Initiation of Coverage Marketing Communication (Connected

#VSA Capital acts as Corporate Broker to Caracal Gold. This research brochure is a MARKETING COMMUNICATION. It is not investment research and has not been prepared in accordance with legal requirements

designed to promote investment research independence and is also not subject to any prohibition on dealing ahead of dissemination of investment research.

22 November 2021

METALS & MINING

Initiation of Coverage Marketing Communication (Connected Research)

Caracal Gold# BBG Ticker: GCAT LN Price: 1.3p/sh. Mkt Cap: £18.5m BUY

Mountain of Money

Production Ramp Up Underway

Caracal Gold (GCAT LN) acquired the Kilimapesa mine, in Kenya, earlier this year and immediately restarted production and started commissioning the capacity expansion. Following the £5.5m fundraise on RTO, the company is on track to achieve the target 1kozpm runrate by year end with daily capacity already having been increased from less than 400tpd to over 700tpd. We anticipate operating costs for the group of around US$970/oz and AISC of US$1,170/oz in 2022F which in the current gold price environment implies strong margins.

Platform for East African Growth Strategy

The company has clearly stated its intent to achieve 50kozpa of production and a 3moz plus compliant resource base. There is a pathway to growing Kilimapesa, which means Mountain of Money in Swahili, to 25kozpa and growing the resource base. Drilling starts in Q4 2021 with an initial 3,000m diamond drilling and 10,000m reverse circulation programme. However, management has also highlighted it has an acquisitive strategy. Given the government co-operation, geographical proximity and geological prospectivity of Kenya, Tanzania and Uganda, the company has highlighted the whole of this East African corridor as of interest for future acquisitions. With cashflow being generated at Kilimapesa, we see this as a strong cornerstone on which to build the business.

ESG Focus

GCAT has made ESG a key part of their operating mantra. Planned community initiatives include education funding programmes, cattle dipping and tree planting. Additionally, GCAT has a license and permission to assist with the clean-up of leached artisanal tailings and is therefore able to process these tailings with a net benefit to the local community and the environment whilst increasing production and extracting value. The recent announcement of connection to mains power is an important step in optimising plant performance and given that over 80% of Kenya’s electricity is derived from renewable sources, due to the high contribution of geothermal, the company is already making significant progress in reducing its carbon footprint.

Target Price and Recommendation

GCAT is a growth company, and our current blended valuation is based on Kilimapesa as a starting point for building the business. With an acquisitive strategy combined with catalysts from drilling and rising earnings we see potential for further share price appreciation.

We initiate coverage with a Buy recommendation and target price of 3.3p/sh implying 160% upside.

Company Description

East African gold producer, developer, explorer.

One Year Price Performance

Price % chg 1mn 3mn 12mn

-16.4% n/a n/a

12mn high/low £0.02/0.01

SOURCE: Eikon, as of 19 November 2021 close.

Market: LSE

Shares in issue 1.45bn

Target Price (p/sh.) 3.3

Free float: 43%

Net debt (Dec FY 2021): £-1.7m

Enterprise value: £20.2m

Major shareholders

Orca Capital GmbH 9.32%

Goldplat PLC 7.17%

Oliver O’Donnell, CFA, Natural Resources

+44 (0)20 3617 5180 | [email protected]

stbrides @

stbridespartn

ers.co.uk

Prepared solely for St Brides. Not to be distributed anywhere. Strictly for personal use.

- 2 -

Investment Case

Caracal Gold (GCAT LN) offers production, near term cashflow, exploration upside and growth potential in one of the

most exciting regions for gold exploration and development globally. The company is targeting a compliant resource

base of over 3mnoz and annual production of at least 50kozpa. We see a near term pathway to at least 1.5mnoz and

25kozpa at Kilimapesa alone and the company has stated that it is targeting further growth through acquisition in the

wider East Africa area, which we see as the way to execute the remainder of the stated ambition.

Operating Highlights Table, £’000

FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

Gold Production, oz 3,894 12,121 12,121 12,121 24,677 24,677

Gold Price, US$/oz 1,800 1,950 1,900 1,700 1,600 1,600

Operating Cost, US$/oz 1,250 970 957 975 861 861

Total Cost, US$/t 1,956 1,173 1,159 1,179 956 997

Revenue, £'000 4,855 15,771 16,492 14,756 28,274 28,274

EBITDA, £'000 (2,092) 4,870 5,673 3,876 9,898 9,898

Operating Profit, £'000 (2,129) 4,707 5,477 3,647 8,939 8,477

Net Income, £'000 (2,129) 3,525 4,055 2,701 6,620 6,277

P/E, x Neg 5.2x 4.6x 6.8x 2.8x 2.9x

EV/EBITDA, x Neg 3.8x 3.3x 4.8x 1.9x 1.9x

Capex, £'000 (1,117) (1,155) (1,155) (13,475) (9,625) (1,925)

FCF, £'000 (2,924) 2,801 3,362 (7,447) 168 6,216

FCF Yield, % -16% 15% 18% -40% 1% 34%

SOURCE: Company Data, VSA Capital Research.

The Kilimapesa mine has operated since 2011 producing a total of c20koz although was originally developed in the 1990s.

It was reopened this year and is currently ramping up to commercial rates, with the company recently reporting that by

year end it should be operating at a run rate of 12kozpa. There is an established JORC 2012 resource with 8.7mnt at

2.40g/t Au, this is therefore a substantial project with 0.7mnoz of gold which due to the capital constraints of the vendor

has been little explored. Although there is upside potential, as confirmed by recent surface trenching, we see the asset

as one which provides cashflow from which to grow.

Current Resources (1g/t cut-off)

Tonnes Grade g/t Ounces

Measured 626,678 3.05 61,462

Indicated 1,337,250 2.86 123,190

Total 1,963,928 2.92 184,652

Inferred 6,751,363 2.24 486,794

Total 8,715,291 2.40 671,446

SOURCE: Company data, VSA Capital Research.

With mills and plant equipment on site, at the time of acquisition, the capital costs of the restart were relatively low at

an estimated cUS$1.5m and the company has already achieved a number of months of production with 569oz produced

in September. Gold is hosted primarily in veins within a Banded Iron Formation (BIF) although gold is also encountered

in the stockwork, host cherts and BIF. Three quartz veins have been the primary focus of production to date and although

the mine life could be extended once the exploration target has been achieved, the nature of the underground, narrow

and steeply dipping vein mining will probably cap the growth potential at Kilimapesa at around the company’s medium-

term target of 25kozpa. Kilimapesa will therefore produce a base level of cashflow and platform for growth towards the

company’s 50kozpa target; likely to be through acquisition.

stbrides @

stbridespartn

ers.co.uk


- 3 -

Currently, we anticipate that the 12kozpa level could generate in excess of US$5mpa in operating cashflow and with

relatively low sustaining costs, this provides the group with cashflow to fund underground drilling to firm up the near

term plan, drill other exploration targets, including potential open-pit targets, within the existing licence area and

support management’s acquisitive ambitions.

Kilimapesa Acquisition

In April 2021, GCAT acquired the Kilimapesa gold mine in Kenya from AIM-listed Goldplat (GDP LN). This was followed

by an RTO of Papillon Holdings plc in August 2021 to create Caracal Gold plc. GDP whose primary business is recovering

gold from waste materials such as loaded carbon or old mill liners, had kept the asset on care and maintenance since

2018. As a non-core operation and coming out of the cyclical low for the gold price in the middle of the last decade, GDP

had been unable to deploy sufficient resources to upgrade and run the asset at its full potential. GDP’s management

recognised this, as highlighted by Gerard Kisbey Green’s role at GCAT (he was formerly GDP CEO) and now with control

of the asset and recapitalised, GCAT is well positioned to complete the refurbishment of the mine and execute the wider

growth strategy.

Project Location Map


The acquisition and RTO were completed on the 31 August 2021; the company having raised £5.5m through the issue of

639m shares, as well as £1.6m of Papillon debt having been converted to equity. The company commenced trading with

a market cap of £14.5m.

The board was strengthened with the additions of Simon Games-Thomas, Robert McCrae and Gerard Kisbey-Green giving

the company a breadth of experience across capital markets and industry experience.

stbrides @

stbridespartn

ers.co.uk


- 4 -

Attractive Project Economics

Plant Site and Tailings from Kilimapesa Hill


The low restart capital cost was made possible by the existing mill and equipment that had been purchased by previous

owners, but capital constraints meant that commissioning had not been possible. With operating costs brought down

through the ramp up and optimisation, we anticipate unit costs of cUS$965/oz at the 12kozpa level which would enable

sufficient cashflow to be generated, based on our current commodity price forecasts, to support growth spending.

EBITDA, £’000 Free Cash Flow £’000


The company’s CPR details a proposed work programme to transform the company into a profitable operator of

Kilimapesa. However, timings and methods for achieving the aims have changed compared to the published study. This

is common practice, particularly when a new management team is acquiring an asset and the study is published before

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

EBITDA £'000

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

stbrides @

stbridespartn

ers.co.uk


- 5 -

actually taking ownership. Strong positive progress has been made and the company is on track for achieving phase 2

before the end of 2021 and producing 12koz in 2022F.

The published aims of phases 1 and 2 were to take the company to c1koz per month through an optimisation of the

respective flowsheets to enable higher throughput and increased recoveries. GCAT modified and optimised the old plant

into two circuits: plant one processes run of mine ore (ROM) while plant two processes tailings from owned tailings as

well as purchased artisanal leached tailings.

Plant one has around 10ktpm capacity and GCAT has focused on improving the flowsheet to improve the quality of

feedstock going into the plant. The addition of a screening circuit and additional jaw crusher means that a more

consistent and better quality feedstock is now being processed with undersized material from the screening plant being

milled directly and oversized material being crushed before milling

The tailings circuit has also been optimised and the Company has done initial drilling and sampling of the old tailings

facility and has begun trial processing of the material through the upgraded tailings circuit. If successful, this will be a

cost-effective additional source of feed to the plant.

One other avenue of feedstock, in addition to Kilimapesa’s existing tailings facility is from leached tailings left by

artisanals across the county. GCAT has secured a license and received permission from the Ministry of Mines and from

NEMA to process leached artisanal tailings. This is in line with the Ministry’s goal to create structures and plans to bring

artisanal mining into the formal sector; control environmental damage and create opportunities for local communities.

It shows clearly both GCAT’s entrepreneurial approach and ESG focus.

The tailings circuit has capacity of around 13.5ktpm while the mill and plant for processing underground ore have 10ktpm

of capacity. To date, typical operating capacity has been around 400tpd (10ktpm) (constrained by underground mining

rates) but with both filled, this will achieve the published 700tpd plus run rate that will enable c1koz per month. The key

to maintaining the higher level of production is to produce greater volumes from the underground and this will be

possible by year end with the arrival of additional underground mining equipment which is incorporated within our

US$1.5m capex estimate.

This means that the blended head grade across the group will be lower than the resource grade at Kilimapesa which is

currently 2.9g/t Au on an M&I basis which will be the initial focus. With production split broadly evenly between the two

routes, the blended grade will be split between this and the low-grade tailings (from the old tailings facility and the

artisanal development program); it will only bear transport and processing costs. This means that whilst low grade the

tailings will be a low-cost processing route. Grades are likely to be 1g/t Au or lower, while underground ore is likely to

be around 3g/t Au and we forecast a blended grade of sub 2g/t Au given the initial even split.

In terms of operating costs, prior to the mine being put on care and maintenance, GDP had operated it with the intent

to break even and stem losses that would certainly be taken under c&m. We therefore anticipate that this phase of

production would have similar cash costs to the gold price when GDP ran the asset at US$1200 -1400/oz. In the Q3

update, the company reported a snapshot figure of overall costs of US$1,694/oz and cash costs of US$985/oz which

tallies with the progress that has been made since acquisition. The company has also highlighted where it can make

notable savings to make this a cash flow generative operation.

This included the recent announcement of the connection to mains power giving Kilimapesa a reliable and substantially

lower cost source of power. Furthermore, as Kenya’s grid electricity is primarily supplied by renewables, this reduces

the company’s scope 1 and 2 emissions and further enhances the company’s ESG credentials. The cost saving is

anticipated to be around US$100/oz at current production levels. We see that level of US$850-950/oz as a sustainable

cost base for opex given the nature of the mine as an underground vein project. Indeed, going forward, ongoing drilling

will be required to firm up the near term mine plan which means that unit costs for the group are likely to stabilise in

our view at US$1,150-1,200/oz with around US$1.5m of sustaining capital spent each year of which the majority will

relate to the underground mine.

stbrides @

stbridespartn

ers.co.uk


- 6 -

Kilimapesa Plant


Additionally, GCAT expects that improved recoveries can be achieved by improving the mill grind. A greater proportion

of material achieving the target size will increase the surface area of material passing through the leach circuit and

improve efficiency. These additions will enable important gains to be made in terms of reducing unit costs and enhancing

cashflow that can be reinvested for further growth with target recoveries for the tailings of 55/60% but with a group

recovery of around 75%.

Phase 3 to 25,000pa

Phase 3 to take the project to 25kozpa will depend on the results of surface drilling and expanding the resource to the

target 1.5mnoz, however, we are confident that this can be achieved and have reflected it in our valuation. It will be

achieved by a further doubling milling capacity, i.e., taking it from 10ktpm to 20ktpm through a modular expansion of

the plant. This would give the company 33.5ktpm of capacity with the tailings circuit. However, the balance would switch

to underground and open-pit ore meaning a weighting to higher grades and recoveries but additional underground

drilling to support the higher rate of ore being processed. We anticipate that it would increase the groups blended

average from under 2g/t Au to closer to 2.5g/t Au and be effective from 2025F.

Given management’s past association with the project, experience of operating gold projects in Africa , and the fact that

the processing side is derisked, we model the uplift to 25kozpa assuming that this could commence in 2025F. We factor

in a US$25m capital cost to acquire additional plant equipment and expand throughput. We anticipate that a portion of

this could be funded organically with the balance likely funded by debt or equity.

We expect that operating costs for the group would benefit given the higher proportion of high grade material. This

would lead to annual cashflows in excess of US$7.5m.

Well Understood Ore Body with Exploration Upside

The Kilimapesa hill mine, the name of which translates as “Mountain of Money”, is a banded iron formation hosting gold

mineralisation located in the Migori Greenstone Belt of Southern Kenya. BIF hosted gold deposits are commonly

associated with greenstone belts and in certain cases these BIF projects can be vast with examples such as Musselwhite

in Canada which has produced over 4mnoz to date while up until 2002 when it closed the Homestake mine was the

second largest mine in North America producing 43.9mnoz over its life.

stbrides @

stbridespartn

ers.co.uk


- 7 -

Mineralisation Map, Strike Length of 2.5km+


The potential of Kilimapesa is not on this scale but our 1.5mnoz target is 2-3x larger than the current resource,

representing significant expansion potential and would take the project into a new category which would likely gain

more investor traction simply by being above the 1mnoz mark. The potential of the project is fairly well understood

given management’s historic association with the project, giving us comfort in incorporating some of this current upside

in our forecasts.

stbrides @

stbridespartn

ers.co.uk


- 8 -

Plan View Underground Workings


The licence area covers several gold workings including the Teng Teng mine and the Kilimapesa Hill. Teng Teng is host to

steeply dipping but high grade veins which have previously produced at over 10g/t Au and could prove worthy of further

exploration in the future but its workings are currently underwater. The initial focus is the three veins in the Kilimapesa

Hill and these constitute the current JORC 2012 resource. Gold is encountered in the three veins as well as stockworks,

and the veins dip steeply west north west. The surface of the licence area hosts many artisanal workings, indeed, GDP

kept the mill in good condition by toll milling artisanal ore for a number of years. The strike length delineated by the

artisanal working is three times that of the vein length within the compliant resource and the underground workings

area covers just ten percent of the strike length. Therefore, surface drilling along the strike length is likely to prove a

low-risk method of determining the remaining exploration potential at Kilimapesa and can then inform the underground

drilling from within the drives. Diamond and RC drilling is expected to commence in Q4 2021 once the rigs arrive on site ;

a 16 hole, 3,000m diamond drill programme is being focused on the Mining License.

stbrides @

stbridespartn

ers.co.uk


- 9 -

Plan View of Workings in Context of Resources and Mapped Surface Mineralisation

SOURCE: Company data, VSA Capital Research. Red; Measured, Purple, Indicated, Blue Inferred. Red dots artisanal workings. Adits, workings in black.

The mine itself consists of five adits which have intersected four gold bearing veins, of which three have been developed

and constitute the resource. The purple on the above diagram shows the resources and additionally the relationship of

the actual workings to them, highlighting that the current workings only cover a small portion of the current resource

and known mineralisation. The strike is E/W and dip varies from 45 to 70 degrees. Drive sections are narrow at 2.5m x

2m and relate to the old style of mining used to exploit the veins.

stbrides @

stbridespartn

ers.co.uk


- 10 -

Underground Workings at Kilimapesa


Historically, the mining method has been intensive, loading hoppers onto narrow gauge railtracks that are hand pushed

to the entrance and truck-hauled to the plant. This intensity is key to understanding why just 21koz of gold and 3koz of

silver were produced between 2012 and 2020 and the capital constraints imposed by the timing of the mining cycle

meant that processes could not be upgraded. GCAT is changing this and amongst other things, is considering the

acquisition of underground locomotives to improve productivity. The nature of the drive sizes does limit the level of

mechanisation possible and is a reason why the target annual capacity is 25kozpa and Kilimapesa has the potential to be

a driver of steady cashflow but is growth constrained. Previously, drifting along the veins had been the main method of

underground exploration, however, GCAT through a combination of surface drilling and underground drilling using an

existing Kempe drill will be able to make the forward mine plans necessary to take this from a 5kozpa operation to a

25kozpa operation.

New Near Surface Exploration Upside

As highlighted, the project has a long history of gold mining activity. In terms of artisanal activity, colonial workings and

the recent exploration update has highlighted that Kilimapesa has significant potential beyond the underground mine.

This is first pass modern systematic exploration for the wider Kilimapesa licence area and so the first stage having been

mapped and sampled is trenching. The company has announced that two drill rigs soon to be on site for the start of a

3,000m programme of diamond drilling and 10,000m of reverse circulation; the latter will focus on the Southern

Mineralised Zone.

Trenching yielded a best result of 40m at 4.85g/t Au including 7m at 7.6g/t Au.

Six trenches were commenced in September 2021 on the land to the south of Kilimapesa Hill where the historic colonial

workings exist. These are known collectively as the Southern Mineralised Zone and have add on targets Vim,, Rutha,

Blue Ray and others named in the CPR. The strike length is reportedly 7km with grades of up to 12g/t between 30-70m

depth and the trenching results are confirming near surface potential.

stbrides @

stbridespartn

ers.co.uk


- 11 -

PL189 Exploration Targets


The trenches are being excavated to a depth of 3m at spacings of 25m. The Southern Mineralised Zone is hosted in the

dolerite, just a few hundred metres from the processing plant and extending on strike across the length of the

prospecting license, roughly 7km. The Southern Mineralised Zone appears to extend over a wide but as yet undefined

breadth along the targeted strike length. Historic mapping shows up to 500m width in some places. There are also

dolerites with sediments including a narrow BIF intercalation. The first three trenches confirmed that the dolerite is an

important feature for mineralisation.

The high grades discovered were associated with the contact between dolerite-quartz porphyry footwall contact and

the dolerite-grey Wacke hanging wall and GCAT will be working to explore the full potential. However, with strong grades

and a broad package of mineralisation, we are excited about the potential for a high grade, shallow resource that could

be worked up to a compliant resource, contributing to the company’s 3mnoz target. Given the existing operation, success

here could be rapidly monetised. Work is underway to build access roads for drill rigs and drilling is expected to

commence later in the year. This will be a combination of RC and diamond drilling, although we anticipate that RC will

focus on the new targets with diamond used for the higher definition needed to firm up the underground mine plan.

stbrides @

stbridespartn

ers.co.uk


- 12 -

Recent Trenching Underway


East Africa Mining: Prospective and Target Rich Region for Acquisitions

Caracal has set out its stall as an East African gold miner with big ambitions and the intent is to meet its production and

resource targets with growth by acquisition, in addition to the successful execution of the Kilimapesa turnaround. The

company has highlighted that it intends to acquire additional assets but remains focused on “East Africa”. Kenya is a

relative newcomer to the mining industry with GCAT the first mining company to list on the Nairobi Stock Exchange and

Kilimapesa the only commercially operating gold mine in the country despite relatively high levels of artisanal activity .

The implication is that other assets in Kenya would be relatively early stage and some way to go for development and

cashflow. GCAT’s focus currently is on achieving 50kozpa of production. To find such assets, GCAT will have to broaden

its net regionally and given the close cooperation between the Kenyan, Ugandan and Tanzanian governments, we see

this as a likely starting point. All are highly prospective in terms of geology, and geographically close which will aid the

dedication of management’s time and stable.

In the 1960s, Kenya and Uganda founded the East African Community (EAC), however, this collapsed due to ideological

differences. In 2000, Kenya, Uganda and Tanzania re-established the EAC and the countries are closely connected

economically, politically and indeed geologically. Bilateral trade makes the countries amongst each others’ highest

trading partners, while overseas visitors receive visas for the region as a whole. The countries are building a standard

gauge railway from Mombasa-Nairobi-Kampala-Kigali, to build on the sealed roads which link Kampala to Mombasa. The

countries are also part of the overarching and broader African Free Trade Zone (AFTZ) which includes 26 members

including the EAC nations as well as the immediate neighbours: Ethiopia, Sudan, Egypt and Libya.

While the advantages of the first three mentioned countries make them stand-out, we expect GCAT to seek assets based

on bottom-up analysis within the broader region and as a consequence, we expect the company to consider a broader

remit to include geologically prospective regions such as Rwanda, Burundi and potentially Sudan and South Sudan and

Mozambique. However, with recent political instability in Ethiopia, Sudan and Mozambique, these countries may fall

lower down the target list despite the clear geological potential.

stbrides @

stbridespartn

ers.co.uk


- 13 -

Gold Projects in Kenya, Tanzania and Uganda


Tanzania

Of the countries mentioned, Tanzania is the most advanced in terms of its mining industry . Estimated countrywide

reserves are 45mnoz and it is the fourth largest gold producer in Africa after South Africa, Ghana, and Mali: in 2019

c1.7moz was produced. Tanzania was able to advance its development with Foreign Direct Investment, as the first mover

regionally to open up its mining industry to private and foreign investors. While Uganda is catching up, having been

closed to foreign investment throughout the Presidency of Idi Amin, similarly in Kenya, there was virtually no foreign

investment until after 2005, three years after President Kenyatta’s son, Uhuru Kenyatta, was elected. Serious revisions

to its Mining Act were only effective from 2016.

stbrides @

stbridespartn

ers.co.uk


- 14 -

Tanzania had a relatively more stable past after its creation and independence in 1964 after Tanganika and Zanzibar

were combined. Although it had close ties with the People’s Republic of China and was a socialist state, its relative

stability meant the country was able to gain a headstart in relation to Foreign Direct Investment which began to pick up

during the 1990s, in part on the back of a relaxation in mining laws which enabled the private ownership of mineral

claims. The extensive reserves and significant annual production are indicative of the geological prospectivity, and there

is no question that Tanzania has a propensity for large-scale, high-grade resources.

The most well-known projects are those of Barrick Gold (ABX US) which acquired licences from Pangea Goldfields in

1999 for what became the Buzwagi and Tulawaka mines, and Bulyanhulu which was acquired through the purchase of

Sutton Resources. Buzwagi was opened in 2009, Bulyanhulu in 2001 and Barrick also acquired Placer Dome in 2006 which

had operated the North Mara mine since 2002. Barrick’s activities and relationship with the Tanzanian government has

been well documented and the fractious relationship has, in recent years, had a detrimental impact on the country’s

ability to attract mining investment. However, major breakthroughs have been made and there are success stories such

as Shanta Gold (SHG LN) which show that the country is one in which business can be done.

The issues were primarily with Barrick’s operations under the subsidiary known as African Barrick and then Acacia

Mining. Mark Bristow, then CEO of Randgold Resources described Acacia Mining as “irresponsibly run” and “not properly

managed” and after the Barrick Randgold combination which led to the consolidation of Acacia, when Bristow became

CEO he said that it was important to “restore the social licence to operate the mines” with reference to those of Acacia

Mining. Prior to this, tensions between the community had deteriorated with mine security accused of multiple deaths

of local people. On accession to the Presidency, John Magafuli presented Acacia with a US$190bn tax bill (four times

GDP) for underreporting output for tax purposes. Acacia (African Barrick) was banned from exporting unprocessed

concentrates.

In 2020, a deal was announced which meant that Barrick would pay US$300m to settle the tax bill and the government

would gain a 16% free carry in the mines and a lifting of the export ban. This was in a large part possible, in our view,

due to the change of leadership at Barrick.

We also note Petra Diamonds faces a similar dispute. It followed a similar story with a total breakdown in local relations

and violence between mine employees and artisanal workers leading to deaths. A US$6.1m payment was made to the

local claimants as compensation for the abuses at the Williamson Diamond mine. However, the operations remain

suspended after President Magufuli for underreporting the value of diamonds by US$14m. The mine is already owned

75% by Petra and 25% by the Tanzanian government. The company seems optimistic about a resolution and have guided

to a production restart in the coming financial year.

As a result of the above, the jurisdiction has been languishing at the lower end of investment attractiveness rankings

tables and despite the significant progress that has been made, investors have yet to adjust their perception although

our understanding is that with the Barrick agreement made, the country is once again worthy of consideration. This

creates significant opportunities, in our view, for GCAT.

We do highlight recent progress which provides further weight to our case: the Nyanzaga project of ASX junior Orecorp

receiving its Mining Licence in June 2021. This is a significant milestone for the company and a strong sign that the

Government is seeking to get the mining industry going once again and move on from the Barrick saga. The issues with

African Barrick had been long-running and date back to at least 2008 when six workers were killed and the running theme

is losing the social licence to operate. Other mining companies such as Shanta Gold have been able to operate

successfully, and indeed, Shanta has developed and commissioned a mine which is now returning dividends to

shareholders.

stbrides @

stbridespartn

ers.co.uk


- 15 -

The headline terms for Tanzania’s mining industry are as follows

• Government Free Carry of 16%; this was brought in during 2017 and was the most contentious issue for

companies already with licences. However, this is common practice across Africa with the governments of

Guinea, Mali, DRC, South Africa and Kenya all employing it.

• Royalty rate 6% for precious metals

• Corporate tax 30%.

In addition, prospecting licences are granted for an initial four years and can be extended for a further three. A single

entity may not hold more than 20 licences / 2,000km2 in licence area. There is a minimum spend of US$500/km2 during

the initial period and US$2,000/km2 for the extension period. Mining licences are then awarded to companies where

investment capital is likely to be between US$100k and US$100m with Special Mining Licences for those that exceed

that cap. A mining licence is granted for an initial ten years and maybe further extended by ten years. The Special Mining

Licence is granted for the life of mine indicated in the Feasibility Study but can be extended no later than one year before

expiry.

The most productive gold deposits in Tanzania and southwest Kenya are in the Nyanzian greenstone belts and the

Ubendian system. The deposits form in iron sulphide rich deposits in banded iron formations (BIFS), mineralised shear

zones and shear zone-controlled quartz reefs. The greenstone belts wrap around the southern edge of Lake Victoria but

extend to the north and south. The Ubendian system runs along the countries southwestern border with Zambia,

Malawai and then Mozambique and multiple gold projects have been discovered along this system although the

operating mines are generally in the north of the country.

Kenya

GCAT’s cornerstone asset, Kilimapesa, is located in Kenya. Kenya’s mining industry is less mature than that of Tanzania’s

but with comparable geology in that the greenstone belts which hosts Tanzania’s largest gold projects extend into

Southern Kenya. Kenya’s Government has been slower to open up the country to exploration. Although exploration was

possible, the Ministry of Mining was only formalised in 2013 with a Mining Act in 2016 formalising and updating the

country’s Mining Code. FDI only really started flowing into Kenya after the Moi regime ended in 2002, having been in

power since 1978. A gradual process of opening up has taken place although momentum has really taken hold since the

Presidency of Uhuru Kenyatta in 2013.

The mining lease which was granted to Kilimapesa in November 2011 was the first mining licence to be granted in Kenya

since independence from Britain in 1963.

All minerals are vested in the national government. Companies must initially apply for a prospecting lease which can be

graduated to a mining licence on the completion of a feasibility study, EIA and obtaining an environmental licence. A PL

is awarded for an initial three years and can be extended twice to a total of nine years . The term of a mining lease shall

not exceed 25 years or the forecast life of mine but can be renewed for a further 15 years.

• Free carried interest 10% on award of a Mining Licence (This is according to the Mining Act from 2016, however,

Kilimapesa precedes this and is not subject to the free carry).

• Royalty of 5% on gold and silver

• Corporate tax rate of 30% (cut to 25% for other industries in 2020 but mining was exempt)

We do highlight a positive decision on royalty rates; 70% goes to the national government, 20% to the local government

and 10% to the local community. This can have a transformative impact on the local economy and development and

ensure that especially when mining projects are remote, government levies are shared more equitably with the local

area. This is a strong model for increasing direct local support.

Although the modernisation of the mining code is relatively recent, two other London listed companies have had

significant success in Kenya. Base Resources (BSE LN) operates the Kwale Mine, roughly 40km south of Mombasa. It

commenced production in 2013 and has since then accounted for the majority of value created by mineral output value

stbrides @

stbridespartn

ers.co.uk


- 16 -

from Kenya’s mining industry. It produces ilmenite, rutile and zircon yielding around US$200m in revenue and US$100m

in EBITDA in 2020 and 2021.

In August 2020, Shanta Gold (SGL LN) acquired the West Kenya project from Barrick Gold (ABX US) for US$7m in cash

and US$7.5m in shares with a 2% NSR for the life of the project. The mine was acquired by ABX in stages with over

US$45m having been previously spent on exploration leading to the declaration of a 1.2mnoz resource with impressive

high grades of 12.6g/t Au. It is located within the Liranda Corridor, a greenstone belt to the north of the Migori

greenstones which host the Kilimapesa project. It is known as the Busia-Kakamega belt and is the most northerly of the

Lake Victoria greenstones. The two belts are intersected by the northeast corner of Lake Victoria. Shanta has committed

to a scoping study on the project which the CEO of Acacia Mining had predicted would become a multi-million oz project.

Uganda

Uganda was another late starter in opening up its mineral industry to private ownership and foreign investment. Idi Amin

who was in power between 1971 and 1986, expelled foreign operators and the highly prospective country has only in

recent years been opened up to modern exploration. Falconbridge (the precursor to Freeport McMoran) operated the

Kilembe copper-cobalt mine in the south of the country highlighting that the geological potential has long been

recognised by the majors. However, there are no commercial mines operating currently.

Uganda borders the DRC to the east and naturally shares similar geology, while the greenstones on which Kilimapesa

lies extend into the east of the country. Uganda has had its own turbulent past politically, however, it has been stable

since President Yoweri Museveni took power in 1986. The government has allowed the private sector to be the main

engine of growth in what has consistently been one of Africa’s fastest growing economies which in the two years prior

to COVID-19 had grown at over 6%pa.

In the Museveni era, mining has been an almost negligible contributor to the economy, however, the extraction of oil

and gas is becoming an increasingly important driver for growth contributing 4% of GDP last year. A series of discoveries

in the Lake Albert Rift Basin now amount to 6.5Bboe with 1.5Bboe considered recoverable. A refine ry with capacity of

60kbopd is being built and a major pipeline between Uganda and Tanzania to the Port of Tanga is planned, the start date

for construction of which has been consistently pushed back and the cost has risen from US$3.5bn to over US$5bn.

Despite the major differences in the extraction of oil and gas versus minerals, we see this as a useful precursor for the

Ministry of Energy and Mineral Development in gaining practical experience in implementing its policies. The

Government repealed the Mineral Act of 1964 and replaced with the more investor friendly Mining Act in 2003 based

on British Law. Successful implementation should give greater comfort to investors although we see the stabilisation of

the broader economy as a vindication of the attractive environment for investors.

stbrides @

stbridespartn

ers.co.uk


- 17 -

Mineral Occurrences of Uganda

SOURCE: Uganda Ministry of Energy and Mineral Development, VSA Capital Research..

Given Uganda borders the DRC and is surrounded by the East African Rift System, it should come as no surprise that the

country is rich in mineral targets. This has been confirmed by the World Bank which funded the Geological Survey of

Finland’s GTK to conduct airborne surveying of 80% of Uganda’s land mass excluding Lake Victoria, Kampala and the

northeast border totalling 648,400km of line surveys. The high resolution magnetic radiometric surveys have been

processed and mapped and are available for mineral explorers; a hugely valuable resource for a country keen to develop

its mining industry.

Uganda’s Highly Varied Geology

SOURCE: GTK, VSA Capital Research.

stbrides @

stbridespartn

ers.co.uk


- 18 -

The Kilembe mine was built and operated by Falconbridge between 1956 and 1977 before reacquisition by the Uganda

Government under Idi Amin. The mine is estimated to have produced around 16mnt of ore through its production life

with a run rate of up to 90ktpm of ore at grades of around 2% Cu and 0.17% Co. Recent work by GTK in 2011 included

ore assays which yielded results supporting these statistics with grades of 2.2% Cu, 0.25% Co and 0.36% Ni. The

mineralisation at Kilembe is VMS in nature and the mine is located in the foothills of Rwenzori Mountains which have

formed as the Western flank of the Great Rift Valley.

Prospective explorers must first apply for a prospecting lease (PL) which is not a mineral right and lasts for one year.

Once a PL has been granted, an exploration licence can be applied for a period not exceeding three years with two

further extensions to nine years (much like Kenya). A Mining Lease of the shorter of 21 years or the life of the project

can be applied for from an exploration licence with a valid EL, feasibility study, approved environmental impact

assessment and adequate financial competence.

Highlights from the fiscal regime:

• Corporate income tax of 30%

• Royalties are based on project size and revenues rather than minerals. There is a variable rate of 3-8% where

the percentage increases by one point for every US$50m increment between US$100m to US$350m.

• Government does not take a free carried interest.

Environmental, Social and Governance

The company has made ESG a pillar of its operating mantra and is making a concerted effort to learn from the mistakes

of the likes of African Barrick and Petra Diamonds who have lost their social licence to operate with a disastrous impact

on the local community and the companies’ ability to operate commercially. GCAT is performing strongly on this front

with a number of tangible initiatives.

GCAT has all the necessary environmental permitting in place for its operations, with Kilimapesa Gold having been

awarded an EIA licence in 2009 from the National Environmental Management Authority (NEMA) for the production of

gold. NEMA effluent discharge licences are also in place. GCAT also has been granted a license and received permission

from the Ministry of Mines and NEMA to process leached artisanal tailings. GCAT therefore has the opportunity to deliver

substantial ESG benefits to the community by taking contaminated leached tailings, which are currently simply discarded

in stockpiles across the county, cleaning them up, extracting value and disposing of them in a responsible and

environmentally sound manner on GCAT’s own tailings storage facility.

Aside from the obligatory environmental standards required to be maintained, the company is undertaking additional

initiatives such as tree planting. Once the trees are established, the company intends to launch a beekeeping programme

to support the local community. GCAT is also intends to fund an extensive cattle dipping programme to fight foot and

mouth disease. Cattle farming is a vital part of the local Maasai way of life and this is a scheme which is of great

importance to the local community. GCAT also aids in supplying drinking water for livestock at various locations.

The community also benefits from a number of other schemes which the company has set up aside from the 200 direct

jobs that have been created where local workers are employed.

A 2% royalty has been agreed with the Transmara Moyoi Group Royalty which is to be spent directly on the local area,

in addition to the statutory 5% royalty on precious metals from the government of which 20% goes to the local

government and 10% to the local community. We view this as a more efficient transfer of taxation to the loca l people,

particularly in the mining industry where projects can be far removed from capital cities which often benefit most from

government spending ahead of remote regions.

GCAT provides funding for the Kinyor Yesu School in the local village of Lolgorien, assisting in building classrooms and

other practical programmes such as assist with school fees and sponsorship of local teachers. GCAT covers the cost of

supplying water and electricity to three local schools. Many of these projects are run under the company’s association

with the Mayflower Africa Foundation.

stbrides @

stbridespartn

ers.co.uk


- 19 -

In terms of GHG emissions, the recent connection to mains power is a strong positive as IEA data shows that over 80%

of Kenya’s electricity is generated by renewable sources with 44% from geothermal and 26% from hydro being the main

contributors. Kenya sits on the Great Rift Valley and is one of the most active tectonic zones; there are dozens of hot

springs and near surface high intensity geothermal hotspots which are being harnessed to generate power. With

mountain ranges and rivers, the country is also well placed for hydroelectric power and the country has a plan to be

100% reliant on renewables by 2030, miles ahead of developed nations. Furthermore, this is non intermittent base load

energy meaning that GCAT is able to receive consistent reliable power whilst also minimising its Scope 1 and 2 emissions.

Kenya Electricity Generation by Source 2020, 13.9TWh

SOURCE: IEA.org, VSA Capital Research.

The company is committed to sustaining the highest standards in corporate governance throughout its operations to

ensure all practices are conducted ethically, transparently, and efficiently. The company believes examining all features

of its business and reflecting, analysing, and developing its procedures will result in the continued progress of the

company and deliver value to its shareholders.

Whilst ESG has become a fashionable topic over the past 18 months, in particular we highlight that it is increasingly

possible to quantitatively view having a strong ESG policy. We note the recent announcement by Franklin Templeton

that is setting up a responsibly sourced gold ETF. This means that the fund will be backed by bullion which can be proven

to have been responsibly sourced according to the standards set by the LBMA. This excludes bullion produced before

2012 and it must have been produced in accordance with the LBMA’s responsible gold guidance designed to eliminate

gold’s use in terrorist financing, money laundering and poor environmental impact mines .

stbrides @

stbridespartn

ers.co.uk


- 20 -

Caracal Employees on Site


stbrides @

stbridespartn

ers.co.uk


- 21 -

Financial Model Summary

VSA Commodity Price Forecasts, USD/t

2019A 2020A 2021F 2022F 2023F 2024F 2025F LT

1,393 1,688 1,800 1,950 1,900 1,700 1,600 1,600

SOURCE: eikon, VSA Capital Research.

We assume moderately high inflation levels for Kenya in line with prior years and an FX rate which implies a modestly

stronger dollar against GBP compared to currently.

Macro Assumptions

2019 2020 2021 2022 2023 2024 2025

CPI, % 5% 5% 5% 5% 5% 5% 5%

USDGBP 0.75 0.74 0.74 0.77 0.77 0.77 0.77

SOURCE: Eikon, VSA Capital Research.

Cost of Capital

With no outstanding debt, the weighted average cost of capital is simply a cost of equity. We believe that 8% is an

appropriate discount rate for Kenya and apply this to our DCF, bearing in mind that gold companies’ discount rates tend

to be lower than prevailing discount rates for mining.

Tax and Royalties

Kenya has a corporate tax rate for mining of 30% and a royalty rate for precious metals of 5%.

A royalty of 2% per month is payable on gross revenues to the local Moyoi Group.

Goldplat the vendors of the project receive a 1% royalty, capped at US$1.5m in total.

Licensing

The property at Kilimapesa consists of two licences: a prospecting licence and a Special Mining Lease.

Special Mining Lease (SML) 27 is a mining licence that was issued on November 11th 2011 over a surface area of 81.38

hectares covering a parcel of land belonging to the Moyoi Group Ranch. Effectively , SML 27 covers the Western

Kilimapesa Hill, the entire Kilimapesa underground workings (but not the Teng Teng workings) and the Kilimapesa Hill

Resource. The licence has a validity of 21 years and expires on 31st October 2032. The licence was issued under the (old)

Mining Act CAP 306. Upon expiry, renewal will be subject to the provisions of the (new) Mining Act 2016.

stbrides @

stbridespartn

ers.co.uk


- 22 -

Location of Licences


There is a disputed area of licence, which currently relates to resources of 140oz at 2.28g/t Au. The company is taking

steps to regain ownership through an official dispute process but at this point, there is no guarantee that this will

succeed.

Operational Snapshot

GCAT acquired and then restarted production in H2 2021 producing modest volumes in the latter part of the year.

Optimisation and expansion of the processing capacity means the company is on track to achieve the target run rate of

1kozpm (12kozpa) by the end of 2021. Given the minimal capital required in H2 2021, we anticipate that this would likely

cost around US$1.5m. Going forward the sustaining capital apart from spares etc for the plant the main spend is

underground drilling to firm up the resource. Clearly with low capacity utilisation and the ramp up capital the 2021F

costs are relatively high and the connection to mains power, ramp up and optimisation are expected to bring costs down

to our target level for FY 2022.

stbrides @

stbridespartn

ers.co.uk


- 23 -

Operating Highlights

FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

Gold Production 3,894 12,121 12,121 12,121 24,677 24,677

Gold Price, US$/oz 1,800 1,950 1,900 1,700 1,600 1,600

Operating Cost, US$/oz 1,250 970 957 975 861 861

AISC, US$/oz 1,956 * 1,173 1,159 1,179 956 997

Sustaining Capex, US$'000 (1,500) (1,500) (1,500) (1,500) (1,500) (2,500)

Expansion Capex, US$'000 - - - (16,000) (11,000) -

SOURCE: Company data, VSA Capital Research.*Total Cost including expansion capex

FY 2022 and FY 2023 are therefore what we see as the steady state for the near term target production level. A Phase 3

has been proposed although is not yet fully costed. However, we suspect that the cost of an additional mill etc would

cost around US$25m and take the company up to 25kozpa. The economies of scale result in a further redu ction in unit

costs.

Valuation

Our valuation of Caracal Gold (GACT LN) is based on a risked DCF valuation and EV/Resource peer-based valuation. The

assumptions underpinning the model are set out above in the financial model summary. Due to the modelling of the

growth plan to 25kozpa, we have applied a P/NAV risk factor of 0.8x as work is still required to finalise the expansion

plan and our valuation is reliant on our estimates. Given that it is a modular expansion, we believe that it is relatively

low risk and even on the current mineral resource of 0.7mnoz, there is ample mine life at the higher run rate (a 15 year

life indicates just over 300koz is exploited). However, this is the starting point and GCAT is a growth stock. With the

trenching results, Kilimapesa has already demonstrated that it has significant growth upside and this is not modelled in

our DCF, whilst the broader ambition is to achieve 3mnoz of compliant resources and 50kozpa of production both

organically and through acquisition.

Our DCF valuation, based on Kilimapesa production, produces a risked DCF valuation of US$48m which at USDGBP 0.75

implies £35m. We see this very much as a starting point and consequently weight our valuation to the growth side of

the business. On an EV/Resource basis for which we use for the current resource, the company is trading broadly in line

with peers if using current M&I resources. We believe that 1mnoz plus can be achieved at Kilimapesa and that implies

5.6p/sh. Our base case continues to demonstrate strong upside potential, however. Given a significant uplift in resource

size is expected in the near term, there is a clear pathway to increasing our valuation target.

DCF Valuation Summary

Division Division NAV, USD'000 Division NAV, GBP'000 P/NAV Fair Equity Value, GBPmn

Kilimapesa 60,184 43,934 0.8 35,147

Total NAV, GBPmn 35,147

Consolidate Net Debt (1,705)

Total Equity Value 35,149


stbrides @

stbridespartn

ers.co.uk


- 24 -

Blended Valuation Summary

USD GBP

Resource Inventory, oz Au 671,446

Target EV/Resource, US$oz 105 80

Fair EV, USD'000 70,755 53,420

Net Debt, USD'000 (1,705) (1,288)

Total Fair Equity Value, USD'000 69,049 52,132

# of shares 1,448,425,658

Per Share Fair Value, EV/oz 3.60

DCF fair target price 2.60

Blended 12-mo Target Price, GBp/share 3.30

Current Price, GBp/sh. 1.25

Upside, % 165%


Our peer group is limited to East African gold mining producers, developers and explorers and near term or small -scale

producers elsewhere in Africa. GCAT has a current resource with relatively strong grades although having not been drilled

out it is one of the smallest listed entities by resource and simply adding ounces would justify a rerating, in our view.

However, we also see potential for a higher valuation based on the fact that GCAT is already in production whilst much

of the peer group is in pure development phase. Producers Thor Exploration (THX CN/LN), Shanta Gold (SHG LN) and

Caledonia Mining (CMCL LN) trade at premiums to GCAT.

With drilling due to start in Q4 2021, this provides newsflow and catalysts that could further support the stock in addition

to rising earnings and production, whilst the current earnings multiples of 3.8x EV/EBITDA appears undemanding. There

are therefore a number of factors which are simply not captured by our DCF that could lead to a rerating and it is

important therefore not to focus solely on the near term production where the main aim is to provide cashflow to

commence the broader growth strategy.

Our blended target price for GCAT is 3.3p/sh. which implies 160% upside potential.

Risks

• Commodity Prices. The company is primarily exposed to the gold market and unexpected changes to commodity

prices are likely to affect our valuation.

• Political Risk. Located in Kenya, there is a risk that changes to the Mining Law may affect our valuation.

• Macro Risk. The company is exposed to local currency for operating costs (Kenyan Shillings) and receives US Dollars

for gold sold. The company is listed and reports earnings in GBP and trades in the same currency. Fluctuations in

currency may affect our earnings estimates and forecasts.

• Execution Risk. The potential for delays and operating issues are an inherent industry risk, this may include delays

in receiving financing or hold ups to the completion of development milestones.

• Financing Risk. Access to financing is a perennial risk for junior natural resources companies.

stbrides @

stbridespartn

ers.co.uk


- 25 -

Peer Comparison Table

Name Ticker

Market Cap

(US$ mn)

Enterprise Value

(US$m)

Asset Location

Measured & Indicated

(t)

M&I Contained

(oz)

M&I Gold

Grade (g/t)

Inferred (t)

Inferred Contained

(oz)

Inferred Gold

Grade (g/t)

2021 Production

Target/ Guidance

(oz)

2021 AISC

US$/oz

EV/oz (M&I)

EV/oz (total

resources)

Caracal Gold Plc GCAT.L 25 25 Kenya 1,963,928 184,652 2.92 6,751,363 486,794 2.40 137.71 37.87

Shanta Gold SHAN.L 168 148 Tanzania,

Kenya 14,618,000 1,354,000 2.88 12,975,000 1,859,000 4.45 62,500 1,350 109.54 46.16

Tanzanian Gold Corp. TNX.TO 107 89 Tanzania 35,888,576 2,036,280 1.77 17,822,036 635,541 1.11 17,500 1,300 43.47 33.13

OreCorp ORR.AX 201 153 Tanzania 20,800,000 2,715,000 4.06 2,900,000 358,000 3.84 180,000 838 56.41 49.84

Thor Exploration THX.V 163 194 Nigeria, Senegal

4,086,000 608,000 5.30 443,000 68,000 3.75 95,000 900 319.68 287.53

Xtract Resources XTR.L 62 51 Mozambique,

Zambia 13,372,000 782,000 2.22 6,244,000 479,800 2.18 64.60 40.04

Galane Gold GG.V 38 47 Botswana,

South Africa 1,385,278 2.77 1,629,529 2.62 26,700 897 33.72 15.50

Caledonia Mining CMCL.K 164 170 Zimbabwe 8,530,000 902,000 3.29 8,490,000 866,000 3.17 60,000 946 188.78 96.31

Red Rock Resources RRR.L 10 10 Kenya 19,400,000 1,190,000 1.29 10,000,000 1.21 8.32 8.32

Average 148.15 105.38

SOURCE: Eikon, VSA Capital Research.

stbrid

es @ stbrid

espartners.co.uk


- 26 -

Gold Market Update

Having reached all-time highs and broken through the psychologically important US$2,000/oz level, the gold market has

undergone a protracted consolidation phase and backtest, however, in recent weeks the gold price appears to have

made a significant breakout, up 6% in Q3 2021 to close to US$1,850/oz. There had been a rotation of safe haven demand

buyers selling out as COVID-19 concerns eased, but now a combination of rising inflation and property defaults in China

are causing investors to resume buying.

ETF investment, which nowadays is largely representative of investor demand, was volatile through 2020 with record

full year inflows of 877.1t masking a weak Q4 2020, which saw net outflows of 130t as the result of the US election

removed an element of uncertainty, combined with the success of vaccine trials which are being rolled out globally.

Unsurprisingly, YoY H1 2021 was a considerably weaker period for investment demand with 465t acquired, 59% lower

YoY but net outflows of 129.3t. Q1 2021 also experienced outflows but Q2 reversed the two -quarter trend with net

inflows of around 25t. In Europe, strong investor demand continued with 17t purchased in July alone , offsetting US

selling. In Asia, outflows of 1.6t resulted from heavy selling in May on the back of strong risk appetite, however, we

expect upcoming data to print a reversal on the back of the Evergrande crisis. What is of note is that the recent breakout

in the gold price appears not to have been driven by ETF demand. Indeed, it now looks like ETF demand is set to catch

up with the gold price which could provide further momentum to the rally.

Consumer related gold demand was stymied by COVID-19 and consequently jewellery demand in 2020 was 1,412t, a

multi-decade low and although there is a strong bounce in 2021, the full year is likely to be below the five-year average.

In H1 2021 demand of 874t was 17% below the five-year H1 average, excluding 2020. This is likely to have been in large

part due to the severe impact of COVID on India which is major jewellery buyer. Indeed, while China and RoW demand

increased c60% YoY each in Q2 2021, Indian demand bounced just 25% to 55t.

US$ Gold price, US$/oz Gold ETF Flows

SOURCE: Refinitiv, VSA Capital Research.

Central banks also remain a cornerstone of demand with net buying over the whole of 2020 of 273t . This was the 11th

consecutive year of net buying although it was c60% lower YoY with some sellers in H2 2020. H1 2021 net buying was,

however, amongst the strongest periods for purchases in recent years at 200t; the third highest H1 period for CB buying

since 2011. The list of buyers diversified in H1 2021 with strong buying from Thailand, Hungary, Brazil and India.

Meanwhile, in Russia, traditionally strong buyers were sellers of 6t while the Philippines was a significant net seller of

27t.

The Federal Reserve Balance Sheet has increased by around US$5trn since early 2020 and we expect growth to continue,

meaning we expect deficits to continue to grow in the short to medium term which is likely to be supportive for the gold

price in its primary role as a hedge against currency debasement. Whilst we believe that some gold bug concerns that

88

90

92

94

96

98

100

102

104

106

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Jan

-20

Jul-

20

Jan

-21

Jul-

21

Gold Price, US$/oz

Dollar Index

45

50

55

60

65

70

75

80

85

90

95

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

Ap

r-2

0

Jul-

20

Oct

-20

Jan

-21

Ap

r-2

1

Jul-

21

Oct

-21

Gold ETF Holdings, Moz

stbrides @

stbridespartn

ers.co.uk


- 27 -

the dollar will lose its reserve status are farfetched, the growth in the money supply will in our view lead to higher gold

prices as a result of further fiat currency debasement.

This vast increase in the money supply is now feeding into inflation, which is also driving precious metals prices higher

and has been a key factor in the recent breakout. There is a trade-off in gold between expected and unexpected inflation.

If higher inflation becomes entrenched, this may prove negative for the gold price as although a hedge against a

reduction in purchasing power, higher inflation also often leads to a tightening in monetary policy which lowers gold’s

appeal relative to yield-bearing assets. Current negative real yields clearly demonstrate the value in precious metals , but

this is not a trend we expect to last for a decade, whereas unexpected inflation is likely to be a driver of a major precious

metals bull market.

The market guided by senior central bankers had been debating whether inflation was transitory with CPI US 5.3% in

August and 5.4% in July, and 3% and 2.2% in the EU over the same time period. More recent prints in September and

October in the US of 5.4% and 6.2% have surprised the market; 6.2% is the highest reading since 1990. As a result, the

argument that inflation is transitory has weakened significantly, however, the extent to which inflation will continue and

how much further it has to increase remains uncertain; which bodes well for precious metals, in our view.

The other crucial point is that Central Banks have stated their preparedness to tolerate inflation with the Fed preparing

to end inflation targeting. Rather than focusing on forecast inflation the Fed will act retrospectively based on actual

inflation, however, the risk is that inflation will spiral as by implication the Fed will only respond once the 2% target has

been exceeded and the possibility of overshooting towards higher inflation would be a real risk. The challenge for CBs is

set to be tested further with energy price rises now fuelling inflationary pressures. This is where the gold price has the

opportunity to outperform as this type of structural inflation is hard to predict and gold prices tend to perform better in

situations where inflation is unexpected.

Inflation targeting has underpinned interest rate setting for decades with a nominal target of 2%. However, with long

term real yields now negative and companies increasing leverage in a declining earnings environment, the ability of the

Fed to raise rates without undermining a recovery has significantly reduce the viability of the monetary lever and the

likelihood of a near term normalisation or rate policy. Consequently, a step change in strategy is being mooted which

would result in inflation targeting being abandoned.

Gold Price v Gold Equities Gold Seniors v Juniors

SOURCE: Eikon, VSA Capital Research..

We note two recent disconnects in the gold space: firstly, gold is underperforming inflation and the recent increases in

CPI over the last two months have not led to a recovery in gold prices. Secondly, gold equities are underperforming the

gold price currently and offer attractive value, in our view. The sector as a whole is in a strong position with strong

balance sheets, rising cash flow generation and improving sentiment. Given we expect gold prices to bounce in line with

higher inflation we expect gold equities to outperform and close the gap.

50

75

100

125

150

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

No

v-2

0

Jan

-21

Mar

-21

May

-21

Jul-

21

Sep

-21

No

v-2

1

Rel

ativ

e P

erfo

rman

ce

Gold Price, US$/oz

Van Eck Gold Miners

50

75

100

125

150

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

No

v-2

0

Jan

-21

Mar

-21

May

-21

Jul-

21

Sep

-21

No

v-2

1

Rea

ltiv

e P

erfo

rman

ce

Van Eck Gold Miners

Van Eck Juniors

stbrides @

stbridespartn

ers.co.uk


- 28 -

Appendix 1: Key Personnel

Simon Games Thomas, Non-Executive Chairman

Mr Simon Games-Thomas has over 30 years’ experience in the global financial and commodity markets. His career has

involved extended periods in running trading operations in precious metals, base metals and agricultural products as

well as having set up and run his own futures brokerage. Simon also has significant experience in the financing of

advanced exploration and development projects and mining operations in Africa, Asia and Europe using debt and

commodity linked debt instruments. Simon held senior management roles in London, Sydney and Singapore for banks

such as UBS, JP Morgan, Merrill Lynch, Rothschild and Lehman Brothers. Simon is the founder and director of Pegasus.

Since leaving banking he has founded a firm offering financing and risk management advice and re-structuring advice to

corporates in Africa, South America and Australia. He is also a shareholder in a renewable energy start-up and

establishing a commodity lending and trade finance fund.

Robert McCrae, CEO

Robert McCrae has over 25 years’ experience in the mining and exploration industry in Africa. Mr McCrae qualified with

a BCom Economics and Financing from the University of Witwatersrand. He has been involved in the exploration,

development and financing of projects in over 15 African countries across a broad range of commodities including

precious metals, gemstones, base metal, bulk commodities and industrial minerals. He has managed both the

development of these projects for both private and listed companies and has acted in roles of project owner as well as

project/construction contractor. Mr MCrae was the founding shareholder of Mining Project Development ltd, which

owned the Zanaga Iron Ore Project in the Republic of Congo prior to its acquisition by Glencore. Mr McCrae has held

senior executive management positions with a number of Australian Securities Exchange listed mining and exploration

companies, including CEO of Minbos Resources, which had several high-grade phosphate projects in Angola and the

Democratic Republic of Congo and COO of Black Mountain Resources which operated a high grade vermiculite mine and

phosphate exploration project located in Uganda. He was also a founder of Luiri Gold Limited, which explored and

developed gold projects in Zambia and where he was also involved on the listing onto the Toronto Stock Exchange.

Between 1994 and 2006, Mr McCrae was Director, Business Development of MDM Engineering (Pty) ltd, an African

focused natural resource contracting and process engineering companies in Africa, which was responsible for the

construction of processing plants for a number of major gold and copper operations throughout Africa.

Gerard Kisbey Green, Executive Director

Gerard Kisbey-Green has over 34 years of experience in the mining and related financial industry. After graduating as a

Mining Engineer in South Africa, Gerard gained experience on South African mines, eventually working in various

management positions for several large South African mining companies. During that time, he worked on gold, platinum

and coal mines primarily in South Africa but also in Germany and Australia. Gerard then moved into the financial markets

where he spent 17 years, the first 5 of which as a mining equity analyst on the Johannesburg Stock Exchange where he

was rated amongst the top analysts in the Financial Times; annual rankings. He then moved into mining corporate finance

and worked in South Africa for 5 years and England for 7 years for banks including JPMorganChase, Investec and Standard

Bank. Gerard has significant experience in IPO’s, including in capital raisings, M&A transactions, and has worked with

industry participants such Nomads, broker, and other advisors on deals that cover a diversity of commodities and

geographic locations. On leaving the banking industry, Gerard became CEO of Peterstow Aquapower (SA), which is a

mining technology company, and Director of Peterstow Holdings. Gerard then held the positions of President a nd CEO

of Aurigin Resources, a Toronto-based private company focused on gold exploration in East Africa, between December

2012 and September 2018. He joined the Board of Goldplat plc in August 2014 as a Non-executive Director and assumed

the role of Chief Executive Officer of Goldplat plc in February 2015—a position he held until April 2019. Gerard re-joined

the Board of Goldplat plc in May 2020 as a non-executive Director. He Page 57 of 151 is currently working as a private

consultant and is the Mining Lead for Sutton International Limited, a private company developing mining projects –

primarily in Africa.

stbrides @

stbridespartn

ers.co.uk


- 29 -

Charles Tatnall, Non-Executive Director

Charles Tatnall is primarily involved in advising and raising funds for small and medium sized enterprises with varying

business activities ranging from advising investment and family wealth companies to reviewing Page 56 of 151

investments and business opportunities together with the management of personal investments. Until 2005, he was

consultant to Bolton Group plc, a UK-listed investment company, identifying and conducting due diligence on potential

investment and acquisition opportunities from a broad range of industry sectors. These included natural resources, both

exploration and production, electronic hardware and software, and biotechnology. Previously he held a number of

positions with public companies in North America and Canada, and was a director and founder of several micro -cap

North American listed companies being responsible for general corporate governance and all finance areas. Charles was

a co-founder and principal of BioProgress Technology ltd (“BioProgress”) which was quoted on the NASD -regulated OTC

market and later migrated to AIM. Charles held the licence for the North American business of BioP rogress though a

listed vehicle in North America. Earlier, Charles founded Maceworth ltd in 1985, a large corporate entertainment

company in the UK which operated in the areas of running sporting event tented corporate villages, marquee hire,

corporate sponsorship and conferences.

James Longley, Non-Executive Director

James Longley is a chartered accountant whose career has been focussed on venture capital, private equity and building

growth companies. His earlier career was with Arthur Andersen, Creditanstalt-Bankverein Merchant Banking and Touche

Ross Corporate Finance. In 1990 he co-led the £10.5m management buy-in of The Wilcox Group, one of the UK’s leading

aluminium alloy tipping trailer manufacturers. He was also co-founder, director and chief financial officer of BioProgress

Technology International, Inc., a VMS and drug delivery system developer using proprietary films, processes and

formulations. It was a NASD quoted and regulated company from 1997 to 2002 and was subsequently listed on AIM. Mr

Longley was also a co-founder, director and chief financial officer of PhotoBox Limited from 2000 to 2006, a company

that then merged with its French counterparts, Photoways to create Europe’s leading online photofinishing business.

The group acquired Moonpig.com in 2011 which was recently separately listed on the LSE with a valuation in excess of

£1.2 billion.. Mr Longley is currently a co-founder, director, chief financial officer and interim CEO of Plutus PowerGen

plc, a company listed on AIM. He is also a director of Stranger Holdings plc, a standard listed company on the London

Stock Exchange.

stbrides @

stbridespartn

ers.co.uk


- 30 -

Appendix 2: Financial Statements

Proforma Statements

The Company

(£ 000)

Kilimapesa Gold

(pty) Ltd

(£ 000)

Acquisition

Adjustment

(£ 000)

Issue of

Fundraising

Shares net of

costs

(£ 000)

Unaudited

proforma adjust

net assets of the

Enlarged Group

on admission

(£ 000)

Net assets as at

31/12/20

Net assets as at

31/12/20

Assets

Non-current assets

Property, plant & equipment - 2,276 - - 2,276

Intangible assets - 1,161 - - 1,161

- 3,437 - - 3,437

Current assets

Inventories - 579 - - 579

Trade & other receivables 12 814 - - 826

Cash & cash equivalents - 121 - 5,144 5,265

12 1,514 - 5,144 6,670

Total assets 12 4,951 - 5,144 10,107

Liabilities

Non-current liabilities

Loan from holding company - 8,196 (8,196) - -

Loans & borrowings - non-interest

bearing - 49 - - 49

Loans & borrowings - interest

bearing - 293 - - 293

- 8,538 (8,196) - 342

Current liabilities

Trade & other payables 1,423 1,400 (1,078) - 1,745

Loans & borrowings - interest

bearing 450 59 (511) - (2)

1,873 1,459 (1,589) - 1,743

Total liabilities 1,873 9,997 (9,785) - 2,085

Total assets less total liabilities (1,861) (5,046) 9,785 5,144 8,022


stbrides @

stbridespartn

ers.co.uk


- 31 -

Proforma Statements

The Company

(£ 000)

Kilimapesa Gold (pty)

Ltd

(£ 000)

Unaudited proforma

adjust net assets of the

Enlarged Group on

admission

(£ 000)

Income statement for 6

months to 31/12/20

Income statement for 6

months to 31/12/21

Revenue - 1,009 1,009

Cost of sales - (1,488) (1,488)

Gross profit/loss - (479) (479)

Administration expenses (930) (117) (1,047)

Foreign exchange loss - (190) (190)

Interest income/(expense) (144) (50) (194)

Loss before tax (1,074) (836) (1,910)

Tax - - -

Loss from continuing operations (1,074) (836) (1,910)

Other comprehensive income

Translations of foreign operations - 513 513

Total comprehensive loss for the period (1,074) (323) (1,397)


stbrides @

stbridespartn

ers.co.uk


- 32 -

Profit and Loss (£), December Year End

Profit & Loss 2021F 2022F 2023F

Revenue 4,855 15,771 16,492

Cost of sales (4,556) (9,960) (9,861)

Gross Profit 299 5,811 6,631

Admin Expenses (2,427) (1,104) (1,154)

EBIT (2,129) 4,707 5,477

Profit before taxation (2,129) 4,707 5,477

Mining and income tax 0 (1,181) (1,421)

Profit for the year (2,129) 3,525 4,055

Attributable to equity holders of the company (2,129) 3,525 4,055


stbrides @

stbridespartn

ers.co.uk


- 33 -

Balance Sheet (£), December Year End

Balance Sheet 2021F 2022F 2023F

Assets

Non-current assets

Property, plant and equipment 3,356 4,348 5,307

Intangible Assets 1,161 1,161 1,161

Total non-current assets 4,517 5,509 6,468

Current assets

Inventories 665 3,241 3,389

Revenues 4,855 15,771 16,492

Days 50 75 75

Trade and other receivables 814 2,160 2,259

Revenues 4,855 15,771 16,492

Days 276 50 50

Cash and bank balances 2,045 3,005 5,814

Total current assets 3,524 8,406 11,462

Total assets 8,042 13,915 17,930

Equity and liabilities

Capital and reserves

Issued Capital 9,649 9,649 9,649

Translation Reserve (231) (231) (231)

Retained earnings (3,462) 64 4,119

Total equity 5,957 9,482 13,537

Non-current liabilities

Loans and borrowings 342 342 342

Total non-current liabilities 342 342 342

Current liabilities

Loans and borrowings (2) (2) (2)

Trade and other payables 1,745 4,093 4,052

Cost of sales 4,556 9,960 9,861

Days 100 150 150

Total current liabilities 1,743 4,091 4,050

Total liabilities 2,085 4,433 4,392

Total equity and liabilities 8,042 13,915 17,930


stbrides @

stbridespartn

ers.co.uk


- 34 -

Statement of Cash Flows (£), December Year End

Cashflow 2021F 2022F 2023F

Cash flows from operating activities

EBIT (2,129) 4,707 5,477

Net income (2,129) 3,525 4,055

Adjustments for:

Depreciation 37 163 196

Movements in working capital:

(Increase)/decrease in inventories (86) (2,576) (148)

Decrease/(increase) in trade and other receivables – (1,346) (99)

Decrease in trade and other payables – 2,348 (41)

Change in working capital (86) (1,574) (288)

Net cash generated by operating activities (2,178) 2,115 3,964

Cash flows from investing activities

Payment for property, plant and equipment (1,117) (1,155) (1,155)

Net cash (used in)/generated by investing activities (1,117) (1,155) (1,155)

Cash flows from financing activities

Proceeds from borrowings – – –

Proceeds from issue of share capital 5,494 – –

Share issue costs (275) – –

Net cash used in financing activities 5,219 – –

Net increase in cash and cash equivalents 2,040 960 2,809

Effects of exchange rate changes on the balance of cash

held in foreign currencies 116 – –

Cash and cash equivalents at the beginning of the year 5 2,045 3,005

Cash and cash equivalents at the end of the year 2,045 3,005 5,814


stbrides @

stbridespartn

ers.co.uk


- 35 -

Disclaimer

Investment Analyst Certification

In our roles as Research Analysts for VSA Capital Limited. we hereby certify that the views about the companies and their securities discussed in this report are accurately expressed and that we have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.

Non-Independent Research

This is a marketing communication. It is non-independent research as it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Important Disclosures

This research report has been prepared by VSA Capital Limited, which is party to an agreement to be paid a fee as corporate f inance advisors and arrangers with, or has provided investment banking services to, Caracal Gold, or has been party to such an agreement within the last twelve months, and is solely for, and directed at, persons who are Professional Clients as defined under Annex II of the Markets in Financia l Instruments Directive, Directive 2004/39/EC, or as defined in the FCA Handbook. Persons who do not fall within the above category should return this research report to VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD, immediately.

VSA Capital may distribute research in reliance on Rule 15a-6(a)(2) of the Securities and Exchange Act 1934 to persons that are major US Institutional investors, however, transactions in any securities must be effected through a US registered broker -dealer. If you are a US person, you must fulfil the requirements of a major US institutional investor as defined by the Securities Exchange Act 1934 and subsequent guidance from the SEC to receive this research report. Any failure to comply with this restriction may constitute a violation of US law for which VSA Capital Limited does not accept responsibility.

The information in this report is not intended to be published or made available to any person in any jurisdiction where to d o so would result in contravention of any applicable laws or regulations. Accordingly, if it is prohibited to make such information available in your jurisdiction or to you (by reason of your nationality, residence or otherwise) it is not directed at you.

This research report is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. It is being supplied to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for a ny purpose, without out prior written consent.

Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities.

The information and opinions contained in this research report have been compiled or arriv ed at by VSA Capital Limited from sources believed to be reliable and in good faith but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and estimates contained in the research report constitute the Company's judgments as of the date of the report and are subject to change without notice. The information contained in the report is published for the assistance of those persons defined above but it is not to be relied upon as authoritative or taken in substitution for the exercise of the judgment of any reader.

The Company accepts no liability whatsoever for any direct or consequential loss arising from any use of the information cont ained herein. The company does not make any representation to any reader of the research report as to the suitability of any investment made in connection with this report and readers must satisfy themselves of the suitability in light of their own understanding, appraisal of risk and rewa rd, objectives, experience and financial and operational resources.

The value of any companies or securities referred to in this research report may rise as well as fall and sums recovered may be less than those originally invested. Any references to past performance of any companies or investments referred to in this research report are not indicative of their future performance. The Company and/or its directors and/or employees may have long or short positions in the securities ment ioned herein, or in options, futures and other derivative instruments based on these securities or commodities.

Not all of the products recommended or discussed in this research report may be regulated by the Financial Services and Marke ts Act 2000, as amended by The Financial Services and Markets Act 2012, and the rules made for the protection of investors by that Act will not apply to them. If you are in any doubt about the investment to which this report relates, you should consult a person authorised and regulated by t he Financial Conduct Authority who specialises in advising on securities of the kind described.

The Company does and seeks to do business with the companies covered in its research reports. Thus, investors should be aware that the Company may have a conflict of interest that may affect the objectivity of this report. To view our policy on conflicts of interest and connected companies, please go to: http://www.vsacapital.com/policies/conflict-of-interest-policy.

VSA Capital acts as Corporate Adviser/Broker to Caracal Gold, and is therefore classed as a connected company.

Investors should consider this report as only a single factor in making their investment decision.

Definition of Ratings

VSA Capital Limited uses the following stock rating system to describe its equity recommendations. Investors should carefully read the definitions of all ratings used in each research report. In addition. since the research report contains more complete information concerning the analyst’s views. investors should carefully read the entire research report and not infer its contents from the rating alone. In any case. ratings (or research) should not be used or relied upon as investment advice. An investor’s decision to buy or sell a stock or investment fund should depend on individual circumstances and other considerations.

VSA Capital Limited’s recommendations are defined as follows:

BUY: The stock is expected to increase by in excess of 10% in absolute terms over the next twelve months. HOLD: The price of the stock is expected to move in a range between -10% and +10% in absolute terms over the next twelve months. SELL: The stock is expected to decrease by in excess of 10% in absolute terms over the next twelve months.

stbrides @

stbridespartn

ers.co.uk


http://www.vsacapital.com/policies/conflict-of-interest-policy

- 36 -

In addition. on occasion. if the stock has the potential to increase by in excess of 10%. but on qualitative grounds rather than quantitative. a SPECULATIVE BUY may be used.

stbrides @

stbridespartn

ers.co.uk


VSA Capital Limited is Authorised and Regulated by the Financial Conduct Authority © VSA Capital Limited, 2021, all rights reserved New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | +44 (0)20 3005 5000 | www.vsacapital.com Registered in England: No. 02405923

VSA Capital Limited is a member of the London Stock Exchange.

Distribution of VSA Capital Limited’s Equities Recommendations

VSA Capital Limited must disclose in each research report the percentage of all securities rated by the member to which the member would assign a “BUY”. “HOLD. or “SELL” rating. and also the proportion of relevant investments in each category issued by the issuers to which the firm supplied investment banking services during the previous twelve months. The said ratings are updated on a quarterly basis.

Recommendation and Target Price History

chart

Valuation basis

Our valuation is derived from a risked NPV calculation and peer group EV/oz in situ resource value.

Risks to that valuation

Commodity prices, political risk, execution risk, financing risk.

This recommendation was first published on 22 November 2021.

stbrides @

stbridespartn

ers.co.uk


Documents

Initiation of Coverage Marketing Communication (Connected