Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 1

SPEC BUY Current Price $0.035

SNAPSHOT

Ticker: MOY

Sector: Materials

Shares on Issue (m)*: 742.7

Market Cap ($m)*: 26.0

Cash and Bullion Estimate ($m)*: 11.0

Debt Estimate ($m)*: 5.9

Enterprise Value ($m)*: 20.9

52 wk High/Low: $0.09 $0.02

12m Av Daily Vol (m):

*post completion of raising

Mineral Inventory (at December 2014)

Mt g/t koz

Reserves 4.2 1.4 188

Resources 44.1 1.2 1626

$/oz

EV / Reserve 111

EV / Resource 13

Directors and management:

Richard procter Non-Executive Chairman

Glenn Dovaston CEO

Greg Bittar Executive Director

Ross Gillon Non-Executive Director

Michael Chye Non-Executive Director

Substantial Shareholders:

IMC** 48.1%

Share Price Graph

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Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

Friday, 18 December 2015

Millennium Minerals M marks the spot Analysts | Patrick Chang, CFA | Matthew Keane

Quick Read

Millennium Minerals (MOY) operates the Nullagine Gold Mine, located in the Pilbara

region of Western Australia. The Company’s CY15 guidance is 88-93koz @ AISC A$1,190-

1,240/oz (86koz produced by 30th

November). Production and costs have been

improving since early CY15 and the Company delivered a record September Q, producing

27.2koz @ AISC A$1,020/oz. Whilst the current short mine life (<2 years) is

acknowledged, the investment case will become more compelling when the MOY team

demonstrates near mine and regional exploration upside. The Company has recently

completed a A$21m capital raising, which retires A$14m of IMC debt. Importantly, the

enhanced balance sheet enables MOY to commence a reinvigorated exploration

program (A$10m budget). With an EV of ~A$20m, the stock provides an inexpensive

entry into the Australian gold space (see page 4). Argonaut assigns a Speculative Buy

recommendation with a 12-month view.

Event & Impact | Positive

Capital raising enables debt repayment and exploration: MOY has completed a A$21m

capital raise (@ 4.0c), which will enable the Company to retire the A$14m IMC debt.

Post raising, the Company has a cash balance of ~A$11m and bank debt of A$5.9m,

which is expected to be repaid in early CY16. IMC owns ~50% of MOY. Importantly, the

recapitalisation will enable the Company to undertake a major exploration program

which will likely see the Resource and Reserve expand (net of mining depletions).

Mine life a challenge and an opportunity: The short mine life presents both a challenge

and an opportunity. Given the modest market capitalisation, tangible exploration

success could transform into share price appreciations. MOY’s program will commence

with the testing of near mine mineralisation extensions at various pits, which could

provide ~12 months of addition feed. Concurrently, MOY will explore various earlier

stage regional targets along the ~40km Middle Creek Fault. This could lead to the

delineation of sizable new deposits. MOY owns the only gold plant in the region.

Operation has been improving: Following updated Reserves and management changes

in late CY14/early CY15, the Nullagine operation has been delivering increasing

production at lower costs (see Figure 2, page 3). Performance of the plant has been

particularly impressive, with throughput at ~25% above nameplate capacity. This led to

the Company revising its CY15 guidance to 88-93koz @ AISC A$1,190-1,240/oz. Given

the significant sulphide inventory, there is scope to examine options for a sulphide

operation in the long-term (e.g. by utilising a flotation / regrind / CIL circuit).

Recommendation

Argonaut assigns a Speculative Buy recommendation with a 12-month view.

Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 2

Overview and project history

MOY operates the Nullagine Gold operation, located in the Pilbara region, Western

Australia. The tenement package is located 185km north of Newman and totals 264km2,

mostly under existing Mining Leases (MLs) with some tenements under Exploration

Permits and joint ventures. The 1.5Mtpa oxide processing facility (currently running at

~1.9Mtpa) was constructed in CY12 for ~A$90m. First gold was poured in late CY12. The

operation is currently a 100% oxide operation, although some of the shallow sulphide

material with better recoveries has been factored into the existing Reserve.

Figure 1: Nullagine project location

Source: MOY

Historic reconciliation issues

Since initial production, the operation has experienced a number of difficulties, most

notably the underperformance of grade and inventory against the old Reserve model.

This has resulted in lower than expected FCF being generated and, as a consequence,

limited exploration.

Major inventory write-down in early CY15

Following the appointment of Glenn Dovaston as CEO in late CY14, MOY announced a

significant write down in inventory (-15% Resources, -59% Reserves) in early CY15. This

accounted for depletion, historic reconciliation performances and more realistic mining

assumptions. In Argonaut’s view, this Reserve better reflects the underlying economic

ounces of the operation. Some of the technical parameters also appear conservative,

encouraging future upside.

MOY operates the Nullagine Gold

operation…

…located in the Pilbara region,

Western Australia

The operation is currently a 100%

oxide operation…

…expected to produce ~90koz in

CY15

Historically the operation had

reconciliation issues…

…which saw a major inventory

write-down in early CY15

Comments here

Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 3

The mill currently sources oxide ore from a number of open pits.

Table 1: Reserve and Resource (as at 31

st December 2014)

Source: MOY

Nullagine has been on the improve

Following the updated Reserve, the Nullagine operation has recorded increasing

production at lowered costs. Performance of the plant has been particularly impressive,

with throughput at ~25% above nameplate capacity. This led the Company to revise its

CY15 guidance upward to 88-93koz @ AISC A$1,190-1,240/oz.

Figure 2: Nullagine production and costs

Source: MOY

Argonaut considers the updated

inventory a better reflection of

economic ounces

Since early CY15 the operation has

delivered increased production

and lower costs…

…with the plant running ~25%

above nameplate capacity

…which saw a major inventory

write-down in early CY15

Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 4

Recent capital raising alleviates balance sheet risks, enables exploration

MOY recently completed A$21m capital raise, which will enable the Company to retire

the ~A$14m IMC Resources Gold Holdings (IMC) debt. Post raising, the Company has a

net cash balance of ~A$11m and bank debt of A$5.9m (owed to BNP Paribas and NAB),

which is expected to be repaid in early CY16. IMC has participated in a debt-to-equity

swap in the recent raising and owns ~50% of MOY post raising. Importantly, the

recapitalisation will enable the Company to undertake a major exploration program

which will likely see Resource and Reserve expansions (net of mining depletions).

Investment thesis

Opportunities and risks

On a FF EV / production basis, MOY is trading at a significant discount compared to its

ASX peers. The stock benefits from AUD denominated costs and well-established

infrastructure. Given the dry-hire nature of the mining fleet, the current down-turn in

the WA iron ore industry (primarily in the Pilbara) is also expected to assist with further

cost reductions. The discount to peers is likely to be the result of the current short mine

life (<2 years). As the exploration program delivers tangible upside, this discount should

decline, subsequently translating into share price appreciations.

Figure 3: FF EV / Production, selected ASX peers

Source: Argonaut

The key risk of the project is the current short mine life. In addition, the current mine

schedule (based on forecast published in MOY’s May 2015 presentation) will see

partially refractory, sulphide material incorporated into the mill feed towards the end of

CY16. This material is likely to increase costs given lower recoveries and elevated ore

hardness (less mill throughput). This lower margin material will be displaced with

additional oxide material delineated from MOY’s exploration program.

The mine plan incorporates the mining of several smaller pits in the near future, which

could increase operational complexity. This is mitigated with conservative mining

assumptions (dilution / ore loss) and operational experience gained by the site staff in

recent years.

BDR

SAR

RSGDRM

SLR

SBM

MOY

EVN

MMLTRY

PRU

RRL

NST

AQG

KCNTGZ

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

-100 0 100 200 300 400 500

FF E

V/P

roduction (

A$/o

z)

Normalised FCF margin (A$/oz)

Bubble size = production rate kozpa

The recent capital raising allows

debt repayment and a

reinvigorated exploration effort

The stock is cheap on FF EV /

production metrics…

…exploration success should see

this discount narrow from an

appreciating share price

Risks include short mine life,

incorporation of partially

refractory ore…

…and multiple pits in the mine

plan

Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 5

Exploration upside

Near mine extensions - focus in the near term

MOY’s program will test near mine, high priority targets consisting of mineralisation

extensions to various pits, which could provide ~12 months of addition feed. This

includes multiple targets at All Nations, Bartons, Shearers / Otway, as well as Au81 and

Golden Eagle.

This program is considered low risk, given geological understanding and numerous ore

grade hits within the targets.

All Nations

The All Nations deposit is located ~24km from the Nullagine processing plant. Recent

drilling has demonstrated wide, shallow oxide mineralisation extensions at the southern

end of the existing pit.

Better results include (downhole width):

22m @ 1.6g/t from 8m

19m @ 1.4g/t from 25m

14m @ 1.5g/t from 13m

Figure 4: Cross section at All Nations southern extension

Source: MOY

Bartons

The Bartons open pit is located ~17km from the Nullagine processing plant. The current

mine plan only incorporates a portion of the Main and East Lodes. There is tangible

upside from mineralisation in the Hanging Wall Lodes and East Lode Extension.

This potential is supported by numerous drill hits (downhole widths):

24m @ 1.3g/t from 8m

10m @ 9.6g/t

8m @ 9.3g/t

Exploration effort is likely to

commence with tangible near

mine extensions…

…which Argonaut considers low

risk given historic ore grade

intersections

These targets include All Nations,

Bartons, Shearers / Otway, as well

as Au81 and Golden Eagle

Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 6

Figure 5: Plan view showing potential extensions at Bartons

Source: MOY

~50km strike covered

A regional program that tests earlier stage targets along the ~40km Middle Creek Fault is

expected in the next CY. The Middle Creek Fault and Blue Spec Fault control regional

mineralisation within the Middle Creek Mineralisation Corridor. The well-endowed

Middle Creek Fault has numerous gold deposits hosted in secondary splay structures in

different orientations and sedimentary rock units. The eastern portion of this corridor

could potentially deliver significant upside as it has favourable structural settings and is

less explored.

Figure 6: MOY tenement holding and the two key geological features

Source: MOY

Potential for mineral extensions

are tangible and supported by

drilling results

Longer term the Company will

likely test regional targets…

…along the ~40km strike of the

Middle Creek Fault

Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 7

Important Disclosure Argonaut acts as Corporate Adviser to MOY and will receive fees commensurate with this service. Argonaut acts as Lead Manager and Underwriter to the $21M Capital Raising as announced on 14 October 2015 and will receive fees commensurate with this service. Information Disclosure Each research analyst of this material certifies that the views expressed in this research material accurately reflect the analyst's personal views about the subject securities and listed corporations. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this material to any of the analyst(s). General Disclosure and Disclaimer This research has been prepared by Argonaut Securities Pty Limited (ABN 72 108 330 650) (“ASPL”) or by Argonaut Securities (Asia) Limited (“ASAL”) for the use of the clients of ASPL, ASAL and other related bodies corporate (the “Argonaut Group”) and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this report in any way. ASPL is a holder of an Australian Financial Services License No. 274099 and is a Market Participant of the Australian Stock Exchange Limited. ASAL has a licence (AXO 052) to Deal and Advise in Securities and Advise on Corporate Finance in Hong Kong with its activities regulated by the Securities and Futures Ordinance (“SFO”) administered by the Securities and Futures Commission (“SFC”) of Hong Kong. Nothing in this report should be construed as personal financial product advice for the purposes of Section 766B of the Corporations Act 2001 (Cth). This report does not consider any of your objectives, financial situation or needs. The report may contain general financial product advice and you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research is based on information obtained from sources believed to be reliable and ASPL and ASAL have made every effort to ensure the information in this report is accurate, but we do not make any representation or warranty that it is accurate, reliable, complete or up to date. The Argonaut Group accepts no obligation to correct or update the information or the opinions in it. 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Hong Kong Distribution Disclosure This material is being distributed in Hong Kong by Argonaut Securities (Asia) Limited which is licensed (AXO 052) and regulated by the Hong Kong Securities and Futures Commission. Further information on any of the securities mentioned in this material may be obtained on request, and for this purpose, persons in the Hong Kong office should be contacted at Argonaut Securities (Asia) Limited of Unit 701, 7/F, Henley Building, 5 Queen’s Road Central, Hong Kong, telephone (852) 3557 48000. Copyright © 2015. All rights reserved. No part of this document may be reproduced or distributed in any manner without the written permission of Argonaut Securities Pty Limited and / or Argonaut Securities (Asia) Limited. Argonaut Securities Pty Limited and Argonaut Securities (Asia) Limited specifically prohibits the re-distribution of this document, via the internet or otherwise, and accepts no liability whatsoever for the actions of third parties in this respect.

RESEARCH:

Ian Christie | Director, Industrial Research +61 8 9224 6872 ichristie@argonaut.com Philipp M-O Kin | Analyst, Oil & Gas Research +61 8 9224 6864 pkin@argonaut.com Patrick Chang | Analyst, Metals & Mining Research +61 8 9224 6835 pchang@argonaut.com Matthew Keane | Analyst, Metals & Mining Research +61 8 9224 6869 mkeane@argonaut.com Helen Lau | Analyst, Metals & Mining Research +852 3557 4804 hlau@argonaut.com INSTITUTIONAL SALES - PERTH:

Chris Wippl | Executive Director, Head of Sales & Research +61 8 9224 6875 cwippl@argonaut.com John Santul | Consultant, Sales & Research +61 8 9224 6859 jsantul@argonaut.com Damian Rooney | Senior Institutional Dealer +61 8 9224 6862 drooney@argonaut.com Ben Willoughby | Institutional Dealer +61 8 9224 6876 bwilloughby@argonaut.com INSTITUTIONAL SALES – HONG KONG:

Travis Smithson | Managing Director - Asia +852 9832 0852 tsmithson@argonaut.com Glen Gordon | Institutional Research Sales +852 3557 4874 ggordon@argonaut.com CORPORATE AND PRIVATE CLIENT SALES:

Glen Colgan | Executive Director, Desk Manager +61 8 9224 6874 gcolgan@argonaut.com Kevin Johnson | Executive Director, Corporate Stockbroking +61 8 9224 6880 kjohnson@argonaut.com James McGlew | Executive Director, Corporate Stockbroking +61 8 9224 6866 jmcglew@argonaut.com Ian Dorrington | Director, Corporate Stockbroking +61 8 9224 6865 IDorrington@argonaut.com Geoff Barnesby-Johnson | Senior Dealer, Corporate Stockbroking +61 8 9224 6854 bj@argonaut.com Rob Healy | Dealer, Private Clients +61 8 9224 6873, rhealy@argonaut.com Tony Locantro | Dealer, Private Clients +61 8 9224 6851, tlecantro@argonaut.com Cameron Prunster |Dealer, Private Clients +61 8 9224 6853 cprunster@argonaut.com James Massey |Dealer, Private Clients +61 8 9224 6849 jmassey@argonaut.com Chris Hill | Dealer, Private Clients +61 8 9224 6830, chill@argonaut.com