Ahead of the Curve

Curve

April 2012 June 2011

ahead of the

Insights into Emerging Australian Equities

Navigating the microcap maze

BioDiem

Vaccine technologies and therapeutics

Bionomics

Drug discovery and development

CogState

Global provider of cognitive testing

Dart Mining Victorian metals explorer

Geodynamics Metgasco Geothermal resource development

Gas resource development

Middle Island Osprey Resources Medical West African gold exploration

Medtech to protect kidneys during surgery

Curve ahead of the

INTRODUCTION

CONTENTS

Introduction and Outlook

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BioDiem 4 Vaccine technology royalties pave way for new therapies Bionomics 6 Diverse portfolio and major partnership has put this biotech on the map CogState 8 Alzheimer’s disease market opens big door for cognitive testing expertise Dart Mining 10 Northeast Victoria holds untapped metal resources for this explorer Geodynamics 12 Australia’s largest geothermal company’s new well another step towards pilot plant Metgasco 14 Independent East Coast gas developer proving up major reserves Middle Island 16 West Africa’s advantages smart bet for this greenfields gold explorer Osprey Medical 18 Kidney protection technology company reaches new stage in growth Credits Tom Donovan Editor tdonovan@buchanwe.com.au

Amanda Loh Researcher aloh@buchanwe.com.au Bill Burrows Art Director/Design design@burrowsinteractive.com 2

OUTLOOK

APRIL 2012

Market stratification means good things for microcaps I am encouraged by the implications for investors of our deepening, ever more complex marketplace and believe it is an excellent time for those unfamiliar with equities to begin their research, or for experienced investors to broaden their horizons into new industries.

It is an interesting yet contradictory time in the financial markets. US and Chinese economic data comes through alternating hot and cold, volumes have been subdued and risk trade is down. Typically the larger, more liquid stocks attract in uncertain times like these, which means smaller companies must compete more fiercely for available capital.

Fund managers are under huge pressure to deliver results and their performance is often tracked monthly, which can make attracting capital more difficult for longer-term value stories. Macroeconomic fluctuations affect short-term performance to such a significant degree that fund managers are forced to safer retreats.

This applies across many sectors, including that of the Life Sciences and Resources. The upside for investors looking to enter a success story from humble beginnings is that there are real bargains to be had.

From my perspective, working heavily with biotechnology and medical device companies (which we group together under the banner of “Life Sciences”), there are many reasons to be optimistic as an investor in this space. At Bell Potter we have been involved in seven of the eight largest biotech deals of the last eighteen months, and we continue to see a growing appetite for maturing Australian Life Science companies.

Mesoblast has done more than its share in raising the sector’s profile nationally, and has in many ways been a lamplighter for Life Sciences stocks. The sector is maturing and developing a clearer ‘ecosystem’, including a first class top-tier of companies closer to commercialisation. Their management is of the highest quality, across corporate, commercial and scientific lines. There is a deeper level of engagement with the investment community, and much better communications with investors.

All these factors have lead to growing institutional comfort with a sector that has traditionally been capital intensive, but which in the last two to three years have seen marked improvements in balance sheets, good royalty flows and both milestone and upfront payments.

We have also seen significant recapitalisation of emerging stocks, including SPL, BNO, MSB, QRX, POH, GID and RVA. As I note below, while subdued domestic participation on registers is warming gradually, international investor interest in Australian Life Sciences has grown in leaps and bounds. Hand-in-hand with that, we’ve seen the formation of large international partnerships. These include the $345 million Ironwood deal secured by Bionomics, Phosphagenics’ deal with 3M, and the partnerships secured by Starpharma with Lilly, Ansell, Elanco and Stiefel Labratories, a GSK Company, to name a few.

And what about the microcaps? It’s certainly true in many ways that a rising tide lifts all boats, but the fact is that there is only a finite amount of capital to go around.

It’s safe to say that, in general, institutional investors are looking for liquid stocks with good balance sheets, and this is not a situation typically associated with our smaller companies.

However, a well-managed company which builds a business on a strong retail backing only delivers greater returns to those with long positions, once the quality of the management shows through and ensures the pipeline goes the distance. Time and again strong management are found at the helm of smaller caps that steadily ascend the value ladder.

John Granger Divisional Director Corporate Finance Bell Potter Securities www.bellpotter.com.au

Furthermore, there are very positive externalities provided by a growing top-tier within a sector. Those more established companies put the sector on the international radar both scientifically and financially.

The trickle-down effects for younger companies are not to be underestimated.

For example, in the Life Sciences we’re starting to see a new trend in the positioning of the Australian market in relation to the NASDAQ, the world’s largest technology exchange. The technology industries are constantly evolving, stratifying and maturing. The old two-step paradigm of venture capital providing the cash required to get to listing just doesn’t fit all comers anymore. We’re seeing a lot more interest from North American companies with great technology who just need that extra cash boost to get onto the market, but haven’t quite got the numbers to meet NASDAQ’s requirements, using the ASX as an intermediary step.

This issue has been recognized in the US, but regulations are slow to respond to a rapidly evolving market, and in the meantime the ASX offers a topgrade investment environment with sector-friendly investors. In this way we’re seeing the ASX attract top-shelf companies at a very specific point in their life cycle with significant upside for domestic investors.

Heartware is a great example of this, and more recent examples such as GI Dynamics and Reva Medical are also on the path to leading positions in global markets.

In short, I am encouraged by the implications for investors of our deepening, ever more complex marketplace and believe it is an excellent time for those unfamiliar with equities to begin their research, or for experienced investors to broaden their horizons into new industries.

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Curve ahead of the

BIODIEM (ASX:BDM)

BioDiem: A commercial vaccine business developing solutions for critical diseases Vaccines: a cornerstone of modern healthcare The best healthcare returns for governments come from investing in vaccines. Together with better hygiene, vaccines are among the most effective way to reduce epidemics. It’s tried and tested prevention really is the best cure.

Prevention is the best cure Hoping to extend its business focus, BioDiem aims to fully exploit its expertise with LAIV technology in engineering a viral vector. A vector is essentially a smart way of delivering therapies into diseased cells and can potentially be used in many applications.

BioDiem is developing new vaccines for the treatment and prevention of diseases based on its proprietary vector technology that it expects will aid the engineering of future vaccines for cancers such as nasopharyngeal carcinoma (NPC) and respiratory syncytial infections (RSV).

NPC is highly prevalent in Asia and certain regions of East Asia and Africa. RSV is a source of severe respiratory illness in infants and children worldwide which is estimated to cause 160,000 deaths annually.

The global vaccine market was valued at US$28 billion in 2010, up from US$18.5 billion in 2007, an astonishing leap which was driven by concerns about bird and swine flu. The lion’s share of sales goes to a handful of giants including GlaxoSmithKline and Merck.

BioDiem’s role in this huge and growing space is based on its existing vaccine business, its growing royalty streams, and some of the most impressive partnerships in the sector. These include agreements with the World Health Organisation, the Russian Institute of Experimental Medicine, several high-profile US research institutions, and the Serum Institute of India – one of the world’s largest vaccine manufacturers.

On top of this existing business and network, BioDiem has an additional portfolio of diverse technology platforms with major market potential beyond what you’d expect from a company of this size, with development risk spread across a number of projects and invested partners. These include a developing antifungal and antibacterial drug with uncommonly broad applicability, and a technology

platform based on BioDiem’s viral expertise which could offer treatments for a variety of diseases including cancers, hepatitis and tuberculosis.

Russian research, global significance BioDiem’s lead product is its LAIV flu vaccine technology.

The LAIV (Live Attenuated Influenza Vaccine) offers advantages over more commonly used flu vaccines, and has also given BioDiem an opportunity to design new ways to deliver other treatments using a vaccine ‘shell’ as a transporter.

The LAIV technology has been licensed since 1998 from the Institute of Experimental Medicine (IEM) in Russia and has led to the development of intranasal vaccines (delivered inside the nose) based on virus strains recommended by the World Health Organization (WHO) for the prevention of seasonal and pandemic influenza.

The IEM signed a collaborative agreement in 2009 with the global non-profit organization Program for Appropriate Technology in Health (PATH). PATH is a leader in assisting the development of new health solutions for developing countries.

This IEM-PATH agreement secured IEM US$2.5 million for the development of a new pandemic LAIV vaccine. This collaboration and funding led to successful completion of several non-clinical vaccine trials that may proceed into clinical trials in 2012.

The advantages of BioDiem’s vaccine technology BioDiem’s vaccine technology is the basis for vaccines with significant advantages over standard flu vaccines, from manufacture through to the route of delivery. The active components of vaccines are commonly grown in specially certified chicken eggs –and BioDiem’s technology results in 30-50 times more doses per egg.

Vaccines derived from BioDiem’s technology can also be manufactured significantly quicker (three to four weeks) than the eight weeks required for competitors which is a clear advantage in the face of a pandemic. These vaccines also do not require thimerosal, a mercury-containing preservative that

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some evidence has suggested may cause occasional adverse reactions, and which is being phased out of many common vaccines in developing countries.

BioDiem’s technology is also the basis for vaccines with a potentially lower sideeffect profile as they are delivered into the nose with a spray or a dropper.

This is easier to use in children and reduces the need for trained staff and reduces the chance of unsafe injections.

Finally, BioDiem’s technology allows for vaccines to be produced in cells in the lab, an alternative approach for which the company has already completed Phase I and Phase II European clinical trials in a move towards gaining European approval.

VACCINES AND THERAPIES

NasovaxTM: securing the Indian market In 2009 BioDiem licensed its egg-based manufacturing technology to the WHO under the Global Pandemic Influenza Action Plan for developing nations. This highprofile collaboration has provided BioDiem with access to developing markets, and on top of this BioDiem has reserved exclusive rights for commercialization of their technology outside of Russia and the Commonwealth of Independent (former Soviet) States.

The WHO subsequently sublicensed the technology to the Serum Institute in India and the Government Pharmaceutical Office in Thailand in 2009 in response to the H1N1 pandemic. The Serum Institute manufactures NasovaxTM for the Indian market, which has started to produce a revenue stream for BioDiem.

In February 2012 the WHO sublicensed BioDiem’s LAIV technology to a well-positioned Chinese biotech, Changchun BCHT, to tap into royalties from the Chinese private sector market for seasonal and pandemic vaccine manufacture.

APRIL 2012

Aces up the sleeve The other major part of BioDiem’s business is its novel non-vaccine products with a dual portfolio pipeline of BDM-E (targeting retinal diseases) and BDM-I (targeting the antimicrobial market). The high-quality data supporting these two assets makes outlicensing a strong option for value creation, and BioDiem is proactively engaged in assessing possible partners.

BDM-E has delivered good results in preclinical trials and has been granted Orphan Drug status by the FDA to combat retinitis pigmentosa, one of the most common genetic conditions that cause progressive visual loss.

Orphan Drug status is a coveted accomplishment for drug developers, when a drug is targeted at a niche population of patients. In an effort to assist these vulnerable groups, the US Government and others accelerate the path-to-market for these drugs, in the process of course fast-tracking investor returns.

BDM-I is an exciting candidate in the area of antimicrobials (targeting microorganisms including bacteria, viruses, fungi and many parasites). This is a grouping of huge markets with constant growth. The antifungal market alone is expected to be valued at US$11.3 billion in 2014 while the antibacterial market is estimated to exceed an astounding US$100 billion by 2015. An asset that exhibits broad spectrum activity against a wide range of microorganisms could stand to capture market share across each of these huge markets.

Multiple ways to grow BioDiem is a company with demonstrated expertise in forming strong partnerships with international heavyweights to cost-effectively develop promising assets. As well as building revenue streams from its vaccines business, the versatility of BioDiem’s product portfolio has substantial promise for breaking into a number of major markets and building on the company’s existing royalty.

The history of influenza Influenza was first documented by Hippocrates around 2400 years ago. But we had to wait until 1796 when the first vaccine (for cowpox) finally emerged. The term “influenza” was coined from an Italian phrase in 1743 during an outbreak of the Spanish flu which claimed around 40 million lives.

Snapshot: BDM Company Shares on Issue: ~102.1 million Share price range for the year: $0.07 – $0.19 Target Market: Influenza vaccines and therapies for select infectious diseases www.biodiem.com

An analyst’s viewpoint: BioDiem’s expertise in the area of vaccine technologies, strong secondary assets, and impressive partnership network all belay current valuation. Next to their LAIV technology, Biodiem is developing two compounds: BDM-I and BDM-E, the latter of which received Orphan Drug Status in 2010.

BDM-I is a novel compound active against a range of pathogenic micro-organisms including bacteria, fungi and protozoa. The continued rise in antibiotic-resistant strains of bacteria such as MRSA has led to significant interest in such compounds.

BioDiem has funded its research and development activities through equity funding and cash inflows via partnerships as well as royalties it received on the LAIV technology.

BioDiem ended 2010 with AUD $2.58 million cash. During 2010 an additional $1 million was raised. The first product launch outside Russia and the CIS for the LAIV technology took place in India in July 2010 with an H1N1 (swine flu) vaccine, Nasovac, being marketed by the Serum Institute of India.

Revenue increased to $0.26 million during 2010 as a result of royalties paid on the sales of Nasovac in the private market in India.

In 2011 an additional $0.55m was received in licence payments. Certain important news expected in the next 12 months could drive the stock up: further royalty generating licences; licences and or partnerships for the vector program; sale of BDM-E; sale or development partnership of BDM-I, and other smart technology acquisitions focused on development and commercialization of vaccines.

Marcel Wijima Chief Research Analyst Van Leeuwenhoeck Research www.leeuwenhoeck.com 5

Curve ahead of the

BIONOMICS (ASX: BNO)

Bionomics: 2011 saw a pipeline of promise come to life for this biotech Adelaide-based Bionomics is a drug discovery and development company with a strong portfolio of assets targeting the therapeutic areas of cancer, anxiety, multiple sclerosis, epilepsy and Alzheimer’s.

Bionomics began 2012 with a bang, inking a $US345 million dollar deal, plus royalties, with US-based Ironwood Pharmaceuticals, to help it commercialise its promising anti-anxiety drug BNC210.

Making history with deal for calming compound It’s rare to see a deal of this magnitude for a drug which is yet to enter Phase II (mid-sized clinical trials that generate a large amount of data on a drug’s effectiveness). In fact it is the largest yet seen for a Phase I asset in the Australian market - it’s a vote of confidence for BNC210 and a testament to the handand-glove fit with its US partner.

Ironwood foresaw significant value in coupling Bionomics’ BNC210 anti-anxiety product to its existing pipeline; its focus is currently centred on investigating the use of the drug Linaclotide for the treatment of irritable bowel syndrome (IBS) compounded by constipation.Studies suggest that anxiety is a common trigger for IBS symptoms, one of the most common medical conditions, with around 15 percent of the US population reporting symptoms and costing the healthcare system around $2 billion annually. Any sufferer of IBS can relate the discomfort of living with the condition – and the price they’d pay to be rid of it!

Ironwood has made a $US3 million upfront payment, with a further $US10 million in research funding and milestone payments over the next two years. The total deal is what has pricked the ears of investors, with a further $US332 million payable on the achievement of clinical and regulatory milestones, and undisclosed royalties on net sales of BNC210 – enhancing the prospect of solid future revenue streams.

BNC210 outperformed its comparator (anti-anxiety drug Lorazepam) in clinical testing, showing it had promising results in reducing anxiety - without the common sedative side-effect found in many drugs commonly used to treat anxiety.

The deal sees Ironwood head up the development of BNC210, with the company handling worldwide development and commercialisation, including the funding of future clinical trials.

Bionomics has committed to building a strong commercial network from the company’s beginnings.

In addition to Ironwood, partnerships have been established with a number of leading healthcare companies including Merck Serono, GenMab, Athena Diagnostics, LabCorp, Perkin Elmer, and Genetic Technologies Ltd.

A key to this partnership is that the drug is targeted at a $US12 billion global market for anxiety drugs, in particular a US market with 40 million affected each year. The trends for prescribed antidepressant medications indicate an approximate increase of 400 percent over the past two decades in the US alone.

An anti-cancer drug with versatile potential Bionomics has set itself up for a fruitful 2012 with 2011 branded “a transformational year” by CEO and managing director, Dr Deborah Rathjen.

2011 saw not only the early success of BNC210, but the further development of cancer treatment BNC105.

This drug is an alternative to chemotherapy, disrupting the blood vessels that nourish tumours, and also appearing to have a directly deadly effect on cancer cells – giving the drug a dual mechanism of action and making it likely to be applicable to a wide variety of tumour types.

All indications are that BNC105 has big potential in the cancer space, with the possibility of representing an entirely new and effective treatment for patients with many forms of cancer. If successfully developed, versatile anti-cancer drugs often ascend into the coveted ‘blockbuster’ category, generating huge returns for their owners. Phase II clinical trials of BNC105 in kidney and lung cancers that were initiated in the first quarter of 2010 have progressed, and the program will be extended to a third tumour type, ovarian cancer, in 2012.

Snapshot: BNO Company Shares on Issue: ~345 million Share price range for the year: $0.35 –$0.77 Target Market: Therapeutics market for central nervous system, cancer and immune diseases. www.bionomics.com.au date of name change: previously traded as bioMD (BOD)

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DIVERSE THERAPEUTICS

In its efforts, Bionomics is also working as a core member of the Cooperative Research Centres for Cancer Therapeutics, a group of Australia’s top research centres in the field of cancer. The CRC allows Bionomics the opportunity to work with many industry experts, share knowledge, and enhance the chances of success for their research projects.

Platforms for growth: diseases of the mind While listed life began in 1999 for Bionomics, underpinning its recent successes are its drug and target discovery platforms Multicore, Angene and ionX. These platforms have fuelled the growth of the company, which has seen it reduce funding requirements in the medium-term, and establish a pipeline with more to offer post-BNC210 and BNC105.

One such mover in 2012 is Bionomics’ Alzheimer’s drug development programme around a protein nicknamed “Alpha 7”. Bionomics has recently applied for a patent covering compounds that improve memory in Alzhiemer’s, strengthening and broadening its existing portfolio of drug candidates. BNC1881, an activator of Alpha 7 covered by the patent application, has been proven to successfully restore memory in animal models. Dr Rathjen has flagged Alpha 7 as one to watch as they hope to reach clinical trials for the drug this year targeting improvement of memory in Alzheimer’s disease, schizophrenia and other conditions.

The potential is again significant for Bionomics, with an estimated Alzheimer’s market of $US5 billion by 2012 and a schizophrenia market of $US4.3 billion. Dementia as a general condition costs approximately $600 billion globally, one of the greatest healthcare burdens set to rise hand-in-hand with an aging population. Another frontrunner program in the neurology portfolio is Bionomics’ “Kv1.3 blockers” which target multiple sclerosis, developed in partnership with Merck Serono.

APRIL 2012

Blockbuster cancer drugs Anti-cancer treatments that are effective against multiple tumour types are among the most profitable drugs in the world today, often categorized as “blockbusters”. Generally speaking, blockbusters generate more than a billion dollars of revenue each year and become accepted as front-line treatments. Examples include Novartis’ Imatinib and Sanofi Aventis’ Docetaxel, with sales of US$4.3 billion and $3.1 billion in 2010 respectively. As well as being developed as sole agents, drugs with versatile promise like BNC105 are often also developed with an eye to including them in combination therapies, which increases their attractiveness as acquisition targets for large pharmaceutical companies looking to boost their portfolio.

The stock’s asking price in 12 months has moved from a low of 35 cents to a high of 77 cents. Cash at 31 December 2011 increased 11 percent to $17.9 million, and cash outflows were $2.8 million for the 6 months to 31 December 2011, 27 percent down on the previous corresponding period. Revenue for the period stood at $2 million – the Ironwood up-front payment will be incorporated into the 2H FY2012 financials.

These figures, coupled with the revenue gained from its partnership with Ironwood and a business model capable of generating and sustaining positive shareholder returns will help propel its other pipeline products. Strong news is expected to flow from Bionomics this year as the company sits in an enviable cash position underpinned by a solid drug discovery platform, and a good mix of risk and demand in their staggered development portfolio.

With a key goal to expand and continue to develop its impressive portfolio, Bionomics has started the New Year in ideal fashion by cementing a lucrative partner for BNC210 and is poised for big things, with the resources to make it happen.

CEO Profile Dr Deborah Rathjen BSc (Hons), PhD, MAICD CEO and Managing Director Dr Rathjen has experience in research, business development and licensing. Dr Rathjen is Chairperson of the AusBiotech Board, and in 2004 was awarded the AusBiotech President’s Medal for her significant contribution to the Australian biotechnology industry.

In 2006 she received a Distinguished Alumni Award from Flinders University, in 2009 the BioSingapore Asia Pacific Woman Entrepreneur of the Year, and in 2010 the Bio Innovation SA Industry Leader Award.

The size of the market for new cancer drugs is something to which analysts continually refer.

Ovarian cancers alone are the fifth-leading cause of cancer-related death among women, with the number of cancer cases in Australia increasing by 47 percent between 1982 and 2006. It is estimated around $2.2 billion each year is spent on treatment of ovarian cancer in the US alone.

An analyst’s viewpoint: Bionomics is an Adelaide-based drug discovery company with two products in early-stage clinical trials: BNC210, an anti-anxiety drug, and BNC105, a cancer drug. Both drugs have performed well in pre-clinical and clinical work. We like the commercial approach that CEO Dr Deborah Rathjen has developed. Bionomics also has valuable drug discovery technology and early licensing potential for BNC105.

We expect new partner Ironwood Pharmaceuticals to take BNC210 to Phase II clinical trials in the next two years, which would translate to a commercial launch by 2018/2019 at the latest. The deal allows BNO to focus its efforts and resources on developing its anticancer drug BNC105 which is a much larger market opportunity for BNO and also enable it to advance its other pipeline candidates and developmental programmes.

We anticipate Bionomics being re-rated by the market on the basis of progress in the BNC105 renal cancer trial, as well as other significant news flow over the next twelve months assisting in the stock being re-rated to our target price.

We have a Speculative Buy Recommendation on BNO, which we value on a probability-weighted discounted cash flow basis at $1.67 (base case) and $2.28 (optimistic case).

Stuart Roberts Healthcare Analyst Bell Potter Securities www.bellpotter.com.au

Dr Rathjen was also co-inventor of the technology that formed the basis for Peptech Limited.

She led Peptech’s successful defence of its key patents, which provided Peptech with a strong commercial basis for licensing negotiations against the challengers and other companies with similar products. Dr Rathjen and her team have propelled the company up the value curve on the back of 20 years’ executive experience in biotechs, and a strong commercial approach.

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Curve ahead of the

COGSTATE (ASX:CGS)

Cogstate: Detecting mental decline opens many doors for this innovative tech player

Early detection essential to Alzheimer’s disease management Researchers now believe that the Alzheimer’s disease process begins many years before it causes enough damage to create symptoms. Regular assessment of cognition, using tools such as the CogState technology, has been shown to be capable of detecting subtle changes in cognition indicative of the earliest stages of dementia.

Individuals progress through Alzheimer’s disease at different rates. Patients with advancing Alzheimer’s need help with basic everyday activities. Those in the final stages are reliant on around-the-clock care.

There is currently no treatment available to stop Alzheimer’s disease, which, as well as being a social burden, is estimated to represent global healthcare costs of more than $600 billion annually.

Researchers believe that future treatments to slow or stop the progression of Alzheimer’s disease (called “disease-modifying” treatments) will be most effective when administered during the earlier stages of the disease.

Early detection of cognitive change associated with Alzheimer’s disease and other dementias is critical to active medical management of the disease, which can significantly improve quality of life through all stages of the disease for individuals with dementia and their caregivers. Early detection of cognitive change will also enable early intervention if and when disease-modifying drugs are made available to patients.

Pharmaceutical companies are racing to bring the first disease-modifying therapeutic to market for Alzheimer’s disease with a large number of Phase II and Phase III clinical programs underway.

Specifically, Eli Lilly along with the combined development teams of Pfizer/Johnson & Johnson/ Elan are likely to present results from their respective Phase III trials of their respective Alzheimer’s disease immunotherapies at the American Neurological Association meeting in October 2012.

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CogState provides world class technology and associated services used in the measurement of cognition (thinking) - a very valuable niche in one of the fastest growing areas of medical research: neurodegenerative diseases. This broad category includes the well-known Alzheimer’s and Parkinson’s diseases.

In an aging population, the prevalence of neurodegenerative disease is increasing, resulting in governments and pharmaceutical companies increasing investment via research into treatments for diseases associated with aging. Recently in the USA the Obama administration announced a plan to fight Alzheimer’s disease, which aims to harness the nation’s expertise to find real treatments by 2025 and improve the care and treatment of the 5.1 million Americans already afflicted with Alzheimer’s disease. This has created major opportunities for technologies able to accurately detect small changes in cognition caused by either disease progression or improvement associated with new therapeutic treatments.

CogState technology has been shown to be sensitive to cognitive change when used in both industry and academic sponsored clinical trials of novel and licensed pharmaceuticals as well as in studies of disease progression and recovery from head injury.

In the last decade the company has steadily diversified the applicability of its offering into a variety of settings. Clinical drug trials remain the core business segment and over the last few years this area has grown into a profitable, cash-flow positive business. In the last two years the area of sports concussion and associated long-term negative impact on brain function has become an important and sensitive issue for all contact sports, especially the various football codes, and CogState has launched its Axon Sports brand to focus on this opportunity.

CogState is also preparing for the launch of

its technology in the doctor’s office where its technology can be used to monitor cognitive change associated with Alzheimer’s disease and other degenerative diseases. This is the most significant market opportunity for the company’s technology.

Detecting cognitive change in the community CogState scientists proposed as early as 1998 that serial cognitive assessment of healthy older adults might provide a sensitive means for detecting changes that could be associated with early stage dementia.

There is now a wealth of data showing that performance on a number of the CogState tasks is abnormal in adults with Alzheimer’s disease (AD) and also in those at risk for the disease (those who have met agreed clinical criteria for mild cognitive impairment).

CogState scientists believe it is possible to identify cognitive decline that could be associated with AD (or other dementia) in older individuals at risk for neurodegenerative diseases on the basis of conducting regular CogState tests and identifying patients whose cognitive function is deteriorating.

Because CogState technology is rapid, repeatable and non-invasive, it has been possible to apply it to the prospective assessment of otherwise healthy adults. In such studies, CogState has reported that many of those with declining memory function are shown to have ‘amyloid’ proteins accumulating in the brain and which many scientists believe are a key signpost for the presence of AD. This breakthrough in non-invasive diagnosis of early cognitive decline correlating with the early chemical signposts of the disease, the formation of amyloid protein plaques, opens the path for a broad population screening tool for this debilitating disease.

HEALTH TECHNOLOGY

The use of easily administered cognitive tests based on CogState’s testing method in healthy older adults may provide a relatively inexpensive and practical means to early identification and evaluation of individuals with changes in the brain consistent with AD.

Tackling concussion head-on In the area of shorter-term brain injury, the Sport division of CogState has signed multiple partners for diagnosing and monitoring sports head injuries.

These partners include the NBA, AFL, NRL, and the US Universities of Notre Dame and Michigan.

CogState carries out its North American sports product sales and marketing through its fully owned US subsidiary Axon Sports.

Most recently the company signed a promotional deal with US Youth Soccer, the largest member of the US Soccer Federation. US Youth Soccer involves nearly a million volunteers and coaches and registers around three million new players annually.

Building the clinical business CogState sees further opportunities for growth in the core Clinical Trials business segment whereby pharmaceutical companies use CogState technology, and associated services, to assess the effect that their drugs have on cognition.

CogState began selling cognition tests and associated services into the clinical trials market in 2004 and has since secured agreements with international giants including Pfizer, GlaxoSmithKline, Bristol Myers Squibb, AstraZeneca, Johnson & Johnson, Merck, and The United States Centers for Disease Control.

These trials see CogState working with major pharmaceuticals in hundreds of clinical sites internationally, with thousands of patients, in over 30 languages.

A strong balance sheet The first half of fiscal 2012 saw a substantial uplift in business for CogState with $10.2 million in new contracts signed, more than two and a half times the value of new contracts signed over the same period in fiscal 2011. CogState recorded an Operating

Snapshot: CGS Company Shares on Issue: ~74.8 million Share price range for the year: $0.15 – $0.28 Target Market: Cognitive testing in clinical trials (particularly dementia), sports and other indications www.cogstate.com

APRIL 2012

Profit of $2.6 million and a Net Profit After Tax of $3.4 million for the first half of the 2012 financial year.

CogState closed out the calendar year with combined cash reserves and trade receivables of approximately $7 million.

CogState has made the move to hedge much of its income into Australia (after US costs) at around $1.00 for 2012, which will cap much of the negative impact from a strengthening Australian dollar.

A solid business for growth markets CogState is an established, profitable and growing business. Its products are versatile and the company has the proven capability of securing revenue flows in multiple global markets. Consistent business development should see CogState continue to build its revenues as it consolidates its position as a leading global provider of cognitive assessment technology The sports market is seeing increased acceptance of concussion as a serious issue, and CogState’s highprofile contract successes in this area enhances its ability to push into more profitable amateur markets.

In the field of dementia screening, CogState’s product will provide a useful tool to measure cognitive changes to assist in healthcare decisionmaking and analysis in the doctor’s office. It is noninvasive, easy to administer, and inexpensive versus techniques such as the high-resolution imaging (MRI) or biomarker identification used in Alzheimer’s studies. The growing importance of providing a simple and quick way to measure Alzheimer’sassociated cognitive decline makes this part of CogState’s business a space to watch in 2012.

An analyst’s viewpoint: CogState (ASX: CGS) is one of the fastest growing technology companies in Australia occupying a niche area in cognitive testing products and services. CogState operates four major divisions: Clinical Trials, Research, Sport and Workplace.

In 1H12, the Company reported a significant $2.3m normalised NPAT (a strong turnaround from a $0.3m loss on pcp) with increased sales revenue of $6.9m (+75.6% on pcp) and reduced operating expenses (-14.7% on pcp).

CogState’s strong 1H12 result is due to its Clinical Trials division experiencing solid demand as the Company signed A$10.2m worth of contracts (a 144% increase on pcp) and a oneoff $1.27m revaluation gain on its Axon Sports investment. CogState significantly increased its R&D investment to $0.24m as it seeks new applications for its cognitive testing battery including HIV dementia, Alzheimer’s Disease dementia and concussion management.

CogState’s dementia screening tool revenues are not factored into existing forecasts where third-party licensing deals will potentially bring additional revenue to the business in 2H12.

CogState estimates this market to be worth US$500m p/a in the US alone due to an ageing population and increased healthcare costs.

CogState offers a unique suite of products displaying significant profit margins and an attractive, ungeared balance sheet. Although the business is dependent on further contracts to support growth, the progressive roll-off of $9.2m in contracted revenues provides comfort for our upgraded FY12 ($4.0m NPAT) and FY13 ($3.4m NPAT) forecasts.

We maintain our Outperform recommendation, valuing the stock at $0.57 per share.

Dr. Tom Duthy Healthcare and Biotechnology Analyst Taylor Collison Limited www.taylorcollison.com.au 9

Curve ahead of the

DART MINING (ASX:DTM)

Dart Mining: Opening up a new Australian mineral province Victoria has a rich mining heritage, but in recent years the State’s prospects have been overshadowed by Western Australia as it grabbed the mantle of mineral royalty.

So it is refreshing to read about a mining junior in the East, particularly when they work with a less well-known resource.

Dart Mining is one such company, a Victorian resources explorer of over 2000 square kilometres of granted exploration tenements. Dart is currently in the process of upgrading its major Unicorn project, with the goal of giving the State its first molybdenum mine.

In the fully-owned Unicorn project Dart has discovered a previously unknown mineral target in Northeast Victoria, along a well-known geologic feature called the Gilmore suture. This area has long been associated with major ore bodies including Cadia, Ridgeway and North Parkes in New South Wales.

While this area remains largely underexplored, Dart has identified a number of highly prospective targets within its holdings with similar characteristics to the world’s largest primary molybdenum deposits in Colorado.

In a State with such a rich history of exploration, the lack of knowledge about the presence of a major porphyry molybdenum – copper province is marked. Large areas remain underexplored, and the perception that previous generations have ‘cleaned out’ the accessible resources is inaccurate, as huge additional resources are now rendered accessible by modern techniques unavailable to the Australian pioneers.

work was not solely carried out on samples of their highest-grade intersections. Dart included some of the lowest-grade intersections to ensure they could recover metal from all grade blocks within the deposit.

The Unicorn deposit

As it stands, Dart announced in October last year a higher than expected maiden resource of 105 million tonnes (Indicated and Inferred). The first phase of Dart’s latest fully-funded drilling program is designed to enable the company’s current JORC Indicated resource to be upgraded into the Measured category.

Located on unrestricted crown land, the work to date at Unicorn has shown mineable-grade resources with the potential for a multi-mineral site including molybdenum, copper and silver mineralisation throughout. The studies undertaken by Dart focus on an eventual production rate of 5 to 10 million tonnes per annum, which could yield 30,000 tonnes of different concentrates over at least a 20 year mine life.

Initial resource drilling has defined an extensive area of mineralisation including molybdenum at multiple grades and depths. If a sample returns molybdenum present at more than 0.05 percent, it’s considered mineable. Significantly, Dart’s drilling results have returned figures up to 0.63 percent – a result highly competitive to other Australian molybdenum explorers.

Typically small companies do their metallurgy later in the exploration cycle. Possessing a JORC resource does not mean that the metal within the deposit can be economically extracted. There are a number of examples where companies have promoted their project, raised money and then found out the metallurgy is poor and as a result their share price has collapsed.

Dart conducted their metallurgy earlier as they wanted swift validation of the project and an honest appraisal provided to shareholders.

Further enhancing the company’s credentials for transparency, they ensured their metallurgical

Molybdenum: quietly essential for global growth Molybdenum is an essential metal used in the manufacture of steel where it adds strength, hardness and toughness as well as increasING steel’s resistance to corrosion.

Molybdenum also plays a key role in the manufacture of a range of chemicals including paints and plastics and its importance to the nuclear power, petroleum, automotive and aerospace industries is growing. The value of molybdenum is currently around US$33,000 per tonne.

The global molybdenum market is relatively small but growing at 220,000 tonnes each year. With its increasing importance to industry, worldwide shortages are predicted.

Approximately 53 percent of world production is sourced from primary molybdenum mines with 47 percent of supply by-products from copper mines. Although China has significant molybdenum resources of its own, increasing taxation on molybdenum may see a boost to imports of the metal into China.

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With such encouraging results to date, Dart has worked hard to advance the project, and the current drilling program is expected to deliver a significant JORC-compliant resource upgrade.

The economics of the project look highly favourable in other ways: the stripping ratio is extraordinarily low. Visitors to the site can actually walk onto the ore body, an accessability which means mining costs can be minimised.

Dart believes that there are strong structural parallels between Unicorn and Freeport-McMoRan’s Henderson mine in Colorado (the largest primary producer of molybdenum in the world) and could indicate that, like the Henderson mine, Unicorn’s resource grades will increase with depth.

In resources projects, a key consideration for the economics of a mine is its accessability. Ore that must be transported huge distances will have huge transport costs passed onto the buyer, especially if the infrastructure for its transport has to be built by the miner. One of the key factors in Dart’s value are the potential cost savings deriving from its placement close to water, electricity (including renewable energy from the Snowy Mountains Hydro-electric scheme), and road access to Albury, which also acts as a rail gateway to major ports like Melbourne.

METALS EXPLORER

The small local community of Corryong has been kept fully appraised of the project’s progression, and have responded positively to Dart’s updates.

The attention to environmental issues, willingness to engage, and employment prospects – no fly-in fly-out arrangements here - all add up to positive community relations to date. In addition, Local and State Governnment and the Department of Primary Industries have all indicated support for the project.

Dart announced recently it had received all work plan approvals necessary to move ahead with the Unicorn project and access previously untested areas for drilling. The approval process required independent experts to conduct detailed flora and fauna studies as well as cultural heritage surveys of the proposed drill access tracks.

Dart has brought onto the project nghenvironmental, one of Australia’s oldest specialist environmental consultancies to conduct studies establishing baseline levels of environmental factors like noise, air and water quality to help Dart maintain the highest standards of environmental best practice through its works program.

Excitingly, using a common geophysical surveying technique called induced polarization, Dart has identified an anomaly in the subsurface data they believe may represent the source of copper mineralisation within the Unicorn system. If drilling bears this out, there is strong potential upside in both the raw quantity and availability of the copper,

Snapshot: DTM Company Shares on Issue: ~157.5 million Share price range for the year: $0.04 – $0.18 Target Market: Northeast Victorian base metals explorer www.dartmining.com.au

APRIL 2012

but also in the increasing diversification it brings to the resource base.

An analyst’s viewpoint:

Finally, with a nod to future programs, the characteristics of the porphyry mineralisation style exhibited in the rock formations in Dart’s holdings nearly always occur in clusters - Dart has also identified another prospective location, the Morgan project, in the same geostructural corridor as Unicorn. A number of other prospective targets are being identified through a detailed regional geochemical and mapping program.

Dart Mining NL (DTM) is an exploration company focused on developing its Unicorn molybdenumcopper-silver project in Victoria. The Unicorn project contains an inferred resource of 105Mt at 0.07% Mo Eq and includes an indicated resource of 29Mt at 0.09% Mo Eq in the upper 250m of the porphyry deposit. Ongoing drilling is likely to upgrade the resource in late Q2 CY12 and will provide an important de-risking milestone for the company.

In early April Dart completed a capital raise via share placement. The raise was over-subscribed, indicating a good level of investor confidence, and the company also welcomed its first institutional investors onto the register. The new funds give Dart $4.5 million in the bank to pursue its exploration program.

Picking their projects Dart Mining has displayed a willingness to think strategically in their efforts to deliver value to their shareholders, selecting operations that prove up resources in accessible areas with a history that supports the existence of a significant mineral presence. As they take their fully-funded drilling at the Unicorn Project to a new level, it will be an exciting time for the company as they uncover the buried value of an intriguing asset.

The strategic location of the project 100km from Albury gives DTM infrastructure advantages which could provide significant cost savings for development. These include proximity to power, water, sealed roads and community housing.

There are few ASX-listed molybdenum companies with quality infrastructure. DTM has strong local community support for the project and a ready workforce.

We view Dart Mining as an encouraging molybdenum resource development opportunity in an underexplored porphyry province. DTM has exploration licenses covering 2,000km2 in Victoria and more than 50% of this tenure has been covered by a geochemical survey. At least three outcropping porphyries have been identified within a 20km x 5km corridor and there is significant potential for the company to make additional porphyry discoveries with further drilling.

We have a Buy (Speculative) recommendation for DTM, with a target price of $0.18 per share.

Bell Potter was involved in a 23.4m share placement for DTM in March 2012 raising $2.8m at $0.12/share. Bell Potter was paid fees for this service.

Michael Lovesey Resources Analyst Bell Potter Securities Limited www.bellpotter.com.au 11

Curve ahead of the

GEODYNAMICS (ASX:GDY)

Geodynamics: An Australian geothermal leader, working towards a smarter energy future Geodynamics Limited is Australia’s largest and most advanced geothermal company with a primary focus on the economic extraction of heat from hot rocks using Enhanced Geothermal Systems (EGS) technology.

While conventional geothermal energy is used widely around the world, Geodynamics is considered a global leader in the development of EGS, which has the potential to significantly contribute to Australia’s future energy mix.

After an extensive review of its drilling program the company has re-embarked on a program of field operations that will demonstrate the value of Australia’s vast geothermal resources.

The first step in the company’s re-focused program is the drilling of the “Habanero 4” well. The drilling of the Habanero 4 to a depth of over four kilometres started in mid-March and will take around four months to complete.

Successful well drilling will be followed by a testing program that culminates in the commissioning of a one megawatt (1MWe) pilot plant located at the company’s Habanero site in the Cooper Basin, South Australia.

These activities are the first stage in upgrading the deep granite geothermal resource to a measured reserve capable of supporting the first full-scale commercial geothermal project in Australia.

To date Geodynamics has been successful in drilling five of the deepest and hottest EGS geothermal wells globally and has discovered and enhanced the most productive granite fracture system in the world at the Habanero project site where it is currently drilling Habanero 4.

Milestones ahead Geodynamics recent return to the field represents a major breakthrough. Following a period of consolidation and recovery after a well failure in 2009, the company has undertaken a major turnaround; rebuilding its balance sheet, realigning its field

strategy, and adopting a disciplined, gated process to its appraisal program as is best practice in large, longterm resource development.

The company has re-emerged with a work program that is set to provide key reservoir, drilling and test data from approximately 18 months of field operations, including commissioning and undertaking trials of the 1MWe Habanero pilot plant. This plant will be the largest geothermal plant in Australia and one of the largest of its type in the world.

The Deeps EGS project at Habanero is being conducted with venture partner Origin Energy (ASX:ORG).

Habanero 4 is the first completely new well for the joint venture since 2009. The well is located in close proximity to the previous Habanero 3 well, ensuring that the well will intersect a previously established underground reservoir through which water will flow, absorbing heat from the surrounding rock.

This stimulated fracture zone is in an area where Geodynamics has previously demonstrated productivity. The company sees re-establishing access

How enhanced geothermal systems work The amount of heat being produced in the Earth’s crust is vast; capturing even a small fraction of this energy could meet a significant proportion of the world’s energy demands.

To tap into this heat, exploration and appraisal wells are drilled to depths of four to five kilometres below the Earth’s surface into the underlying granite to access and enhance natural “fracture” networks.

When water is pumped through this network of cracks, it is heated by the surrounding rock and taken up by a second “producer” well, where heat exchangers extract heat to produce steam and electricity. The cooled water is returned to the first “injector” well to begin the cycle anew, creating a “closed-loop” system.

To establish this system, a great deal of work goes into understanding the exact geology present for several reasons: to select the most productive site, to choose the best kinds of drill bits, to achieve the highest flow rates – the list goes on. But this geology involves complex strata, each with their own particular characteristics and challenges. Learning these complexities is a major part of Geodynamics’ work.

At the centre of this constant learning is the unique environment with which the Geodynamics’ team is operating. No other industry works with such high temperatures and pressures. The technology is rapidly evolving, recognizing that delivering a large scale EGS project remains a major challenge, but one that will 12 significant returns to the successful developer as well as substantial long term benefits for Australia. bring

GEOTHERMAL POWER

APRIL 2012

to the Habanero reservoir as a key step and the most cost-effective way to demonstrate the commercial potential of the deep granite geothermal resource of the Cooper Basin.

pricing signals to the industry and financial markets.

Development of geothermal in Australia clearly remains an important future prospect that needs to be viewed in the context of the long-term nature of electricity assets which can span over 50 years. Geodynamics’ Deeps EGS project is significant. Due to its large scale and enormous capacity to produce clean power for over 30 years once established, it has the potential to be the basis of a material national industry, like the development of Australia’s world leading natural gas industry and iconic large scale assets such as the North West Shelf Gas Project.

When drilling is complete the initial reservoir results will be analysed and open and closed-loop testing will be performed. Once these series of tests have been undertaken the company’s plan is to commission the 1MWe Habanero pilot plant, expected at the end of this calendar year or early 2013. This will provide further proof-of-concept and demonstrate the economics of heat extraction from Geodynamics’ resource.

Government has displayed strong support for Geodynamics’ vision, awarding the company a $90 million Federal Government grant under the Renewable Energy Demonstration Program to support development of the Habanero resource. In November 2011, the company reached an agreement with the Department of Resources, Energy and Tourism to reprofile the funding arrangements. This has allowed Geodynamics to access a greater proportion of the funds for the early stages of the Deeps EGS project in order to progress with the current appraisal program.

What’s so hot about geothermal?

Geothermal energy has many benefits - it is virtually emission free, available at all hours, has an excellent safety profile and is not subject to intermittent supply like other low-emission carbon technologies such as wind, wave and solar power.

Geodynamics’ Cooper Basin resources offer a unique set of attributes and advantages as a scalable longterm base-load low emissions option for Australia that could, over the fullness of time, contribute 10 to 20 percent of Australia’s base-load energy requirements and therefore, may have a critical role to play in establishing the most resilient, stable, secure and cost-effective power system for Australia over the next 50 years.

Treasury modelling undertaken to support the Federal Government’s Energy White Paper highlighted this potential with its projection suggesting that should prices for emerging renewable energy technologies reach their projected targets over time then renewables could form up to 40 percent of the electricity generation mix by 2050.

Under these projections up to 23 percent of Australia’s energy may come from the geothermal sector.

SnapshotGDY Snapshot: Company Shares on Issue: ~406.4 million

Company shares on issue: 1.01 billion Share price range for the year: $0.12 – 52 week share price range: $0.45

$0.02 - 0.06

Target Market: Geothermal resource Target market: A billion growth developer targeting future dollar Australian energy market market in heart assist devices for

moderately-impaired heart failure www.geodynamics.com.au patients

Looking ahead to future markets Today fossil fuel-based electricity generation remains the cheapest and most proven source of power.

However fossil fuel prices are inexorably rising due to increased extraction costs, depletion of the closest and most accessible resources, increased capital costs, more stringent operating standards and the increasing use of shorter term contracts linked to international benchmark prices. These trends are set to continue irrespective of carbon pricing initiatives or measures to reduce Australia’s greenhouse gas emissions.

Given these market factors there is growing national concern that long-term energy security and long-term affordable power cannot be sustained by maintaining a primarily coal-centric system.

Near-term success of Geodynamics’ work program at Habanero and its longer-term development plans for the Deeps EGS project will play a key role in how geothermal fits into Australia’s future energy mix. With success in the current drilling and field operations campaign and through the realisation of its long-held goal to operate the 1MWe Habanero Pilot Plant, the company intends to be ready to bring forward the first commercial scale geothermal development for Australia.

An analyst’s viewpoint: Over the last 12 months GDY has enhanced value by Building on the lessons learned from the five previous drilled wells and detailed inhouse rock mechanics modeling. We like new MD Geoff Ward who has brought a firm grasp of resource development and buy-in of the executive team to the company.

To provide a secure, resilient, stable and cost effective power system, not just for the immediate future but for decades to come, will require a diverse energy mix. With investment the availability of new base-load alternatives such as geothermal, together with higher efficiency standards and more selective consumer usage in the future, is likely to provide lower long-term energy costs than maintaining our current trajectory.

Major national energy player Origin Energy (ORG) support Geodynamics’ Deeps project as its main geothermal power development in Australia (ORG have a 30% stake).

National policy direction has given the renewables industry its strongest support to date in the form of the Government’s Clean Energy Future vision. These measures point to a longer-term commitment to developing new energy sources and offer important

The Government has demonstrated significant financial and regulatory support for the renewables sector generally, introducing a $23/ tonne carbon price on 1st July 2012 as part of a broader Clean Energy Future policy package.

We anticipate continued enhancements in the environment for renewable energy developers into the future.

It is worth noting that a Geodynamics facility is the only large-scale geothermal power plant included in the Federal Government’s ten year plan.

We believe the current price does not accurately reflect the de-risking Government action has provided, nor does it reflect the significant work Geodynamics has done, and continues to do, to mitigate major execution risk.

We rate GDY a Speculative Buy, with a target price of $0.40 per share.

Paul Jensz Agribusiness & Energy Analyst Octa Phillip Securities www.octaphillip.com 13

Curve

METGASCO (ASX:MEL)

ahead of the

Metgasco: A smart developer riding the LNG boom With an influx of investment and development on the East Coast of Australia rushing to meet growing local and international energy demands, Metgasco finds itself in an industry sweet spot.

Metgasco is one of the few independent gas companies on the East Coast with significant acreage and large uncommitted gas reserves. Early movers in this region are valuable investment targets, with the next decade projected to bring strong growth in the global liquified natural gas (LNG) trade.

Billions of dollars will be spent in the near-term to bring the region’s gas reserves to both domestic and international markets through new investments in LNG capacity. Large firms with committed international buyers are leading this investment and are increasingly looking to secure supply into these contracts.

The increased level of activity in the New South Wales market follows the rapid development of the Queensland market over the past few years. With a proactive community partnering approach, Metgasco is well placed to benefit from an advantageous combination of regional supply shortages when gas demand has only increased.

Exploration to date already reveals huge resources Metgasco has been working in the Clarence Moreton Basin in northern New South Wales for ten years, and now has the largest uncontracted reserves on the Eastern Coast, with certified coal seam gas reserves and conventional gas discoveries in its three exploration licences.

Metgasco has licences which cover over one million acres with certified 3P gas reserves of about 2500 petajoules (PJ) established to date. A petajoule is a large unit of energy, which is how gas reserves are often measured. The table below gives a snapshot of Metgasco’s reserves, 1P – 3P indicating the ease with which the reserves can be recovered: 3P reserves are estimated to be around ten percent recoverable.

Putting that into perspective, a million tonnes of LNG is roughly equivalent to 55PJ of energy.

Metgasco has only explored a relatively small area of its permits and expects that with more drilling, substantially more reserves will be added to its current certified reserves. Indeed, it already has about 2,500 PJ of contingent resources.

First customers at the door The past year has seen Metgasco begin the transformation from an exploration venture into a commercialised operation. The company is gearing up to start commercial production and is working to secure a committed customer base. This commercial program was launched with the signing of the first gas supply agreement with the local Richmond Dairies, with supply to commence later this year under a ten year agreement.

Metgasco is in ongoing negotiations with a number of other customers.

As relationships with local customers are cemented, Metgaso continues to evaluate a number of projects that will deliver maximum return to investors and best utilise its energy resource for the growing domestic and international markets.

If medium-term emissions targets are to be met at lowest cost, additional supplies of clean burning natural gas are essential.

Every sign points to gas Reserve type 1P 2P 3P

Current Reserves (PJ) 2.7 428 2,542

The pricing environment and demand for gas, both domestically and internationally, has improved.

Increasing environmental pressures have boosted the attractiveness of gas which burns more cleanly than “older-school” fossil fuels. Hand-in-hand with these factors there has been an explosion in gas exploration and known reserves, which will support a more rapid transition to larger-scale gas energy production in the medium term.

As it develops, the East Coast gas market will become increasingly integrated with the global market. A fourth LNG development is expected to be announced in Queensland in the next 12 months. There is substantial interest in gas resources from international consumers, more so since the Japanese nuclear crisis in early 2011. The value of these resources will only grow and gas prices domestically are expected to rise to align with international pricing.

There is also substantial interest from existing Australian gas consumers, seeking to secure longterm gas supplies in the context of carbon policy and declining traditional supplies.

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GAS DEVELOPMENT

APRIL 2012

A potential global supply chain

Community and government support

With the global boom in LNG transforming the Australian gas market over the last few years, Metgasco has begun looking at the possibility of exporting its resources to the energy hungry markets of Asia.

Under pressure from communities around the world concerned over climate change, governments globally are more committed to cleaner energy supplies such as natural gas.

In 2011 the company commissioned a study with resources services giant WorleyParsons to evaluate the technical and commercial feasibility of a standalone LNG plant. Metgasco coordinated this study with LGL Limited and Flex LNG, two companies with which they have Memorandums of Understanding.

The study investigated three sites for the plant: Gladstone, Brisbane and offshore NSW. The study concluded that the economics for all three LNG plant locations were attractive and Metgasco is now progressing further feasibility discussions.

The Lions Way pipeline As the company’s resources expand, it will need to connect with additional customers along the East Coast of Australia, providing an opportunity to establish a major new industry in the North Coast of NSW. One means of delivering gas to the markets beyond the local New South Wales market is a gas pipeline connecting Metgasco’s field in Casino to the Queensland market and hence the East Coast Australian market.

Metgasco is planning such a pipeline, known as the “Lions Way Pipeline”. The pipeline will run from North of Casino to the existing Roma – Brisbane pipeline, near Ipswich. The 145 kilometres pipeline will be buried for its entire length.

As Australia moves towards a more carbon constrained economy, the development of natural gas supplies close to energy markets will become increasingly important.

Snapshot: MEL Company Shares on Issue: ~338.6 million Share price range for the year: $0.22 - $0.59 Target Market: A coal seam gas developer targeting Eastern Australia and export markets www.metgasco.com.au

The Australian government is a leading player in this change. It is implementing new laws which will permanently cause a shift in energy markets towards the use of fuels with lower carbon dioxide intensity.

It is widely accepted that if medium term emission targets are to be met at lowest cost, additional supplies of clean burning natural gas are essential.

Getting in before the boom The situation is clear: given the drive to make alternatives to coal a greater part of the energy mix, the value of gas resources is increasingly apparent. The pricing and volume demand for gas, both domestically and internationally, has improved significantly over recent years.

Major companies on the East Coast have responded to this step change in demand for gas, with final investment decisions being reached for three major coal seam gas to LNG projects, and a fourth is expected within the next 12 months.

Over the next 12 months Metgasco plans to take advantage of these changes by continuing to develop its exploration licences, proving up its reserves, both conventional and coal seam gas, commencing its initial gas supply contracts and progressing its discussions with other potential customers and possible joint venture partners.

An analyst’s viewpoint: Metgasco is a deeply undervalued coal seam and conventional gas explorer with certified reserves (3P) of more than 2500PJ of gas located in the Clarence-Moreton Basin in Northern New South Wales.

Having proven up significant reserves the company is now engaged in early stage commercialisation. The company’s first gas customer has been signed up and other smallscale industrial users in and around Casino have expressed strong interest in taking gas once production commences.

Having submitted a Production Licence application to the New South Wales Minister for Resources and Energy last year, Metgasco is now awaiting government approval. Once the licence is granted the company can be in production fairly rapidly.

Compared to other coal seam gas explorers Metgasco is seriously undervalued, with the market worried about political risk. We believe that once production actually commences the market will take a shine to the company and its ability to generate near-term cash flows.

With LNG production commencing in late 2014 in Gladstone, East Coast gas prices will be re-priced upwards. Metgasco will be a winner from that process.

Ivor Ries Analyst E L & C Baillieu www.baillieu.com.au/

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Curve ahead of the

MIDDLE ISLAND

Middle Island Resources: One of the market’s strongest entrants to West African gold exploration The appetite for gold today remains unprecedented, and the prospect of finding the next big deposit quickens the pulses of many an investor worldwide.

One of the emerging hot spots for gold exploration is West Africa, which still has huge swathes of unexplored land with resources that await the intrepid explorer. Given the flow of large gold discoveries in the region over the last decade and the favourable cost environment in the region, there is huge value to be grasped in savvy exploration.

and Liberia. The company’s strategy is to first identify a minimum resource base of 1.1 to 1.2 million ounces of gold on one of its existing acreages by December 2012.

News flow from drilling at the Company’s three projects; Reo, Nassile and Nuon River, is anticipated to commence in the second quarter of the 2012 calendar year.

Burkina Faso’s Reo Project Middle Island’s close relationship with Newmont allowed it to obtain highly prospective holdings in landlocked Burkina Faso. Middle Island directly purchased the Reo Project from Newmont in a direct share-sale. The project lies approximately 150 kilometres west of Ouagadougou, capital of Burkina

One of the most promising junior explorers in West Africa, Middle Island is working on three greenfields projects in the countries of Burkina Faso, Niger, and Liberia. All the projects are of a considerable size, with the potential of the gold resources present continuing to build after encouraging drilling results.

Leading operations are an experienced management team with extensive experience in West African geology and gold exploration. The team have employed a systematic, technical approach to exploration to maximise the chance of resource discovery.

Middle Island’s backers include a significant institutional representation on the register, as well as large corporate shareholders which hold a 35 percent stake in the company.

In addition invaluable support is given by industry heavyweight Newmont Mining Corporation (NEM), one of the world’s largest gold producers, with whom Middle Island have built a strong collaborative relationship. Newmont hold a 10 percent stake in Middle Island.

The company ended the 2011 financial year with a cash balance of $10.15 million after $3.12 million expenditure on exploration and administration. After a recent capital raising, Middle Island’s cash balance stands at approximately $16 million, meaning the company is well placed to achieve its objective of defining a gold deposit of more than a million ounces in the next 12 to 18 months.

Middle Island’s three projects cover about five thousand square kilometres in Burkina Faso, Niger 16

Corporate team Middle Island is led by Managing Director Rick Yeates, who has more than 30 years of geological experience with industry leaders such as BHP, Newmont and Amax including 20 years in West Africa. Rick co-founded the renowned industry consultancy RSG Global which was subsequently acquired by Coffey Mining.

MDI has also built a highly seasoned exploration and administrative team in West Africa led by Exploration Manager Andrew Chubb. Andrew has 11 years of international experience as a professional geologist and is supported by a diverse team of elite geologists, technicians and support staff.

Faso, and includes seven granted exploration permits valued at US$2.5 million.

The Reo Project exploration permits collectively cover an area of 1,166 square kilometres with numerous gold target areas, or prospects, distributed along the southeast area. Newmont and Middle Island have identified two significant targets, the Morley and K4/ K5 prospects.

After some initial trenching and drilling activities, Middle Island has confirmed that both the Morley and K4/K5 prospects, together with the recently discovered Samba Prospect, have the potential to satisfy the company’s main objective of identifying a minimum resource base of 1.1 million ounces of gold on at least one project.

GOLD EXPLORATION

APRIL 2012

Niger’s Nassile Project Middle Island is also earning a 70 percent stake in its Nassile Project which involves a staged exploration expenditure of US$2 million over a three year period that has recently led to the identification of the Songonduari and Koutougou prospects. The Songonduari prospect is particularly promising, and also has the potential to meet the company’s 1.1 million ounce resource objective. Middle Island has the right to earn an initial 90 percent stake in the Boulkagou and Dogona permits in Niger with a US$1 million staged exploration expenditure over two years. The Dogona Project contains areas for additional greenfield discoveries.

Liberia’s Nuon River This project is the most anticipated of Middle Island’s acquisitions, which has the greatest potential for producing a world-class discovery.

Middle Island holds a 100 percent stake in the Nuon River Project, comprised of five adjacent permits building an area of around three thousand square kilometres. The company also own a 75 percent stake for a sixth “Grand Gedeh” permit based on an initial payment of US$100,000 followed by staged exploration expenditure of US$5 million over five years. The Grand Gedah permit is highly promising, particularly due to the Big Hill prospect in the Barteh Jam mining centre which Middle Island believes is the most promising gold prospect in its portfolio.

The Nuon River Project is situated on what Middle Island believes is West Africa’s most prospective gold terrain. The East of Liberia represents a significant gold frontier as decades of civil strife effectively preserved the area from modern exploration.

According to Middle Island management “the purchase of the Nuon River Project represents the realisation of a key objective…to secure a major land package in the most prospective emerging gold frontier of West Africa.”

Why West African gold?

The ongoing precious metal bull market has seen gold reach record high prices (currently over $1600 per ounce) irrespective of fluctuating conditions.

unexplored land. The costs of gold production is highly competitive relative to the global average, and regional Governments generally offer favourable exploring conditions.

Middle Island is exploring West African locations for several reasons. The countries that make up West Africa have delivered large gold resources in the last decade, but still have huge areas of

Middle Island’s projects have been chosen on the basis of weighing each country’s prospectivity and risk profile, coupled with successful track records with previous explorers.

A head start in community relations

Cracking the million ounce mark

Middle Island has taken its responsibilities regarding local communities seriously from inception – the company has set aside five percent of its exploration expenditure for social development. At Pouni Village in Burkina Faso, Middle Island has constructed a solar powered, potable water reticulation system in partnership with the regional authorities, local communities and a French NGO, Eau Vive (Living Water).

Middle Island is now aggressively ramping up its exploration activities now that it has secured the funding and partnerships to confidently push ahead with operations. The establishment of a 1.1 million resource base is the major goal for the next 12 months. From there an iterative program of derisking and project value uplift would follow, as the company pursues leads across its acreages and adds to the story of West African gold.

Middle Island’s next initiative will be to build a primary school in the Koutougou Village near its Nassile Project in Niger. The school is designed to accommodate 90 pupils, an ablutions block and water well. The Australian Government has agreed to co-fund this second initiative, along with partnerships with Eau Vive and the Niger Government.

This has resulted in favourable attention from institutional investors and fund managers as companies usually only ‘give back’ to communities after a major discovery has been made. Middle Island has made early engagement and a display of respect and appreciation a core part of their work.

An analyst’s viewpoint: Middle Island Resources (MDI)is one of our highest-conviction speculative buys because of their talented and respected technical team led

by Rick Yeates (RSG Global, Coffey International), and highly prospective projects in underexplored areas.

Countries for exploration – Liberia, Burkina Faso and Niger – were chosen on the basis of prospectivity, risk profile and a track record of successful project development. Initial selection was assisted by Newmont (NYSE:NEM), which sold MDI the Reo Project in Burkina Faso and is now a ~10% shareholder.

MDI’s strategy is to build an initial 1.1Moz Au resource by December 2012, on at least one project. The idea is that a 1.1Moz resource, at a 65% conversion rate gives 700koz reserve or 100koz Au for a seven-year mine life, viewed as a minimum for a standalone West African mine.

Snapshot: MDI Company Shares on Issue: ~74.4 million

The company is well funded for discovery, with ~$15m in the treasury. Six drill rigs are assessing five targets on three projects and, subject to the slow turnaround of assay results in Africa, MDI expects to have its maiden gold resource on schedule.

Share price range for the year: $0.25 – $0.58

(Disclaimer: In March 2012, Bell Potter managed the placement of 25m MDI shares at $0.40/ share and received a fee for that service).

Target Market: West African gold explorer

Trent Allen

www.middleisland.com.au

Senior Resources Analyst Bell Potter Securities www.bellpotter.com.au 17

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OSPREY MEDICAL: OSP

Osprey Medical: An Australian technology innovation goes public to go global

Osprey Medical’s Board and Management is comprised of experienced and successful personnel with established track records covering medical device development, regulatory approvals, sales and marketing, and mergers acquisitions.

Osprey Medical’s Advisory Board comprises worldrecognised experts in heart and kidney disease.

Mike McCormick was appointed President and CEO of Osprey Medical in 2010 and has more than 25 years of experience in the medical device industry with both public and private medical device companies.

From 2003 to 2008, Mike was President and CEO of Anulex Technologies, Inc., a private company focused on developing proprietary technologies to support the healing of spinal soft tissues. Mike led Anulex from the concept phase to FDA approval and commercialization of two annular repair platform products. Prior to this, Mike was President of Centerpulse Spine-Tech, a publicly traded full-line supplier of innovative spinal technologies with over 400 employees and US$125 million in annual revenues. Mike was involved in the successful sale of Centrepulse Inc. to Zimmer in 2003 for US$3.2 billion.

“Our data indicates that the CINCORTM System can reduce the risk of CIN by 50 percent.

We believe we can significantly improve quality-of-life for patients, and create significant healthcare system savings”

- Mike McCormick,

President and CEO of Osprey Medical.

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The story of medical device company Osprey Medical should make Australian innovators proud.

First developed at the Baker IDI Heart and Diabetes Institute in Melbourne, Osprey refined its product in the US and has now returned to Australia to list on the ASX as it seeks US regulatory approval with a pivotal clinical trial and a global commercialization roll-out.

Osprey Medical is a good example of a company with its headquarters in the US finding the Australian market an important stepping stone in its lifecycle. In Australia we provide access to capital and exposure to an informed investor base with an appetite to invest in life sciences companies, with lower corporate overheads than in the US. Osprey Medical is considered a relatively low-risk investment opportunity from a product development perspective. Following successful clinical trials across six sites in Australia, New Zealand and Europe, Osprey Medical obtained CE Mark approval for its lead product, the CINCORTM System, and a commercial rollout is planned in selected European markets in 2012.

Running parallel to European expansion, Osprey also plans to start a registration-directed pivotal clinical trial in 2012 and is aiming for FDA approval and US launch of the CINCORTM System in 2014.

Many unhealthy hearts Each year, 2.2 million heart procedures are undertaken in the US and Western Europe and approximately 400,000 of these patients have a pre-existing kidney disease which would make them suitable candidates for contrast capture using the CINCORTM System.

These high-risk patients are easily identified by a blood test prior to their heart procedure. Based on a price of US$1500-US$2000 per procedure, the US and Western Europe alone represent an addressable market of US$600M-US$800M per annum. The rest of the world as well as diabetes patients represent significant growth in the size of the addressable market.

MEDICAL DEVICES

APRIL 2012

Fighting CIN with CINCORTM CIN (or Contrast Induced Nephropathy) is a form of kidney damage caused by the toxic effects of dyes used by cardiologists to x-ray the heart and blood vessels during commonly performed heart procedures such as angioplasty and stenting. These dyes are toxic and can reduce the blood flow in kidneys, which can lead to kidney cell death and serious patient complications including death. Approximately 25 percent of angioplasty and stenting patients are at high risk of CIN and approximately one in five high-risk patients end up with CIN. Patients with pre-existing kidney injury can have a very difficult decision to make if they subsequently have heart troubles. Do they undergo the heart procedure and risk permanent kidney damage (which is referred to as having a “CIN event”)? Or do they not have the heart procedure and risk having a heart attack? These decisions are very painful and the consequences are real.

A patient who has a CIN event risks longer hospitalisation, increased risk of heart disease, longterm dialysis and a higher risk of death. Nearly half of all patients who suffer a CIN event will not survive another five years.

Osprey’s CINCORTM Contrast Removal System is designed to provide cardiologists with an advanced level of CIN protection in high-risk patients undergoing heart procedures such as angioplasty and stenting. The CINCORTM System is a catheter and vacuum system that is designed to directly capture and remove a significant quantity of the dye as it leaves the coronary sinus (the heart’s main drainage vein) before it makes its way to the kidneys.

Next steps

Why CINCORTM speaks cents to insurers Patients who develop CIN after a heart procedure require on average four extra days of hospitalization until kidney function has stabilized, which typically involves constant monitoring by physicians and nursing staff, often in intensive care, at a cost of around US$2000-$4000 per day in the US. Importantly, the hospitals are often directly responsible for the immediate costs associated with complications, such as CIN, arising from procedures performed in the hospitals. After all, the patient did not enter the hospital with CIN – it was contracted as a result of the procedure. In addition, decreased kidney function also increases the risk of cardiovascular disease, which leads to further medical costs for both governments and insurers, so all parties are strongly incentivised to reduce CIN rates.

2012 is set to be a busy year for Osprey Medical.

The company will commence commercialization of the CINCORTM System in Germany and the Netherlands by bringing on board top heart hospitals and cardiologists.

Osprey will focus on building awareness, adoption and penetration in these initial markets and will use this as a foundation for a full-scale launch into all key European markets.

In the US, the pivotal trial will support a US 510(k) regulatory submission with the FDA which receives review within 90 days. The company is aiming for a US launch of the CINCORTM System in 2014 through a direct cardiology sales force and Osprey has already initiated an application for hospital reimbursement specifically for dye collection.

Osprey has a compelling technological proposition for addressing a healthcare issue that inflicts significant costs on every national health system. Early data is supportive of efficacy, and a near-term trial will add to this data while the company works to establish entry in key markets. The 18 months after listing will deliver a series of crucial milestones for Osprey, an early lookin to value uplift for investors compared to many ASX newcomers over the years.

The CINCORTM System The CINCORTM System is a catheter and vacuum system designed to directly capture rand remove a significant quantity of the dye as it leaves the heart via the heart’s coronary sinus (the heart’s main drainage vein), before it makes its way to the kidneys.

The pilot trial of 41 patients across six trial sites found that the CINCORTM System was: • Simple: the CINCORTM System was found to be easy to use • Quick: the average time to place the catheter in the heart was under 12 minutes • S afe: there were no serious device-related adverse events related to the CINCORTM device or the removal of blood and dye from the patients • E ffective: the incidence of CIN was 50 percent lower in the trial patients than would generally be expected in high risk patients undergoing a heart procedure.

The CINCORTM System consists of three components: • A foot pedal-activated vacuum generating unit • A proprietary Contrast Removal Catheter • A tubing set to connect the vacuum generating unit to the Contrast Removal Catheter.

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Curve ahead of the

Ahead of the Curve is a Buchan Consulting publication.

www.buchanwe.com.au For any comments or feedback please contact us at ir@buchanwe.com.au

DISCLAIMER Ahead of the Curve has been produced by Buchan Consulting (Buchan). The information and views contained in it are provided for general information purposes. Buchan is not a financial adviser, and therefore no part of the information provided is to be construed as a solicitation to make any financial investment. Buchan does not take into account personal financial information. While Buchan has taken reasonable care to collect and publish this information in good faith and has made reasonable efforts to ensure the information is accurate and reliable as of 31 March 2012, the document is provided on an as is basis and Buchan, to the extent permitted by law, disclaims all representations, consumer guarantees or warranties relating to this document (including its quality, accuracy, completeness or reliability).

To the extent permitted by law, Buchan is not liable for any loss, damage, cost or expense that may arise from the use of, or any reliance on, the information, representations, opinions or anything in the document (including any error, omission or misrepresentation conveyed)

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DIVERSIFIED HEALTHCARE

Regenerative Medicine & Tissue Engineering: Celxcel Allied’s most clinically advanced product is CardioCel, a cardiovascular patch to treat heart deformities caused by congenital heart disease.

It has successfully completed Phase II human trials and is currently going through regulatory approval in Australia.

This product is based on a proprietary technology developed by Celxcel, known as the ADAPT® Tissue Engineering Process. It uses animal-derived tissues to make products that are compatible with the human body and regenerate to form normal human tissue.

The leading edge technology is expected to open up the potential for medical professionals to replace synthetic products currently used in soft tissue repair. The global regenerative marketplace is expected to reach US$1.4 billion by 2015.

The ADAPT® technology is also being evaluated by tissue heart valve manufacturers as a way of reducing the frequency of valve replacements.

Celxcel is currently evaluating how the process can be used in other surgical applications, such as hernia repair, pelvic floor reconstruction, orthopaedics and as a stem cell delivery scaffold.

SEPTEMBER 2011

Allied Healthcare Group has strong assets throughout the health care sector, from research and development through to sales and distribution.

R&D: Lead investment in Coridon, Prof.

Ian Frazer’s next generation DNA vaccine technology Clinical Program: Celxcel, a tissue engineering company in human trials for its groundbreaking lead product CardioCel. Sales and Distribution: Allied Medical, growth through acquisition and expansion of service and product offering across Australia and New Zealand.

A smart business core Allied Healthcare Group’s R&D and clinical development programs are built around the company’s fast-growing and profitable medical device sales and distribution business.

This business has grown 19% year on year for the past 5 years with 65% growth in revenue in the financial year 2011. The continued expansion of this division in Australia has given Allied Medical a rock-steady growth platform upon which to base a drive into new markets.

This growth will be maintained through two assets.

Firstly, strategic alliances with the best global manufacturers of medical equipment. Secondly, a dedicated sales team of industry specialists and national network of clinical educators who ensure that new product offerings are rapidly adopted by the market, maximising returns for partners and the local medical community.

Allied People Allied has recently appointed a new Chairman, Managing Director and other board members.

Lee Rodne is the Company’s Managing Director, who has extensive experience commercializing assets overseas and in Australia.

Supporting Lee is a board with extensive experience in the medical industry and the financial markets.

Professor Ian Frazer Chairman Chris Catlow was the inaugural CFO of Fortescue Metals Group Ltd, playing a central role in its development capital raise of more than US$4 billion.

Director Graeme Rowley also played a central role in the development of Fortescue Metals and continues to serve as a Non-Executive Director of the company.

Other directors include Robert Towner, instrumental in the formation and management of bioMD, Michael Bennett with more than 35 years sales and marketing experience working for US and European medical device companies, and Jet Soedirdja, who brings extensive experience in investment markets.

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Growth Strategy A core driver for Allied is partnering with global leaders in defined fields.

As well as strategic relationships with major global product manufacturers and leading research scientists like Professor Frazer, Allied plans to add to its portfolio by introducing new products to the Australian market, and entering new collaboration agreements.

Allied has spent the past 12 months positioning for growth – it has grown in terms of revenues, valuations and assets within the portfolio.

The company plans to maintain this growth by smart management of its acquisitions, ensuring projects have adequate funding, and continual assessment of other market opportunities that might grow and diversify this already intriguing Group.

Analyst commentary Allied Healthcare Group is a new company formed in June 2011, that merged two companies: the listed tissue engineering firm bioMD and the privately-held medical distribution business Allied Medical.

The merger sees the original bioMD business account for approximately 30% of the merged entity, the Allied Medical operations 40% and the remaining 30% attributed to an investment in Coridon, a DNA vaccine company founded in 2000 by Professor Ian Frazer. Allied Medical carries a $1.18 million investment in Coridon.

Allied Medical’s distribution business posted sales of $7 million in FY2010. The tissue engineering business (retained in the Celxcel subsdiary) has been evaluated in several clinical settings including repair of hole-in-theheart conditions in young children. However, the company is currently testing its tissue engineering technology on tissue used in replacement heart-valves, which is potentially a very lucrative market opportunity.

Looking forward, the interest for investors will be in getting a closer look at Coridon. Frazer was co-inventor (with Jian Zhou) on the human papilloma virus vaccine patents, better known in their product form as Gardasil. Coridon is working on a new vaccine technology that delivers a stronger antibody response and a stronger cellular response.

David Blake Co-editor Bioshares