replacement cost

To validate its values determined by the market-based approach and EV method, Xstract also reviewed the exploration expenditure history on the tenements which contain the other resources. Xstract used the same methodology as described in section 18.2 on page 36.

Based on the above assumptions, Xstract estimates the replacement value for a 95% interest in the Lennard Shelf project’s technical information is approximately AUD6.7 M within a range of AUD5.1 M and AUD8.6 M. Xstract notes that these technical values are below those determined by the market-based approach and EV method. As the replacement value cannot be tangibly converted to a market value, Xstract considers these values are a useful guide in supporting the minimum value of the remnant resources as determined by the other valuation methodologies.

19.7 Other resources - summary

Xstract’s opinion of the possible market value of the other resources associated with the Lennard Shelf project area is summarised in Table 19.8. Xstract’s preferred value is based on the market based methods tempered by EV method; the lower value is based on the market and the upper value by the EV method.

Table 19.8: Sub-total valuation of the other resources

Method Values ($ M)

Low High Preferred

Comparable transactions 10.9 35.1 23.0

Expected value 8.4 23.3 15.3

Selected 10.9 23.3 19.1

19.8 Exploration potential - Residual endowment

As the Lennard Shelf region is a mature mining province, it is important to gauge the potential for future exploration discoveries (‘residual endowment’). To do this there are two methods:

• Qualitative - principally through expert opinion; and

• Quantitative – through empirical analysis using Zipf curve distributions.

The Zipf curve analysis involves comparing the size of known deposits, and comparing them to a Pareto distribution where the largest deposit has a rank of 1, the second largest (rank 2) may be half the size, the third rank a third of the size of the largest deposit and so on. This distribution is observed in many natural systems and recently has been shown to work for mineral systems with particular reference to gold (Guj et al, 2011).

Xstract has created a Zipf curve distribution for the deposits within the Lennard Shelf region (Figure 19.1 and Figure 19.2). This analysis suggests that there is significant mineralisation when compared to the theoretical endowment of the terrane. The missing mineralisation may suggest that the known deposits may have extension potential, or more significantly, the second largest deposit in the region is yet to be discovered. F

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Figure 19.1: Lead equivalent Zipf curve distribution of the deposits in the Lennard Shelf region

Figure 19.2: Tonnage Zipf curve distribution of the deposits in the Lennard Shelf region

Xstract understands that outside of the known deposits, there are more than 15 locations where historical drillholes intersected significant lead-zinc mineralisation. These drillhole intersections were not followed up with further exploration due to the previous owners seeking zinc-rich deposits, resulting in the lead-rich regional drillholes not always being assessed further.

-

0.5

1.0

1.5

2.0

2.5

1 10

Size (Mt Pb Eq')

RankPb Eq' ranking Theoretical

-

5

10

15

20

25

1 10

Size (sim

ple tonnage)

RankTonnage ranking Theoretical

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Based on the empirical Zipf curve analysis and qualitative professional judgement, Xstract considers that the Lennard Shelf project has mineral potential, which warrants future exploration expenditure.

19.9 Exploration Potential - Market approach


To obtain an insight into the likely market value of the regional exploration potential associated with the Lennard Shelf project, Xstract has conducted a search for comparable transactions and partial acquisitions involving Australian lead-zinc exploration projects.

To obtain a dataset that is relevant under the current time and circumstance, Xstract has only selected transactions, which occurred after March 2009 when the ASX All Ordinaries Index and metals prices began to recover (Figure 16.6 and Figure 16.7). Xstract considers that any exploration transactions which occurred before this time period may have had different premiums and discounts applied to them by the market. These filters resulted in Xstract identifying 20 transactions that are of use in establishing the market appetite for the Lennard Shelf project’s exploration potential. The distribution of the selected transactions based on the total area and unit sales price are presented in Figure 19.3.

Figure 19.3: Size-unit price distribution of the selected exploration transactions

To assist in identifying the market signals contained within the dataset, Xstract has used:

• the descriptive features of the Geoscientific Rating system to identify the similarities of each transaction matches that for the Lennard Shelf project. This ensures that the same value drivers are identified and removes the use the arbitrary weightings. This count was based on the qualities of being located along strike of significant deposits; no to minor historical workings; containing geophysical anomalies; generally favourable

R² = 0.4616

$100

$1,000

$10,000

$100,000

$1,000,000

1 10 100 1,000 10,000

Australian Pb-Zn exploration transactions

Pb-Zn exploration transactions

Power (Pb-Zn exploration transactions)

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geology; areas between 1,000 and 1,500 km2 and those which occurred within the last six months.

• a manual qualitative analysis examining the merits and peculiarities of each transaction. This is undertaken to take into account the valuer’s experience and judgment as to whether each transaction is representative of the broader market. As part of this process, projects that are similar, less or more desirable than the Lennard Shelf project’s exploration potential were identified. The range of values suggested by the ‘similar’ assets is tested by examining the upper value range indicated in the less desirable assets and the lower value range suggested by the more desirable assets. This technique ensures that information from all three data subsets is taken into account.

Based on the above, Xstract’s qualitative analysis of the identified transactions suggests that Australian, early-stage, base metal exploration projects similar to the Lennard Shelf project may attract market values in the range AUD1,000 to AUD5,300/km2.

As a manual analysis of a dataset may be subject to user error, a regression analysis was performed using a much larger dataset by comparing the unit sales value (AUD/km2) and project area (km2). This produces a regression formula and correlation co-efficient (r2 value) which reflect the size value driver associated with an early-stage iron exploration project’s market value. The remaining co-efficient (1- r2) is an indication of the influence of other value drivers or market eccentricities. Xstract used the trend-line method and determined that using all transactions (except for two which were deemed to be outliers), the dataset had an r2 value of 0.46 and predicted a unit value for the Lennard Shelf project of AUD1,100/km2.

Based on a combination of the qualitative analysis, regression formulae and r2 values, Xstract considers that the exploration component of the Lennard Shelf project could achieve a price in the range of AUD1,000/km2 and AUD5,300/km2. The lower and uppers limits are based on the median of the data subsets considered to likely have lower or higher unit values. Xstract’s preferred value of AUD1,500/km2 is based on the transactions considered to be similar to the Lennard Shelf project tempered by the regression of Australian base metal exploration transactions. Xstract noted that Meridian’s transactions with Zinc Co Australia Ltd and Cullen Resources Ltd had lower unit values (AUD1,200 and AUD400/km2). Typically, smaller project area transactions result in higher unit values. However, Xstract considered that by incorporating these tenements into its portfolio, Meridian added synergistic value. On this basis, Xstract considers there is sufficient reason for its preferred value to be above that predicted by the regression analysis. A summary of Xstract’s market based valuation methods is presented in Table 19.9.

Table 19.9: Market based summary valuation of the Lennard Shelf project’s exploration potential

Item Basis Units Scenario

Low High Preferred

Area Technical km2 1,170 (only ELs)

Qualitative elimination Manual AUD/km2 1,000 5,300 1,900

Regression analysis Technical AUD/km2 1,100

Selected Manual AUD/km2 1,000 5,300 1,500

Sub-total (100% equity interest) 1.2 6.1 1.7

Market value (99% interest) $ M 1.2 6.1 1.7

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19.10 Exploration Potential - Cost approach

19.10.1 Expected Values

To account for the regional exploration potential of the Lennard Shelf project, Xstract has undertaken an EV analysis. Based on Xstract’s discussions with Meridian (Hills, 2011b), there are a number of historical drillholes which intersected highly anomalous mineralisation. However, these intersections were not assessed further as they were high in lead, which historically has been viewed as of secondary importance to zinc. On this basis, Xstract considers that a future exploration programme could be focussed on assessing historical intersections in about 15 to 20 separate locations. However, as Meridian’s previous and current exploration budgets are focussed on the delineation or evaluation of known deposits, Xstract has constructed a hypothetical EV comprising:

• a conceptual three-phase exploration programme;

• cost of AUD2.0, AUD5.0 and AUD5.0 M for each phase of the programme;

• the same target size and margin as per the remnant resource EV (section 19.6.1, page 43); and

• a discount rate of 20% and 10 years to reflect the return demanded by the market for such risky activity, and the time to bring any discovery into potential production.

Based on the assumptions outlined in Table 19.7, Xstract has derived an EV for the Lennard Shelf project of AUD1.6 M, within a range of AUD0.0 M to AUD7.5 M.

Table 19.10: Expected value of the Lennard Shelf project’s exploration potential



Reconnaissance Cost AUD2 M

Probability 50% 70% 60%

Cost AUD5 M

Follow up Probability 60% 80% 70%

Target Cost AUD5 M




Sub-total (100% equity) 0.0 7.6 1.6

Technical value (99% interest) AUD0.0 M AUD7.5 M AUD1.6 M

19.10.2 Exploration Potential - Replacement Cost

To validate its opinion of the Lennard Shelf project’s exploration potential determined by the market-based approach and EV method, Xstract also reviewed the exploration expenditure history on the ELs, which did not contain defined resources. Xstract used the same methodology as described in section 18.2 on page 36, with the exception that is has used a rate of 15% per annum for its time value of money.

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Valuation summary 49

Based on the above assumptions, Xstract estimates the equity adjusted replacement value for the Lennard Shelf project’s technical information is approximately AUD0.25 M within a range of AUD0.22 M and AUD0.29 M. Xstract notes that these technical values are below those determined by the market-based approach and EV method. As the replacement value cannot be tangibly converted to a market value, Xstract considers these values are a useful check in supporting the minimum value of the remnant resources as determined by the other valuation methodologies.

19.11 Exploration Potential - summary

Xstract’s opinion of the 99% interest in the Lennard Shelf project’s exploration value is summarised in Table 19.11. Xstract has used the market-based approach in setting its lower limit and the EV method for defining the upper limit to its valuation range. Xstract’s preferred value is based on the average of all the methods used.

Table 19.11: Sub-total valuation of the exploration potential

Method Values (AUD M)

Low High Preferred

Comparable transactions 1.2 6.1 1.7

Expected value 0 7.5 1.6

Selected 1.2 7.5 1.7

20 Valuation summary

In forming its opinion on the market value of the Lennard Shelf project’s mineral assts, Xstract has taken guidance from a variety of valuation methodologies. As each valuation methodology has its own strengths and weaknesses it is generally accepted as best practice to apply as many methods as possible under the relevant time and circumstances.

Furthermore, Xstract notes the following:

• Meridian’s conceptual mine plan (i.e. development of Kapok, Kapok West and Cadjebut Splay deposits) includes a significant component classified as Inferred Resources. Xstract’s opinion is that with limited additional work, some of these Inferred Resources may be readily upgraded to the Indicated category). Xstract has removed the Gap Creek Inferred Resource due to its requirement for significant additional work to convert to the Indicated category. To account for the inclusion of other Inferred Resources in Meridian’s conceptual mine plan, Xstract has applied a real discount rate of 15%, compared to 8% used previously for internal economic evaluation purposes.

• The Lennard Shelf project has a long production history, which conveys technical benefit to the owner. Such benefits include knowledge of the metallurgical recoveries, optimal processing route, ground conditions, environment and community relations and regional infrastructure.

• Preliminary scoping studies have been undertaken on the current resources. This information provides an insight into the potential economic viability of these resources.

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iv 50 Valuation summary

• Since Meridian acquired the Lennard Shelf project, evaluation/definition work has focussed on the Kapok, Kapok West and Cadjebut Splay deposits with only very limited work outside these areas. Despite this a number of been resources have previously been defined. These other resources are considered by Xstract to offer further potential expansion of the current resource base, increase in confidence and to be incorporated in a future mining operation.

• The Lennard Shelf is a classic type example of a MVT province. Based on both empirical analysis and expert opinion, the project remains prospective for MVT base metal targets and warrants future exploration expenditure.

Xstract’s valuation technique involved valuing the entire project and as a sum of its constituent parts. This technique ensures that the merits of the Lennard Shelf project are accounted for against a market based reality check.

Using this two tiered technique, Xstract has arrived at a preferred value of AUD54.5 M. This value is based on the average of the project valued in its entirety and the sum of its components. The lower limit to Xstract’s range is AUD30.5 M, which is based on the component valuation of the project. The upper limit of Xstract’s range is AUD85.0 M and is based on the valuation of the project as a whole, which may include synergies between each of the components. Xstract’s valuation of the mineral assets comprising Meridian’s Lennard Shelf project is summarised in Table 20.1.

Table 20.1: Valuation summary of the Lennard Shelf project

Aspect Aspect Values (AUD M)**

Low High Preferred

Entire project* All 37.2 85.0 58.0

Components

Conceptual Mine Plan 18.5 38.2 30.2

Other Resources 10.9 23.3 19.1

Exploration potential 1.2 7.5 1.7

Sub-total 30.5 69.0 51.0

Total

Implied value

30.5

(AUD17.3/t Pb Eq or

AUD26,600/km2)

85.0

(AUD48.2/t Pb Eq or

AUD74,000/km2)

54.5

(AUD30.9/t Pb Eq or

AUD47,400/km2)

*market-based valuation only **any discrepancies due to rounding errors

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References 51

21 References

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iv 54 Glossary of terms

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22 Glossary of terms

Barite Barite, (BaSO4) is a mineral consisting of barium sulphate. Barite itself is generally

white or colourless, and is the main source of barium.

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Glossary of terms 55

Base metal A term used informally to refer to a metal that oxidizes or corrodes relatively easily

and reacts variably with diluted hydrochloric acid to form hydrogen.

Brecciation

The formation of breccia, or masses of rock composed of fragments of older rock

fused together.

Calcite Calcite is a carbonate mineral and the most stable polymorph of calcium carbonate.

Carboniferous A geologic period that extends from 359.2 – 299 million years ago approximately.

Chalcopyrite a copper iron sulphide mineral.

Conglomerate A rock consisting of individual clasts within a finer-grained matrix that have become

cemented together.

Copper A ductile metal with high thermal and electrical conductivity, used as a thermal

conductor, an electrical conductor, a building material and a constituent of various

metal alloys.

Dolomite A sedimentary carbonate rock and a mineral, both composed

of calcium magnesium carbonate CaMg(CO3)2.

En-echelon

Structures within rock caused by noncoaxial shear and they appear as sets of short,

parallel, lenses on the surface of a rock.

Epigenetic A mineral deposit formed much later than the rocks which enclose it.

Fluvio-glacial Associated with glacial melt-water.

Fenestral

A limestone with pores that are lens shaped or globular sparry carbonate cement

formed chiefly by the decay of sediment covered algal mats, shrinkage during drying

and accumulation of pockets of gas or water.

Galena A natural mineral form of lead sulphide and the most important economic lead

mineral.

Gangue A mining term used for commercially worthless material that surrounds or is closely

mixed with a wanted minerals in an deposit.

Karstification

Action resulting in an area of irregular limestone in which erosion has produced

fissures, sinkholes, underground streams, and caverns.

Listric Curved normal faults in which the fault surface in concave upwards; its dip

decreases with depth. These faults usually occur in extension zones.

Lode

A deposit style where the mineralisation fills or is embedded in a fissure (or crack) in

a rock formation or a vein of ore that is deposited or embedded between layers of

rock.

Marcasite

The mineral marcasite, sometimes called white iron pyrite, is iron sulfide (FeS2) with

orthorhombic crystal structure. Marcasite is lighter and more brittle than pyrite.

Mineral Resource A concentration of occurrence of material of intrinsic economic interest in or on the

Earth’s crust in such form, quality and quantity that there are reasonable prospects

for eventual economic extraction.

Mudstone A fine grained sedimentary rock whose original constituents were clays or muds.

Ordovician A geologic period, the second of six of the Paleozoic stages, and covers the time

between 488.3±1.7 to 443.7±1.5 million years ago

Ore Reserve The economically mineable part of a Measured and/or Indicated Mineral Resource. It

includes diluting materials and allowances for losses, which may occur when the

material is mined.

Palaeozoic A geologic period spanned from roughly 542 to 251 million years ago.

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iv 56 Glossary of terms

Perchloric acid

Carbonate rocks that contain peloids. Peloids are sand sized grains (100-150

micrometers) of micro-crystalline carbonate. They are generally rounded or sub-

rounded. They originate from fecal pellets, algae and mud clasts.

A strong acid comparable in strength to sulfuric and nitric acids, as well as a

powerful oxidizing agent and is also dangerously corrosive and readily forms

explosive mixtures.

Precambrian

An informal name for the span of time from the formation of Earth around 4,600

million years ago to the beginning of the Cambrian Period, about 542 million years

ago.

Proterozoic A geological eon representing a time period between 2500 and 500 million years

ago, before the appearance of the first abundant complex life on earth.

Pyrrhotite An iron sulphide mineral with a variable iron content.

Sandstone a sedimentary rock composed mainly of sand-sized minerals or rock grains.

Sedimentary rock Formed by sedimentation of material at the Earth's surface and within bodies of

water.

Shale A fine-grained clastic sedimentary rock composed of mud that is a mix of flakes of

clay minerals and tiny fragments (silt-sized particles) of other minerals, especially

quartz and calcite.

Silurian A geologic period and system that extends from 443.7 – 416 million years ago.

Silver A soft, white, lustrous transition metal with the highest electrical conductivity of any

element and the highest thermal conductivity of any metal.

Skarn A metamorphic rock that is usually variably colored green or red and forms by

chemical metasomatism of rocks during metamorphism and in the contact zone of

magmatic intrusions like granites with carbonate-rich rocks such as limestone or

dolostone.

Sphalerite A mineral that is the chief ore of zinc and consists largely of zinc sulphide in a

crystalline form but almost always contains a variable iron content.

Unconformity or

Unconformably

series of younger rock strata that do not succeed the underlying older rocks in age

or in parallel position, as a result of long periods of erosion or non-deposition.

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Appendices | Lennard Shelf project | Independent Mineral Asset Valuation

Appendix A

Tenement Detail

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Appendix A 1

Figure A.1: Tenement map of the Lennard Shelf project

Source: Hills, 2010 (modified by Xstract)

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iv 2 Appendix A

Table A.1: Tenement schedule for the Lennard Shelf project area

Tenement Status Area Unit Expiry

Expenditure

commitment

(AUD/pa)

Rent

(AUD/pa)

E04/1108 Granted 4 Blocks 15/08/2011 50,000 1,937

E04/1526 Granted 9 Blocks 28/09/2011 30,000 2,302

E04/1527 Granted 1 Blocks 6/07/2011 10,000 292

E04/1649 Granted 9 Blocks 4/11/2012 30,000 1,696

E04/1651 Granted 14 Blocks 4/11/2012 30,000 2,638

E80/4251 Granted 38 Blocks 24/11/2015 38,000 4,602

G04/17 Granted 4 ha 7/03/2031 - 57

G04/18 Granted 10 ha 7/03/2031 - 142

G04/19 Granted 881 ha 7/03/2031 - 128

G04/20 Granted 4 ha 2/03/2031 - 57

L04/17 Granted 111 ha 11/10/2014 - 1,575

L04/18 Granted 10 ha 11/10/2014 - 142

L04/19 Granted 25 ha 11/10/2014 - 369

M04/134 Granted 974 ha 16/03/2029 97,500 15,551

M04/135 Granted 944 ha 16/03/2029 94,500 15,073

M04/136 Granted 950 ha 16/03/2029 95,000 15,153

M04/139 Granted 986 ha 27/05/2029 98,600 15,727

M04/140 Granted 908 ha 27/05/2029 90,900 14,499

M04/141 Granted 757 ha 27/05/2029 75,800 12,090

M04/161 Granted 980 ha 30/12/2029 98,000 15,631

M04/162 Granted 720 ha 30/12/2029 72,000 11,484

M04/189 Granted 619 ha 24/11/2030 61,900 9,873

M04/271 Granted 522 ha 5/03/2013 52,300 8,342

M04/283 Granted 960 ha 13/09/2014 96,000 15,312

M80/270 Granted 643 ha 18/04/2011 64,300 10,256

M80/323 Granted 230 ha 23/06/2012 23,000 3,669

P04/243 Granted 23 ha 18/11/2015 2,000 53

E04/1893 Application 53 Blocks N/A

E04/1894 Application 12 Blocks 42477 20,000 1453




G04/42 Application 10 ha N/A

M04/323 Application 983 ha N/A




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Appendix A 3

Tenement Status Area Unit Expiry

Expenditure

commitment

(AUD/pa)

Rent

(AUD/pa)






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Appendix B

Xstract’s valuation

technique

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Appendix B 1

Valuation – Xstract’s technique

Valuation considerations

The VALMIN Code classifies mineral assets according to the maturity of the asset. The term mineral assets refers to all property including but not limited to real property, intellectual property (IP), tenements, plant, equipment and associated infrastructure held for the purpose of near term or eventual mineral extraction. Most mineral assets can be classified by the scheme outlined in Table (VALMIN, 2005).

Table B.1: Mineral Asset classification

Project development

stage Criteria

Exploration areas Mineralisation may or may not have been defined, but where a Mineral

Resource has not been identified.

Advanced exploration

areas

Considerable exploration has been undertaken and specific targets

identified. Sufficient work has been completed on at least one prospect to

provide a good geological understanding and encouragement that further

work is likely to result in the determination of a Mineral Resource.

Pre-development /

resource

Mineral Resources and/or Ore Reserves have been identified and their

extent estimated. A positive development decision has not been made.

This includes properties where a development decision has been negative

and properties are either on care and maintenance or held on retention

titles.

Development Committed to production but not yet commissioned or not initially

operating at design levels.

Operating Mineral properties, in particular mines and processing plants, which have

been fully commissioned and are in production.

The VALMIN Code defines value as the Fair Market Value of a mineral asset. The Fair Market Value (market value) is the amount of money or the cash equivalent of some other consideration for which the mineral asset should change hands on the Valuation Date between a willing buyer and a willing seller in an arm’s length transaction. Each party is assumed to have acted knowledgeably, prudently and without compulsion. In essence, the fair market value of the mineral asset comprises:

• the underlying or ‘technical value’, which is an assessment of a mineral asset’s future economic benefit under a set of assumptions, excluding any premium or discount for market, strategic or other considerations; and

• the market component, which is a premium relating to market, strategic or other considerations which depending on circumstances at the Valuation Date, can be either positive, negative or zero.

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iv 2 Appendix B

To determine the market value, all Material information should be presented and discussed. As more advanced projects may contain extensive technical detail, the mineral asset valuer must determine what is material on the basis that if it was omitted from a report, could the reader arrive at a different conclusion than would otherwise be the case. As a rough rule-of-thumb if the omission of an item results in a change of:

• less than 5%, the information is generally not Material;

• between 5% and 10% it may be Material; and

• more than 10% it is Material.

There are three generally accepted approaches to valuing a mineral asset, based on income, cost and the open market. Each approach may contain a number of methodologies that are suited to different times and circumstances. As the VALMIN Code is not prescriptive regarding the appropriate valuation approaches, the more prescriptive 2008 Edition of The South African Code for the Reporting of Mineral Asset Valuation (SAMVAL) and the Canadian 2003 Edition of the Standards and Guidelines for Valuation of Mineral Properties (CIMVAL) provide insight into what may be applicable, as shown in Table (CIMVAL, 2003).

Table B.2: Valuation approaches for different types of mineral assets

Approach Project development stage

Exploration Resource Development Operating

Income No Rarely Yes Yes

Cost Yes Rarely No No

Market Yes Yes Yes Yes

Income based approach The income-based approach to mineral asset valuation assumes that using the information available at the time of valuation, economic returns can be modelled over the useful life of the mineral asset (SAMVAL, 2008). The income-based approach is suited for the valuation of individual assets for which a large amount of technical data has already been collected or can be preliminarily estimated. An income-based valuation generally involves the construction of a discounted cash flow (DCF) model based on a preliminary or more advanced project development concept and may include sophisticated risk analysis such as Monte Carlo simulations, modern asset pricing, and real options analysis.

Despite having various levels of sophistication, the income-based approach has limitations in that it:

• may not fully reflect the marketable value (for example, the market may attribute a discount or premium to the income-based value)

• relies on a number of critical but subjective inputs (for example. the appropriate discount rate) despite using extensive amounts of technical detail

• excludes numerous assets with lower levels of development as specific technical detail is rarely available at the exploration or pre-scoping study level.

Discounted cashflow analysis For projects where there is sufficient techno-economic information, the DCF method is the predominant means for estimating a technical value of a project (Van Horne, 2002 and Schwab & Lusztig, 1969). A DCF analysis determines the technical value of a project by approximating the value of a project if it were developed under the prevailing economic conditions.

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Appendix B 3

Once a Mineral Resource has been assessed for its mining potential by considering revenues and operating costs, the economically viable component of the resource becomes the Ore Reserve. When this is scheduled for mining, and the capital costs and tax regime are considered, the net present value (NPV) of the project is established by discounting future annual cash flows using an appropriate discount rate.

The resulting ‘classical’ NPV has several deficiencies one of which is linked to the fact that the method assumes that once commissioned, the course of action is irreversible and that the prevailing economic conditions will eventuate as predicted. Despite its shortcomings, DCF modelling is a fundamental method to valuing a proposed or on-going mining operation and is widely used within and outside of the mining industry (Smith, undated).

Monte Carlo simulation A Monte Carlo simulation is a dynamic extension of a DCF model. A Monte Carlo simulation regenerates the NPV by modifying the key variable assumptions through numerous iterations (Weaver and Michelson, 2008). The input distributions are typically varied within a discrete range as determined by the valuer (i.e. ± 20%). The resultant Monte Carlo simulation presents a normal distribution of possible NPV outcomes for the variable ranges selected. A Monte Carlo simulation is a more realistic representation of the potential value of a project. However, given the uncertainties associated with key variables, the method’s accuracy is limited to the validity of the input variable ranges (such as changes in commodity prices, capital and operating expenditure).

Real options analysis The real options analysis (“ROA”) methodology captures the ‘what if ’ value associated with a project. While DCF based analysis typically set out the most likely scenario, it assumes that a project will proceed exactly as planned (Figure B.1). However, time and circumstance ensure that even the best laid plans are rarely carried out as envisaged (Guj, 2006, Dimitrakopoulos & Sabour, 2007). This is as the management of a project will always maximise opportunity, and minimise losses, that is you don’t keep doing something if you are losing money (Goria, 2004). In part, this may be why ‘multiples’ of a technical value may be paid by the market, but by using ROA the project specific qualities are used to calculate this market premium (Samis, Laughton & Poulin, 2003).

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iv 4 Appendix B

Figure B.1: The option value associated with management flexibility

For example, a DCF based valuation is constrained to a narrow range of physical parameters, such as a mine design that extracts only the ‘high-grade’ portion of a deposit. However, when the spot price exceeds that used in designing the mine, the ‘low-grade’ or narrower portion of a deposit may become economically viable. This ‘real option’ to expand production in order to extract the low-grade portions of a deposit can thus be treated as a financial option, whereby the project has the right, but not the obligation, to exploit the low-grade mineralisation (Figure B.2, Martinez, 2008). In addition to mine expansion, other potential scenarios include the ability contract, maintain, abandon or acquire operations (Blais, 2006, McCarthy & Monkhouse 2002).

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Appendix B 5

Figure B.2: Schematic of an expansion option

Source: Xstract

The mathematics which underpin the ROA resulted in its creators winning a Nobel prize (Black & Scholes, 1973). While an ROA can be calculated through a number of means, it is easiest to think of them as continuous version of the discrete Expected Value method which is discussed in greater deal in a following section. In fact, real options can be solved using sophisticated Expected Value software programmes. The main difference is that ROA uses the qualities contained within a Monte Carlo simulation (e.g. volatility) where as the Expected Value method relies on the valuer making input assumptions.

The strength of the ROA is that it takes the information contained within a Monte Carlo simulation, and allows the valuer to rapidly quantify the market premium/multiple commanded by the market without the need for arbitrary assumptions.

Market based approach The market based approach uses the transaction prices of projects in similar geographical, geopolitical and geological environments to derive a market value using a process similar to that in the real estate industry (CIMVAL, 2003). The market-based approach may use the assumption either of joint venture terms or outright acquisitions, and can be presented in range of unitised values including on a dollar per ounce or tonne of contained metal/mineral; dollar per square kilometre; or as a percentage of the prevailing commodity price.

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iv 6 Appendix B

In the Xstract’s opinion, a market-based approach is well suited to establishing a likely value for deposits and exploration projects as it inherently takes into account all value drivers and, due to its simplicity, has an in-built ‘reality check’ which helps ensure that the science of the methodology does not dominate the assessment (O’Connor & McMahon, 1994). The market-based approach is easy to calculate and communicate and does not require in-depth project specific knowledge, except insofar as geologically, geographically and/or commercially similar assets to the one being valued are sought for comparable values. Notwithstanding this practicality, the market-based approach relies on a number of assumptions and often lacks true comparability with the assets being valued. Moreover, where only small datasets are available the negotiating ability of the parties to broker a deal may distort the dataset’s statistics. Despite its documented shortcomings there is significant merit in using market-based benchmarks for valuations (Grant, 1994).

By undertaking a qualitative analysis of comparable transactions, it is possible to develop a ‘gut feel’ for likely market price responses to varying levels of equity interest; however, the intuitive approach is limited by the variability of values obtained across a range of investments, which makes it difficult to consistently and robustly decipher the value of control premia or any other aspect which contributes to the value of a project.

Furthermore, the market-based methodologies often have a common underlying weakness, that of heuristics and bias. Heuristics concerns the use of rules of thumb or mental shortcuts which enable valuers to undertake pattern recognition within incomplete datasets from which interpretations are made (Tversky & Kahneman, 1974). Heuristics can introduce serious bias. On one hand the valuer is shielded from technical uncertainty in that all projects are subject to the same judgments; on the other hand the valuer has to contend with applying poorly quantified value drivers to uncertain inputs. As a consequence, the use of heuristics (‘industry experience/professional judgement) and bias are prevalent in all mineral asset valuations.

As discussed in greater detail by McCuaig, Kreuzer & Brown (2007), the most common sources of bias in heuristic judgements are:

• Representivity – based on limited, imperfect datasets, there is a tendency to over-generalise based on a few data points. Consequently, data density and quality can have big impacts on interpretation.

• Availability – the outcomes are usually based upon personal experience, resulting in the full range of possibilities being truncated.

• Anchoring – Initial impressions anchor subsequent perceptions and thus influence outcomes. Any adjustments to the initial impression are often insufficient, narrow and biased towards the anchor.

• Salience – the most recent and prominent information overly influences judgement and there is a resistance to change once a model is established.

The reliance on heuristics is not confined to geologists and valuers; rather it has been shown that even experienced statisticians cannot avoid intuitive judgments. Valuers need to be ever-cognisant of the bias associated with the use of heuristics and to maintain an open mind to opinions outside of their own. Unfortunately, running contrary to this notion is that “the more we publicly defend (or promote) a particular model, the more difficult it is to radically challenge it” (Vann, 2005).

A more thorough discussion on the merits and limitations of the market-based approach are presented in Lawrence (2001).

Comparable transactions method The comparable market value approach is an adaptation of the common real estate method to valuation. For the purposes of mineral asset valuation, a valuer compiles and analyses 100% equity acquisitions of projects of similar nature, time and circumstance with a view to

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Appendix B 7

establishing a range of values that the market is likely to pay for a project. The comparable transactions method:

• is intuitive, easily understood and readily applied;

• implies a market premium/discount for the prevailing sovereign risk;

• captures market sentiment for specific commodities or locations; and

• accounts for intangible aspects of a transaction (i.e. IP).

The transactions deemed to be analogous to the mineral asset being valued are used to determine a unit price (eg $/km2 or $/oz gold) for the asset being valued. However, there is an intricate value dynamic between the quantity (size) and quality (grade or prospectivity) that may result in the exclusion of a large number of comparable transactions which in turn may undermine the accuracy of this method. It is also important to note that transactions may include provisions for additional factors such as arrangement of debt financing, marketing rights, contingent payments and future royalties. Therefore the price disclosed as paid for an asset may not necessarily equate to the value of the tenement as there may be other circumstances or conditions that may have influenced calculation of the implied value.

The comparable transactions method is widely used throughout the minerals industry; however, the valuer must take into account that it is largely retrospective and may not take into account anticipated or recent commodity or other variable value drivers.

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iv 8 Appendix B

Joint venture terms method The joint venture terms method is a variation of the comparable market value method. This technique involves transactions where only partial ownership of a project is acquired. The joint venture terms method provides the valuer with a larger acquisitions dataset than the comparable market value method, and consequently these approaches are often used simultaneously in mineral asset valuations. It is widely recognised that the market will attribute a sliding-scale premium in accordance with the level of ownership acquired. For example, a joint venture agreement for a 51% interest in a project may attract a market value significantly above that for an identical project in which a 49% interest is acquired. Therefore, the valuer needs to account for any potential of ownership premiums.

Cost-based approach The cost-based approach is based on the notion that a return is expected from an investment such as mineral exploration. This approach can be both retrospective and forward looking. By taking the position of the vendor who is likely to seek re-imbursement of sunk costs with a risk premium, a possible market position may be determined. By analysing the future costs associated with a project, and the anticipated risk-adjusted returns, the acquiring party’s view of value may be quantified. The three common cost-based methods are based on expected values (EV), multiples of exploration expenditure (MEE) and geoscience rating criteria.

Expected values method The EV method uses probability theory to quantify an exploration project’s value by determining the likely ‘pay-off’ for each step in the exploration process. The EV is the sum of the probabilities of each possible outcome multiplied by the outcome value (or pay-off) less the implementation costs at each stage (Kreuzer et al., 2008).

A valuer can form an opinion on whether the proposed exploration budget for a project is prudent and warranted, as unlike the coin tossing game, exploration is not mutually exclusive and collectively exhaustive (i.e. each exploration programme changes the probability of successfully finding a deposit).

As an exploration programme is a staged process, wherein the most cost effective techniques typically precede more expensive but often more definitive exploration techniques, a tree-diagram can be constructed of possible outcomes, their payoffs and associated costs.

The strength of the EV method lies in its transparency and ability to replicate exactly how an exploration manager would intuitively assess the value of a project. While it may be possible to estimate the amount in metal remaining in a mineral belt (Guj et al, 2011), the main drawback of the method is that it is not always possible to confidently gauge the value of a discovery, especially in areas where there has previously been little mining activity. Furthermore, the technical value determined by the EV method may not reflect market value due to among other things, supply and demand forces.

Multiple of exploration expenditure method The MEE method is largely based on vendor psychology. Where possible vendors will seek a return on sunk investments and as a result multipliers are used to estimate the possible market value (Onley, 1994). Some valuers may also include warranted future expenditure in the calculations, thereby taking into account some of the acquirer’s position. The process of establishing the replacement/retrospective value is relatively intuitive, however the potential future value of a project based on existing expenditure is somewhat ambiguous. The research by Wastell et al. (2010) found that there is no statistically significant relationship between probability estimates of finding a commercially viable deposit and justified future expenditure commitments. It is also suggested that despite mounting negative exploration results, they did not affect the probability estimation in a manner that is akin to ‘Gambler’s Ruin’. The illogical interaction between mounting exploration expenditure and static probability estimates raises concern over what constitutes warranted expenditure. As a consequence, the

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Appendix B 9

MEE method is considered by some Australian practitioners as a method of last resort for estimating market values (Etheridge, 2009). Yet the method appears to be more accepted by Canadian practitioners despite the regulatory authorities being more resistant (Spence, 2007).

The main considerations in determining the appropriate MEE multipliers are shown in Figure (after Bell, Ghandar & Guj, in prep). Xstract is aware of descriptive matrices, however there is no empirical evidence supporting the multiplicative weights used and as a consequence are not used by Xstract. This lack of transparency is partly due to the lack of publically available information which can directly be correlated with the comparable transactions method.

Figure B.2: Vendor and acquirer considerations in the replacement valuation process

Source: Bell, Ghandar & Guj (in prep)

Replacement value The replacement value method is a discrete way of calculating the historical and warranted future expenditure used in the MEE method. While the shortcomings of the MEE method are well known, the replacement value of the historical records is an important value driver as it reflects the vendors desire to at least recover sunk funds with an appropriate rate of return. Likewise, the replacement cost is of interest to the acquirer as without access to the existing data there is an additional time and monetary cost incurred. For example, in jurisdictions where free-market forces are not at play, the historical records may be acquired through a separate transaction to the mineral asset, demonstrating that it is a form of tangible IP. If treated as IP which is not freely available in the public domain, then the acquirer may undertake an EV analysis of the project without the historical records, and weigh that up with the benefit of purchasing the IP. Xstract considers the replacement method to be a useful tool as a reality check to support a project’s minimum value.

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iv 10 Appendix B

Geoscientific rating The geoscientific rating (or Kilburn method), is an attempt by the valuer to quantify the various technical aspects of a property through the use of multipliers which are applied to a base or intrinsic value (Goulevitch & Eupene, 1994 and Kilburn, 1990). This intrinsic value is known as the base holding cost (BHC) which represents “the average cost to identify, apply for and retain a base unit of area of title”.

To arrive at a value for each property, the valuer considers four key attributes which either enhance or downgrade the BHC of each property. The technical factors considered are:

• the Off-property factor – nearby properties containing physical indications of favourable mining conditions such as old workings and/or mines;

• the On-property factor – the property being assessed hosts favourable mining indications such as historic workings or mines. Importantly any mineralisation capable of supporting a Mineral Resource estimate, compliant according to the guidelines of the JORC Code, will be assessed using other valuation methods;

• the Anomaly factor – assesses the degree of exploration completed over the property and the number of resultant mineralised targets identified; and

• the Geological factor – assesses the area covered by and degree of exposure of favourable rock types and/or structures (if this is related to the mineralisation style being assessed) within the property.

These attributes are given incremental, fractional or integer ratings to arrive at a series of multiplier factors. These multipliers are then applied sequentially to the BHC to estimate the Technical Value of each mineral property. This is adjusted for local market conditions to determine the Fair Market Value of the project as at the effective valuation date. Xstract’s multipliers or ratings and the criteria for rating selection are summarised in Table .

Table B.3: Geoscience rating criteria

Rating Off property Factor On Property Factor Anomaly

Factor

Geological

Factor

0.1 Unfavourable

geological setting

0.5 Extensive previous

exploration gave poor

results

Poor geological

setting

0.9

Poor results to date

Generally favourable

geological setting,

under cover

1.0 No known

mineralisation in

district

No known

mineralisation on

lease

No targets outlined

Generally favourable

geological setting 1.5

Minor workings

Minor workings or

mineralised zones

exposed

Target identified,

initial indications

positive 2.0

Several old workings

in district

Several old workings

or exploration targets

identified

Favourable geological

setting with

structures or

mineralised zones

2.5 Significant grade

intercepts evident but

not linked on cross or

long section 3.0 Mine or abundant

workings with

Mine or abundant

workings with

Significant

mineralised zones

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Appendix B 11

Rating Off property Factor On Property Factor Anomaly

Factor

Geological

Factor

significant previous

production

significant previous

production

exposed in

prospective host

rocks

3.5 Several economic

grade intercepts on

adjacent sections

4.0 Along strike from a

major deposit(s) Major mine with

significant historical

production

5.0 Along strike of world

class deposit

10.0

World class mine

(modified by Xstract)

The strength of the geoscientific method is that it makes an attempt to implement a systematic system. Whilst it does require a subjective assessment of the various multipliers, it also demands a degree of detached rigor to account for the key factors that can be reasonably considered to impact on the exploration potential of a property. However, it is important to note that application of the method should be undertaken by qualified valuers and that the weights may need further adjustment to achieve a possible market value.

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Appendix C

Deposit Transactions

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Appendix C 1

Figure C.1: Ranking of the deposit transactions relative to the largest deposit

Source: Xstract

Figure C.2: Ranking of the deposit transactions relative to the highest grade deposit

Source: Xstract

-

1

2

3

4

5

6

7

8

9

10

1.00 10.00

Size (Mt Pb Eq')

Rank

Size ranking Lennard Shelf Theoretical

0%

5%

10%

15%

20%

25%

30%

1.00 10.00

Grade (% Pb Eq')

Rank

Grade ranking Lennard Shelf Theoretical

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iv 2 Appendix C

Figure C.3: Size and price distribution of the selected deposit transactions

Source: Xstract

Figure C.4: Grade and price distribution of the selected deposit transactions

Source: Xstract

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

- 2 4 6 8 10

Unit value (A$/t Pb Eq')

Size (Mt Pb Eq')

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

0% 5% 10% 15% 20% 25% 30%

Unit value (A$/t Pb Eq')

Grade (% Pb Eq')

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Appendix D

Tenement expenditure

records

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Appendix D 1

Table D.1: Tenement expenditure records from 2001 to 2011

Expenditure records (AUD M)

Year Tenement numbers

M04/134

M04/135

M04/136

M04/139

M04/140

M04/141

M04/161

M04/162

M04/189

M04/271

M04/283

M80/270

M80/323

E04/1894

E04/1038

E04/1108

E04/1526

E04/1527

E04/1649

E04/1651

E80/4251

2011 7.1 0.4 0.4 0.0 0.5 0.0 - - 0.0 0.0 0.0 0.6 0.0 0.0 - 0.0 0.0 0.0 0.0 0.0 0.0

2010 2.3 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.1 0.0 0.1 - - - 0.1 0.0 0.0 0.0 0.0 0.0 0.0

2009 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - 0.3 0.0 0.0 0.0 0.0 0.0 0.0

2008 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - 0.3 0.1 0.0 0.0 0.0 0.0 0.0

2007 0.7 0.5 0.0 0.3 0.0 0.0 0.3 0.2 0.0 0.1 0.0 - - - 2.9 0.1 0.1 0.1 - - -

2006 0.1 1.5 0.1 0.4 0.0 0.0 0.1 0.1 0.0 0.0 0.0 - - - 0.1 0.0 - - - - -

2005 0.2 1.8 0.1 0.3 0.0 0.1 0.0 0.0 0.0 0.0 0.0 - - - 0.0 0.0 - - - - -

2004 4.4 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - 0.0 0.0 - - - - -

2003 13.1 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.4 - - - 0.0 0.0 - - - - -

2002 12.9 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 1.1 - - - 0.0 0.0 - - - - -

2001 12.6 0.1 0.1 9.2 0.1 0.0 0.0 0.0 0.0 0.0 0.9 - - - 0.0 0.0 - - - - -

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Appendix E

Sensitivity Analysis

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iv 1 Appendix E

Figure E.1: Tornado diagram of the Lennard Shelf mining inventory’s Monte Carlo simulation

Figure E.2: Spider diagram of the Lennard Shelf mining inventory’s Monte Carlo simulation

120%

$1.00

$1,500

120%

$1,500

120%

95%

92%

80%

$0.70

$2,500

80%

$2,500

80%

97%

94%

-$90 -$85 -$80 -$75 -$70 -$65 -$60 -$55 -$50 -$45 -$40 -$35

Start-up capital cost

Exchange Rate (AUD:USD)

Pb price (US$)

Operating costs

Zn price (US$)

Operational CapEx

Lead recovery

Zinc recovery

NPV

-$90

-$85

-$80

-$75

-$70

-$65

-$60

-$55

-$50

-$45

-$40

-$35

60% 70% 80% 90% 100%110%120%130%140%

NPV

Input Value as % of Base Case

Start-up capital cost

Exchange Rate (AUD:USD)

Pb price (US$)

Operating costs

Zn price (US$)

Operational CapEx

Lead recovery

Zinc recovery

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