to: mjg capital limited partners from: date: subject · 2/1/2018 · we are now two years into...

Formoreinformation,visitwww.mjgcapital.com

___________________________________________________________________________________To: MJGCapitalLimitedPartners

From: MattGeigerDate: February15,2018Subject: 2017SecondHalfReview

___________________________________________________________________________________

BelowissetforthMJGCapitalFund,LP’sperformancethroughDecember31,2017.

6MonthPerformance

MJGCapitalFund,LP(netofallfeesandexpenses) 40.77%S&P500 10.31%S&P/TSXVentureCompositeIndex 10.94%

1YearPerformance


3YearPerformance


PerformanceSinceInception(9/1/11) MJGCapitalFund,LP(netofallfeesandexpenses) (48.97)%

S&P500 119.35%S&P/TSXVentureCompositeIndex (53.02)%

Note:AllreturnsforMJGCapitalpartnersareestimatedandsubjecttothecompletionofanauditatafuture

date.Thereturnsforeachlimitedpartnermayvarydependinguponthetimingoftheirindividualcontributionsandwithdrawals.

MJGCAPITALFebruary15,2018

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IntroductionThePartnershipwasformedroughlysixyearsagoandtheresultsaredetailedonthepreviouspage.TheS&P500representsthealternativeinvestmentofchoice,whiletheTSXVentureistheclosestproxytotheuniverseofresourceequitiesthatthePartnershipselectsfrom.

Wearenowtwoyearsintothishardassetbullmarket.Whilethegeneralperceptionisthat2017wasadisappointingyearfornaturalresourceinvestors,myviewisthatwe’vejustundergoneahealthy

consolidationperiodbeforethenextupleg.Giventheeuphoriawewitnessedin2016,it’sunsurprisingthatlastyearfailedtoliveuptoinvestorexpectations.

Thatsaid,2017wasquietlyanexcellentyearfordisciplinedstockpickersandparticipantsinhigh-qualityprivateplacements.

WhenIsay“disciplinedstockpickers”,I’mreferringtoinvestorswhorestricttheirinvestmentstocompanieswithexcellentmanagementteams,BIGopportunities,near-termcatalysts,solidshare

structures,sufficientworkingcapitalpositions,etc.Butmostimportantly,theydothisATTHERIGHTPRICEandresistthetemptationtochasethesharepriceofthelatestmarketdarling(thinkNovo,Garibaldi,Aurion,orGTGold).

AndwhenIsay“high-qualityprivateplacements”,I’mreferringtodealsthatincludeafull,2yrwarrantattheveryminimum(withnoacceleratorofcourse).Justasimportantly,thecompanyneedstobe

raisingsufficientfundstoanswerthatnextbigunansweredquestionbeforecomingbacktomarket.Ibelievethat2018willbeanevenbetteryearfordisciplinedstockpickersandparticipantsinhigh-

qualityprivateplacements.Infact,mysuspicionisthatthiswillbethedefiningyearofthebullmarket.AsRickRulesuccinctlystatedinDecember,themetalsandminingspacefeels“Nottoohot,nottoocold,butjustright”.Afternearlyadecadeofunderperformancerelativetomostassetclasses,hardassetsare

settoreturntocenterstagein2018.Inthisletter’sMarketMusings,Istartwithatreatiseonwhyinvestorsshouldavoid“optionalityplays”inthis

marketenvironment.Ithensharewhythebestwaytoinvestintheelectricvehiclerevolutionisthroughexposuretohigh-qualitynickelsulphideandlateritedepositsthatareamenabletoClass1nickelproduction.Thisnickel/EVnarrativeisgainingmomentumandwillsoonbecomemainstream.

IntheOverviewofPartnershipHoldings,IprovideinformationonhowthePartnershipisallocatingourcapitalby(1)commodity,(2)jurisdiction,and(3)operationalphase.Atcurrent,wehavetwenty-two

positionsintheportfolio.I conclude by presenting our most recent Featured Investment (Sama Resources) as well as updates on

holdingsfeaturedinpastletters(ArdeaResources,ExcelsiorMining,andNevsunResources).


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MarketMusingsGoForBigOutcomes(ButNOTThroughOptionality)Thejuniorminingspaceisfraughtwithrisk.Foranygivencompany,theoddsofsuccessarefarworsethanacoinflip.Tocompensatefortherisk,investorsneedtofocusonbigoutcomes.Theyneedtheirwinnerstobehomeruns.

ThisisthesamementalitythatweseewithventurecapitalistsinSiliconValley.Thesmartestinvestorsonlyfocusonmassiveopportunities.TheyarelookingforthenextFacebook,Tesla,orAirBnb.Theyare

notlookingforsmallwinsbecausetheyunderstandthatstartingabusinessofanysizeishard.Andyoumightaswellgetabigrewardifyou’reluckyenoughtogetitright.

Theverysmartestnaturalresourceinvestorstakethesameapproach.Friedland,Lundin,Beaty,Rule,Katusa…it’sallthesame.ThefollowingquotefromThomKaplanencapsulatesthisbigoutcomementality:

“Ittakesasmuchtime,ifnotlonger,todevelopasmallassetasitdoesabigone.It’soneofthereasonswhyweonlygoforreallybigassets,becausethesmallonesdon’tmakeadifference…especiallyifyoueverwanttosellonetoamajor.Theyneedsomethingthatmovestheneedle.Andinvestorstendtobealittlebitcomplacentaboutthat.Theygeteasilyseduced—ratherthanjustsaying,‘Look,Iwanttofocusonthecategorykillerassets.’“Inpracticalterms,thismeansonlyinvestingincompanieswherethisisaminimum100%difference

betweencurrentvaluationandfairvalue/expectedvalue.Evenbetteristoshootfor5baggersand10baggers.

Forexplorers,makesurethatmanagementhasthestatedintent,prerequisiteknowledge,andaccesstocapitaltofindalargescale,world-classdeposit.

Fordevelopmentstageminers,makesurethattheprojectedafter-taxNPVoftheprojectisatleast$250mandpreferablymuchhigher.Makesurethatthepropertyhasexplorationpotentialor,evenbetter,district-scalepotential.

Forsingle-assetproducers,makesurethatthesizeoftheoperationisbigenoughtomovetheneedleforthemajorminers.(Inthegoldspace,thismeans100kouncesofannualproductionormore.)

Privateplacementsareanotherexcellentwaytoamplifyupside.Theinclusionofafullwarrantcanturnamediumsizedopportunityintoabigone.


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Apopularwaytoachievebigoutcomesarethroughso-called“optionalityplays”.Thesearegenerallylarge,low-grademineralprojectsthatareentirelyuneconomicatcurrentmetalprices.However,ifthe

priceoftheunderlyingmetalrises,theseoptionalityplaysprovidemaximumleverage.Optionalityplayswerealltherageduringthelastmajorresourcebullcyclebetween2002-2007.The

psychologybackthenwasthemoremetalthebetter,regardlessofthecostofextraction.Andtheminingindustrytookittotheextremefornearlyadecade.Investorswhofocusedonoptionalityplaysmadeakilling.

Butthepiperwaseventuallypaidinthe2011-2015bearmarketasmetalpricescollapsed.Thebigminershadtowriteoffmanyofthesemarginalassetsfromtheirbalancesheets.Thishasleftaterrible

tasteinthemouthsofmanagement.Thebigminersarejadedregardingoptionalityplays,andinsteadareonlyinvestinginprojectsthatworkatprevailingmetalprices.Investorsshouldfollowtheirlead.

Sohowdoyoufocusonbigoutcomeswithoutbettingonoptionalityplays?TheansweristotakeRATIONALRISKSthatdon’tinvolverisingmetalpricesforyourgiventhesistobeprovencorrect.Theseriskscantakemanydifferentformsbutsomeofthemainonesinclude:

Permitting–Generallyalargeproject,goodeconomicsbutmarkethasskepticismaboutpermits.ExamplesincludeExcelsiorMining,TrilogyMetals,orNorthernDynasty.

Geopolitical–World-classproject(s)butinascaryplace.ExamplesincludeBlackIron,IvanhoeMines,or

NorilskNickel.Exploration–Undergoinglargescaleexplorationprogramwithpotentialofworld-classoutcome.May

ormaynotincludeaJVpartner.ExamplesincludeSamaResources,AstonBayHoldings,orRegulusResources.

M&A–Opportunitieswhereyouarebettingonabuyoutorabigdealtobesigned.ExamplesincludeTonogold,EntreGold,orColumbusGold.

MarketabilityofProduct–Projectswithexcellenteconomicsbutthemarketdoubtstherewillbecustomers.ExamplesincludeVerdeAgritechorScandiumInternational.

Investorswhotakethesetypesofriskswhilefocusingonlyonbigopportunitiescanmakeexcellentreturnsinaflatmetalpriceenvironment.Thekeyistodiversifytheriskssothattheyareunrelatedtoeachother.

Mysenseisthatitwilltakeatleastafewyearsforoptionalityplaystoreturntofavor.(It’sprobablybestfortheindustrythattheydon’t.)Inthemeantime,naturalresourceinvestorswouldbebetterservedto

placebigbetsthatdon’tinvolverisingmetalpricesfortheirthesistobeprovencorrect.


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NickelIsTheNewLithiumThefirstlithiumionbatterybecamecommerciallyavailableintheearly1970’s.However,itwasonly

untilthepastdecadethatlithium-ionbecamethepreeminentbatterytypeglobally–thankstoimprovedtechnologyandplungingproductioncosts.Allelectricvehiclescurrentlyontheroaduselithium-ionbatteriesand,foratleastthenextdecade,thiswillremainthecase.

Thesciencebehindlithium-iontechnologyisquitefascinating.AsseentheinthebelowgraphicprovidedbyBatteryUniversity,eachbatterycontainsthreekeycomponents:acathode,ananode,and

anelectrolyte.

Whenthecellchargesanddischarges,ionsshuttlebetweenthecathodeandtheanode.Ondischarge,

theanodeundergoesoxidation,orlossofelectrons,andthecathodeseesareduction,oragainofelectrons.Uponcharging,theelectronsleavethecathodeandflowbacktotheanode.Theelectrolyteistheconductorthatallowstheelectronstravelbackandforthbetweenanodeandcathode.

Thesethreecomponentshaveuniquematerialinputs.Theelectrolyteiscommonlyalithiumsaltdissolvedinamixtureoforganicsolvents.Dependingonthespecificbattery,electrolytescanbefound

inasolid,liquid,orgel-likeform.


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Batteryanodesarealmostalwaysmadeofgraphite.Graphitecomesintwoforms:naturalgraphitefrom

minesandsyntheticgraphitefrompetroleumcoke.BothtypesareusedforLi-ionanodematerial.Themostcomplexofthesecomponentsisthecathode.Therearefourmaincathodechemistries

currentlyincommercialuse:Li-cobalt,Li-manganese,Li-phosphate,andNMC.Materialinputsincludelithium,cobalt,manganese,phosphate,and/ornickeldependingonthechemistry.

However,theNMCchemistryiswellonitswaytobecomingthe“KingoftheCathodes”.Itisthenewestofthefourchemistriestobeputintousecommerciallyandoutperformstheothersintermsofcyclelife,operatingtemperature,andenergydensity.Thisisthetypeofcathodeusedinthevastmajorityof

electricvehicles,aswellashighperformanceapplicationssuchaspowertoolsandmedicaldevices.ThematerialinputsintoNMCcathodesarenickel(N),manganese(M),andcobalt(C).Thesethree

metalsareusedtogetherinvaryingproportions.TheoriginalNMCcathodeswere111,whichmeansthattherewereequalquantitiesofnickel,manganese,andcobalt.Today523(5partsnickel,2partsmanganese,3partscobalt)and622(6partsnickel,2partsmanganese,2partscobalt)aretheprevailing

cathodechemistriesincommercialuse.Youmayseeatrendunderway.AsNMCcathodetechnologyadvances,eachnewchemistrydemands

moreandmorenickel(relativetomanganeseandcobalt).Thistrendisexpectedtocontinue-withinthenext2-4years,811chemistryissettobecometheindustrystandard.

BatterymakersareshiftingtowardsNMCcathodes.NMCchemistryistransitioningto811.Whataretheimplicationsforrawmaterialdemand?

PaulGait,JonathanAbsolon,andCatherineTubbfromBernsteindrawthefollowingtwoconclusionsinanexcellentresearchreporttitledMetals&Mining:Lithium,nickel,orcobalt?Wheredoestheelectric

vehiclebottlenecksit?1.“Thefirstisthat,underallbatterychemistryscenarios(i.e.whetherallbatterieswereNMC(111),

NMC(811),oranythinginbetween),productionoflithiumwouldnotbethelimitingfactor;inotherwords,lithiumnevercreatestherawmaterialbottleneck.”

2.“WhilstcobaltistherawmaterialbottleneckifwebuildNMC(111)orNMC(523)electricvehicles,anymovebeyondthistoNMC(622)orNMC(811)suddenlyleavesusseverelylimitedbynickelsupply,evenunderthe“optimistic”supplyscenariosthatweanalyze.”

Inotherwords,securingnickelwillsoonbecomeagreaterchallengetobatterymanufacturersthansecuringlithium!Thegeneralinvestingpublichasyettorecognizethis,andthenickel/EVnarrativeisset

garnersignificantlymoreattentioninthecomingyears.


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Tocompoundmatters,only50%ofglobalnickelproductionissuitableforuseinbatteries.Asseeninthebelowgraphic,onlynickelproducedfromsulphideandcertainlimoniticlateritedepositsis

consideredbattery-grade(alsoreferredtoas“Class1nickel”).FerronickelandNPIproduction,bothofwhichboomedoverthecourseoftheChinese“supercycle”,cannotbeusedinbatteries.InvestorsshouldexpecttoseeabifurcationinthepricespaidforClass1nickelversusnonbattery-gradeproduct.

It’salsoworthnotingthatthenickelpriceisstilldown75%fromitsall-timehighof$24perpoundreachedin2007.Thispriceslumphasresultedinbothmineshutdowns(mostrecentlyatFirstQuantum’sRavensthorpe)aswellasadecadeofunderinvestmentgloballyinnickelexplorationand

development.Giventheattentionalreadybeingpaidtolithiumandcobalt,itismybeliefthatthebestwaytoinvestin

theelectricvehiclerevolutionisthroughexposuretohigh-qualitynickelsulphideandlateritedepositsthatareamenabletoClass1nickelproduction.Investorsneedtoactquicklyhowever,asthenickel/EVnarrativeisgainingmomentumandwillsoonbecomemainstream.


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OverviewofPartnershipHoldings

BelowisabreakdownofthePartnership’sholdingsasofFebruary14,2018.ThePartnershipisexposedtodifferentcommodities,differentjurisdictions,anddifferentstagesofthe

developmentcycle.Overthenextsixmonths,Iwillfocusonaddingmoreweighttooururanium,silver,andagmineral

positions.

AllocationByCommodity

Food&WaterFarmland* 3%

Potash 2%

EnergyMetalsNickel 13%

Copper 10%

Uranium 8%

Cobalt 3%

RareEarths 2%

Scandium 2%

IndustrialMetalsZinc 12%

IronOre 2%

PreciousMetalsGold 35%

Silver 6%

Cash(USD) 2%

*Signifiesminimalcorrelationtotheminingsector


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AllocationByCountryUnitedStates 30%

Canada 19%

Australia 13%

Côted’Ivoire 13%

Mexico 5%

Russia 4%

Eritrea 3%

Mali 3%

Peru 2%

Brazil 2%

Ecuador 2%

Ukraine 2%

Cash(USD) 2%

AllocationByOperationalPhase

Exploration 31%

Development 50%

Production 17%

Cash(USD) 2%


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FeaturedInvestmentSamaResources(CVE:SME)SamaResourceshasbeenapartnershipholdingforjustoverayearandisnowoneofourlargest

positions.WeinitiatedthepositionthroughaprivateplacementconductedatC$0.10,whichincludedafull,5-yearwarrantatC$0.15(withnoaccelerator).We’vesinceboughtontheopenmarket–bringingouraveragecostpersharetoroughlyC$0.11.

WhiletheperformanceofSamashareshasbeenexceptionaloverthisperiod,thecompanyremainsrelativelyunknownandsharescontinuetooffersignificantupside.Subtractingthecompany’scashand

positioninSRGGraphite,SamahasafullydilutedenterprisevalueofjustunderC$40m–despitetheinvolvementofRobertFriedland,thegrandslampotentialofthecompany’sSamapleuNi-Cuproject,andthebattery-gradenickelnarrativethatwillsoonbecomemainstream.

InthisFeaturedInvestmentpiece,Ibeginbyprovidinganoverviewofthecompany-withaparticularemphasisonthemanagementteam,thecompany’soutsizedworkingcapitalposition,andtherecently

announcedstrategicpartnershipswithCVMRandRobertFriedland’sHPX.WethenreviewSama’sflagshipasset:themassiveSamapleunickel-copper-cobalt-PGMprojectlocated

inCôted’Ivoire,West-Africa.

Next,wediscusshowSMEsharesoffertremendousupsidetofurtherdiscoveryattheSamapleuproject,andlimiteddownsideduetothecompany’soutsizedpositioninSRGGraphite.

WeconcludewithSama’sexpectedcatalystsoverthecomingmonths,soreaderscankeeptabsonthecompany’sprogressalongsideme.

CompanyBackgroundSamaResourceshasbeenexploringanddevelopingtheSamapleuProjectinCoted'Ivoire,WestAfricasince2009.Iwasoriginallyattractedtothisstoryduetothequalityofthepeopleinvolved.Executive

ChairmanBenoitLaSallehasthreedecadesofexperienceinWestAfricaandfoundedSEMAFO,nowamulti-billiondollargoldproducer,intheearly1990’s.HehasbeeninvolvedwiththeSamastorysince2012.

CEOMarc-AntoineAudet,whohasledSamasince2010,isalsotherightmanintherightplace.He’sa

geologistbytradewhohas27yearsofexperienceexploringfornickelwithFalconbridgeandXstrataNickel.MuchofthistimewasspentinWestAfrica.


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BetweenBenoit,Marc,andtherestofthemanagementteam,insiderownershipsitsatanacceptable

8%.ChinaMinmetals,aBeijing-basedmetalstradingcompany,owns12.9%purchasedthroughitssubsidiaryMMRExplorationin2011.TheAustralia-basedinvestmentvehicleAfricanLionowns3.6%ofSamaandhasbeeninvolvedsinceatleast2010.RickRule’sSprottGlobalalsoowns1.5%ofthe

company.InJune2017,thecompanysignedanimportantstrategicpartnershipwithCanadian-basedCVMR

Corporation.CVMRisoneofthelargestproducersofnickelandironpowdersglobally(usedinlithium-ionbatteries,3Dprinting,andothercutting-edgeapplications).AsstatedbyCVMR’sCEOKamranM.Khozan:

“ThegeologicalformationoftheSamapleudepositisideallysuitedtoCVMR’snickelandironpowderproductiontechnology.Themanufactureofmetalcomponentsandadditiveshasundergoneaparadigm

shiftinthepasttenyearsas3Dprintingandmetalinjectionmouldingarereplacingmanyothermanufacturingmethods.Accordingly,thedemandfornickelandironpowdersisincreasingmorerapidlythanmostoptimisticforecasts.SamaResourcesiswellpositionedtotakeadvantageofthismajorshiftin

themanufacturingindustry.”TheagreementstipulatesthatSamawillpayC$5mincashorsharestoCVMR(duewithin90daysofthe

grantingofthemininglease)inordertolicenseCVMR’sproprietarynickelandironpowderproductiontechnology.CVMRwillalsoreceivearoyaltyequalto15%ofthesalepriceofmetalpowdersproduced

bythePlantsinexcessoftheLondonMetalExchangeprice. Thispartnershipshouldbeawin-winforbothparties.FromSama’sperspective,nickelpowderssellata

significantpremiumtoLMEnickelprices“providingthecompanywithamarketadvantageandgrowthopportunitynotpreviouslyavailable”.CVMRmeanwhilehastheopportunitytoscaleitsproductionofnickelandironpowderstosatisfythegrowingappetiteofitscustomerbase,whilealsoparticipatingin

theeconomicupsideoftheSamapleuProjectthroughthe15%royalty. Afewmonthslater,inOctober2017,thecompanyannouncedastrategicpartnershipwithRobert

Friedland’sHPXTechCo.GivenFriedland’sstatusasthepreeminentminingfinancierintheworld,thiswasagamechangerforSama’sprospects.Thetermsareasfollows:

“AspartoftheTermSheet,HPXwouldmakeastrategicinvestmentinSamaofuptoC$12,250,000.HPXwouldalsohavetheabilitytoearn-intoajointventurewithSamatoacquireatotalofuptoa60%interestinSama’sinterestintheCôted’Ivoireproject,includingtheSamapleuProject,byfunding

explorationexpensesandcompletingthefeasibilitystudythroughtotalinvestmentsofC$30,000,000.UnderthetermsoftheTermSheet,HPXwouldpurchase25,000,000Units(“Units”)ofSamaatapriceofC$0.21perUnit,resultingintotalproceedstoSamaofC$5,250,000(the“PrivatePlacement”).TheUnits

include25,000,000fullyvestedtwo-year(2-year)commonsharepurchasewarrants(“Warrants”)withanexercisepriceofC$0.28pershare.Fullyexercised,thePrivatePlacementandWarrantsproceedswilltotalaninvestmentofC$12,250,000inSama.”


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ThispartnershipwithHPXissignificantforahandfulofreasons.First,itensuresthattherewillbeno

equitydilutionforSamashareholdersforatleast2years–asHPXisresponsibleforthenextC$30mofexpendituresattheproject.

Inaddition,SamacannowleverageHPX’shighlyskilledexplorationteamandtheproprietarytechnologythatthey’vedeveloped.ThisincludesHPX’s“Typhoon”IPandEMgeophysicalsurveytechnology,whichhas4-5xdeeperpenetrationthanthesurveyspreviouslyconductedatSamapleu. Finally,Friedland’sinvolvementvalidatesthescaleoftheopportunity.Friedlandisn’tinterestedinanythinglessthanaworld-classdeposit,indicatingthathethinksthebesthasyettobefoundbySama.

ItwasalsoworthnotingthatVoisey’sBay,themarqueediscoveryofFriedland’scareer,sharesclosegeologicalsimilaritiestoSamapleu.

UponclosingoftheHPXdeal,Samawillhave243millionshares,warrants,andoptionsoutstanding.ThisresultsinafullydilutedmarketcapofC$97matthecurrentshareprice.However,thecompanyhasasubstantialworkingcapitalpositionwithC$6mincashandroughlyC$51minsharesofSRGGraphite–

droppingthefullydilutedenterprisevaluetoapproximatelyC$40m.

SamapleuTheSamapleuProjectislocatedinwesternCoted'Ivoire,alongthecountry’sborderwithGuinea.Thelandpackageismassive,spanning828squarekilometers.

Asseeninthemapbelow,theprojectconsistsofthreedifferentpermitblocks:Grata,Samapleu,andZeregouine.

BothGrataandZergouineare100%-ownedbySama(subjecttoa10%free-carriedinteresttotheIvorianGovernment).

TheSamapleupermitisajointventureowned66%bySamaand33%bySODEMI,theIvorianstateminingcompany(alsosubjecttoa10%free-carriedinteresttotheIvorianGovernment).

RememberthatHPXnowhastherighttoearn60%ofSama’sownershipinthesethreepermitsbyspendingC$30manddeliveringafeasibilitystudy.


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WhenIsatdownwithSama’smanagementteaminNovemberattheSanFranciscoSilver&GoldSummit,CEOMarcAudetemphasizedthattherocksfoundatSamapleuaresomeoftheoldestonearth.

Themineralizationandgeologicalcharacteristicsaretypicalofalayered“Pipe-likeIntrusion”.Theseraretypesofintrusionshosttheworld’slargestnickel-copperdepositssuchas:


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Theprojecthasalreadyseen~24,000metersofdrillingandclosetoC$30mputintotheground.Thevastmajorityoftheworkconductedthusfarhasbeenatthe“SamapleuMain”and“SampleuExtension”

depositsfoundwithintheSamapleuclaimblock.Thebelowchartdisplaysselecteddrillresultsfromthesetwodeposits.

DrillassaySM44-428267isthebestwe’veseenattheprojectsofar–cutting53.9metersgrading0.96%

nickel,0.75%copper,and0.74g/tpalladium.Thisincludesan8meterinterceptofmassivesulphidegrading4.08%nickel,2.43%copper,and2.92g/tpalladium(starting60mfromsurface).

InSeptember2013,thecompanyreleasedaninitialNI43-101resourceforSamapleuMain+Extension.Thecompanyreportedanindicatedresourceof14.1milliontonnesgrading0.24%nickeland0.20%

copper,andaninferredresourceof26.5milliontonnesgrading0.24%nickeland0.18%copper. ThecompanyhasaddedsignificantlytotheSamapleuMain+Extensionresourceintheyearssince.Justrecently,Samacompleteda2800minfillprogramwithassaysexpectedinthecomingweeks.

Additionally,thecompanyisworkingonaFeasibilityStudyexpectedinQ12018.Thiswillassesstheeconomicsofasmallish,open-pitoperationatSamapleuMain+Extension.I’mexpectinganinitialcapex


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ofbelowUS$150m.ThestudycanbeexpectedtoincorporateCVMR’sproprietarytechnologyintotheflowsheet.

Concurrently,thecompanyisworkinghardwiththeIvoriangovernmentoncompletingpermitting.ThisprocessisaidedsignificantlybyBenoitLaSalle’sdeepconnectionswithinthecountry.Thecompanyis

expectingtoseeapprovalofitsEnvironmentalImpactStudybytheendofQ12018,followedbyaMiningLicensebytheendof2018.

TheupcomingFeasibilityStudyprovidesSMEinvestorswithaneartermcatalyst,butitisimportanttounderstandthatthisstoryismuchbiggerthanwhatevertheheadlinenumbersturnouttobe.Thereareacouplereasonsforthis.

First,Samahasovertwodozentargetsacrosstheprojectthateitherhaven’tbeentestedsufficientlyortestedatall-duetobudgetconstraintsand/oralackofaccessibility.Afewofthesekeytargetsinclude:

(1)Yepleuwhichsawpromisingdrillresultsinearly2014thatwereneverfollowedup,(2)Bountawherea2%nickelsulphidelensoutcropsatsurface,and(3)GratawhichrecentlylitupadownholeEMsurvey.ThefundingprovidedbyHPXwillallowforallofthesetargetstobeproperlyassessedina

comprehensiveexplorationprogram.Additionally,bothSamamanagementandHPX’sexplorationteamthinkthatthenear-surface

mineralizationdiscoveredthusfarbySamaoriginatedfromhigh-gradenickelsulphidereservoirslocateddeepbelowtheearth’ssurface.ThankstoHPX’s“Typhoon”technology,theteamforthefirsttimewill

beabletoassessthelikelihoodofthesehigh-gradefeederzonesdownto2000metersindepth.DiscoveryofoneofthesesulphidereservoirshasthepotentialtomakeSamapleuamulti-billiondollarasset.Andthat’sexactlywhatFriedlandisafter.

OncetheTyphoonSurveyiscompletedintheupcoming4-5months,Samamanagementexpectstosee2-3drillsactiveontheproperty.Bytheendof2018,investorscanexpecttoseedrillresultsfrom

SamapleuMain+Extension,Yepleu,Bounta,Grata,andpotentiallyafewmoretopprioritytargets.

SRGGraphiteSRGGraphitewasspunoutfromSamaResourcesinJanuary2017.Inthe12monthssince,SRG’ssharepricehasrocketedbyover300%andthecompany’smarketcapitalizationhassurpassedSama’s.Samaowns42%ofSRG,whichatcurrentsharepricesisworthC$51m.

WellbeforeSRGGraphitewasspunout,SamaResourcesacquiredwhatisnowtheLolaGraphite

Project.Asseeninthebelowmap,theprojectislessthan50kilometersawayfromSamapleubutislocatedacrosstheborderwithGuinea.ThecompanyalsostakedadditionalreconnaissancelicensesaroundLolaprospectiveforgraphiteandnickellaterities.


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Aftersomepromisingdrillresultsandmetallurgicaltestsin2014-2016,managementdecidedtospinLolaandtherestoftheGuniealicensesintoaseparatevehicle.ThismovemadesenseatthetimeasLoladifferedfromSamapleubothintargetmetalandjurisdiction.Howeverwhathashappenedsince

hasexceededmanagement’sexpectationsbyanorderofmagnitude.Lolahasquicklyturnedintoaworld-classgraphitedevelopmentproject.Thedeposititselfchecksallthe

boxes.It’smassivewith3.22km2ofsurfacegraphitemineralizationandalengthof8.7km,makingitoneofthelargestgraphiteprojectsintheworld.Theflakedistributionisexcellentwith89%oftheflakeseitherlarge,jumbo,orsuper-jumboinsize.Themineralizationstartsatsurfaceandisweathereddown

to20metersonaverage,whichbodeswellfortheproject’soperatingcost.Infrastructureisavalidconcernbut,givenLola’sstatusasthehottestdevelopmentprojectinGuinea,shouldbemanageable.Thisverywellcouldbecomeamine.

SRGinessencehasthesamemanagementteamasSama–withMarc-AntoineAudetservingasCEOandBenoitLaSalleservingasChairman.Thecompanyismovingquicklyandhasenoughworkingcapitalto

gettoaproductiondecisionbymid2018.TherewillbesignificantnewsflowinthemeantimewithaPrefeasibilityStudyexpectedinthecomingweeks,aFeasibilityStudyexpectedinlateQ22018,and1-2offtakeannouncementsanticipatedbymidyear.

SRGistargetingfirstproductionin2019.Theinitialproductiontargetis25ktonnesperyear,whichshouldn’tcostmorethanC$75mtobuild.Giventhecompany’scurrentmarketcapitalizationofover


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C$130m,amineofthissizeisalreadyfeasibleona100%equitybasis.However,thecompany’scloserelationshipwithCORIS(anAfricanbankthatowns17%ofSRG)indicatesthatadebtcomponentis

likely.IfMarc,Benoit,andtherestoftheSRGteamareabletohitthesemilestones,theyareinapositionto

makeSRGshareholders(andbyextensionSamashareholders)veryhappy.

ValuationAsmentionedearlier,SamawillhaveafullydilutedmarketcapitalizationofC$97muponclosingoftheHPXstrategicpartnership.Thecompany’scashpositionwillbeC$6moncetheyreceivetheC$5.25min

privateplacementproceedsfromHPX.Andasweknow,SamaownsroughlyC$51minsharesofSRGGraphite.Thisresultsinafully-dilutedenterprisevalueofroughlyC$40m.

Samaisstillaveryearlystagecompany.DespitetheSamapleuMain+ExtensionFeasibilityStudydueoutshortly,investorsshouldthinkofthisthroughthesamelensasFriedland-asaworld-classnickelexplorationstory.Assuch,itisdifficulttoputafairvalueonSMEsharesgiventhehighrisk/highreward

natureofexploration.Therearehoweveracouplewaystoputthecompany’scurrentvaluationintoperspective.

ThefirstistoconsiderthevalueofthehistoricalworkalreadyconductedatSamapleu,andthentocomparethistothecompany’senterprisevalue.ConsideringthatSamahasputC$30mintothegroundalready,thehistoricalexpenditurescover75%ofSama’scurrententerprisevalue.

Whatdoesthisindicate?Keepinginmindthatusinghistoricalexpendituresasavaluationyardstickisfarfromanexactscience,inmyexperienceassetsthatarevaluedatorbelowhistoricalexpendituresare

generallyabargain.Bythisstandard,Samawouldn’tqualifyasa“bargain”.However,itisfairtosaythatSMEshareshaveverylittlespeculativepremiumbakedintothecurrentvaluation.Thisisdespitetheburgeoningnickel/EVnarrative,theimmensesizeofthepotentialoutcomeatSama,andmost

importantlyRobertFriedland’srecentvalidationofthestory.Anotherwaytoputthevaluationintoperspectiveistolookattheexpectedvalueofabest-case

scenario.(We’lltreattheSRGGraphiteshareslikecashandassumethattheyneitherrisenorfallfromcurrentlevels.)

Herethebest-casescenarioisthatSamaandHPXdiscoveraVoisey’sBay2.0inthecoming12-24months.Voisey’sBayendedupbeingaC$4.3boutcomebutwe’llassumeaC$2bbestcaseatSamapleu

toavoidsoundingentirelyunrealistic.WhatarethechancesthatMarc,Benoit,andRobertfindwhattheyarelookingfor?Evenconsidering

HPX’sTyphoontechnologyandprevioussuccesswithnickelsulphidediscoveries,we’llputtheoddsofabestcaseoutcomeat15%.


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Multiplyingthebest-caseoutcomeofC$2bbythis15%chanceofsuccessgivesusanexpectedvalueof

C$300m.Thisnumberitselfmustthenbediscountedby64-74%toaccountforfactthatSamawillonlyown26-

36%ofthisbestcaseoutcome.(TheexactnumberdependsonwhetherthisVoisey’sBay2.0islocatedwithintheGrataorZeregouinepermits,orwhetheritisfoundontheSamapleuPR123permitsubjecttothe33%SODEMIinterest.)

Outofconservatism,we’llassumethatSODEMIgetsapieceofapieandgowiththe74%discount.ThisresultsinanexpectedvalueofC$78m,whichisroughlydoublethecurrentfully-dilutedenterprise

value.Afinalkeypointisthat,unlikethevastmajorityofjuniorminers,furtherequitydilutionwillnotbean

issuehere.Samamanagementhasassuredmethatthecompanyhasnoneedtocomebacktomarkettoraisemoneyuntil2022attheearliest.RememberthatHPXisnowresponsibleforthenextC$30minexpendituresinSamapleu,whileSamahasamplecashandSRGsharesasworkingcapital.Shareholders

shouldexpectG+AexpendituresofnomorethanC$1.2mperannumoverthecoming3-4years.

UpcomingCatalystsInconclusion,I’veprovidedbelowthecatalyststhatcanbeexpectedatSamapleuoverthecomingmonthsandyears.I’vealsoincludedSRGGraphite’supcomingmilestonesattheLolaProject,giventhe

relevancetoSamashareholders.

• Drillresults(2800m)@SamapleuMain+ExtensionbyendQ12018

• FeasibilityStudyreleased@SamapleuMain+ExtensionbyendQ12018

• EISapproval@SamapleubyendQ12018

• Prefeasibility@SRGGraphite’sLolaProjectbyendQ12018

• CompletionofTyphoonSurvey@SamapleubyendQ22018

• FeasibilityStudyreleased@SRGGraphite’sLolaProjectbyendQ22018

• 1-2offtakeagreementsannouncedbySRGGraphitebyendQ22018

• Drillresults@SamapleuMain+Extension,Yepleu,Bounta,&Gratabyend2018

• MiningPermitreceived@Samapleubyend2018


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• MiningPermitreceived@SRGGraphite’sLolaProjectbyend2018

• Firstproduction@SRGGraphite’sLolaProjectbyend2019

• Firstproduction@Samapleubyend2022

WhiletheSamapleuMain+ExtensionFeasibilityStudywillbeinteresting,themostimportantofthesecatalystsbyfararethefirstdrillresultsAFTERtheTyphoonSurveyhasbeencompletedandassessed.AssayscanbeexpectedinQ3andQ4ofthisyear.

Additionally,thenumberofdrillrigsthatweseeonthepropertypost-TyphoonSurveywillgiveusan

indicationofHPX’sexcitementlevel.Itwouldbearedflagifwedon’tseeatleasttworigs.WhileSama’ssharepricehasseensubstantialgainsoverthepreviousfourmonths,thecompanyisstill

inexpensivewhenyouconsiderthevalueofitsstakeinSRGGraphiteandthesignificanceoftherecentlyannouncedHPXagreement.ProspectiveinvestorsareadvisedtogetinvolvedASAP,andthenre-assesstheinvestmentoncepost-Typhoondrillresultsarereportedlaterthisyear.


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___________________________________________________________________________________

PastFeaturedInvestmentsOverthecourseofpreviousletters,I’vesharedfeaturedinvestmentwrite-upsforelevendifferent

companies.Thesewrite-upsprovidecurrentandprospectiveinvestorsaglimpseintoourportfolio,andalsogiveinsightintothemethodologyIusetoidentifyundervaluedsecurities.

Wearecurrentshareholdersofthreeofthesecompanies,andI’veprovidedupdatesoneachofthembelow.Ialsoincludetheaveragecostpershareandexitpriceofthepastfeaturedinvestmentsthatwenolongerown.

ArdeaResources(ASX:ARL) FeaturedIn:July2017

AverageCostperShare:A$0.70CurrentMarketPrice(Feb14,2018):A$1.34

ArdeaResourceswastheFeaturedInvestmentintheJuly2017letter.Inthemonthssince,therehavebeenmultiplepositivedevelopmentsatthecompany’sKNPCobaltZoneproject.Themarkethascertainlytakennotice–withthesharepriceuproughly90%overthepastsixmonths.Ardearemains

thePartnership’sonlycobalt-focusedinvestmentandofferssignificantupsidefromcurrentlevels.InearlySeptember,thecompanyraisedatotalofA$10mbetweenaSharePurchasePlanforexisting

investorsandaprivateplacementfor“sophisticatedandprofessionalinvestors”notyetinvolvedwiththestory.Uponclosing,thecompanyannouncedthatithadatotalworkingcapitalpositionofA$15mand“expectsthatitwillhavesufficientfundsthroughtothecompletionoftheDFSin2019.”Thishas

hugeimplicationsforcurrentARLshareholders,whocannowexpecttoseebothaPFSandDefinitiveFeasibilityStudyinthecoming24monthsbeforehavingtoworryaboutanyfurtherequitydilution.

Ontheprojectlevel,thecompanyannouncedinNovemberthatithadselectedFifthgenerationHPALforitsflowsheet.Benchscaletestworkhadalsobeenconductedontwoalternatives(sulphuricAtmosphericAcidLeachandhydrochloricAtmosphericAcidLeach),butHPALwasselectedbecauseit

“Providesaninternationallyrecognisedandcommerciallysuccessfulnon-proprietaryflowsheetlikelytobeacceptabletodebtfinanciers”withcomparablecapitalcoststothealternatives.

Asseeninthebelowimage,bycombiningHPALwiththeMSprecipitationtechniqueintooneflowsheet,itisexpectedthatArdeawillbeabletoproducebattery-qualitynickelsulphateandcobaltsulphateon-siteattheKNP.Additionally,theselectedflowsheetallowsfortherecoveryofscandiumoxidethoughit

isunclearwhetherthecompanywillincorporateascandiumcircuitintothesoontobereleasedPFS.


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InDecember,thecompanyannouncedsomeadditionalnews-thattheGoongarrieSouthcamphad

beenselectedtogofirstinthemineplan.RememberthattheKNPisamassiveprojectwithatleast7distinctcobalt-richdeposits.ThecompanysummarizedthedecisiontostartwithGoongarrieSouththusly:

Withthehighestcobaltandnickelgrades,accesstoinfrastructure,andlocationonactiveminingleases,GoongarrieSouthwillbetheinitialfocusofmininganddevelopmentoftheKNPCobaltZone.Itislocated

onthesealedGoldfieldsHighwayaround80kmnorthoftheCityofKalgoorlie-Boulder,andhasaccesstopower,rail,gas,andabundantgroundwater.

Asabonus,ArdeaannouncedlatelastyearthatithadsignedanA$5mchrysopraseagreementwithAustralianJadeMiningLimited(AJML).Thedealtermsareprovidedbelow:


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TheagreementallowsAJMLtominethesemi-preciousgemstonechrysopraseonArdea’sYerilla,JumpUpDam,AubilsandCanegrasstenements.Additionally,AJMLgetsthefirstrightofrefusaltopurchase

otherchrysoprasedepositsdiscoveredbyArdeaatcommercialrates.Inthenewsreleaseannouncingthedeal,Ardeamanagementemphasizedthatthisanon-coretransactionthat“innowayimpingesuponArdea’sinterestsandproposedactivitiesincobaltandnickelminingoftheKNPCobaltZone.” Concurrentwiththeseproject-leveldevelopments,thecompanymadetwokeypersonnelappointmentsinthelatterhalfof2017.First,itwasannouncedthatIanBuchhornwouldbejoiningthecompanyasan

ExecutiveDirector.Mr.BuchhornisanobviousappointmentgivenhistwodecadesofoperatingexperienceattheKNPwithpreviousowners.ThiswasfollowedbytheappointmentofSarahMitchelltospearheadtheupcomingPrefeasibilityandFeasibilitystudies.Ms.Mitchellisuniquelyqualifiedgiven

herpreviousexperienceworkingatthreemajornickellateritedeposits:NíqueldoVermelhoinBrazil,SyerstoninNewSouthWales,andGoroinNewCaledonia.

Ian,Sarah,andtherestoftheArdeamanagementteamhavetheirworkcutoutforthem.I’veprovidedbelowthemilestonesthatshareholdersshouldexpectinthecomingmonthsandyears:

PrefeasibilityStudyannounced@theKNPbyendQ12018 “Definitionofhigh-gradereserves”@theKNP’sGoongarrieSouthcampbyendQ22018

Company“spinsout”non-cobaltassetsbyend2018

AJMLtargetsfirstchrysopraseproductionbyend2018

FeasibilityStudy@theKNPbyend2019Initialproduction@theKNPbyend2021

IntheupcomingPrefeasibilityStudy,Ardeawillcontemplatethreedifferentlysizedoperations(1Mtpa,2.5

Mtpa,&4Mtpa).Ardeashouldbevaluedatnomorethan20%oftheafter-taxNPVofthe4Mtpascenario.Myexpectationisfortheafter-taxNPVofthislargestscenariotoberoughlyA$1.2b.Thiswouldimplythatan

A$240mvaluationisfairatthisstage.Thiscomparesfavorablytothecompany’scurrentfully-dilutedenterprisevalueof~A$130m.

OncethePrefeasibilityStudyisreleasedthisquarter,thenextmajormilestonewillbetheFeasibilityStudyduein2019.ItisworthemphasizingthatArdeawillnotneedtoraiseanyadditionalcapitalbetweennowand

then.UponthereleaseoftheFeasibilityStudy,thecompanyshouldbevaluedatnomorethan30%oftheafter-tax

NPVofthelargestproductionscenario.AssumingtheA$1.2bNPVestimateisaccurate,thissuggeststhata


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A$360mvaluationwouldbereasonableuponthereleaseofthisstudyin2019.Andthisassumesflatcobaltandnickelprices,whichbothverywellmaysurprisetotheupside.

ViscountMining(TSXV:VML)–NOLONGERAPARTNERSHIPHOLDING

FeaturedIn:January2017AverageCostperShare:C$0.33

ExitPrice:C$0.29

GoldenArrowResources(TSXV:GRG)–NOLONGERAPARTNERSHIPHOLDING FeaturedIn:July2016

AverageCostperShare:C$0.24ExitPrice:C$0.76

ExcelsiorMining(TSXV:MIN)

FeaturedIn:July2016AverageCostperShare:C$0.24

CurrentMarketPrice(February14,2018):C$1.18We’vebeenExcelsiorshareholderssincemid-2014,withanaveragecostpershareofC$0.24.Despite

thecompany’sstrongsharepriceperformanceoverthepast18months,Excelsior’sGunnisonCopperProjectcontinuestobevaluedatanextremediscounttoafter-taxNPV.

RememberthatExcelsiorreleasedaFeasibilityStudyinlate2016projectingexcellenteconomicsattheGunnisonProject.Thisincludedanafter-taxNPVofC$1.05b,anIRRofover40%,apaybackoflessthanthreeyears,andatinyinitialcapexofUS$46.9m(assuminga7.5%discountrate,$3copper,andnoacid

plant).Thesearenodoubteye-catchingeconomics.I’veprovidedbelowthecopperpricesensitivityanalysisincludedintheFeasibilityStudy.


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ThemarkethoweverhasalwaysbeenextremelyskepticalofExcelsior’sabilitytoreceivefullpermittingfortheproject.Sofar,thisskepticismhasprovenunfounded,asthecompanyhasdiligentlyworkedits

waythroughthepermittingprocess.Mostrecently,inOctober2017,thecompanyreceivedtheAquiferProtectionPermit(“APP”)fromtheArizonaDepartmentofEnvironmentalQuality.ThiswasthefinalpermitneededfromtheStateofArizonatobeginconstructionatGunnison.

Thecompanyisnowasinglefederalpermitawayfrombeingabletostartconstruction.ThedocumentinquestioniscalledanUndergroundInjectionControl(“UIC”)permitandisissuedbytheEPA.InlateOctober

2017,itwasannouncedthattheEPAhadissuedadraftUICpermitforGunnison.Asstatedinthecompany’snewsrelease:“ThedraftUICpermitwillremainopenforpubliccommentforaminimumof30days;thetimingoftheissuanceofthefinalUICpermitissubjecttothispubliccommentperiod.” InlateJanuary2018,thecompanyannouncedthatthepubliccommentperiodforthedraftUICpermithadbeenextendedinordertofacilitateapublicmeetingscheduledforFebruary27,2018inDragoon,

Arizona.Whilethisextensionisn’tideal,IwasassuredbyCEOStephenTwyerouldinarecentsitdownthattheUICpermitisontrackforissuanceinMarchorAprilofthisyear.

Additionally,itisworthnotingthatjustafewweeksagoExcelsiorclosedanoversubscribedprivateplacementatC$1.00fortotalproceedsofjustunderC$40m.GreenstoneResourcesL.P.,Excelsior’slargestshareholder,subscribedforover40%oftheoffering.Thisoversubscribedplacementissignificant

fortworeasons:(1)itensuresthatthecompanydoesnothavetoraiseanymoreequityfinancingtofundGunnison’sinitialcapexand(2)itindicatesthatthereisminimalconcernamongstExcelsiorinsiders

thattheUICwillultimatelybeissued.It’sverylikelythatthedeltabetweenthecompany’sfullydilutedenterprisevalueofC$225mand

Gunnison’sprojectedafter-taxNPVofC$1.05bwillnarrowsignificantlyinthecomingfewmonths.UponissuanceoftheUIC,Ican’tseehowaprojectofthiscaliberwithnear-termproductionpotentialandfullpermitsinhandcouldbevaluedatanythinglessthan50%ofNPV(orC$2.40pershare).

Then,inordertoconvincethemarketthatthecompanydeservestobevaluedat100%ofNPV(orC$4.80pershare),Excelsiormustreachinitialproductiononbudgetandthenscaletoarunrateof25m

poundsperyearbymid2019withoutanyserioushiccups.TheupsidehereremainsenormousifStephen,RolandGoodgame,andtherestoftheMINteamcontinuetoexecute.

I’veincludedbelowthecatalyststhatMINshareholderscanexpectoverthecomingmonthsandyears:

• UICPermitissuedbyEPAbyendApril2018

• DebtcomponentofinitialcapexraisedbyendQ22018

• Breakground@GunnisonbyendQ22018

• Firstproduction@Gunnisonbyend2018


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• Productionrateof25mpoundsperannumachievedbyendQ22019

• Productionrateof125mpoundsperannumachievedbyend2023

IencourageinvestorsinterestedinthisstorytogetinvolvedbeforethefinalUICpermitisissuedbyScottPruitt’sEPA.Thisisasignificantcatalyst,andIwouldn’tbesurprisedtoseetheshareprice

immediatelydoubleif/whentheUICisreceived.

AlmadexMinerals(TSXV:AMZ)–NOLONGERAPARTNERSHIPHOLDING FeaturedIn:January2016

AverageCostperShare:C$0.16ExitPrice:C$1.62CAD

QuintisLtd(ASX:QIN)–NOLONGERAPARTNERSHIPHOLDING

FeaturedIn:July2015AverageCostperShare:A$1.16ExitPrice:A$0.00

NevsunResources(NYSE:NSU)

FeaturedIn:January2015AverageCostperShare:US$2.45

CurrentMarketPrice(February14,2018):US$2.27Nevsunremainsamustownforanyvalueinvestorlookingforcopperexposure.Withacurrent

enterprisevalueofUS$540m,NSU’svaluationisentirelydivorcedfromthecombinedNPVofthecompany’sthreemainassets:TimokUpperZone,TimokLowerZone,andtheBishaMine.Additionallythecompanyhasasignificantnear-termcatalystwithaPFSexpectedattheTimokUpperZonewithin

thenext60days.NevsuniswellcapitalizedwithUS$150mincashandnodebt;therewillbenoneedforfurtherequitydilutionuntilaconstructionfinancingpackageisputtogetherforTimok.

Forthisupdate,we’llstartwithTimok,asitisfairtosaythatthisworld-classcopperdevelopmentassetfirmlyqualifiesasNevsun’sflagshipproject.InlateOctober,thecompanyreleasedanupdatedPEA

showingexcellentheadlinenumbersforTimok’sUpperZone:

• InitialcapexofUS$630m• After-taxNPVofUS$1.5b($3copperandan8%discountrate)


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• 50%IRR,• Under1.5yearpayback

ThemaindifferencebetweenthisupdatedPEAandtheoriginalPEAreleasedinearly2016byTimok’s

previousownerReservoirMineralsisatriplingoftheinitialcapexfromUS$213mtoUS$630m.Thisisduetomanagement’sdecisiontoforgoaDSOminingphaseandinsteadimplementaSubLevelCavingminingmethodfromdayone.Whiletheincreaseininitialcapexisclearlynotideal,thisUS$600m

numberstillcomparesveryfavorablytotheprojectedafter-taxNPVofUS$1.5b.NevsunexpectstoreleaseaPrefeasibilityStudyfortheTimokUpperZonewithinthenext60days.

GiventhattheupdatedPEAwasreleasedjustafewmonthsago,Idon’texpectanymaterialdifferencesintheheadlinenumbers.AFeasibilityStudyisexpectedtofollowinH12019.

Anotherimportantnear-termTimokmilestoneisthecommencementofdeclineconstruction.ThecompanyiswaitingonanexplorationdeclineconstructionpermitfromtheStateofSerbiabutexpectsittobereceivedshortly.AssumingreceiptofthepermitinQ12018,thedeclineisexpectedtoreachthe

MainZoneorebodyinlate2019.Thecompanycontinuestomakeprogressatits46%-ownedTimokLowerZone.InearlyDecember,the

companyreleasedsomeeye-catchinginterceptsfromanongoingUS$20mdrillprogramwithjointventurepartnerFreeport-McMoRan:

Thisprogramisexpectedtobecompleteinearly2018andisdesignedtofurtherdefinethelargefootprintoftheTimokLowerZonemineralization.NevsunandFreeportareinthemidstofdesigningthenextphaseof

theLowerZoneworkprogram,whichwillbefundedpro-ratabythepartners.AsNevsunmakesbriskprogressatTimok,thecompany’sproducingBishaMinelocatedinEritrea

continuestostrugglewithrecoveriesandhasbeende-emphasizedbymanagement.RatherthanembarkonthepitexpansiondetailedintheBishamineplan,thecompanyannouncedinearlyAugustthat“theBishaoperationnowhasareserveminelifetomid-2021,downfromapproximately8yearsat

thelastreserveestimate.ThedecreaseisduetothedecisiontomineasmallerpitatBisha.Alargercapitalinvestmenttominealargerpitwasconsidered,however,theCompanydeterminedthatonarisk-adjustedbasisthisalternativewasnotthemostprudentallocationofcapitalatthistime.”


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Thereisnodoubtthatthecontinuedmetallurgicalstrugglesplayedalargepartinthisdecision.WhileBisha’sFeasibilityStudyassumedrecoveriesof85%copperand80%zinc,Bisha’smostrecenttechnical

reportinAugust2017lowersexpectationsto70%copperand77%zinc.Atthispointitseemsextremelyunlikelythateventherevisedrecoveryestimateswillbeachieved,asrecoveriesofthesetwometalsseemtobeinverselycorrelated.Forexample,thecompanywasabletoincreasezincrecoveriesfrom

62.2%inQ2to74%inQ3and69%inQ4.Howeverthisresultedincopperrecoveriesdroppingfrom51.6%inQ2to33.4%inQ3and31%inQ4.Managementstatedlastyearthattheyexpect“toachievethenewrecoveriesin2018”butitseemsunlikelythatcopperrecoverieswillevergetclosetothat70%

estimate.Despiteitsstruggles,BishageneratedUS$12.1inoperatingincomeinNevsun’smostrecentquarter.The

mineiscurrentlyundergoingamobilefleetexpansion,andoperatingincomeshouldimprovesignificantlyoncethisiscompletedinQ22018.Whiletheassetisundoubtedlyunderperforming,thecashflowfromBisharemainsanimportantpartoftheNevsunstory–allowingthecompanytoadvance

Timoktoproductionwithminimalequitydilution.I’veprovidedbelowthemilestonesthatNevsunshareholdersshouldexpectatbothTimokandBisha

overthecomingmonths:

• PrefeasibilityStudyannounced@TimokUpperZonebyendQ12018

• Declineconstructioncommences@TimokUpperZonebyendQ12018

• Mobilefleetexpansioncompleted@BishabyendQ22018

• Additionaldrillresults(12,500m)@highlyprospectiveUpperZonetargetsbyend2018

• Drillresults(15,000m)@Bishabyend2018

• Drillresults(16,000m)@explorationprojectsinSerbia&Macedoniabyend2018

• FeasibilityStudyannounced@TimokUpperZonebyendQ22019

• Finaloperatingpermitreceived@TimokUpperZonebyendQ22019

• Declinereachesorebody@TimokUpperZonebyend2019

• Initialproduction@TimokUpperZonebyend2021NevsunhasnodebtandroughlyUS$150minthebank.ConsideringfuturecashflowfromBisha,the

companyshouldbeabletogettoaconstructiondecisionatTimokwithoutanyequitydilution.Thebiggestriskhereisthatanacquirercomesin,takesoutNSUshareholdersat60-100%premium,andthenstealsallfuturevaluecreatedatTimok.Thebestantidotewouldbeanimprovedsharepriceas

Nevsunhasseverelylaggedpeerssofarinthiscycle.


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TsodiloResources(TSXV:TSD)–NOLONGERAPARTNERSHIPHOLDING

FeaturedIn:July2014AverageCostperShare:C$0.86ExitPrice:C$0.71

LithiumAmericas(TSX:LAC)–NOLONGERAPARTNERSHIPHOLDING

FeaturedIn:January2014AverageCostperShare:C$1.20

ExitPrice:C$12.70

PhoscanChemicalCorp(TSX:FOS)–NOLONGERAPARTNERSHIPHOLDINGFeaturedIn:July2013


SouthBoulderMines(ASX:STB)–NOLONGERAPARTNERSHIPHOLDING

FeaturedIn:July2012AverageCostperShare:A$0.48

ExitPrice:A$0.28

NorthernGraphite(TSXV:NGC)–NOLONGERAPARTNERSHIPHOLDINGFeaturedIn:January2012


to: mjg capital limited partners from: date: subject · 2/1/2018 · we are now two years into...

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