Calidus Resources Unlocks Growth Potential with Financing Revamp & New Operational Milestones

• Calidus Resources is restructuring its financing with Macquarie to free up $31 million in cash flow this year
• The company is also conducting a $16.5 million capital raise to strengthen its balance sheet
• Operational improvements and higher-grade deposits coming online are expected to significantly increase production and cash flow in the near-term
• Calidus aims to reach 120,000 oz/year gold production within 3 years by developing its pipeline of projects
• The company is evaluating options to bring its newly acquired Nullagine project into production by year-end

Financing Restructure and Operational Improvements

Calidus Resources, a gold producer operating in the Pilbara region of Western Australia, has taken significant steps to strengthen its financial position and pave the way for near-term production growth. The company recently announced a restructuring of its financing arrangement with Macquarie Bank, which will free up approximately $31 million in cash flow this year. This, combined with a $16.5 million capital raise, is expected to give Calidus the financial flexibility it needs to deliver on its growth objectives.

Interview with Managing Directer, David Reeves

Financing Restructure Removes Key Constraint

Under the terms of the restructured financing deal with Macquarie, Calidus will roll 21,000 ounces of gold hedging worth around $21 million from this year into the future. The company will also defer $10 million in debt amortization payments. Together, these measures will boost Calidus' 2024 cash flow by $31 million.

Managing Director David Reeves explained the rationale behind the restructuring:

"The single biggest impediment has been our deliveries into the hedge. If you look at the December quarter, we delivered around 85% of our gold into the hedge. So instead of getting nearly $2,600 an ounce, we were getting $2,370 an ounce. That's a massive amount of money to leave on the table - about $10 million for the quarter."

By better matching its hedge and debt repayment profile to its projected cash flows, Calidus expects to rapidly build up cash in the coming months. This improved financial position will enable the company to fund key growth initiatives.

Capital Raise Strengthens Balance Sheet

To further bolster its balance sheet, Calidus has conducted a $16.5 million capital raise. The raise, which consisted of an institutional placement and share purchase plan, was completed in late March 2024.

While acknowledging the raise was done at a less-than-ideal price, Reeves emphasized it was a necessary step to provide a stronger financial foundation for the company. "It's a raise that we didn't want to do at that price, but what it's done is provided a means to an end where we've released the shackles on the hedge and the debt repayments," he said.

The raise, combined with the $31 million in freed-up cash flow from the financing restructure, is expected to fully fund Calidus' near-term growth plans, with Reeves stating there would be "no future raisings."

Operational Improvements Drive Near-Term Production Growth

In parallel with the financial restructuring, Calidus has made significant operational improvements at its Warrawoona Gold Project. With major cutbacks now complete, the company is accessing the main orebody at the Klondyke open pit. This has led to record gold recoveries in recent weeks.

"In our last announcement, we had our record recovered gold for the week - just over 1,500 ounces. Revenue-wise it's touching $5 million for the week. You put that into a month and that's north of $20 million, and we've been sitting at $14 million revenue," Reeves noted. "We're truly at an inflection point operationally."

Several factors are contributing to the improving operational performance:

• Cutbacks are complete, reducing mining volumes and costs by over 100,000 BCM per month ($1.5 million savings)
• Access to the main Klondyke orebody is enabling higher feed grades around 0.9-1.0 g/t
• The Blue Spec satellite pit, with even higher grades, will come online in the next 3 months
• The 4 g/t Bulletin underground deposit will be brought into production thereafter

With these improvements, Reeves sees potential for a record June quarter: "It'll be wonderful to talk to you because that will be a record quarter by a long shot."

Medium-Term Growth Driven By Project Pipeline

Beyond the near-term improvements at Warrawoona, Calidus has a pipeline of growth projects it aims to bring into production over the next 1-3 years. Key among these is the newly acquired Nullagine project, which hosts a historic resource of 1.4 million ounces.

Calidus is evaluating whether to truck ore from Nullagine to its Warrawoona processing plant or to restart the existing 1.8 Mtpa plant at Nullagine. With blasted ore sitting at surface from the previous operator who shut the mine at much lower gold prices, Reeves sees potential for Nullagine to rapidly add production.

"There's blasted ore sitting down there at the moment ready to access from when the previous operator shut at $1,500 gold, and now we're at $2,600. So that's certainly something we want to bring online and increase our ounce production by the end of this year," he explained. "Even if it's just another 20,000 ounces a year coming out of there, that's just cream on top."

Other projects in the pipeline include the high-grade Bulletin underground deposit, Marble Bar and Blue Spec discoveries. Together with Nullagine, these projects underpin Calidus' goal of reaching 120,000 ounces per year of production within 3 years.

While acknowledging this is an ambitious target, Reeves expressed confidence it is achievable: "Certainly I think it is. There's been extensive modeling done on this. The resources and reserves that have gone into it - a lot of that is driven by things like Bulletin at 4 g/t. That is a step change for us."

While Calidus has faced challenges over the past year, the company's management team has taken proactive steps to derisk the business and position it for long-term success. With a strengthened balance sheet, a growing production profile, and a pipeline of quality growth assets, Calidus offers investors exposure to an emerging Australian mid-tier gold producer.

The Investment Thesis for Calidus Resources

• Financial flexibility enhanced through $31 million cash flow freed up by financing restructure and $16.5 million capital raise
• Record operational performance at Warrawoona with production and cash flow inflecting higher
• High-grade deposits set to drive step-change in production over the next 12 months
• Pipeline of organic growth projects, including the newly acquired 1.4 Moz Nullagine project, underpin medium-term growth
• Credible path to 120,000 oz/year production within 3 years
• Significantly derisked investment proposition with financial constraints addressed and operational momentum building

While Calidus has faced challenges over the past year, the company's management team has taken proactive steps to derisk the business and position it for long-term success. With a strengthened balance sheet, a growing production profile, and a pipeline of quality growth assets, Calidus offers investors exposure to an emerging Australian mid-tier gold producer.

Key Investment Takeaways

With its financing constraints addressed and operational performance improving, Calidus Resources appears positioned to deliver additional production and therefore cash flow growth in the coming months and years. Key potential catalysts for the stock include:

• Continued operational improvements and higher grades at Warrawoona driving quarter-on-quarter production growth
• Bringing the Blue Spec and Bulletin high-grade deposits into production
• Developing a restart plan for the recently acquired Nullagine project to boost production by year-end
• Progress on organic growth projects to underpin the 120,000 oz/year production target

Macro Thematic Analysis

The outlook for Australian gold producers like Calidus Resources remains constructive, underpinned by the strong performance of the gold price in recent months. Despite headwinds from rising inflationary pressures, geopolitical instability, and the prospect of higher interest rates, gold has remained resilient holding above US$2,000/oz. If gold can sustain its recent surge to $2,200. this could be a very good year for producers. This compares favourably to the prices of around US$1,650/oz when many Australian mines were struggling a few years ago.

Sustained prices at current levels continue to provide a robust operating environment for the sector. Producers that can effectively manage their cost base and consistently deliver production growth, like Calidus is targeting, are well positioned to generate significant free cash flow and shareholder returns at spot prices.

The increased cash flow generation across the sector, combined with generally strengthened balance sheets, is also creating opportunities for accretive M&A as producers seek to bolster their organic growth pipelines. Calidus' recent acquisition of the 1.4 million ounce Nullagine project from Millennium Minerals is emblematic of this theme.

As Reeves summarized, "Life was extremely different when this hedge was put in place... Without the hedge, we couldn't have borrowed the money to start. It was a Catch-22 situation."

With the financing constraints now addressed and a pathway to significant production growth, Calidus aims to capitalize on the strong outlook for Australian gold producers.