Classification of GBC AG to Desert Gold Ventures Inc.

Strategic Investment opportunity in Prolific Gold Region with Significant Upside Potential. Heap Leach Mine and Significant Resource Expansion Plans.

Desert Gold Ventures Inc. could represent an attractive investment due to its strategic location in a prolific gold region, substantial resource base, and ongoing exploration efforts. The company’s potential for significant cash flow from the heap leach mine, combined with its experienced management team and strong financial management, underscores its potential for substantial growth. The current low market valuation, compared to the target price, offers significant upside, particularly with anticipated positive developments in 2024.

Desert Gold Ventures Inc. is focused on the SMSZ Project in Mali, a region known for significant gold deposits. The project spans 440 km² along the Senegal Mali Shear Zone and encompasses over one million ounces of gold, with measured and indicated mineral resources of 310,300 ounces and inferred mineral resources of 769,200 ounces. The company has planned an extensive 30,000-meter drilling program for 2024 aimed at expanding the current resource base and identifying new economic grade targets. An updated resource estimate is expected in Q4 2024.

Strategic location and acquisition potential: The Kenieba Window, an offshoot of the Birimian Greenstone Belt, is known for high-quality gold resources, averaging 2.22 g/t, and significant market valuations. Major mergers and acquisitions in the BGB over the past decade have shown an average resource of 1.81 million ounces of gold and an average acquisition price of US $66 per ounce. Desert Gold Ventures’ SMSZ Project, with 1.08 million ounces of gold at 1.14 g/t and valued at US $9 per ounce, presents a notable opportunity. With a current market capitalization of about $10 million, Desert Gold Ventures could be valued at $71.4million if its assets were acquired at recent average prices per ounce. After deducting warrants and options, the equity valuation is $69.5 million. However, due to Desert Gold's average grade of 1.14 g/t being lower than the 2.22 g/t average of other transactions, we apply a 50% discount. This results in a valuation of $35 million, or $0.155 per share. As the grade improves, we plan to reduce the discount, increasing our valuation. Note that at a cutoff grade of 1.0 g/t gold, Desert Gold’s resource amounts to 715,000 oz of gold at a grade of 1.86 g/t, representing a 63% increase in gold grade.

NAV: Desert Gold Ventures has a combined resource of 1.08 million ounces of gold at an average grade of 1.15 g/t and a cutoff grade of 0.4 g/t. Note that at a cutoff grade of 1.0 g/t gold, Desert Gold’s resource amounts to 715,000 oz of gold at a grade of 1.86 g/t, representing a 63% increase in gold grade. Compared to the larger, higher-grade Fekola Mine, Desert Gold shows promise for substantial improvement with successful exploration. The Fekola Mine, acquired by B2Gold in 2014, has produced three million ounces of gold by April 2023 and expects to produce 470,000 to 500,000 ounces in 2024 at operating costs of $835 to $895 per ounce and all-in sustaining costs of $1,420 to $1,480 per ounce. Benchmarking against Fekola, the theoretical value of Desert Gold's resources at Q1 2024 gold prices ($2,070 per ounce) would be $2,234.6 million, though typically only 5% to 10% of this value is considered in acquisitions, translating to $111.7 million. After accounting for AISC and initial construction costs, the net value of Desert Gold’s resources is estimated at $204 million. Applying a 70% discount and subtracting the value of outstanding warrants and options, Desert Gold’s assets are valued at approximately US $59 million, or $0.264 per share.

Based on the NAV valuation of $0.264 per share and the peer group valuation of $0.155 per share, we derive a combined target price of $0.209 per share. Given the substantial upside potential relative to the current share price, we assign a BUY rating.

Potential heap leach mine: Desert Gold is evaluating the feasibility of building a small heap leach mine, which could generate significant cash flow. A preliminary economic assessment (PEA) is set for completion by Q4 2024, potentially transforming the company's financial outlook. This value depends on the mine's construction and production, with many assumptions due to limited information especially concerning ore processing and gold recovery rates. The PEA should address these concerns in detail. We expect the small heap leach mine in Barani East to produce 15,000 to 20,000 ounces per year, with a mine life of over ten years based on current oxide resources. Financial projections, at a gold price of $2,300 per ounce, suggest annual revenue of about $40 million. The project benefits from being in a low-cost jurisdiction and employing simple mining methods, which results in an estimated build cost of $15 million. With high-grade ores and anticipated recovery rates, we expect the project to yield more than 50% margins, translating to $20 million in annual free cash flow. With a project valuation of $76 million, we apply a 70% discount due to its future timeline and uncertainties. Clarity is expected after the PEA release in Q4 2024, at which point we will reduce the discount. After the 70% discount, the project's value is $22.8 million, or $0.101 per share with 225 million shares outstanding. We add this value separately as the heap leach mine is relatively small compared to Desert Gold Ventures' total assets and resources.

If this project is successfully financed and comes to fruition, the US $0.101 per share valuation would be added to the average valuation based on NAV and peer group of US $0.209 per share. This would result in a target price of US $0.311 per share. Given this significant upside potential, we assign a BUY rating to the stock.