Shaw and Partners

0.57000 0000 000

GPR – Equity Report current as at –28/10/2020–Pg. 1

Geopacific Resources (GPR) Rating: Buy | Risk: High | Price Target: $1.44

Updated DFS due this quarter, back exploring in 2021

Andrew Hines | Head of Research

+61 3 9268 1178 andrew.hines@shawandpartners.com.au

Michael Clark | Analyst

+61 3 9268 1148 michael.clark@shawandpartners.com.au

Event Geopacific has released its September quarter activities report. New CEO Tim Richards is building his team and has made two hires from his previous employer St Barbara. The updated DFS is due in late November which will allow the financing package to be finalised. Geopacific is re-energising its exploration program after a period of minimal activity as GPR focused on project execution and was constrained by CoVID.

We have refreshed our model to incorporate our recently upgraded gold price, offset by a higher capex assumption. Our price target lifts from A$1.37 to A$1.44.

Highlights • New CEO Tim Richards commenced on Oct 4th and has already appointed Susan

Scheepers as GM People and Performance and Basil Bulkua as Site Manager Woodlark Gold Project. Both are ex St Barbara and have extensive experience operating in PNG.

• During the quarter Geopacific announced a US$100m funding package from Sprott, made up of a US$85m project finance facility and a US$15m gold stream.

• The company is now completing an update of the DFS, including a refresh of the capital costs. The original DFS was completed in 2018 and outlined a capital cost of A$198.5m. It is likely this increases given inflation and higher activity levels in the sector. We assume the capital cost increases to ~A$230m.

• Front End Engineering and Design (FEED) is continuing and is now 15% complete at the end of September 2020.

• Woodlark Island has been relatively lightly explored, and in the past 18 months Geopacific has been focused on bringing its existing 1.6Moz resource into production, rather than growing the resource. CoVID has also limited the ability to conduct activities on the Island. Geopacific is now re-energising its exploration effort which will resume in 2021 with a drilling program to test resource extensions near the current pit.

Recommendation We retain our Buy recommendation. Once in production Woodlark will be producing 100koz

of gold at an AISC of less than A$1,000/oz and at current gold prices will generate cash flow

of $150-200mpa. Catalysts for the stock to reach our price target include;

• Resolution of financing options.

• Delivery of the Woodlark project through the course of 2020/21.

• Resource upgrades following further exploration on Woodlark Island

.

Gold Price Forecast FY20 FY21 FY22 FY23 FY24 FY25 LT Real

New (US$/oz) 1,568 1,989 2,331 2,431 1,894 1,465 1,280

Old (US$/oz) 1,568 1,875 1,895 1,967 1,552 1,465 1,280

Change (US$/oz) 0 114 436 464 342 0 0

Change (%) 0% 6% 19% 19% 18% 0% 0%

Shaw and Partners GPR – Equity Report current as at –28/10/2020–Pg. 2

Geopacific Resources Ltd. is developing the Woodlark Gold Project on Woodlark Island in PNG. First production is expected in 2022 and the operation will produce approximately 100koz of gold per annum over a 13 year mine life.

Shaw and Partners GPR – Equity Report current as at –28/10/2020–Pg. 3

Key risks

• The gold price is volatile and driven as much by geopolitical events as fundamental supply and demand. As such, the price of gold is relatively difficult to forecast, and the actual price may differ substantially from our forecasts.

• The Woodlark Gold Project is not yet producing and there is a risk that Geopacific is unable to bring the operation in to production. The project may cost more than expected to build and may not operate as expected.

• Geopacific Resources is operating in PNG. Woodlark Island is flat, access is relatively straightforward via sea or air (there is an existing airstrip), and the landowners are supportive, so Geopacific does not face the usual problems associated with operating in PNG.

Core drivers and catalyst • Woodlark is a standard and simple open cut mining operation and carbon-in-leach

(CIL) processing plant which will produce ~100koz of gold per annum over a 13 year mine life. On our forecasts the project has a 2 year payback, an IRR of 52% and an NPV @10% of A$341m. Cash flow will be front end loaded due to higher grade and lower strip ratios in the early years of production.

• Once in production (expected in 2022), at today’s share price Geopacific will be trading on a PE multiple of just 1.3x and an EV/EBITDA multiple of 0.2x. Geopacific is one of the cheapest gold companies listed on the ASX with an EV/resource of A$50/oz compared to a sector average A$90/oz for explorers or A$270/oz for producers.

• Woodlark has a resource of 47Mt at 1.04g/t for 1.57Moz gold and reserve of 28.9Mt @ 1.12g/t for 1.04Moz gold. There is significant exploration upside on the island, and we expect to see ongoing resource upgrades. It would not surprise us to see the resource base increased to over 5Moz over time.

• Costs are very low due to the low strip ratio (3.9x life of mine, and less than 3x in the early years). All-in sustaining costs are estimated at A$1,033/oz (life of mine) and A$866/oz in the first five years.

• At spot gold our NPV of the project increases to A$545m (A$1.57ps on a fully diluted basis).

Shaw and Partners GPR – Equity Report current as at –28/10/2020–Pg. 4

Rating Classification

Buy Expected to outperform the overall market

Hold Expected to perform in line with the overall market

Sell Expected to underperform the overall market

Not Rated Shaw has issued a factual note on the company but does not have a recommendation

Risk Rating

High Higher risk than the overall market – investors should be aware this stock may be speculative

Medium Risk broadly in line with the overall market

Low Lower risk than the overall market

RISK STATEMENT: Where a company is designated as ‘High’ risk, this means that the analyst has determined that the risk profile for this company is

significantly higher than for the market as a whole, and so may not suit all investors. Clients should make an assessment as to whether this stock

and its potential price volatility is compatible with their financial objectives. Clients should discuss this stock with their Shaw adviser before making

any investment decision.

Shaw and Partners GPR – Equity Report current as at –28/10/2020–Pg. 5

Disclaimer

Shaw and Partners Limited ABN 24 003 221 583 (“Shaw”) is a Participant of ASX Limited, Chi-X Australia Pty Limited and the holder of Australian Financial Services Licence number 236048. ANALYST CERTIFICATION: The Research Analyst who prepared this report hereby certifies that the views expressed in this document accurately reflect the analyst's personal views about the Company and its financial products. Neither Shaw nor its Research Analysts received any direct financial or non-financial benefits from the company for the production of this document. However, Shaw Research Analysts may receive assistance from the company in preparing their research which can include attending site visits and/or meetings hosted by the company. In some instances, the costs of such site visits or meetings may be met in part or in whole by the company if Shaw considers it is reasonable given the specific circumstances relating to the site visit or meeting. As at the date of this report, the Research Analyst does not hold, either directly or through a controlled entity, securities in the Company that is the subject of this report. Shaw restricts Research Analysts from trading in securities outside of the ASX/S&P100 for which they write research. Other Shaw employees may hold interests in the company. DISCLAIMER: This report is published by Shaw to its clients by way of general, as opposed to personal, advice. This means it has been prepared for multiple distribution without consideration of your investment objectives, financial situation and needs (“Personal Circumstances”). Accordingly, the advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not the advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of your Shaw client adviser. This report is provided to you on the condition that it not be copied, either in whole or in part, distributed to or disclosed to any other person. If you are not the intended recipient, you should destroy the report and advise Shaw that you have done so. This report is published by Shaw in good faith based on the facts known to it at the time of its preparation and does not purport to contain all relevant information with respect to the financial products to which it relates. The research report is current as at the date of publication until it is replaced, updated or withdrawn. Although the report is based on information obtained from sources believed to be reliable, Shaw does not make any representation or warranty that it is accurate, complete or up to date and Shaw accepts no obligation to correct or update the information or opinions in it. If you rely on this report, you do so at your own risk. Any projections are indicative estimates only and may not be realised in the future. Such projections are contingent on matters outside the control of Shaw (including but not limited to market volatility, economic conditions and company-specific fundamentals) and therefore may not be realised in the future. Past performance is not a reliable indicator of future performance. Except to the extent that liability under any law cannot be excluded, Shaw disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence. DISCLOSURE: Shaw will charge commission in relation to client transactions in financial products and Shaw client advisers will receive a share of that commission. Shaw, its authorised representatives, its associates and their respective officers and employees may have earned previously or may in the future earn fees and commission from dealing in the Company's financial products. RESEARCH TEAM: For analyst qualifications and experience, refer to our website at http://www.shawandpartners.com.au/about/our-

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