preliminary valuation of the tgme gold project, south...

Preliminary Valuation of the TGME Gold Project, South Africa Stonewall Resources (ASX: SWJ) March 6, 2017

© MineInvest 2017 p. +61 423 833 342

[email protected] www.mineinvest.com.au

1

Table of Contents

I. Table of Contents ........................................... 1

II. Executive Summary ........................................ 1

III. Introduction & Scope ...................................... 1

IV. Valuation Summary ........................................ 2

V. Project Background & History .......................... 3

VI. Rietfontein Scoping Study ............................... 6

VII. Pre-Feasibility Study (PFS)- Outlook ................ 7

VIII. Geology & Metallurgy ..................................... 8

IX. Mining & Infrastructure .................................. 10

X. Planning ....................................................... 10

XI. Beta Mine: Hard Rock & PMR Potential ............ 12

XII. Vaalhoek: Hard Rock Potential ...................... 14

XIII. The Big Picture: Up-scale & BIOX ................... 16

XIV. Approvals and Licensing ................................. 17

XV. Valuation Methodology & Discussion............... 17

XVI. Financing & Development.............................. 19

XVII. Exploration ...................................................20

XVIII. Disclosure & Disclaimer .................................. 21

XIX. References .................................................... 22

XX. Glossary of Common Terms ............................ 22

PRELIMINARY VALUATION OF THE TGME PROJECT, 2017 1

Executive Summary

Highlights: Stonewall Resources (ASX: SWJ) plan to commence mining at historic mines Beta and Rietfontein in

2018, increasing production in coming years to a target rate of 100kozpa or more (existing JORC resource base of

3.43Moz). An upgraded resource of 2.55Mt @ 11g/t Au (905koz) was recently published at Rietfontein, and nearby

Beta Mine has a resource of 6.8Mt @ 3.3g/t for 709koz. A recent Scoping Study released for Rietfontein illustrated

a potential 60kozpa underground mine at a cash cost of US$417/oz and pre-tax NPV of US$114M.

Initial capital of US$37M has been estimated for Rietfontein (we estimate US$54M in peak development capital for

the 100kozpa plan), with potential to expand production in future years to be examined as part of Pre-feasibility

studies underway. Through modelling a conceptual development scenario for SWJ, including appropriate

sensitivity analysis, we derive a risk-adjusted valuation of between US$56M and US$128M. Our present-day

valuation for the TGME project is US$85M (A$112M).

Key Issues/conclusions: Both Rietfontein & Beta remain open along strike and depth, with both proximal and distal

gold mineralisation identified which could boost project economics. The resources considered in mining studies to

date contains predominantly Inferred resources, which require upgrading to at least Indicated status for

incorporation as reserves (JORC, 2012). Metallurgy and the process route remains a risk and opportunity, with

relatively low gold recovery assumed in our revenue model (84% for Beta & Rietfontein). The consideration of

BIOX® technology to both improve recovery and open up other areas of the extensive goldfield is warranted. These

issues are to be the focus of studies conducted as part of feasibility work over the next 12-24 months.

Introduction & Scope Mine Invest has been commissioned to prepare a preliminary valuation of gold projects located in the Pilgrim’s

Rest/Sabie region of South Africa, collectively known as the TGME Project, for Stonewall Resources (ASX: SWJ).

The purpose of the report is to bring together the information completed to date as part of recent Resource,

Scoping and related work, quantify a present-day valuation for the assets and consider some of the potential

scenarios which may develop as the feasibility work progresses.

This report is considered preliminary in nature, as the studies required to determine if the project is economic and

justifies development are not considered to be at a level where a decision to mine can be made (refer to Section

7.4a of Valmin, 2015). Any reference to forecast production is a target only.

The author recently visited the project sites, and discussed the project with company consultants, staff and other

relevant industry persons, however the information utilised and referenced, and conclusions and inferences in this

report, relies solely on publicly information.

This report is not to be formally used or referenced as part of any potential transaction, including public share

offerings, mergers, capital raisings or other actions that are captured under Australian corporate law and financial

services regulations.

Please note, the Scoping Study (SWJ, 28 February 2017) referred to in this report was based on preliminary technical

and economic assessments, included the partial use of Inferred Resources and is therefore insufficient to support

estimation of ore reserves. Whilst SWJ intends to progress the project, and other projects in the portfolio towards

economic development and establishment of Ore Reserves, there is no certainty that such development will take

place, or in the timeline currently proposed by the Company. Please refer to appropriate Disclaimer and Disclosure

at the back of this report.


Figure 1) Location Plan

Source: SWJ

Valuation Summary

We currently value the TGME Project as a pre-development asset at US$85M (A$112M). This is a risk-adjusted

valuation, which has examined comparative methods appropriate for the valuation of pre-development mining

assets. The range of present-day valuation is assessed at between US$54M and US$126M depending on gold price

assumptions and adjustment for other factors.

It is widely accepted that prior to project funding (or Definitive Feasibility Study, DFS, completion) a valuation of

50% or more of the NPV may be appropriate, with some exceptions for gold companies, or particularly robust

projects. With project funding secure (and any potential share dilution or funding cost factored in) then a higher

valuation may be applied, subject to a discount for construction and commissioning risks and other market-related

factors.

We have used a metric of 30% of conceptual project NPV, due to the project being at PFS-Stage, or earlier. A post

tax, discount rate of 10% is applied to the cashflows. We have used recent gold pricing of US$1200/oz in our

assumptions. Commodity prices, exchange rates, and methodology applied is discussed later in this report.

Table 1: Summary of current project valuation

Asset/Liability NPV factor Valuation (US$M) Unrisked (US$M)

TGME Au Project* 30% 92.3 308

Market-based valuation approach**

79.1 NA

Selected Valuation:

85.0

Source: Mine Invest estimates. Post-tax NPV quoted.

*Note this valuation excludes any valuation of other assets held by the holding company, and is not intended to be a valuation of the ASX-listed

entity currently holding the assets. The valuation does include any allowance for ongoing corporate costs as a producing entity for the life of the

project, however makes an assumption for corporate tax ** Methodology discussed later in the report.


Whilst fundamental cashflow analysis is considered appropriate for pre-development projects at the PFS level

(either PFS underway or completed) we have also considered market-based multiples to determine if our DCF

valuation is within range of this alternate methodology.

A market-based valuation approach would typically consider recent transactions of similar assets, however this is

primarily suited to M&A transactions. Due to the wide variation in both time-scale and asset size in comparing

mineral assets of this nature, this method was not considered to be of practical use or accuracy in valuing pre-

development assets, and thus was substituted by a different market based approach which offered more relevance.

Whilst there are a limited number of pre-development gold companies listed on the ASX, with a large variation in

market valuation, we have considered those projects which are currently completing PFS or DFS studies, or have

recently completed a Bankable Feasibility Study (BFS) for comparison.

We have considered the following ramp-up scenario (Figure 2), with construction underway 1Q’18, and first ore

commencing 4Q’18 through the TGME processing plant. We anticipate the first Beta/PMR ore will be followed by

Rietfontein 1Q’19 as there is around a 12 month lead time to first commercial ore due to development requirements.

Further details on our assumptions considered for this scenario are provided in following chapters.

Figure 2) Conceptual Production Growth

Source: MineInvest

Project Background & History

The Pilgrims Rest area was the first goldfield discovered in South Africa in 1873, some 300kms from the

Witwatersrand (WITS).

The Sabie-Pilgrims Rest gold-field produced the first genuine gold rush in South Africa. It also produced the first

gold coins (The Burger’s sovereign). In 1895, the Transvaal Gold Mining and Estates (TGME) company was created

which produced gold for over 100 years. Many remnants of the early mining days are found at Pilgrims Rest, which

is a major tourist destination much like Ballarat/Bendigo in Australia.

Production was initially from extensive alluvial diggings followed by open cut mining of oxidised primary reefs,

followed by underground mining of oxides and later sulphides. In 1955 TGME acquires Glynn’s Lydenburg Ltd (Sabie

Mines). Between 1895 and 1970 TGME and Sabie Mines produced approximately 6Moz of gold at an average

recovered grade of 10.4 g/t. Since the 1970’s, up to another 1Moz is believed to have been produced.

A large roasting plant was in operation at Pilgrims Rest, treating the more refractory ores located to the north, until

the 1950’s, when the company operating the plant ran into difficulties elsewhere in their business (Wits field).

0

20

40

60

80

100

120

140

CY'18E CY'19E CY'20E CY'21E CY'22E

PMR Production (koz) Rietfontein BETA/TGME


The Roasting plant was recommissioned in the following year and operated until TGME closed its doors in April

1970. A big issue was containment of sulphur dioxide fumes, not solved until 1959/1960.

The primary mineralisation in the region is characterised by narrow, flat-lying quartz-pyrite reefs generally less than

a metre thick with grades up to 50 g/t. At Rietfontein, the reef dips sub-vertically, and is hosted by a granite rather

than sedimentary/carbonaceous rocks, which is unusual in the region.

From 1968 to 2010 the TGME tenements (Figure 3) were collectively owned and operated by private groups

including Rand Mines Properties Limited, Randgold & Exploration Ltd and Simmer & Jack Mines Ltd. In August 2010,

Stonewall Mining Pty Ltd purchased 100% of the equity in TGME and Sabie Mines.

The recent mining history includes:

1974 to 1982 – Mining of Dukes and Frankfort area by Randgold and Simmer & Jack produced an unknown

quantity of gold (refer to Figure 4).

Randgold (as part of the Neptune Project) erected a metallurgical plant in the early 1970’s to treat the

surface reef residue (‘waste’ rock) dumps and the Blyde West Tailings dams. This plant operated until 1998.

1982 to 1992 – Rand Mines, conducted surface drilling, dewatering of UG workings and evaluation of

surface deposits, with around US$1.5m spent.

1989-1998- Mining in the TGME area and wider district. From 1968 to 2010 the TGME tenements were

collectively owned and operated by Rand Mines Properties Limited, Randgold & Exploration Ltd and

Simmer & Jack Mines Ltd.

2005-2010 - Simmer & Jack (Pty) Ltd operated the above Mines, recommissioning the Rand plant in 2003

to treat ore from Morgenzon, Clewer, Dukes and Frankfort Mines. The mining operations reduced to a

point where mining ceased in 2008 and the mines put on care and maintenance. S&J was pressed in

funding its Witwatersrand operations and sold TGME and Sabie Mines to Stonewall Resources in 2010.

Simmers & Jack Ltd., investigated the use of ‘G’ Cells and Biox gold extractive methods to increase the

recovery of gold in the refractory ores in 2006/7. Recoveries in the conventional plant was at best 35%. The

application of the above technologies (as tested by SGS) increased the recoveries to 70 and 93%

respectively. The full feasibility studies were completed and approved by the S&J Board – but S&J was

unable to meet its financial commitments due to funding constraints.

2010-2016 – Stonewall Resources: Carried out evaluation of hard-rock and PMR projects, with a view to

development of a large-scale operation (250-300kozpa). Achieved permitting across most mines in the

portfolio. A US$141M takeover by Chinese Group Shandong Qixing in 2013 did not proceed. This was based

around a 280kozpa concept, involving plant expansion and addition of Bio-oxidation technology. SWJ then

conducted trial mining of PMR material in 2015, however this was largely constrained by funding and the

need for plant refurbishment.

2017 – New management of SWJ fast-tracking a plan to produce gold primarily from high grade hard rock

sources, including Rietfontein and Beta.


Figure 3) Tenement Location Plan

Source: SWJ

Figure 4) Historical Gold Mining in District

Source: SWJ

TGME CIL Au Plant


Rietfontein Scoping Study

SWJ published the results of a Scoping Study into re-opening the Rietfontein Mine on 28 February, 2017, indicating

a potentially viable project, subject to forecast metallurgy, reserve and metal prices and potential variability of

±35% (JORC, 2012).

The current resource is 905koz @ 11g/t (Indicated: 0.72 Mt @ 10.6 g/t for 233 koz and Inferred: 1.80 Mt @ 11.4 g/t

for 672 koz).

The focus of SWJ is to upgrade the resource category (inferred component) and conduct additional metallurgical

analysis to further optimise the process route for the two deposits as part of pre-feasibility work underway.

The Scoping Study scheduled 1.47Mt @ 9.5g/t Au of the resource of 2.8Mt @ 11g/t (Indicated & Inferred) to be

extracted at a rate up to 200ktpa over a period of 7.5years. Peak cash drawdown was estimated at US$31M,

including US$18M for refurbishment of the TGME plant, and US$13M for underground mine refurbishment and

related infrastructure. Total capital cost of US$37M was indicated.

Operating costs were estimated at US$110/t, with a forecast C1 cash cost of US$417/oz and AISC of US$578/oz

including royalties. A pre-tax NPV (10% DCF) of US$114M was estimated.

A summary of the conclusions from the Scoping Study compared to our longer term assessment of potential is

illustrated in Table 2 ,below.

Table 2: Comparison of Project Valuation Assumptions: Rietfontein

Parameter Scoping Study Our Assumption

Reserve (Mt) 1.5Mt @ 9.5g/t 3.0Mt @ 9.5g/t

Mine Life 7.0 11.0

Plant Feed (Ktpa av. LOM) 200 273

Recovery (% Au) 86 84

Av Annual Prod (Koz Au) 55 70

LOM Gold Prod (Koz Au) 387 775

Opex (US$/t) – LOM average* 110 110

Capex (US$M)- Peak Upfront* 31 29

Capex (US$/t) – Sustaining 28 35

Opex (US$M) – LOM* 176 335

ZAR assumption (US$) 13.5 13.0

Gold Price (US$/oz) 1200 1200

Cash cost (LOM, C1) US$417/oz US$427/oz

AISC (US$/oz) US$578/oz US$723oz*

NPV (US$M) pre-tax (10% DCF) US$114M US$288M

*Includes depreciation of Initial project capital, royalties and site exploration (Aill-in Cost). Initial capital and exploration excluded in scoping study AISC quoted.


Figure 5) Rietfontein Local Setting

Source: SWJ

Pre-Feasibility Study (PFS)- Outlook

Whilst the Scoping Study considered processing of Rietfontein ore at a rate of 200ktpa, further studies will be

carried out into potential expansion of the mining rate, partly dependent on the results of resource drilling to

determine the amount of Measured & Indicated ore which could be brought into a mine plan.

Work that is currently underway or planned as part of the PFS for the TGME project, includes:

Resource Definition: Drilling to increase the confidence of resources to at least Indicated JORC (2012)

status, along with testing for continued extensions to mineralisation where it is open at depth or along

strike (Rietfontein, Beta and potentially other areas);

PMR delineation: Sampling to determine the distribution of grade within the PMR located at Beta, with a

view to a potential JORC Resource and incorporation into mine plans

Metallurgical Testwork: Examining the ability for increased recovery of gold across all deposits, including

the application of gravity recovery, and suitability of bio-oxidation for other deposit areas (at a later date).

We believe our assumed 84% recovery may be conservative, with high gravity recovery anticipated based

on historical mining results (30% or more with primitive methods);

Process Plant & Infrastructure Optimisation: Further investigation of the process plant engineering and

locations for mine infrastructure, waste dumps, and power/water requirements;

Mine Plan Refinement: Further evaluate the mine-plan for the underground and work on sequencing of

orebodies in order to optimise the project economics. Also consider dual-adits and upside to 250-300ktpa;

Approvals: All approvals for mining and processing are already in place across the proposed mining areas.

The mining permit at Rietfontein is valid until 2028, with options to extend.


Geology & Metallurgy

The TGME project is located within the Sabie-Pilgrim’s Rest goldfield, 300km northeast of the Witwatersrand Basin.

Gold mineralization is developed within sedimentary rocks of the Transvaal supergroup.

The Sabie goldfield is a north-south trending mineralised zone approximately 100km long and up to 30km in width,

hosted by carbonate and argillic rocks of an early Proterozoic age. An Archaean granite-greenstone basement is

overlain by volcanic-sedimentary rocks of the Wolkberg Group (up to 600m in thickness), in turn overlain by

carbonate-clastic units of the lower Transvaal supergroup. This unit has been intruded by numerous dykes and sills

of pre and syn, post-Bushveld age.

A period of northerly faulting is believed to post-date a series of east-west faults. At Rietfontein, the orebody dips

sub-vertical, unusual for the area (Figure 6). The orebody is also hosted within a granite shear, which is also unusual.

Gold mineralisation in the wider area is primarily characterized by quartz-carbonate veins or ‘reefs’ which occupy

parallel bedding faults and shears and confirm to the shallow dip of the strata (Figure 7). Iron sulphides with minor

Cu, As and Bi are present.

The ores in the goldfield contain a variety of gold particle size, from coarse free-gold, to fine-grained pyrite-hosted

gold. Towards the north, the ore is considered partially refractory in some locations, which was addressed by

roasting in the early days, until the mid 1950’s.

Particularly at the Beta mine, early mining was done by hand, and ore hand-sorted in the mine. Due to mill capacity

limitations, a significant amount of ore was left behind, in order to extract the higher grade portions by hand. This

material was stacked in the mine as pillars, or residue, and is known as Pre-Mined Residue or PMR.

Sampling and trial mining by SWJ in 2015 demonstrated that some of this material carried considerable grade, and

thus part of the strategy of SWJ is to extract and process this material. There is no reported reconciliation however,

and the previous management team did not continue the mining and processing due to absence of ready funding.

SWJ is presently conducting detailed sampling of the PMR material, with a view to delineating high grade areas,

and mapping a picture of grade distribution for consideration in any potential JORC resource.

Total JORC resources (Table 3) of 28.7Mt @ 3.7g/t Au for 3.43Moz have been delineated.

Figure 6) Rietfontein Preliminary Mining Schedule

Source: SWJ


Figure 7) Local Geology

Source: SWJ Table 3: Summary of JORC Resources

Underground Resources Mt Grade (g/t Au) Koz Au

Measured 0.17 4.77 3

Indicated 2.38 6.01 460

Inferred 17.3 4.57 2,542

Sub Total 19.85 4.74 3,028

Surface Dumps Mt Grade (g/t Au) Koz Au


Indicated 3.17 0.92 94

Inferred 0.80 1.05 27

Sub Total 4.12 0.97 129

Tailings Mt Grade (g/t Au) Koz Au


Indicated 0.01 0.52 0

Inferred 2.13 3.06 21

Sub Total 4.44 1.87 27


Table 3: Summary of JORC Resources (Continued)

Rock Dumps Mt Grade (g/t Au) Koz Au

Measured - - -

Indicated - - -

Inferred 0.27 1.11 1

Sub Total 0.27 1.11 1

Total Group Resources Mt Grade (g/t Au) Koz Au


Indicated 5.56 3.10 554

Inferred 20.5 4.23 2,788

Sub Total 28.68 3.72 3,431

*SWJ, 7 February, 2017

Mining & Infrastructure

The mine plan for Rietfontein used in the Scoping Study assumed a total of 1.47Mt of ore mined, at a rate of 200Ktpa

over a 7-year mine life (57% resource conversion). Based on the assumed 86% recovery, this resulted in recovery of

approximately 387koz over the mine period, or an average of 55kozpa (>60kozpa in the early years).

Primary access to the underground mine would be via the existing adit on 3 Level. The plan is to enlarge the main adit from the current dimensions of 2.8 m wide by 2.8 m high to at least 3.2 m by 3.2 m to enable the use of articulated dump trucks. Ore would be extracted using shrinkage stoping over a minimum width of 0.9m (plus overbreak/dilution) and loading/ hauling done by rubber tyred trucks/dumpers. Run of mine ore is then trucked 41km to the centrally located TGME plant to the south.

Average Life of Mine (LOM) contract mining cost of US$48/t was estimated (based on ZAR 13.5/USD), plus

additional costs of US$19/t for engineering and technical services, transport to the TGME plant (US$9), processing

costs (US$22/t) and a US$10/t allowance for site-based overheads (total of US$109/t).

The cost assumptions appear reasonable, and the 30-40% discount to similar costs in Australia is driven by the lower

labour costs, absence of fly-in/fly-out overheads, cheaper power and service costs, and other savings.

A peak funding requirement of US$31M includes US$18M for refurbishment of the TGME processing plant (we

believe this figure may be at the high end) and US$13M for infrastructure relating to mine establishment and initial

pre-development.

Planning

The mine plan for Rietfontein will be refined as part of pre-feasibility work underway. Critical to this is drilling to

upgrade the resource to Indicated Status (JORC, 2012), where reserves can then be scheduled. This drilling is

planned to commence following funding.

Detailed work on costs and process engineering is to be conducted for the TGME plant refurbishment, along with

planning for staffing levels and related infrastructure and human resources. All aspects of the mine plan from waste

and tailings placement, environmental management, gold production and security, financial determinants and

budgeting, metallurgy, procurement, and the myriad of other tasks that go into mine design and execution will be

refined over the next twelve months, or less. The company is in the process of expanding the engineering, geology

and other critical technical and support capacity in order to support the accelerated mine plan envisaged in our

assumptions and public statements from SWJ.


Figure 8) Existing Processing Plant Layout

Source: SWJ

Figure 9) Escarpment View of Rietfontein

Source: MineInvest

The high grade Rietfontein orebody extends over

3km in strike, and commences at a shallow/near-

surface depth in places where unmined. The 905koz

@ 11g/t is expected to grow.

Open


Beta Mine: Hard Rock & PMR Potential

Beta is situated <2km from the TGME plant site. We went underground at Beta on a recent site visit, and based on

our obervations, we see good potential for both a residue mining (PMR) and hard-rock mine to produce gold at

lower cost (US$/t) than Rietfontein. Whilst scoping work on the 700koz hard-rock resource is currently underway,

based on our review of literature, and grade distribution apparent at the mine, we see the following potential at

Beta. In Summary:

Beta Hard Rock (JORC, 2012): 0.59Mt @ 4.86g/t Au for 93koz (Indicated), 6.16Mt @ 3.11g/t Au for

616koz (Inferred).

Beta PMR: Previously mined material left as pillars, residue. Grades from low to extremely high (kg’s/t) are

probable here, which at lower cost than hardrock per ton, can drive down costs and boost gold production.

Pre-development: Up to 200koz appears to have been pre-developed at Beta North (Figure 10, following).

Reasons for this include the over-investment by historical company, early shut-down of local processing

capacity and other factors. Subject to drilling, metallurgical work and mining studies, this area may be a

focus for early mining.

Upgrade Potential: We have factored in a moderate ramp-up for both PMR and Beta Hard-rock. It may be

possible to accelerate this depending on the results of studies currently underway. We see up to 500tpd

feasible from the PMR material, in conjunction with additional ore sourced from nearby hard-rock. Work

underway currently should provide increased confidence in potential throughput and grade of the PMR.

More feed for TGME: One important factor in the establishment of Beta PMR/HR is the supplementary

source of feed for TGME. Beta is located 12km closer than Rietfontein, and can provide important feed for

the plant as it increases capacity to 500Ktpa, and later up to 800Ktpa, when the production rate is forecast

at 130kozpa in our estimate (2023).

The important factor in mining of the PMR at Beta (and other locations) is the ability of the material to potentially

lower the overall cost on a per ounce basis at Beta, and boost the production and grade profile (subject to

confirmation of the high grades in some locations in the PMR material).

A cost estimate of U$56/t has been estimated by SWJ as part of scoping work (including trial mining). If the PMR

mining is combined with hard-rock, then we would expect the mining and overhead cost component can be reduced.

We have allowed for US$55/t in our model. Refer Figure 11, following, for schematic of PMR mining.

We allow for US$90/t for C1 cash costs for the hard rock mining and US$24M development capital (US$20m peak

funding). We anticipate the capital cost for underground development may be lower than our assumptions,

however a component of this includes expansion of the TGME plant to 500ktpa.

Nearby, the Theta Mine at one point was mining grades of 50-60g/t. In previous years SWJ had developed a plan to

re-open the Theta mine, and this will be reexamined as part of PFS studies. The deposit has a resource of 100kt @

9.8g/t in the lower seam (inferred) as part of a larger resource of 204koz (refer to resource summary, p9). Theta is

located adjacent to Beta (Figure 3, p5).

Our assumptions for mining of Beta/PMR are shown in Table 4, following.


Figure 10) Map of Beta Underground workings & development

(Source: SWJ)

Table 4: Project Development Assumptions: Beta & PMR

Parameter Beta Hard Rock PMR (Beta & Other)

Reserve (Mt) 2.8Mt @ 5.4g/t 0.64kt @ 5.8g/t

Plant Feed (Ktpa) 200 130

Mine Life 15 5.5

Recovery (% Au) 84 90

Av Annual Prod (Koz Au) 27 20

LOM Gold Prod (Koz Au) 410 107

Opex (US$/t) – LOM average* 90 55

Capex (US$M)- Peak Upfront* 20 10

Capex (US$/t) – Sustaining 30 8

Opex (US$M) – LOM* 255 35

ZAR assumption (US$) 13.5 13.5

Gold Price (US$/oz) 1200 1200

Cash cost (LOM, C1) US$623/oz US$329/oz

All-in Cost* (US$/oz) US$860/oz US$426oz*

NPV (US$M) post-tax (10% DCF) US$61M US$49M

*Includes depreciation of Initial project capital, royalties and site exploration.


Figure 11) PMR Explanatory Diagram

(Source: SWJ)

Vaalhoek: Hard Rock Potential The Vaalhoek deposit, situated 30km from the TGME processing plant contains a JORC (2012) resource of 1.35Mt

@ 5.74g/t Au for 248koz of contained gold (inferred category).

The deposit is geologically similar to the Beta Mine, with a flat-lying narrow reef (<1m average thickness) at a

relatively shallow depth (200-300m).

The project has been the subject of internal scoping study work in recent years by SWJ, which considered mining at

a rate up to 180ktpa, and construction of a stand-alone processing plant. We see upside potential to our production

scenario of 120-130kozpa within 5yrs, with addition of Vaalhoek feed to the central mill at TGME, which could

deliver up to 30Kozpa medium term at say 200ktpa, depending on grade and ability to mine at a rate of at least

16kt/month.

At this stage we have not added any of this production to our Scoping-level model, as we already achieve 120-

130kozpa from an expanded Rietfontein, and the combined Beta/PMR (Refer to Figure 2, p5). We expect similar

costs and potentially grades to Beta (5-6g/t) depending on the appropriate cutoff applied, hence a similar post-tax

NPV of around US$50M may be achievable under a small-scale low capex scenario as envisaged at Beta. We have

excluded this value potential in our base-case valuation due to uncertainty on reserves, scheduling and other factors

we anticipate will be investigated by SWJ in due course as the Preliminary Feasibility work into the TGME project

continues in 2017.

As identified by SWJ’s geological consultants, there is potential for continuation of the high-grade reef to the west,

and the project warrants completion of several diamond drill-holes to test this theory of orebody extensions and

continuity (Figure 12).


If this drilling did prove up further extensions, then this could be the catalyst for undertaking a detailed feasibility

on re-commencement of mining at Vaalhoek or in-mine exploration and dewatering to better gauge the conditions

and mining potential.

Figure 12) Vaalhoek Mine with Target Exploration Areas

Source: SWJ/Minxcon 2017


The Big Picture: Up-scale & BIOX

One of the limitations of past miners in the field has been the ability to cheaply extract gold from areas of the

goldfield which are partly or predominantly refractory. Whilst much of the field (including those gold resources

which are the focus of preliminary mining plans at Rietfontein and Beta) is not considered refractory, evidence

suggests installing a BIOX® facility could not only lift recoveries from the anticipated mid 80’s to >90%, but it may

open up other areas to mining including Glynns, Dukes Hill, Clewer, Theta.

To give an example of upside, a 6% increase in recovery in our Rietfontein model from 84% to 90%, provides a 13%

or US$25M increase to our NPV. Lifting recovery across all project areas, and adding in production from areas with

a high % of refractory ore, could provide a major boost to the longer term value of the project.

To the south, near Barberton, the Barberton/Fairview mine (operated by Pan African Resources, LON: PAF) has

operated a BIOX® facility for over 15 years, treating hard rock ore at grade up to 40g/t or more in some areas, and

also tailings at a head grade of 1.7g/t (pre-concentrate).

Recent cash-costs have been reported at US$692/oz for the hardrock (85kozpa) and US$315/oz for the tailings

retreatment at 30kozpa (FY’16A).

BIOX® is a robust, easy to operate and sustainable technology for the treatment of refractory gold concentrates

and has been in commercial operation for 30 years with 13 successful BIOX® plants commissioned worldwide. To

date, over 22 million ounces of gold have been produced through BIOX®. The technology is suitable to an extreme

range of climactic conditions and sulphur grades, ranging from as low as 4% up to 42%.

The Fosterville Mine in Victoria (recently purchased by Kirkland Lake for A$1b as part of the Newmarket Acquisition

(TSX: KL) is an example of a large-scale facility (200kozpa). Jinfeng in China is another project most in Australia

recall (2007 commissioning).

A sample of ore from the Frankfort mine (an SWJ asset) was taken as part of a 2008 study by Simmer and Jack, and

tested using the technology. Gold recovery improved from 54% to up to 92% from full oxidation. In 2009 further

testwork was conducted on Beta Mine ore, with improved recoveries.

In 2008 a capital cost estimate was completed by Goldfields (who then owned the technology, before Outotec) for

US$11.5M for a 75tpd flotation plant (similar size to Fairview), assuming a 35% sulphide grade. Sulphur grades at

Beta and Rietfontein of 10-15% are low, hence do not require the technology, however some areas are reported at

up to 50% sulphur grades.

The company is currently working through a long term development plan for the area and BIOX® is anticipated to

feature as part of plans for long term production growth.


Figure 13) BIOX® reactors at Fairview, nearby to TGME

Source: SWJ/Pan African Resources Ltd

Approvals and Licensing

The legal mining permit issued in 2006, allows for the mining of Rietfontein and specifically by a Mining Right

(358MR) registered with the DMR. The mining permit is valid until 2028 with options to extend.

This Right allows for the construction of the surface infrastructure; rehabilitation of the adits; access to the

underground workings; disposal of waste rock on the surface and mining of ore.

Power lines suitable for providing the necessary power for infrastructure and mining are nearby and follow the main

bitumen road which allows direct access to the site. The Right also allows for the transport of ore along this road to

Pilgrims Rest, where Stonewall’s TGME Metallurgical Processing Facility is situated some 41 km from Rietfontein

Mine.

The project also has a Water User Licence which is valid for the duration of the Project. The mining right includes

phase two developments in the Southern area of Rietfontein; where additional mining infrastructure is planned on

surface.

Valuation Methodology & Discussion

Our preferred valuation method for pre-development projects is the Discounted Cashflow (DCF) methodology. This

evaluates the conceptual excess cashflows (post operating costs, royalties, taxes and other charges) which may be

available from the project (and used to pay down debt, fund exploration, dividends or other corporate purposes).

We have also considered market-based valuation methods, both as a comparison, and to ensure the DCF valuation

method appears reasonably based.

We have used flat, nominal costs and revenue based on recent spot pricing LOM for most inputs for the DCF.


A summary of our key assumptions is shown below in Table 5.

Table 5: Project Valuation Assumptions

Parameter Rietfontein Beta/TGME PMR Total/Av.

Reserve (Mt) 3.0 2.8 0.64 6.4

Mine Life (yrs) 10.5 15.0 5.0 7.0

Recovery (% Au) 84 84 90 85

Annual Prod (koz average) 79 16.0 19.5 115

Peak Dev Capital (US$M) 26 22 6 54

Total Gold Recovered (Koz) 775 410 107 1291

LOM Additional Capex (US$M) 126 64 7 197

Opex (A$/t) – LOM average* 110 90 55 106

Total Resource (Koz)- Current 905 710 - 1.65

Opex (US$M) – LOM* 412 255 35.9 711

C1 cash cost (US$/oz) 427 623 329 476

All-in Cost (AIC)** – US$/oz 723 860 426 731

Project NPV (10%) US$M 197.5 61.2 49.0 308

Current Valuation (US$M) 59.3 18.4 14.7 92.3

*Note this includes an estimate for royalties, sustaining capital and site expenses. Includes initial project development capital.

Our post-tax, unrisked NPV is calculated at US$308M for the TGME project based on our assessment as outlined

above. We have allowed for a flat 30% corporate tax rate, not allowing for any benefit from tax losses, offsets or

other factors which may reduce the cash tax paid.

Our risk-adjusted cashflow-based valuation of US$92.3M takes 30% of NPV for the conceptual development

scenarios as shown in Table 5 above, under the line ‘Current Valuation’. Factors utilised are considered high risk

prior to definition of reserves and confirmation of head grade, costs and recoveries to be determined through PFS

work. Our assessed valuation of US$85m incorporates market-based factors.

As with any preliminary study, there are both upside and downside risks as the mine advances towards DFS

completion and Final Investment Decision (FID). Being underground operations, risk relating to ultimate reserve

scale and head grade remains high (Inferred resource status can be high risk). For underground mines, a higher

degree of risk relates to mine scheduling/dilution.

The potential for grade variance highlights the need for appropriate grade control and selective mining to prevent

excess dilution. Capital and operating cost risk applies, as with all mining ventures.

There are a number of potential areas of upside which in our opinion have a reasonable chance of being

incorporated into the ultimate project economics. These include increased reserves, higher recoveries through

BIOX® or other methods, increased tonnage at Beta and other potential mines not incorporated into our forecasts

yet (i.e. Vaalhoek).

In consideration of a potential valuation range, we have run the following sensitivity to our assumptions:

Change in gold prices by 10% (NPV changes by 20%);

Change in exchange rate by 20% (NPV changes by 11%, at 50% sensitivity);

Change in assumed gold recovery by 5% (NPV changes by 13%)


Our assessed range of present day valuation based on the DCF methodology is therefore US$56M (assuming all the

above factors to the negative) to US$128M (positive factors), with a mid-point of approximately US$92M.

We note the use of 66% inferred mineral resources in the Scoping Study for Rietfontein, and primarily inferred

resources for Beta Mine. For this reason there is no certainty that Production Targets referred to by the company

will be realised as this resource needs to be brought up to Measured & Indicated JORC status before reserves can

be published (required for the PFS and current focus of the Company via a comprehensive drill program due to

commence shortly).

Whilst the ‘market valuation’ method referred to in the VALMIN Code (2015) refers to comparable transactions,

this method is not considered appropriate in this case because we are not making an assessment of a potential

transaction.

Whilst valuation of any mineral asset should have a degree of independence from financial market factors, in order

to assess the reasonableness of our valuation, we examined a number of assets, as valued by single-asset

companies on the Australian Stock Exchange (ASX). As shown in Table 6, below and Table 1 (p2) this alternate

method is within range of our DCF valuation.

Table 6: Alternative Valuation Methodology

Market-based valuation approach

*ASX closing pricing utilised (24 February 2017). The following ASX companies were used for comparison: (GCY, IRC, CRB, GOR,

BSR, DCN, AUC, KIN) with enterprise value calculated as at 24/02/2017.

The range of implied project valuations for pre-development gold projects on the ASX is between US$13/oz to

US$55/oz, or an average of US$32.6/oz. Thus the range for the market-based approach is from US$45M to

US$223M 1. We emphasis this method is to be considered less reliable than the DCF method of valuation, as there

is no consideration for valuation of reserves, and some pre-development companies may have a large portion of

their resource base in sub-economic categories (due to grade, orebody geometry, etc). Selection of the appropriate

multiple, and statistic to apply in this method, is subject to a large degree of subjectivity. We adopt a 30% discount

to the average due to pre-PFS status.

Financing & Development

On the 18 January, SWJ announced a A$5.4M funding arrangement with the Lind Partners, with the first tranche of

A$2m received and an additional A$0.5M placement. Additional monthly funding of between A$60k and A$250k

was agreed.

In 2016 the Hong Kong International Arbitration Centre (‘HKIAC’) awarded SWJ U$12.6M plus interest and costs

against Shandong Qixing Iron Tower Co. Ltd (‘Shandong’) relating to the failed acquisition of the company in 2013.

SWJ remains confident of reaching a settlement in this regard in 2017.

SWJ owns 76% of the TGME project, with 24% held by the Black Empowerment Party (“BEE”). The effective

economic interest (on a DCF basis) may be higher and depends on loan rates, funding, tax losses and other factors

(as first cashflow is used to pay back loans and expenditure by SWJ). This valuation represents 100% of the asset,

and we have not assessed the effective economic interest of the project holder for the purpose of this report.

Average for Gold pre-development Co's (US$EV/oz): 32.6

Implied Value for TGME (US$M) at 70% of average 79.1


With a major drilling campaign underway, along with PFS studies, we expect SWJ will require more funding in 2017

to complete these objectives. In addition, project financing is likely to be required (or a similar funding) by early

2018 to complete refurbishment of the TGME plant and commence underground mining.

History shows as a project moves from the Scoping Study level towards production, there are any number of

variables which may change and influence the development. Based on the studies conducted to date, it appears the

project is capable of attracting appropriate finance to enable construction and commissioning.

Exploration

Very little modern exploration techniques have been utilised in the Pilgrim’s Rest and Sabie area in the last 20 years.

This is due to a past focus by project owners on re-starting old mining operations or conducting near-mine

exploration.

As artisanal mining and prospecting is not allowed, and much of the area is overgrown with vegetation, traditional

methods such as soil sampling (and possible IP etc.) have not been carried out.

In addition, much of the tenement area is covered by colluvium, basalt cover and deeper soil profiles, requiring

deeper scout drilling and other methods to delineate potential mineralisation.

Exploration is potentially relevant to the economics and valuation of the project, should resources be delineated

with the potential to be used as supplementary feed to the TGME project.

With existing potentially economic resources already identified in the old mining areas, the current focus of SWJ is

these locations first. We anticipate in 2018 and beyond, with sufficient funding a place, a budget will be allocated

to more greenfields exploration with a dedicated team of geologists and assistants with the specific purpose to

identify new prospects for priority drilling.


Disclosure & Disclaimer

Author Verification

I, Geoff Muers, Principal Consultant at Mine Invest, hereby certifies that the views expressed in this report accurately reflect

my personal views about the subject matter and no part of compensation is directly or indirectly related to the inclusion of

specific opinions or valuations. The author has over 10 years experience in the reporting, valuation and assessment of mineral

projects, including the type of mineral project discussed in this report, and over 18 years post-graduate mining-related

experience in Australia. The author is a member of AUSIMM and GSA (BSc (Hons), G.Dip.App.Fin).

Disclosure

Mine Invest and its affiliates and associates currently own shares in the company which currently owns the asset principally

referred to in this report, at the date of this report. Mine Invest charges a fee for the preparation of this report, and may in

the future seek to do business with the aforementioned company, or related companies and entities and receive payments

for such business.

Disclaimer

This report has been issued or approved for issue by Mine Invest and is made available for information purposes only and

should not be considered as an offer or solicitation of an offer to sell, buy or subscribe to any securities or any derivative

instrument or any other rights pertaining thereto. This report may not be reproduced without the consent of the owner.

For the purposes of this disclaimer, “Mine Invest” shall mean: (i) Mine Invest (registered trading name of 3 Mines Pty Ltd); in

relation to any of the forgoing entities, the ultimate holding company of that entity, a subsidiary (or a subsidiary of a

subsidiary) of that entity, a holding company of that entity or any other subsidiary of that holding company, and any affiliated

entity of any such entities.

The information and opinions expressed in this report have been compiled from sources believed to be reliable at the time,

but neither Mine Invest, nor any of its employees, contractors or affiliates accepts liability for any loss arising from the use

hereof or makes any representations as to its accuracy and completeness. Any opinions, forecasts or estimates herein

constitute a subjective judgment as at the date of this report. Whilst this report follows the general principles and guidelines

outlined in industry guidelines for the preparation of mineral industry valuation reports (such as the Valmin Code, 2015, JORC

2012 and N43-101 of Canada), it is not intended to be used as a report with any specific commercial objectives in mind (such

as Independent Expert Reports). It is therefore is not covered under relevant Australian financial services legislation.

Mining, by its nature, and related activities including mineral exploration, are subject to a large number of variables and risks,

many of which cannot be adequately assessed, or can be expected to be assessed, under the limited scope of this report.

Work contained within or referenced in this report may contain incorrect statements, errors, miscalculations, omissions and

other mistakes. For this reason, any conclusions, inferences, judgments, opinions, recommendations or other interpretations

either contained in this report, or referencing this report, cannot be relied upon. There can be no assurance that future results

or events will be consistent with any such opinions, forecasts or estimates.

This information is subject to change without notice, its accuracy is not guaranteed. The work may be incomplete or

condensed and is not intended to contain all material information concerning the asset, the associated company and its

subsidiaries. The author and related parties do not agree to, nor are required to, update the information, opinions, forecasts,

valuations, conclusions or estimates contained herein. We also note, this valuation does not take into account any

encumbrances, claims, legal actions, future or current liabilities which may relate to the holding entity. A reader is not to

interpret this report as inferring any recommendation, suggestion, comment or otherwise, which may be utilised in forming

any decision regarding any commercial or financial outcome which may be related to the subject project of this report.

Neither this report nor the information contained in it is intended to be an offer to any person, or to induce or attempt to

induce any person to enter into or to offer to enter into any agreement for or with a view to acquiring, disposing of,

subscribing for or underwriting securities or undertaking any commercial transactions relating to the assets covered in this

report. This publication is provided for the information of the addressee to whom it was sent only and may not be reproduced

in whole or in part, copies circulated, or disclosed to another party, without the prior written consent of Mine Invest.


References

Website: http://www.stonewallresources.com

Valmin Code, 2015. Australasian Code for Public Reporting of Technical Assessment and Valuations of Mineral Assets,

AUSIMM/GSA, effective July, 2016.

JORC, 2012. Australasian Code for Report of Exploration Results, Mineral Resources and Ore Reserves.

Stonewall Resources, 2017. Rietfontein Scoping Study: ASX release dated 28 February 2017

Stonewall Resources, 2017. Upgraded JORC Resource, ASX release dated 7 February 2017

Glossary of Common Terms

Archaean: The oldest rocks on Earth, within an age range of over 4,000 million years ago to 2,500 million years ago.

BFS (Bankable Feasibility Study): A detailed level of studies sufficient to enable a mine to attract funding from banks or other

sources, in which a preferred development option is outlined with a high degree of confidence in the parameters and costs (±10-

15% error variability).

BIOX (Bio-Oxidation): The breaking down of sulphide minerals in an oxygenated environment by bacteria, over a specific time

period (say 48hrs or 72hrs) before gold is extracted by regular CIL processes.

Commissioning: The process of activating a mineral processing plant to generate a saleable product. This process often involves

numerous modifications to systems and processes, and equipment hardware/software. The process may take anywhere from

days to months, depending on the scale and complexity of the mining operation.

Cyanide Leach (CIL): Often referred to as Carbon in Leach. Gold is soluble in cyanide, hence finely ground ore is mixed with a

weak cyanide solution to separate out the gold. Carbon and oxygen are used to dissolve all the gold into solution, with the

cyanide and gold binding to the carbon which is then refined further via roasting to remove the gold into a solid form.

Epigenetic: Formed later than the surrounding rock formation.

Exploration Lease: A type of mining title granted by a State Government, where permission may be granted to conduct

exploration involving sampling, drilling and activities involving relatively minor earth disturbance.

Exploration Target: The size and grade of resource which is considered possible or probable, based on identified grades and

geometry from drilling, geophysics and thorough geological interpretation. Exploration target is not a Mineral Resource.

Environmental Impact Statement (EIS). A comprehensive report detailing how the impact of the project will be minimised

through application of best practice environmental techniques and methods. The report also contains a thorough summary of

the existing natural environment where the project is situated, and the expected impact on air and water quality, noise amenity,

soils, traffic, rehabilitation and other environmental issues. The report is available for public comment and is reviewed by several

Government Agencies.

Greenschist: Metamorphic rocks formed under the lowest temperatures and pressures (300-450 ºC ) and 2-10 kilobars.

LOM (Life of Mine): The intended producing life of the asset, measured in years (for example a 10 years LOM or Life of Mine)

and backed by sufficient Mineral Resources or Reserves.

Merrill Crow Circuit: The Merrill-Crowe process is a separation technique for removing gold from a cyanide solution. The circuit

uses methods including filtration, decantation and precipitation to produce a gold dore.

Metamorphic: Describes a rock or a sequence of rocks which have undergone change as a result of heat, pressure or a

combination of such. Often results in the formation of new minerals, and structures such as folds and faults.


Mineral Resources: Rocks or other materials (such as sands, liquids) where sufficient exploration work has been conducted in

order to calculate the quantity and grade of material. The most confidence of Measured, Indicated and Inferred resources is

measured. Refer to JORC, 2012.

Mineralisation: A single mineral or combination of minerals occurring in sufficient quantity to be recognised as unusual, and

potentially warranting further investigation to determine if a Mineral Resource may be calculated.

Mineral Lease: A type of mining title granted by a State of Federal Government, often similar to a Mining Lease, where

extraction is permitted to be carried out, has been carried out previously or is planned. Permit requirements and timelines for

Mineral extraction on Mineral or Mining Leases are often shorter than Exploration Leases.

Mineral Inventory: Describes the portion of a Mineral Resource which, subject to further drilling, metallurgical testwork and

related economic studies, may be converted into a Mineral Reserve, with a mining schedule attached.

Mineral (Ore) Reserves: Mineral Resources of sufficient confidence that a mine plan can be created based on the economic

extraction and processing of the material. Refer to JORC, 2012.

PFS (Pre-Feasibility Study): Mining-related studies which assess a range of development options involving technical and

economic aspects of a project (±25-30% error variability) used to justify the continued expenditure on resource definition and

engineering work in order to obtain sufficient confidence to progress the project towards a decision to mine (and funding).

Production Target: Estimated amount of ore or metal that may be produced from a mine, subject to confirmation of future

JORC (2012) reserves.

SEDEX: Sedimentary Exhalative Deposits, can be related to VMS style, though typically stratiform (layered) in nature and

formed by the release of mineral-bearing fluids into the ocean, and precipitation onto the sea floor. Most of the zinc and lead

deposits globally are SEDEX or VMS style.

Stoping: The underground mining practice of removing mineralised ore (reserves) from surrounding rock and enabling efficient

extraction to the surface along with ongoing development of the orebody.

TCRC’s: Treatment Charges and Refining Charges. The fees payable to a smelter, or refiner, in order to process concentrates,

metal ores or bullion and recover the metals into a saleable product. Such charges will vary year-to-year, and whilst industry

references may be quoted, specific terms are often applied to an individual project.

VMS: Volcanogenic Massive Sulphides, a type of ore deposit formed on the ancient sea-floor, typically containing a range of

metals including zinc, lead, copper, gold, silver and other elements of potential economic interest.

preliminary valuation of the tgme gold project, south...

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