Newcrest joins search for next 'Cadia Valley'

Overview: Alice Queen Ltd ("Alice Queen", "the Company") is an Australian minerals company focused on gold and base metal exploration in NSW and QLD. Its flagship asset is the Horn Island Gold Project (84.5%) located in the Torres Strait (QLD) and the Looking Glass / Mendooran projects situated NSW. Since we initiated coverage on 13 September 2016 to monitor exploration activities, Alice Queen has executed a Heads of Agreement (‘HOA’) with Newcrest Mining to farm-in on the Mendooran tenement.

Catalysts: The exploration potential of Alice Queen’s Looking Glass Project and recently acquired Mendooran tenement has been elevated after securing a farm-in agreement with Newcrest Mining. Newcrest can earn an interest of up to 80% in the Mendooran tenement by incurring exploration expenditure of at least $10million over nine years. With a $1million spend mandatory over the next 24 months, Alice Queen is expected to benefit from the accelerated activity at Mendooran. At its Horn Island Project, historical drill data covering the abandoned open pit has been incorporated into a revised exploration target of 8.5 – 10.0 Million tonnes @ 2.7 – 3.0 g/t gold for 800 – 880 koz’s of gold. This target excludes regional prospects outside the main open pit area.

Hurdles: Whilst the Newcrest JV mitigates funding demands, Alice Queen is still reliant on external capital to continue exploration at Looking Glass and Horn Island. There is no guarantee that the required funds can be procured at favourable conditions for existing shareholders. Drilling activities at its various exploration projects are subject to high technical risk and their economic merit has yet to be established.

Investment View: Alice Queen offers speculative exposure to gold and base metals markets through its exploration assets in QLD and NSW. The Newcrest JV validates management’s strategic exploration plan and recent technical studies at Horn Island provide a foundation for demonstrating its economic potential. Principal risks include procurement of funding and technical exploration risks. Guided by the principal discoverer of the Cadia Valley deposit, Alice Queen remains focused on the discovery and delineation of large orebodies and we maintain coverage for the company’s exploration potential.

THE BULLS AND THE BEARS

• The Joint Venture with Newcrest allows Alice Queen to leverage off the expertise, financial liquidity, and profile of Australia’s largest gold mining company
• The upgraded exploration target for Horn Island provides a foundation for economic appraisal
• Planned exploration drilling at Looking Glass and Mendooran represent major value driver

• Alice Queen’s management team has a successful track record of exploration and discovery

• The Joint Venture at Mendooran may impair Alice Queen’s ability to derive value from the project or optimise development
• There is no guarantee Alice Queen can overcome the technical challenges encountered by the previous operator of the Horn Island Gold Mine prior to its 1989 closure
• There remain considerable further drilling and technical studies required to determine potential mining economics at its exploration projects
• Management has free carried interests in both the Horn Island Project and Looking Glass Project, which may not create appropriate incentives to develop the assets with minimal possible dilution for Alice Queen shareholders.