initiation of coverage base metals and minerals · base metals and minerals canaccord genuity is...

Venturex Resources Limited

Base Metals and Minerals

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and allthe companies and securities that are the subject of this report discussed herein.

Australian Equity Research28 January 2018

SPECULATIVE BUYPRICE TARGET A$0.04Price (26-Jan)Ticker

A$0.02VXR-ASX

52-Week Range (A$): 0.00 - 0.03Avg Daily Vol (M) : 18.9Market Cap : 61.2Shares Out. (M) : 3,598.4Dividend /Shr (AUc): 0.0Dividend Yield (%) : 0.0Enterprise Value : 58.7NAV /Shr : 0.04NAV /Shr (5%) (A$): 0.05Net Cash : 5.3P/NAV (x) : 0.42Major Shareholders: Northern Star Resources 19%

FYE Jun 2017A 2018E 2019E 2020ERevenue (A$M) 0.0 0.0 0.0 205.4EBITDA (A$M) (3.0) (1.9) (0.9) 113.1NPAT (A$M) (2.6) (1.9) (1.8) 91.7Zinc Production(000t) 0 0 0 10

Copperproduction(000t)

0 0 0 23

0.03

0.025

0.02

0.015

0.01

0.005

0

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

VXR

Source:�FactSet

Priced as of close of business 26 January 2018

Canaccord Genuity (Australia) Limited has received afee as a Joint Lead Manager, Joint Bookrunner and JointUnderwritter to the Venturex Resources Ltd capital raisingannounced on 16 November 2017.

Tim McCormack | Analyst | Canaccord Genuity (Australia) Ltd. | [email protected] | +61.8.6216.2088

Initiation of Coverage

Right metals, right timeTiming is everything. In the landscape of development-ready Australian base metalsopportunities, there are few as advanced as Venturex Resources' (VXR) Sulphur Springszinc/copper project. Despite depressed metal prices and limited access to capital overthe past few years, VXR has done a good job of maintaining progress on the project,which in our view should be at a financing decision in 2H18. With both zinc and copperprices maintaining positive momentum in 2018, we believe the timing is ideal to bebringing a project of this nature on line. We expect VXR's "under the radar" SulphurSprings project to garner increased market attention as it delivers a number of project-defining catalysts in the short term and moves towards a development decision later thisyear.Successful drilling campaign in 2017. VXR’s most recent exploration efforts werefocused on increasing the confidence level of the high grade Inferred copper Resource(800kt at 4.2% copper and 0.8% zinc) at Sulphur Springs. Results from the close spacedrilling program were positive on a number of fronts, including (1) confirmed continuityof high grade copper mineralisation as per the Inferred Resource; (2) discovery of a high-grade, zinc-rich zone overlying the copper mineralisation; and (3) identification of thepotential for the Sulphur Springs mineralisation to extend to the west, towards a well-defined Electromagnetic anomaly.Plenty of material news flow in the pipeline. During the next six months, we expectVXR to provide a number of key updates that should underpin a development decisionon its Sulphur Springs project in 2H18. Catalysts we are looking for include an updatedResource on the back of the 2017 drilling program, metallurgical testwork outcomesand an updated Feasibility Study. In parallel, an exciting exploration program shouldcommence in March 2018 that will immediately target extensions to high grademineralisation outside the current Resource envelope. We highlight that the existing highgrade copper zone of the open pit orebody drives significant FCF in the formative years ofthe operation and any extensions to this could have a meaningful impact on the projecteconomics.Development decision in 2H18. In our view, VXR should be development ready andconclude project financing in 2H18. Our assumed production profile is conservativelybased on the Value Engineer Study (VES) released by VXR in February 2017, and assuch, we model an eight-year mine life (12 years in the VES) producing on average~30ktpa zinc and ~12ktpa copper LOM. The key economic driver of the project is highercopper production in the early years of the mine, which positively skews cash flow in theearly years of the mine plan.Valuation and recommendation. We have based our A$0.04/sh valuation for VXR ona DCF analysis (NPV10%) of the Sulphur Springs base metals project, plus nominalexploration value, net of corporate and other adjustments. Our valuation is diluted for afuture equity raising of A$80m (A$0.02/sh) in 1H FY19 as part of our assumed 60:40debt/equity project financing. We note that the project has exceptional leverage to highermetal prices, and even at spot, the NPV10% for Sulphur Springs increases to A$283m(from A$201m), or a target price of A$0.05/sh. With a company-defining year expected,we initiate coverage with a SPEC BUY recommendation.

For important information, please see the Important Disclosures beginning on page 22 of this document.

2

FINANCIAL SUMMARYVenturex Resources Limited ASX:VXR

Analyst : Tim McCormack Rating:

Date: 26/01/2018 Target Price: $0.04

Year End: June

Market Information Company Description

Share Price A$ 0.02

Market Capitalisation A$m 61.2

12 Month Hi-Lo A$ 0.03-0

Issued Capital m 3598.43

Options m 216.29

Fully Diluted m 3814.72 Profit & Loss (A$m) 2017a 2018e 2019e 2020e

Revenue 0.0 0.0 0.0 205.4

Valuation (diluted for future equity raising) A$m A$/share Other Income 0.0 0.1 1.1 1.1

Sulphur Springs NPV @ 10% 201.0 0.03 Operating Costs -2.5 -2.0 -2.0 -85.0

Exploration & additional resources 30.0 0.00 Royalties 0.0 0.0 0.0 -8.3

Investments - - Exploration (Expensed) -0.1 0.0 0.0 0.0

Corporate (5.3) (0.00) EBITDA -3.0 -1.9 -0.9 113.1

Cash (current estimate) 5.3 0.00 Dep'n 0.0 0.0 0.0 -15.0

Debt - - EBIT -3.0 -1.9 -0.9 98.1

Future Equity 80.0 0.01 Net Interest 0.0 0.1 1.1 1.1

TOTAL NAV/ Price Target 311.0 0.04 Tax 0.0 0.0 -0.0 0.0

P/NAV 0.42x NPAT -2.6 -1.9 -1.8 91.7

TOTAL NAV/ Price Target @ SPOT 387.0 0.05 Abnormals 0.0 0.0 0.0 0.0

NPAT (reported) -2.6 -1.9 -1.8 91.7

Assumptions 2017a 2018e 2019e 2020e

Zinc Price (US$/lb) 0.92 1.44 1.45 1.38 Cash Flow (A$m) 2017a 2018e 2019e 2020e

Copper Price (US$/lb) 2.42 2.99 3.00 3.00 Cash Receipts 0.0 0.0 0.0 205.4

Silver Price (US$/oz) 19 17 17 18 Cash paid -1.8 -2.0 -2.0 -93.3

AUD:USD 0.75 0.80 0.79 0.79 Tax Paid 0.0 0.0 -0.0 0.0

Valuation Sensitivity Net Interest 0.0 0.1 0.3 -5.4

Operating Cash Flow -1.8 -1.9 -1.8 106.7

Exploration and Eval. -2.9 -4.0 -4.0 -4.0

Capex and deferred mining -0.0 0.0 -126.0 -65.3

Other 0.0 0.0 0.0 0.0

Investing Cash Flow -3.0 -4.0 -130.0 -69.3

Debt Draw/(Pmt) 0.0 0.0 100.0 -40.0

Share capital 5.2 7.8 80.0 0.0

Dividends 0.0 0.0 0.0 0.0

Financing Expenses -0.2 -0.4 4.0 0.0

Financing Cash Flow 5.0 7.4 184.0 -40.0

Opening Cash 0.7 1.0 2.5 54.7

Cash Increase/(Decrease) 0.2 1.5 52.2 -2.6

Production Metrics 2017a 2018e 2019e 2020e FX Impact 0.0 0.0 0.0 0.0

Zinc in concentrate (kt) 0.0 0.0 0.0 10.5 Closing Cash 0.96 2.5 54.7 52.1

Copper in concentate (kt) 0.0 0.0 0.0 23.0

Silver in concentrate (koz) 0.0 0.0 0.0 235.1 Balance Sheet (A$m) 2017a 2018e 2019e 2020e

All in Sustaining Cost (A$/lb Zn) 0.00 0.00 -3.87 Cash + S/Term Deposits 1.0 2.5 54.7 52.1

Other current assets 0.2 0.1 75.7 39.3

Resources & Reserves Mt Zinc (%) Copper (%) Silver (g/t) Current Assets 1.2 2.5 130.4 91.3

Reserves Property, Plant & Equip. 1.2 1.2 127.2 177.5

West 45 8.50 3.3% 1.3% 18.00 Exploration & Develop. 26.0 30.0 34.0 38.0

Resources Other Non-current Assets 0.0 0.0 0.0 0.0

Sulphur Springs 13.40 4.0% 1.5% 18.00 Payables 0.7 0.0 0.1 20.6

Kangaroo Caves 3.60 6.0% 0.8% 15.00 Short Term debt 0.0 0.0 40.0 40.0

Whim Creek 1.00 1.1% 2.1% 10.00 Long Term Debt 0.0 0.0 60.0 20.0

Mons Cupri 4.60 1.3% 0.9% 24.00 Other Liabilities 12.3 12.5 92.0 35.1

Salt Creek 1.00 7.0% 2.0% 52.00 Net Assets 15.4 21.3 99.5 191.2

Liberty-Indee (70% owned) 0.65 3.7% 1.8% 35.00 Shareholders Funds 92.9 100.6 180.6 180.6

Total Reserves 0.1 0.1 0.1 0.1

Retained Earnings -77.6 -79.5 -81.2 10.4

Directors & Management Total Equity 15.4 21.3 99.5 191.2

Name Position

Anthony Kiernan Non-Executive Chariman Ratios & Multiples 2017a 2018e 2019e 2020e

Anthony Reilly Executive Director EBITDA Margin nm nm nm 55%

Darren Stralow NED EV/EBITDA nm nm nm 1.1x

Angus Thomson Geology Manager Op. Cashflow/Share 0.00 0.00 0.00 0.03

Trevor Hart Company Secretary P/CF nm nm nm 0.6x

EPS nm nm nm 0.02

Substantial Shareholders % EPS Growth nm nm nm nm

Northern Star Resources 19% PER nm nm nm 1.4x

Regent Pacific 16% Dividend Per Share 0.00 0.00 0.00 0.00

Precision Opportunities Fund 6% Dividend Yield 0% 0% 0% 0%

ROE -17% -9% -2% 48%

ROIC -3% -2% -1% 46%

Debt/Equity 0.0x 0.0x 1.0x 0.3x

Book Value/share 0.00 0.01 0.03 0.05

Source: C anaccord G enuity estimates, C ompany Reports Price/Book Value 4.2x 3.0x 0.7x 0.3x

Venturex Resources is currently advancing the Sulphur Springs copper/zinc

project in Western Australia towards development. On the back of a successful

2017 drilling program we expet to see a Resoruce upgrade and updated

Feasibility Study in the 1H'18 and a decision to develop the project in the 2H'18.

SPEC BUY

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

-30% -20% -10% 0% 10% 20% 30%

Change in

Targ

et P

rice

Change in input variable

Copper Price Zinc Price US$ Exchange Rate

Venturex Resources LimitedInitiation of Coverage

Speculative Buy Target Price A$0.04 | 28 January 2018 Base Metals and Minerals 2

3

Table of Contents Valuation .................................................................................................................... 4

Development Strategy ................................................................................................ 6

Corporate and Finance ............................................................................................... 7

Peer Comparisons .................................................................................................... 10

Assets Overviews ...................................................................................................... 11

Sulphur Springs ........................................................................................................ 11

Whim Creek .............................................................................................................. 18

Investment Risks ...................................................................................................... 20



4

Valuation

We have based our A$0.04/sh valuation for VXR on a DCF analysis (NPV10%) of

the Sulphur Springs base metals project, plus nominal exploration value, net of

corporate and other adjustments.

Figure 1 highlights the sum of parts comprising our valuation. On a per share

basis, we have diluted for an assumed future equity raising of A$80m

(A$0.02/sh) in the 1H FY19 as part of the project financing. This implies an

increase in the number of current shares on issue (3.6bn to 7.6bn) on a diluted

basis. We expect VXR to address the high share count via a consolidation as part

of the project financing.

Figure 1: Sum-of-parts valuation for VXR

Source: Canaccord Genuity estimates

In deriving our valuation, base metals assumptions are internally generated and

we utilise forward curve pricing for silver and FX assumptions.

Figure 2: Metal and FX assumptions


Figure 3 demonstrates our forecast production and AISC profile for the Sulphur

Springs project. We have assumed construction of a 1Mtpa processing facility as

per the Value Engineering Study (VES) completed in February 2017, producing

separate zinc and copper concentrates with ore sourced exclusively from the

Sulphur Springs open pit and underground orebodies. In deriving the modelled

eight-year mine life, we have assumed a Total Resource (13.4Mt at 1.5% copper

and 4% zinc) to Reserve conversion of 60% for Sulphur Springs, which will see the

recovery of 265kt and 119kt of zinc and copper in concentrate respectively (LOM).

The current Reserve for Sulphur Springs is 7.3Mt at 1.2% copper (84kt) and 3.5%

zinc (255kt), which we expect to be updated as part of the Feasibility Study due

for release in the JunQ’18. Importantly, the update will incorporate the latest

drilling, which is aiming to improve confidence levels of the high grade copper

portion of the open pit Resource (~800kt at 4% copper) to Measured/Indicated.

Annual zinc and copper production is forecast to vary year to year, but averages

~30ktpa zinc and ~12ktpa copper LOM. With significantly higher copper grades

and production in the early years of the mine, AISC’s are negative on a zinc basis,

but then normalize to average ~US$0.28/lb based on our price deck. Cash flow is

Valuation (diluted for future equity raising) A$m A$/share

Sulphur Springs NPV @ 10% 201.0 0.03

Exploration & additional resources 30.0 0.00

Investments - -

Corporate (5.3) (0.00)

Cash (current estimate) 5.3 0.00

Debt - -

Future Equity 80.0 0.01

TOTAL NAV/ Price Target 311.0 0.04

P/NAV 0.42x

TOTAL NAV/ Price Target @ SPOT 0.05

Assumptions 2017a 2018e 2019e 2020e 2021e 2022e 2023e LT (2024)

Zinc Price (US$/lb) 0.92 1.44 1.45 1.38 1.33 1.25 1.20 1.10

Copper Price (US$/lb) 2.42 2.99 3.00 3.00 3.13 3.38 3.50 3.00

Silver Price (US$/oz) 18.54 16.91 17.44 17.88 18.24 18.51 18.51 18.00

AUD:USD 0.75 0.80 0.79 0.79 0.78 0.78 0.78 0.78



5

positively skewed to the early years of the mine life, which bodes well for debt

financing on favorable terms.

Figure 3: Assumed LOM production and AISC profile for Sulphur Springs


We note that in our valuation we have omitted the Kangaroo Caves project

(Resource of 3.6Mt at 6% zinc and 0.8% copper) from the modelled production

forecasts, which, in the Value Engineering Study increased the envisaged mine life

towards 12 years. Development of the asset (~6km from Sulphur Springs)

represents upside to our valuation; however, we expect the exploration focus to

remain at Sulphur Springs in the near term, which could see a development

decision on Kangaroo Caves ultimately deferred.

Key sensitivities to our valuation are copper and zinc prices as well as currency

fluctuations which can be seen in Figure 4. At spot prices the NPV (10% for

Sulphur Springs increased to A$283m (A$201m), or a target price of A$0.05/sh.

Figure 4: Sensitivity analysis on the key commodity and currency inputs




6

Development Strategy

The VES completed in early 2017 represented a major advancement on the

Feasibility Study completed by VXR in December 2012 and subsequent

Optimisation Study in November 2015. In our view, the VES, and the incorporation

of high grade copper mineralisation (previously interpreted as Supergene) in the

open pit demonstrates a robust development pathway with improved economics,

reduced risk profile and improved capital cost compared to previous work done on

the project.

We have assumed that VXR develops the Sulphur Springs project on a stand-alone

basis, with first concentrate production by FY20, which allows for ~12 months

construction.

Key milestones in 2018 in order to achieve production on our modelled timeline

include:

Resource/Reserve update incorporating results from the 2017 infill drilling

program. CG expects late MarQ’18.

Updated Feasibility Study incorporating the new Resource/Reserve and

Metallurgical outcomes on the high grade copper mineralisation in the open

pit. CG expects mid JunQ’18.

VXR has already received granted Mining Permits (2014) for development at

Sulphur Springs as an underground operation; however, with VXR now

envisaging a significant open pit operation, Clearing Permits, the Mining

Proposal and Closure Plans need to be amended. The Environmental

Protection Authority has stated that as part of the Environmental Review, no

public engagement is required and we expect final approvals to be granted by

mid-2018.

Completion of project financing on the back of the updated Feasibility Study

and receipt of all Permits. We have assumed this to be completed on a simple

debt:equity basis (60:40), which would see the company access A$100m in

debt and A$80m via equity markets to fund the capital requirements of the

project. We note that optionality exists for VXR with regard to funding, and

avenues such as prepayments, offtake finance and hybrids are being

investigated as part of the funding process. Strategic partners and financiers

are also options given the relative scarcity of new base metals projects both in

Australia and globally. We expect financing to be completed in the 2H’18.

The 2018 exploration program should commence in early March (currently

wet season). We continue to look at the exploration upside at Sulphur Springs

favorably, with good potential for extensions to the currently envisaged open

pit Resource, as well as a number of regional targets identified as part of a

recent HEM (Heliborne Electromagnetic) survey. While results are unlikely to

be incorporated in the updated Feasibility Study, we believe there is good

potential to improve the medium term production profile on the back of

drilling success.

Key inputs supporting our modeled production profile are outlined in Figure 5. We

note, that with material updates likely to be released during 2018, we will refine

our assumptions as new information becomes available. As a starting point,

however, we view our current inputs as conservative and believe that as the

project develops, further upside to our valuation may become apparent.



7

Figure 5: Sulphur Springs key inputs

Source: Company Reports, Canaccord Genuity estimates

Our modelled production scenario envisages the first five years of ore sourced

from the Sulphur Springs open pit, before transitioning to underground for a

further three years, with both phases of mining supporting the 1Mtpa processing

rate.

Upside to our production assumptions exist via higher-than-modelled milling rates

(1.25Mtpa contemplated as an option in the VES), potential improvements to the

open pit mine grades and exploration success over the medium term. Positive

outcomes here could result in higher production rates, mine life and cash flow.

Corporate and Finance

As with most base metals developers, access to equity markets has been limited

in recent years due to depressed commodity prices. VXR has completed a number

of modest raisings to maintain progress on its core projects over the past few

years. In our view, management has demonstrated a disciplined and frugal

approach to working capital, while delivering a step change in the development

potential of the asset portfolio, particularly over the past 12 months. The most

recent equity issuance should see VXR with ~A$5m cash at the end of the

DecQ’17, allowing the company to maintain a modest exploration program

through the 1H’18, while it updates the Feasibility Study and finalizes project

financing. The company’s more recent equity issuances include:

November 2017: Placement at A$0.018/sh to raise A$4m.

July 2017: Fully subscribed Entitlement Issue (2-for-7) at A$0.005/sh to raise

A$3.75m.

August 2016: Placement and Entitlement Issue (2-for-5) at A$0.006/sh to

raise A$4.05m.

December 2015: Entitlement Issue (2-for-15) at A$0.005/sh to raise A$1m.

VXR has a high share count, with 3.6bn shares currently on issue and a further

216m options sitting out-of-the-money at A$0.03/sh. While no firm strategy has

been communicated to the market with regard to consolidating the register, we

see a logical time to address the issue in line with the project financing. The

liquidity in the stock is modest, and tends to be event driven (drilling results etc),

and the 90-day average daily turnover is ~19m shares.

Key assumptions (100% basis)

Assumed Resource to Reserve conversion (Sulphur Springs) 60%

Zinc recovered LOM (in concentrate) 265kt

Copper recovered LOM (in concentrate) 119kt

Capex required (pre-production) A$175m

Sustaining capex LOM A$35m

Processing rate 1Mtpa

Zinc recovery, concentrate grade and payablity 93%, 55% and 85%

Copper recovery, concentrate grade and payability 90%, 26% and 95%

Open pit strip ratio 8.5:1

First production DecQ'19

Mine life 8 years



8

Figure 6: VXR issued capital


A key point of difference with the VXR register vs many of its peers is the presence

of Northern Star Resource (NST-ASX: $6.26 | HOLD | PT: A$6.10 | Analyst Tim

McCormack) at 19%. NST has been a longtime supporter of VXR, and since the

focus sharpened on developing Sulphur Springs, NST has been vocal on the

project’s merit during conference calls and at its AGM (November 2017). While

it’s difficult to know NST’s ultimate intentions, we see its presence on the register

as a positive endorsement for the project. Regent Pacific and Henghou Industries

are long-term shareholders, but have been diluting in the past few capital raisings.

Precision Opportunities Fund is the company’s newest significant shareholder,

building a position over the past 12 months.

Figure 7: VXR’s major shareholders


In funding the development of the Sulphur Springs project, we have assumed

60:40 debt:equity financing, raising a total of A$180m. While a daunting amount

for a company capitalized at A$62m, we see higher cash flow in the formative

years as being attractive to debt providers that will help in gaining favorable

terms. We assume the debt to be repaid over three years, but note this could be

accelerated comfortably if required. The A$80m equity component of the

financing is assumed to be raised at the current share price which was A$0.02/sh

at the time of publishing.

In Figure 8, we illustrate the EBITDA, FCF and net cash build over the assumed

mine life. Once at steady state production, VXR could generate EBITDA of

+A$100m pa, and FCF of ~A$70m pa. We note the spike in the first full year of

production (FY21) which coincides with mining the high grade copper part of the

orebody in the open pit.

Issued capital

Ordinary shares 3,598,434,633

A$0.03 options (3/8/2018) 41,666,667

A$0.03 options (31/8/2018) 174,619,460

Fully diluted 3,814,720,760

Major Shareholders

Northern Star Resources 19%

Regent Pacific 16%

Precision Opportunities Fund 6%

Henghou Industries 5%

Board and management 3%



9

Figure 8: Forecast EBITDA, FCF and net cash over the assumed mine life

Source:, Canaccord Genuity estimates

Board and Management

Anthony Kiernan – Non-Executive Chairman

Mr Kiernan is a former solicitor with extensive experience gained over 35 years in

the management and operation of listed public companies. As both a lawyer and

general consultant, he has practiced and advised extensively in the fields of

resources, media and information technology. He is Chairman of Pilbara Minerals

Limited (PLS-ASX: $1.01 | HOLD | PT: A$0.95/sh | Larry Hill) and of Chalice Gold

Limited (CHN.ASX | Not rated)

Anthony Reilly – Executive Director

Mr Reilly has over 20 years investment banking experience including financial

markets, financial risk management and corporate finance. He worked in

investment banking in London for over 10 years, and since leaving banking has

spent 8 years working in the small-cap mining space. He was a founding Director

of a private Brazil incorporated gold exploration company and he has also served

as an Executive Director of several ASX-listed resource companies.

Darren Stralow – Non-Executive Director

Mr Stralow is a mining engineer with over 15 years’ experience in the resources

industry. After starting his career in the WA goldfields, he has held senior roles

with Intrepid Mines Limited and is currently the COO of Northern Star Resources

Limited. Mr Stralow has a Bachelor of Engineering (Mining) from the Western

Australian School of Mines and a WA First Class Mine Manager’s Certificate.

Trevor Hart – CFO and Company Secretary

Mr Hart is a Certified Practicing Accountant with a Bachelor of Business in

Accounting and a Chartered Secretary. He has over 20 years’ experience including

15 years in the resources and mining services industry. He has provided

consulting services covering accounting, financial and company secretarial

matters to various companies in these sectors. Prior to joining VXR, he has held a

number of senior financial positions in other ASX-listed companies.



10

Peer Comparisons

A key observation of the base metals companies under coverage is the lack of

valuation upside among the larger cap, more established names (OZL, IGO, SFR,

WSA). P/NAV’s basically descend in order with market capitalization as seen in

Figure 9, and with positive zinc and copper price tail winds remaining, we expect

investor focus to turn towards the smaller end of the market for better

fundamental value and leverage on the base metals thematic.

Given the small end of the base metals sector has been starved of capital over

the past five years while commodity prices have been depressed, very few

projects are progressed to the point of being development ready. VXR is a

standout in this regard, being one of a select few that could potentially finance a

project during 2018. The table below outlines the base metals companies under

coverage, with the additional of VXR being our second developer covered in the

space with MOD resources (MOD.ASX | SPEC BUY | PT A$0.10/sh | Larry Hill).

Figure 9: Base metals coverage, noting the lack of fundamental value in the larger stocks

Source:, Canaccord Genuity estimates (priced 24 January 2018)

Figure 9 shows the cost curve for the global zinc producers (2017) on a payable

basis. While VXR’s proposed production profile is modest in comparison to many

on the chart, with the significant copper credits we envisage the operation to

comfortably sit in the lowest quartile of producers (<US$0.60/lb payable)

Figure 10: Production and cost curve globally significant zinc producers

Source: SNL

Company Code Commodity Price A$/sh Mkt Cap A$m Analyst Rating Target Price (A$) P/NAV

Producers

Independence Group IGO Nickel, Gold $5.10 $2,939 Tim McCormack SELL $3.30 1.55

OZ Minerals OZL Copper, Gold $9.11 $2,720 Patrick Chang SELL $8.10 1.12

Sandfire Resources SFR Copper, Gold $7.18 $1,134 Patrick Chang HOLD $6.80 1.06

Western Areas WSA Nickel $3.19 $870 Patrick Chang HOLD $3.00 1.06

Metals X MLX Copper, Tin $1.00 $611 Tim McCormack BUY $1.35 0.74

Avanco Resources AVB Copper, Gold $0.09 $216 Patrick Chang BUY $0.17 0.53

Finders Resources FND Copper $0.24 $182 Larry Hill SPEC BUY $0.35 0.69

Red River Resources RVR Zinc/copper $0.36 $179 Larry Hill SPEC BUY $0.55 0.65

Developers

MOD Resources MOD Copper $0.06 $110 Larry Hill SPEC BUY $0.10 0.58

Venturex Resources VXR Zinc/copper $0.02 $62 Tim McCormack SPEC BUY $0.04 0.50



11

Assets Overviews

Under various iterations of management, VXR’s focus has swung between its

Sulphur Springs and Whim Creek projects, both located in the Pilbara region of

Western Australia. However, following the release of the VES on Sulphur Springs in

early 2017, and a subsequent management change, Sulphur Springs has become

the focus for the company. Exploration efforts in 2H17 were centered on

converting the high grade Inferred copper Resource in the planned open pit. The

high grade Resource opens up the opportunity to mine and process high-margin

near-surface material at the front end of the production schedule, significantly

improving project economics and capital payback.

Figure 11: Key project locations

Source: Company Reports,

Sulphur Springs

Location and Background

Sulphur Springs is located ~144km south-east of Port Hedland, in Western

Australia. Broadly speaking, the Sulphur Springs project also includes the

Kangaroo Caves deposit located ~6km to the south, and both are defined as

Volcanogenic Massive Sulphide (VMS) copper/zinc deposits. The project is

accessible via the sealed Marble Bar Road for 82km and an existing unsealed

haul road for 62km that runs to within 6km of the project site. The project is

located on granted Mining Leases with an existing Mining Agreement in place with

the indigenous Njamal people. VXR is the 100% owner of the project.

Geology

The Sulphur Springs and Kangaroo Caves deposits are VMS zinc/copper deposits

located in the central east of the Archean Pilbara Craton. Mineralisation lies within

the Kangaroo Caves Formation of the Sulphur Springs Group of volcanic and

sedimentary rocks.



12

The Sulphur Springs mineral deposit is interpreted as a single stratabound VMS

mineralising event, which has been off-set into two massive sulphide lenses (East

and West) by a post-mineralisation sub-vertical fault. The deposit has a strike

length (east-west) of 500m, with economic mineralisation up to 16m in true width,

down to a depth of 400m with each lens dipping to the north at approximately 45-

55°. Underlying the massive ore is a volcanic rock sequence which contains

disseminated copper mineralisation that VXR will look to recover in the open pit

where it contains economic grades. Kangaroo Caves is interpreted as having the

same stratigraphic position as Sulphur Springs and similar in character, albeit less

advanced.

Resources and Reserves for Sulphur Springs and Kangaroo Caves are shown in

Figure 12 and 13. In our modelling we have taken a reasonably conservative

approach to material mined and only include ~8Mt of ore from the Sulphur

Springs deposit (60% Resource conversion or ~100% the current Reserve) which

underpins our eight-year mine life. We note that in the VES, VXR envisages the

Reserve contributing ~66% of the material within a Production Target 11.7Mt at

3.6% zinc and 1.4% copper) with Inferred Resources accounting for the ~34%

balance. VXR also included 1.8Mt of ore from Kangaroo Caves in the VES.

Figure 12: Resource for Sulphur Springs and Kangaroo Caves

Source: Company Reports

Figure 13: Reserve for Sulphur Springs




13

2017 exploration outcomes

VXR’s exploration efforts were focused on increasing the confidence level of the

high grade Inferred copper Resource (800kt at 4.2% copper and 0.8% zinc) at

Sulphur Springs during 2017. The most recent close space drilling program was

focused on in-fill drilling the western portion of the high-grade Resource, located

towards the top of the Sulphur Springs orebody. The 14-hole program saw all drill

holes returning ore grade intersections. Key outcomes of the program included:

Confirmed continuity of high-grade copper mineralisation as per

interpretations from the Inferred Resource.

Identified a previously unrecognised zinc-rich lens which overlies the copper

zone

Highlighted the potential for extensions of the mineralisation to the west (and

east), a view which is supported by the westernmost drill results and the

results of the Heli EM survey flown over the project area. We expect these to

be key targets for the 2018 drilling program.

Provided samples for metallurgical test work with outcomes expected in the

near term.

The full suite of assay results are displayed in Figure 14, with some of the

highlights including:

SSD089: 38.2m at 3.49% copper from 98m, including 14m at 6% copper

SSD090: 40.3m at 3.35% copper 94m, including 13m at 6.1% copper

SSD091: 20m at 3.1% copper from 102m

SSD094: 20m at 12% zinc from 83m

SSD097: 16m at 10% zinc from 99m

SSD099: 30m at 9% zinc from 169m, 36m at 3.3% copper from 204m

SSD101: 6m at 13.6% zinc from 102m

SSD102: 16m at 9% zinc from 133m and 40m at 3.6% copper from 158m

Based on the results, we expect to see +50% of the existing Inferred Resource

move into the Measured and Indicated category, and potentially into Reserve

pending the metallurgical test work outcomes. There is also good potential for the

additional zinc lenses to add incremental metal which could further improve the

economics of the proposed open pit. Drill collar locations are shown in Figure 15.



14

Figure 14: Drill results for the most recent 14 hole drill program at Sulphur Springs completed in late 2017




15

Figure 15: Drill hole locations targeting the western portion of the high-grade Inferred Resource


Figure 16 represents a typical cross section from the recent drilling campaign

which has targeted high grade mineralisation immediately below the base of

weathering. The strike length of the defined high grade mineralisation tested was

<150m, but proved to be consistent. We note that the previously unrecognised

zinc-rich zone overlying the copper zone is a new discovery consistent with a

classic VMS model, which could increase the metal content of the existing

Resource.

Figure 16: Typical cross section through the high grade Resource




16

Exploration plan and potential upside

An EM survey targeting conductive VMS-style base metal mineralisation was

completed in late 2017 and identified 11 geophysical targets. These have been

interpreted as associated with a Marker Chert horizon, which hosts the Sulphur

Springs deposit at the contact between it and the underlying felsic volcanic unit.

Importantly, two high-priority targets have been identified on the eastern and

western flanks of the Sulphur Springs deposit, which in our view will serve as

priority targets.

We note that the western-most holes of the recent drilling program (SSD095 and

SSD096) demonstrate the potential for the Sulphur Springs mineralisation to

extend to the west, towards the XA6 EM anomaly. Both holes recorded significant

zinc and copper intersections, which, together with the large EM anomaly provides

a logical target for testing in the initial 2018 drilling program.

VXR will likely test the XA6 initially given the proximity to the most recent drilling

results. The anomaly extends ~200-250m beyond the current Resource and only

requires modest clearing to establish drill pads. Similarly, XA5 anomaly located on

the eastern flank of the orebody extends for a further ~200-300m beyond the

current Resource.

Figure 17: Priority drill targets flanking the Sulphur Springs orebody




17

VXR also plans to complete further detailed field investigation, ground EM surveys

and potential drill testing on a number of the 11 EM targets across the broader

landholding. Eight of the anomalies identified are associated with, or within close

proximity to, the prospective geological contact that occurs between the Marker

Chert and the underlying felsic volcanic units, which, as previously mentioned

hosts both the Sulphur Springs and Kangaroo Caves deposits.

Development Strategy

The VES envisages open pit mining followed by bulk underground using the core

and shell mining method. Processing will be via a conventional sulphide flotation

plant, producing two high quality concentrates that will be trucked to Port

Hedland, and shipped in bulk to Asian markets. As a greenfield development,

required infrastructure includes; power station, communications, processing plant

and buildings, accommodation village, raw and potable water and tailings facility

which is incorporated in the A$180m capex (included pre-strip).

The open pit mine life is projected to be ~5.5 years, producing ore at a rate of

1Mtpa, which is in line with the processing plant capacity and the pit is expected

to have a LOM strip ratio of ~8.3:1 (including pre-strip).

Figure 18: Long section showing the proposed pit shell and underground for at Sulphur Springs


Establishing the underground is expected to commence in the final year of the

open pit, with development and infrastructure forecast ~A$20m. A portal will be

established on the footwall side of the orebody in the open pit, which is designed

to provide good access to both the East and West Lodes.

VXR plans to utilise the core and shell mining method for the East Lode below the

open pit. This method involves the initial extraction of a core using conventional

open stoping, followed by large volume blasting of the rib and floor pillars formed.

This method has the advantage of low development costs, high productivity and

low fill costs with over 50% of the ore being recovered in the core stopes without



18

requiring paste fill. In contrast, the company is planning conventional open

stoping to extract the West Lode.

We note that in the VES, underground mining accounts for an additional six years

of mine life (including Kangaroo Cave); however, we have taken a more

conservative approach and only model an additional three years of production,

primarily due to omitting Kangaroo Caves from our development plan.

Processing plant and Metallurgy

The planned 1Mtpa processing plant will be a conventional SAG/Ball mill

configuration, grinding ore to 80% passing to 63 micron. Copper and zinc

sulphides will be sequentially floated into separate concentrates, before being

thickened and filtered ready for transport.

We note that comprehensive metallurgical testwork has been completed on the

Sulphur Springs underground as part of a number of Feasibility Studies completed

on the deposit. No metallurgical test work has been completed on the Kangaroo

Caves deposit, however, with similar mineralogy to the Sulphur Springs, VXR

expected to have similar metallurgical performance. Metallurgical test work on the

high grade copper zone of the open pit is also pending and should be released

early in the JunQ’18.

The VES assumed zinc recovery of 93%, producing a 55% zinc concentrate and

copper recovery of 90% producing a 26% concentrate, which we have

incorporated in our modelling of the project.

In terms of product offtake, VXR has an agreement with Toho Zinc (part of the

consideration for Sulphur Springs), where Toho has the off-take rights capped at

230kt of zinc in concentrate from Sulphur Springs on international benchmark

terms. The copper concentrate offtake is currently uncommitted.

Permitting

The Sulphur Springs project sits on a granted Mining Lease; however, the Permits

in place relate only to the development of an underground operation (based on

the 2012 Feasibility Study). In order to progress the project in line with the VES,

VXR commenced amending the existing Permits to incorporate an open pit mine

and larger tailings storage facility. The company has most recently received

notification from the Western Australia Environmental Protection Authority (EPA)

confirming that the permitting pathway for the Sulphur Springs requires no public

review of the Environmental Review document.

VXR has guided that it expects to complete the final submissions by late March

2018, and expects to receive the final Approvals and Permits by mid-2018.

Whim Creek

VXR’s Whim Creek project is located 115km south west of Port Headland,

Western Australia (~200km west of Sulphur Springs) and is readily accessible via

the NW Coastal Hwy. While VXR’s principal focus has been on advancing Sulphur

Springs towards a development decision by mid-2018, budget constraints have

seen work limited on Whim Creek to low cost geophysical surveys and

reclogging/interpreting historic drilling data. VXR’s aim at Whim Creek is to make

new discoveries or incrementally increase the exiting Resource base; however,

with only a limited works program for 2018, we expect it make take some time for

this aspect of the story to play out.



19

Figure 19: Key deposits within the Whim Creek project


Key deposits within the greater Whim Creek landholding include Mons Cupri,

Whim Creek, Salt Creek and Evelyn which have a combined Resource of 7.2Mt at

1.3% copper and 2.1% zinc (90% Indicated). Whim Creek and Mons Cupri also

have modest Reserves delineated of 221kt at 2.7% copper, 1.3% zinc and 951kt

at 1.7% copper and 2.2% zinc, respectively.

Figure 20: Whim Creek Resource table




20

We note that a Scoping Study on the Whim Creek was completed in November

2010, which identified the potential for a 13ktpa copper (equivalent) operation to

be established with a nine-year mine life. While as a base project it looks

interesting, we agree with VXR’s strategy of pursuing the larger scale, Sulphur

Springs project as a development priority.

VXR has flagged the potential for conglomerate gold on its Whim Creek project.

Field reconnaissance work has confirmed that the Mt Roe Basalt and associated

basal conglomerate units occur at Loudens Patch, immediately along strike from

De Grey Mining’s (ASX: DEG | Not rated) recent conglomerate-hosted gold

discovery. VXR has some boots on the ground currently investigating the potential

of this, but it remains a relatively low priority for the company.

In addition to ongoing exploration activities at Whim Creek, VXR has a profit share

agreement with privately owned Blackrock Metals Pty Ltd, which provides access

and the ability to manage the reprocessing of the existing Whim Creek oxide

copper heap leach to produce copper cathode. VXR received no profit share for

FY17, and to date has received a total ~$1m from the total production of 3kt of

copper cathode.

Investment Risks

The risks below are inherent in the metals and mining industry and one or all could

impact our valuation and therefore our SPECULATIVE BUY rating.

Funding risk

As a pre-production company with no material income, VXR is reliant on equity and

debt markets to fund Feasibility Studies and development of its Sulphur Springs

project. We can make no assurances that accessing these markets will be done

without further dilution to shareholders.

Exploration risks

Exploration is subject to a number of risks and can require a high rate of capital

expenditure. Risks can also be associated with conversion of inferred resources

and lack of accuracy in the interpretation of geochemical, geophysical, drilling and

other data. No assurances can be given that exploration will delineate further

minable reserves.

Metallurgical risk

Currently VXR has assumed recoveries in the VES for the high-grade copper part of

the orebody (open pit), which was previously interpreted as

supergene/transitional to in line with the extensive metallurgical work completed

on the deeper fresh part of the orebody. Outcomes from test work currently

underway have the potential to impact the economics of the project if results yield

lower recoveries than expected.

Operating risks

Once in production, the company will be subject to risks such as plant/equipment

breakdowns, metallurgical, seismic activity and other technical issues. An

increase in operating costs could reduce the profitability and free cash generation

from the operating assets considerably and negatively impact valuation. Further,

the actual characteristics of an ore deposit may differ significantly from initial

interpretations which can also materially impact forecast gold production from

original expectations.



21

Commodity price and currency fluctuations

As with any mining Company, VXR is directly exposed to commodity price and

currency fluctuations. Commodity price fluctuations are driven by many

macroeconomic forces including inflationary pressures, interest rates and supply

and demand of commodities. These factors could reduce the profitability, costing

and prospective outlook for the business.



Appendix: Important DisclosuresAnalyst CertificationEach authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) therecommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent andobjective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoringanalyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to thespecific recommendations or views expressed by the authoring analyst in the research.Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons ofCanaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communicationswith a subject company, public appearances and trading securities held by a research analyst account.Sector CoverageIndividuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoringanalysts of the report.

Investment RecommendationDate and time of first dissemination: January 28, 2018, 14:30 ETDate and time of production: January 28, 2018, 14:08 ETTarget Price / Valuation Methodology:Venturex Resources Limited - VXRWe have based our A$0.04/sh valuation for VXR on a DCF analysis (NPV10%) of the Sulphur Springs base metals project, plus nominalexploration value, net of corporate and other adjustmentsRisks to achieving Target Price / Valuation:Venturex Resources Limited - VXRFunding Risk: As a pre-production company with no material income, VXR is reliant on equity and debt markets to fund Feasibility Studiesand development of its Sulphur Springs project. We can make no assurances that accessing these markets will be done without furtherdilution to shareholders.Exploration risk: Exploration is subject to a number of risks and can require a high rate of capital expenditure. Risks can also beassociated with conversion of inferred resources and lack of accuracy in the interpretation of geochemical, geophysical, drilling and otherdata. No assurances can be given that exploration will delineate further minable reserves.Metallurgical risk: Currently VXR has assumed recoveries in the VES for the high grade copper part of the orebody (open pit), which waspreviously interpreted as supergene/transitional to in line with the extensive metallurgical work completed on the deeper fresh part ofthe orebody. Outcomes from test work currently underway have the potential to impact the economics of the project if results yield lowerrecoveries than expected.Operating risks: Once in production, the company will be subject to risks such as plant/equipment breakdowns, metallurgical,seismic activity and other technical issues. An increase in operating costs could reduce the profitability and free cash generation fromthe operating assets considerably and negatively impact valuation. Further, the actual characteristics of an ore deposit may differsignificantly from initial interpretations which can also materially impact forecast gold production from original expectations.Commodity price and currency fluctuations: As with any mining Company, VXR is directly exposed to commodity price and currencyfluctuations. Commodity price fluctuations are driven by many macroeconomic forces including inflationary pressures, interest rates andsupply and demand of commodities. These factors could reduce the profitability, costing and prospective outlook for the business.

Distribution of Ratings:Global Stock Ratings (as of 01/28/18)Rating Coverage Universe IB Clients

# % %Buy 568 60.30% 41.02%Hold 253 26.86% 28.85%Sell 21 2.23% 14.29%Speculative Buy 100 10.62% 65.00%

942* 100.0%*Total includes stocks that are Under Review

Canaccord Genuity Ratings System



BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.

HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.

SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.

NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or therelevant issuer.Risk QualifierSPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in thestock may result in material loss.

12-Month Recommendation History (as of date same as the Global Stock Ratings table)A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month periodmay be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx

Required Company-Specific Disclosures (as of date of this publication)Venturex Resources Limited currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. Duringthis period, Canaccord Genuity or its affiliated companies provided investment banking services to Venturex Resources Limited.In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services fromVenturex Resources Limited .Canaccord Genuity acts as corporate broker for Venturex Resources Limited and/or Canaccord Genuity or any of its affiliated companiesmay have an agreement with relating to the provision of Investment Banking services.

Venturex Resources Limited Rating History as of 01/25/2018

AUD0.035

AUD0.03

AUD0.025

AUD0.02

AUD0.015

AUD0.01

AUD0.005

AUD0.00Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18

Closing Price Price Target

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

Past performanceIn line with Article 44(4)(b), MiFID II Delegated Regulation, we disclose price performance for the preceding five years or the whole periodfor which the financial instrument has been offered or investment service provided where less than five years. Please note price historyrefers to actual past performance, and that past performance is not a reliable indicator of future price and/or performance.

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However, such authoring analystshave not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Bankingactivities, or to recommendations contained in the research.Some regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising asa result of publication or distribution of research. This research has been prepared in accordance with Canaccord Genuity’s policy onmanaging conflicts of interest, and information barriers or firewalls have been used where appropriate. 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