🕐25.09.09 - 12:30 Uhr

FW: Norseman Gold Plc: Operational update and positive results from the OK Decline pre-feasibility



Please see the attached Ocean Equities note on Norseman Golds September operations update, released earlier this morning,
Many thanks
Chris
Chris Welsh St Brides Media & Finance Ltd Chaucer House 38 Bow Lane London EC4M 9AY
www.sbmf.co.uk T: +44 (0) 207 236 1177 | M: +44 (0) 7720 848 102 | F: +44 (0) 207 236 1188
________________________________ From: Research at Ocean Equities [mailto:] Sent: 25 September 2009 10:01 To: Undisclosed recipients Subject: Norseman Gold Plc: Operational update and positive results from the OK Decline pre-feasibility
News Norseman Gold plc has released an update on its current operations and Third Mine strategy today in advance of an investor roadshow that is scheduled to commence next week.

The Companys production for the quarter to 30 September is likely to be in the vicinity of 16,000 ounces of gold, at a cash cost of approximately $900/oz.

This is lower than expected as a result of the very significant capital and ore development work completed during the quarter as the Company has opened up mining spaces and drilling bays (particularly for the development of the newly discovered Perch Reef at Harlequin).

Notwithstanding the shortfall in ounces anticipated for the quarter, the Company expects that the capital development work will enable the Company to "catch up", and it has re-iterated its guidance for the year of production of 75,000 - 80,000 ounces of gold at a cash cost of A$720-A$780 per ounce. In relation to the Third Mine strategy, the Company has announced that it has completed a positive pre-feasibility study on the OK Decline.

This has demonstrated the ability of the OK orebody to support a mining operation over an initial two years, producing 55,000 ounces at cash costs of between A$720 and A$780 per ounce from an initial resource base of 122,000 ounces of gold.

A detailed mining study has now commenced on this project for submission to the Board for approval by the end of October; mining could commence by the end of this calendar year, with first ore through the mill in the March 2010 quarter. At North Royal, the Company has commenced dewatering of the open pit, following which infill drilling will be completed of the resources at the northern end of the pit to allow mining studies to be completed.

It is estimated that the dewatering of the pit will take four months to complete. Given the anticipated increased production that will result from the commissioning of the OK decline, the Company has recently placed an order for additional mining fleet.

A second twin boom jumbo has recently been delivered to the mine.

A third diamond drill rig is expected to be delivered to the mine in October, with three underground loaders and an underground truck due to be delivered over the course of the financial year.

This capital expenditure, amounting to A$8m, has been vendor financed.

In addition, 10 extra accommodation units have been ordered to provide the necessary infrastructure for the increase in mining personnel once the OK Decline is put into production. The Company has released the following exploration drill results from the Harlequin decline on the HV6 and Harlequin South structures: * 1.1m @ 85.5 g/t gold from 152.6m in drill-hole HD1806A * 0.3m @ 44.5 g/t gold from 102.0m in drill-hole HD1815
At the OK Decline, the Company has released a number of drill results, which include: * 2.4m @ 47.0 g/t gold from 252.0m in drill-hole OKD148 * 0.9m @ 110.1 g/t gold from 197.1m in drill-hole OKD157 * 33.2m @ 1.0 g/t gold from 158.8m in drill-hole OKD165
Analysis While the absolute production numbers for the current quarter are disappointing (our expectation had been for somewhere in the region of 19,000 to 20,000 ounces), the Company has stated that it is on track to meet its full year production guidance of between 75,000 to 80,000 ounces, at a cash cost of between A$720 to A$780 per ounce.

It is important to remember that these figures are for production from the Bullen and Harlequin declines only - they assume no contribution from the OK Decline.

Our expectation is that the OK Decline will be put into production in the second half of the current financial year as outlined within the news release, and that production from OK will contribute an additional 10,000 to 12,000 ounces, increasing the total annual production to between 85,000 and 90,000 ounces. It is also our understanding that the cash cost figures quoted for OK make no allowance for the synergies to be achieved from increasing the tonnage put through the Phoenix Mill at Norseman.

It is our expectation that this extra tonnage should see the overall cash cost for the mine come down to below the A$720 to A$780 per ounce figure quoted by the Company.

While we believe that the wider market may focus on the September production level and view this announcement as a disappointment, we think that this is actually a very positive announcement given the progress that is demonstrably being made at both OK and the North Royal pit, where dewatering has commenced, and we see no reason to adjust our valuation.

As such, we would see any weakness in the market on the back of this release as a buying opportunity, given how cheap the stock is. Based on the Companys recent financial results which showed net income of A$20.4m (~A$15.4m excluding the gain on convertible notes), the Company is currently trading at ~4.7x its FY08/09 earnings (~6.2x underlying earnings ex the convert note), despite suboptimal operations ahead of the Oct08 restructuring and a relatively weak Australian gold price before Sep08.

As discussed in length in our recent Australian Gold sector valuation note, Norseman stands out as being undervalued within our peer group of 30 Australian gold equities.

Based on current operating cash flow we derive a fair value of �0.49/sh or $0.97/sh for Norseman and expect continued operating performance in line with, or better than, company guidance to further support a re-rating in Norsemans share price, closing the current significant discount to its peers.

We believe that once a re-rating is achieved based on current production/cash flow generation, and further visibility for additional sources of ore are provided, that the market will start valuing Norsemans attractive growth profile.

We can see upside to �0.60p/sh or A$1.18/sh in 12 months and �0.75p/sh or A$1.48/sh in the longer term based on forecast operating cash flow multiples of Norsemans Western Goldfield peers only.
Key Events/Valuation Triggers We believe the key drivers to Norsemans share price are the Company continuing to beat guidance and providing visibility for its 3rd mine strategy.

Newsflow is expected to be: European roadshow late Sep/Oct; further mine exploration drilling results (from Harlequin/Perch Reefs); further regional exploration and 3rd mine development updates; resource/reserve upgrades when available. In our view investors appetite for the Australian gold sector continues to be driven by the US$ gold price; strength of the Australian dollar; and potential corporate activity.


Please refer to attached press release, Ocean Comment and Ocean Research Peer Group Analysis 17Aug09.
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