Patersons Resources Review May 2011

Patersons Resources Review

May 2011

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Patersons Resources Review - May 2011

Page

Contents

Investment Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Recommendation Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Summary of Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Global Economic Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Commodity Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Stock Valuation and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Company Reviews:

Adamus Resources Limited ..................................................... 12

African Iron Limited ................................................................ 14

Alacer Gold Corporation ......................................................... 16

Ampella Mining Limited ......................................................... 18

Aquila Resources Limited .......................................................20

Atlas Iron Limited ................................................................... 22

Bandanna Energy Limited ...................................................... 24

Brockman Resources Limited ................................................ 26

Cape Lambert Resources Limited ......................................... 28

Cerro Resources NL ............................................................... 30

Chalice Gold Mines Limited ....................................................32

Coalspur Mines Limited ......................................................... 34

Cockatoo Coal Limited .......................................................... 36

Dragon Mining Limited ...........................................................38

Equinox Minerals Limited ......................................................40

Extract Resources Limited ..................................................... 42

Fortescue Metals Group Limited ...........................................44

Gindalbie Metals Limited .......................................................46

Gloucester Coal Limited ........................................................ 48

Grange Resources Limited ..................................................... 50

Independence Group NL ........................................................52

Lynas Corporation Limited .................................................... 54

MacArthur Coal Limited .........................................................56

Mantra Resources Limited ......................................................58

Meridian Minerals Limited .....................................................60

Minara Resources Limited ...................................................... 62

Mincor Resources NL .............................................................64

Mirabela Nickel Limited ......................................................... 66

Mount Gibson Iron Limited ................................................... 68

New Hope Corporation Limited ........................................... 70

Noble Mineral Resources Limited ......................................... 72

Northern Star Resources Limited ...........................................74

Olympus Pacifi c Minerals Inc ..................................................76

Orocobre Limited ....................................................................78

OZ Minerals Limited .............................................................. 80

Paladin Energy Limited ........................................................... 82

Panoramic Resources Limited ................................................ 84

Regis Resources Limited ........................................................ 86

South American Ferro Metals Limited ...................................88

St Barbara Limited ..................................................................90

Tanami Gold NL ..................................................................... 92

Troy Resources NL.................................................................. 94

Western Areas NL .................................................................. 96

Explorers and Developers:

Altona Mining Limited ......................................................... 100

Ausgold Limited .................................................................... 102

Azimuth Resources Limited ..................................................104

Bannerman Resources Limited .............................................106

Bassari Resources Limited ..................................................... 108

Breakaway Resources Limited ................................................110

Cokal Limited ......................................................................... 112

Dart Mining Limited ............................................................... 114

Guildford Coal Limited........................................................... 116

MetroCoal Limited ................................................................. 118

NuCoal Resources NL ...........................................................120

Nyota Minerals Limited ......................................................... 122

Sherwin Iron Limited ............................................................. 124

Stanmore Coal Limited ......................................................... 126

Stonehenge Metals Limited .................................................. 128

Uranex NL ............................................................................. 130

Western Desert Resources Limited ...................................... 132

YTC Resources Limited ......................................................... 134

ZYL Limited .......................................................................... 136



Patersons Resources Review - May 2011 1

Investment HighlightsSince our last resources book in December 2010 there have been a number of global events (weather, natural disasters and political) that have helped shape the resources landscape.

Weather and Natural Disasters

In Australia, there have been severe weather conditions (QLD Floods, Cyclone Yasi, Floods in Pilbara and Kimberley) that have negatively affected production for a range of commodities (coal, uranium, iron ore, gold and nickel). In Japan, we saw the third largest earthquake on record and subsequent tsunami which triggered the Fukushima nuclear disaster. Japan is Australia’s second largest trading partner and is a large consumer of Australia’s commodities.

Geopolitical Tensions

Northern African and the Middle East geopolitical tensions have increased signifi cantly with events in Egypt, Sudan, Syria, Libya, Ivory Coast and Burkina Faso. Namibia is looking to introduce legislation to nationalise new mining and exploration permits by the end of 2011 (uranium, copper, gold, zinc and coal). Over the past 6 months the market has applied a large discount to resource companies operating in these areas/regions, whereas previously the market applied premiums.

Appreciation of the AUD

Domestically, the most signifi cant event for resources companies has been the continued appreciation of the AUD/USD. Since December the currency has appreciated by ~12%; this compares to 16% in the preceding six months. This has resulted in eroding margins and commodity prices mixed. This has also been coupled with domestic infl ationary pressures from wage increases and labour supply constraints. This has had a negative impact on the value of Australian producers.

STOCK PICKING - look for companies with production growth and management to deliver.

The net effect of the above events has been a contraction in NAV, additionally there has been an evaporation of market premiums attributed to some resources stocks. Therefore we believe the market is ripe for “stockpickers”. In our view investors should accumulate selected resource companies with the following attributes:

offshore projects with limited exposure to currency 1. signifi cant organic growth profi les2. signifi cant long life projects3. signifi cant margins4.

Our preferred picks for our resources book are listed in the table below: AQA, COK, FMG, MBN, ORE, TAM.

OUR TOP PICKS (BUY)

Company ASX Code Price Target Company ASX Code Price Target

Aquila Resources Ltd AQA $10.79 Mirabela Nickel Ltd MBN $3.38

Cockatoo Coal Ltd COK $0.75 Orocobre Ltd ORE $3.95

Fortescue Metals Group Ltd FMG $7.59 Tanami Gold NL TAM $1.81

GOLD

The gold price continues to benefi t from global sovereign debt pressures and infl ation concerns. We remain positive on the future prospects for the gold price. Issues in Europe and Japan are also likely to place pressures on the Euro and Yen. We continue to have a preference for offshore operations given the continued strength of the AUD leading to deteriorating margins. Buy TRY, TAM and ADU.

IRON ORE

We believe iron ore stocks have run hard with valuations looking stretched unless we factor in higher prices beyond 2015/16 when expanded production comes online. This said FMG has unparalleled growth available to it and we continue to see upside in this stock. Buy FMG, AGO.

BASE METALS

The outlook for base metals is mixed. We prefer copper in this space given that the Chinese do not control the supply side. However, there are only a limited number of domestic investment opportunities in copper. Based on our analysis we believe the following stocks represent value in the copper space: AOH and YTC.

We are neutral on nickel despite it being a good performer over the last 6 months. Our preference here is MBN given its offshore project, large growth profi le and long mine life. MRE continues to have some attraction but prefer investors switch into MBN with the high AUD impacting. PAN remains a HOLD and MCR a SELL.

URANIUM

The events of 11 March in Japan have signifi cantly affected the outlook for uranium. On average, equities have decreased by 25-30% since the events of Fukushima. We believe Fukushima concerns will continue to linger over the uranium market. Therefore we have a HOLD on PDN and a SELL on BMN. We have upgraded EXT to a BUY as we believe they own a tier 1 asset and a recent decline in price means the stock is more attractive. We have a SPEC BUY on SHE based on potential to develop its project in South Korea. Our Top pick from our last book MRU is under takeover from ARMZ with the deal expected to close in June.

COAL

Coking coal is set to remain in tight supply particularly as a result of the fl oods in QLD. China is turning from being self suffi cient to being an importer. Main benefi ciaries include MCC, AQA, and COK.



2 Patersons Resources Review - May 2011

Recommendation ChangesCHANGES TO RECOMMENDATIONS SINCE DECEMBER 2010 RESOURCES REVIEW

Stock Change New Old Reason

AGO ▲ BUY New Coverage Emerging Iron Ore producer. Producing at the rate of 6Mtpa aiming to double production by 2012.

AKI ▲ BUY New Coverage Targeting 5Mtpa of DSO Iron from mid-2013 from its Mayoko Iron Ore project, Republic of Congo.

AQA ▲ BUY HOLD Purest valuation leverage plays to coking coal and iron ore with a stable of potentially long life assets.

AQG ▲ BUY New Coverage Merger of AVO and Anatolia. Trading in line with price target.

BRM ▲ BUY New Coverage Targeting fi rst production from its Marillana project from 2014 at the rate of 17Mtpa of fi nes production.

CFE ▲ BUY New Coverage Asset incubation in Africa. Strategy is to aqcuire and invest in undervalued and distressed assets and add value.

CHN ▼ SPEC BUY BUY Negative investor sentiment towards risk in North Africa. Agreement with ENAMCO yet to be fi nalised.

CJO ▲ BUY New Coverage Silver leverage moving to production in end 2012.

EQN ▼ SELL BUY Accept Barrick’s offer.

EXT - BUY BUY We placed EXT as HOLD following Site Visit in Feb. Returns to BUY Tier 1 Asset 5th largest uranium resource in world.

MCR ▼ SELL HOLD Production, cost and staffi ng issues. Higher grade material towards end of year but question mark on production.

MGX ▲ BUY SELL Board issues resolved. Moving to bring on its third production centre at Extension Hill. Strong cash generation.

MII ▲ SPEC BUY New Coverage HOA to sell Lennard Shelf and buy Russian gold project.

MRU ▼ SELL BUY Top pick in Dec 2010 book. Under ARMZ Takeover expected to be completed in June.

NST ▲ BUY New Coverage Targeting production of 70kozpa from their recently acquired Paulson’s Gold Mine.

OYM ▲ BUY New CoverageTwo operating gold mines in Vietnam, a development asset in Malaysia and a signifi cant exploration project in the Philippines.

RRL ▲ BUY HOLD New team. Low cost producer at Moolart Well (100kozpa) and new Garden Well project (1.2Moz resource) in Laverton.

SBM ▲ BUY HOLD Moving into a high grade (8g/t) part of Marvel Loch postive for production and costs.

SFZ ▲ BUY New Coverage Junior iron ore producer, ramping up production at Ponte Verde itabirite project in southern Brazil. 6Mtpa from 2013.

TAM ▲ BUY New Coverage Growth Story: Targeting >150,000ozpa from its Central Tanami Project in NT starting in mid-2012.

TRY ▲ BUY New Coverage Argentinean silver and gold producer. Performance to turnaround in the coming year.

Explorers and Developers

AOH ▲ SPEC BUY New Coverage Production of 8ktpa Cu from Outokumpu, Finland is expected to begin in early 2012. Roseby production from 2014.

AUC ▲ SPEC BUY New Coverage Potential to have the largest new Australian discovery since Tropicana at its Katanning Project 320km from Perth.

AZH ▲ SPEC BUY New CoverageGuyana: 11,000km2 prospective for gold and uranium. West Omai most advanced project we expect 600koz resource by August.

BRW ▲ NR New Coverage Focused on Two Projects 1) The Leinster Nickel Project; Drilling Continuing 2) Cloncurry Copper Project (2H/CY11 Drilling).

BSR ▲ NR New Coverage Multi-Million Ounce Gold Potential in Senegal, West Africa. 240koz Au (2.3g/t) at its 70%-owned Makabingui project.

CKA ▲ NR New Coverage Actively defi ning metallurical coal resouce in Kalimantan, Indonesia with an aim to bring into production by 2013.

DTM ▲ NR New Coverage Victorian focussed precious and base metals explorer; Focused on the Unicorn Mo-Cu-Ag Discovery. Drilling in May.

GUF ▲ NR New Coverage Production of +2Mtpa ROM from Mongolian mine and defi nition of Queensland coking and thermal coal resources this year.

MTE ▲ SPEC BUY New Coverage Growing thermal coal resource in the Surat Basin.

NCR ▲ NR New Coverage Building asset base in the established Hunter Coalfi eld region with the recent acquisition.

NYO ▲ SPEC BUY New Coverage Gold developer focused in Ethiopia. Developing the 1.2Moz Tulu Kapi project. Excellent exploration upside.

SHD ▲ NR New Coverage Roper River region in the Northern Territory; Resource of 106.6Mt at 47% Fe expected to expand.

SHE ▲ SPEC BUY New Coverage Own the 60mlb Daejon project in South Korea. Vanadium credit key to bring costs down to below $25/lb.

SMR ▲ NR New CoverageProgressing from an exploration company to a producer of Australian coking and thermal coal in the Bowen and Surat basins.

UNX ▲ NR New Coverage Focused on the Mkuju Uranium Project in Tanzania. Next to MRU. Drilling underway.

WDR ▲ SPEC BUY New Coverage Own the Rope Bar project in NT with DSO production in mid-2013; Resoruce 312Mt at 40%.

YTC ▲ SPEC BUY New CoverageFocussed on two gold and base metals projects near the town of Cobar in NSW: 1) Hera (500koz Au) and 2) Nymagee Copper JV.

ZYL ▲ SPEC BUY New Coverage Developing Anthracite in South Africa, open cut, close to rail and port.




Summary of Recommendations

Top Picks Code Share Price Analysts View

Aquila Resources Ltd AQA $8.15Long life coking coal development assets are under valued by the market, with asset sales pending to close the gap.

Cockatoo Coal Ltd COK $0.48Recovering from fl oods, will expand production, cheapest coal producer in Australia.

Fortescue Metals Group Ltd FMG $6.27Company’s Pilbara operations are set to expand by 3x in the medium term, off-setting expected price decline.

Mirabela Nickel Ltd MBN $2.07Nickel growth story in Brazil looking to increase production by 60% to 25ktpa Ni by 2013.

Orocobre Ltd ORE $2.44Clearly valued as an explorer when in fact it’s a near term producer of an in demand commodity - lithium.

Tanami Gold NL TAM $0.83Signifi cant Australian gold growth story targeting 150,000ozpa with the team to deliver.

BUYAdamus Resources Limited* ADU $0.68

African Iron Limited* AKI $0.23

Alacer Gold Corporation AQG $8.89

Ampella Mining Limited* AMX $2.22

Aquila Resources Limited AQA $8.15

Atlas Iron Limited AGO $3.57

Bandanna Energy Limited BND $2.09

Brockman Resources Limited BRM $4.10

Cape Lambert Resources Limited CFE $0.51

Cerro Resources NL* CJO $0.28

Coalspur Mines Limited* CPL $1.70

Cockatoo Coal Limited* COK $0.48

Dragon Mining Limited DRA $1.28

Extract Resources Limited EXT $7.49

Fortescue Metals Group Limited FMG $6.27

Grange Resources Limited* GRR $0.67

Independence Group NL IGO $6.20

Lynas Corporation Limited LYC $2.10

MacArthur Coal Limited MCC $11.50

Minara Resources Limited MRE $0.81

Mirabela Nickel Limited MBN $2.07

Mount Gibson Iron Limited MGX $1.98

Northern Star Resources Limited NST $0.37

Orocobre Limited* ORE $2.44

Regis Resources Limited RRL $2.40

South American Ferro Metals Limited* SFZ $0.30

St Barbara Limited SBM $1.99

Tanami Gold NL TAM $0.83

Troy Resources NL TRY $3.68

Western Areas NL WSA $6.25

SPECULATIVE BUYAltona Mining Limited AOH $0.31

Ausgold Limited* AUC $1.50

Azimuth Resources Limited AZH $0.29

Chalice Gold Mines Limited CHN $0.39

Meridian Minerals Limited MII $0.14

MetroCoal Limited* MTE $0.41

Nyota Minerals Limited NYO $0.27

Olympus Pacifi c Minerals Inc OYM $0.37

Stonehenge Metals Limited* SHE $0.12

Western Desert Resources Limited* WDR $0.34

YTC Resources Limited YTC $0.58

ZYL Limited* ZYL $0.23

HOLDGindalbie Metals Limited GBG $0.95

Gloucester Coal Limited GCL $9.90

New Hope Corporation Limited NHC $4.85

Noble Mineral Resources Limited* NMG $0.63

OZ Minerals Limited OZL $1.43

Paladin Energy Limited PDN $3.34

Panoramic Resources Limited PAN $2.08

SELLBannerman Resources Limited BMN $0.36

Equinox Minerals Limited EQN $7.91

Mantra Resources Limited MRU $6.84

Mincor Resources NL MCR $1.15

* Disclosure: Patersons Securities Limited may have received fees for corporate transactions undertaken with these companies. Please refer to individual research notes for full disclosures.




NAV VS TP

Our top picks are those companies that are trading at a discount to our price target, have near term catalysts and are weighted against risk for reward. The ‘cheapest’ companies under coverage for instance are not necessarily our top picks.

Dis

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Target PriceNAV 1.0x

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-80%

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AKI

OYM

TAM

SFZ

CH

N

SRQ

DRA

CJO

NST

MBN

ORE

CO

K

CFE

BRM

AD

U

SBM

GRR

AM

X

LYC

MG

X

AQ

A

IGO

RRL

TRY

BN

D

AG

O

MCC

FMG

AQ

G

WSA

CPL

EXT

MRE

MII

PDN

GBG

OZL

RIV

NH

C

EQ

N

GCL

MRU

NM

G

PAN

MCR

MARKET HAS GAINED SINCE JULY 2010

Despite commodity prices continuing to rally since late 2010, the appreciating AUD has resulted in the market trading sideways since November 2010. We see the current state of play as a stockpickers market with valuations, production growth and trade record of delivery major factors in identifying top picks.

All Ordinaries ASX300 Resources LME Index Spot Gold (US$/oz) AUDUSD

80%

100%

120%

140%

160%

180%

200%

220%

05/0

9

06/0

9

07/0

9

08/0

9

09/0

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10/0

9

11/0

9

12/0

9

01/1

0

02/1

0

03/1

0

04/1

0

05/1

0

06/1

0

07/1

0

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09/1

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05/1

1




PRICE PERFORMANCE % SINCE DECEMBER 2010 RESOURCES REVIEW

Since our last resources book in December 2010 our top picks performed well:

SRQ/SRL increased by 61% which included a $1.72/sh dividend.1.

MRU is under takeover by ARMZ and has increased by 3%. However, ARMZ lowered its initial bid by 12.5% due Fukushima so investors 2. had the opportunity to sell at higher prices.

COK was down by 3.9% due to signifi cant fl ooding in QLD. This is a temporary setback with COK remaining one of our top picks.3.

The average price movement of our BUY rated stocks was 8.3% outperforming the ASX300 Resources Index, LME Index and ASX S&P 300. Our HOLD rated stocks decreased on average by 7.5%, with our SELL rated stocks down 15%.

AVG. MOVEMENT

BUY 8.3%

HOLD -7.5%

SELL -15.0%

CHN – BUY

BMN – SELL

MCR – HOLD

AMX – BUY

PDN – HOLD

DRA – BUY

SBM – HOLD

GBG – HOLD

EXT – BUY

ORE – HOLD

ADU – BUY

AQA – HOLD

GRR – BUY

IGO – BUY

NEC – BUY

OZL – HOLD

GCL – HOLD

PAN – HOLD

COK – BUY

AUD Gold (-2.4%)

MCC – BUY

CPL – BUY

NHC – HOLD

FMG – HOLD

MRU – BUY

ASX300 Res. (4.4%)

MRE – BUY

MGX – SELL

WSA – HOLD

RIV – BUY

RRL – HOLD

AVO/AQG – BUY

MBN – BUY

EQN – BUY

LYC – BUY

BND – BUY

NMG – BUY

SRQ/SRL – BUY

S&P300 (2.5%)

LME Index (3.1%)

-75% -50% -25% 0% 25% 50% 75% 100%




Global Economic OutlookRESOURCES – PRICES TO RANGE ON MIXED ECONOMIC OUTLOOK

Commodities bounced signifi cantly higher following the Global Financial Crisis (GFC) as governments spent up big with fi scal and monetary policies designed to stimulate demand. Much of the money spent on the fi scal side was focused on infrastructure projects creating commodity demand and this effect is slowly starting to abate through the global economy. Commodity markets are as such very focused on growth projections, this is signifi cantly a measure of how well the private sector picks up demand following government stimulatory efforts.

The International Monetary Fund (IMF) continues to forecast global growth slowing through to the third quarter of 2011 as stimulatory expenditure effects decline. The IMF forecasts the world economy to average just above 4% growth in 2012. The global economy remaining “two speed” with emerging country growth expected to run above 6%, and developed country growth just above 2%.

Figure 1: IMF Growth Forecasts

Source: IMF

The post-GFC commodity boom continues to be driven by high emerging country demand, particularly related to China, production and supply delays, investment demand focused on instruments such as commodity Exchange Traded Funds (ETF), and investment hedging activity on currency, debt and infl ation risks.

A mixed metals performance

While commodity prices have recovered strongly since the GFC, in the past approximately six months the performance of the metals complex has been signifi cantly mixed.

Figure 2: Metals Price Performance - January to May 2011

Source: Patersons

Precious metals have been supported as hedging options against rising background macro risk factors. Although recently, while gold prices have remained buoyant, silver prices have traded down strongly as the CME futures exchange lifted margin requirements forcing traders out of the market. Traders also moved heavily out of Silver ETFs on the price move down.

Industrial metals have been signifi cantly infl uenced by weaker demand due to continued slow US housing construction numbers and effects from the Japanese earthquake. Japanese factory output fell 15.3% from February, the biggest drop since data began in 1953. Household spending slid 8.5% from a year earlier, and the Bank of Japan cut its growth estimate for the year ending March 2012 to 0.6% from a January prediction of 1.6%, and increased its infl ation forecast for fi scal 2011 to 0.7% from an earlier estimate of 0.3%. Reports of supply shortages, such as car parts, continue. However, it is expected that while there has been an initial drop off in metals demand due to the earthquake, reconstruction efforts will ultimately see a demand recovery.

Rising stock levels for industrial metals, including copper where stocks are at their highest level since June 2010, have pressured the industrial metals market. Copper prices had moved higher on supply disruptions, but concerns over global growth, greater use of scrap copper, and rising stock levels have taken the upside pressure off prices. Chinese imports of refi ned copper concentrates fell 31% year-on-year in the fi rst quarter of 2011, while scrap imports lifted.

US housing construction numbers remain very weak at approximately 500 000 units per year, construction failing to bounce in a “V” profi le, unlike every other downturn since the 1950s. The US S&P/Case-Shiller Index of property values in 20 cities fell 3.3% from February 2010, the biggest year-over-year decline since November 2009. Meaning the sector is close to a double dip in prices, this not supporting a rapid recovery in housing construction numbers.

Copper is often considered the “canary indicator” for the metals market and weaker copper prices generally pressure the rest of the complex lower.

The US dollar infl uence

Assisting metal prices is weakness in the US dollar Trade Weighted Index (the value of a basket of currencies against the US dollar). Traders buy commodities as a hedge against forecast US dollar weakness driving demand higher.

Impacting on the value of the dollar has been increasing interest rate differentials. The FOMC has signalled it intends to hold the Federal Funds rate between 0.0-0.25% for an “extended period”. Given the EU, China, Australia and many other countries have lifted interest rates the differential between US and other countries interest rates has expanded, this acting to place pressure on the US dollar. While US debt concerns have pressured the market sending the dollar lower, other countries have similar debt concerns. Given the current FOMC view on interest rates the outlook for the US dollar is likely to be reasonably weak, although a patchy performance in some parts of the Australian economy

(%)

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-5

0

5

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20

Silver

Iron O

reFin

es

Tin

Alu

min

ium

Gold

A$/U

S$

Nickel

Cop

per

Lead

Zin

c

(%)

-6

-4

-2

0

2

4

6

8

10

2000Q

1

2000Q

3

2001Q

1

2001Q

3

2002Q

1

2002Q

3

2003Q

1

2003Q

3

2004Q

1

2004Q

3

2005Q

1

2005Q

3

2006Q

1

2006Q

3

2007Q

1

2007Q

3

2008Q

1

2008Q

3

2009Q

1

2009Q

3

2010Q

1

2010Q

3

2011Q

1

2011Q

3

2012Q

1

2012Q

3

World Advanced economies Emerging economies




and the close linkage to commodity prices may see the local currency decline from current levels. The strong performance of the Australian dollar has taken some of the edge off commodity returns for Australian producers.

Defi cit pressures in the US, EU and Japan are expected to overhang the metals market for many years. With countries running high defi cits, fi scal expenditure is likely to decline taking some support out of the metals market. At the same time there is a general trend for central banks to lift interest rates to tackle rising infl ation pressures. The effect on prices of interest rate increases by central banks will be highly dependent on how aggressive central banks are in terms of monetary policy. On balance however, give high developed country debt levels, there could be a tendency for central banks to run monetary policy a little behind infl ationary forces, holding infl ation slightly high. This would be commodity price supportive.

US growth slows

US GDP grew at an annual rate of 1.8% in the fi rst quarter of 2011, according to advance estimates. This follows a growth rate of 3.1% in the fourth quarter of 2010. An overview of the US economy continues to suggest an economy in weak recovery, however the pace of this recovery appears to be slowing. While manufacturing output is recovering it has not yet reached pre-recession highs and although Non-Farm payroll numbers have been improving, taken on a numbered “whole of economy” view, conditions remain very weak, with unemployment returning to 9%.

China buoyant, but with continued infl ation pressures

Chinese GDP continues to expand at a good pace of 9.7%, however infl ation remains a challenge with the CPI running at 5.3% and PPI at 6.8%. The Chinese Government has made successive increases in commercial bank Reserve requirements, and lifted base interest rates since October to 6.31% in an effort to control infl ation pressures. The Chinese PMI for April came through at 52.9 slightly lower than consensus at 53.9. Concerns remain regarding the potential for a property bubble to eventually hurt Chinese economic growth, however currently the country continues to perform well partly supporting commodity prices and adding some background support to the Australian stock market.

Macro economic factors remain the major risk

We expect most metals across the complex to set up ranging patterns refl ecting a broad balance between supply and demand. We see strong growth from developing countries such as China as likely to persist, though remain concerned that ultimately this and wider economic growth could be signifi cantly infl uenced by structural problems in the global Bond market.

We continue to watch macro risks closely and remain concerned with the sovereign Bond markets, debt accumulation, and potential for a self-reinforced lift in Bond yields. However, the timing of such an event, if it were to occur at all, is extremely diffi cult to forecast. We have of course recently seen the beginning of such an event in the EU periphery countries, although the extent to which this could spread to other countries is highly unpredictable. Both Greece and Ireland are working on renegotiated bailout funding terms.

The balance between supply/demand in the metals complex remains slightly in favour of the demand side, assisted by a slow supply recovery, buoyant growth in the emerging markets and the fl ow on effects from government stimulatory expenditure. However, in the short term we see continued weakness on EU debt concerns, reduction in stimulatory expenditure effects, and Japanese demand declines. This is expected to see stocks build before the market becomes better supported later in 2011 as Japanese demand returns. This assumes macro infl uences do not overrun the market.

We continue to believe the US dollar will not permanently weaken, given considerable challenges remain for the Japanese, EU and UK economies. We do continue to see a positive outlook for the defensive metals such as gold, give the structural imbalances remaining in the global economy and the risks associated with managing these challenges, including ongoing infl ation pressures.

The pace of Chinese growth and global sovereign debt problems, refl ected in the Bond markets, remain the primary risk factors for industrial metals commodities. However, assuming Chinese growth rates remain at a reasonable pace, and Bond market concerns can continue to be pushed further into the future through activities like quantitative easing, we see the metals markets as reasonably well balanced and this is likely to be refl ected by ranging price patterns around current levels in the six months ahead.

Andrew Quin

Research and Strategy Coordinator




Commodity OverviewGOLD

Relative performance of equities and spot prices

Since our last resources review in December 2010, we have upgraded our long term gold price from US$800/oz to US$1,000/oz in line with our positive outlook for defensive metals. The gold price has performed strongly up 25% from 12 months ago, while our Gold Producers Index is up 6% (Figure 3). More recently small gold producers have signifi cantly underperformed the gold price.

Figure 3: Patersons small gold producers index and spot gold price

Source: Bloomberg

Gold resource size and enterprise value

EV is strongly positively related to the total Au resource size for gold producers (Figure 4), but this relationship is weaker for the gold explorers (Figure 5). The average EV/oz Au resource is A$178/oz. Although not shown here, the average EV/oz Au reserve is A$375/oz.

Figure 4: Average Au resource grade vs resource size for Australian small gold producers

Bubble size indicates EV ($m). Source: Bloomberg, Company Reports

Figure 5: Average Au resource grade vs resource size for gold developers


Australian gold producers - mine life vs production rate

We have also examined Australian gold producers and compared Enterprise Value to current production rate and implied mine life. The strong correlation of 0.77 between EV and production rate indicates the market assigns higher value to gold producers with higher production rates. We highlight SBM, TAM and TRY.

Figure 6: Implied mine life vs production rate for Australian small gold producers


COPPER


Since our last resources review we have upgraded our long term copper price from US$2/lb to US$2.50/lb in line with consensus. The copper price has performed strongly and is up 25% from 12 months ago, while our Copper Developers Index is up 17% over the same period. Copper prices have mostly outperformed our Developers Index over the period.

Figure 7: Patersons copper developers index and copper price

Source: Bloomberg

Copper resource size and enterprise value

Figure 8 shows that the market value is positively related to the total Cu resource size as well as average grade. The average EV/t Cu Resource is A$525/t for producers and $152/t for non-producers.

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Patersons Small Gold Producers IndexGold Price (spot)

r = 0.68

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Figure 8: Average Cu grade vs resource size for Australian copper developers

Bubble size indicates EV. Source: Bloomberg, Company Reports

NICKEL


Since our last resources review, we have upgraded our long term average nickel price from US$7/lb to US$8/lb in line with consensus. The nickel price is up 10% from 12 months ago, while our Nickel Index is up 19%. Equities have outperformed the nickel price from June 2010 to February 2011, but have more recently come back in line with the nickel price.

Figure 9: Patersons nickel index and nickel price

Source: Bloomberg

Nickel resource size and enterprise value

Figure 10 shows that EV is positively related to the total Ni resource size, but is also strongly infl uenced by average grade. The average EV/t Ni Resource is A$1,046/t or A$1,505/t for producers and $654/t for non-producers.

Figure 10: Average Ni grade vs resource size for Australian nickel companies

Bubble size indicates EV. Source: Bloomberg, Company Reports

IRON ORE

Patersons expects iron ore spot prices to peak in 2011, before declining on rising production volumes towards 2013. This assumption is based on a large pipeline of new projects anticipated to come on-stream, producers being able to supply product to the market from increasingly remote locations, this being primarily a legal, capital and infrastructure challenge. Future supply is expected to deteriorate in grade as reduced hematite and increased magnetite production comes online. China is expected to continue to drive seaborne iron ore demand. It is possible declining prices towards 2015 will force industry consolidation among the smaller producers and efforts to differentiate ore to meet steel makers specifi c requirements, given smelters will be adjusting production technologies to account for anticipated generally declining ore quality. The spot market is expected to grow in dominance as a pricing mechanism with fi nancial institutions offering more products as the market moves towards greater pricing volatility.

Figure 11: Expanding iron ore projects: CAPEX v OPEX and relative size of the project

Source: Bloomberg, Company Reports

COAL

In Figure 12 the performance of the Patersons All Coal index is compared to spot thermal coal prices as reported by McCloskey. As expected, the correlation is quite strong at 0.86 but the companies have outperformed, with the index up 30% over the last 12 months compared to the spot price up only 12%. A lot of the divergence occurred in May-August last year, which we attribute to the spate of takeovers, both successful and attempted, in that period, as well as some upward revisions of earnings expectations in the run up to Full Year reporting.

Figure 12: Patersons coal index vs coal price

Source: Bloomberg

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r = 0.86




Table 1: Patersons Commodity Price Assumptions (year ending June 30)

2009A 2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019ELT Dec

2010LT Avg

A$:US$ 0.75 0.89 0.99 1.05 1.00 0.96 0.93 0.92 0.91 0.90 0.90 0.80 0.90

Aluminium US$/lb 0.85 0.91 1.06 1.09 1.09 0.99 0.93 0.95 0.97 0.99 1.01 0.76 0.86

Copper US$/lb 2.23 3.04 4.00 4.31 4.20 3.70 3.32 3.01 2.81 2.86 2.92 2.00 2.50

Lead US$/lb 0.66 0.95 1.10 1.20 1.18 0.93 0.76 0.77 0.79 0.80 0.82 0.60 0.70

Zinc US$/lb 0.64 0.94 1.03 1.11 1.11 1.02 0.97 0.99 1.01 1.03 1.05 0.75 0.90

Nickel US$/lb 6.03 8.75 11.12 11.75 11.43 9.76 8.64 8.81 8.99 9.17 9.35 7.00 8.00

Cobalt US$/lb 24.69 12.92 15.52 15.26 15.57 15.88 16.20 16.52 16.85 17.19 17.53 12.50 15.00

Tin US$/lb 6.59 7.33 12.27 14.71 12.67 8.27 6.48 6.61 6.74 6.88 7.01 2.40 6.00

Gold US$/oz 873 1,093 1,356 1,483 1,507 1,548 1,605 1,382 1,123 1,147 1,169 800 1,000

Gold A$/oz 1,184 1,220 1,369 1,410 1,508 1,614 1,726 1,508 1,241 1,275 1,299 1,000 1,111

Silver US$/oz 12.6 17.3 29.8 42.6 42.5 42.4 42.2 37.5 31.0 24.6 20.5 12.00 17.5

Platinum US$/oz 1,152 1,452 1,541 1,542 1,661 1,694 1,728 1,762 1,797 1,833 1,870 1,500 1,600

Palladium US$/oz 239 369 568 595 350 350 350 350 350 350 350 350 650

Iron Ore Fines US$/t 85.0 76.4 119.5 107.1 70.6 72.0 73.5 74.9 76.4 77.9 79.5 65.0 68.0

Iron Ore Lumps US$/t 114.7 89.7 143.8 129.7 88.2 90.0 91.8 93.6 95.5 97.4 99.4 75.0 85.0

Coking Coal US$/t 257.0 151.0 248.8 302.5 211.3 176.3 155.3 173.5 176.9 180.5 184.1 140.0 157.5

Steaming Coal US$/t 111.3 77.0 106.0 122.5 97.5 87.5 82.9 92.9 94.8 96.7 98.6 75.0 84.4

Oil WTI US$/bbl 69.8 75.4 91.7 101.3 96.2 98.1 100.1 102.1 104.1 106.2 108.3 80.0 95.0

Uranium US$/lb 67.5 61.9 60.0 62.5 66.4 68.8 70.2 71.6 73.0 74.5 76.0 65.0 70.0

Source: IRESS, LME, Patersons Estimates

In the chart below (Figure 13), we compare the market values for different coal companies with their resource base. Generally, producers and those with metallurgical coals are to the right and explorers, thermal coal, and/or stranded deposits on the left of the scale. The market has raised considerably the value it is willing to attribute to in-situ coal resource over the past 2 years and exploration ground is now being valued at between A$1-2/t depending on quality, depth, and nearness to production.

Figure 13: EV/tonne measured and indicated coal resources

Source: Bloomberg, Company Reports

URANIUM

Uranium equities dropped 29% following the events at Fukushima (Figure 14). There will be an extensive review globally of the 440 reactors the majority of which are ageing and generate about 14% of the world’s electricity. We believe the disaster will impact on the uranium market in the short to medium term (12-24 months). However, over the longer term build plans by the developing nations (China, Russia, India, South Korea) are unlikely to change with 61 reactors currently under construction. Therefore longer term the outlook for uranium is positive. We expect spot prices will trade in the US$50-60/lb range in the short to medium term.

Figure 14: Patersons uranium index vs spot uranium price

Source: Bloomberg, UxC

We have upgraded our long term uranium price to $70/lb consistent with our long term adjustment to the exchange rate. Our current spot price deck is: 2011 US$50/lb; 2012 US$60/lb and 2013 and LT US$70/lb.

In Figure 15, we highlight the performance of the PSL uranium index since uranium price began to move upward in July 2010.

Figure 15: Uranium resource size vs grade for Australian nickel companies


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PATERSONS SECURITIES INVESTMENT OBJECTIVE

As a stockbroking fi rm with a national presence, our primary investment objective is to research emerging mid-cap companies across the country. Our analysts focus particularly on companies with a compelling story that have not ‘hit the radar’ of the broader market. Where there is an opportunity to add value for our clients, we will research large-cap companies where we can identify a ‘niche’, or stocks that enhance our coverage of a sector.

PATERSONS SECURITIES RECOMMENDATIONS

Investment ratings are a function of Patersons expectation of total return (forecast price appreciation plus dividend yield) within the next 12 months. The investment ratings are Buy (expected total return of 10% or more), Hold (-10% to +10% total return) and Sell (>10% negative total return). In addition we have a Speculative Buy rating covering higher risk stocks that may not be of investment grade due to low market capitalisation, high debt levels, or signifi cant risks in the business model. Investment ratings are determined at the time of initiation of coverage, or a change in target price. At other times the expected total return may fall outside of these ranges because of price movements and/or volatility. Such interim deviations from specifi ed ranges will be permitted but will become subject to review by Research Management.

STOCK VALUATION CRITERIA

In valuing our universe of stocks we focus on discounted cashfl ow analysis.

Discounted cashfl ow

Our discounted cashfl ow is modelled using a life of mine (LOM) scenario of the company’s current and future production base. A set of appropriate exchange rate and commodity price assumptions (refer page 10) are used to derive operational cashfl ows that are expressed in present value terms. Account is taken of the time value of money and the riskiness of those future cashfl ows.

While this method is essentially a capitalisation of earnings approach and still somewhat subjective, it does give a valid estimate of the future value of the business.

MEASURING RISK

Where appropriate we apply a multiple of between 0.75-1.5x to our NAV on resource stocks under coverage. The multiple represents what we believe the market would be willing to pay for a stock based on the risk. There are many factors that infl uence this measure, which changes over time, we discuss several of these below:

1. Commodity outlook and pricing:

In a rising commodity price environment the market may be willing to pay a premium for exposure to a particular commodity. In a falling market stocks can trade at a discount.

2. Greenfi elds vs Brownfi elds project:

Projects next to a mine or infrastructure can be more valuable than preverbal moose pastures. Although “new provinces” can also attract a premium.

3. Country risk:

Stocks in riskier political jurisdictions tend to trade at a discount whereas in favourable mining regions a premium.

4. Strategic value:

Large very long life projects can be of strategic value to the mega-miners. Likewise projects in close proximity to existing operations can create synergies. Finally as an example, TSX gold producers tend to trade at a premium and as such have been acquiring other gold and copper miners to attract higher multiples on these projects.

Recommendation

BUY Stock is undervalued on all investment criteria, and likely to appreciate by more than 10% in the next twelve months.

HOLD Sound investment fundamentals but needs a catalyst in the next twelve months.

SELL Stock is overvalued and likely to underperform by at least 10% in the next twelve months.

SPECULATIVE BUY Stock may not be of investment grade due to low market capitalisation, high levels of debt or signifi cant risks in the business model, but appears attractively priced.

Stock Valuation and Recommendations




Investment Summary

Company Statistics & Performance

12 Months

Shar

e Pr

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Shares on issue (m) 478.6 3mth ADT ($m) 0.64Market Cap. ($m) 325.5 Debt est ($m) 55.652 week range $0.44 - $0.89 Cash est ($m) 28.1

Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (6.3) (6.5) 19.0 34.8 Recurrent NPAT ($m) (6.3) (6.5) 19.0 34.8 Recurrent EPS (cents) (2.0) (1.4) 4.0 7.3 EPS Growth (%) na na na 82.8 PER (x) (34.2) (49.8) 17.1 9.4 EBITDA ($m) (5.0) 3.5 40.5 54.2 EV/EBITDA (x) (38.7) 107.7 8.8 6.0 Capex ($m) 40.7 86.1 3.1 3.1 Free Cashfl ow (57.7) (102.4) 22.8 39.4 FCFPS (cents) (18.1) (21.4) 4.8 8.2 PFCF (x) (3.8) (3.2) 14.3 8.3 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0

Investment Highlights

• Nzema plant operating well above nameplate. The commissioning of the Nzema plant was completed in the March Q 2011. The fi rst gold pour from the plant was announced in late January and since then the focus has been on process optimisation. The plant is currently operating above nameplate capacity of 2Mtpa, producing around 24koz per Q. We estimate 30koz gold production for H2 FY2011 before ramping up to 96koz for FY2012 (ADU’s 90% share).

• Near mine exploration to increase resource. ADU is aggressively drilling near mine target zones to increase its 2.1Moz resource at Nzema, with the resource update expected by mid CY2011. The company has a diamond and RC rig operating 24hrs a day drilling at the various locations over the Salman trend and has identifi ed several areas for follow up. Drilling at the Aliva prospect, 9km south-east of Nzema, has revealed a possible new zone of oxide mineralisation which is coincident with a 4.5km soil anomaly. Planning is also underway for resource drilling of the Anwia prospect in May 2011. Additional holes to test the depth extensions of the Bokrobo prospect are also in planning.

• Sulphide project update. A scoping study has been commissioned by ADU to evaluate the sulphide ore zones which appear at depth along the Salman trend. AMEC-Minproc will be conducting the study and results are expected in mid CY2011. Three diamond holes were drilled to test the depth extensions of the Teberru 04 and Salman Central and South sulphide zones. The three holes were testing for extensions 100m down dip of all previous drilling and intersected further sulphidic ore zones, with results yet to be released.

• Growth becomes the focus. ADU remains focused on increasing its 2.1Moz resource inventory with several near mine and regional exploration programs underway. The highest probability of success comes from the extensional drilling in previously inaccessible areas between the Salman North, Tebberu and Nugget Hill deposits. Regional exploration has begun on the Hotopo, Asanta and Apa Tam licences and the fi rst phase results are due shortly. Additionally ADU has secured reconnaissance licenses in Liberia covering 3,107km2 of ground in known areas of gold mineralisation.

• Valuation. We have incorporated production of 1Moz at the project level in our NPV for the Salman project. We value the residual ounces (2Moz in resources) at A$90/oz and sulphide and regional targets at A$70m.

OUR VIEWADU is successfully making the transition from gold explorer to gold producer following the completion of the Nzema plant commissioning and recording its maiden gold pour. We anticipate ADU’s share of gold production of circa 30koz for H2 FY2011 increasing to 96koz for FY2012. We see ADU’s continued growth coming from the ongoing near mine and regional exploration which continues to yield positive results. Ongoing drilling along the Salman trend is proving up further resources, as are the nearby prospects at Akropon, Avribo and Aliva. Additionally, the scoping study for the Sulphide project has commenced to evaluate the possible scenarios to mine and process the deeper refractory ore of the Salman trend. Further growth opportunities lay in Liberia where ADU was recently granted mineral reconnaissance licences covering 3,107km2. With ~A$20m in the bank and near term positive cashfl ow from production ADU is well situated to fund ongoing exploration to increase its 2.1Moz resource. A resource update for the Nzema gold project is due in mid CY2011. We retain our BUY rating with a price target $1.01/sh.

Adamus Resources Limited ADU ($0.68)

Recommendation: BUY

Multiple growth avenues Analyst: Alex Passmore, Gary Watson




Year End June 30Adamus Resources Limited $0.68

Commodity Assumptions 2010A 2011F 2012F 2013F

A$:US$ 0.89 0.99 1.05 1.00Gold (US$/oz) 1093 1356 1483 1507Silver (US$/lb) 17.28 29.77 42.63 42.53Gold (A$/oz) 1222 1368 1409 1507

Target Price Sensitivity -10% 0% +10% % Chg

FX (A$:US$) 1.15 1.01 0.89 (12)Gold Price 0.92 1.01 1.11 10Gold Grade 0.95 1.01 1.07 6Operating Costs 1.03 1.01 0.99 (2)Recovery 0.91 1.01 1.11 10 EV:Reserve (A$/oz) 319 EV:Resource (A$/oz) 163

Production Summary 2010A 2011F 2012F 2013F

Production (koz) Attrib 90% Salman 0 30 96 100 Total 0 30 96 100 Cost Summary Cash Costs (US$/oz) na 767 676 593Total Costs (US$/oz) na 1019 930 839Price Received (US$/oz) na 1,276 1,271 1,293

Profi t & Loss (A$m) 2010A 2011F 2012F 2013F

Sales Revenue 0.0 36.5 116.3 129.0 Other Income 3.2 1.4 1.3 1.0 Operating Costs 0.0 23.9 68.4 66.7 Exploration Exp. 0.2 1.6 2.5 2.8 Corporate/Admin 8.0 9.0 6.1 6.3 EBITDA (5.0) 3.5 40.5 54.2 Depn & Amort 0.2 5.7 16.4 17.0 EBIT (5.3) (2.3) 24.1 37.2 Interest 1.1 4.3 5.1 2.4 Abnormals (pre-tax) 0 0 0 0Operating Profi t (6.3) (6.5) 19.0 34.8 Tax expense 0.0 0.0 0.0 0.0 Abnormals (post-tax) (76.1) 0.0 0.0 0.0 NPAT (82.5) (6.5) 19.0 34.8 Normalised NPAT (4.4) (4.6) 13.3 24.3

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (4.4) (4.6) 13.3 24.3 + Interest/Tax/Expl Exp 1.3 5.8 7.6 5.3 - Interest/Tax/Expl Inc 2.1 12.9 17.4 15.0 + Depn/Amort 0.2 5.7 16.4 17.0 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (5.0) (5.9) 19.9 31.7 - Capex (+asset sales) 40.7 86.1 3.1 3.1 - Working Capital Increase 10.1 8.5 0.0 0.0 Free Cashfl ow (55.8) (100.4) 16.8 28.5 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 65.8 31.5 0.0 0.0 + Debt drawdown (repaid) 1.5 69.9 (16.9) (36.9)Net Change in Cash 11.5 0.9 (0.1) (8.3)Cash at End Period 23.0 23.9 23.8 15.5 Net Cash/(LT Debt) 21.5 (47.4) (30.6) (2.1)

Balance Sheet (A$m) 2010A 2011F 2012F 2013F

Cash/Bullion 23.0 23.9 23.8 15.5 Total Assets 111.1 198.6 195.0 182.5 Total Debt 0.0 71.4 54.4 17.6 Total Liabilities 90.2 150.8 133.9 97.0 Shareholders Funds 20.9 47.8 61.1 85.5 Ratios Net Debt/Equity (%) na 99.2 50.1 2.4Interest Cover (x) na na 4.7 15.3Return on Equity (%) na na 31.1 40.7

Valuation A$m A$/sh

Salman 284.1 0.59 Exploration 152.3 0.32 Unpaid capital 17.8 0.04 Corporate (27.5) (0.06)Forwards (53.5) (0.11)Cash 28.1 0.06 Debt (55.6) (0.12)NPV 345.6 0.72 (@ 8% discount rate) Price Target 1.01

NPV Sensitivity

NPV (nom) @ 5% disc. 0.79NPV (nom) @ 0% disc. 0.93

Hedging koz % Reserve

Committed Production 290,000 27

Valuation Summary of Operating Assets

Gold Production Summary

Reserves & Resources

Reserves Mt Au g/t Au kozSalman 16.5 2.0 1,069Total 16.5 2.0 1,069 Resources Mt Au g/t Au kozSalman 37.2 1.7 2,092Total 37.2 1.7 2,092

Directors

Name PositionJohn Hopkins Non-Executive ChairmanMark Connelly Managing DirectorAnthony Harwood Non-Executive DirectorPeter Tredger Non-Executive DirectorPeter Rowe Non-Executive DirectorMartin Reed Non-Executive Director Substantial Shareholders %Macquarie Bank 12.0Robert Gardiner 9.0

Salman61%

Exploration33%

Cash6%

(koz)

(US$

/oz)

Total Cash Costs (US$/oz) Price Received (US$/oz)

0

25

50

75

100

125

150

2011F 2012F 2013F 2014F 2015F 2016F 2017F200

400

600

800

1000

1200

1400

Disclosure: Patersons acted as joint lead manager to a placement of 29m ADU shares at $0.55/sh which raised $15.95m in September 2010. The transaction was completed in conjunction with a 1:15 rights issue at the same price to raise a total of $31.3m. Patersons received a fee for this service.

Investment Summary





12 Months

Shar

e Pr

ice

(A$)

Volu

me

'000

0.00

0.10

0.20

0.30

0.40

0.50

0

4500

9000

13500

18000

22500

27000


Year End June 30 2011F 2012F 2013F 2014F Reported NPAT ($m) (0.5) (8.2) 6.9 108.3 Recurrent NPAT ($m) (0.5) (8.2) 6.9 108.3 Recurrent EPS (cents) (0.1) (1.1) 1.0 15.1 EPS Growth (%) na na na 1,465.4 PER (x) (244.0) (19.7) 23.3 1.5 EBITDA ($m) (0.5) (4.9) 33.2 254.4 EV/EBITDA (x) (161.6) (27.2) 6.1 0.3 Capex ($m) 0.0 129.6 71.0 4.3 Free Cashfl ow (2.8) (145.0) (67.6) 119.3 FCFPS (cents) (0.5) (20.2) (9.4) 16.7 PFCF (x) (44.6) (1.1) (2.4) 1.4 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Essential rail study confi rms 10Mtpa capacity. AKI recently announced preliminary results of a key study examining the line capacity of the Republic of Congo rail network. The study undertaken by Egis International confi rmed the network has a capacity of 10Mtpa with the potential for further expansion. These fi ndings are signifi cant given it provides a direct transport route to market from the Mayoko Project (production Q2 2013) via the deep water port at Pointe Noire. AKI will need to provide further clarity on costs; with signaling, telecommunications and spur lines being key areas to watch. We expect the rail MoU with Chemin de Fer Congo Ocean regarding access to be replaced with a binding Heads of Agreement by August 2011.

• Drilling Program to provide ongoing news fl ow. In March 2011 AKI commenced a 30,000m resource drilling program at Mayoko which is aimed at upgrading the supergene hematite DSO resource (currently 33Mt) and defi ning an initial resource for the underlying enriched hematite BIF. Positive results from the program will augment a feasibility study for the project due in Q4 2011, following which AKI should move to production in Q2 2013. Given the scope of the drilling program we expect a steady news fl ow of drilling results and resource upgrades throughout 2011.

• Metallurgical Test Work. The 2010 diamond drilling program confi rmed 3 horizons of mineralization; DSO oxide cap (56% Fe), enriched BIF (40-45% Fe) and underlying magnetite mineralization (30-36% Fe). The latter two require beneficiation to achieve saleable grades, and the fi rst of a three stage bulk metallurgical testing program is currently being carried out by Bateman Engineering. Forthcoming results will serve as a guide for processing plant development and optimization, and underpin the longer term value of the project.

• Low capital intensity. With substantial existing infrastructure and close proximity to critical rail networks, AKI has lower capital intensity than peer iron ore developers. Our estimates suggest AKI can bring the project into production for ~US$250m. With AKI targeting 5Mtpa (US$50/t of annual capacity) in the near term, excess rail capacity may spread capital intensity through developmental synergies with other iron players looking to utilise spare rail capacity.

• Strong Team in Place. AKI has a management team in place with sound knowledge and operational experience in West Africa. The company has expanded its search for a new MD and remains committed to an appointment before the end of FY2011.

OUR VIEWAKI’s principal asset is the 80% owned (remainder owned by government) Mayoko Iron Ore Project located in the Republic of Congo, West Africa. The Mayoko Project is located 2kms from an underutilised heavy haulage railway terminating at the deep water port of Pointe-Noire. Proximity to infrastructure offers the opportunity for near term project development. Preliminary studies on the rail network indicate haulage capacity of 10Mtpa can be achieved without any signifi cant capex requirements. AKI is aiming to develop a 5Mtpa direct shipping iron ore operation by mid-2013 leveraging off the projects proximity to existing rail and port infrastructure. The March Q marked the beginning of a 30,000m resource drilling program designed to increase the oxidised DSO hematite resource and delineate a maiden resource estimate for the underlying enriched BIF. The 2010 drilling program confi rmed two of the mineralised horizons within the Mayoko Project require benefi ciation and AKI is undertaking extensive metallurgical testing to determine the most effective means of upgrading the resource to a saleable product. With near term production prospects and low capex requirements we rate the stock as a BUY - price target $0.99.

African Iron Limited AKI ($0.225)

Recommendation: BUY

Near term producer Analyst: Alex Passmore, Tim McCormack




Valuation A$m A$/sh

Mayoko Hematite 710 0.99 Mayoko Magnetite 0 0.00 Mayoko Pellet Plant 0 0.00 Exploration 100 0.14 Corporate (40) (0.06)Unpaid Capital 132 0.18 Cash 44 0.06 Debt 0 0.00 NAV 946 1.32Price Target (25% discount to NPV) 709 0.99


Iron Ore Production Summary (AFI share)


Mayoko Magnetite Mt % FeReserves Resources 40.0Exploration target 900-1300 Mayoko Hematite Mt % FeReserves Resources 33 55.0

Directors

Name PositionIan Burston Non-Executive ChairmanJoe Ariti Non-Executive DirectorAnthony Sage Non-Executive Director Substantial Shareholders Shares (m) (%)Cape Lambert 120.0 25.0JP Morgan 45.0 9.4Deutsche Bank AG 26.2 5.5

Commodity Assumptions 2011F 2012F 2013F 2014F

A$:US$ 0.99 1.05 1.00 0.96Iron Ore Fines (US$/t FOB) 119.53 119.53 119.53 114.64Iron Ore Lump (US$/t FOB) 143.82 143.82 145.22 140.81Magnetite Pellets (US$/t) 158.94 177.80 180.97 182.72Magnetite Conc [bmk] (US$/t) 127.00 127.00 127.00 121.81

Production Summary 2011F 2012F 2013F 2014F

AFI Share of Production (kt) Mayoko Hematite 0 0 400 3000Mayoko Magnetite 0 0 0 0Mayoko Pellet Plant 0 0 0 0 Cost Summary (A$/t) Mayoko Hematite na na 35.98 37.05Mayoko Magnetite na na na naConc Price Received 140.94 132.73 139.70 139.57

Profi t & Loss (A$m) 2011F 2012F 2013F 2014F

Sales Revenue 0.00 0.00 51.72 369.91 Other Income 1.1 4.1 4.9 4.3 Operating Costs 0.0 0.0 14.4 111.2 Exploration Exp. 0.3 0.8 0.7 0.2 Corporate/Admin 1.3 8.2 8.3 8.5 EBITDA (0.5) (4.9) 33.2 254.4 Depn & Amort 0.0 0.0 2.3 17.0 EBIT (0.5) (4.9) 30.9 237.3 Interest 0.0 3.2 6.5 4.9 Operating Profi t (0.5) (8.2) 24.4 232.5 Tax expense 0.0 0.0 9.6 69.7 Minorities 0.0 0.0 7.9 54.4 Abnormals 0.0 0.0 0.0 0.0 NPAT (0.5) (8.2) 6.9 108.3 Normalised NPAT (0.5) (8.2) 6.9 108.3

Cash Flow (A$m) 2011F 2012F 2013F 2014F

Adjusted Net Profi t (0.5) (8.2) 6.9 108.3 + Interest/Tax/Expl Exp 0.3 4.1 16.8 74.8 - Interest/Tax/Expl Inc 3.1 11.4 22.9 76.7 + Depn/Amort 0.0 0.0 2.3 17.0 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (3.3) (15.5) 3.1 123.5 - Capex (+asset sales) 0.0 129.6 71.0 4.3 - Working Capital Increase (0.5) 0.0 0.0 0.0 Free Cashfl ow (2.8) (145.2) (67.9) 119.2 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 89.1 130.0 0.0 0.0 + Debt drawdown (repaid) 0.0 120.0 0.0 (80.0)Net Change in Cash 35.8 104.8 (67.9) 39.2 Cash at End Period 42.1 146.9 79.0 118.3 Net Cash/(LT Debt) 42.1 26.9 (41.0) 78.3

Balance Sheet (A$m) 2011F 2012F 2013F 2014F

Cash/Bullion 42.1 146.9 79.0 118.3Total Assets 197.3 439.1 446.1 446.1Total Debt 0.0 120.0 120.0 40.0Total Liabilities 92.5 212.5 212.5 212.5Shareholders Funds 104.8 226.7 233.6 233.6 Ratios Net Debt/Equity (%) na (11.9) 17.5 (33.5)Interest Cover (x) na (1.5) 4.8 48.9Return on Equity (%) na na 3.0 46.4

Year End June 30African Iron Limited $0.225

Disclosure: Patersons acted as joint lead manager for the re-listing of AKI a spin-out from CFE. In addition, Patersons acted as joint lead manager to AKI’s recent $96m equity raising at $0.30/sh. It received fees for these services.

Mayoko Hematite88% Exploration

12%

(kt)

(A$/t

)

0

1000

2000

3000

4000

5000

6000

2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F0

20

40

60

80

100

120

140

Mayoko Hematite Cost (A$/t) Fines price (FOB PH)

Investment Summary





12 Months

Shar

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(A$)

Volu

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0.00

2.00

4.00

6.00

8.00

10.00

12.00

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 68.3 140.7 275.1 330.3 Recurrent NPAT ($m) 51.8 140.7 275.1 330.3 Recurrent EPS (cents) 17.8 61.9 121.0 137.7 EPS Growth (%) na 246.9 95.6 13.8 PER (x) 49.8 14.4 7.3 6.5 EBITDA ($m) 142.6 268.3 478.2 558.7 EV/EBITDA (x) 18.1 7.1 3.5 2.5 Capex ($m) 58.9 23.9 108.8 25.8 Free Cashfl ow 20.6 111.0 229.0 385.5 FCFPS (cents) 7.1 48.8 100.7 160.8 PFCF (x) 125.2 18.2 8.8 5.5 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Strong fi rst production month. March Q saw group gold production of 91.2koz. This represents an annualised production rate of more than circa 365kozpa, putting the company in good stead to reach a production rate of 400kozpa as Çöpler ramps up. We are expecting gold production to approach 100koz during the June Q, with production in the 1H FY2012 expected to improve further due to improved recoveries.

• Aggressive growth strategy. AQG is targeting a rapid ramp up in production which will see group gold production at 800kozpa by CY2015. With cash fl ow underpinning aggressive drilling programs at all of its assets, we see AQG building its resource base in line with increased production. Of the Australian assets, the Vine open pit is in pre-strip phase, dewatering is nearing completion at the Chalice underground, and cutback mining is in progress at the South Kalgoorlie operation which will signifi cantly lift the production profi le heading into CY2012. With commercial production at Çöpler declared from April 1, group exploration spend of A$35 for CY2011, and expected resource upgrades, AQG is well positioned to deliver on its forecasted production ramp up.

• Positive preliminary study at Çöpler. Results from a study into the viability of developing a sulphide operation at the Çöpler Project were released in March. Positive outcomes included a gold reserve increase from 2.2Moz to 4.6Moz, indicative life of mine cash costs (on a by-product basis) of US$430/oz, and a mine life increase to 16 years. Management is proceeding with a detailed feasibility study and metallurgical test work, with ongoing drilling likely to give rise to further resource and reserve upgrades. Results of the study are due in 2H FY2012, and we view a positive outcome as critical to strengthen the long term value of the project.

• Appreciating AUD infl ates cash costs for the Australian operations. Cost guidance for the Australian operations of US$460/oz provided by the company in December has been revised to US$580/oz on the back of the surging Australian dollar. The adjustment was compounded by higher energy and labour costs associated with operating in Australia.

• Strong balance sheet after the merger. AQG consolidated its fi nancial position subsequent to the merger, reporting a cash position of US$105m at the end of the March Q.

OUR VIEWThe much anticipated merger between Avoca Resources (AVO) and TSX listed Anatolia Minerals (ANO) to create Alacer Gold (AQG) was completed on 18 February 2011 with overwhelming shareholder support. AQG has emerged as a leading intermediate gold producer with a diversifi ed asset portfolio in Australia and Turkey. Large, long mine life operations with strong inherent value enhance the company’s growth prospects, with AQG forecasting production ramp up to 600koz Au by CY2013 then 800koz Au by CY2015. With the company looking to increase its inventory base in line with production depletion, the March Q saw drilling deliver an overall reserve increase from 3.5Moz to 5.7Moz Au and a resource position of 13Moz Au. April 1 2011 marked the beginning of commercial production from the Çöpler operation in Turkey with AQG targeting 135koz Au in 2011 at cash operating costs of US$460/oz. Long term viability of the Çöpler operation is underpinned by the development of its sulphide project which is currently in the detailed feasibility phase. Overall we see AQG trading at fair value and view it a robust mid-tier gold producer. BUY, Price target $10.57.

Alacer Gold Corporation AQG ($8.89)

Recommendation: BUY

Aiming to double gold sales by 2015 Analyst: Alex Passmore, Gary Watson




Alacer Gold Corporation $8.89 Year End June 30


A$:US$ 0.89 0.99 1.05 1.00Gold (US$/oz) 1093 1356 1483 1507Silver (US$/oz) 17.28 29.77 42.63 42.53Gold (A$/oz) 1222 1368 1409 1507Silver (A$/oz) 19.33 30.03 40.50 42.53

Sensitivity -10% 0% +10%Delta +10%

FX (A$:US$) 10.27 10.27 10.27 0Gold Price 8.77 10.27 11.77 15Grade 9.77 10.27 10.77 5Operating Costs 10.43 10.27 10.11 (2)


Gold Production Higginsville Gold 186 159 177 179Frogs Leg 22 45 32 32South Kal 21 42 91 153Copler Gold Mine 0 75 172 172Total Production (koz) 229 321 472 536 Cost Summary H’ville Cash Cost (A$/oz) 468 540 574 577Group Cash Cost (A$/oz) 743 568 496 504Group Total Cost (A$/oz) 849 773 684 693 Price Received (A$/oz) 1,218 1,396 1,483 1,507

Profi t & Loss (US$m) 2010A 2011F 2012F 2013F

Sales Revenue 284.3 464.8 729.3 836.1 Other Income 8.1 3.9 11.1 23.9 Operating Costs 142.2 194.5 256.1 295.0 Exploration Exp. 4.3 4.0 4.1 4.2 Corporate/Admin 3.2 2.0 2.0 2.1 EBITDA 142.6 268.3 478.2 558.7 Depn & Amort 75.4 63.3 84.0 93.6 EBIT 67.2 205.0 394.1 465.1 Interest 6.8 4.1 1.1 0.0 RSPT 0.0 0.0 0.0 0.0 Operating Profi t 60.4 200.9 393.0 465.1 Signifi cant Items 16.4 0.0 0.0 0.0 FX Adjustment 0.0 0.0 0.0 0.0 Tax expense 8.6 60.3 117.9 134.9 Reported NPAT 68.3 140.7 275.1 330.3 Normalised NPAT 42.3 140.7 275.1 325.6

Cash Flow (US$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 68.3 140.7 275.1 330.3 + Interest/Tax/Expl Exp 19.7 68.4 123.1 139.0 - Interest/Tax/Expl Inc 24.6 69.7 144.4 151.5 + Depn/Amort 75.4 63.3 84.0 93.6 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 138.8 202.6 337.8 411.4 - Capex (+asset sales) 73.3 23.9 108.8 25.8 - Working Capital Increase 44.8 67.7 0.0 0.0 Free Cashfl ow 20.6 111.0 229.0 385.5 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 2.1 0.0 0.0 0.0 + Debt drawdown (repaid) (28.9) 1.3 (48.3) 0.0 Net Change in Cash (14.7) 112.2 180.7 385.5 Cash at End Period 42.0 154.2 334.9 720.4 Net Cash/(LT Debt) (5.1) 105.9 334.9 720.4


Cash/Bullion 42.0 154.2 334.9 720.4Total Assets 414.2 674.4 906.6 1239.3Total Debt 47.0 48.3 0.0 0.0Total Liabilities 145.4 264.9 222.0 229.1Shareholders Funds 268.9 409.5 684.6 1010.2

Ratios Net Debt/Equity (%) 1.9 na na naInterest Cover (x) 9.9 50.1 348.4 naReturn on Equity (%) 25.4 34.3 40.2 32.7

Valuation A$m A$/sh

Higginsville Gold 420.6 1.66 Frogs Leg 111.2 0.44 South Kal 282.6 1.12 Copler Gold Mine 814.4 3.21 Exploration 189.1 0.75 Unpaid Capital 31.6 0.12 Corporate (3.4) (0.01)Forwards 0.0 0.00 Listed Investments 7.9 0.03 Cash est 105.7 0.42 Debt est (46.5) (0.18)NPV (@ 8% Discount rate) 1913 7.55 Price Target (1.4 x NAV) 10.57

Hedging koz Strike Cover

Put Options 287 A$830 to CY11




Reserves Equity Mt Au g/t Au kozHigginsville 100% 6.0 4.16 803Frogs Leg 49% 5.0 5.06 399South Kal 100% 2.0 1.63 106Copler 100% 40.8 1.65 2,169Total 6.0 4.12 3,477

Resources Mt Au g/t Au kozHigginsville 100% 14.3 3.42 1,572Frogs Leg 49% 2.3 6.34 230South Kal 100% 68.7 2.04 4,516Copler 95% 125.0 1.50 5,739Cevizlidere 100% 445.7 0.11 1,576Karakartal 100% 31.6 0.38 386Total 687.6 0.66 14,019

Directors

Name PositionRobert Reynolds Non-Executive ChairmanEd Dowling Managing DirectorRohan Williams Chief Strategic DirectorDavid Quinlivan Non-Executive DirectorStephanie Unwin Non-Executive DirectorJan Castro Non-Executive DirectorTimothy Haddon Non-Executive DirectorRichard Graff Non-Executive DirectorJay Kellerman Non-Executive Director Substantial Shareholders Shares (m) (%)Pala Investments AG 47.7 21.0

Higginsville Gold23%

Exploration10%

South Kal16%

Frogs Leg6%

Copler Gold Mine45%

Total Production (koz) Group Cash Cost (A$/oz)

0

100

200

300

400

500

600

2010A 2011F 2012F 2013F 2014F0

200

400

600

800

1000

Investment Summary





12 Months

Shar

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(A$)

Volu

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0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

-

1,000

2,000

3,000

4,000

5,000

6,000

Shares on Issue (m) 205.3 3mth ADT ($m) 1.53Market Cap. ($m) 456 Debt ($m) 0.052 Week Range $1.33 - $3.33 Cash (est.) ($m) 40.1

Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (15.8) (22.2) (24.6) 15.5 Recurrent NPAT ($m) (15.8) (22.2) (24.6) 15.5 Recurrent EPS (cents) (8.9) (10.2) (9.3) 5.9 EPS Growth (%) na na na naPER (x) (24.8) (21.7) (23.8) 37.8 EBITDA ($m) (15.5) (22.1) (24.6) 24.3 EV/EBITDA (x) (24.4) (20.5) (20.1) 26.4 Capex ($m) 1.1 0.9 0.4 166.4 Free Cashfl ow (16.4) (18.0) (25.0) (150.4)FCFPS (cents) (9.3) (8.3) (9.5) (56.9)PFCF (x) (23.9) (26.8) (23.4) (3.9) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Unrest in Burkina Faso since February 2011. The capital of Burkina Faso (Ouagadougou) has seen activist activity step up due to high living costs and demands for the current president to resign. This has been widely reported in the media and has coincided with a subdued risk appetite towards AMX. While the risks of operating in West Africa shouldn’t be downplayed we note the company’s fl agship Batie West project is 455km by road from the capital and remains stable and operable. If the political situation improves and perceived security risks abate the decline in value will present a solid buying opportunity.

• 2.2Moz announced at Konkera. AMX released an interim resource of 42.4Mt at 1.6g/t Au for 2.22Moz Au (0.5g/t Au cut-off), at Konkera in February. At a 1g/t Au cutoff the total resource now contains 1.9Moz Au, an increase of 0.7koz Au. Within the resource is a higher grade zone that contains 10.4Mt at 3.0 g/t Au for approximately 1Moz Au (applying a 2.0g/t Au cut-off), and the ore body is shaping up to be very amenable to mining in our opinion. This resource increase refl ects 83,000m of drilling over 5 prospects covering 4.9km of strike, and is contained within the top 200m vertical depth at Konkera North (top 100m at Konkera main). A further update to the Konkera deposit is expected in mid 2011.

• Short term valuation impact of resource upgrade. The increase in resource has reduced the company’s premium rating to A$199/oz (was $447/oz) versus the sector average of A$194/oz. We note however that the average grade of the resource has dropped from 2g/t Au to 1.6 g/t Au by adding the additional ounces, an effect not captured by this metric.

• Pre-feasibility studies underway. PFS at Konkera was announced on 3 May 2011, and aims to be completed by Q3 2011. AMX also aim to complete a DFS by Q3 2012.

• Our forecasts. Our valuation for AMX factors in a 50Mt at 2g/t Au mining and processing operation at Batie West (3Mtpa). We believe unit costs of production will be in the order of US$550-600/oz and capex for construction of the project circa US$200-220m.

• Aggressive A$30m exploration program during 2011. 225km of core, RC and auger drilling over the year from 7 rigs will likely extend Konkera mineralisation down to 400m vertical depth, as well as test 16 priority gold exploration targets.

OUR VIEWAMX’s share price has retraced by 35% since mid-April as news of political unrest in Burkina Faso has severely dented investor sentiment. While developments in the political situation should be closely monitored, AMX’s fl agship Batie West project is 455km away from the Ouagadougou and remains largely unaffected and accordingly the company has continued to progress project development. AMX recently announced a 2.2Moz (1.6g/t Au) resource at for Konkera and is now working towards a PFS by Q3 2011. Current estimates have gold production commencing late in 2013. Exploration momentum also continues with an aggressive drilling programme likely to extend the Konkera mineralisation down to 400m depth during 2011 additionally the programme could add circa 300koz by July 2011. The market has had overly high expectations of the resource announcements from AMX and this has seen some recent selling in the stock, but we see them delivering on the expected ounces over time. We continue to rate AMX a BUY with a price target of $3.17/sh (1.25x NAV) and see project growth as driving the fortunes of the company in 2011. Operating in West Africa undoubtedly presents a risk although projects the size of Batie West are hard to fi nd in stable jurisdictions.

Ampella Mining Limited AMX ($2.22)

Recommendation: BUY

Burkino Faso unrest impacts market sentiment Analyst: Alex Passmore, Byron Benvie




Ampella Mining Limited $2.22 Year End June 30




FX (A$:US$) 4.48 3.96 3.58 (10)Gold Price 3.47 3.96 4.49 13Gold Grade 3.48 3.96 4.49 13Operating costs 4.14 3.96 3.79 (4)Capex 4.03 3.96 3.94 0

EV:Reserve (A$/oz) na EV:Resource (A$/oz) 207


Production (koz) Batie West 0 0 0 35 Total 0 0 0 35 Cost Summary Cash Costs (A$/oz) na na na 554Total Costs (A$/oz) na na na 647


Sales Revenue 0.0 0.0 0.0 53.5 Other Income 0.4 2.4 1.8 4.3 Operating Costs 1.7 1.0 0.0 19.2 Exploration Exp. 7.5 22.1 22.3 5.2 Corporate/Admin 6.7 1.4 4.1 4.2 AIFRS Derivative Adjustment 0.0 0.0 0.0 0.0 EBITDA (15.5) (22.1) (24.6) 29.3 Depn & Amort 0.2 0.0 0.0 3.2 EBIT (15.8) (22.2) (24.6) 26.1 Interest 0.0 0.0 0.0 4.8 Operating Profi t (15.8) (22.2) (24.6) 21.3 Tax expense 0.0 0.0 0.0 0.0 FX Adjustment 0.0 0.0 0.0 0.0 NPAT (15.8) (22.2) (24.6) 21.3 Normalised NPAT (15.7) (22.2) (24.6) 21.3

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (15.7) (22.2) (24.6) 21.3 + Interest/Tax/Expl Exp 7.8 17.1 14.9 16.3 - Interest/Tax/Expl Inc 7.8 22.1 22.3 13.1 + Depn/Amort 0.2 0.0 0.0 3.2 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (15.5) (27.2) (32.0) 27.8 - Capex (+asset sales) 1.1 0.9 0.4 153.1 - Working Capital Increase (0.3) (5.1) 0.0 0.0 Free Cashfl ow (16.3) (23.0) (32.4) (125.4)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 20.6 44.1 95.0 0.0 + Debt drawdown (repaid) 0.0 0.0 0.0 112.9 Net Change in Cash 4.3 21.1 62.6 (12.4)Cash at End Period 7.4 28.5 91.1 78.7 Net Cash/(LT Debt) 7.4 28.5 91.1 (34.2)


Cash/Bullion 7.4 28.5 91.1 78.7 Total Assets 14.4 38.6 114.0 248.2 Total Debt 0.0 0.0 0.0 112.9 Total Liabilities 2.3 2.0 2.0 115.0 Shareholders Funds 12.1 36.6 111.9 133.2 Ratios Net Debt/Equity (%) na na na 25.7Interest Cover (x) na na na 5.5Return on Equity (%) na na na 16.0

Valuation A$m A$/sh

Batie West 572.0 2.05 Expl (BW regional, Mabera, Doubema) 156.5 0.56 Unpaid capital 126.1 0.45 (assume $120m funding at 95% SP)Corporate (22.4) (0.08)Forwards 0.0 0.00 Cash (est.) 40.1 0.18 Debt 0.0 0.00 NPV (@ 8% discount rate) 872.3 3.17 Price Target (1.00x NAV) 872.3 3.17

NPV Sensitivity

NPV(nom) @ 5% disc. 3.77NPV(nom) @ 0% disc. 5.37

Hedging koz 1-Year 3-years % Reserve

Committed Production na na na na




Reserves Mt Au g/t Au koz 0.0 0.0 0Total 0.0 0.0 0

Resources Mt Au g/t Au kozBatie West (Konkera) 42.4 1.6 2,224Total 42.4 0.0 2,224

Directors

Name PositionPeter Mansell Non-Executive ChairmanPaul Kitto Managing DirectorEvan Cranston Executive DirectorCharles Soh Non-Executive Director

Substantial Shareholders Shares (m) %Blackrock 15.3 7.4Dundee Corporation 13.3 6.5CBA 10.2 5.0Kingslane Pty Ltd 9.1 4.4Peter Williams 6.8 3.3Laurent Coulbaly 6.9 3.3Francois Ouedraogo 6.7 3.3

Batie West75%

Expl (BW regional,Mabera, Doubema)

20%

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Disclosure: Patersons acted as lead manager to the Australian component of the placement of 21.5m AMX shares at A$1.95/sh to raise A$41.925m in September 2010. Patersons received a fee for this service.

Investment Summary





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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (33.1) (38.6) 19.5 (56.1)Recurrent NPAT ($m) (33.1) (38.6) 19.5 (56.1)Recurrent EPS (cents) (10.0) (10.1) 5.1 (14.7)EPS Growth (%) na na na naPER (x) (81.5) (80.9) 159.6 (55.6) EBITDA ($m) (43.5) (35.6) 138.0 184.1 EV/EBITDA (x) (55.8) (69.5) 23.0 29.8 Capex ($m) 52.1 79.7 1,257.0 2,217.6 Free Cashfl ow (68.2) (79.8) (1,299.0) (2,298.8)FCFPS (cents) (20.6) (20.8) (339.4) (600.6)PFCF (x) (39.5) (39.1) (2.4) (1.4) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Isaac Plains production not the main game. Production was down by more than 50% to 164kt of product (453kt in Dec Q) at the Isaac Plains coal operation as the operation was impacted by Cyclone Yasi related fl ooding in the March Q. Sales are forecast to ramp up to 2.8Mtpa in the June Q as an expansion (Dragline overburden removal) is completed.

• Concept Study Due in the June Q for Talwood. The Talwood Coking Coal Project (246.5Mt mineral resource) is a potential underground coking coal mine. The project is located immediately adjacent to BHPB Mitsubishi Alliance Goonyella Riverside Hard Coking Coal mine in the Bowen Basin. The Leichardt seam, which is the primary mining target within the concept study is at a depth of about 50m at its shallowest and dips at a 1:10 gradient throughout much of the tenement. Our forecasts factor in production of 50.1Mt of ROM coal production for 28.05Mt of coal sales based on a 55% yield. Annual production is expected to be 6Mtpa (ROM) commencing in late 2014 with export through Hay Point or Dalrymple Bay. Pre-production capex is estimated at A$450m. Our NPV for the Project is A$321.7m.

• PFS for Washpool coking coal due in the Sept Q. AQA has secured 1.6Mtpa shipping capacity from WICET with exports due to commence from the terminal in 2014. The development schedule contemplates a construction commencement in mid-2012 with production commencing in early 2013. The current JORC resource is 185.5Mt with a reserve of 108.3Mt yielding ~36% coking coal. The company is planning for 7Mtpa ROM production with annual hard coking coal sales of 2.6Mtpa. Capex for the project has been estimated at $396m with operating cash costs of $106/t FOB. Current reserves provide Washpool with a 15 year mine life. Our NPV for the project is $366m.

• Asset sales. The Avontuur Manganese Project (74% AQA) recently saw an almost doubling of its resource at Avontuur Manganese to 108.9Mt at 38.6% Mn. We value this project at A$500m and believe the company is aiming to sell it prior to end of 2011. Additionally AQA has indicated that the Washpool Coking Coal Project (valuation $366m) may be divested in 2011.

• Belvedere remains in Limbo. AQA’s JV partner Vale has taken the company to court in an effort to put aside the deemed valuation of its 24.5% stake in Belvedere. We believe AQA’s valuation is in the order of A$350-450m (in line with industry multiples) while Vale’s valuation for the same is circa $92m the price at which AMCI sold its similar stake in the project for in May 2010. AQA advises it is looking to resolve the legal dispute and valuation issue by end 2011.

OUR VIEWAQA’s share price has declined by circa 15% to $8.15/sh since December 2010 as severe weather impacted production at Isaac Plains, and as investor appetite was damaged fi rstly by natural disasters in Japan and more recently by the strength in the Australian dollar (AUD). The company is one of the purest valuation leverage plays to coking coal and iron ore with a stable of potentially long life assets. We believe AQA’s deep development pipeline will be funded by a serious of divestments including the Avontuur Manganese Project in South Africa and the Washpool Coking Coal Project in the Bowen Basin, Australia. The Company is still locked in dispute with JV partner Vale over the port and rail plans for the Eagle Downs coal project and is also in disagreement over the valuation and sale of AQA’s share (24.5%) of the Belvedere project to Vale is in arbitration. With a bullish outlook for coking coal, and a series of development announcements due over the coming 2Q’s we are upgrading our recommendation on AQA to BUY with a valuation of $10.79/sh (26% trading disc).

Aquila Resources Limited AQA ($8.15)

Recommendation: BUY

Coking coal leverage Analyst: Alex Passmore, Gary Watson




Year End June 30Aquila Resources Limited $8.15


US$/A$ 0.89 0.99 1.05 1.00Hard Coking Coal 151 249 303 211Semi-soft Coking Coal 111 183 228 153PCI 111 195 232 157Export Thermal Coal 77 106 123 98Domestic Thermal Coal 45 46 48 49Hamersley Lump 140 225 225 227Hamersley Fines 119 187 187 187*All comm prices in US$/t


Attributable Saleable Coal Production

Isaac Plains (kt) 1239 1021 1463 1463Cash costs (US$/t) 83.76 105.71 85.43 78.14Price Received (US$/t) 97.55 162.38 190.29 133.19 Eagle Downs (kt) 0 0 0 160Cash costs (US$/t) 0.00 0.00 0.00 99.04Price Received (US$/t) 135.65 219.13 265.87 184.69 Washpool (kt) 0 0 0 648Cash costs (US$/t) 0.00 0.00 0.00 119.54Price Received (US$/t) 0.00 0.00 0.00 200.57 West Pilbara Iron (kt) 0 0 0 500Cash costs (US$/t) 0.00 0.00 0.00 31.54Price Received (US$/t)


Sales Revenue 129.8 155.9 264.5 406.9 Other Income 12.8 13.8 61.5 71.2 Operating Costs 113.5 108.9 118.7 223.4 Exploration Exp. 60.2 84.7 61.1 62.3 Corporate/Admin 12.4 11.7 8.1 8.3 EBITDA (43.5) (35.6) 138.0 184.1 Depn & Amort 5.1 5.3 7.6 28.2 EBIT (48.6) (40.9) 130.4 155.9 Interest 1.0 6.2 102.5 244.5 MRRT 0.0 0.0 0.0 19.5 Operating Profi t (49.6) (47.1) 27.9 (88.6)Tax expense (16.5) (8.6) 8.4 (32.4)Abnormals & Minorities 0.0 0.0 0.0 0.0 NPAT (33.1) (38.6) 19.5 (56.1)Normalised NPAT (35.2) (33.0) 19.5 (75.6)

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (33.1) (38.6) 19.5 (75.6)+ Interest/Tax/Expl Exp 44.7 82.4 172.0 293.9 - Interest/Tax/Expl Inc 67.0 90.0 241.1 347.0 + Depn/Amort 5.1 5.3 7.6 28.2 +/- Other (Associates) 0.0 0.0 0.0 0.0 Operating Cashfl ow (50.3) (40.9) (42.0) (100.6)- Capex (+asset sales) 52.1 79.7 1257.0 2217.6 - Working Capital Increase (34.2) (40.8) 0.0 0.0 Free Cashfl ow (68.2) (79.8) (1299.0) (2318.3)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 285.0 22.1 0.0 0.0 + Debt drawdown (repaid) (7.0) (12.8) 3350.0 0.0 Net Change in Cash 209.9 354.5 2651.0 (2318.3)Cash at End Period 283.4 637.9 3288.9 970.6 Net Cash/(Debt) 270.6 637.9 (61.1) (2379.4)


Cash/Bullion 281.2 637.9 3288.9 970.6Total Assets 448.4 892.1 4888.5 4830.3Total Debt 12.8 (6.2) 3343.8 3343.8Total Liabilities 43.3 503.5 4480.3 4497.8Shareholders Funds 405.1 388.6 408.2 332.5

Ratios Net Debt/Equity (%) na na 15.0 715.5Interest Cover (x) na na 1.3 0.6Return on Equity (%) na na 4.8 na

Valuation A$m A$/sh

Isaac Plains (50% AQA, 50% Vale) 379.1 1.01 Eagle Downs (50% AQA, 50% Vale) 500.9 1.34 Washpool Hard Coking Coal 366.1 0.98 Talwood Coking Coal 321.7 0.86 Belvedere (24.5% AQA, 75.5% Vale) 400.0 1.07 West Pilbara Iron (API: AQA 50%, AMCI 50%) 687.0 1.84 Hardy Iron Ore Project 312.0 0.83 Thabazimbi Iron Ore Project 208.7 0.56 Avontuur Manganese Project 500.0 1.34 Exploration & Other Projects 110.0 0.29 Equity Investments 29.3 0.08 Corporate (40.1) (0.11)Unpaid Capital 29.3 0.08 Forwards 0.0 0.00 Cash 233.3 0.62 Debt (0.0) (0.00)NPV 4037.3 10.79 Price Target 4037.3 10.79

Valuation Summary of Assets

Coal Production Summary

Resources & Reserves (Mt)

Coal Reserves Mt Isaac Plains (SSCC, ThC) 50.4 Eagle Downs (HCC) 254.0 Washpool (CC, 100% AQA) 108.2

Coal Resources Isaac Plains (SSCC, ThC) 128.5 Eagle Downs (HCC) 959.0 Belvedere (HCC, 24.5% AQA) 3900.0 Washpool (CC, 100% AQA) 185.0 Talwood Coking Coal (100%) 246.5

Iron Ore Reserves %FeWest Pilbara Iron Ore (50%) 445.4 57.1

Iron Ore Resources West Pilbara Iron Ore (50%) 927.0 57.0Meletese Iron Ore Project 47.6 62.9

Directors

Name PositionToni Poli Chairman & MDCharles Bass Non-Executive DirectorDerek Cowlan Non-Executive DirectorGordon Galt Non-Executive DirectorDai Zhihao Non-Executive Director

Substantial Shareholders Shares (m) %Tony Poli 82.1 25.5Baosteel Group 48.3 15.0Charles Bass 39.0 12.1Merril Lynch Inv Mgmt 35.5 11.0The Vanguard Group 18.2 5.6WA Resources Pty Ltd (AMCI) 14.0 4.3Seamans Capital Mgmt 10.0 3.1

Isaac Plains (50% AQA, 50% Vale)Eagle Downs (50% AQA, 50% Vale)

Belvedere (24.5% AQA, 75.5% Vale)West Pilbara Iron (API: AQA 50%, AMCI 50%)

Washpool Hard Coking CoalTalwood Coking Coal

Thabazimbi Iron Ore ProjectAvontuur Manganese Project

Hardy Iron Ore Project

(kt)

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Investment Summary






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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (40.8) 138.6 315.1 354.5 Recurrent NPAT ($m) (41.2) 145.7 315.1 379.8 Recurrent EPS (cents) (5.0) 17.4 37.6 45.3 EPS Growth (%) na na 116.2 20.5 PER (x) na 20.5 9.5 7.9 EBITDA ($m) (24.4) 210.4 453.2 556.9 EV/EBITDA (x) (114.3) 12.4 5.4 4.2 Capex ($m) 31.8 47.1 34.1 92.3 Free Cashfl ow (92.0) 234.1 163.1 173.8 FCFPS (cents) (11.2) 27.9 19.5 20.7 PFCF (x) (32.0) 12.8 18.4 17.2 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Strong Balance Sheet. Cash generation continue to improve with production ramp up. At the end of the March Q AGO had $293m cash on hand including $53m in cash acquired through the GIA takeover. With the June Q on track to export a record 1.5Mt and an increase in quarterly benchmark prices we expect to see strong ongoing fi nancial outcomes. Cash costs have continued to reduce in line with AGO’s long term guidance to around $40-43/t.

• Expanding capacity at Wodgina. AGO has signed an agreement to increase capacity from the Wodgina operation by 75% to 7Mtpa. The agreement comes through negotiations with Global Advanced Metals (GAM) whereby crushing and screening infrastructure can be utilised in the short term in return for AGO contributing $35m towards GAM’s exclusive use alternate processing facility by Q1 2012. The agreement will take the company’s total capacity to 9Mtpa with the aim to grow total production to 12Mtpa by December 2012.

• DFS on the Turner River Hub (TRH) due end of FY2011. Development of a central processing facility near the Wodgina operation will lift AGO’s production profi le to 12Mtpa by 2012. The facility will combine ore from the Wodgina, Adydos and Mt Webber mines to create a DSO product that will be transported 95kms to the Utah Point port facility via privately owned off-highway haulage. The TRH provides AGO advantages through economies of scale as well as providing blending options through the production phase. Location of the TRH is strategically relevant to assets recently acquired through the Giralia (GIR) takeover. Capex guidance is approximately $200m for the development of the project.

• Giralia Takeover complete. The off-market takeover of GIR was completed recently following the issue of 273m ordinary shares pursuant to the compulsory acquisition. With a market cap of $2.9bn AGO is a leading independent mid-tier iron ore company combing a strong resource position with strategic infrastructure and port position. Subsequent to the takeover AGO’s increased size and scale will provide greater access to capital to support project development and the vision of transforming AGO into a 22Mtpa producer by 2015.

• Solid management team. The management team lead by David Flanagan has demonstrated through a number of clever acquisitions that growth is a primary focus for the company. We believe the stable, well credentialed board is pivotal to the company delivering on the forecast ramp up to become a 12Mtpa producer by 2013.

OUR VIEWOperational effi ciencies in the March Q saw FOB cash operating costs down on last Q, falling within the company’s long term target band of A$40-43/t. With increasing effi ciency AGO is on target to export a record 1.5Mt this Q. A strong cash position of A$293m at the end of the March Q was supported by increases in quarterly benchmark prices and a number of favourably priced spot cargos. An agreement with Global Advanced Metals will allow capacity from the Wodgina operation to be ramped up to 7Mtpa in the near term and bring overall capacity to 9Mtpa when combined with the Pardoo operation. The Turner River Hub is in Defi nitive Feasibility Study phase with results expected at the end of FY2011, we see development of this strategically positioned hub as a key catalyst for AGO meeting its longer term export targets. With the acquisition of Giralia now complete, AGO’s resource base of Direct Shipping Ore (DSO) has been increased allowing it to exploit synergies with existing infrastructure and port entitlements. AGO remains the lowest capex cost producer of iron ore in the Pilbara and we rate the stock as BUY with a price target of $4.36/sh.

Atlas Iron Limited AGO ($3.57)

Recommendation: BUY

Expanding Pilbara producer Analyst: Alex Passmore, Tim McCormack




Atlas Iron Limited $3.57 Year End June 30


A$:US$ 0.89 0.99 1.05 1.00Iron Ore Fines (US$/t) 76.44 119.53 119.53 119.53Iron Ore Lump (US$/t) 89.72 143.82 143.82 145.22


Pardoo - Fines 1,259 1,741 1,800 1,800Turner River Hub: Wodgina - Fines 2,827 4,600 5,200Abydos 2,000 3,000Mt Webber 2,000 3,000 Group Production (kt) 1,259 4,568 10,400 13,000 Group Sales (kt) 1,259 4,984 10,524 13,018 Cost Summary (A$/t): Pardoo Cash Costs 56.48 59.64 58.00 59.17Wodgina Cash Costs 0.00 43.18 46.35 47.43Project C Cash Costs 0.00 0.00 58.98 60.12Weighted Ave Cash Costs 56.48 48.93 51.77 53.34Ave Price Received (FOB) 67.35 99.82 100.44 105.38


Sales Revenue 84.8 497.5 856.2 1,055.7Other Income 7.0 12.0 17.9 0.0 Operating Costs 74.4 237.4 372.0 449.0 Exploration Exp. 24.2 21.3 16.3 16.6 Corporate/Admin 17.5 40.5 32.6 33.2 EBITDA (24.4) 210.4 453.2 556.9 Depn & Amort 16.9 14.2 3.1 14.4EBIT (41.3) 196.2 450.1 542.5 Interest 0.0 3.9 0.0 0.0 Abnormals 0.4 (7.1) 0.0 0.0 Operating Profi t (40.8) 185.1 450.1 542.5 Tax expense 0.0 46.5 135.0 162.8 Minorities 0.0 0.0 0.0 0.0 NPAT (40.8) 138.6 315.1 379.8 Normalised NPAT (28.6) 138.6 315.1 379.8

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (40.8) 138.6 315.1 379.8 + Interest/Tax/Expl Exp 24.2 67.8 151.3 179.4 - Interest/Tax/Expl Inc 70.5 69.2 77.2 86.3 + Depn/Amort 16.9 14.2 3.1 14.4 - Deferred Waste 39.5 47.8 195.0 270.0 Operating Cashfl ow (109.8) 103.5 197.3 217.2 - Capex (+asset sales) 31.8 47.1 34.1 92.3- Working Capital Increase (41.5) (169.5) 0.0 0.0Free Cashfl ow (100.1) 225.9 163.1 125.0 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 127.9 2.7 0.0 0.0 + Debt drawdown (repaid) (14.3) (7.7) 0.0 0.0 Net Change in Cash 30.6 223.1 163.1 125.0 Cash at End Period 154.9 378.0 541.1 666.1 Net Cash/(Debt) 154.9 378.0 541.1 666.1


Cash/Bullion 154.9 378.0 541.1 666.1 Total Assets 388.6 522.9 838.0 1217.7 Total Debt 0.0 0.0 0.0 0.0 Total Liabilities 29.6 22.6 22.6 22.6 Shareholders Funds 359.0 500.3 815.3 1195.1 Ratios Debt/Equity (%) na na na naInterest Cover (x) na na na naReturn on Equity (%) na 27.7 38.6 31.8

Valuation A$m A$/sh

Pardoo 150 0.18 Wodgina 1,158 1.41 Abydos 322 0.39 Mt Webber 1,097 1.33 Exploration 540 0.66 Listed Investments 49 0.06 Forwards 0 0.00 Corporate (60) (0.07)Unpaid Capital 39 0.05 Cash 293 0.36 Debt 0 0.00 NPV 3,588 4.36 Price Target (100% NPV) 3,588 4.36

Sensitivities to Iron Ore Price -10% 0% +10%

NPV 3.65 4.36 5.06


Iron Ore Production Summary

Reserves & Resources (attributable)

Reserves Mt % Fe % Al+Si % PhosPilbara 53,691 57.7 7.8 0.8 Resources Mt % Fe % Al+Si % PhosNorth Pilbara 444 56.4 9.2 0.1Southeast Pilbara 158 56.7 10.2 0.1West Pilbara 38 53.6 12.3 0.0Midwest 12 60.1 9.2 0.1

Directors

Name PositionGeoff Clifford Non Executive ChairmanDavid Flanagan Managing DirectorDavid Hannon Non Executive DirectorTai Sook Yee Non Executive DirectorDavid Smith Non Executive Director Substantial Shareholders Shares (m) %IMC Group 66.7 8.1Blackrock 41.2 5.0Schroder 41.2 5.0

Mt Webber33%

Abydos10%

Exploration16%

Listed Investments1%

Wodgina35%

Pardoo5%

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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (13.5) (5.5) (7.9) (11.3)Recurrent NPAT ($m) (13.5) (5.5) (7.9) (11.3)Recurrent EPS (cents) (3.6) (1.3) (1.8) (2.6)EPS Growth (%) na na na naPER (x) (58.4) (167.1) (116.1) (80.8) EBITDA ($m) (3.8) (5.3) (7.3) (7.2)EV/EBITDA (x) (200.5) (159.9) (119.0) (144.0)Capex ($m) 3.7 15.8 5.3 150.5 Free Cashfl ow (6.8) (36.2) (19.1) (167.8)FCFPS (cents) (1.8) (8.3) (4.4) (38.4)PFCF (x) (115.2) (25.2) (47.9) (5.4) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Bigger than expected. We have always attributed signifi cant value to South Galilee Coal Project. In terms of volumes, the PFS increased the total resource by 22% to 1,179Mt, increased the indicated resource by 244% to 206.3Mt and provided a measured resource of 166.6Mt.

• The PFS also highlighted how the mine plan supports an average production rate of 15Mtpa of raw coal. Production is estimated to be ramped up in three stages starting at 5Mtpa in Q2 2015, 10Mtpa by Q1 2017 & 15Mtpa by Q1 2019. This is higher than our initial estimates of 10Mtpa and we have increased our production and capital expenditure assumptions.

• Wet weather has limited exploration and the development of BND’s other projects. BND has earmarked $7m to be spent over the current quarter on expenditure and development of the Arcturus, Dingo West & Springsure Creek projects.

• There is a very short term corporate catalyst with BND in the middle of a bid process. An asset transaction or a bid for the whole company could arise from the completed Strategic Review Process. Non-binding indicative bids on anything from one asset to the company as a whole were submitted to UBS on May 4. It was reported that several bids have been received and these were expected to be from a mix of domestic and international companies. At the time of writing BND is reviewing the non-binding indicative bids with UBS, and the market is waiting for a shortlist of parties to progress to a second stage of the transaction process.

• At the end of the process BND will know the fair market value for some or all of their assets and no matter the outcome the company is in a strong cash position, with $63m in the bank to progress their current portfolio of assets. We believe that the larger than expected South Galilee project and with a 4Mtpa WICET stage 1 allocation would have attracted considerable attention. Our value of the larger project is not materially different from previous assumptions as higher coal prices have been offset by the higher capex and higher Australian Dollar.

• Recent transactions that can be used as a proxy in the Galilee Basin include the Linc Energy, Adani deal and the Hancock Coal sale to GVK Power & Infrastructure. Our rough estimate of the Alpha and Kevin’s Corner transaction is approximately $1.50/t for total in situ resources.

OUR VIEWThere has been a steady amount of news fl ow over the last couple of months including the South Galilee Coal Project (SGCP) pre-feasibility study, the completed Strategic Review Process and nonbinding indicative bids on any or all of Bandanna’s assets. The SGCP pre-feasibility study highlighted that how the mine is bigger than we initially expected and it could support an average production rate of 15Mtpa of raw coal. We believe the SGCP would have attracted some attention from potential suitors as there have been a number of recent transactions in the Galilee Basin. Adding to the attractiveness is the fact that BND has 4Mtpa WICET stage 1 allocation and is participating in further expansion. We value BND’s 50% of the SGCP at $645m, or $1.09/t for in situ resources, which is marginally lower than our estimate of the recent and upcoming transactions in the Galilee of about $1.50/t. We value the other assets, with 800Mt JORC, at over $400m implying that anyone looking at the SGCP may just look at the company as a whole with a market cap of only $860m. It is an interesting time for BND and it remains attractive at current price levels. We retain our BUY recommendation with a price target of $2.50/sh.

Bandanna Energy Limited BND ($2.09)

Recommendation: BUY

Transactions looming Analyst: Andrew Harrington, Matthew Trivett




Year End June 30Bandanna Energy Limited $2.09


US$/A$ 1.05 1.00 0.96 0.93Hard Coking Coal 303 211 176 155Semi-soft Coking Coal 228 153 123 103PCI 233 158 128 108Export Thermal Coal 123 98 88 83Domestic Thermal Coal (A$/t) 49 50 51 53


Attributable Saleable Coal Production Dingo West (kt) 600 750FOB costs (US$/t) 65.83 64.42Price Received (US$/t) 100.20 89.20 Arcturus (kt) 1,960 4,000FOB costs (US$/t) 60.59 59.81Price Received (US$/t) 73.67 70.54 Springsure Creek (kt) FOB costs (US$/t) Price Received (US$/t) South Galilee (50%) (kt) 744Cash costs (US$/t) 55.34Price Received (US$/t) 83.06 All Mines (Kt) 2,560 5,494Cash costs (US$/t) 61.82 59.83Price Received (US$/t) 79.89 74.78


Sales Revenue 0.0 0.0 213.0 441.8 Other Income 2.8 3.1 3.4 4.5 Operating Costs 0.0 0.0 164.9 353.4 Exploration Exp. 0.0 0.0 0.0 0.0 Corporate/Admin 10.1 10.3 10.5 10.8 EBITDA (7.3) (7.2) 41.1 82.0 Depn & Amort 0.2 0.2 16.5 34.6 EBIT (7.5) (7.4) 24.6 47.5 Interest 0.4 3.9 17.3 23.6 Operating Profi t (7.9) (11.3) 7.3 23.9 Tax expense 0.0 0.0 0.0 7.0 Abnormals + Minorities 0.0 0.0 0.0 0.0 NPAT (7.9) (11.3) 7.3 16.9 Normalised NPAT (7.9) (11.3) 5.1 16.7

Cash Flow (A$m) 2012F 2013F 2014F 2015F

Adjusted Net Profi t (7.9) (11.3) 7.3 16.9 + Interest/Tax/Expl Exp 0.4 3.9 17.3 30.5 - Interest/Tax/Expl Inc 6.4 10.1 23.6 37.0 + Depn/Amort 0.2 0.2 16.5 34.6 +/- Other (Associates) 0.0 0.0 0.0 0.0 Operating Cashfl ow (13.7) (17.3) 17.4 45.1 - Capex (+asset sales) 5.3 150.5 108.3 110.5 - Working Capital Increase 0.0 0.0 0.0 0.0 Free Cashfl ow (19.1) (167.8) (90.9) (65.4)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 10.0 0.0 0.0 0.0 + Debt drawdown (repaid) 15.0 163.1 108.3 98.3 Net Change in Cash 5.9 (4.7) 17.4 32.9 Cash at End Period 69.4 64.7 82.1 114.9 Net Cash/(Debt) 44.4 (123.4) (214.3) (279.7)


Cash 69.4 64.7 82.1 114.9Total Assets 132.5 284.2 468.4 657.3Total Debt 25.0 188.1 296.4 394.6Total Liabilities 27.8 190.8 367.7 539.7Shareholders Funds 104.7 93.4 100.7 117.6 Ratios Net Debt/Equity (%) na 132.1 212.8 237.8Interest Cover (x) na na 1.4 2.0Return on Equity (%) na na 7.2 14.4

Valuation A$m A$/sh

Dingo West 129.3 0.30 Arcturus 195.0 0.45 Springsure Creek 48.6 0.11 South Galilee (50%) 641.5 1.47 Resources 69.8 0.16 FX Hedging 0.0 0.00 Corporate (59.5) (0.14)Unpaid Capital 4.2 0.01 Cash 63.4 0.15 Debt 0.0 0.00 NPV 1092.4 2.50 Price Target 2.50



Resources 100% Basis (Mt)

Mine Meas+Ind. Inf. TotalDingo West Resources 0.0 91.0 91Reserves - Prov - Prob - Total 0.0 0.0 0

Arcturus 102.6 103.7 206

Springsure Creek 72.2 252.0 324

South Galilee 372.9 806.1 1179

Arcadia 0.0 273.0 273

Total Resources 2074

Directors

Name PositionJeremy Barlow ChairmanRay Shaw Managing DirectorDavid Graham DirectorRobert Johansen DirectorPark Soon Il Director Signifi cant Shareholders Shares (m) %DJ Mining 87.8 20.6Resolve Geo 87.8 20.6Samtam 37.5 8.8Norman Zillman 29.0 6.8Bruce Wood 36.5 8.6J Barlow Consultants 19.6 4.6Matthew Consulting 19.5 4.6Locmaria 19.8 4.6

Arcturus

Springsure Creek

South Galilee (50%)

Dingo West

(kt)

(US$/t

)

All Mines (Kt) Cash costs (US$/t) Price Received (US$/t)

0

2,000

4,000

6,000

8,000

10,000

12,000

2012F

2013F

2014F

2015F

2016F

2017F

2018F

2019F

2020F

2021F 20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Investment Summary





12 Months

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(A$)

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0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

0

1000

2000

3000

4000

5000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (8.4) (30.4) (61.9) (101.6)Recurrent NPAT ($m) (8.4) (30.4) (61.9) (101.6)Recurrent EPS (cents) (5.7) (20.2) (15.9) (26.2)EPS Growth (%) na na na naPER (x) (71.5) (20.3) (25.7) (15.7) EBITDA ($m) (8.4) (30.4) (2.2) 17.8 EV/EBITDA (x) (61.5) (15.1) (392.9) 90.1 Capex ($m) 0.2 0.2 256.7 626.8 Free Cashfl ow (18.5) (27.6) (318.6) (728.4)FCFPS (cents) (12.6) (18.4) (82.0) (187.5)PFCF (x) (32.5) (22.3) (5.0) (2.2) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0

Investment Highlights• Doing a deal with FMG. Currently the Marillana project is

situated close to existing rail infrastructure. The major hurdle for the development of the operation is seeking an agreement with FMG to provide critical haulage, port handling and ship loading facilities at commercial rates. BRM is currently negotiating with FMG to provide an end-to-end rail, port, shipping and marketing solution for the stranded Marillana deposit. FMG recently announced a maiden resource at the nearby Nyidinghu deposit of 1.03bt @ 58% Fe and 0.15% P. Marillana’s higher grade Fe and lower P (benefi ciated) ore provides the opportunity for blending with FMG’s Nyidinghu ore.

• Port allocation has value. BRM’s 18.5Mtpa port allocation provides an additional incentive for a deal as FMG still requires a further 35Mtpa of port allocation at Port Headland to meet their target of shipping 155Mtpa by 2013.

• Marillana granted environmental approval. The granting of the fi nal environmental approval for the Marillana project paves the way for commencement of construction pending a positive BFS. The BFS is due for completion in the September Q, with construction scheduled for commencement in early 2012.

• Project funding approaching. With circa $70m in the bank we expect an interim capital raise of circa $100m in the next few months to fund working capital and the BFS prior to raising the remainder of the estimated $1.9b in a debt and equity raise in Q3/Q4 CY2011.

• Wah Nam (WNI) Offer. BRM is currently under a takeover bid from Wah Nam International holdings limited (WNI). The offer was announced on 11 November 2010 and has been extended several times. The latest extension is due expire on 15 June 2011. The bid is an all scrip deal offering 30 WNI shares for 1 BRM share. The board is opposed to the bid and has advised shareholders to reject the offer.

• WNI gains control. WNI has declared its unconditional on the 9th of May and extended the offer period to 15 June 2011. WNI has a 51.99% interest in BRM (control) as at 16 May 2011. We believe WNI is likely to push for its input into BRM’s development plans, which creates a risk to the timing of BRM’s scheduled ramp up of the Marillana Project. We believe the incumbent management team are the best positioned to oversee the construction and development of Marillana via a deal with FMG and continue to watch developments closely.

• Catalysts. 1) A rail/port solution deal is struck with FMG 2) Positive BFS in Q3 CY2011 3) Successful project capital raising.

• Risks. WNI gain control from current 43% which creates BRM management instability.

OUR VIEWAfter viewing the Marillana deposit as a stranded asset there is now light at the end of the tunnel with negotiations for an infrastructure deal with FMG progressing well. While FMG will likely strike a deal to blend Marillana’s higher grade, lower phosphorous product with its Nyidinghu ore, the real prize will be access to BRM’s 18.5Mtpa port allocation at Port Hedland. BRM’s share price fortunes however have been dictated by an unsolicited scrip-based take over offer Wah Nam International Holdings (WNI) which has recently gone unconditional. WNI has 43% of BRM, the offer closes on 16 May (unless extended) and we believe the new major shareholder could prove a major distraction to BRM’s development plans. A key risk for our investment thesis on BRM. Our valuation for BRM is based on an NPV for the Marillana project which incorporates 40Mtpa of benefi ciable ore mined for 17Mtpa of product. We have used the DFS upper estimate for capital cost of A$1.9bn. Our estimates assumed this is funded via a $2.18bn capital raise on a 60/40 debt to equity basis in the coming 12 months (dilution of NPV for equity raise at an assumed $4.00/sh). We maintain our BUY recommendation with a price target of $6.31/sh. BRM remains cheap on valuation although WNI actions present a risk to a mid 2013 start up for the project.

Brockman Resources Limited BRM ($4.10)

Recommendation: BUY

WNI could prove a distraction Analyst: Alex Passmore, Gary Watson




Valuation A$m A$/sh

Marillana 1013 2.61 Exploration 125 0.32 Corporate (75) (0.19)Unpaid Capital 1317 3.39 Cash (est) 70 0.18 Debt 0 0.00 Total @ 10% Discount Rate 2,450 6.31 Price Target 6.31

Sensitivities -10% 0% +10%

Iron Ore Price 5.68 6.31 6.88A$:US$ 6.95 6.31 5.74


Production Summary


Reserves Iron Ore Mt % Fe % Al+Si % LOIMarillana 1,001 42.40 CID 49 55.50 9.00 9.70 Resources Iron Ore Mt % Fe % Al+Si % LOIMarillana (DSO) 102 55.60 9.00 9.70Marillana (Benefi ciation) 1,528 42.60 34.29 3.53Total 1,629.9 62.15 9.00 3.50

Directors

Name PositionBarry Cusack ChairmanRoss Norgard Deputy ChairmanWayne Richards Managing DirectorColin Paterson Executive DirectorRoss Ashton Non-Executive DirectorDavid Nixon Non-Executive Director Substantial Shareholders Shares (m) %Wah Nam 61.9 42.8Ross Norgard 13.5 9.3 Total 52.1


A$:US$ 0.99 1.05 1.00 0.96 Iron Ore Lump (US$/t) 143.8 143.8 145.2 140.8Iron Ore Fines (US$/t) 119.5 119.5 119.5 114.6 Iron Ore Lump (A$/t) 145.1 136.6 145.2 146.7Iron Ore Fines (A$/t) 120.6 113.6 119.5 119.4


DSO Production (mt) Marillana Fines 0.0 0.0 0.0 0.4Marillana Lump 0.0 0.0 0.0 0.0Total 0.0 0.0 0.0 0.4 Cost Summary (A$/t) Marillana Cash Cost (A$/t) na na na 41.83Marillana Total Cost (A$/t) na na na 46.73Iron Ore Price Received (A$/t) na na na 99.56


Sales Revenue 0.0 0.0 0.0 42.4 Other Income 4.6 28.9 53.7 25.5 Operating Costs 0.5 0.0 0.0 17.6 Exploration Exp. 21.5 18.9 19.2 19.6 Corporate/Admin 13.1 12.3 16.7 17.0 EBITDA (30.5) (2.2) 17.8 13.6 Depn & Amort 0.0 0.0 0.0 2.1 EBIT (30.5) (2.2) 17.8 11.5 Interest 0.0 59.7 119.4 119.4 MRRT 0.0 0.0 0.0 0.0 Abnormals 0.0 0.0 0.0 0.0 Operating Profi t (30.5) (61.9) (101.6) (107.8)Tax expense 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 NPAT (30.5) (61.9) (101.6) (107.8) Normalised NPAT (30.4) (61.9) (101.6) (107.8)

Cash Flow (A$m) 2011F 2012F 2013F 2014F

Adjusted Net Profi t (30.4) (61.9) (101.6) (107.8)+ Interest/Tax/Expl Exp 21.5 78.5 138.6 139.0 - Interest/Tax/Expl Inc 23.2 78.5 138.6 139.0 + Depn/Amort 0.0 0.0 0.0 2.1 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (32.0) (61.9) (101.6) (105.8)- Capex (+asset sales) 0.2 256.7 626.8 1120.1 - Working Capital Increase (4.6) 0.0 0.0 0.0 Free Cashfl ow (27.6) (318.6) (728.4) (1225.9)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 103.6 880.0 0.0 0.0 + Debt drawdown (repaid) 0.2 1300.1 0.0 0.0 Net Change in Cash 75.9 1861.5 (728.4) (1225.9)Cash at End Period 159.7 2021.2 1292.8 67.0 Net Cash/(LT Debt) 159.5 720.9 (7.4) (1233.3)


Cash 159.7 2021.2 1292.8 67.0 Total Assets 163.1 2281.3 2179.7 2071.9 Total Debt 4.2 1304.3 1304.3 1304.3 Total Liabilities 8.2 1308.3 1308.3 1308.3 Shareholders Funds 154.9 973.0 871.4 763.6 Ratios Net Debt/Equity (%) na na 0.9 161.5Interest Cover (x) nm (0.0) 0.1 0.1 Return on Equity (%) na na na na

Year End June 30Brockman Resources Limited $4.10

Exploration11%

Marillana89%

(mt)

(A$/t

)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F0.00

10.00

20.00

30.00

40.00

50.00

Production (mt) Cash Costs (A$/t)

Investment Summary





12 Months

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0.00

0.20

0.40

0.60

0.80

0

5

10

15

20

25


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 72.3 (40.5) 17.5 (9.3)Recurrent NPAT ($m) 72.3 (38.3) 17.5 (9.3)Recurrent EPS (cents) 11.4 (6.6) 3.0 (1.6)EPS Growth (%) na na na naPER (x) 4.2 na 15.9 na EBITDA ($m) 78.1 (0.1) 17.5 11.6 EV/EBITDA (x) 2.2 4,916.9 1.6 78.7 Capex ($m) 0.0 0.0 411.1 480.4 Free Cashfl ow 67.9 2.2 (416.6) (511.2)FCFPS (cents) 10.7 0.4 (71.8) (88.2)PFCF (x) 4.5 125.2 (0.7) (0.5) DPS (cents) 7.0 0.0 0.2 0.0 Yield (%) 14.6 0.0 0.4 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Investments not available to the broader audience. CFE invests at the project level, the equity level or via debt. CFE is able to leverage off its in-house technical strength and receive a greater return in many cases that are available in listed entities. Given the incubation period of the assets in which it invests CFE’s due diligence process is thorough. While CFE cannot necessarily exit its investments easily it achieves transitioning assets from unlisted to liquid (i.e. listed).

• Monetizing assets the key to the business model. One of the keys to CFE’s model is its ability to bring relatively illiquid assets to the market in a form where they may appeal to investors (i.e. after signifi cant de-risking). As evidenced by the recent African Iron Ltd (AKI) spin-off the valuations of the subsidiary companies are still attractive and CFE is building a loyal following although remains exposed to further upside in valuation via the residual interest retained in the spun out entity.

• Playing the cycles. CFE’s strategy remains contingent on playing the cycles effectively. The company successfully sold the Cape Lambert Iron project to MCC for $400m in May 2008, which subsequently funded dividends (late 2008) and the acquisition of CopperCo (CUO) in May 2009. Since this time CFE has acquired DMC in August 2010 and spun off AKI (Mayoko iron ore assets) in January 2011.

• Upcoming assets sales:

– Sappes gold project – aiming for July 2011. The Sappes Gold Project is located in north-eastern Greece. Development plans centre on a shallow underground gold mine on the high-grade Viper orebody (Mineral Resource ~1Mt at 21.4g/t Au) and a small open pit on the near-surface St Demetrios orebody (Mineral Resource ~0.8Mt at 3.4g/t Au). Development capital of circa A$120m is required for a planned production of 100koz pa over 5 years (in dore and fl otation concentrate) for a cash operating cost of A$430/oz allowing for high margins at current gold prices.

– Marampa iron ore – Sept Q. Marampa is a brownfi elds hematite iron ore project 90km north of Freetown, Sierra Leone, West Africa. As per the company’s March Q scoping study an open pit mining and benefi ciation operation producing 5Mtpa of high grade hematite concentrate can be built for a pre-production capital cost of US$665m. CFE is aiming for an IPO of this asset prior to the September Q.

OUR VIEWCFE’s strategy is to acquire and invest in undervalued and distressed mineral assets and companies and to add value to those assets through a practical approach to management, exploration and evaluation to enable the assets to be monetised at a multiple. As assets are monetised, CFE intends to follow a policy of distributing surplus cash to shareholders. Patersons’ sum of parts valuation estimate for CFE is $1.05/sh or $609m. However as with the majority of listed investment companies (LICs) a trading discount for liquidity is expected. We have set our price target at 75% of our NAV in anticipation of this discount. Large valuations in the group’s projects are for the Marampa Iron Project (unlisted $350m), the Sappes Gold Project (unlisted $50m), Pinnacle Group Assets (unlisted $45.3m) and CFE’s residual stake in AKI (listed $42m). The coming 2 Qs should see the monetising of several of CFE’s assets with the expected sale of Leichardt Copper Project, Sappes Gold Project and a listing (on AIM) of the Marampa Iron Ore project. These assets are well advanced, offer potential buyers production opportunities accordingly we believe the sale process should progress to CFE’s timeline. CFE is trading well below its some of the parts valuation and these sales are likely to close the discount. BUY PT $0.77/sh.

Cape Lambert Resources Limited CFE ($0.505)

Recommendation: BUY

Trading discount set to close Analyst: Alex Passmore




Valuation A$m A$/sh

Marampa Iron Ore Project 350 0.60Listed Investments 56 0.10Unlisted Investments 128 0.22Exploration 0 0.00Corporate (15) (0.03)Unpaid Capital 4 0.01Cash 73 0.13Debt 0 0.00Total @ 8% Discount Rate 595.3 1.03Price Target (0.75x NAV) 446.5 0.77


Marampa Production Summary


Reserves (Mt) Cu (%) Ag (g/t) Cu (kt) Iron ore resources (Mt) Fe (%)Marampa 197.0 28.5 Gold Resources Mt g/t Au MozSappes Gold Project 1.8 13.4 0.8 Copper Resources Mt % Cu kt CuLeichardt Copper 8.386 0.9 75.471

Directors

Name PositionTony Sage Executive ChairmanBrian Maher Non Executive DirectorTimothy Turner Non Executive DirectorRoss Levin Non Executive Director Substantial Shareholders Shares (m) %African Minerals Mimited 118.2 18.9JP Morgan Nominees 41.0 6.6HSBC Nominees 38.2 6.1National Nominees 29.7 4.8Tony Sage 28.8 4.6


A$:US$ 0.89 0.99 1.05 1.00Fe Lump (US$t) 140 225 225 227Fe Fines(US$t) 119 187 187 187


Marampa Iron Ore Project Iron Ore Production 0.0 0.0 0.0 210.0 Cash Costs (A$/t FOB) na na na 61.65 Total Costs (A$t) na na na 70.59 Realised Price (A$t) na na na 115.79


Sales Revenue 0.0 0.0 0.0 24.8 Other Income 171.2 14.4 25.7 8.1 Operating Costs 58.2 4.4 0.0 12.9 Exploration Exp. 0.0 0.0 0.0 0.0 Corporate/Admin 34.8 10.2 8.2 8.4 EBITDA 78.1 (0.1) 17.5 11.6 Depn & Amort 0.4 36.7 0.0 1.9 EBIT 77.7 (36.7) 17.5 9.7 Interest 1.1 0.0 0.0 19.0 Operating Profi t 76.6 (36.8) 17.5 (9.3)Tax expense 0.9 0.0 0.0 0.0 Minorities 3.4 5.9 0.0 0.0 Abnormals and FX adjustments 0.0 2.2 0.0 0.0 NPAT 72.3 (40.5) 17.5 (9.3) Normalised NPAT 72.3 (38.3) 17.5 (9.3)

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 72.3 (38.3) 17.5 (9.3)+ Interest/Tax/Expl Exp 2.1 0.0 0.0 19.0 - Interest/Tax/Expl Inc 14.8 28.2 23.0 42.4 + Depn/Amort 0.4 36.7 0.0 1.9 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 59.9 (29.8) (5.5) (30.8)- Capex (+asset sales) 0.0 0.0 411.1 480.4 - Other investing cashfl ow 44.3 (40.6) 0.0 0.0 - Working Capital Increase (52.3) 8.7 0.0 0.0 Free Cashfl ow 67.9 2.2 (416.6) (511.2)- Dividends (ords & pref) 0.0 43.8 0.6 0.6 + Equity raised 8.7 268.1 0.0 0.0 + Debt drawdown (repaid) (14.9) 305.8 0.0 376.3 Net Change in Cash 61.7 532.3 (417.2) (135.5)Cash at End Period 135.7 668.0 250.8 115.4 Net Cash/(LT Debt) 135.7 668.0 250.8 (637.2)


Cash/Bullion 135.7 668.0 250.8 115.4Total Assets 451.4 909.5 926.4 1292.9Total Debt 0.0 0.0 0.0 751.3Total Liabilities 98.0 711.4 711.4 1087.6Shareholders Funds 353.4 198.1 215.1 205.2 Ratios Net Debt/Equity (%) na na na 310.5Interest Cover (x) 67.7 (3447.0) na 0.5Return on Equity (%) 20.4 na 8.1 na

Year End June 30Cape Lambert Resources Limited $0.505

Marampa IronOre Project

64%

Listed Investments13%

Unlisted Investments23%

(kt)

(US$/t

)

0

2,000

4,000

6,000

8,000

10,000

12,000

2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Iron Ore Production Cash Cost (US$/lb)Realised Price (US$/lb)

Investment Summary





Year End June 30 2011F 2012F 2013F 2014F Reported NPAT ($m) (1.7) (0.9) 39.8 57.9 Recurrent NPAT ($m) (1.7) (0.9) 39.8 57.9 Recurrent EPS (cents) (0.2) (0.1) 4.9 7.2 EPS Growth (%) na na na 45.4 PER (x) (104.9) (225.8) 5.2 3.5 EBITDA ($m) (1.7) (0.9) 44.8 64.3 EV/EBITDA (x) (93.4) (197.1) 3.7 1.6 Capex ($m) 0.0 26.4 30.4 0.0 Free Cashfl ow (4.1) (29.0) 12.8 62.8 FCFPS (cents) (0.6) (3.6) 1.6 7.8 PFCF (x) (44.4) (7.1) 16.0 3.3 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0

12 Months

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0.50

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1.50

2.00

2.50

3.00

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2000

4000

6000

8000

10000

Shares on Issue (m) 718.3 3mth ADT ($m) 0.75Market Cap. ($m) 2.0 Debt ($m) 0.052 Week Range $0.62 - $2.44 Cash ($m) 20.9


• Preliminary assessment for CIL plant is positive. The result of a preliminary assessment for Cerro del Gallo has indicated economic viability for the CIL plant, which will operate in conjunction with the heap leach, raising throughput to 5.5Mtpa from year 5 of the project. The addition of the CIL plant will increase the mine life from 8 years (as a heap leach only operation) to 15 years.

• Low cash costs bolstered by significant silver credits. Cash costs implied by the feasibility study shows Cerro del Gallo will be producing on the low end of the cost curve. Our estimates have the Stage 1 4.5Mtpa heap leach producing at cash costs of US$444/oz (US$635 excl. Ag credits). We have estimated the cash costs for the Stage 2 CIL plant at US$575/oz (US$687/oz excl. Ag credits).

• Reserve announced and in-pit resources increased. The results of the preliminary assessment of Cerro del Gallo included a maiden mining reserve of 0.7Moz Au and 15.3Moz Ag for the heap leach stage of the mine. In-pit gold resources increased by 12% to 1.66Moz and silver increased 16% to 35.37Moz.

• One of the few silver plays on the ASX. The silver price has appreciated signifi cantly in recent months threatening to break the US$50/oz mark. We reiterate the lack of investment avenues for exposure to silver on the ASX. Through CJO we gain exposure to near term gold-silver production at Cerro del Gallo, but more importantly we also gain leverage through our favoured project in Namiquipa.

• Exploration commenced at Namiquipa. A 10,000m diamond drill program has commenced to test strike and parallel Ag targets of the Princessa and Venturosa shafts as well as wider area targets of the northern and southern extensions. Historical mining of the Princessa and Venturosa shafts has averaged grades of 450g/t Ag from 1948-1955 and 270g/t Ag from 1990-2002, accordingly we believe the drilling is likely to yield high grade results.

• Catalysts. 1) Drilling results at Namiquipa 2) Acquisition of further projects in Mexico 3) Corporate activity with respect to the Queensland projects.

OUR VIEWCJO is one of the few companies listed on the ASX with exposure to the increasing silver price. The high margin Cerro del Gallo gold mine (66% CJO) is expected to be in operation by the end of CY2012. The silver credits at Cerro del Gallo provide a signifi cant cash cost saving of almost US$200/oz bringing LOM cash cost to circa US$510/oz (using US$1000/oz Au and US$17.50 Long term prices). Furthermore the solid margins gained at Cerro del Gallo will provide a funding source for the development of the Namiquipa silver project. Namiquipa is our favoured project and believe the upcoming drilling results at the historic Princessa and La Venturosa shaft mines will confi rm extensions and parallel lodes of high grade silver. We highly rate the management team and the board, who have accumulated a great deal of experience operating in Mexico with Bolnisi Gold NL before its merger with Coeur D’Alene Mines in 2007. CJO is aggressively searching for further precious metal projects in Mexico while it looks to divest its Australian assets. We upgrade CJO to a BUY rating (previously Speculative BUY) with a price target of $0.47/sh.

Cerro Resources NL CJO ($0.28)

Recommendation: BUY

Watch for drilling results at Namiquipa Analyst: Gary Watson




Year End June 30

Valuation A$m A$/sh

Cerro del Gallo 230.2 0.29 Exploration (includes Namiquipa) 30.0 0.04 Unpaid capital 44.8 0.06 Corporate (10.2) (0.01)Forwards 0.0 0.00 Cash 20.9 0.03 Debt 0.0 0.00 NPV (@ 8% discount rate) 315.7 0.39 Price Target (1.2x NPV) 0.47

NPV Sensitivity



Committed Production 0 0 0 0




Reserves Mt Au g/t Ag g/t Au koz Au koz (eq)Cerro del Gallo 32.2 0.7 14.8 712 1,087Total 32.2 0.7 14.8 712 1,087 Resources Mt Au g/t Ag g/t Au koz Au koz (eq)Cerro del Gallo 77.2 0.7 14.2 1,663 2,528Total 77.2 0.7 14.2 1,663 2,528

Directors

Name PositionNorm Seckold Non-Executive ChairmanJames Crombie Executive Vice-ChairmanAnthony McDonald Managing DirectorCraig J McPherson CFO and Alt. DirectorRichard Keevers Non-Executive DirectorRobert Bell Non-Executive DirectorJohn Cook Non-Executive DirectorNick Tintor Non-Executive Director Substantial Shareholders Shares %Norman Seckold 62.5 8.7OCJ investments 32.1 4.5




FX (A$:US$) 0.47 0.47 0.47 1Gold Price 0.38 0.47 0.56 20Silver Price 0.45 0.47 0.49 4Operating costs 0.51 0.47 0.43 (8)


Production (koz) Cerro del Gallo 0 0 33 44Total 0 0 33 44 Cost Summary Cash Costs (A$/oz) na na 129 148Total Costs (A$/oz) na na 280 300


Sales Revenue 0.0 0.0 66.4 91.2 Other Income 0.4 1.2 1.0 3.1 Operating Costs 0.0 0.0 20.3 27.5 Exploration Exp. 0.5 0.3 0.4 0.5 Corporate/Admin 1.7 1.8 1.9 1.9 EBITDA (1.7) (0.9) 44.8 64.3 Depn & Amort 0.0 0.0 5.0 6.4 EBIT (1.7) (0.9) 39.8 57.9 Interest 0.0 0.0 0.0 0.0 Operating Profi t (1.7) (0.9) 39.8 57.9 Tax expense 0.0 0.0 0.0 0.0 FX Adjustment 0.0 0.0 0.0 0.0 Abnormals NPAT (1.7) (0.9) 39.8 57.9 Normalised NPAT (1.7) (0.9) 39.8 57.9

Cash Flow (A$m) 2011F 2012F 2013F 2014F

Adjusted Net Profi t (1.7) (0.9) 39.8 57.9 + Interest/Tax/Expl Exp 0.5 0.3 0.4 0.5 - Interest/Tax/Expl Inc 2.8 2.0 2.1 2.1 + Depn/Amort 0.0 0.0 5.0 6.4 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (4.1) (2.6) 43.1 62.7 - Capex (+asset sales) 0.0 26.4 30.4 0.0 - Working Capital Increase 0.0 0.0 0.0 0.0 Free Cashfl ow (4.1) (29.0) 12.8 62.7 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 20.5 35.0 0.0 0.0 + Debt drawdown (repaid) 0.0 0.0 0.0 0.0 Net Change in Cash 15.9 6.0 12.8 62.7 Cash at End Period 20.2 26.1 38.9 101.6 Net Cash/(LT Debt) 20.2 26.1 38.9 101.6


Cash/Bullion 20.2 26.1 38.9 101.6 Total Assets 62.8 96.9 136.7 194.6 Total Debt 0.0 0.0 0.0 0.0 Total Liabilities 8.1 8.1 8.1 8.1 Shareholders Funds 54.7 88.8 128.7 186.6 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) na na na naReturn on Equity (%) na na 31.0 31.0

Cerro Resources NL $0.28

Cerro del Gallo88%

Exploration(includes Namiquipa)

12%

(koz)

(A$/o

z)

0

25

50

75

100

2013F 2014F 2015F 2016F 2017F 2018F 2019F100

200

300

400

500


Disclosure: Patersons acted as a lead manager to the placement of 89.3m CJO shares at $0.20/sh to raise A$17.9m in February 2011. It received fees for this service.

Investment Summary





12 Months

Shar

e Pr

ice

(A$)

Volu

me

'000

0.00

0.25

0.50

0.75

1.00

0

1000

2000

3000

4000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (3.8) (3.0) (3.2) (5.0)Recurrent NPAT ($m) (3.8) (3.0) (3.2) (5.0)Recurrent EPS (cents) (1.8) (1.3) (0.9) (1.4)EPS Growth (%) na na na naPER (x) (21.8) (29.4) (42.2) (27.0) EBITDA ($m) (3.8) (2.9) 2.6 0.8 EV/EBITDA (x) (19.7) (29.8) 58.0 262.3 Capex ($m) 0.9 14.6 92.3 49.7 Free Cashfl ow (13.2) (17.3) (96.1) (55.4)FCFPS (cents) (6.2) (7.8) (27.5) (15.9)PFCF (x) (6.2) (5.0) (1.4) (2.5) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Remains Cheap on an EV/Reserve Basis. CHN remains attractive on an EV/reserve basis trading at $108/oz (90%) compared to the peer average at $375/oz. We believe the higher grade and lower cost Koka deposit is an attractive development proposition with exploration upside. The Koka deposit is located in the Arabian-Nubian shield which hosts Centamin’s 14.5Moz Sukari deposit, Nevsun’s Bisha Au and base metals mine and Equinox’s Jabal Sayid Cu deposit. The region is highly under-explored attracting the attention of the likes of Newmont, AngloGold Ashanti and Barrick among others.

• Next Key Step is Agreement with ENAMCO. CHN is continuing negotiations with the government owned Eritrean National Mining Corporation (“ENAMCO”) whereby ENAMCO can acquire a 30% paid participating interest, at fair value, in the Zara Project in addition to a 10% carried interest. We understand discussions between CHN and ENAMCO are continuing with the possibility of an agreement within the next 2 months. The conclusion of the agreement would be a major catalyst for the stock and pave the way for CHN acquiring its mine development permits.

• Outstanding Exploration Upside. While the focus for CHN is the development of the Koka gold deposit there will be strong newsfl ow from its exciting exploration program. A new program is underway and will target results from the recently completed IP survey conducted over the Koka-Konate corridor. At this stage, the most promising near-mine target is Koka Deeps which lies under the proposed open pit for the project. Other targets: 1) between Koka and Konate 2) Zara North 3) Hurum.

• Two Significant Licences Granted. CHN has been granted two signifi cant exploration licences which are highly prospective for gold and Bisha-style mineralisation. The most signifi cant is the Mogoraib North EL which lies 10km north of Nevsun’s (NSU-T) Bisha mine. The second granted tenement is Hurum which adjoins Zara South and straddles the same major regional structure that hosts CHN’s 840koz Koka gold deposit.

• M&A Potential. Given the recent heightened activity in the junior gold space we believe CHN is a takeover target for aggressive mid-cap companies with aspirations of gaining a foothold in Eritrea.

• Catalysts. 1) Ongoing Drill Results 2) H1/2011 – ENAMCO Agreement/Mine Permits 3) Q2/2011 – Results of IP and VTEM Surveys 4) Q2/3 2011 – Financing 5) H2/2011 – Construction 6) H2/2012 – Pre-strip 7) 2H/2013 – Production.

OUR VIEWWe recently visited CHN’s Zara Gold Project in Eritrea and we came away impressed with the near-mine and regional upside potential which could ultimately expand the scope of the project. The site is located 160km northwest from Asmara (the capital of Eritrea) amongst mountainous terrain. The next key event for CHN is an agreement with ENAMCO which will outline the terms for its participation in the Zara Gold project. This agreement will pave the way for a mine development licence and move the project towards production. Meanwhile, CHN has commenced an aggressive exploration campaign whereby it is targeting several IP targets over the Konate-Koka corridor. Further success here could add mine life to the already robust Koka project. In addition, drilling is expected to commence on the Mogoraib North Exploration Licence (10km North of the Bisha mine) in the third Q of this year. Based on Koka’s reserves and grade we believe the stock remains undervalued trading at $108/oz compared to the peer average of $375/oz. We are placing a SPEC BUY on CHN due to negative investor sentiment towards risk in Northern Africa and until the agreement with ENAMCO is realised. Our price target decreases to $0.72/sh based on applying a 0.8x discount to our NAV (from $0.91).

Chalice Gold Mines Limited CHN ($0.39)

Recommendation: SPECULATIVE BUY

Site Visit Confi rms Our Positive View on Zara Analyst: Simon Tonkin




Chalice Gold Mines Limited $0.39 Year End June 30




FX (A$:US$) 0.80 0.72 0.66 (9)Gold Price 0.65 0.72 0.82 13Gold Grade 0.65 0.72 0.82 13Operating Costs 0.75 0.72 0.70 (4)Recovery 0.65 0.72 0.82 13


Production (koz) Koka Gold Project Total Cost Summary Cash Costs (US$/oz) na na na naTotal Costs (US$/oz) na na na naPrice Received (US$/oz) na na na na


Sales Revenue 0.6 0.1 0.0 0.0 Other Income 0.3 0.3 3.6 1.8 Operating Costs 0.0 0.0 0.0 0.0 Exploration Exp. 0.9 0.7 0.2 0.2 Corporate/Admin 3.8 2.5 0.8 0.8 EBITDA (3.8) (2.9) 2.6 0.8 Depn & Amort 0.0 0.0 0.0 0.0 EBIT (3.8) (2.9) 2.6 0.8 Interest 0.0 0.1 5.8 5.8 Abnormals (pre-tax) 0 0 0 0Operating Profi t (3.8) (3.0) (3.2) (5.0)Tax expense 0.0 0.0 0.0 0.0 Abnormals (post-tax) 0.0 0.0 0.0 0.0 NPAT (3.8) (3.0) (3.2) (5.0) Normalised NPAT (3.8) (3.0) (3.2) (5.0)

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (3.8) (3.0) (3.2) (5.0)+ Interest/Tax/Expl Exp 0.9 0.8 6.0 6.0 - Interest/Tax/Expl Inc 9.1 6.2 6.7 6.7 + Depn/Amort 0.0 0.0 0.0 0.0 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (12.0) (8.3) (3.9) (5.7)- Capex (+asset sales) 0.9 14.6 92.3 49.7 - Working Capital Increase 0.4 (3.1) 0.0 0.0 Free Cashfl ow (13.2) (19.9) (96.2) (55.4)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 20.9 13.9 80.0 0.0 + Debt drawdown (repaid) 0.0 5.0 70.0 0.0 Net Change in Cash (1.9) (0.9) 53.8 (55.4)Cash at End Period 7.7 6.7 60.6 5.1 Net Cash/(LT Debt) 7.7 1.7 (14.4) (69.9)


Cash/Bullion 7.7 6.7 60.6 5.1 Total Assets 19.1 38.2 184.9 179.9 Total Debt 0.0 5.0 75.0 75.0 Total Liabilities 0.2 5.2 75.2 75.2 Shareholders Funds 18.9 32.9 109.7 104.7 Ratios Net Debt/Equity (%) na na 13.1 66.7Interest Cover (x) na na 0.4 0.1Return on Equity (%) na na na na

Valuation A$m A$/sh

Koka Gold Project 140.3 0.40 Exploration 72.9 0.21 Koka Gold 30% Sale to ENAMCO 24.8 0.07 Unpaid Capital 81.4 0.23 Corporate (3.1) (0.01)Forwards 0.0 0.00 Cash (est.) 5.2 0.01 Debt (5.0) (0.01)NPV 316.5 0.91 (@ 8% discount rate) Price Target (0.8x DCF) 0.72

NPV Sensitivity


Hedging koz % Reserve

Committed Production 0 0




Reserves Mt Au g/t Ag g/t Au kozKoka Gold Project 4.6 5.1 760Total 4.6 5.1 760 Resources Mt Au g/t Ag g/t Au koz (eq)Koka Gold Project 5.0 5.3 840Total 5.0 5.3 0.0 840

Directors

Name PositionMr Tim Goyder Executive ChairmanDr Doug Jones Managing DirectorMr Mike Griffi ths Executive DirectorMr Anthony Kiernan Non-Executive DirectorMr Stephen Quin Non-Executive Director Substantial Shareholders %Franklin Resources 14.8Tim Goyder 11.9Lujeta Pty Ltd 6.8

Koka Gold Project65%

Exploration33%

Cash (est.)2%

(US$/

oz)

(koz

)


0

50

100

150

2011F 2012F 2013F 2014F 2015F 2016F 2017F0

300

600

900

1200

1500

1800

Investment Summary





12 Months

Shar

e Pr

ice

(A$)

Volu

me

'000

0.00

0.50

1.00

1.50

2.00

2.50

3.00

0

1500

3000

4500

6000

7500

9000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (8.7) (12.0) (0.0) (4.6)Recurrent NPAT ($m) (8.7) (12.0) (0.0) (4.6)Recurrent EPS (cents) (1.9) (1.7) (0.0) (0.7)EPS Growth (%) na na na naPER (x) (90.0) (97.5) (31,646.1) (256.1) EBITDA ($m) (8.7) (12.0) 0.0 (0.4)EV/EBITDA (x) (87.8) (92.5) 63,428.4 (2,963.8)Capex ($m) 0.4 0.4 0.4 182.1 Free Cashfl ow (11.1) (15.0) (8.5) (195.0)FCFPS (cents) (2.4) (2.2) (1.2) (28.3)PFCF (x) (70.3) (78.3) (137.9) (6.0) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Mining permit and plant approvals granted. Coalspur has achieved an important milestone with the granting of these approvals and is extremely well placed to move quickly to becoming a coal producer as soon as the BFS is complete.

• Well funded. The company has completed the fi rst tranche of a C$55.5m two tranche capital raising. The completed tranche was a public offering of 24m shares at C$1.85 totalling C$44.4m through three Canadian brokers. The second tranche will be C$11.1m placement to existing shareholder Highland Park by issue of 6m shares at the same price as the fi rst tranche.

• BFS due by end 2011. We think that the raising is positive in terms of strengthening the balance sheet ahead of the Vista Bankable Feasibility Study. The BFS was recently started and is being conducted by Snowdens and is due for completion by the end of 2011. There will be some expense related with the BFS, which will focus on the potential to increase the annual production capacity beyond the 9Mtpa saleable outlined in the PFS earlier this year, mine engineering, transport logistics, coal quality, resource modelling, Capex, Opex, price forecasting, and permitting.

• Development capital will be needed. The capital raising also allows the company to be in a stronger position as it negotiates with potential offtake or JV partners over the coming 12 months. Once the BFS is completed we expect that CPL will likely need to raise a much larger amount to cover the capital cost of the fi rst phase of the Vista project.

• More drill results expected. Further drilling has begun on Vista to confi rm coal quality, upgrade existing resource and investigate the structural potential of the Vista coal sequence to support underground longwall mining. The Silkstone seam in Vista may extend over a 16km strike length and interpretation of geological data indicates this seam has surface mining potential and it will be suitable for export. The upcoming drill results from Vista and Vista South expected during the June Q could be an additional catalyst in the coming 6 months.

• Vista South shaping up. The Vista South Coal Project has completed drilling and, though geologically less attractive than Vista, the results confi rmed signifi cant coal intercepts outside the existing resource model. The McPherson Seam was intersected and was up to 10m thick and cumulative thickness was 23m in certain areas. Results confi rm potential to consolidate the two exploration target areas within Vista South into a continuous 11km strike length zone and expand the coal resource. Further resource modeling is expected during the June 2011 Q.

OUR VIEWThe fundamentals of Coalspur are as robust as ever, 920Mt of Measured and Indicated resources of coal, 3km from a rail line with spare capacity going to a coal port with spare capacity. Coal production could be up to 8Mtpa of coal comparable to standard Newcastle coals. Coalspur owns 100% of Vista and the Vista South projects and has yet to dilute its ownership or offtake because it has been well funded at the equity level. This was reinforced by the successful completion of the fi rst C$44.4m tranche of a C$55.5m two tranche capital raising. The most recent Quarterly Report contained no reasons to deviate from these assumptions and with the capital raising the company is in a strong position to complete future milestones such as the Bankable Feasibility Study on Vista. The study is contracted to be completed by the end of 2011. In the meantime the company has received its mining permit and process plant approval for sales up to 4.2Mtpa, which is a very signifi cant milestone. Its cash level also puts the company in a good position to negotiate with potential offtake or JV partners. We have reduced our valuation marginally to $2.01/sh due to a stronger AUD and the stock has been heavily sold during the last month, oversold in our view. We have upgraded our recommendation to a BUY with a price target of $2.00/sh.

Coalspur Mines Limited CPL ($1.70)

Recommendation: BUY

Strong Position Analyst: Andrew Harrington, Matthew Trivett




Year End June 30Coalspur Mines Limited $1.70


US$/A$ 0.9912 1.0525 1.0000 0.9600Hard Coking Coal 248.75 302.50 211.25 176.25Semi-soft Coking Coal 182.50 227.50 152.50 122.50PCI 195.00 232.50 157.50 127.50Export Thermal Coal 106.00 122.50 97.50 87.50Domestic Thermal Coal (A$/t) 45.39 48.72 49.87 50.88


Attributable Saleable Coal Production Vista (kt) 1,350FOB costs (US$/t) 58.08Price Received (US$/t) 82.37 Vista South (kt) FOB costs (US$/t) Price Received (US$/t) All Mines (Kt) 1,350Cash costs (US$/t) 58.08Price Received (US$/t) 82.37


Sales Revenue 0.0 0.0 0.0 115.8 Other Income 1.0 3.1 2.7 2.9 Operating Costs 0.0 0.0 0.0 81.7 Exploration Exp. 10.0 0.0 0.0 0.0 Corporate/Admin 3.0 3.0 3.1 3.2 EBITDA (12.0) 0.0 (0.4) 33.9 Depn & Amort 0.0 0.0 0.0 20.0 EBIT (12.0) (0.0) (0.5) 13.9 Interest 0.0 0.0 4.1 20.1 Operating Profi t (12.0) (0.0) (4.6) (6.2)Tax expense 0.0 0.0 0.0 0.0 Abnormals + Minorities 0.0 0.0 0.0 0.0 NPAT (12.0) (0.0) (4.6) (6.2) Normalised NPAT (12.0) (0.0) (4.6) (6.2)

Cash Flow (A$m) 2011F 2012F 2013F 2014F

Adjusted Net Profi t (12.0) (0.0) (4.6) (6.2)+ Interest/Tax/Expl Exp 10.0 0.0 4.1 20.1 - Interest/Tax/Expl Inc 11.6 8.1 12.4 28.6 + Depn/Amort 0.0 0.0 0.0 20.0 +/- Other (Associates) 0.0 0.0 0.0 0.0 Operating Cashfl ow (13.6) (8.1) (12.8) 5.4 - Capex (+asset sales) 83.9 0.4 182.1 237.6 - Working Capital Increase 1.0 0.0 0.0 0.0 Free Cashfl ow (98.5) (8.5) (195.0) (232.2)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 141.5 0.0 0.0 0.0 + Debt drawdown (repaid) 0.0 1.0 197.1 237.6 Net Change in Cash 43.0 (7.5) 2.2 5.4 Cash at End Period 64.2 56.7 58.9 64.3 Net Cash/(Debt) 64.2 55.7 (139.2) (371.4)


Cash 64.2 56.7 58.9 64.3Total Assets 164.7 165.5 357.8 626.9Total Debt 0.0 1.0 198.1 435.7Total Liabilities 0.5 1.4 198.3 473.6Shareholders Funds 164.1 164.1 159.5 153.3 Ratios Net Debt/Equity (%) na na 87.3 242.3Interest Cover (x) na na na 0.7Return on Equity (%) na na na na

Valuation A$m A$/sh

Vista 951.1 1.38 Vista South 300.0 0.43 Coal Resources 50.0 0.07 FX Hedging 0.0 0.00 Corporate (17.8) (0.03)Unpaid Capital 38.1 0.06 Cash 64.2 0.09 Debt 0.0 0.00 NPV 1385.5 2.01 Price Target 2.00



Resources 100% Basis (Mt) (All Thermal)

Mine Meas. Indi. Total Vista Resources - Meas - Indi - Total 588.9 331.6 920.5Reserves - Prov - Prob - Total 0.0 0.0 0.0 Vista South Resources - Meas - Indi - Total 51.5 41.9 93.4Reserves - Prov - Prob - Total 0.0 0.0 0.0

Total Measured & Indicated Resources 1013.9

Directors

Name PositionIan Middlemas Non-Executive ChairmanEugene Wusaty Managing Director & CEOMark Pearce Non-Exec Director & Company SecretaryColin Steyn Non-Exec DirectorDenis Turcotte Non-Exec DirectorMark Pearce Non-Exec Director

Signifi cant Shareholders Shares (m) %Colin Steyn 106.8 20.5Gavin Argyle 46.3 8.9Deans Knight Capital 31.9 6.1Anastosios Arima 19.2 3.7Arredo Pty Ltd 9.3 1.8Ian Middlemas 9.3 1.8Eugene Wusaty 2.6 0.5

Vista

Vista South

(kt)

(US$/t

)

All Mines (Kt) Cash Costs (US$/t) Price Received (US$/t)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2012F

2013F

2014F

2015F

2016F

2017F

2018F

2019F

2020F

2021F

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

Disclosure: Patersons acted as lead manager to the placement that raised $8m at 0.32/sh for Coalspur Mines Limited in November 2009. It received a fee for this service.

Investment Summary





12 Months

Shar

e Pr

ice

(A$)

Volu

me

'000

0.00

0.10

0.20

0.30

0.40

0.50

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0.70

0

1200

2400

3600

4800

6000

7200


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 3.5 (27.8) 11.0 4.5 Recurrent NPAT ($m) 3.5 (22.9) 11.0 4.5 Recurrent EPS (cents) 0.6 (2.2) 1.1 0.4 EPS Growth (%) na na na (58.7)PER (x) 81.3 (20.8) 43.5 105.4 PEG na na na na EBITDA ($m) 4.3 (22.4) 14.2 13.8 EV/EBITDA (x) 59.7 (20.9) 33.1 40.0 Capex ($m) 3.2 9.1 2.8 78.4 Free Cashfl ow (4.0) (36.5) (0.7) (82.5)FCFPS (cents) (0.6) (3.5) (0.1) (8.0)PFCF (x) (72.1) (13.1) (662.3) (5.8) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Not a tonne of ROM coal was produced during the March Q. However, once access to the site was gained 19.5Kt of PCI was processed and sold from remaining ROM stocks. With the return to full capacity not likely until late in the June Q, we expect that full year production will total only 215kt.

• Moving overburden. 409kt of overburden above the waterline, which is falling as dewatering continues, was able to be removed. Much of this material was utilised in levee bank construction. Overburden was also removed from the area adjacent to the north east wall and production of raw coal from this area will begin this quarter. We do not believe that the main pit at Baralaba will be fully restored when there is cheaper coal accessible to the north but it is cost effective for some areas to be salvaged.

• Momentarily in the red. The reduced production and costs incurred to restore the main pit at Baralaba and other recovery costs after the fl ood such as levee bank construction will mean that it is unlikely that Cockatoo will report a profi table fi nancial year for FY11 – we expect a loss of $28m. This is an extraordinary event, and these issues will be behind the company as we move into the new fi nancial year. We believe there remains signifi cant value to be unlocked as the company returns to full capacity and resumes drilling activities on their Bowen and Surat basin tenements.

• Cash has fallen. $9m was not going to be enough though earnings from sales in the coming quarters and the potential purchase by Mitsui of a share in COK’s Surat assets means the tight cash balance was going to be a short term issue.

• $50m bank guarantee from Macquarie. This subsequent facility is viewed as a positive resolution to the decline in the company’s cash position. Part of facility fee will be paid through 20.83m options with a strike price of 64c and an expiry at the same date as the maturity date (31-Dec-13). Any proceeds from the exercise of the options will go towards repayment of the debt. We estimate the cost of the options is about $2.5m, which equates to a fee of 5% or roughly the same as an equity raising but with only a 2% dilution to shareholders as opposed to 10% if new shares had been issued. The options exercise price is 30% out-of-the-money and does represent a hurdle before they become profi table.

• Infrastructure. Discussions continue to ensure adequate port and rail requirements to support the development of the projects in both QLD and NSW and with the current sale process of Bandanna Energy’s assets there will emerge a fair market proxy for assets with attached port allocations.

OUR VIEWThe widely reported wet season in Queensland has effectively robbed Cockatoo of half a year of sales and imposed a signifi cant restoration bill. This will mean that it is unlikely Cockatoo will report a profi table fi nancial year for FY11 and the cash position was looking in a weak position. Despite these short term disruptions Cockatoo remains one of our preferred mid-cap coal stocks. The management has shown foresight and acted decisively by securing a short term fi nancing package that will be suffi cient to carry the company through these extraordinary circumstances while minimising initial cash outlay and potential dilution. It looks as though the market has priced the adverse developments but not the full potential and as such the company continues to look cheap on an EV/t comparison for a producer. It has a very strong production growth profi le over the coming 4 years. The company has been allocated 3Mtpa of WICET stage 1 and it is actively participating in further expansion of the project. Cockatoo remains on track to be a major producer. Accordingly we are retaining our BUY recommendation with a price target of $0.75/sh.

Cockatoo Coal Limited COK ($0.48)

Recommendation: BUY

Repairing the Nest Analyst: Andrew Harrington, Matthew Trivett




Year End June 30Cockatoo Coal Limited $0.48

Commodity Assump. 2010A 2011F 2012F 2013F

US$/A$ 0.8939 0.9912 1.0525 1.0000Hard Coking Coal (US$/t) 151.00 248.75 302.50 211.25Semi-soft Coking Coal (US$/t) 111.25 182.50 227.50 152.50PCI Coal (US$/t) 202.40 232.50 232.50 157.50Thermal Coal (US$/t) 110.00 122.92 122.50 97.50Domestic Thermal Coal 44.85 45.39 48.72 49.87



Baralaba/Wonbindi (kt) 353 177 326 450FOB costs (US$/t) 128.71 267.43 129.49 96.98Price Received (US$/t) 152.54 176.71 182.58 130.45 Taroom/Collingwood (kt) 0 0 0 0FOB costs (US$/t) 0.00 0.00 93.85 81.13Price Received (US$/t) 0.00 0.00 193.54 136.44 Woori (kt) 0 0 0 0FOB costs (US$/t) 0.00 0.00 60.36 56.16Price Received (US$/t) 0.00 0.00 122.32 97.49 Surat (kt) 0 0 0 0FOB costs (US$/t) 0.0 0.0 0.0 0.0Price Received (US$/t) 0.0 0.0 0.0 0.0 All Mines (kt) 353 177 326 450FOB costs (US$/t) 128.7 267.4 129.5 97.0Price Received (US$/t) 152.5 176.7 182.6 130.4


Sales Revenue 62.4 33.3 56.6 58.7 Other Income 1.5 3.7 1.8 2.9 Operating Costs 50.8 32.5 40.1 43.6 Exploration Exp. 0.0 0.0 0.0 0.0 Corporate/Admin 8.8 26.9 4.1 4.2 EBITDA 4.3 (22.4) 14.2 13.8 Depn & Amort 0.1 0.5 1.3 1.8 EBIT 4.2 (22.9) 12.9 12.0 Interest 0.7 0.1 1.9 5.2 Operating Profi t 3.5 (22.9) 11.0 6.8 Tax expense 0.0 0.0 0.0 2.3 Abnormals & Minorities 0.0 (4.9) 0.0 0.0 NPAT 3.5 (27.8) 11.0 4.5 Normalised NPAT 2.5 (16.1) 7.7 4.8

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 3.5 (27.8) 11.0 4.5 + Interest/Tax/Expl Exp 0.7 0.0 1.9 7.5 - Interest/Tax/Expl Inc 6.7 10.0 12.1 17.9 + Depn/Amort 0.1 0.5 1.3 1.8 +/- Other (Associates) 7.3 10.0 0.0 0.0 Operating Cashfl ow 5.0 (27.4) 2.1 (4.1)- Capex (+asset sales) 12.9 131.1 2.8 78.4 - Working Capital Increase 5.3 0.0 0.0 0.0 Free Cashfl ow (13.2) (158.5) (0.7) (82.5)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 42.8 145.7 0.0 0.0 + Debt drawdown (repaid) (7.5) (8.8) 57.8 58.4 Net Change in Cash 22.1 (21.6) 57.1 (24.1)Cash at End Period 32.2 10.6 67.7 43.5 Net Cash/(Debt) 27.2 9.2 8.5 (74.0)


Cash 32.2 10.6 67.7 43.5Total Assets 136.0 262.1 327.5 390.7Total Debt 5.0 1.4 59.2 117.5Total Liabilities 22.7 19.1 76.9 135.2Shareholders Funds 113.3 243.0 250.7 255.4 Ratios Net Debt/Equity (%) na na na 29.0Interest Cover (x) 5.8 (454.6) 6.7 2.3Return on Equity (%) 3.1 na 4.4 1.8

Valuation A$m A$/sh

Baralaba/Wonbindi Project 276.1 0.27 Collingwood/Taroom 218.5 0.21 Woori Project 151.3 0.15 Hume Project 27.6 0.03 Other Surat Projects 99.3 0.10 Cougar Energy Shares 0.4 0.00 Corporate (20.0) (0.02)Unpaid Capital 1.0 0.00 Ambre+ATEC Investments 5.5 0.01 Cash 10.6 0.01 Debt (1.4) (0.00)NPV 768.8 0.74 Price Target 0.75

Valuation Summary of Coal Assets



Wonbindi (PCI/Thermal) TotalResources - Meas+Ind. - Inf. - Tot. 44.7 19.4 64.1Reserves - Prov -Prob - Tot 0.0 25.8 25.8Baralaba (PCI/Thermal) Resources 17.6 76.8 94.4Reserves 0.0 7.7 7.7Woori (Thermal) Resources 84.3 0.0 84.3Reserves 0.0 40.6 40.6 Surat Projects (Thermal Resources) 209.1 407.0 616.1Kingaroy (Thermal Resources) 163.8 115.0 278.8Hume (Coking & Thermal) 34.5 0.0 34.5Group Total 554.0 618.2 1172.2

Directors

Norman Seckold Executive ChairmanMark Lochtenberg Managing DirectorPeter Nightingale CFO and Company SecretarySM Woo Non-Exec Independent DirectorPaul Chappell Non-Exec Independent DirectorGillis Broinowski Non-Exec Independent DirectorLindsay Flint, Robert Yeates Non-Exec Independent DirectorHak Hee Lee, Scott Thompson Non-Executive DirectorJoo-Ok chang Non-Executive Director

Substantial Shareholders Shares (m) %Posco Aust 134.7 13.3SK Australia Pty Ltd 55.4 5.5Kepco/Kewepo 49.9 4.9UBS 48.7 4.8Harum Energy Aust. 41.7 4.1Kores 41.4 4.1

Baralaba/Wonbindi Project

Collingwood/Taroom

Woori Project

Hume Project

Other Surat Projects

(kt)

(US$/t

)

All Mines (kt) FOB costs (US$/t) Price Received (US$/t)

0

2,000

4,000

6,000

8,000

10,000

12,000

2010A

2011F

2012F

2013F

2014F

2015F

2016F

2017F

2018F

20

70

120

170

220

270

320

Disclosure: Patersons acted as joint lead manager to a placement for COK in September 2009 that raised a maximum of $35m in two tranches, the fi rst tranche ($17.6m) at $0.33/sh and the second tranche (up to $17.4m) at $0.36/sh. It also acted as co-lead manager for an entitlement and placement at prices between $0.40 and $0.51/sh that raised $153.3m. Patersons received fees for these services.

Investment Summary





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75

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Year End December 31 2010A 2011F 2012F 2013F Reported NPAT ($m) 24.7 21.6 35.4 36.4 Recurrent NPAT ($m) 26.4 21.6 35.4 36.4 Recurrent EPS (cents) 35.5 29.1 47.6 48.9 EPS Growth (%) 1,842.5 (18.1) 63.9 2.6 PER (x) 3.6 4.4 2.7 2.6 EBITDA ($m) 39.7 31.3 49.8 66.3 EV/EBITDA (x) 1.8 2.0 0.9 0.0 Capex ($m) 5.5 22.9 26.9 6.7 Free Cashfl ow 23.5 10.4 18.4 42.5 FCFPS (cents) 31.5 14.0 24.8 57.1 PFCF (x) 4.1 9.2 5.2 2.2 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Cutback at Svartliden provides breathing room for underground development. A successful drilling campaign in late CY2010 extended the Svartliden resource to allow cutbacks on the east side of the pit extending production into 2012. The additional mill feed provided by the cutback and the low grade stockpiles will ensure an uninterrupted transition from open pit to underground mining with first U/G ore due by Q1 CY2012. Our production estimate at Svartliden for CY2011 is 32koz @ cash cost ~$US880/oz. Cash costs will be unusually high for CY2011 as the cutback stripping is expensed rather than capitalized, however we see cost returning to ~$680/oz in FY2012.

• Jokisivu underground begins production in 3Q. The Jokisivu mine produced its fi rst development ore in April and fi rst production ore is scheduled for 3Q CY2011. Jokisivu currently has a mine life of 5 years and is expected to produce 15kozpa LOM. Jokisivu feeds the Vammala production centre which is estimated to produce 30koz for CY2011 at cash cost of $750/oz.

• Exploration at Kuusamo continues to hit high grade intersections. Highlights of the recent drilling at the Juomasuo deposit (Kuusamo project) include 34.9m @ 9.3g/t and 14.5m @ 4.8g/t. Results of the re-assay program produced higher than historic results including one hole returning 50.8m @ 75.9g/t. Circa $4m has been budgeted for exploration drilling throughout CY2011 at Kuusamo. The Juomasuo deposit is the largest of 5 deposits identifi ed in the Kuusamo project area and has a current resource of 259koz Au and 2,100t Co.

• Svartliden resource update in May. Several drilling programmes have been conducted at Svartliden to test the depth extensions of the ore body to increase the planned underground resource. Multiple high grade intersections were recorded outside of the current resource including 4m @ 12.8g/t and 2m @ 32g/t. A resource update is for the Svartliden project is due in May. The current resource stands at 158koz (including reserves of 103koz).

• Catalysts. 1) Svartliden resource update 2) Continued exploration success at Kuusamo.

OUR VIEWDespite DRA’s status as a gold producer, it’s share price has historically lagged its peers due to the lack of reserves at its Scandinavian gold projects. We see a turning point for DRA, where its focus on near mine and regional exploration should expand its global resource well above the current 1.1Moz, and grow the reserve base (currently at 3 years) out beyond 5 years. The most exciting exploration upside exists in Finland at the Kuusamo project with a 383koz resource and several high grade intersections (including 50.8m @ 75.9g/t) indicating a large upside potential. The Svartliden mine will simultaneously undergo a cutback and commence development of a decline in Q3 FY2011 to maintain gold production while transitioning from open pit to underground mining. The Vammala production centre is ramping up with Jokisivu due to begin full production in Q3 CY2011. We expect DRA to produce 60koz for FY2011 at group cash cost of ~US$850/oz (includes Svartliden stripping) moving back to ~US$750/oz in FY2012. DRA is currently trading at 3.0x FY2011 EBITDA and 1.9x FY2012 EBITDA and with $33m in the bank DRA looks cheap. Price target is$2.18/sh. BUY

Dragon Mining Limited DRA ($1.28)

Recommendation: BUY

Year of the Dragon Analyst: Gary Watson




Valuation A$m A$/sh

Svartliden Gold 44 0.60 Vammala 75 1.01 Forwards (1) (0.01)Corporate (6) (0.08)Exploration 20 0.27 Unpaid Capital 0 0.00 Cash 28 0.38 Equity Investment 1 0.01 Debt 0 0.00 Price Target 162 2.18 (NAV)




Resources Mt Au g/t Au kozSvartliden 1.3 3.7 158Vammala 3.2 5.7 583Kuusamo 2.2 5.4 384Total 6.7 5.0 1124.9 Reserves Mt Au g/t Au kozSvartliden 1.0 3.2 103Vammala 0.9 4.5 128Total 1.89 3.84 231.0

Directors

Name PositionPeter Cordin Executive ChairmanMichael Naylor Finance DirectorPeter Gunzburg Non Executive DirectorTapani Jarvinen Non Executive DirectorMarkku Makela Non Executive DirectorChristian Russenburger Non Executive Director Substantial Shareholders Shares (m) %Eurogold 14 19Nicholas Mathys 11 15


A$:US$ 0.93 1.06 1.03 0.98Gold Price (US$/oz) 1227 1445 1494 1525Gold Price (A$/oz) 1321 1369 1454 1556


Production (koz) Svartliden Gold 40 32 34 34Vammala 31 29 38 56Kaapelinkulma 0 0 0 0Total Production 72 60 72 90 Cost Summary Weighted Ave Cash Costs (A$/oz) 663 850 758 771Weighted Ave Total Costs (A$/oz) 823 1010 918 931Realised price (A$/oz) 1321 1370 1454 1556


Sales Revenue 92.0 86.5 106.6 136.6Other Income 0.7 1.5 1.9 3.4 Operating Costs 47.5 51.1 54.2 69.0 Exploration Exp. 0.5 1.5 0.5 0.5 Corporate/Admin 5.0 4.0 4.1 4.2 EBITDA 39.7 31.3 49.8 66.3 Depn & Amort 9.4 9.7 11.4 14.3 EBIT 30.3 21.6 38.4 52.0 Interest 1.1 0.0 0.0 0.0Operating Profi t 29.2 21.6 38.4 52.0 Tax expense 2.8 0.0 2.9 15.6 Abnormal Losses / Minorities 1.7 0.0 0.0 0.0 NPAT 24.7 21.6 35.4 36.4 Normalised NPAT 25.9 21.6 35.4 36.4

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 24.7 21.6 35.4 36.4 + Interest/Tax/Expl Exp 4.1 1.5 3.4 16.1 - Interest/Tax/Expl Inc 9.5 6.0 5.0 17.7 + Depn/Amort 9.4 9.7 11.4 14.3 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 28.7 26.8 45.4 49.2 - Capex (+asset sales) 5.5 22.9 26.9 6.7 - Working Capital Increase 1.4 (6.5) 0.0 0.0 - Other Investing 0.0 0.0 0.0 0.0 Free Cashfl ow 21.8 10.4 18.4 42.5 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised (5.5) 0.0 0.0 0.0 + Debt drawdown (repaid) (5.2) 0.0 0.0 0.0 Net Change in Cash 19.1 10.4 18.4 42.5 Cash at End Period 23.5 33.9 52.3 94.8 Net Cash/(Debt) 23.5 33.9 52.3 94.8


Cash/Bullion 23.5 33.9 52.3 94.8Total Assets 87.5 123.2 164.2 209.0Total Debt 0.0 0.0 0.0 0.0Total Liabilities 16.4 30.5 36.0 44.5Shareholders Funds 71.0 92.7 128.1 164.5 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) 27.2 na na naReturn on Equity (%) 34.8 23.3 27.7 22.1

Year End December 31Dragon Mining Limited $1.28

Vammala63%

Svartliden Gold37%

(koz)

(A$/o

z)

Total ProductionWeighted Ave Cash Costs (A$/oz)Realised price (A$/oz)

0

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2010A 2011F 2012F 2013F 2014F0

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1600

1800

Investment Summary






Year End Dec 31 2010A 2011F 2012F 2013F Reported NPAT (A$m) 289.6 249.2 633.8 949.6 Recurrent NPAT (A$m) 329.9 343.3 633.8 949.6 Recurrent EPS (cents) 41.0 38.4 70.6 105.7 EPS Growth (%) 71.1 6.6 78.7 42.9 PER (x) 18.1 19.3 10.5 7.0 EBITDA (A$m) 599.8 779.3 1,223.3 1,704.9 EV/EBITDA (x) 11.2 9.4 5.9 4.3 Capex (A$m) 127.2 276.1 241.1 206.0 Free Cashfl ow 38.2 20.6 507.3 912.0 FCFPS (cents) 4.7 2.3 56.5 101.5 PFCF (x) 166.0 342.0 13.9 7.8 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• The price is right. The offer represents a 42% premium to the pre-MMR share price and a 16% premium to the MMR offer. We maintain our SELL recommendation at or above the C$8.15 offer price, representing a 39% premium to our DCF valuation. The conditions required EQN to terminate the offer with Lundin which should come as a relief to shareholders. The Board has recognized the value, announcing they will support the offer and terminated the Lundin bid.

• Barrick aligning with peers. Barrick shareholders may be questioning why First Quantum’s 16% stake was not acquired at $6.00/sh in November 2010 which would have represented a saving of approximately $300m. Shareholders may also be questioning the move to diversify their interests to base metals via the Lumwana copper project, with concerns ABX may forfeit a percentage of the gold company premium. Barrick maintain that they are a gold company, that the deal will align them with the peer average (ABX: 82% Au, 18% Cu and peer average 81% Au, 19% Cu) and should not affect their trading multiple.

• Looking back. Barrick has received Australian Foreign Investment clearance for its acquisition of EQN, however it is worth a look at how the deal has played out. Equinox had reportedly been watching Lundin for some time, and was forced to pull together an offer after the friendly takeover was announced by Inmet. Although the EQN offer appeared on all fronts to be superior for shareholders, Mr Lundin was adamant it was not. Those who had been eyeing off Equinox’s Lumwana were forced to move before the Lundin deal went ahead. Minmetals made the fi rst move announcing their intention to make a C$7.00/sh cash offer. Barrick then stepped up the stakes with a higher C$8.15/sh cash offer.

• EV/copper resource. Based on an EV per tonne of copper resource equivalent, EQN looks expensive. On PSL calculations EQN has an EV per tonne of copper equivalent of $2,199 compared to the copper peer average of $494/t. The relatively high valuation on an EV basis would suggest Barrick is paying a fair price for EQN.

• Key dates. The Barrick offer for EQN closes at 5pm Toronto time on 1 June 2011. As the offer is C$8.15/sh the offer remains sensitive to FX fl uctuations between AUD and CAD.

OUR VIEWBarrick Gold Corporation (S&P,TSX: ABX) has trumped Minmetals’ C$6.3bn bid for Equinox (EQN), raising the offer price to C$7.3bn (C$8.15/sh). The offer is good news for shareholders representing a signifi cant premium to the pre-offer share price, and ending chances of the expensive Lundin acquisition. We believe the offer values EQN’s assets generously and shareholders should accept the offer. However, the offer may come as a surprise to shareholders given a 16% interest in EQN was shopped around by First Quantum in November 2010 at ~$6.00 a share with no takers. This would have represented a saving of ~C$300m to ABX. Per the terms of the ABX offer the Lundin bid has been dropped. The EQN Board is supportive of the ABX offer, and has recommended shareholders accept. Whether ABX shareholders will be pleased about the deal remains to be seen, however the ~14% cooling of ABX’s share price suggests investors are not fully supportive of the move to diversify to base metals and increase debt. C$8.15/sh represents a 42% premium to the pre-Minmetals share price on 1 April. The deal will provide Barrick with exposure to copper via EQN’s Lumwana copper project. We maintain our SELL recommendation and do not believe it is likely that a superior offer will emerge.

Equinox Minerals Limited EQN ($7.91)

Recommendation: SELL

Barrick’s is a better offer Analyst: Alex Passmore, Rhys Bradley

12 Months

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Equinox Minerals Limited $7.91 Year End December 31


US$/A$ 0.93 1.06 1.03 0.98Gold (US$/oz) 1227.24 1445.41 1494.16 1525.28Silver (US$/oz) 20.13 39.91 42.60 42.45Copper (US$/lb) 3.44 4.33 4.26 4.10Uranium (US$/lb) 44.99 52.24 60.00 68.13


Lumwana Copper (100%) Copper in Concentrate (kt) 146.7 145.7 155.5 164.2Copper Cash Costs (US$/lb) 1.37 1.43 1.21 1.12 Copper Total Costs (US$/lb) 1.73 1.85 1.55 1.43 Realised Copper Price (US$/lb) 3.24 4.21 4.26 4.10 Cash Margin (US$/lb) 1.87 2.78 3.05 2.97 Jabil Sayid Copper (100%) Copper in Concentrate (kt) 35.9 64.0Copper Cash Costs (US$/lb) 1.09 0.73 Copper Total Costs (US$/lb) 1.41 1.06 Realised Copper Price (US$/lb) 4.26 4.10 Cash Margin (US$/lb) 3.17 3.36 Lumwana Uranium (100%) Uranium Oxide (t) 837Copper in Concentrate (kt) 5.8Uranium Cash Costs (US$/lb) 6.82 Realised Uranium Price (US$/lb) 68.18 Cash Margin (US$/lb) 61.36


Sales Revenue 1046.8 1352.5 1802.7 2272.5 Other Income (incl.hedging) (34.7) (23.8) 13.3 47.9 Operating Costs 454.4 494.0 526.0 615.9 Exploration Expense 6.0 10.6 12.4 12.6 Corporate/Admin 21.7 36.3 20.7 21.1 EBITDA 530.0 787.9 1256.9 1670.8 Depn & Amortisation 75.7 90.6 117.8 165.0 EBIT 454.3 697.3 1139.1 1505.7 Interest Expense 37.6 30.6 21.2 15.9 Abnormals Pre-Tax (10.2) (64.6) 0.0 0.0 Operating Profi t 406.5 602.1 1117.9 1489.8 Tax Expense 137.4 339.0 466.7 559.2 Minorities 0.0 0.0 0.0 0.0 NPAT 269.1 263.1 651.2 930.6 Normalised NPAT 306.5 362.4 651.2 930.6


Reported NPAT 269.1 263.1 651.2 930.6 +/-Exploration Adjustment (66.0) (0.0) 0.0 0.0 +/-Interest Adjustment 0.2 0.0 0.0 0.0 +Depreciation/Amortisation 75.7 90.6 117.8 165.0 +/-Tax Adjustment 101.2 26.0 0.0 0.0 +/-Other Operating Cash Flows 0.0 0.0 0.0 0.0 Operating Cash Flow 379.8 379.7 769.1 1095.6 -Capex (Net of Asset Sales) 118.1 291.5 247.8 201.9 -Other Investing Cash Flows (161.8) 153.1 0.0 0.0 -Working Capital Increase 33.9 79.1 0.0 0.0 Free Cash Flow 389.6 (144.0) 521.3 893.7 -Dividends 0.0 0.0 0.0 0.0 +New Equity 0.0 0.0 0.0 0.0 +Debt Drawdown/(Repayment) (179.2) (28.3) (106.8) (31.0)Net Change in Cash 210.3 (172.3) 414.5 862.7 Cash at End Period 319.5 147.1 561.6 1424.3 Net Cash/(LT Debt) (20.0) (164.0) 357.3 1251.1

Balance Sheet (US$m) 2010A 2011F 2012F 2013F

Cash/Bullion 319.5 147.1 561.6 1424.3Total Assets 3239.0 3402.5 3946.9 4846.5Total Debt 339.4 311.1 204.3 173.3Total Liabilities 1207.5 1104.4 997.5 966.6Shareholders Funds 2031.5 2298.1 2949.3 3879.9 Ratios Debt/Equity (%) 16.7 13.5 6.9 4.5Interest Cover (x) 1208.4 2276.0 5380.9 9449.7Return on Equity (%) 13.2 11.4 22.1 24.0

Directors Position

Peter Tomsett Non-Executive ChairmanCraig Williams Chief Executive Offi cerDave Mosher Non-Executive DirectorBrian Penny Non-Executive DirectorDavid McAusland Non-Executive DirectorJim Pantelidis Non-Executive DirectorTony Reeves Non-Executive Director

Valuation (US$) US$m US$/sh

Lumwana Copper 5552 6.18 Lumwana Uranium 200 0.22 Jabal Sayid 1377 1.53 Base Metals Exploration 150 0.17 Uranium Exploration 8 0.01 Corporate (240) (0.27)Hedging (34) (0.04)Listed Investments 2 0.00 Cash 171 0.19 Debt (396) (0.44)Unpaid Capital 27 0.03 Total (8% Discount Rate) 6817 7.59

Valuation (A$) A$m A$/sh

Exchange Rate (US$/A$) 1.06 1.06 Total (8% Discount Rate) 6431 7.16 Price Target 7.99

Price Target Sensitivities (A$) -10% 0% +10%

Copper Price 7.99 7.99 7.99 CAD$/A$ 8.88 7.99 7.26


Lumwana Copper Production Summary (EQN 100% Share)

Lumwana Reserves & Resources

Sulphide Reserves & Resources (Mt) Cu(%) Cu(kt)Malundwe: Proved Reserve 43 1.09 468Probable Reserve 78 0.79 619Malundwe Reserves 121 0.90 1086Inferred Resource 4 0.77 32Chimiwungo: Proved Reserve 82 0.70 571Probable Reserve 119 0.57 677Chimiwungo Reserves 200 0.62 1247Inferred Resource 413 0.60 2478Total Reserves 299 0.73 2186Total Resources 417 0.60 2503Oxide Reserves & Resources (Mt) Cu(%) Cu(kt)Proved Reserve 5 0.85 44Probable Reserve 4 0.52 23Total Reserves 10 0.70 67Inferred Resource 4 0.42 15Uranium Reserves & Resources (Mt) U3O8(%) U3O8(mlb)Malundwe: Probable Reserve 3 0.12 9Inferred Resource 1 0.09 2Chimiwungo: Inferred Resource 1 0.07 2Jabil Sayid (Mt) Cu(%) Cu(kt)Jabil Sayid Total 38 2.2 837

Substantial Shareholders Shares (m) (%)

Dundee Corporation 44.3 5.0 Minmetals Resources Limited 37.0 4.2 Concord Capital Ltd 29.6 3.4 ZCCM Investment Holdings Plc 20.1 2.3

Lumwana Copper97%

Lumwana Uranium3%

(kt)

(US

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Copper in Concentrate (kt)Copper Cash Costs (US$/lb)Realised Copper Price (US$/lb)

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2010A 2011F 2012F 2013F 2014F 2015F0.00

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Investment Summary





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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (35.6) (46.3) (31.6) (26.0)Recurrent NPAT ($m) (35.6) (46.3) (31.6) (26.0)Recurrent EPS (cents) (14.5) (18.3) (12.5) (7.6)EPS Growth (%) na na na naPER (x) na na na na EBITDA ($m) (51.8) (46.3) (27.2) (18.0)EV/EBITDA (x) (34.0) (39.1) (57.1) (159.8)Capex ($m) 44.5 0.2 388.6 631.2 Free Cashfl ow (48.3) (50.3) (422.7) (659.7)FCFPS (cents) (19.8) (19.9) (167.5) (193.6)PFCF (x) na na na na DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Buying Opportunity Knocks. We believe the recent plans to nationalize mining and exploration tenure and the failed bid by the Chinese presents a buying opportunity for investors to gain exposure to a tier 1 asset. EXT owns the fi fth largest uranium resource in the world and it is the highest grade alaskite resource in Namibia. We believe ultimately one of the majors will buy or joint venture the asset, most likely following the grant of the mining licence.

• DFS Capex and Operating Costs Higher than Expected. In April, Extract released the results of the DFS Study for the Husab uranium project in Namibia. The capital costs at US$1.7b were around 11% higher than our estimate. Total operating costs were US$32/lb, well above our estimate of $25/lb. Therefore the higher costs have an overall negative impact on our valuation for the company. Our base case scenario 1.0x NAV dropped to $5.30/sh (from $8.30/sh). We have examined a second scenario whereby EXT does a JV with RIO for synergistic benefi t.

• Husab Would be More Attractive Using Rio’s Rossing Mine/In Chinese Hands. In our Rio JV scenario, we estimate capital cost savings in the $600-800m range. This results in a 1.0x NAV of $8.13/sh. Therefore this is an attractive path for Extract to pursue. In addition, if the Chinese were to make good on their bid for Kalahari this could also be attractive for EXT shareholders.

• Mine Optimisation and Resource Extension (MORE) Program. EXT plans to signifi cantly expand the value of its project through 1) converting more ore to reserves 2) Steepening the pit slopes 3) Exploration and 4) Processing enhancements. However, we believe that the mining of zone 4-5 and Middle Dome could be problematic due to the endemic Welwitschia plant.

• Signifi cant Hurdles Remain. We have identifi ed a number of hurdles that EXT needs to overcome to move the Husab Uranium Project to development these include: 1) Namibian BEE 2) Mining Licence 3) Water Availability 4) Capital and op. cost increases 5) Shareholder Disagreements.

• Catalysts. 1) Q2/2011 Resource Update with a Reserve update expected to follow in H2/2011 2) Outcome of Chinese and Kalahari Appeal on UK Takeover panels decision 3) Grant of Mining Licence and decision to Proceed on Husab 4) Financing 5) mid-2011 Long-Lead time items.

OUR VIEWExtract is looking to develop the world class 392mlb Husab uranium project in Namibia. Recent comments by the Namibian Government regarding nationalisation of mining and exploration tenure have impacted the stock. However, EXT do not expect to be adversely impacted by the proposed changes and a media release by the Minister of Mines suggests that mining licences in application will be dealt with under existing procedures on their own merit without prejudice. There could be some impact if EXT wishes to involve a partner as the mining licence conditions might require the holder to approach the Namibian Government fi rst in investment opportunities. The Chinese have withdrawn their bid for Kalahari, EXT’s largest shareholder, the original bid was 290p and the Chinese wished to reduce that bid to 270p following the events at Fukushima. The UK takeover panel denied the revised bid due to the Chinese not reserving the right to bid lower and lost an appeal. The Chinese will have to wait three months before they can re-bid. We believe the negative effects of the move to nationalise mining and exploration tenure and the failed bid from the Chinese presents an opportunity for investors to gain exposure to a tier 1 asset. As such we believe that the stock will eventually be taken out (most likely following the grant of its mining licence. Key players who may be interested in EXT are the Chinese, RIO and ARMZ. We are upgrading to Buy our target price is $8.70/sh.

Extract Resources Limited EXT ($7.49)

Recommendation: BUY

Tier 1 Asset: Buying Opportunity Knocks Analyst: Simon Tonkin




Extract Resources Limited $7.49 Year End June 30


A$:US$ 0.89 0.99 1.05 1.00Uranium (US$/lb) 61.89 60.00 62.50 66.40


U Price 3.70 5.30 6.80 Rossing Sth Grade 5.20 5.30 5.40 Rossing Sth Opex 6.10 5.30 4.50


Rossing South (mlbs) 0.00 0.00 0.00 0.00 Total Production (mlbs) 0.00 0.00 0.00 0.00 Cash Cost (US$/lb) na na na naTotal Cash Cost (US$/lb) na na na naPrice Received - ($US/lb) na na na na


Sales Revenue 0.0 0.0 0.0 0.0 Other Income 3.1 3.0 0.9 13.8 Operating Costs 0.7 0.0 0.0 0.0 Exploration Exp. 44.5 39.2 13.8 14.1 Corporate/Admin 9.6 10.2 14.3 17.7 EBITDA (51.8) (46.3) (27.2) (18.0)Depn & Amort 0.0 0.0 0.0 0.0 EBIT (51.8) (46.3) (27.2) (18.0)Interest 0.0 0.0 4.4 8.0 Operating Profi t (51.8) (46.3) (31.6) (26.0)Abnormals (pre-tax) 0.0 0.0 0.0 0.0 Tax expense (16.2) 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 NPAT (35.6) (46.3) (31.6) (26.0)

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (35.6) (46.3) (31.6) (26.0)+ Interest/Tax/Expl Exp 28.3 39.2 18.3 22.2 - Interest/Tax/Expl Inc 28.3 43.3 20.7 24.6 + Depn/Amort 0.0 0.0 0.0 0.0 +/- Other (0.1) 0.0 0.0 0.0 Operating Cashfl ow (35.7) (50.4) (34.1) (28.5)- Capex (+asset sales) 0.2 0.2 388.6 631.2 - Working Capital Increase 12.5 (0.4) 0.0 0.0 Free Cashfl ow (48.3) (50.3) (422.7) (659.7)- Dividends 0.0 0.0 0.0 0.0 + Equity Raised 89.4 60.9 679.3 0.0 + Debt Drawdown (Repaid) 0.0 0.0 233.1 338.7 Net Change in Cash 41.1 10.7 489.7 (321.0)Cash at End Period 70.1 80.8 570.5 249.6 Net Cash/(LT Debt) 70.1 80.8 337.4 (322.3)


Cash/Bullion 70.1 80.8 570.5 249.6Total Assets 164.7 218.9 1113.2 1439.4Total Debt 0.0 0.0 233.1 571.9Total Liabilities 11.5 50.9 261.9 614.1Shareholders Funds 153.2 168.0 851.3 825.3 Ratios Net Debt/Equity (%) na na na 39.1Interest Cover (x) na na na naReturn on Equity (%) na na na na

Base Case NPV A$m A$/sh

Husab 948.7 2.78 Exploration 189.7 0.56 Corporate (146.7) (0.43)Forwards 0.0 0.00 Unpaid Capital 715.4 2.10 Cash 86.5 0.25 Debt 0.0 0.00 NAV 1793.7 5.27 (@ 10% disc)

Average of Base Case and RIO JV Valuations

RIO JV NPV 8.13 Average NPV 6.70 1.3x Multiple 8.71 Price Target 8.70


Uranium Production Summary


M & I Resources Mt ppm U3O8 (t) (mlbs)Zone 1 + 2 241.0 480 115,680 257.0 Total 241.0 480 115,680 257.0 Inferred Resources Mt ppm U3O8 (t) (mlbs)Zone 1 + 2 + 3 + 4 125.5 400 50,200 110 Total 125.5 400 165,880 367

Directors

Name PositionStephen Galloway Non-Executive ChairmanJonathan Leslie Managing DirectorNeil MacLachlan Non-Executive DirectorInge Zaamwani-Kamwi Non-Executive DirectorJohn Main Non-Executive DirectorRon Chamberlain Non-Executive DirectorAlastair Clayton Non-Executive Director Substantial Shareholders No. Shares %Kalahari Uranium 107.3 42.8Rio Tinto Group 35.7 14.7ITOCHU 25.1 10.3Top 20 211.9 87.1

Rossing South78%

Exploration15%

Cash7%

Total Production (mlbs)Price Received ($US/lb)Cash Cost (US$/lb)

0.00

5.00

10.00

15.00

20.00

2014F 2015F 2016F 2017F0

30

60

90

Investment Summary





12 Months

Shar

e Pr

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(A$)

Volu

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'000

1.50

3.00

4.50

6.00

7.50

9.00

0

10000

20000

30000

40000

50000

60000

Shares on issue (m) 3,118.7 3mth ADT ($m) 70.03Market Cap. ($m) 19,553.9 Debt est ($m) 3,32052 week range $3.44 - $7.27 Cash est ($m) 2,013

Year End June 30 2010A 2011F 2012F 2013F Reported NPAT (A$m) 642.4 1,033.1 1,817.6 2,123.0 Recurrent NPAT (A$m) 642.4 1,836.3 1,817.6 2,179.5 Recurrent EPS (cents) 20.6 58.9 58.3 69.9 EPS Growth (%) 12.6 216.9 5.1 13.9 PER (x) 30.4 10.6 10.8 9.0 EBITDA (A$m) 1,252.8 2,706.7 3,300.3 3,963.5 EV/EBITDA (x) 16.0 7.4 6.1 5.1 Capex (A$m) 664.4 1,106.8 191.6 3,995.9 Free Cashfl ow 621.6 436.4 1,756.7 (1,578.6)FCFPS (cents) 19.9 14.0 56.3 (50.6)PFCF (x) 31.5 44.8 11.1 (12.4) DPS (cents) 0.0 6.1 5.7 6.0 Yield (%) 0.0 1.0 0.9 1.0 Franking (%) 100 100 100 100


• Increase in forecast production. Christmas Creek processing facility is in the commissioning stage and the Chichester Hub should be running at 55Mtpa during the June Q 2011. FMG has outlined a shipping target circa 12Mt for the June Q 2011 (up from 9-10Mtpa).

• Unit costs set to drop with Christmas Creek ramp up. Unit costs of production for the March Q rose as a result of the lower production rates, commissioning of the Christmas Creek processing facility and a ramp up in contractor mining. The reported cash cost remained lower than our estimate of US$50/t for the Q but still had a notable spike from the previous Q of US$38/t to US$45/t. We see this increase in costs as a one off event and expect with the end of the wet season and ramping up of production costs will return to the US$32-37/t range.

• Earnings outlook. Excluding one of refi nancing costs FMG should report a tripling of net earnings in FY11 (US$1,800m) on our forecasts FY12 looks comparable as we assume the AUD remains high putting pressure on margins. Forecast earnings in FY13 and FY14 periods (US$2,100m and US$3,300m NPAT respectively refl ect additional production as Solomon and an expansion of the Chichester Hub to 95Mtpa come online.

• Increased resource portfolio and growth options. FMG’s resource inventory now stands at over 10bt following the release of the 1.03bt Nyidinghu resource and the 625Mt resource upgrades within the Western Hub.

• Unparallel growth options. FMG can grow production by three to four times (and possibly beyond this). This is currently not factored in by the market and remains a key attraction to the stock.

• Capital intensity remains low. The cost to ‘install’ an additional tonne of annual production capacity for FMG operations is $84/t versus an average of $107/t for the Pilbara.

• Positive catalysts. 1) Production turnaround in the June Q 2011 to re-establish medium cash costs 2) Successful ramping up to 55Mtpa by FY12 and 3) Further clarity on growth projects in terms of funding and development strategies.

OUR VIEWFMG has traded sideways since our last Resources Review in early December 2010 and we are now upgrading our recommendation with the coming 2 Qs likely to be strong periods. The company reported lower production in the March Q, due to a record northern wet season. From here the company seasonally does very well (June and Sept Qs) with production records likely to be broken as the 55Mtpa rate is achieved in the June Q. FMG’s expansion plans to which will see production of 155Mtpa iron ore by the end of FY14 are progressing with the company’s Solomon and Chichester expansion projects requiring US$8.4bn in capital likely funded internally. FMG’s capital intensity is US$84/t well below the average for projects in the Pilbara (US$107/t). The company has more growth options than most in the Pilbara with production likely to rise by four fold in the coming fi ve years. This will more than offset a softer iron ore price if the anticipated declines occur. With the AUD reducing margins across the sector and commodity prices softening FMG shows future production growth and has a track record of delivering expansions. Upgrade to BUY.

Fortescue Metals Group Limited FMG ($6.27)

Recommendation: BUY

Setting up to break records Analyst: Alex Passmore




Fortescue Metals Group Limited $6.27 Year End June 30


A$:US$ 0.89 0.99 1.05 1.00Iron Ore Fines (US$/t CFR) 83.71 150.50 160.09 125.19Iron Ore Lump (US$/t CFR) 82.01 141.51 163.10 147.74


Chichester Hub CC & CB - Lumps 0 1100 5500 6000CC & CB - Fines 0 0 0 0CC & CB - Rocket fi nes 38418 38045 49500 54000Chichester Production 38418 39145 55000 60000Chichester Sales 39152 39358 54639 59872Cost Summary (US$/t) Chichester Unit Cash Costs 33.09 56.81 62.54 59.40 Solomon Hub Solomon Fines Production 0 0 0 10000Solomon Sales 0 0 0 10000Cost Summary (US$/t) na na na na FMG TOTAL SALES 39152 39358 54639 69872 Price and Forex Ave Price Received 82.24 113.08 126.99 117.55 (FOB, moisture 7%)Forex Received (US$/A$) 0.89 0.99 1.05 1.00


Sales Revenue 3220.1 4450.5 6938.6 8213.2 Other Income 84.1 588.6 60.9 0.0 Operating Costs 1366.8 1934.3 3417.3 4138.7 Net Forex loss / (gain) (99.5) 20.6 0.0 0.0 Net Shipping Costs 612.3 282.7 0.0 0.0 Exploration Exp. 0.0 6.0 0.0 0.0 Corporate/Admin 24.7 105.6 108.7 110.9 Other expenses 280.0 7.1 0.0 0.0 EBITDA 1119.9 2682.8 3473.5 3963.5 Depn & Amort 153.2 175.1 234.9 300.5 EBIT 966.7 2507.6 3238.6 3663.1 Interest 394.2 395.6 505.7 549.5 MRRT 0.0 0.0 0.0 56.5 Operating Profi t 572.5 2112.0 2732.9 3113.6 Tax expense (1.8) 292.0 819.9 934.1 Minorities 0.0 0.0 0.0 0.0 Sign Items post-tax Gain / (loss) 0.0 77.2 0.0 0.0 NPAT 574.3 1101.2 1913.0 2179.5 Normalised NPAT 574.3 1024.0 1913.0 2179.5


Adjusted Net Profi t 574.3 1024.0 1913.0 2179.5 + Interest/Tax/Expl Exp 392.4 693.6 1325.6 1540.1 - Interest/Tax/Expl Inc 551.8 878.6 1387.0 1602.7 + Depn/Amort 153.2 175.1 234.9 300.5 +/- Leucadia Revaluation 280.0 7.1 0.0 0.0 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 848.1 1021.2 2086.6 2417.4 - Capex (+asset sales) 594.0 1097.0 201.7 3995.9 - Working Capital Increase (301.5) 364.9 0.0 0.0 Free Cashfl ow 555.6 (440.7) 1884.9 (1578.6)- Dividends (ords & pref) 0.0 93.4 186.8 186.8 + Equity raised 2.2 0.0 0.0 0.0 + Debt drawdown (repaid) (5.7) 1652.7 0.0 0.0 Net Change in Cash 580.6 1118.6 1698.1 (1765.3)Cash at End Period 1235.5 2354.2 4052.3 2286.9 Net Cash/(Debt) (2182.6) (2716.6) (1018.5) (2783.9)


Cash/Bullion 1235.5 2354.2 4052.3 2286.9Total Assets 5303.6 7610.7 9335.6 11325.7Total Debt (incl LN) 3418.1 5070.8 5070.8 5070.8Total Liabilities 3826.9 5126.2 5124.8 5122.2Shareholders Funds 1476.7 2484.5 4210.7 6203.5 Ratios Net Debt/Equity (%) 147.8 109.3 24.2 44.9Interest Cover (x) 2.5 6.3 6.4 6.7 Return on Equity (%) 38.9 44.3 45.4 35.1

Valuation A$m A$/sh

Cloudbreak & C.Creek (net of LN) 13221 4.24 Solomon Project 6515 2.09 Corporate (241) (0.08)Unpaid Capital 45 0.01 Exploration/Resources outside Reserves 2122 0.68 Cash (est) 2013 0.65Debt (excl Leucadia note) (3320) (1.07)Total @ 10% Discount Rate 20349 6.52 Price Target (4 x FY14f EBITDA) 7.59




Reserves Mt % Fe % SiChristmas Creek and Cloudbreak 1625 58.9 4.16 Resources Mt % Fe % SiCloudbreak/Christmas Creek 2463 58.20 4.46Solomon 2860 56.30 7.20Glacier Valley - Magnetite 1230 33.10 29% DTRNorth star - magnetite 1230 32.00 30% DTR

Directors

Name PositionHerb Elliot ChairmanAndrew Forrest CEORussell Scrimshaw Executive DirectorGeoff Brayshaw Non-Executive DirectorGraeme Rowley Non-Executive DirectorIan Burston Non-Executive DirectorIan Cumming Non-Executive DirectorKen Ambrecht Non-Executive DirectorLi Xiaowei Non-Executive DirectorMark Barnaba Non-Executive DirectorOwen Hegarty Non-Executive Director Substantial Shareholders: Shares (m) %The Metal Group Pty Ltd 972.8 31.2Hunan Valin Iron and Steel Co 500.0 16.0Leucadia National Corporation 247.0 7.9Magnitogorsk Iron and Steel Works 150.4 4.8

Exploration/Resourcesoutside Reserves

10%

Solomon Project30%

Cloudbreak &C.Creek (net of LN)

60%

(kt)

(A$/t

)

Chichester ProductionChichester Unit Cash CostsAve Price Received (FOB, moisture 7%)

0

20000

40000

60000

80000

100000

2010A 2011F 2012F 2013F 2014F 2015F 2016F0

20

40

60

80

100

120

140

Investment Summary





12 Months

Shar

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(A$)

Volu

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'000

0.00

0.25

0.50

0.75

1.00

1.25

1.50

0

3000

6000

9000

12000

15000

18000

21000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (2.5) (3.7) (20.0) 46.8 Recurrent NPAT ($m) (2.5) (3.7) (20.0) 46.8 Recurrent EPS (cents) (0.3) (0.3) (1.7) 4.0 EPS Growth (%) na na na naPER (x) nm nm nm 24.0 EBITDA ($m) (1.2) 5.9 71.7 202.1 EV/EBITDA (x) (482.4) 223.0 28.5 11.3 Capex ($m) 154.3 432.7 696.4 296.8 Free Cashfl ow (196.2) (449.2) (729.6) (253.3)FCFPS (cents) (22.8) (38.1) (61.8) (21.5)PFCF (x) (4.2) (2.5) (1.5) (4.4) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Taking advantage of current high spot prices. GBG will supply 480Kt of high grade lump/fi nes hematite over the next 8 months from the Karara Project to form joint cargos with SMC. GBG will be utilising SMC’s rail network and port facilities until its own infrastructure is complete at the end of 2011. This short term arrangement offers GBG exposure to buoyant iron ore prices until infrastructure is at a point where it can export in its own right.

• Karara capital costs increase by 30%. Following the announcement of capex increases of circa 30% to $2.63bn, GBG is reviewing construction costs estimates, with results due by mid year. We have included 30% increased construction cost estimates into our valuation. Development spend reached A$885.1m, with A$484.5 drawn down on the US$1.2bn loan facility. On our calculations, $350m funding is required by GBG. Of cash held, we estimate $100m is free cash and could be put towards capex, hence an additional $250m is required. We anticipate the funding will come from either (or a combination of) debt, bonds, forward iron ore sales or a rights issue.

• Funding toward working capital secured. GBG recently announced completion of formal signing of a US$336m facility with China Development Bank towards funding working capital requirements of A$430m, and US$300m of bank guarantees to provide security for rail upgrade agreements. GBG have reported cash reserves of A$241m at end of Q.

• Karara expanding to 16Mtpa. Scoping studies have been approved for commencement on stage two of the Karara Project, promising to boost throughput from 10Mtpa to 16Mtpa. It is proposed the increase in throughput will come via the addition of another module to the plant in 2015. We forecast the expansion will come at a $500m cost, and have included both the expansion cost and increased production into our valuation.

• Management changes happen smoothly. Tim Netscher replaced Garret Dixon as CEO & MD at the end of April. Mr Netscher comes from Newmont (NEM) where he was Senior Vice President Asia Pacifi c Region. Mr Netscher provides a wealth of knowledge and experience in constructing and operating major resource projects. David Richardson has been appointed CFO, replacing David Southam who resigned in late 2010.

• Catalysts. 1) Updated cost estimates for the Karara Project. 2) Clarifi cation of funding arrangements for the ~$250m in capex increases. 3) Karara stage two scoping study results.

OUR VIEWGBG recently reported its maiden hematite shipment under an ore sales agreement with Sinosteel Midwest Corporation (SMC). Initial mining rates at the Karara Iron Project have ramped up as expected with circa 276Kt of hematite mined and processed. A review of the Karara Project construction and operating costs is expected to be completed by mid year. GBG is yet to provide clarity on a course of action to account for the forecast 30% ($250m on PSL calculations) increase in project capex reported in the March Q but we believe the company may consider debt, forward sales, a rights issue or a combination of these. It was encouraging to see GBG recently secure funding towards working capital requirements and bank guarantees to provide security for rail upgrade agreements. Mr Tim Netscher, ex-Newmont has now replaced Garret Dixon as CEO & MD. Scoping studies commenced during the Q to consider the viability of a ~$500m upgrade to increase production from 10Mtpa to 16Mtpa. GBG also reported a substantial cash balance of $241m as at 31 March. Pending an announcement of updated cost estimates and a funding arrangement for Karara, we retain our HOLD rating with a price target of $0.99/sh.

Gindalbie Metals Limited GBG ($0.95)

Recommendation: HOLD

Watch for funding solution Analyst: Alex Passmore, Rhys Bradley




Year End June 30Gindalbie Metals Limited $0.95


A$:US$ 0.89 0.99 1.05 1.00Iron Ore Fines (US$/t FOB) 76.44 119.53 119.53 119.53Iron Ore Lump (US$/t FOB) 89.72 143.82 143.82 145.22Magnetite Pellets (US$/t) 88.66 158.94 177.80 180.97Magnetite Conc [bmk] (US$/t) 81.22 127.00 127.00 127.00


GBG Share of Production (kt) Mungada Hematite 0 63 875 1000Karara Magnetite 0 0 74 1255Bayuquan Pellet Plant 0 0 0 198 Cost Summary (A$/t) Mungada Hematite Cash Costs na 42.61 43.68 45.39Karara Magnetite Cash Costs na na 47.07 47.85Conc Price Received 99.94 140.94 132.73 139.70


Sales Revenue 0.00 7.35 116.07 342.64 Other Income 8.1 11.8 11.1 9.3Operating Costs 1.1 2.7 41.7 135.7 Exploration Exp. 0.1 0.8 1.6 1.7 Corporate/Admin 8.1 9.8 12.2 12.5 EBITDA (1.2) 5.9 71.7 202.1 Depn & Amort 0.9 0.5 1.2 11.1 EBIT (2.2) 5.4 70.5 191.0 Interest 0.7 5.7 31.8 53.9 Operating Profi t (2.8) (0.4) 38.7 137.1 Tax expense (0.3) 0.1 11.6 41.1 Minorities 0.0 3.3 47.1 49.1 Abnormals 0.0 0.0 0.0 0.0 NPAT (2.5) (3.7) (20.0) 46.8 Normalised NPAT (2.5) (4.0) (20.0) 46.8

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (2.5) (3.7) (20.0) 46.8 + Interest/Tax/Expl Exp (0.2) 6.6 45.0 96.7 - Interest/Tax/Expl Inc 8.3 13.5 59.7 111.6 + Depn/Amort 0.9 0.5 1.2 11.1 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (10.1) (10.0) (33.5) 43.0 - Capex (+asset sales) 154.3 432.7 696.4 296.8 - Working Capital Increase 31.9 6.4 0.0 0.0 Free Cashfl ow (196.2) (449.2) (729.8) (253.9)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 289.0 75.3 0.0 0.0 + Debt drawdown (repaid) 0.0 408.7 565.7 131.4Net Change in Cash 92.8 14.8 (164.2) (122.5)Cash at End Period 219.9 234.8 70.6 78.8Net Cash/(LT Debt) 219.9 (188.4) (918.2) (1172.1)


Cash/Bullion 219.9 234.8 70.6 78.8Total Assets 517.0 978.5 1551.0 1859.9Total Debt 0.0 423.2 988.8 1250.9Total Liabilities 54.0 443.8 1036.3 1298.4Shareholders Funds 463.0 534.6 514.7 561.5 Ratios Net Debt/Equity (%) na 35.2 178.4 208.7Interest Cover (x) (3.3) 0.9 2.2 3.5Return on Equity (%) na na na 8.3

Valuation A$m A$/sh

Karara Hematite 173 0.15 Karara Magnetite 602 0.51 Bayuquan Pellet Plant 266 0.23 Exploration 151 0.13 Corporate (20) (0.02)Unpaid Capital / new equity 4 0.00 Cash 241 0.20 Debt (245) (0.21)Total @ 10% Discount Rate 1171 0.99Price Target 0.99


Iron Ore Production Summary (GBG share)


Karara Magnetite Mt % FeReserves 977 36.5Resources 2518 34.1 Mungada Hematite Mt % FeReserves 10.9 61.7Resources 27.1 61.5

Directors

Name PositionGeorge Jones Non-Executive ChairmanTim Netscher Managing DirectorMichael O’Neil Non-Executive DirectorYu Wanyuan Non-Executive DirectorChen Ping Non-Executive DirectorWang Heng Non-Executive DirectorShao An Lin Non-Executive Director Substantial Shareholders Shares (m) (%)Ansteel 255.7 27.4JP Morgan 46.7 5.1Top 20 471.1 50.4

Karara Magnetite50%

Bayuquan Pellet Plant22%

Exploration13%

Karara Hematite15%

Karara MagnetiteKarara Magnetite Cash CostsConc Price Received

(kt)

(A$/t

)

0

1000

2000

3000

4000

5000

6000

7000

8000

2010A 2011F 2012F 2013F 2014F 2015F0

20

40

60

80

100

120

140

160

Investment Summary





12 Months

Shar

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(A$)

Volu

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'000

8.50

9.50

10.50

11.50

12.50

13.50

14.50

0

300

600

900

1200

1500

1800


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 32.7 59.2 147.5 105.2 Recurrent NPAT ($m) 32.7 59.2 147.5 105.2 Recurrent EPS (cents) 39.1 41.3 103.0 73.4 EPS Growth (%) (60.1) 5.8 149.2 (28.7)PER (x) 25.3 23.9 9.6 13.5 EBITDA ($m) 53.6 100.9 238.8 183.2 EV/EBITDA (x) 15.6 14.9 6.0 7.5 Capex ($m) 40.4 8.7 29.1 2.1 Free Cashfl ow (37.3) 53.0 118.5 118.1 FCFPS (cents) (44.6) 37.0 82.8 82.5 PFCF (x) (22.2) 26.7 12.0 12.0 DPS (cents) 0.0 6.0 36.0 36.0 Yield (%) 0.0 0.6 3.6 3.6 Franking (%) 100.0 100.0 100.0 100.0


• RoM fell 26% YoY. A disappointing quarterly production result for the third quarter of FY11, with RoM coal production down by 26% to only 589kt compared to 798kt in the previous corresponding period. For the three quarters to date, RoM production was down by a lower 9% to 2,103kt compared to 2,307kt last year. This is the lowest level in over 2 years.

• Saleable Production down but sales maintained. Production of Saleable coal was also down – by 32% in the March Q at 342kt compared to 502kt in 2011. For the three quarters to date Saleable production was down 13% to 1,231kt compared to 1,427kt last year. However, sales were kept up from stockpiles, with GCL able to sell 496kt, which is only 6% below the 529kt of March 2010. For the year to date, sales are in fact up by 5.7% to 1,525kt compared to 1,443kt last year. The proportion of coking sales was 40% in the quarter, above the rate for the preceding quarters.

• Planned production increase on track. GCL has stated that production for the Full Year will be 1.9Mtpa (which we interpret as sales of 2.1Mtpa) and reiterated that it still expects future coal output to rise to 3.5Mtpa by 2014, although the pending announcement of any transactions will substantially change these assumptions. Of the current output estimate, up to 2Mtpa will be coking coal.

• Middlemount stake to 47.52%. GCL has exercised its options, acquired from Noble, to buy a larger stake in the Middlemount coal mine. This, plus the increase in coking coal prices, has seen the asset owned by GCL increase in value to $514m from $413m previously.

• Another Noble Vend. An announcement is due shortly but the newswires are speculating that GCL is fi nalising a deal to takeover Noble’s Donaldson Coal and two tenements held by the related Ellemby Resources Ltd worth an estimated $600 million. Donaldson Coal operates in the Hunter Valley and is 100% owned by Noble. Interests associated with Brendan McPherson own 20% of Ellemby. McPherson is a director of Donaldson, a former senior executive of Noble Group and was appointed chief executive of Gloucester in February.

• Noble dilution. Using a 5 day VWAP prior to the trading halt of $10.04/sh GCL will need to issue between 59.8m and 66.4m shares (using up to a 10% discount on the VWAP) to raise $600m. This implies a post capital raising share value of $9.62-$9.94/sh and it will dilute Noble’s shareholding to 45% assuming they do not participate.

OUR VIEWGloucester has maintained a strong sales performance with a signifi cant portion of sales being coking coal (40%). These sales were maintained by running down stocks as ROM and saleable coal production was sharply lower for the third quarter of FY11. The main reason cited for the disappointing production numbers was delays in receiving approvals for extension work at Duralie and Stratford. We expect that subsequently GCL’s coking coal share will increase as it has exercised the option, purchased from Noble, to increase its share in Middlemount mine to 47.5%. The $400m raised to make the purchase was seen as a positive as it increased coking coal production and diluted Noble’s shareholding to 65%. GCL is in a trading halt at the time of writing pending the announcement of “two potential acquisitions and a capital raising involving retail and institutional investors” which we expect to be related to the purchase of another Noble asset - Donaldson. Without knowing the particulars, we assume that GLC will raise in the vicinity of $500-600m to buy Donaldson from Noble, which would likely further dilute Noble by about 20%. This has always been an issue with GCL and it has now come to pass. Accordingly we maintain our HOLD recommendation with a price target of $9.65/sh until further details are released.

Gloucester Coal Limited GCL ($9.90)


Another Vend Analyst: Andrew Harrington, Matthew Trivett




Valuation A$m A$/sh

Stratford/Duralie 725.4 5.07 Middlemount 469.4 3.28 Resources 314.4 2.20 Corporate (45.1) (0.31)Unpaid Capital 0.0 0.00 FX Hedging 0.0 0.00 Cash 17.6 0.12 Debt (103.5) (0.72)NPV 1378.1 9.63 Price Target 9.65



Resources & Reserves (Mt) (100% Basis)

Duralie TotalResources - Meas - Ind - Tot 10.6 22.5 33.1Reserves - Prov -Prob - Tot 11.5 13.3 24.8Duralie Underground Resources 0.9 40.0 40.9 Stratford Resources 2.7 47.2 49.9Reserves 1.8 48.2 50.0Grant & Chainey Resources 0 56.9 56.9 Middlemount Resources 89.3 31.5 120.8Reserves 69.0 27.0 96.0 Total Resources 301.6

Directors and Management

Name PositionJames MacKenzie ChairmanBrendan McPherson CEOTim Crossley Deputy CEOCraig Boyd Acting CFOWilliam Randall Non-Executive DirectorDavid Brownell Non-Executive DirectorRicardo Lieman Non-Executive DirectorGreg Fletcher Non-Executive Director

Substantial Shareholders Shares (m) %Noble Group 91.8 65.3Westpac 6.9 4.9Water Island Capital 2.5 1.8Macquarie Investments 1.4 1.0


US$/A$ 0.8939 0.9912 1.0525 1.0000Hard Coking Coal 151.00 248.75 302.50 211.25Semi-soft Coking Coal 111.25 182.50 227.50 152.50PCI 106.25 180.00 232.50 157.50Export Thermal Coal 77.00 106.00 122.50 97.50Domestic Thermal Coal 45.28 46.40 47.52 48.63


Attributable Coal Sales Stratford/Duralie (Kt) 1,787 2,131 2,702 2,597FOB costs (US$/t) 74.84 103.38 100.34 92.64Price Received (US$/t) 106.23 134.23 164.44 119.54 Middlemount (Kt) 24 704 1,557FOB costs (US$/t) 75.26 93.43 84.70Price Received (US$/t) 203.79 214.63 159.85

All Mines (Kt) 1,787 2,154 3,406 4,154Cash costs (US$/t) 74.84 103.07 98.91 89.67Price Received (US$/t) 106.23 134.99 174.82 134.64


Sales Revenue 229.3 296.1 565.8 559.3 Other Income 0.2 7.8 2.4 5.9 Operating Costs 152.2 193.8 320.1 372.5 Exploration Exp. 0.0 0.0 0.0 0.0 Corporate/Admin 23.7 9.2 9.3 9.5 EBITDA 53.6 100.9 238.8 183.2 Depn & Amort 11.3 10.6 18.0 23.0 EBIT 42.3 90.4 220.7 160.2 Interest 0.7 5.8 10.0 10.0 Operating Profi t 41.5 84.6 210.7 150.2 Tax expense 8.8 25.4 63.2 45.1 Abnormals & Minorities 0.0 0.0 0.0 0.0 NPAT 32.7 59.2 147.5 105.2 Normalised NPAT 29.1 59.2 147.5 105.2

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 32.7 59.2 147.5 105.2 + Interest/Tax/Expl Exp 9.5 31.2 73.2 55.1 - Interest/Tax/Expl Inc 56.1 39.3 81.5 63.5 + Depn/Amort 11.3 10.6 18.0 23.0 +/- Other (Associates) 5.5 0.0 0.0 0.0 Operating Cashfl ow 3.0 61.6 157.2 119.6 - Capex (+asset sales) 40.4 505.0 29.1 2.1 - Working Capital Increase 0.0 0.0 10.0 0.0 Free Cashfl ow (37.4) (443.4) 118.2 117.6 - Dividends (ords & pref) 0.0 8.4 50.6 50.6 + Equity raised 0.0 430.8 0.0 0.0 + Debt drawdown (repaid) 34.6 68.8 0.0 0.0 Net Change in Cash (38.0) (10.3) 67.6 67.0 Cash at End Period 27.8 17.6 85.2 152.2 Net Cash/(Debt) (6.9) (86.0) (18.4) 48.7


Cash 27.8 17.6 85.2 152.2Total Assets 264.9 833.7 984.8 1038.1Total Debt 34.7 103.5 103.5 103.5Total Liabilities 83.7 170.9 225.1 223.8Shareholders Funds 181.2 662.7 759.7 814.3 Ratios Net Debt/Equity (%) 3.8 13.0 2.4 naInterest Cover (x) 58.1 15.5 22.1 16.0Return on Equity (%) 18.1 8.9 19.4 12.9

Year End June 30Gloucester Coal Limited $9.90

Stratford/Duralie

Middlemount

All Mines (Kt) Cash Costs (US$/t) Price Recieved (US$/t)

(kt)

(US$/t

)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010A

2011F

2012F

2013F

2014F

2015F

2016F

2017F

2018F

2019F

2020F

2021F

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

Investment Summary





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1.25

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9000

12000

15000


Year End December 31 2010F 2011F 2012F 2013F Reported NPAT ($m) 77.2 55.5 75.2 75.1 Recurrent NPAT ($m) 29.1 55.5 80.1 95.0 Recurrent EPS (cents) 2.5 4.8 4.5 5.3 EPS Growth (%) 183 90 (6) 19PER (x) 26.7 14.1 15.0 12.6 EBITDA ($m) 121.4 122.6 227.4 264.9 EV/EBITDA (x) 5.2 5.2 2.8 2.4 Capex ($m) 5.7 31.5 299.8 825.0 Free Cashfl ow 37.6 148.8 (132.1) (637.9)FCFPS (cents) 3.2 12.8 (7.4) (35.6)PFCF (x) 20.7 5.3 (9.1) (1.9) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• March Q weak although turnaround expected. GRR reported weak production for the March Q from Savage River operations (SR). Ore production was lower as remediation of the east wall continued. Longer haul distances and truck rebuilds impacted the amount of ore delivered to stockpiles. A total of 248k BCMs of ore were delivered to the ROM. On our estimates deliveries to the SR concentrator on a normalised basis need are required to be maintained at 370k BCMs to maintain a production rate of 2Mtpa conc.

• Savage River well positioned following shutdown. A major shutdown of the SR concentrator and the Port Latta pellet plants was completed during the March Q. With the replacement of a ball mill and a major welding repair to an AG mill the concentrator ran for two of three months of the Q. Pellet production at Port Latta was lower in line with lower production at the SR concentrator.

• Earnings impact. We have revised our revenue forecasts down by 13% to $296m (CY2011) on the back of the lower production reported this Q. Our forecast for GRR’s EBIT has moved from $87m to $46m (down 47%).

• Currency also impacting earnings. The higher AUD is also impacted GRR significantly, as its currency exposure is entirely unhedged. A 10% move in our dollar assumption impacts our FY13f EBITDA by circa 40%.

• Provisional price benefi t. GRR has announced a one-off provisional pricing adjustment of US$70m as it moves to Platts IODEX based price for its Pellets. This index is published daily.

• GRR not immune from rising cost pressures. The Southdown PFS which had been due for release in early 2011 was released on 9 May 2010. Capital costs at $2.57bn were above initial estimates of US$2bn in addition the company has not been immune to rising production cost pressures in the sector with unit operating costs now forecast to be US$60/t concentrate (up from US$47/t initial est).

• Funding. We have assumed the Southdown project is funded via a mix of debt and equity. For a 70% share in the project GRR will need A$1,800m which we assume will be sourced 40% equity / 60% debt. This implies that GRR needs to raise $420m in equity, will use $300m from Savage River cash fl ow and will raise the remainder as debt fi nancing A$1,080m.

OUR VIEWGRR recently announced the results of a pre-feasibility study into the Southdown magnetite project near Albany, WA which showed for an annual throughput of 10Mtpa iron ore concentrate the capital cost of development will be A$2,570m. Funding for this and valuations on this growth project are set to drive the fortunes of GRR in the medium term. On our estimates the project only shows mundane returns ($300mpa EBITDA on PSL Fe, AUD assumptions) which equates to a return of 12% on capital invested. Due to lower production in the March Q (plant shutdown) we have adjusted our underlying CY2011 EBIT forecast down by $40m. However this has been offset by an upwards revision of $70m (i.e. net $30m up) following a one off US$70m provisional pricing gain to be reported in the June HY (PSL EBIT forecast for GRR is $82m). With the AUD appreciating by 10% to US$1.07 GRR’s margins are signifi cantly impacted which remains a key risk to our investment thesis. We continue to rate GRR a BUY (PT$0.98/sh) as its comes into its next growth phase, the stock has had the tainted image of being ‘ex-growth’ which is set to be removed as Southdown progresses.

Grange Resources Limited GRR ($0.67)

Recommendation: BUY

Moving to a new growth phase Analyst: Alex Passmore




Grange Resources Limited $0.67 Year End December 31


A$:US$ 0.93 1.06 1.03 0.98Iron Ore Fines (US$/t FOB) 105.16 119.53 119.53 119.53Iron Ore Lump (US$/t FOB) 125.79 143.82 143.82 148.01Magnetite Pellets (US$/t FOB) 123.67 168.99 175.18 184.57Magnetite Conc (US$/t FOB) 111.74 127.00 127.00 127.00


Production (kt) Savage River 2347 1694 2358 2544Southdown (conc) 0 0 0 0Total Production 2347 1694 2358 2544 Cost Summary (A$/t) Savage River (incl pre-strip) 71.10 103.64 95.45 93.51Southdown 0.00 0.00 0.00 0.00Weighted Ave Cash Costs 71.10 103.64 95.45 93.51Ave Price Received (FOB) 132.64 205.49 175.63 193.49


Sales Revenue 311.32 348.03 414.20 492.19 Other Income (SR Stock Movements) (10.4) 0.9 44.2 16.6 Operating Costs 170.4 220.5 225.1 237.9 Exploration Exp. 1.8 1.8 1.9 1.9 Corporate/Admin 7.4 4.0 4.1 4.2 EBITDA 121.4 122.6 227.4 264.9 Depn & Amort 37.3 40.0 55.7 60.0 EBIT 84.1 82.6 171.7 204.8 MRRT 0.0 0.0 4.9 20.0 Interest 9.6 3.3 59.4 77.6 Operating Profi t 74.5 79.3 107.4 107.3 Tax expense 45.5 23.8 32.2 32.2 Minorities 0.0 0.0 0.0 0.0 Abnormals 48.2 0.0 0.0 0.0 NPAT 77.2 55.5 75.2 75.1 Normalised NPAT 79.3 55.5 75.2 75.1

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 77.0 55.5 75.2 75.1 + Interest/Tax/Expl Exp 56.8 28.9 93.5 111.7 - Interest/Tax/Expl Inc 16.3 29.1 93.7 111.9 + Depn/Amort 37.3 40.0 55.7 60.0 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 154.8 95.3 130.6 134.9 - Capex (+asset sales) 5.7 31.5 299.8 825.0 - Working Capital Increase 63.6 (85.0) 0.0 0.0 Free Cashfl ow 85.5 148.8 (169.2) (690.1)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 0.0 420.0 0.0 0.0 + Debt drawdown (repaid) (44.9) (12.5) 968.0 (7.0)Net Change in Cash (4.0) 556.3 798.8 (697.1)Cash at End Period 91.9 648.2 1447.0 749.9 Net Cash/(LT Debt) 44.9 613.7 444.5 (245.6)


Cash/Bullion 91.9 648.2 1447.0 749.9Total Assets 799.9 1381.7 2466.3 2583.6Total Debt 47.0 34.5 1002.5 995.5Total Liabilities 236.8 343.2 1352.6 1394.8Shareholders Funds 563.1 1038.6 1113.7 1188.8 Ratios Net Debt/Equity (%) (8.0) (59.1) (39.9) 20.7Interest Cover (x) 8.8 25.2 2.9 2.6Return on Equity (%) 13.7 5.3 6.7 6.3

Valuation A$m A$/sh

Savage River 829 0.46 Southdown 350 0.20 Exploration 30 0.02 Corporate (20) (0.01)Unpaid Capital 420 0.23 Equity Investment 1 0.00 Cash 197 0.11 Debt (47) (0.03)Total @ 10% Discount Rate 1759 0.98Price Target 0.98


Savage River Iron Ore Production Summary


Savage River Magnetite Mt % DTRReserves 149 49.2Resources 316 50.7 Southdown Magnetite (100%) Mt % DTRReserves 388 35.5Resources 654 36.5

Directors

Name PositionXi Zhiqiang ChairmanNeil Chatfi eld Deputy ChairmanRussell Clark Managing DirectorHong Lin Zhao Non-Executive DirectorClement Cheung Ko Non-Executive DirectorMr Peter Stephens Non-Executive DirectorJohn Hoon Non-Executive Director Substantial Shareholders Shares (m) (%)Shagang 551.0 47.2RGL 143.6 12.5Pacifi c Minerals 161.3 13.8Acorn 50.0 4.3Stemcor 32.0 2.7

Savage River69%

Exploration2%

Southdown29%

(kt)

(A$/t

)

Savage RiverWeighted Ave Cash CostsAve Price Received (FOB)

0

500

1000

1500

2000

2500

3000

2010A 2011F 2012F 2013F 2014F 2015F 2016F 2017F020406080100120140160180200220

Disclosure: Patersons acted as underwriter for GRR’s 1:1 non renounceable pro-rata rights issue in August 2009 which raised $124m. It received a fee for this service.

Investment Summary





12 Months

Shar

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3.00

4.00

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6.00

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8.00

9.00

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1000

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2000

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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 27.1 34.3 94.3 111.8 Recurrent NPAT ($m) 27.7 33.2 94.3 111.8 Recurrent EPS (cents) 24.2 16.5 46.8 55.5 EPS Growth (%) 13.8 (31.9) 184.1 18.5 PER (x) 25.6 37.6 13.2 11.2 EBITDA ($m) 58.2 71.6 163.4 191.5 EV/EBITDA (x) 9.7 13.9 6.6 5.6 Capex ($m) 31.1 60.8 120.0 111.0 Free Cashfl ow 21.9 (32.8) (8.6) 20.9 FCFPS (cents) 19.1 (16.3) (4.3) 10.4 PFCF (x) 32.5 (38.1) (144.5) 59.8 DPS (cents) 1.0 12.0 9.0 11.0 Yield (%) 0.2 1.9 1.5 1.8 Franking (%) 100 100 100 100


• Becoming a diversifi ed miner. IGO which has historically focused on nickel and gold has completed its takeover of Jabiru Metals Ltd (JML). This sees the company emerge as a diversifi ed player with interests in nickel (Long), gold (30% of Tropicana), copper, zinc and lead (Jaguar and Stockman).

• Reaction to the merger with JML. IGO announced the off-market takeover of JML on 9 February 2011 (1:8 basis). Initially the market responded poorly to the deal believing IGO paid a premium at the implied value of $532m for JML. However we believe the takeover is a good fi t, providing IGO with a pipeline of exploration and development opportunities and affording the ex-JML projects (Stockman capex requirement is estimated at $190m) with funding to take them into production. IGO has compulsorily acquired JML as of 12 May 2011.

• Valuation updated for the integration. Our updated IGO valuation includes JML’s Jaguar/Bentley and Stockman projects, and the target price has been adjusted accordingly. Our DCF valuation is $7.39/sh with a price target of $8.13/sh.

• Nickel production marginally lower. The March Q saw production fall 16% short of forecasts, which was attributed the Moran development where airway ventilation works and drilling for extensions were completed. Consequently cash costs moved higher (actual A$5.52/lb versus forecast A$4.37/lb). Mine life remains a key area to watch with exploration at Moran North highlights including an intercept of 5m at 12.2% Ni.

• Tropicana construction commences. While the feasibility study for the Boston Shaker open pit development as a start to Tropicana is pending with release in the September Q, site mobilization have works commenced indicating the project is moving ahead. We are expecting a 33 month build period and $730m in pre-production capital. Once complete the project will be operating at 6Mtpa throughput at a head grade of 2.5g/t Au for 450kozpa Our forecasts call for A$615/oz unit cash costs.

• Jaguar. Full year forecast copper production is expected to be consistent with guidance for the FY of 9-10kt with full year forecast zinc production down from 20kt to 15-17kt. The decline at Bentley is continuing with forecast ore mining scheduled for Q1 FY12.

• Catalysts. 1) Bentley mining in Q1 FY12. 2) Reserve/resource upgrades at Jaguar and extension of mine life. 3) Boston Shaker and Havana Deeps feasibility and pre-feasibility study results. 4) Successful integration of the two companies and delivery of cost savings through synergies.

OUR VIEWFollowing a strong run from mid-2010 with a buoyant gold price and news of Tropicana development, IGO announced a $532m deal to takeover JML on a 1:8 scrip basis in early February. This put signifi cant downwards pressure on the stock as the market held the view it was over paying. The deal has since closed and we see the assets as a good fi t for IGO adding $61mpa NPAT to the group in the coming years (implying 8.7x P/E acquisition multiple). IGO will acquire a highly prospective pipeline of exploration projects and JML will gain improved access to funding. We also believe the management teams of the companies are complimentary with IGO historically being exploration focused while JML management have a strong project development track record. FY12 looks like a strong year for IGO as the impact of the JML acquisition is seen in the company’s operating profi t (on our estimates EPS almost triples). Funding for IGO’s share of Tropicana and Stockman will be met internally with the company able to maintain a dividend on our forecasts ($560m in operating cash fl ow versus $330m in capital expenditure commitments). We rate IGO a BUY with a target price of $8.13/sh.

Independence Group NL IGO ($6.20)

Recommendation: BUY

Bolting on earnings with JML Analyst: Alex Passmore, Rhys Bradley




Year End June 30Independence Group NL $6.20


A$:US$ 0.89 0.99 1.05 1.00 Gold (US$/oz) 1,093 1,356 1,483 1,507 Copper (US$/lb) 3.04 4.00 4.31 4.20 Nickel (US$/lb) 8.75 11.12 11.75 11.43 Zinc (US$/lb) 0.94 1.03 1.11 1.11


Victor/Long Nickel Production (t) Nickel in Concentrate 8,615 8,849 9,766 11,116Copper in Concentrate 643 640 720 840Per Pound of Payable Nickel Net Nickel Cash Cost (A$/lb) 4.00 4.19 4.43 4.16 Nickel Total Cost (A$/lb) 5.58 6.13 6.32 6.02 Net Nickel Cash Cost (US$/lb) 3.57 4.16 4.66 4.16 Nickel Price Received (US$/lb) 8.29 10.53 11.40 11.22

Tropicana Gold Production (koz) Tropicana Gold Production (IGO) Gold Cash Costs (A$/oz) Gold Cash Costs (US$/oz) Gold Price Received (US$/oz)

Jaguar/Bentley Zn in Concentrate (kt) 26.8 19.2 18.1 18.1Cu in Concentrate (kt) 9.2 9.0 9.7 8.2Silver in Cu Concentrate (moz) 0.6 0.8 0.7 0.7**(Net of copper and silver credits)

Stockman Zn in Concentrate (kt) 0.0 0.0 0.0 7.5Cu in Concentrate (kt) 0.0 0.0 0.0 10.0Silver in Cu Concentrate (moz) 0.0 0.0 0.0 0.0**(Net of copper and silver credits)


Sales Revenue 111.1 161.1 293.0 330.5Other Income 5.6 11.4 12.1 9.8Operating Costs 45.5 71.9 121.5 128.2Exploration Exp. 7.3 9.9 14.0 14.3Corporate/Admin 5.8 19.0 6.1 6.3EBITDA 58.2 71.6 163.4 191.5 Depn & Amort 18.8 21.6 26.4 29.6EBIT 39.4 50.0 137.0 161.9 Interest 0.0 0.0 2.3 2.2 Operating Profi t 39.4 50.0 134.8 159.7 Tax expense 11.7 16.8 40.4 47.9 Abnormal Losses / Minorities 0.6 (1.1) 0.0 0.0 NPAT 27.1 34.3 94.3 111.8 Normalised NPAT 27.8 33.2 94.3 111.8

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 27.7 33.2 94.3 111.8 + Interest/Tax/Expl Exp 18.9 26.7 56.7 64.4 - Interest/Tax/Expl Inc 28.1 37.1 65.5 72.9 + Depn/Amort 18.8 21.6 26.4 29.6 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 37.4 44.4 111.9 132.9 - Capex (+asset sales) 31.1 60.8 120.0 111.0 - Working Capital Increase (15.6) 16.3 0.0 0.0 Free Cashfl ow 21.9 (32.7) (8.1) 21.9 - Dividends (ords) 5.7 14.6 18.1 22.1 + Equity raised 0.5 158.6 0.0 0.0 + Debt drawdown (repaid) 0.0 0.0 (15.0) (40.0)Net Change in Cash 16.7 111.3 (41.2) (40.2)Cash at End Period 144.0 255.3 214.1 173.9 Net Cash/(LT Debt) 144.0 255.3 174.1 173.9


Cash/Bullion 144.0 255.3 214.1 173.9Total Assets 273.5 450.7 580.1 633.6Total Debt 0.0 0.0 40.0 0.0Total Liabilities 58.8 58.6 111.8 75.6Shareholders Funds 214.8 392.0 468.3 558.0

Ratios Net Debt/Equity (%) na na na naInterest Cover (x) na na 59.9 74.4Return on Equity (%) 12.6 8.8 20.1 20.0

Valuation A$m A$/sh

Victor/Long 217 1.08 Tropicana 420 2.08 Jaguar/Bentley 322 1.60 Stockman 111 0.55 Forward Sales (8) (0.04)Corporate (29) (0.14)Exploration 201 1.00 Unpaid Capital 4 0.02 Cash (est post raise) 252 1.25 Debt est 0 0.00 DCF @ 8% Discount Rate 1490 7.39 Price Target 10% Premium to NPV 1,639 8.13

Sensitivity Price Target +10% 0% -10%

Nickel Price 8.41 8.13 7.88 Gold Price 9.01 8.13 7.26 A$ : $US 6.64 8.13 9.98


Nickel Production Summary

Reserves & Resources as June 10

(Ni, Zn & Cu)/MozReserves Mt % kt (Au &Ag) Long Ni 1.32 4.1 53.9Tropicana (100%) Au 45.00 2.3 3.33 IGO (30%) 13.50 2.30 1.00Jaguar/Bentley Zn 3.23 7.9 255.6 Cu 3.2349 1.8 58.2 Ag 3.2349 0.99 0.10Resources Long Ni 1.70 5.4 91.9Tropicana (100%) Au 75.3 2.07 5.01 IGO (30%) 22.59 2.07 1.50Jaguar/Bentley Zn 4.68 7.2 337.0 Cu 4.68 2.1 98.3 Ag 4.68 0.98 0.15Stockman Zn 12.50 4.4 550.0

Directors

Name PositionRodney Marston Non Executive DirectorChristopher Bonwick Managing DirectorKelly Ross Executive DirectorJohn Christie Non Executive DirectorOscar Aamodt Non Executive ChairmanPeter Bilbe Non Executive Director

Substantial Shareholders Shares (m) %JP Morgan 40.0 20National Nominees 30.2 15HSBC 26.7 13Citicorp 14.4 7

Cash (est post raise)17%

Exploration13%

Stockman7%

Jaguar/Bentley21%

Tropicana28%

Victor/Long14%

Nic

kel in

con

c (t

)

(US$/l

b)

Nickel in Concentrate Net Nickel Cash Cost (US$/lb)Nickel Price Received (US$/lb)

0

2,500

5,000

7,500

10,000

12,500

2010A 2011F 2012F 2013F 2014F 2015F0.00

2.50

5.00

7.50

10.00

12.50

Investment Summary





12 Months

Shar

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0.00

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20000

40000

60000

80000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (43.0) (24.8) 257.6 567.9 Recurrent NPAT ($m) (17.6) (24.8) 257.6 567.9 Recurrent EPS (cents) (1.0) (1.4) 14.4 31.8 EPS Growth (%) na na na 120.5 PER (x) (205.2) (151.1) 14.6 6.6 EBITDA ($m) (16.5) (24.8) 267.8 601.7 EV/EBITDA (x) (195.0) (142.2) 12.8 5.1 Capex ($m) 36.0 218.3 152.8 256.2 Free Cashfl ow (38.8) (254.3) 110.5 330.0 FCFPS (cents) (2.3) (14.2) 6.2 18.5 PFCF (x) (93.1) (14.8) 34.0 11.4 DPS (cents) 0.0 0.0 0.0 0.0


• LYC has received its operating licence for the Mt Weld Rare Earth Concentration plant and will begin feeding ore into the concentrator in the third week of May. LYC has announced that rare earth concentrate will be produced 10 days later. This is an important milestone for LYC and more milestones are coming in a short period of time. Concentrate will be shipped to Malaysia and fi rst feed into the LYC Advance Materials Plant (LAMP) will begin in September. Shortly thereafter it will produce fi nished Rare Earth Oxide product for sale.

• LYC has all of its approvals for both the concentrator and LAMP but is now only waiting for an independent panel of international experts to conduct a one-month audit of the Malaysian LAMP which is in response to local community apprehension around the minor radioactivity of thorium in the main waste product – phosphogypsum – which LYC is aiming to store and sell for road base or building material.

• Phase1 capacity is 11ktpa and LYC has recently executed a fi nancing and supply agreement with Sojitz to accelerate the ramp-up to 22ktpa of REO. Ramp-up is now expected to be achieved by the end of Calendar 2012 (early 2013 in our modelling). The deal sees LYC supplying 8.5ktpa (40% of total production) for 10 years to Japan in exchange for Sojitz buying $25m in new LYC shares and providing $225m in fi nance. This supply constitutes 30% of Japanese total demand for REO and shows the urgent imperative to source supplies outside of China, which has continued to cut exports.

• The company is fully funded for the ramp up. It has raised $100m in new equity, $225m in debt and will have earnings from the second half of 2011. With cash of $205m at the end of March and $75m of capex in the current quarter we estimate that LYC will have $221m at the end of FY11 without drawing down on its new fi nancing package.

• A REO supply response is coming with Mt Weld and Mountain Pass in the USA bringing substantial new volumes to the market. The Chinese quota system (controlling 95% of supply), and the development of new applications (and substitutes) for REO mean that a supply demand balance is very diffi cult to determine but one cannot expect ongoing record prices and super margins. Our long term REO price has risen to $40/kg.

• The transaction with Forge that has caused much consternation to shareholders because of its related-party nature, with Executive Chairman Nick Curtis being a large shareholder in Forge, has been cancelled at the cost of $0.6m to LYC. We saw it as immaterial except in terms of the division of loyalties for Nick Curtis at such a crucial time for the development of LYC.

OUR VIEWLynas is only months away from becoming the fi rst new Rare Earth Oxide (REO) supplier outside China and with prices at record levels it is an attractive company in this space. The company has received its operating licence for the Mt Weld Rare Earth Concentration plant and will begin feeding ore into the concentrator in the third week of May. The resulting concentrate will be shipped to Malaysia in September to produce the fi nished Rare Earth Oxide product for sale. We expect REO prices that are made up of the prices of 15 individual elements to eventually decline but the current market fundamentals for the majority of the 15 elements are very supportive. Our short term price assumptions are $80/kg, half of current spot prices of $163/kg, and our long term prices are $40/kg, a quarter of current spot prices. The company is fully funded for it to achieve forthcoming milestones with $220m in cash plus further funds raised through a combination of issuing equity and debt. Our valuation has risen and we re-iterate our BUY recommendation with a price target of $2.95/sh.

Lynas Corporation Limited LYC ($2.10)

Recommendation: BUY

Imminent product and record prices Analyst: Andrew Harrington




Year End June 30Lynas Corporation Limited $2.10


A$:US$ 0.89 0.99 1.05 1.00Mt Weld suite of REO (US$/t) 12976 79131 80908 41318Mt Weld suite of REO (US$/kg) 12.98 79.13 80.91 41.32Lanthanum (US$/kg) 6.62 69.26 69.88 26.51Cerium (US$/kg) 5.39 69.55 67.06 13.25Neodymium (US$/kg) 24.84 104.36 110.76 82.46Praseodymium (US$/kg) 24.64 100.66 107.43 82.46Samarium (US$/kg) 4.09 50.93 50.79 13.99Dyprosium (US$/kg) 155.48 358.07 371.31 338.68Europium (US$/kg) 503.75 501.46 733.24 1531.41Terbium (US$/kg) 449.25 707.84 995.77 1767.01


Lanthanum 1,468 4,672Cerium 2,691 8,563Neodymium 1,065 3,389Praseodymium 306 975Samarium 131 416Dyprosium 7 23Europium 26 81Terbium 4 12Total REO Production (t) 5,758 18,320Cash Cost (US$/kg) 18.53 9.73


Sales Revenue 0.0 0.0 357.3 760.9 Other Income 9.1 13.0 15.5 30.5 Operating Costs 16.4 0.0 76.6 160.8 Exploration Exp. 0.0 0.2 0.0 0.0 Corporate/Admin 9.2 37.6 28.4 28.9 EBITDA (16.5) (24.8) 267.8 601.7 Depn & Amort 1.2 0.0 5.8 18.3 EBIT (17.6) (24.8) 262.1 583.4 Interest 0.0 0.0 4.5 15.5 Operating Profi t (17.6) (24.8) 257.6 567.9 Tax expense 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 NPAT (17.6) (24.8) 257.6 567.9 Signifi cant item gains / (losses) (25.4) 0.0 0.0 0.0 Normalised NPAT (43.0) (24.8) 257.6 567.9

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (43.0) (24.8) 257.6 567.9 + Interest/Tax/Expl Exp 0.4 0.2 4.5 15.6 - Interest/Tax/Expl Inc 0.7 0.4 4.6 15.6 + Depn/Amort 1.2 0.0 5.8 18.3 +/- Other 0.0 (11.0) 0.0 0.0 Operating Cashfl ow (42.2) (35.9) 263.3 586.1 - Capex (+asset sales) 36.0 218.3 152.8 256.2 - Working Capital Increase (39.3) 0.0 0.0 0.0 Free Cashfl ow (38.8) (254.3) 110.5 330.0 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 431.5 101.5 0.0 0.0 + Debt drawdown (repaid) 0.0 0.0 152.8 32.9 Net Change in Cash 388.5 (184.4) 263.3 362.9 Cash at End Period 405.2 220.8 484.1 847.0 Net Cash/(Debt) 405.2 220.8 331.3 661.2


Cash 405.2 220.8 484.1 847.0 Total Assets 640.7 676.8 1130.6 1830.4Total Debt 0.0 0.0 152.8 185.8Total Liabilities 21.5 20.2 216.5 348.4Shareholders Funds 619.1 656.6 914.2 1482.0 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) na na 58.1 37.6 Return on Equity (%) na na 28.2 38.3 Gearing (%) (9.2) (189.5) (50.7) (56.8)

Valuation A$m A$/sh

Mt Weld 5044 2.82 Crown Polymetallic 25 0.01 Kangankunde- Malawi 56 0.03 Exploration remainder of Mt Weld 0 0.00 Exploration Crown poly-metallic 5 0.00 Forwards 0 0.00 Corporate (194) (0.11)Unpaid Capital 69 0.04 Cash 221 0.12 Debt 0 0.00 DCF @ 10% Discount Rate 5,226 2.93 Price Target 5,226 2.95


Rare Earth Prices 2.57 2.93 3.28 Neodymium Price 2.79 2.93 3.06 A$ : US$ 3.32 2.93 2.60


REO Production Summary


Reserves Mt Grade (%) REO (kt)Mt Weld 2.08 15.5 322Resources Mt Grade (%) REO (kt)Mt Weld - CLD 9.9 10.7 1,057Mt Weld - Duncan 7.6 4.8 366Kangankunde- Malawi 2.5 4.2 107Crown Tantalum & Niobium Deposit 37.7 1.2 437Total 57.7 3.4 1,968

Directors

Name PositionNick Curtis Executive ChairmanDavid Davidson Non Executive DirectorJacob Klein Non Executive DirectorLiam Forde Non Executive Director

Substantial Shareholders Shares (m) %Morgan Stanley 172.9 10.2JP Morgan Chase 76.5 4.5JP Morgan Asset Mgmt 24.0 1.4Carmignac Gestion 22.0 1.3Van Eck Associates 17.6 1.0General Electric 16.9 1.0Nick Curtis 16.0 0.9Fidelity International 9.7 0.6Fidelity Management 9.6 0.6Capital Research Global 55.0 3.2

Mt Weld99%

Crown Polymetallic1%

(t)

(US$/k

g)

Total REO Production (t)Cash Cost (US$/kg)Mt Weld suite of REO (US$/kg)

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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 124.7 212.0 448.2 406.0 Recurrent NPAT ($m) 120.7 212.0 448.2 406.0 Recurrent EPS (cents) 41.3 70.2 148.4 134.4 EPS Growth (%) (31.9) 70.1 111.4 (9.4)PER (x) 27.9 16.4 7.8 8.6 EBITDA ($m) 226.8 334.9 688.7 636.4 EV/EBITDA (x) 13.7 9.1 4.0 4.1 Capex ($m) 79.2 75.9 64.5 55.7 Free Cashfl ow 98.1 113.3 406.0 381.6 FCFPS (cents) 33.5 37.5 134.4 126.3 PFCF (x) 34.3 30.7 8.6 9.1 DPS (cents) 25.0 35.0 74.0 67.0 Yield (%) 2.2 3.0 6.4 5.8 Franking (%) 100.0 100.0 100.0 100.0


• RoM fell 45% YoY. RoM coal production fell by 45% to 725kt compared to 1,328kt in the previous corresponding period. For the three quarters to date, RoM production was down a less substantial 25% to 3,367kt compared to 4,468kt last year. This is the lowest quarter since 2003.

• Saleable Production and Sales crashed. Production of Saleable coal was also down – 56% in the March Q 2011 at 523kt compared to 1,180kt in 2010. For the three quarters to date Saleable production was down 26% to 2,790kt compared to 3,766kt last year. Worse still, without substantial stockpiles, sales fell to 476kt, which is 61% below the 1,226kt of March 2010. For the year to date, sales are down by 27% to 2,899kt compared to 4,001kt last year. The proportion of PCI sales was only 75% in the quarter.

• Smoother sailing going forward. MCC had previously revised downward its production guidance for FY11 to 4.2Mt but has now revised it to 3.8-4.2Mt. We have assumed in our modelling that FY11 production will be down by 24% to 3.8Mt. The company has lifted force majeure and the next six months should see a return to higher production volumes combined with much higher realised prices from PCI contracts (once rollover tonnages are concluded by June). FY12 production will be back over 5Mt not including the production from Middlemount.

• Earnings and Balance Sheet look strong. Guidance for FY11 NPAT is $185m to $205m, below our most recent estimate of $220m before any abnormals. This represents a 48-64% increase on last year. We highlight also that MCC has over $500m in cash at bank.

• Increased coal reserves. In addition to the coal resources and reserves increase relating to the Codrilla and Middlemount projects, in February and March respectively, MCC has announced a signifi cant upgrades at two other projects - West Rolleston and Vermont East/Willunga. This has increased total coal resources by 622Mt from 1,635.9Mt to 2,257.9Mt this fi nancial year. MCC holds a 90% joint venture interest in the West Rolleston thermal coal deposit and an 85% joint venture interest in the Vermont East/Willunga low volatility PCI deposit providing a net coal resource increase of 543.1Mt attributable to the Company.

• The prospect of a takeover. Appears to have diminished although we still see it as a possibility. The company’s commitment of $25m per annum on exploration and development of the existing portfolio of coal tenement will build the asset base and increase the value of the company prior to any bid.

OUR VIEWAll of the large cap coal producers have their blemishes but looking forward MCC looks like the standout in terms of valuation and relative to its peers. Granted it reported a very poor result for the third quarter of FY11 where ROM coal production fell 45% and sales fell by 56%. These results were to be expected as the company has been under force majeure conditions since December due to the QLD fl oods. The force majeure has been lifted and the impacts of the fl ooding will only linger for the next few months, including rollover commitments. Then we should see a return to higher production volumes combined with higher prices. However those prices and returns will be reduced by the strength of the Aussie dollar, which has knocked 80c per share off our previous valuation. The semi-hard coking coal from Middlemount will contribute less to future growth after GCL increased its holding to 47.5%. However, development of MCC’s large portfolio of exploration and operating assets will support growth. The share price has reacted positively to the recent profi t guidance and increase in coal resources at West Rolleston and Vermont East/Willunga tenements. We are maintaining our BUY recommendation despite the fact that our revised Aussie dollar assumptions have taken some of the shine off our price target which is currently $14.15/sh.

MacArthur Coal Limited MCC ($11.50)

Recommendation: BUY

Strength on future sales Analyst: Andrew Harrington, Matthew Trivett




Valuation A$m A$/sh

Coppabella 706.3 2.34 Moorvale 871.1 2.88 Middlemount 463.2 1.53 Codrilla 618.4 2.05 Monto 89.1 0.29 Resources 1191.4 3.94 Corporate (100.2) (0.33)FX Forwards 1.1 0.00 Cash 524.2 1.74 Debt (88.6) (0.29) NPV 4276.0 14.15 Price Target 14.15

Valuation Summary of Coal Assets

Coal Sales Summary (Mt)

Resources 100% Basis (Mt)

Meas. Indic. TotalCoppabella 59.7 121.6 181.3Moorvale/Moorvale West 167.0 68.6 235.6Olive Downs 56.4 53.3 109.7Monto 22.4 50.0 72.4Vermon East/Wilunga 170.0 123.6 293.6Codrilla 42.8 12.7 55.5West Rolleston 47.2 105.9 153.1Middlemount 89.3 31.5 120.8 Total Resources 1222.0

Directors

Name PositionKeith De Lacy Non-Executive ChairmanRoger Marshall Non-Executive Deputy ChairmanNicole Hollows Managing Director & Chief Executive Offi cerMartin Kriewaldt Non-Executive DirectorPeter Forbes Non-Executive DirectorTerry O’Reilly Non-Executive DirectorChen Zeng Non-Executive Director Signifi cant Shareholders Shares (m) %CITIC Australia Coal 71.7 23.7ArcelorMittal 42.2 14.0POSCO 21.2 7.0Fidelity 15.2 5.0UBS 13.2 4.4


US$/A$ 0.8939 0.9912 1.0525 1.0000Hard Coking Coal (US$/t) 151.00 248.75 302.50 211.25Semi-soft Coking Coal (US$/t) 111.25 182.50 227.50 152.50PCI Coal (US$/t) 111.25 195.00 232.50 157.50Thermal Coal (US$/t) 77.00 106.00 122.50 97.50Coke price (US$t) 302.00 497.50 605.00 422.50



Coppabella (kt) 2,699 1,943 2,620 2,620FOB costs (US$/t) 82.3 90.4 99.3 91.5Price Received (US$/t) 118.3 175.8 212.4 157.4 Moorvale (kt) 2,334 1,897 2,600 2,600FOB costs (US$/t) 65.3 82.7 81.9 75.1Price Received (US$/t) 111.4 161.8 194.4 145.4 Two Operating Mines (kt) 5,033 3,840 5,220 5,220FOB costs (US$/t) 74.4 86.6 90.6 83.3Price Received (US$/t) 115.1 168.9 203.4 151.4


Sales Revenue 667.5 691.3 1220.6 1304.1Other Income 25.0 22.5 31.9 42.8 Operating Costs 423.8 338.9 543.5 689.8 Exploration Exp. 0.0 0.0 0.0 0.0 Corporate/Admin 41.9 40.0 20.3 20.7 EBITDA 226.8 334.9 688.7 636.4 Depn & Amort 31.3 24.3 38.3 47.3 EBIT 195.6 310.6 650.5 589.1 Interest 12.2 7.7 10.1 9.1 Equity Accounted (10.9) 0.0 0.0 0.0 Operating Profi t 172.4 302.9 640.3 580.1 Tax expense 47.8 90.9 192.1 174.0 Abnormals & Minorities 0.0 0.0 0.0 0.0 NPAT 124.7 212.0 448.2 406.0 Normalised NPAT 120.7 212.0 448.2 406.0

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 124.7 212.0 448.2 406.0+ Interest/Tax/Expl Exp 60.0 98.6 202.2 183.1 - Interest/Tax/Expl Inc 108.6 114.6 218.4 199.6 + Depn/Amort 31.3 24.3 38.3 47.3 +/- Other (Associates) 70.0 (31.1) 0.0 0.0 Operating Cashfl ow 177.3 189.2 470.3 436.8 - Capex (+asset sales) 130.2 370.9 64.5 55.7 - Working Capital Increase 0.0 0.0 0.0 0.0 Free Cashfl ow 47.1 (181.7) 405.8 381.1 - Dividends (ords & pref) 53.4 130.6 126.9 223.5 + Equity raised 62.0 499.5 0.0 0.0 + Debt drawdown (repaid) 24.5 (10.8) 29.5 (24.3)Net Change in Cash 80.2 176.4 308.4 133.2 Cash at End Period 347.8 524.2 832.6 965.9 Net Cash/(Debt) 248.4 435.6 714.5 872.0


Cash 348.2 524.2 832.6 965.9Total Assets 1567.1 1994.8 2621.4 2799.6Total Debt 99.4 88.6 118.2 93.8Total Liabilities 438.5 259.7 661.7 636.2Shareholders Funds 1128.6 1735.0 1959.7 2163.4 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) 16.1 40.2 64.3 64.9Return on Equity (%) 10.7 12.2 22.9 18.8

Year End June 30MacArthur Coal Limited $11.50

Coppabella

Moorvale

Middlemount

Codrilla

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MontoCodrillaMiddlemountMoorvaleCoppabella

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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT (A$m) (31.3) (39.7) (26.0) 15.5 Recurrent NPAT (A$m) (31.3) (39.7) (26.0) 15.5 Recurrent EPS (cents) (22.7) (29.0) (12.3) 7.4 EPS Growth (%) na na na naPER (x) (30.2) (23.6) (55.4) 92.8 EBITDA (A$m) (31.3) (39.7) (24.4) 33.8 EV/EBITDA (x) (30.2) (23.6) (62.6) 43.3 Capex (A$m) 1.1 55.0 210.9 25.8 Free Cashfl ow (14.5) (82.7) (239.3) (2.1)FCFPS (cents) (10.5) (60.3) (113.7) (1.0)PFCF (x) (65.3) (11.3) (6.0) (690.7) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• ARMZ Deal Attractive. The ARMZ deal represents a premium to shareholders of 16.9% to our target price and represents $10.06/lb of resource. It is unsurprising to us that the Russian’s have taken an interest in Mantra given its quality assets in a jurisdiction that Russia has worked in before (Tanzania). We attended a lunch in Toronto in August 2010 where the head of Rosatom indicated that Russia was keen to become more involved in uranium mining. Rosatom is involved in approximately 17% of uranium enrichment compared to only 4% of uranium mining under Rosatom’s subsidiary ARMZ. Rosatom is keen to bring these fi gures closer together and has already taken a 51% holding in Uranium One (UUU-T) and has made its offer for Mantra.

• Quality Asset; Near-Term Production. The Nyota deposit at 101.4mlb is a quality asset for the following reasons: 1) The shallow ore is free dig; therefore cash costs should remain in the lowest quartile of uranium producers. 2) Capital costs are reasonably low at US$298m with over half of that cost related to infrastructure for the project. 3) Grades at 422ppm are high enough to sustain a low-cost operation.

• Operations Team Already in Place. The feature that really stood out with MRU is that over the past 12 months MRU has assembled an outstanding operations team to ensure that the project was optimised for a smooth ramp up to production. The approach was to optimise the project before it reaches production to prevent ramp-up issues and improve the overall effi ciency of the project. From a Russian point of view many of these people would need to stay on-board to reach MRU’s original production estimate of 2013.

• Plenty of Exploration Upside. MRU has commenced its near mine exploration drill program with fi rst results in November. This could ultimately expand the Nyota resource by 100mlb.

• Timetable of Scheme of Arrangement (Proposed): – 20 May 2011: Scheme Meeting; – 25 May 2011: Second Court Hearing for approval of

the Scheme; – 30 May 2011: Proposed Effective Date of the Scheme

and last day of trading on the ASX and TSX; – 6 June 2011 Record Date for Entitlements; – 9 June 2011 Implementation Date.

OUR VIEWMRU is a uranium exploration and development company with a portfolio of assets in Southern Africa. The company’s key focus is the Mkuju River Project in Tanzania where it discovered multiple thick zones of sandstone hosted uranium mineralisation at the 101.4mlb Nyota deposit. In December 2010, MRU and ARMZ Uranium Holding Co. (ARMZ) entered into a Scheme Implementation Agreement (i.e. friendly deal) under which ARMZ will acquire all of the issued share capital in MRU by way of a Scheme of Arrangement with minimal conditions. Following the events of Fukushima, Japan and the impact on the uranium market ARMZ revised downward by 12.5% its all-cash consideration to $6.87/sh with a $0.15/sh special dividend (from $8/sh). This values the Company at approximately A$1.02 billion. The Scheme Booklet has been dispatched to shareholders and the next key date is 20 May 2011 whereby a Scheme Meeting will be held to vote on the deal. The proposed implementation date is Thursday 9 June 2011. We believe the deal is attractive for MRU shareholders considering the current environment for uranium. We have a $6.60/sh target price on MRU based on our revised multiple from 1.5 to 1.2x NAV. Our recommendation is for MRU shareholders to accept the offer.

Mantra Resources Limited MRU ($6.84)


Quality Project: Accept ARMZ Offer Analyst: Simon Tonkin, Rhys Bradley




Year End June 30Mantra Resources Limited $6.84


A$:US$ 0.99 1.05 1.00 0.96Uranium (US$/lb) 60.00 62.50 66.40 68.81

Sensitivities -10% 0% +10% % Chg

FX (A$:US$) 8.70 8.40 8.20 (2)U Price 7.10 8.40 9.70 15Grade 7.10 8.40 9.70 15Operating Costs 8.80 8.40 8.00 (5)


Mkuju River (Attributable) 0.00 0.00 1.64 3.29 Total Production (mlbs) 0.00 0.00 1.64 3.29 C1 Cash Cost (US$/lb) na na 24.74 23.00Cash Cost (US$/lb) na na 28.10 26.44Total Cash Cost (US$/lb) na na 36.21 34.33 Price Received - ($US/lb) na na 67.31 68.81

Profi t & Loss (US$m) 2011F 2012F 2013F 2014F

Sales Revenue 0.0 0.0 99.2 203.9 Other Income 2.4 6.3 2.6 2.1 Operating Costs 0.8 0.0 51.1 96.8 Exploration Exp. 36.9 27.8 11.7 12.0 Corporate/Admin 4.1 4.1 5.0 5.1 EBITDA (39.4) (25.7) 33.8 92.2 Depn & Amort 0.0 0.0 13.3 26.0 EBIT (39.4) (25.7) 20.6 66.2 Interest 0.0 1.7 3.1 0.7 Operating Profi t (39.4) (27.3) 17.5 65.5 Abnormals (pre-tax) 0.0 0.0 0.0 0.0 Tax expense 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 2.0 6.3 NPAT (39.4) (27.3) 15.5 59.2

Cash Flow (US$m) 2011F 2012F 2013F 2014F

Adjusted Net Profi t (39.4) (27.3) 15.5 59.2 + Interest/Tax/Expl Exp 36.9 29.5 14.8 12.7 - Interest/Tax/Expl Inc 36.9 32.0 19.9 17.8 + Depn/Amort 0.0 0.0 13.3 26.0 +/- Other (0.2) 0.0 0.0 0.0 Operating Cashfl ow (39.6) (29.8) 23.7 80.1 - Capex (+asset sales) 54.6 222.0 25.8 22.3 - Working Capital Increase (12.2) 0.0 0.0 0.0 Free Cashfl ow (82.0) (251.8) (2.1) 57.8 - Dividends 0.0 0.0 0.0 0.0 + Equity Raised 302.7 0.0 0.0 0.0 + Debt Drawdown (Repaid) 0.0 91.9 (64.2) (4.2)Net Change in Cash 205.6 (159.9) (66.3) 53.6 Cash at End Period 284.3 124.4 58.1 111.8 Net Cash/(LT Debt) 284.3 32.5 30.4 88.2

Balance Sheet (US$m) 2011F 2012F 2013F 2014F

Cash/Bullion 284.3 124.4 58.1 111.8Total Assets 363.8 428.4 379.7 619.1Total Debt 0.0 91.9 27.8 23.6Total Liabilities 22.6 114.5 50.4 230.5Shareholders Funds 341.2 313.8 329.3 388.6 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) na na 6.7 92.6Return on Equity (%) na na 4.7 15.2

A$m A$/sh

Mkuju River 639.1 3.04 Exploration 213.0 1.01 Corporate (51.4) (0.24)Forwards 0.0 0.00 Unpaid Capital 306.8 1.46 Cash 51.8 0.25 Debt 0.0 0.00 NPV 1159.3 5.51 (@ 10% disc) Price Target 6.60 (1.2x NAV)




M & I Resources Mt ppm (mlb) U3O8 (t)Mkuju River (200ppm cut) 67.7 439 65.5 29,720 Total 67.7 439 65.5 29,720 Inferred Resources Mt ppm (mlb) U3O8 (t)Mkuju River (200ppm cut) 41.2 395 35.9 16,274 Total 41.2 395 35.9 16,274 Total 108.9 422 101.4 45,994

Directors

Name PositionIan Middlemas Non-Executive ChairmanPeter Breese CEOTed Mayers Non-Executive DirectorRob Behets Executive DirectorColin Steyn Non-Executive DirectorWilliam Smart Alternative for Colin Steyn Substantial Shareholders No. Shares %Highland Park SA 16.1 12.4Deans Knight 11.5 8.8Anglo Pacifi c Group 8.3 6.4Haywood Securities 8.1 6.2 Top 20 115.9 89.0

Mkuju River56%

Exploration18%

Unpaid Capital26%

Total Production (mlbs) Cash Cost (US$/lb)

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Shares on Issue (m) 478.9 3mth ADT ($m) 0.03Market Cap. ($m) 64.7 Debt est ($m) 0.052 Week Range $0.05 - $0.16 Cash est ($m) 10.2

Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (9.2) (7.4) (5.9) 7.5 Recurrent NPAT ($m) (9.0) (7.4) (5.9) 7.5 Recurrent EPS (cents) (1.9) (1.6) (1.2) 1.6 EPS Growth (%) na na na naPER (x) (7.1) (8.7) (11.0) 8.6 EBITDA ($m) (8.8) (7.4) (5.9) 23.6 EV/EBITDA (x) (6.9) (9.7) (24.7) 7.6 Capex ($m) 2.4 17.4 66.5 51.7 Free Cashfl ow (10.1) (26.2) (73.0) (33.3)FCFPS (cents) (2.1) (5.5) (15.2) (6.9)PFCF (x) (6.4) (2.5) (0.9) (1.9) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• MII enters non-binding heads of agreement to sell Lennard Shelf to NWME. MII’s major shareholder NWME (41.3%) has entered into a non-binding Heads of Agreement (HOA) to purchase the Lennard Shelf project for A$78m. Following the transaction MII will hold approximately $68m cash (net of tax). Provided the deal goes through, MII is cash backed at $0.14/sh.

• Aliya gold project. The HOA to purchase of 75% of the non-alluvial mining assets of Russian based gold company Omchak has been extended to 11 July 2011. Omchak is a subsidiary of UK listed Petropavlovsk PLC and owns the Aliya gold project in Eastern Russia. Aliya is currently at the Australian equivalent of Pre-Feasibility stage. Construction at Aliya is scheduled to commence in Q1 CY2012. The acquisition is contingent on successful due diligence being completed prior to the expiry of the HOA.

• Uncertain until more drilling is done. The purchase price is US$40m ($A36.8m) giving the project an EV/resource oz range of A$45-A$70 using the current exploration target of 700oz-1,100oz. We are conscious of the fact that this valuation ignores the risk of converting an exploration target to a resource and we will view the transaction with uncertainty until more drilling is done.

• Exploration at Aliya. The Aliya gold project has an exploration target of 700oz-1,100oz formulated using a database consisting of 414 drill holes. The previous drilling has identifi ed the ore body as a series of steeply dipping, high grade, narrow veins within alteration zones of up to 2m in width. MII’s due diligence has confi rmed the average grade is 10.5g/t. Petropavlovsk will be spending a further US$10m on resource defi nition and extension drilling in CY2011 with MII’s share of the program likely be paid through cash fl ows once the project is operating.

• Thomson exploration drilling commences. MII has commenced drilling at its Thomson copper-gold project in NSW. The programme consists of drilling 6 individual holes into targets identifi ed from geophysical surveys of the area. Further drilling is dependent on success of the initial program. The Thomson project area lies under thick cover and is relatively under explored.

• Copper and gold preferred. MII is aggressively searching for other projects and have indicated a preference for copper and gold assets in or near production.

OUR VIEWMII recently entered into a non-binding Heads of Agreement (HOA) to sell the Lennard Shelf lead-zinc project for $78m to its major shareholder NWME. Considering ~$27m was spent on acquisition and development of the project, MII will be realising signifi cant value from the investment. After the transaction MII will hold approximately $68m in cash (after tax) and is on the hunt for its next project. The non-binding HOA to acquire a 75% stake in Russian gold company Omchak has been extended to 11 July 2011 while MII does its due diligence. Our view is neutral on the Russian gold project, pending the outcome of MII’s due diligence and an upcoming $10m drilling programme. While the Russian HOA is non-binding MII continues to assess other ventures and has indicated a preference for gold and copper projects in or near production. We see MII as a cash box, however, we do attribute signifi cant upside value to management, who have a proven track record of locating and developing quality assets. We rate MII as a Speculative BUY with a price target of $0.15/sh.

Meridian Minerals Limited MII ($0.135)


Turning lead into gold Analyst: Gary Watson




Meridian Minerals Limited $0.135 Year End June 30


A$:US$ 0.89 0.99 1.05 1.00 Copper (US$/lb) 3.04 4.00 4.31 4.20 Lead (US$/lb) 0.95 0.98 1.02 1.04 Zinc (US$/lb) 0.94 0.98 1.02 1.04 Silver (US$/oz) 17.28 29.77 42.63 42.53 Gold (US$/oz) 1,093 1,356 1,483 1,507


Kapok Zn in Concentrate (kt) 13.61Pb in Concentrate (kt) 23.71Silver in Cu Concentrate (moz) 0.18Zn + Pb Cash Cost (A$/lb) 0.80Zn + Pb Cash Cost (US$/lb) 0.79Zn + Pb Total Cost (A$/lb) 0.95**(Net of silver credits)**


Sales Revenue 0.0 0.0 0.0 83.3 Other Income 0.1 0.3 3.3 2.4 Operating Costs 2.0 0.0 0.0 60.2 Exploration Exp. 5.6 6.0 2.5 1.7 Corporate/Admin 1.4 1.8 2.0 2.1 EBITDA (8.8) (7.4) (1.2) 21.7 Depn & Amort 0.1 0.0 0.0 11.4 EBIT (8.9) (7.4) (1.2) 10.3 Interest 0.0 0.1 2.0 4.0 Operating Profi t (9.0) (7.6) (3.2) 6.3 Tax expense 0.0 0.0 0.0 2.6 Minorities 0.0 0.0 0.0 0.0 Abnormals (0.2) 0.0 0.0 0.0 NPAT (9.2) (7.6) (3.2) 3.7 Normalised NPAT (6.3) (5.3) (2.2) 4.4

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (9.2) (7.6) (3.2) 3.7 + Interest/Tax/Expl Exp 5.6 6.1 4.5 8.3 - Interest/Tax/Expl Inc 7.0 7.6 5.1 8.7 + Depn/Amort 0.1 0.0 0.0 11.4 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (10.5) (9.1) (3.8) 14.7 - Capex (+asset sales) 2.4 17.4 66.5 51.7 - Other investing cashfl ow (4.8) 0.0 0.0 0.0 - Working Capital Increase (2.8) (0.4) 0.0 0.0 Free Cashfl ow (5.3) (26.0) (70.3) (37.1)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 12.2 113.1 0.0 0.0 + Debt drawdown (repaid) 0.0 0.0 60.0 (5.0)Net Change in Cash 6.9 87.1 (10.3) (42.1)Cash at End Period 7.4 94.5 84.2 42.1 Net Cash/(LT Debt) 3.5 94.5 24.2 (12.9)


Cash 7.4 94.5 84.2 42.1Total Assets 15.5 121.7 181.2 197.0Total Debt 3.9 0.0 62.7 57.5Total Liabilities 4.8 1.9 63.6 75.0Shareholders Funds 10.7 119.8 117.6 122.0 Ratios Net Debt/Equity (%) na na na 10.5Interest Cover (x) na na na 0.6Return on Equity (%) na na na 3.6

Valuation A$m A$/sh

Kapok 58 0.12 Options 0 0.00 Corporate (11) (0.02)Unpaid Capital (assumed equity raise) 0 0.00 Debt 0 0.00 Exploration 15 0.03 Equity Investments 0 0.00 Cash 10 0.02 NPV 72 0.15 NPV @ 8% Discount Rate 72 0.15


A$ : US$ 0.15 0.15 0.15 Zinc Price (US$/lb) 0.15 0.15 0.15 Lead Price (US$/lb) 0.15 0.15 0.15


Zinc Lead Production Summary


Resources (Mt) (% g/t) (kt,koz)Lennard Shelf 17.23 Lead 4.0 689Zinc 5.5 948Total Zn + Pb 1,637 Silver (koz) 10.5 5,817

Directors

Name PositionRaymond Miller Non-Executive ChairmanJeremy Read Managing DirectorPaul Niardone Non Executive DirectorMichael Howard Non Executive DirectorSharou Zhao Executive DirectorSushil Bhatter Non Executive Director Substantial Shareholders Shares (m) %Northwest Nonferrous Australia Mining Pty Ltd 198 41.3BZ Minerals 82 17.2R.A. Healey 25 5.3Lennard Shelf P/L 25 5.3

Kapok79% Exploration

21%

(kt)

(US$/l

b)

Zn Production (kt) Pb Production (kt)Zn + Pb cash cost (US$/lb) Zinc Price (US$/lb)Lead (US$/lb)

0.00

10.00

20.00

30.00

40.00

50.00

2012F 2013F 2014F 2015F 2016F 2017F0.00

0.25

0.50

0.75

1.00

1.25

1.50

Investment Summary





12 Months

Shar

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0.00

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0.75

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1.25

1.50

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5000

7500

10000

12500

15000

17500

20000


Year End December 31 2010A 2011F 2012F 2013F Reported NPAT ($m) 58.4 122.1 109.6 81.4 Recurrent NPAT ($m) 57.3 122.1 109.6 81.4 Recurrent EPS (cents) 4.9 10.4 9.4 7.0 EPS Growth (%) 18.2 112.9 (10.2) (25.8)PER (x) 15.8 7.4 8.3 11.1 EBITDA ($m) 132.6 197.8 181.1 139.3 EV/EBITDA (x) 5.1 3.2 3.3 4.2 Capex ($m) 32.6 21.4 18.7 19.1 Free Cashfl ow 93.4 122.1 110.2 80.0 FCFPS (cents) 8.0 10.4 9.4 6.8 PFCF (x) 9.7 7.4 8.2 11.3 DPS (cents) 9.5 7.0 7.0 5.0 Yield (%) 12.3 9.0 9.0 6.5 Franking (%) 100 100 100 100

Investment Highlights• Short term downgrade, long term upgrade. Production

reached a >36ktpa Ni run rate in January following the triennial shutdown in the Dec Q. Mar Q production was 7.5kt which was less than forecast due to severe weather and the resultant fl ooding. Flooding damaged the process water supply reducing production to 7.5kt Ni (PSL production estimates were 9kt Ni). CY2011 production guidance remains between 33–37kt Ni. Given the recent issues maintaining sustained production we believe MRE will produce approximately 34.5kt for CY2011.

• Nickel prices fl at in AUD terms. The continued strength of the Australian dollar (relative to the USD) has eroded gains made by the Ni price. Since mid-2010 the US$ Ni price has gained 21% against the A$/US$ gain of 28%.

• Higher grades in the pipeline. $10m capex is being expended to access the Murrin Murrin East ore body which should be in production by 2Q CY2011. The higher grades from Murrin Murrin East are expected to raise the overall grade profi le for the plant from 1.1% Ni to 1.3% for 5-8 years.

• Sulphur prices locked in. Sulphur prices which represent 15-20% of costs are ~80% protected, and have been delivering savings to the company.

• Glencore offtake arrangement. MRE’s marketing fee for nickel sales has been renegotiated from 4% down to 3.5% of the LME daily cash settlement price. At consensus forecast Ni prices of US$22,180/t and 18ktpa the reduction equates to a US$2m saving pa. The arrangement has a term of 5 years with an option for and additional 5 years.

• Near mine exploration drilling. MRE commenced a near mine exploration program at Murrin Murrin to identify higher grade zones of the current resource. The drilling program is additional to normal mine development drilling and is the fi rst near mine exploration to be undertaken in 10 years.

• Growth Opportunities are on the radar. MRE is actively looking to acquire a second mine to leverage off their strong cash position and technical success in developing High-Pressure Acid Leach (HPAL) nickel production with laterite ores. The Mount Lucky manganese tenements were purchased from Crescent Gold (CRE:ASX) in August ‘10 signalling the company’s intention to acquire assets complimentary to Murrin Murrin. The addition of the manganese ore improves the nickel processing of the nickel laterites in the HPAL plant.

• Catalysts. 1) Ramp-up to 36ktpa production rate. 2) Delivery of higher grades via Murrin Murrin East. 3) Exploration results from Murrin Murrin. 4) Identifi cation of growth opportunities.

OUR VIEWMRE is set to demonstrate a turn around in earnings despite currency headwinds. The company reported lower than forecast production results for the March Q 2011 despite this full year production guidance remains between 33-37kt nickel. While production consistency has been an issue for MRE’s fl agship Murrin Murrin Nickel Project following a major shutdown and maintenance programme we anticipate a signifi cant boost to output (through debottlenecking) and reliability. MRE achieved ramp-up to full production in January. MRE’s increased production rates will cash in on higher nickel prices which have risen >20% since June to ~US$11.00/lb. With nickel metal forwards (LME) trading in contango the price appears likely to be strong throughout 2012. On current metrics MRE looks attractive trading at 3.2x our FY11 and FY12 EBITDA forecasts. Furthermore, MRE’s strong cash position of ~$200m provides a basis for their intentions to grow organically or via acquisition. Glencore has maintained its 71% ownership, which we believe will remain static for the medium term. We retain our BUY recommendation with a price target of $0.93/sh based on an FY11 and FY12 EV/EBITDA multiple of 5.5x.

Minara Resources Limited MRE ($0.805)

Recommendation: BUY

Set for a steady 2012 Analyst: Alex Passmore, Rhys Bradley




Minara Resources Limited $0.805 Year End December 31


A$:US$ 0.93 1.06 1.03 0.98Nickel (US$/lb) 9.83 11.92 11.60 11.21Cobalt (US/lb) 17.42 15.11 15.41 15.72


Total MMJV Production Contained Nickel (t) 28,378 34,671 34,272 32,256Contained Cobalt (t) 1,976 2,120 2,176 2,048 Weighted Ave Cash Cost (US$/lb) 6.78 6.97 7.19 7.24Weighted Ave Total Cost (US$/lb) 7.98 7.51 7.75 7.77 Realised Nickel Price (US$/lb) 9.83 11.92 11.60 11.21Realised Cobalt Price (US$/lb) 17.42 15.11 15.41 15.72Exchange Rate (US$/A$) 0.93 1.06 1.03 0.98


Sales Revenue 464.4 557.0 554.9 530.9Other Income 3.7 11.3 14.7 15.6 Operating Costs 323.6 342.9 360.5 378.7Exploration Exp. 0.1 15.3 15.6 15.9Corporate/Admin 9.6 12.2 12.5 12.7EBITDA 134.9 197.9 181.1 139.3 Depn & Amort 48.3 23.4 24.5 23.0EBIT 86.6 174.5 156.6 116.2 RSPT 0.0 0.0 0.0 0.0Interest 1.3 0.0 0.0 0.0Operating Profi t 85.3 174.5 156.6 116.2 Tax expense 26.5 52.3 47.0 34.9 Minorities/abnormals -1.0 0.0 0.0 0.0NPAT 59.9 122.1 109.6 81.4 Normalised NPAT 61.1 122.1 109.6 81.4

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 59.9 122.1 109.6 81.4 + Interest/Tax/Expl Exp 27.8 67.6 62.5 50.8 - Interest/Tax/Expl Inc 25.3 72.7 67.7 56.0 + Depn/Amort 48.3 23.4 24.5 23.0 +/- Other 1.0 0.0 0.0 0.0 Operating Cashfl ow 111.6 140.4 128.9 99.1 - Capex (+asset sales) 32.6 21.4 18.7 19.1 - Working Capital / Other (18.6) (1.2) 0.0 0.0 Free Cashfl ow 97.7 120.2 110.2 80.0 - Dividends (ords & pref) 111.1 70.2 70.2 70.2 + Equity raised 0.0 0.0 0.0 0.0 + Debt drawdown (repaid) (7.6) 0.0 0.0 0.0 Net Change in Cash (21.0) 50.0 40.0 9.9 Cash at End Period 226.1 276.2 316.2 326.1 Net Cash/(LT Debt) 226.0 276.2 316.2 326.1


Cash 226.1 276.2 316.2 326.1Total Assets 1,007.4 1,017.7 1,056.7 1,063.0Total Debt 0.1 0.0 0.0 0.0Total Liabilities 188.5 150.5 150.1 145.2Shareholders Funds 815.3 867.3 906.7 917.9 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) 68.5 na na naReturn on Equity (%) 7.3 14.1 12.1 8.9

Valuation A$m A$/sh

Murrin Murrin 767.8 0.66 Corporate (92.0) (0.08)Exploration 143.6 0.12 Cash 199.0 0.17 Debt 0.0 0.00 Total @ 8% Discount Rate 1,018 0.87Price Target 1,088 0.93(100% NPV)

Sensitivity Analysis

Patersons Base Case $/sh 0.87 Valuation at fl at spot $/sh 2.03 Implied LT nickel price at current SP US$/lb 8.50




Reserves Mt Ni % Ni ktMurrin Murrin 144 1.09 1,570 Resources Mt Ni % Ni ktMurrin Murrin 342 0.99 3,386

Directors

Name PositionMalcolm Macpherson Non-Executive Interim ChairmanPeter Johnston Chief ExecutiveIvan Glasenberg Non Executive DirectorJohn Morrison Non Executive DirectorWilly Strothotte Non Executive Director

Substantial shareholders Shares (m) %Glencore International AG 824.8 70.52Barclays Group 34.5 2.95Top 20 391.5 84.84

Murrin Murrin84%

Exploration16%

(t)

(US$/l

b)

Contained Nickel (t) Weighted Ave Cash Cost (US$/lb)Realised Nickel Price (US$/lb)

0

10,000

20,000

30,000

40,000

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2010A 2011F 2012F 2013F 2014F 2015F0

3

6

9

12

15

Investment Summary





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0.50

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2.50

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800

1600

2400

3200

4000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 28.1 (8.7) 16.9 12.5 Recurrent NPAT ($m) 27.6 (0.9) 16.9 12.5 Recurrent EPS (cents) 13.7 (0.5) 8.4 6.2 EPS Growth (%) 2,171.2 na na (25.7)PER (x) 8.3 (246.0) 13.6 18.3 EBITDA ($m) 79.9 30.1 64.3 38.3 EV/EBITDA (x) 1.3 4.6 1.8 3.0 Capex ($m) 28.0 44.4 21.8 21.5 Free Cashfl ow 65.0 (13.6) 33.1 9.6 FCFPS (cents) 32.4 (6.8) 16.5 4.8 PFCF (x) 3.5 (16.9) 6.9 24.0 DPS (cents) 9.0 4.0 6.0 6.0 Yield (%) 7.9 3.5 5.2 5.2 Franking (%) 100.0 100.0 100.0 100.0


• Poor March Q. Production was 34% lower than our expectations. The forced closure of the lower levels of the Otter Juan mine was a considerable factor however low equipment availability and under-supply of contract personnel continue to severely impact production at the Miitel mine. MCR recognised the need to address this in December Q stating an expected 15% increase in cash costs should address the labour shortfall and improve productivity. This quarter saw a 20% increase in cash costs with none of the expected increase in production realised. There is some hope of better production in the September and December Qs at Mariners: with potential for the terrace level to start in late June Q and the N10 orebody late CY2011.

• Seismic Incident at Otter Juan. Due to a seismic event on 22 March, production from Otter Juan was down 36% for the March Q. The event prompted the closure of six sub-levels and going forward the production at Otter Juan is likely to be reduced by half and bring the closure of the mine forward by one year, to early 2012.

• Decreasing 1.0x NAV to $0.89/sh (from $1.26). We have made several changes to our production outlook for 2011/12 with lower production from Otter Juan and its closure in early 2012. Costs were also further adjusted following the 15% increase. This results in our 1.0x NAV decreases to $0.89/sh (from $1.26).

• Continuing The Search for Growth Options. MCR has circa $96m in the bank and is continuing its search for growth options. Drilling results have confi rmed high grade extensions to the Mariners Ore System and signifi cant along strike extension at the South Miitel mine. Desk and fi eld studies have also identifi ed a number of regional targets to be explored in 2011. In addition, MCR continues drilling at its Tottenham Copper Project in NSW where drilling has identifi ed a number of potential VMS systems that coincide with electro-magnetic anomalies.

• Catalysts. Ongoing Exploration Results from Kambalda and Tottenham; July: Production Results; Further M&A activity.

OUR VIEWMincor (MCR) reported a poor March Q from its Kambalda Operations. Total nickel production was 1,978t for the quarter, 34% lower than PSL forecast of 2,983t. Cash costs came in higher at A$8.64/lb (PSL est. A$7/lb). Lower production was a result of the partial closure of the Otter Juan mine due to a seismic event in March and ongoing performance issues with Miitel. A combination of factors have hit MCR that have resulted in potential for the stock to move lower, these include: 1) several seismic events that have impacted production 2) Lack of Staff at Miitel and Mariners which have required MCR to increase wages by 15% 3) Lower grade material at Mariners prior to higher grade material at end of year. The biggest problem appears to be attracting talented miners to work at MCR’s mines and it appears that MCR may have lost several key hires, therefore it could take several quarters to be back to the full staff complement. Based on our analysis and adjustments to costs and mining profi le our price target decreases to $0.89/sh based on a 1.0x NAV. We retain our SELL rating.

Mincor Resources NL MCR ($1.145)


Tough Work Continues Analyst: Simon Tonkin, Tim McCormack




Year End June 30Mincor Resources NL $1.145


A$:US$ 0.89 0.99 1.05 1.00 Copper (US$/lb) 3.04 4.00 4.31 4.20 Lead (US$/lb) 0.95 1.10 1.20 1.18 Zinc (US$/lb) 0.94 1.03 1.11 1.11 Nickel (US$/lb) 8.75 11.12 11.75 11.43 Nickel (A$/lb) 9.78 11.22 11.16 11.43 Cobalt (US$/lb) 12.92 15.52 15.26 15.57


South Kambalda Operations 3,615 5,003 8,560 8,025Miitel 0 2,650 4,268 4,057Wannaway 0 0 0 0Redross 0 0 0 0Mariners 3,615 2,354 4,292 3,968North Dordie 0 0 0 0North Kambalda Operations 7,182 4,376 5,177 2,139Carnilya Hill 2,593 1,397 1,682 0Otter-Juan 4,262 2,897 1,998 0McMahon/Ken 327 83 1,497 2,139Durkin 0 0 0 0Nickel in Concentrate (t) 10,833 9,380 13,737 10,164Copper in Concentrate (t) 838 684 837 670Cobalt in Concentrate (t) 169 133 160 128Per Pound of Payable Metal Net Nickel Cash Cost (A$/lb) 5.66 7.82 7.17 7.68 Net Nickel Cash Cost (US$/lb) 5.06 7.75 7.55 7.68 Nickel Price Received (US$/lb) 9.36 11.05 11.96 11.07 Spot Nickel Price (US$/lb) 8.75 11.12 11.75 11.43


Sales Revenue 180.2 153.0 227.2 171.0Other Income 3.8 6.5 6.1 6.9Operating Costs 87.1 107.7 145.0 115.1Exploration Exp. 6.3 11.3 13.8 14.1Corporate/Admin 10.7 10.4 10.2 10.4EBITDA 79.9 30.1 64.3 38.3 Depn & Amort 40.2 32.0 40.2 20.4EBIT 39.7 (2.0) 24.1 17.9 Interest 0.3 0.0 0.0 0.0 Operating Profi t 39.4 (2.0) 24.1 17.9 Tax expense 11.8 (1.0) 7.2 5.4 Abnormals 0.5 (7.8) 0.0 0.0 NPAT 27.0 6.8 16.9 12.5 Normalised NPAT 28.1 (8.7) 16.9 12.5

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 28.1 (8.7) 16.9 12.5 + Interest/Tax/Expl Exp 21.8 10.3 21.1 19.5 - Interest/Tax/Expl Inc 27.7 31.7 23.2 21.4 + Depn/Amort 40.2 32.0 40.2 20.4 +/- Other (17.5) 0.6 0.0 0.0 Operating Cashfl ow 44.9 2.6 54.9 31.0 - Capex (+asset sales) 28.0 44.4 21.8 21.5 - Working Capital Increase (48.6) (20.4) 0.0 0.0 Free Cashfl ow 65.5 (21.4) 33.1 9.6 - Dividends (ords & pref) 14.0 14.0 8.0 12.0 + Equity raised 1.0 0.0 0.0 0.0 + Debt drawdown (repaid) (1.5) 0.0 0.0 0.0 Net Change in Cash 51.0 (35.4) 25.1 (2.5)Cash at End Period 126.8 91.4 116.5 114.0 Net Cash/(LT Debt) 126.8 107.3 116.5 114.0


Cash/Bullion 126.8 91.4 116.5 114.0Total Assets 260.5 255.2 277.4 267.8Total Debt 0.9 0.0 0.0 0.0Total Liabilities 55.4 77.3 90.7 80.6Shareholders Funds 205.1 177.8 186.7 187.2Ratios Net Debt/Equity (%) na na na naInterest Cover (x) 124.1 na na naReturn on Equity (%) 13.2 3.8 9.0 6.7

Directors

Name PositionDavid Humann Non Executive ChairmanDavid Moore Managing DirectorJack Gardener Non Executive DirectorIan Burston Non Executive Director

Valuation A$m A$/sh

Miitel 17 0.09 Wannaway 0 0.00 Redross 0 0.00 Mariners 11 0.05 Carnilya Hill 10 0.05 Otter-Juan 8 0.04 McMahon/Ken 23 0.12 Durkin 0 0.00 Bluebush line 10 0.05 Forward Sales 2 0.01 Corporate (20) (0.10)Exploration 20 0.10 Unpaid Capital 1 0.01 Cash 98 0.48 Debt 0 0.00 NPV @ 8% Discount Rate 180 0.89 Price Target 216 0.89

Sensitivity Price Target +10% 0% -10%

Nickel Price 1.11 0.89 0.66 A$ : $US 0.66 0.89 1.17



Reserves & Resources as of June 30 2010

Reserves Mt Ni % Ni ktMiitel 0.613 2.7 16.6Wannaway 0.039 2.9 1.1Redross 0.033 3.5 1.2Mariners 0.524 3.1 16.2Carnilya Hill 0.083 3.3 2.7Otter-Juan 0.212 3.2 6.8McMahon 0.242 2.3 5.6Total 1.746 2.87 50.2Resources Mt Ni % Ni ktMariners 0.704 4.0 28.2Redross 0.236 3.2 7.6Burnett 0.250 3.7 9.3Miitel 0.699 3.8 26.6Wannaway 0.139 3.0 4.2Carnilya Hill JV 0.147 4.0 5.9Otter-Juan 0.485 3.2 15.5McMahon/Ken 0.328 3.7 12.1Durkin 0.378 5.1 19.3Gellatly 0.029 3.4 1.0Stockwell 0.557 3.1 17.3Cameron 0.096 3.3 3.2Total 4.048 3.72 150.7

Substantial Shareholders Shares (m) %

JP Morgan Nominees 25.28 12.60Top 20 Shareholders 101.35 50.52

Carnilya Hill 11%

Mariners 12%

Otter-Juan 9%

McMahon/Ken 27%

Exploration 22%

Miitel 19%

(t)

(US$/l

b)

0

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10,000

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2010A 2011F 2012F0.00

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Nickel in Concentrate (t) Net Nickel Cash Cost (US$/lb)Nickel Price Received (US$/lb) Nickel (US$/lb)

Investment Summary





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Year End December 31 2010A 2011F 2012F 2013F Reported NPAT ($m) (47.5) 25.8 203.3 205.9 Recurrent NPAT ($m) (28.8) 25.8 203.3 205.9 Recurrent EPS (cents) (5.8) 5.2 41.0 41.5 EPS Growth (%) na na 689.4 1.2 PER (x) (35.7) 39.8 5.0 5.0 EBITDA ($m) 36.9 104.4 345.5 349.0 EV/EBITDA (x) 32.2 11.4 2.7 2.0 Capex ($m) 102.2 30.5 16.7 18.4 Free Cashfl ow (101.4) (0.3) 240.2 239.4 FCFPS (cents) (20.5) (0.1) 48.4 48.3 PFCF (x) (10.1) nm 4.3 4.3 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Lower March Quarter; Focus on Opening Up the Pit. MBN recorded lower production for the March Q with the main impact from the SAG mill motor failures in January 2011. MBN is also very much focused on the open-pit pre-strip which will open-up the pit and provide signifi cant production fl exibility in the later half of 2011. The completion of the pre-strip program for the whole mine is on track to be completed by the end of Q2/2011. The new Brazil mining team appears to be doing an excellent job with a strip ratio in the March Q of 8.3:1 and this is expected to drop dramatically. In addition, It was encouraging to see that the recoveries remained strong at 55% and indicates the plant, when operating, was effi cient. The focus will be on the Q3/2011 when the desliming circuit is incorporated and expected to increase recoveries towards 65%.

• Expansion to 7.2Mtpa On-Target. MBN’s expansion of its processing plant is progressing well and is on schedule to be completed by the 2H/2011. All major components have been ordered for the desliming circuit and crusher upgrade due to be completed in Q3/2011. This is the main value driver for MBN and will take production toward 25ktpa. We would also expect costs to fall signifi cantly as MBN’s grade and recoveries improve.

• Further Exploration Underway in 2H/2011. On the quarterly conference call MBN indicated that they are expecting strong 2q sales from stockpiling accumulated as a result of Votorantim smelter works, additionally a delivery to Norilsk shipped in April. By end of Q2 stocks are expected to be minimal. Further exploration is expected for the 2H of year, with MBN saying they will provide details on the Q2 conference call.

• Target Price Increases Due to Higher Nickel prices. We have incorporated the updated technical report, US$375m private offering and our higher nickel price deck and the impact is positive to our NAV with a $0.67/sh increase. We note that MBN has minimal exposure to A$ with its Santa Rita projects costs in US$ and Brazilian Real which has weakened against the US$.

• Catalysts. 2H/2011 Completion of Expansion to 7.2Mtpa and installation of the desliming circuit.

OUR VIEWMBN is our preferred pick in the nickel space due to: 1) its offshore exposure and attractive operating environment where the Brazilian currency has been weak against the US$ 2) Growth plans to move production >20ktpa Ni and 3) Installation of a desliming circuit to improve recoveries and effi ciency. MBN’s March quarterly production from its Santa Rita Project in Brazil came in at 2,825t Ni which was 14% lower than our 3,302t estimate. The reason for the lower March Q was the impact of the SAG motor failures in January 2011. Costs came in at US$6.97/lb (in line with our US$7.06/lb). Recoveries remained at 55% as we had anticipated and this is expected to improve to 65% once the desliming circuit is installed. Despite the lower production the focus for MBN is opening up the pit to give greater production fl exibility and completion of the plant expansion and desliming circuit in Q3/CY2011. We have incorporated the new 43-101 technical report production and cost profi le, the revised private offering for $US375m and our higher nickel forecasts. The net impact is an increase to our target price to $3.38/sh (previously $2.72/sh) retain our Buy rating.

Mirabela Nickel Limited MBN ($2.07)

Recommendation: BUY

MBN Preferred Pick in Nickel Space Analyst: Simon Tonkin, Rhys Bradley




Year End December 31Mirabela Nickel Limited $2.07


A$:US$ 0.93 1.06 1.03 0.98Nickel (US$/lb) 9.83 11.92 11.60 11.21 Copper (US$/lb) 3.44 4.33 4.26 4.10 Cobalt (US$/lb) 17.42 15.11 15.41 15.72 Platinum (US$/oz) 1,576 1,542 1,597 1,677


Concentrate (kt) Santa Rita 109.4 122.5 190.9 194.8Contained Nickel (kt) Santa Rita 10.4 15.9 24.8 25.3 Weighted Ave Cash Cost (US$/lb) 6.32 6.78 3.63 3.56 Weighted Ave Total Cost (US$/lb) 8.19 8.20 4.82 4.73 Realised Nickel Price (US$/lb) 9.66 10.17 10.76 10.36


Sales Revenue 211.1 337.6 550.4 541.9 Other Income 1.0 6.9 16.2 28.3 Operating Costs 166.0 228.9 209.8 209.5 Exploration Exp. 0.0 1.8 1.9 1.9 Corporate/Admin 9.3 9.3 9.5 9.7 EBITDA 36.9 104.4 345.5 349.0 Depn & Amort 37.2 43.9 57.8 58.2 EBIT (0.3) 60.6 287.7 290.8 Interest 22.1 26.6 33.5 33.5 Provisions 18.7 0.0 0.0 0.0 Operating Profi t (41.2) 33.9 254.2 257.3 Tax expense 6.3 8.2 50.8 51.5 Minorities 0.0 0.0 0.0 0.0 NPAT (47.5) 25.8 203.3 205.9 Normalised NPAT (32.9) 27.1 203.3 205.9


Adjusted Net Profi t (47.5) 25.8 203.3 205.9 + Interest/Tax/Expl Exp 30.3 36.6 86.2 86.8 - Interest/Tax/Expl Inc 28.2 34.8 84.3 85.0 + Depn/Amort 37.2 43.9 57.8 58.2 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (8.3) 71.4 263.0 266.0 - Capex (+asset sales) 102.2 30.5 16.7 18.4 - Working Capital Increase 4.1 35.2 0.0 0.0 Free Cashfl ow (114.6) 5.7 246.3 247.6 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 235.4 0.0 0.0 0.0 + Debt drawdown (repaid) (72.1) 132.5 0.0 0.0 Net Change in Cash 32.9 132.1 240.2 241.3 Cash at End Period 102.1 234.3 474.4 715.8 Net Cash/(LT Debt) (160.4) (160.7) 79.4 320.8


Cash 102.1 234.3 474.4 715.8Total Assets 1120.3 1251.8 1472.2 1677.4Total Debt 262.5 395.0 395.0 395.0Total Liabilities 501.0 606.8 623.8 623.1Shareholders Funds 619.3 645.1 848.4 1054.3 Ratios Net Debt/Equity (%) 25.90 24.92 na naInterest Cover (x) na 2.3 8.6 8.7Return on Equity (%) na 4.0 24.0 19.5


Canadian Control Account 172.5 35.1JP Morgan Nominees Australia Ltd 64.1 13.1National Nominees Ltd 57.2 11.6HSBC Custody Nominees (Australia) Ltd 32.7 6.7


Santa Rita 1957.4 3.95Exploration 195.7 0.39Nickel Forwards (72.7) (0.15)Copper Forwards (10.8) (0.02)Corporate (75.1) (0.15)Cash 56.0 0.11 Debt (262.5) (0.53)Unpaid capital 0.0 0.00 Total NAV (8% Discount Rate) 1,788 3.61 Price Target 1,788 3.61


Total NAV 8% Discount 1,675 3.38 Price Target 1,675 3.38 Price Target (Spot Prices and Rates) 5.93 Exchange Rate (US$/A$) 1.07

Sensitivity Price Target (A$) +10% 0% -10%

Nickel Price 4.03 3.38 2.73 A$ : $US 2.83 3.38 3.59




Santa Rita - Reserves Mt Ni % Cu % Ni ktProven & Probable 84.0 0.61 0.14 508Total 84.0 0.61 0.14 508 Santa Rita - Resources Mt Ni % Cu % Ni ktProven & Probable (Pit) 121.0 0.6 0.16 726Inferred (Underground) 87.5 0.79 0.23 691Inferred 19.8 0.6 0.16 119Low Grade Resource 53.0 0.3 0.07 159Total (excl. low grade) 228.3 0.60 0.10 1,536

Directors

Name PositionCraig Burton Non-Executive ChairmanIan Purdy CEO & MDColin Steyn Non-Executive DirectorBill Clough Non-Executive DirectorNick Sheard Non-Executive DirectorJoe Hamilton Non-Executive DirectorGeoff Handley Non-Executive DirectorIan McCubbing Non-Executive Director

Santa Rita91%

Exploration9%

(kt)

(US$/l

b)

Santa RitaWeighted Ave Cash Cost (US$/lb)

Realised Nickel Price (US$/lb)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2010A 2011F 2012F 2013F 2014F 2015F

0.00

2.50

5.00

7.50

10.00

12.50

15.00

Investment Summary





12 Months

Shar

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(A$)

Volu

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0.00

0.50

1.00

1.50

2.00

2.50

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0

8000

16000

24000

32000

40000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 132.4 334.1 638.9 490.1 Recurrent NPAT ($m) 129.5 319.9 638.9 524.4 Recurrent EPS (cents) 11.9 29.4 58.7 48.2 EPS Growth (%) 103.4 146.3 99.7 (17.9)PER (x) 16.5 6.7 3.4 4.1 EBITDA ($m) 481.6 672.1 1,098.1 915.4 EV/EBITDA (x) 3.6 2.6 1.6 1.9 Capex ($m) 284.5 160.0 12.3 12.5 Free Cashfl ow 124.3 221.8 656.1 803.2 FCFPS (cents) 11.5 20.4 60.3 73.9 PFCF (x) 17.2 9.7 3.3 2.7 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Market to focus on the company’s cash generation. MGX reported a cash position of $388m and fully repaid its $35m senior debt facility in the March Q. MGX looks attractive on current metrics trading at 2.6x FY2011 EV/EBITDA and reducing this to <1x beyond FY2012. Debt free with an exceptional forward earnings forecast we believe MGX will step up its hunt for a new asset in FY2012 to bulk up its relatively small resource base.

• Clarity on board governance. MGX’s recent decision to appoint two new independent non-executive directors is signifi cant in restoring independence and positive market sentiment following the resignation of the chairman last November. We believe this new clarity on governance will be fundamental in retaining key board members and subsequent managers which is a critical to MGX’s company stability and market perception.

• Rainfall and unreliability a short term drawback. Higher than average rainfall at both of MGX’s operations was accentuated by machinery and plant unreliability. Koolan Island’s throughput and lump yield was down due to replacement of the secondary crusher and Tallering Peak’s ore production suffered similarly through inability of blast hole contractors to meet drilling schedules due to poor equipment and labour availability. The March Q saw overall ore mining down 55% on our forecasted fi gures with processing and shipping down 45% and 27% respectively. With the onset of the dry season and MGX addressing some of the fundamental availability issues we expect to see a marked improvement in June Q production.

• Extension Hill ramping to 1.3Mtpa in FY2012. Capital works have progressed in line with our expectations, however, MGX highlighted that completion dates for train unloading facilities at the Geraldton Port have been pushed back to December 2011. Aiming to mitigate the delay by utilising existing port infrastructure we maintain our export target of 1.3Mt for FY2012. Contracts for 80% of these ore sales remain open to the market following the sales agreement termination with Shougang in April. MGX remains in negotiations with a number of parties interested in purchasing Extension Hill hematite.

• Short term pain, long term gain at Koolan Island. The mining and maintenance contract with BGC will not be renewed at the end of FY2011. With MGX going owner operator we expect to see an adverse effect on production in the short term due to labour and machinery change out before cost and productivity advantage are realised in the longer term. The operation is targeting a production ramp up to 4Mtpa by FY2014.

OUR VIEWMGX has enjoyed a steady run up in share price during FY2011 on the back of strengthening iron ore prices. However, with the Chairman’s resignation in November, a surging Australian dollar and a broader cooling of the market we believe full value in the stock is yet to be realised. Shaky market sentiment was accentuated by extreme rainfall during the March Q which caused widespread fl ooding and constricted ore sales by 41% on the previous Q. Despite the lacklustre performance MGX still maintained a strong cash position of A$388m and fully repaid its $35m debt facility. With Koolan Island making the transition to owner operator we expect to see cost and productivity advantages realised in the 2H FY2012 and beyond. Development at Extension Hill remains on schedule with capital works substantially complete and pre-strip mining well underway. MGX is currently recruiting two new non-executive directors to restore appropriate independence to the board which is a pivotal step in addressing market concerns over corporate governance. Set to recover from a torrid March Q, we view favourably the cash position, earnings outlook and realignment of the board. We upgrade our recommendation from SELL to BUY (PT $2.68).

Mount Gibson Iron Limited MGX ($1.975)

Recommendation: BUY

Cheap on earnings Analyst: Alex Passmore, Tim McCormack





A$:US$ 0.89 0.99 1.05 1.00Iron Ore Fines (US$/t) 76.44 119.53 119.53 119.53Iron Ore Lump (US$/t) 89.72 143.82 143.82 145.22


Tallering Peak - Lump 1,834 1,588 1,537 1,537Tallering Peak - Fines 1,537 1,214 1,213 1,213Extension Hill - Lump 0 0 1,225 2,000Extension Hill - Fines 0 0 1,225 2,000Koolan Island - Lump 1,236 1,182 1,410 1,410Koolan Island - Fines 2,237 1,597 1,990 1,990Group Production (kt) 6,844 5,581 8,600 10,150 Group Sales (kt) 6,487 5,672 7,781 10,100 Cost Summary (A$/t): Tallering Peak Cash Costs 53.28 53.39 55.20 51.13Ext Hill Cash Costs 0.00 0.00 40.33 41.11Koolan Island Cash Costs 41.23 43.36 44.92 29.37Weighted Ave Cash Costs 47.08 48.53 47.70 39.95Ave Price Received (FOB) 82.16 140.93 165.53 123.09


Sales Revenue 532.9 799.3 1,288.0 1,243.2Other Income 49.1 18.5 30.3 0.0 Operating Costs 79.6 125.4 199.8 307.0 Exploration Exp. 0.1 0.0 0.0 0.0 Corporate/Admin 20.7 20.3 20.5 20.9 EBITDA 481.6 672.1 1098.1 915.4 Depn & Amort 278.0 201.6 185.3 166.2EBIT 203.7 470.5 912.7 749.1 Interest 18.2 9.2 0.0 0.0 Abnormals 2.9 14.1 0.0 0.0 Operating Profi t 188.3 475.3 912.7 749.1 Tax expense 55.9 141.3 273.8 224.7 Minorities 0.0 0.0 0.0 0.0 NPAT 132.4 334.1 638.9 524.4 Normalised NPAT 131.8 334.1 638.9 524.4

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 132.4 334.1 638.9 524.4 + Interest/Tax/Expl Exp 74.3 150.5 273.8 224.7 - Interest/Tax/Expl Inc 74.0 171.0 301.2 252.7 + Depn/Amort 278.0 201.6 185.3 166.2 - Deferred Waste 134.8 133.3 128.5 71.7 Operating Cashfl ow 275.8 381.9 668.3 591.0 - Capex (+asset sales) 284.5 160.0 12.3 12.5- Working Capital Increase (155.6) (27.0) 0.0 0.0Free Cashfl ow 146.9 248.9 656.1 578.5 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 18.6 0.0 0.0 0.0 + Debt drawdown (repaid) (40.3) (64.7) 0.0 0.0 Net Change in Cash 125.2 184.2 656.1 578.5 Cash at End Period 347.4 531.6 1187.6 1766.1 Net Cash/(Debt) 282.7 531.6 1187.6 1766.1


Cash/Bullion 347.4 531.6 1187.6 1766.1 Total Assets 1296.0 1438.6 2024.4 2548.8 Total Debt 64.7 0.0 0.0 0.0 Total Liabilities 369.1 177.6 124.5 124.5 Shareholders Funds 926.9 1261.0 1899.9 2424.3 Ratios Debt/Equity (%) na na na naInterest Cover (x) 11.2 na na naReturn on Equity (%) 14.3 26.5 33.6 21.6

Valuation A$m A$/sh

Tallering Peak 346 0.32 Extension Hill 892 0.82 Koolan Island 1,233 1.14 Exploration 69 0.06 Forwards 12 0.01 Corporate (36) (0.03)Unpaid Capital/Equity Raise 0 0.00 Cash 388 0.36 Debt 0 0.00 NPV 2,904 2.68 Price Target 2,904 2.68

Sensitivities to Iron Ore Price -10% 0% +10%

NPV 2.30 2.68 3.06




Reserves Mt % Fe % Al+Si % PhosTallering Peak 8.39 61.20 8.32 0.03Extension Hill 14.80 59.40 7.66 0.06Koolan Island 33.30 63.40 8.41 0.01 Resources Mt % Fe % Al+Si % PhosTallering Peak 11.20 61.10 8.77 0.04Extension Hill 23.10 58.40 9.33 0.06Koolan Island 74.30 62.60 9.61 0.01

Directors

Name PositionCraig Readhead ChairmanLuke Tonkin Managing DirectorIan Macliver Non Executive DirectorAlan Jones Non Executive DirectorLee Seng Hui Non Executive DirectorRobert Wilcocks (Alternate Director)Alan Rule (Alternate Director)Cao Zhong (APAC nom) Non Executive DirectorChen Zhouping (Shougang nom) Non Executive Director Substantial Shareholders Shares (m) %APAC Resources Ltd* 279.9 25.9Shougang Concord* 154.2 14.2

Year End June 30Mount Gibson Iron Limited $1.975

Extension Hill36%

Tallering Peak14%

Koolan Island50%

(kt)

(A$/t

)

Group Sales (kt)Weighted Ave Cash Costs Ave Price Received (FOB)

0

3,000

6,000

9,000

12,000

2010A 2011F 2012F 2013F 2014F 2015F0

40

80

120

160

200

Investment Summary






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Shar

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3.50

4.00

4.50

5.00

5.50

6.00

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400

600

800

1000

1200

Year End July 31 2010A 2011F 2012F 2013F Reported NPAT ($m) 184.0 488.5 277.0 277.2 Recurrent NPAT ($m) 171.3 162.2 277.0 277.2 Recurrent EPS (cents) 20.6 19.5 33.4 33.4 EPS Growth (%) (32.6) (5.3) 70.8 0.0 PER (x) 23.5 24.8 14.5 14.5 EBITDA ($m) 282.7 263.6 433.3 440.6 EV/EBITDA (x) 9.2 9.3 5.5 5.1 Capex ($m) 83.0 13.0 154.7 2.1 Free Cashfl ow (557.8) 167.3 147.6 307.3 FCFPS (cents) (67.2) 20.1 17.8 37.0 PFCF (x) (7.2) 24.1 27.3 13.1 DPS (cents) 23.5 29.4 16.6 16.7 Yield (%) 4.8 6.1 3.4 3.4 Franking (%) 100.0 100.0 100.0 100.0


• Relatively unaffected production. Heavy rain and fl ooding in late 2010 and early 2011 impacted production only slightly, with raw coal production falling by 3.1% to 5.3Mt compared to the corresponding period last year. This was well down on the prior record setting half but these three halves have averaged ROM production of over 5.6Mt per half. Yields improved a little on prior periods resulting in a smaller decline in saleable coal production. Sales volumes remained over 3Mt for the second consecutive half. Since the interim report the mine has focused on rebuilding ROM inventories.

• The strong sales performance, but only in the fi rst half. Over 1HFY11 NHC took full advantage of the rising thermal coal prices but this will not continue into the second half as sales were severely impacted by the fl ood damaged rail system. The better prices achieved over the fi rst half have been offset by the strong dollar and returns have been eroded by higher costs. We estimate that FOB costs for the half exceeded $60/t for the fi rst time .We still consider the company a low-cost producer of thermal coal in South East Queensland and think that costs will reduce from current levels however we have increased our long term cost assumptions.

• Significant flood damage was done to Acland rail infrastructure with initial restart estimated late March. NHC informed the market in early April that the fi rst train of Acland coal was delivered to the QBH export terminal on schedule and services are now operating at contractual capacity.

• The Arrow Energy transaction generated a non-recurring NPAT of $326.3m and the settlement increased cash balances by $460m. This placed NHC in an even stronger fi nancial position to advance expansion and development projects with cash and cash equivalents approaching $1.9b as at 31 January 2011. A portion of these funds would have been used to acquire a majority stake in Northern Energy Corp.

• The Northern Energy take-over process is drawing to a close with NHC accumulating approximately 99m shares for a 80.81% stake in the company. New members have been appointed to the board and all activities are being reviewed. The fi nal bid price of $1.85/sh was likely higher than the initial $1.50/sh bid by NHC. We have used a weighted average price from January to early March of $1.85/sh to calculate an indicative spend of $183m.The purchase will be positive for NHC but in the short term, the expansion of New Acland is likely to have a bigger impact on valuation when further details are made available.

OUR VIEWWe continue to view NHC as a good low cost operator in the coal sector. It has been able to capitalise on escalating coal prices while others have not and production has been almost uninterrupted by the rain. Flooding did damage the Acland rail to QBH export terminal and therefore impacted sales. The line has now been restored although the disruption will have an impact on profi tability in the next reporting period. The break has allowed ROM stocks, which were run down during the last reporting period, to be rebuilt. The company had a large cash infl ow of $460m from the settlement of its 16.7% share of Arrow Energy and has acquired a majority share of NEC for about $180m. Our valuation has fallen marginally to $4.90/sh as the company’s asset base is relatively unchanged and higher coal prices have been offset by the appreciating Australian dollar and a higher cost base for the Acland mine. All told not much has changed during 2011 for NHC, it has a good mining operation in Acland, large cash reserves but not much on the horizon in the way of catalysts to break the share price out of the trading range it has been stuck in for almost three quarters. Though we view NHC as one of the best operators in the sector, we think it is fairly valued. Accordingly we are maintaining our HOLD recommendation with a price target of $4.90/sh.

New Hope Corporation Limited NHC ($4.85)


Remaining range bound Analyst: Andrew Harrington, Matthew Trivett




Valuation A$m A$/sh

New Acland 1854.0 2.23 Northern Energy Shares 159.9 0.19 West Moreton Land Holding 290.0 0.35 Planet Gas + Westside Shares 18.2 0.02 Dart Energy Shares 44.1 0.05 Resources 207.2 0.25 FX Hedging 2.6 0.00 Corporate (83.9) (0.10)Unpaid Capital 0.0 0.00 Cash & Equiv. 1577.5 1.90 Debt 0.0 0.00 NPV 4069.7 4.90 Price Target 4.90




TotalNew Acland Resources - Meas - Ind - Tot 322.0 546.0 868.0Reserves - Prov -Prob - Tot 221.0 295.0 516.0 New Oakliegh Resources 11.5 5.0 16.5Reserves 0.5 0.0 0.5 Lenton Resources 0.0 37.0 37.0Reserves 0.0 0.0 0.0 Bee Creek Resources 0.0 9.0 9.0

Directors

Name PositionRob Millner ChairmanRob Neale Managing DirectorDavid Williamson DirectorPeter Robinson DirectorDavid Fairfull DirectorBill Grant Director Substantial Shareholders Shares (m) %Washington H Soul Pattinson 495.7 59.7Mitsubishi Materials Corp 92.0 11.1Perpetual Ltd 57.2 6.9Taiheiyo Kouhatsu 7.7 0.9


US$/A$ 0.8939 0.9912 1.0525 1.0000Hard Coking Coal 151.00 248.75 302.50 211.25Semi-soft Coking Coal 111.25 182.50 227.50 152.50PCI 118.75 195.00 232.50 157.50Export Thermal Coal 77.00 106.00 122.50 97.50Domestic Thermal Coal (A$/t) 42.12 45.39 48.72 49.87



New Acland & W.Moreton (kt)* 5,921 5,301 6,532 8,000FOB costs (US$/t) 49.40 60.54 54.41 51.39Price Received (US$/t) 76.91 88.22 111.48 96.09* Includes coal produced from Jeebropilly and New Oakleigh mines

All Mines (Kt) 5,921 5,301 6,532 8,000FOB costs (US$/t) 49.40 60.54 54.41 51.39Price Received (US$/t) 76.91 88.22 111.48 96.09


Sales Revenue 516.4 513.2 705.9 782.8 Other Income 228.7 88.2 79.3 83.6 Operating Costs 327.2 323.8 337.7 411.1 Exploration Exp. 13.4 0.0 0.0 0.0 Corporate/Admin 121.7 14.0 14.2 14.6 EBITDA 282.7 263.6 433.3 440.6 Depn & Amort 38.0 31.9 37.5 44.7 EBIT 244.8 231.7 395.8 395.9 Interest 0.0 0.0 0.0 0.0 Operating Profi t 244.8 231.7 395.8 395.9 Tax expense 60.8 209.4 118.7 118.8 Abnormals & Minorities 0.0 466.2 0.0 0.0 NPAT 184.0 488.5 277.0 277.2 Normalised NPAT 171.3 162.2 277.0 277.2 Normalised NPAT excl Intrst. 100.1 100.5 221.5 218.6

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 184.0 162.2 277.0 277.2 + Interest/Tax/Expl Exp 74.2 209.4 118.7 118.8 - Interest/Tax/Expl Inc 74.6 221.4 130.9 131.3 + Depn/Amort 38.0 31.9 37.5 44.7 +/- Other (Associates) (696.4) 0.0 0.0 0.0 Operating Cashfl ow (474.8) 182.1 302.4 309.4 - Capex (+asset sales) 83.0 13.0 154.7 2.1 - Working Capital Increase 0.0 0.0 0.0 0.0 Free Cashfl ow (557.8) 169.1 147.6 307.3 - Dividends (ords & pref) 679.7 357.0 89.7 162.7 + Equity raised 14.1 5.3 0.0 0.0 + Debt drawdown (repaid) 0.0 0.0 0.0 0.0 Net Change in Cash (1290.1) 160.5 58.0 144.6 Cash at End Period 1417.0 1577.5 1635.5 1780.1 Net Cash/(Debt) 1417.0 1577.5 1635.5 1780.1


Cash 1416.5 1577.5 1635.5 1780.1Total Assets 2652.5 2744.0 2915.5 2998.0Total Debt 0.0 0.0 0.0 0.0Total Liabilities 313.0 154.8 187.0 131.0Shareholders Funds 2339.5 2589.2 2728.5 2867.0 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) na na na naReturn on Equity (%) 7.9 18.9 10.2 9.7

Year End July 31New Hope Corporation Limited $4.85

New Acland

Northern Energy Shares

West Moreton Land Holding

Planet Gas + Westside Shares

Dart Energy Shares

(kt)

(US$/t

)

All Mines (Kt) FOB Costs (US$/t) Price Recieved (US$/t)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2010A 2011F 2012F 2013F 2014F20.00

30.00

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70.00

80.00

90.00

100.00

110.00

120.00

Investment Summary





12 Months

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0.00

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1.00

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4000

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12000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT (A$m) (11.5) 23.9 68.9 73.7 Recurrent NPAT (A$m) (14.3) 23.9 68.9 73.7 Recurrent EPS (cents) (2.7) 4.6 13.2 14.1 EPS Growth (%) na na 174.2 2.6 PER (x) (22.8) 13.7 4.7 4.4 EBITDA (A$m) (12.1) 37.7 119.3 125.3 EV/EBITDA (x) (29.9) 10.0 3.1 2.8 Capex (A$m) 35.4 30.1 15.0 7.9 Free Cashfl ow (47.8) (5.6) 71.0 83.0 FCFPS (cents) (9.2) (1.1) 13.6 15.9 PFCF (x) (6.8) (58.8) 4.6 3.9 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Plant commissioning to be completed during Q3 CY2011. Production beginning in December 2011, ramping up to 150kozpa Au during 2012. Expectations were for commencement of commissioning in July, and production before December with risks of further pushback. We have assumed a total capital spend of US$50m for the plant and mine to commissioning and a subsequent US$25m for Bibiani cutback and mine expansion in CY2012.

• Owner operator strategy will result in higher capex/ lower opex. NMG is has allocated US$25-30m for the acquisition of 12 trucks and two excavators with delivery expected between May and October 2011. Signifi cant extension of mining life is required for the benefi ts of this strategy to be realised and we see risks in suffi cient extension of the current 10 year plan. However this equipment will be fi nanced by the exercise of NMG’s short dated options (NMGO which will see the issue of 74m shares at 30cps).

• Resource update pending. Announcement of increases to the Bibiani resource were expected by end March 2011, and are yet to be released. An onsite assay laboratory due on site in 14 weeks time should reduce turnaround to 5 days and speed up the resource estimation process.

• Five drill rigs on site by June 2011. Current drilling focus is planning for the Bibiani open cut mine, with drilling into the base of the planned cut back having commenced. From January 2012 drilling will resume at satellite pits and will continue to extend the main pit. Exploration drilling at the Cape Three Points is also expected to commence by mid-May 2011.

• New additions to management and board. Mr Peter Johnston has been appointed to the position of Chief Operating Offi cer for NMG in February and is a metallurgist with extensive project management experience. NMG has also appointed a new Non-Executive Director, Duncan Coutts, in April 2011. Mr Coutts is a mining engineer with 20 years minerals industry experience.

OUR VIEWNoble Resources (NMG) continues to progress plant refurbishment at the Bibiani Gold Mine (Ghana) with commissioning expected to be completed during Q3 CY2011. Commercial production will follow in December 2011 and will ramp up to 3Mtpa/150kozpa. We believe this timing is optimistic and with risk of delays in the ramp up schedule we are moving to a neutral view on NMG until confi dence in the December target is increased. Recent drilling activity has been focused on the Bibiani open pit and smaller satellite deposits, which will form the initial mainstay of plant feed, a strategy we are favourable on with the Bibiani cutback pushed out until drilling of the west wall can confi rm ore body morphology and grade. The USD gold price has given NMG a boost and the company has moved its reporting currency to USD which reduces translation losses to AUD. With increasing risks to the investment thesis and NMG concurrently having appreciated from $0.25/sh since August 2010 we are downgrading our rating from Buy to HOLD with a price target of A$0.60/sh.

Noble Mineral Resources Limited NMG ($0.625)


Wait for commissioning in September Analyst: Alex Passmore, Byron Benvie




Year End June 30Noble Mineral Resources Limited $0.625

Valuation US$m A$/sh

Bibiani 256.8 0.49 Cape Three Points, Brotet 23.0 0.04 Exploration 50.9 0.10 Unpaid capital 54.1 0.10 Corporate (37.1) (0.07)Forwards 0.0 0.00 Cash 22.1 0.04 Debt (34.2) (0.07)NAV 335.7 0.64 (@ 8% discount rate) NPV in AUD 0.60 Price Target 0.60

NPV Sensitivity


Hedging koz 1-Yr 3-Yrs % Reserve

Committed Production na na na na




Reserves Mt Au g/t Au kozBibiani 8.4 2.2 605 Resources Mt Au g/t Au kozBibiani 33.0 1.9 1,983Aheman 0.7 0.7 17

Directors

Name PositionTunku Naquiyuddin Non-Executive ChairmanWayne Norris Managing DirectorBrian Thomas Non-Executive DirectorDuncan Coutts Non-Executive Director Substantial Shareholders m %Global Gold Holdings 44.7 11.9Wayne Norris 43.1 11.5Wei An Developments 30.0 8.0Bank of America Corporation 20.5 5.5




FX (A$:US$) 0.60 0.60 0.59 (1)Gold Price 0.48 0.60 0.71 20

EV:Reserve (A$/oz) 581 EV:Resource (A$/oz) 177


Production (koz) - 90% share Bibiani 0 0 55 139 Total 0 0 55 139 Cost Summary Cash Costs (US$/oz) na na 626 577Total Costs (US$/oz) na na 745 696Price Received (US$/oz) na na 1,432 1,200


Sales Revenue 0.0 0.0 80.0 181.7 Other Income 0.2 2.8 1.7 3.1 Operating Costs 0.0 1.0 34.7 80.1 Exploration Exp. 0.5 2.2 1.3 3.1 Corporate/Admin 1.8 11.6 8.1 8.3 EBITDA (2.1) (11.9) 37.5 93.3 Depn & Amort 0.0 1.5 6.6 16.5 EBIT (2.1) (13.5) 31.0 76.9 Interest 0.5 0.7 3.1 3.7 Abnormals (pre-tax) 0 2.83 0 0Operating Profi t (2.6) (11.3) 27.9 73.2 Tax expense 0.0 0.0 4.4 22.0 Abnormals (post-tax) 0.0 0.0 0.0 0.0 NPAT (2.6) (11.3) 23.5 51.2 Normalised NPAT (1.8) (16.5) 18.8 51.2


Adjusted Net Profi t (1.8) (16.5) 18.8 51.2 + Interest/Tax/Expl Exp 1.1 2.8 8.8 28.8 - Interest/Tax/Expl Inc 0.7 3.6 9.9 28.8 + Depn/Amort 0.0 1.5 6.6 16.5 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (1.4) (15.8) 24.3 67.7 - Capex (+asset sales) 0.0 34.7 31.3 15.0 - Working Capital Increase 1.1 (3.4) 0.0 0.0 Free Cashfl ow (2.5) (47.0) (7.0) 52.7 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised/Options Exercised 39.1 28.3 22.0 0.0 + Debt drawdown (repaid) (3.1) 34.2 18.7 (12.5)Net Change in Cash 27.1 (16.0) 33.7 40.2 Cash at End Period 30.9 14.9 48.7 88.9 Net Cash/(LT Debt) 30.9 (19.2) (4.3) 48.5


Cash/Bullion 30.9 14.9 48.7 88.9 Total Assets 38.0 84.0 159.5 218.6 Total Debt 0.0 34.2 52.9 40.4 Total Liabilities 0.6 34.9 69.6 77.4 Shareholders Funds 37.4 49.2 89.9 141.2 Ratios Net Debt/Equity (%) na 39.1 4.7 naInterest Cover (x) na na 10.0 20.7Return on Equity (%) na na 26.1 36.3

Bibiani77%

Exploration16%

Cash7%

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Disclosure: Patersons acted as joint lead manager to the company for a $30m share placement in November 2010, and as Lead Manager/Underwriter in April 2010 for a placement and SPP which raised a total of $40.2m at $0.30/sh. It received a fee for these services.

Investment Summary





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Year End June 30 2011F 2012F 2013F 2014F Reported NPAT ($m) 21.5 33.1 39.0 45.8 Recurrent NPAT ($m) 21.5 33.1 39.0 45.8 Recurrent EPS (cents) 6.1 9.4 11.0 12.9 EPS Growth (%) 2,447.8 53.8 17.8 17.5 PER (x) 6.1 4.0 3.4 2.9 EBITDA ($m) 49.7 59.5 67.9 77.7 EV/EBITDA (x) 2.6 2.1 1.9 1.6 Capex ($m) 44.6 8.1 5.4 2.5 Free Cashfl ow 10.7 37.7 45.9 55.5 FCFPS (cents) 3.0 10.7 13.0 15.7 PFCF (x) 12.2 3.5 2.9 2.4 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Strong, low cost production at Paulsens. Since acquiring Paulsens gold mine in July 2010 NST has produced >70koz of gold at cash costs of ~A$510/oz. The nuggety nature of the ore body has resulted in positive reconciliation of the gold content of the ore, earning greater than expected ounces. We are conservatively forecasting 70kozpa production at cash cost of A$560/oz with a mine life of 4 years, however there is good probability of NST producing higher than forecast ounces and extending the mine life with additional mill feed from the Ashburton project.

• Quick payback to remain debt free and unhedged. NST acquired the Paulsens gold mine in July 2010 for $40m consisting of $23m in cash payments in addition to $17m in royalty payments. NST achieved a payback period of only 7 months and is now debt free and unhedged with ~$10m cash in the bank.

• Top notch management. We rate highly rate NST’s management and thus far they have proved themselves as effi cient operators. Prior to becoming NST’s Managing Director, Bill Beament, spent 3.5 years overseeing the mining contractor at Paulsens, while he was Operations Manager at Barminco.

• Ashburton project. NST purchased the Ashburton mining tenements from Sipa Resources in February in exchange for replacing its environmental bonds at $445k, plus royalty based payments on the fi rst 250koz produced. The tenements contain a 668koz resource and multiple walk up drill targets all within trucking distance of the Paulsens plant.

• Exploration hitting the marks. Over the last 9 months NST has developed the 705 drill drive to expand the shallow dipping Voyager 1 and Voyager 2 lodes. To date, drilling from the 705 level has added ~22koz to the resource inventory, however signifi cant drilling has been completed outside of the current resource with encouraging results. NST is mining in excess of 1,000oz per vertical metre, and we estimate a 100koz resource upgrade to the Voyager 1 lode and a maiden resource of 100koz for the Voyager 2 lode. A 64.5koz resource has been delineated at Paulsens for an open pit to extract the near surface low grade ore.

OUR VIEWThe acquisition of the Paulsens gold project in mid 2010 has proved to be a big win for NST, managing a payback period of 7 months and now operating unhedged and debt free. A small capital expenditure on the 705 exploration drive has proved to be a savvy investment too, already providing a resource upgrade and likely to deliver at least another 200koz. Paulsens is producing at cash costs of circa $510/oz and has been consistently exceeding guidance of 70kozpa due to positive reconciliation of the ore grade. Management are very shrewd operators and have proven themselves by turning Paulsens, which was viewed as a marginal asset, into a highly profi table mine. The acquisition of the 961km2 Ashburton tenements appears to be another good move by NST, picking up a further 668koz resource and exploration targets within trucking distance of the Paulsens plant. Our estimates see NST trading on very attractive multiples of 2.0x FY2011 EV/EBITDA and 1.7x FY2012 EBITDA. With NST’s prolifi c cash generation they are well positioned to initiate their growth strategy in the near term. We rate NST a BUY with a price target of $0.61/sh.

Northern Star Resources Limited NST ($0.37)

Recommendation: BUY

Heading in the right direction Analyst: Gary Watson





A$:US$ 0.89 0.99 1.05 1.00Gold (US$/oz) 1093 1356 1483 1507Silver (US$/oz) 17.28 29.77 42.63 42.53Gold (A$/oz) 1222 1368 1409 1507


FX (A$:US$) 0.58 0.58 0.58 0Gold Price 0.58 0.58 0.58 0Gold Grade 0.58 0.58 0.58 0Operating Costs 0.58 0.58 0.58 0Recovery 0.00 0.58 0.00 (100) EV:Reserve (A$/oz) 185 EV:Resource (A$/oz) 95


Production (koz) Paulsens Gold Mine 7 84 70 70 Total 7 84 70 70 Cost Summary Cash Costs (A$/oz) 501 560 573Total Costs (A$/oz) 706 736 749Price Received (A$/oz) 1,289 1,369 1,410 1,508


Sales Revenue 8.5 104.3 98.4 105.2 Other Income 0.0 0.3 1.5 3.5 Operating Costs 5.3 53.5 39.1 40.0 Exploration Exp. 0.2 0.7 0.5 0.0 Corporate/Admin 0.7 0.6 0.7 0.8 EBITDA 2.3 49.7 59.5 67.9 Depn & Amort 1.2 20.8 12.3 12.3 EBIT 1.1 28.9 47.3 55.7 Interest 0.0 0.3 0.0 0.0 Abnormals (pre-tax) 0.0 0.0 0.0 0.0Operating Profi t 1.1 28.6 47.3 55.7 Tax expense 0.5 7.1 14.2 16.7 Abnormals (post-tax) 0.0 0.0 0.0 0.0 NPAT 0.6 21.5 33.1 39.0 Normalised NPAT 0.6 21.5 33.1 39.0

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 0.6 21.5 33.1 39.0 + Interest/Tax/Expl Exp 0.7 8.1 14.7 16.7 - Interest/Tax/Expl Inc 1.6 8.1 14.7 16.7 + Depn/Amort 1.2 20.8 12.3 12.3 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 1.0 42.3 45.4 51.2 - Capex (+asset sales) (0.0) 44.6 8.1 5.4 - Working Capital Increase (0.2) (10.3) 0.0 0.0 Free Cashfl ow 1.2 8.1 37.2 45.9 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 2.5 4.3 0.0 0.0 + Debt drawdown (repaid) (0.1) 0.0 0.0 0.0 Net Change in Cash 3.6 12.4 37.2 45.9 Cash at End Period 3.8 16.1 53.4 99.2 Net Cash/(LT Debt) 3.8 16.1 53.4 99.2


Cash/Bullion 3.8 16.1 53.4 99.2 Total Assets 5.8 44.6 77.7 116.7 Total Debt 0.0 0.0 0.0 0.0 Total Liabilities 0.7 13.7 13.7 13.7 Shareholders Funds 5.1 30.9 64.0 103.0 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) 419.1 88.9 na naReturn on Equity (%) 12.1 69.6 51.7 37.8

Northern Star Resources Limited $0.37

Valuation A$m A$/sh

Paulsens Gold Mine 141.5 0.40 Exploration 22.3 0.06 Unpaid capital 5.1 0.01 Corporate (1.2) (0.00)Forwards 0.0 0.00 Cash (est.) 3.8 0.01 Debt (0.0) (0.00)NPV 171.5 0.49 (@ 8% discount rate) Price Target 0.58

NPV Sensitivity




Resources

Mt Au g/t Au koz Paulsens Gold Mine 1,268 5.5 226Ashburton Gold Project 7,145 2.9 668 Total 8,413.0 0.8 894

Directors

Name PositionChris Rowe Non-Executive ChairmanBill Beament Managing DirectorMichael Fotios Non-Executive DirectorPeter Farris Non-Executive Director Substantial Shareholders %Investmet 19.1

Year End June 30

Paulsens Gold Mine86%

Exploration14%

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Investment Summary





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Year End December 31 2010A 2011F 2012F 2013F Reported NPAT (A$m) (1.5) (1.4) 18.7 35.9 Recurrent NPAT (A$m) (3.0) (1.4) 18.7 35.9 Recurrent EPS (cents) (0.8) (0.4) 5.1 9.8 EPS Growth (%) na na na 82.9 PER (x) (45.2) (97.1) 7.3 3.8 EBITDA (A$m) 10.5 9.6 39.4 68.4 EV/EBITDA (x) 15.2 18.7 4.4 2.5 Capex (A$m) 42.2 13.5 4.6 13.4 Free Cashfl ow 8.2 6.0 38.9 60.2 FCFPS (cents) 2.2 1.6 10.6 16.4 PFCF (x) 16.6 22.7 3.5 2.3 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Targeting Gold Production >150,000ozpa in Vietnam. OYM is targeting to become the next mid-tier gold producer in South East Asia. Production from its Vietnam assets is expected to reach 150kozpa Au within 4 years. OYM is currently commissioning its new processing plant at its 85% owned Phuoc Son mine in Vietnam. The new plant will mean that ore from Phuoc Son will no longer need to be trucked to OYM’s second mine at Bong Mieu. Both mines have excellent exploration potential to extend the mine life.

• 2.45Moz Resource in Malaysia. We visited OYM’s Bau development Asset in Malaysia. This appears to have some signifi cant exploration upside with a number of large and relatively unexplored structures. The best targets to signifi cantly expand the resource are in the Taiton, Juala, Krian and Bekajang areas. The mineralisation is variably refractory (gold locally associated with arsenopyrite) and some will require a pressure leach or similar solution to recover the gold. This would result in a higher cost operation around US$700/oz, however, we believe it will be mined as long as gold prices remain buoyant. At current gold prices this would provide suffi cient margin to bring the project into production.

• Cheap on an EV/oz Basis. Based on our analysis OYM is trading at $53 per attributable oz of resource compared to the peer average of $178/oz. This indicates that the stock is cheap compared to its peers and can improve value through moving these ounces towards production. However, that said OYM’s operations tend to be in the third quartile of costs.

• Strong Mine Building Team. While the track record of the mine building team was an issue during construction of Bong Mieu mine in 2006, our recent visit to Phuoc Son revealed a quality plant design and construction. The engineering and metallurgical teams appear to be very strong and we believe will be a valuable asset in building further mines in Malaysia and the Philippines. Despite that commissioning has been delayed by the heavy rain in Vietnam.

• Catalysts. May 2011 Commissioning of Phuoc Son; Q2/2011 Updated Resource Vietnam; Q2/2011 Bau Metallurgical test results; End 2011 Updated Resource Bau; 2013 Feasibility Study Bau; Ongoing Drill Results; Further developments at Capcapo.

OUR VIEWOlympus Pacifi c Minerals Inc (OYM-A, OYM-T) is a dual listed gold company focussed on south-east Asia with two operating gold mines in Vietnam, a development asset in Malaysia and a signifi cant exploration project in the Philippines. We recently visited OYM’s Bong Mieu and Phuoc Son mines in Vietnam and the Bau development asset in Malaysia. While the Vietnamese gold mines are relatively small (50kozpa) they are high grade (especially Phuoc Son) and as such have relatively low cash costs (US$640/oz including royalties). OYM is targeting to increase production to at least 100koz in the near term. The Bau project in Malaysia is large with 2.45Moz in resource and a number of large structures which appear attractive for expanding the resource. The challenge at Bau is the metallurgy; however, we are confi dent that OYM has the team in place to overcome this issue. OYM is cheap on a EV/oz basis and therefore has the potential to signifi cantly increase its gold production through moving the Bau gold project towards production. We retain our Spec Buy rating and price target moves up to $0.99/sh due to our commodity price increase.

Olympus Pacifi c Minerals Inc OYM ($0.37)


The Next Mid-Tier Gold miner in SE Asia Analyst: Simon Tonkin




Olympus Pacifi c Minerals Inc $0.37 Year End December 31


A$:US$ 0.93 1.06 1.03 0.98 Gold (USD/oz) 1,093 1,356 1,483 1,507


Gold produced (oz) (attributable) Bong Mieu 5,615 14,377 17,612 33,428Phuoc Son 22,265 25,700 41,838 52,596 Weighted Ave Cash Cost (US$/lb) 373 426 413 449 Weighted Ave Total Cost (US$/lb) 495 562 551 584 Realised Gold Price (US$/oz) 1,291 1,307 1,436 1,490


Sales Revenue 36.7 52.4 85.4 128.2 Other Income 1.4 0.8 0.6 2.3 Operating Costs 18.0 20.5 29.4 46.6 Exploration Exp. 0.0 14.0 7.4 8.0 Corporate/Admin 10.3 8.5 8.7 8.9 EBITDA 9.8 10.1 40.5 67.0 Depn & Amort 9.0 6.5 9.8 13.9 EBIT 0.8 3.6 30.6 53.1 Interest 1.3 3.5 3.2 2.9 Provisions (1.4) 0.0 0.0 0.0 Operating Profi t 0.8 0.0 27.4 50.2 Tax expense 2.3 1.5 8.2 15.1 Minorities 0.0 0.0 0.0 0.0 NPAT (1.4) (1.5) 19.2 35.1 Normalised NPAT (1.8) 0.0 19.2 35.1


Adjusted Net Profi t (4.9) (1.5) 19.2 35.1 + Interest/Tax/Expl Exp 15.0 19.0 18.9 26.0 - Interest/Tax/Expl Inc 0.0 3.5 3.2 2.9 + Depn/Amort 9.0 6.5 9.8 13.9 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 19.1 20.6 44.7 72.2 - Capex (+asset sales) 39.2 14.3 4.7 13.1 - Working Capital Increase (27.8) 0.0 0.0 0.0 Free Cashfl ow 7.6 6.3 40.0 59.0 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 15.8 0.0 0.0 0.0 + Debt drawdown (repaid) 22.2 24.4 (6.2) (1.5)Net Change in Cash (1.6) 2.7 18.9 41.4 Cash at End Period 4.1 6.8 25.8 67.2 Net Cash/(LT Debt) (18.1) (38.8) (13.7) 29.2


Cash 4.1 6.8 25.8 67.2Total Assets 123.2 136.7 160.6 212.7Total Debt 22.2 45.7 39.5 38.0Total Liabilities 44.9 59.9 64.6 81.5Shareholders Funds 78.3 76.8 96.0 131.2 Ratios Net Debt/Equity (%) 23.15 50.54 14.30 naInterest Cover (x) na 1.0 9.6 18.4Return on Equity (%) na na 20.0 26.8

Directors

Name PositionDavid Seton Chairman &CEOLes Robinson Non-Executive DirectorJon Morda Non-Executive DirectorJohn Seton CFODouglas Willock Non-Executive Director

Substantial Shareholders Shares (m) %Dragon Capital Group Limited 65.4 17.9


Bong Mieu 68.5 0.19Phuoc Son 148.4 0.40Exploration (Bau/Capcapo) 207.6 0.57Corporate (25.3) (0.07)Cash 35.6 0.02 Debt (50.3) (0.06)Forwards (1.0) (0.00)Unpaid capital 0.2 0.00 Total NAV (8% Discount Rate) 384 1.05 Price Target 384 1.05


Total NAV 8% Discount 362 0.99 Price Target 362 0.99 Exchange Rate (US$/A$) 1.06

Sensitivity Price Target (US$) +10% 0% -10%

Gold Price 1.15 0.99 0.94A$ : $US 0.90 0.99 1.10



Reserves & Resources Total Attrib.

Reserves Kt g/t Au ozBong Mieu 251 2.59 20,863 16,691Phuoc Son 831 6.26 167,249 142,161Total 1,082 0.61 188,112 158,852 Resources (M&I) Kt g/t Au oz Au ozBong Mieu 3,222 1.76 182,293 145,835Phuoc Son 621 9.41 187,858 159,679Bau 10,963 1.6 563,950 423,244Tungsten Credits 96,236 76,989Total 14,806 2.16 1,030,337 805,747 Resources Inferred Kt g/t Au oz Au ozBong Mieu 4,729 1.4 212,872 170,297Phuoc Son 2,481 6.01 479,453 407,535Bau 35,808 1.64 1,888,057 1,416,987Total 43,019 2.16 2,580,382 1,994,819 Total 57,824 3,610,719 2,800,567

Phuoc Son35%

Exploration (Bau/Capcapo)49%

Bong Mieu16%

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Investment Summary





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Year End June 30 2011F 2012F 2013F 2014F Reported NPAT ($m) (2.7) (3.5) (11.0) (9.2)Recurrent NPAT ($m) (2.7) (3.5) (11.0) (9.2)Recurrent EPS (cents) (2.6) (3.4) (10.6) (8.9)EPS Growth (%) na na na naPER (x) (93.0) (72.7) (23.0) (27.5) EBITDA ($m) (2.7) (2.1) 5.3 50.5 EV/EBITDA (x) (79.1) (151.7) 87.6 8.5 Free Cashfl ow (18.6) (142.4) (102.5) 30.2 FCFPS (cents) (17.8) (136.8) (98.5) 29.0 PFCF (x) (13.7) (1.8) (2.5) 8.4 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• The completed Defi nitive Feasibility Study (DFS) for the Salar de Olaroz lithium project was published highlighting a range of NPVs from $275-450m depending on different levels of discounts rates and gearing. The main changes in the DFS compared to our assumptions were lower operating costs (-14%), higher production rates (9%) for Lithium carbonate, a much longer mine life (to 40 years), and a much faster accelerated depreciation (now 3 years). These have more than offset the much higher capex (90%) at $220m and higher long term AUD (13%). The outcome from this new level of detail has seen our NPV for 100% of Olaroz rise from $220m to $305m, or $2.92/sh.

• Upon the completion of the DFS, Toyota Tsusho has 90 days to exercise its option to acquire 25% of Olaroz based on the NPV and also secure Japanese bank funding for at least 60% of the project capex ($130m). Toyota has been deeply involved in the completion of the DFS and should be in a position to make a decision within the 90 days but credit approval from the banks may take up to another 6 months.

• ORE has $40m in cash and will receive around $75-100m for 25% of Olaroz, while its eventual equity share of the capex will only be $66m ($220m x 40% x 75%) so the company looks fully funded to fi rst production of Lithium Carbonate in late FY13.

• There is concern about the additional Jujuy province approval, but this appears to us as more a political process for a domestic audience ahead of the local elections than a serious attempt to block the projects that have been recently approved by the current government itself.

• This means that the Salar de Olaroz project will have to submit to this new process. This does not stop any of the current work being conducted by ORE at the site. The pilot plant will continue to produce Lithium Carbonate to optimise the process and for testing by customers.

• The value placed on the Salar de Olaroz project implies that is cheaper to buy the stock than to buy the mine, a common occurrence in resource companies. In the case of ORE there are few strategic or management shareholders that would able to block a serious bid. Once Toyota is on the register this dynamic may change for any third party looking at the company but it will be the foundation stone for the fi rst big new Lithium-from-brines producer in many years.

OUR VIEWOrocobre has hit some political turbulence on a regional level in Argentina however it has achieved a major milestone with the completion of the Defi nitive Feasibility Study (DFS) for the Salar de Olaroz lithium project. Salar de Olaroz, in the northern province of Jujuy is ORE’s fl agship project. The completion of the DFS was the trigger to commence a 90 day period within which Toyota Tsusho has to exercise its option to acquire 25% of the project. Toyota Tsusho has been intimately involved with the DFS process and it should be comfortable with the estimated value of $275-450m depending on different levels of discounts rates and gearing. The share price has reacted more to the Provincial Government of Jujuy declaring lithium a strategic resource and that projects will be assessed by a new Committee. We see this as more a political process for a domestic audience ahead of the local elections than a serious attempt to block any projects that have been recently approved by the government. We see the market pricing ORE more as an exploration play rather than a company with an advanced project, 3 other attractive projects in the pipeline, and a strong strategic partner. Accordingly we maintain our BUY recommendation with a price target of $3.95/sh.

Orocobre Limited ORE ($2.44)

Recommendation: BUY

Strong position in Lithium Analyst: Andrew Harrington, Matthew Trivett




Year End June 30Orocobre Limited $2.44


US$/A$ 0.99 1.05 1.00 0.96Lithium Carbonate (US$/t) 6,000 6,177 6,301 6,428 Potash (KCl) (US$/t) 700 587 599 611 Boric Acid (US$/t) 500 506 516 527 Sodium Sulphate (US$/t) 120 122 124 126


Salar Olaroz (100%) Lithium Carbonate (t) 2,000 12,500Potash (KCl) (t) Boric Acid (t) Sodium Sulphate (t) Cash Costs (US$/t) 1,674 1,700


Sales Revenue 0.0 0.0 11.6 75.8 Other Income 1.3 2.0 1.2 1.2 Operating Costs 0.0 0.0 3.4 22.3 Exploration Exp. 0.0 0.0 0.0 0.0 Corporate/Admin 4.0 4.1 4.1 4.2 EBITDA (2.7) (2.1) 5.3 50.5 Depn & Amort 0.0 0.0 8.0 50.0 EBIT (2.7) (2.1) (2.7) 0.5 Interest 0.0 1.4 8.3 9.7 Operating Profi t (2.7) (3.5) (11.0) (9.2)Tax expense 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 Abnormals 0.0 0.0 0.0 0.0 NPAT (2.7) (3.5) (11.0) (9.2) Normalised NPAT (2.7) (3.5) (11.0) (9.2)

Cash Flow (A$m) 2011F 2012F 2013F 2014F

Adjusted Net Profi t (2.7) (3.5) (11.0) (9.2)+ Interest/Tax/Expl Exp 0.0 1.4 8.3 9.7 - Interest/Tax/Expl Inc 15.4 9.5 16.6 18.1 + Depn/Amort 0.0 0.0 8.0 50.0 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (18.1) (11.6) (11.3) 32.3 - Capex (+asset sales) 0.5 130.8 91.2 2.1 - Working Capital Increase 0.0 0.0 0.0 0.0 Free Cashfl ow (18.6) (142.4) (102.5) 30.2 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 37.0 0.0 0.0 0.0 + Debt drawdown (repaid) 0.0 130.8 90.7 (20.6)Net Change in Cash 13.0 (11.6) (11.8) 9.6 Cash at End Period 38.1 26.5 14.7 24.3 Net Cash/(LT Debt) 38.1 (59.6) (206.9) (176.6)


Cash 38.1 26.5 14.7 24.3Total Assets 63.1 190.5 270.2 240.3Total Debt 0.0 86.1 221.5 200.9Total Liabilities 1.1 131.9 222.6 202.0Shareholders Funds 62.0 58.5 47.5 38.3 Ratios Net Debt/Equity (%) na 1.0 4.4 4.6Interest Cover (x) na (1.4) (0.3) 0.0Return on Equity (%) na na na na

Valuation A$m A$/sh

Salar de Olaroz (100%) 304 2.92 South American Salars (85%) 50 0.48 Cauchari 20 0.19 Exploration 20 0.19 Corporate (26) (0.25)Elementos Holding 6 0.06 Unpaid Capital 2 0.02 Debt 0 0.00 Cash 38 0.37 NAV (at 10%) 414 3.97Price Target 3.95

Price Target Sensitivities -10% 0% +10%

Lithium Carbonate Price (US$/t) 3.44 3.97 4.51 Potash Price (US$/t) 3.93 3.97 4.02 Exchange Rate (US$/A$) 4.27 3.97 3.73


Lithium Production Summary

Reserves & Resources (100% of Project)

Volume Lithium Potassium BoronSalar Olaroz (cubic km) mg/L mg/L mg/L 1.75 690 5,730 1,050 Contained Metal (kt) 1,209 10,041 1,840 Product Equivalent LiCO3 KCl H3BO3 (kt) 6,433 19,179 10,527

Directors

Name PositionJames Calaway Non-Executive ChairmanRichard Seville Managing DirectorJohn Gibson Non-Executive DirectorFederico Nicholson Non-Executive DirectorFernando Oris De Roa Non-Executive DirectorCourtney Pratt Non-Executive DirectorNeil Stuart Non-Executive Director

Substantial Shareholders Shares (m) (%)Lithium Investors LLC 8.2 8.0Richard Seville 4.8 4.7Fairground 4.4 4.3Eye Investment Fund 4.0 3.9CIBC GAM 3.7 3.6

Salar de Olaroz (100%)

South American Salars (85%)

Cauchari

(kt)

(US$/t

)

Lithium Carbonate (t)Potash (KCl) (t)Boric Acid (t)

Cash Costs (US$/t)Lithium Carbonate (US$/t)

0

3,000

6,000

9,000

12,000

15,000

18,000

2011F 2012F 2013F 2014F 2015F0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Disclosure: Patersons acted as joint lead manager for a share placement that raised A$15m at A$3.21/sh. In conjunction Cormark Securities Dundee Securities acted as lead Syndicators for C$20m bought deal at C$3.20/sh in February 2011. Patersons acted as joint lead manager for a share placement that raised A$6.25m at A$1.10/sh in December 2009. It received a fee for this service.

Investment Summary





12 Months

Shar

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(A$)

Volu

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0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

0

15000

30000

45000

60000

75000


Year End December 31 2010A 2011F 2012F 2013F Reported NPAT ($m) 544.4 372.5 407.1 442.2 Recurrent NPAT ($m) 354.0 372.5 407.1 442.2 Recurrent EPS (cents) 11.3 11.8 12.9 14.1 EPS Growth (%) 1,031.1 5.2 9.3 8.6 PER (x) 12.5 11.9 10.9 10.0 EBITDA ($m) 765.0 701.5 749.6 799.7 EV/EBITDA (x) 4.0 5.1 4.4 3.7 Capex ($m) 79.9 381.4 87.6 36.7 Free Cashfl ow 359.3 129.5 465.8 550.8 FCFPS (cents) 11.4 4.1 14.8 17.5 PFCF (x) 12.3 34.1 9.5 8.0 DPS (cents) 19.0 6.0 6.0 5.0 Yield (%) 13.5 4.3 4.3 3.6 Franking (%) 0.0 0.0 0.0 0.0


• Carrapateena acquisition offers minor growth catalyst. With current reserves at Prominent Hill providing a mine life of approximately 9 years, we see Carrapateena as a much needed growth catalyst for OZL. Carrapateena will have a long development timeline and production is expected to commence in 2018. The production will be coming online in 2018 as PH winds down, offering positive timing synergies, but the production rate will be lower leaving a gap once PH goes underground only. OZL purchased Carrapateena for US$250m plus a further $50m payment once production begins. The deposit has an initial resource of 203Mt at 1.31% Cu, 0.56g/t Au, 270ppm U and 6g/t Ag. OZL plans to put forward a 10,000m drilling programme to over the next year to increase the resource with notable results from previous drilling in the area including 905m at 2.15% Cu & 0.66g/t Au, and 905m at 2.17% Cu, 0.89g/t Au.

• Rise in costs. Cash costs have risen from $0.44/lb in the Dec Q to US$0.70/lb in the March Q, due to lower gold production of 49,911oz (54,128oz Dec Q) resulting from lower grades and the rise in the Australian dollar. Management has indicated it expects higher gold grades to return for Q3 and Q4 CY2011. Cost guidance for the rest of CY2011 is ~$US$0.70/lb factoring in the high AUD.

• Strong cash position despite acquisition and capital return. OZL announced on 16 March that its intended A$390m (12cps) capital return to shareholders due on 15 April, was ruled by the ATO as a non-taxable distribution. Despite this being subject to shareholder vote at the AGM on 18 May, we see no reason why this should not go ahead. The distribution represents an 11% return based on the current share price. Post capital return and Carrapateena acquisition OZL will hold ~$700m in cash.

• Class action loss. Despite recent class action suits having gone against OZL to the tune of $55.1m and the resulting negative impact on the company’s net profi t for FY2011, we don’t expect any ongoing negative impacts from the company’s decision to settle. Under the class actions OZL was accused of classifying much of its current liabilities as non-current by around $300m and failing to disclose the full extent of its refi nancing obligations.

• Regional Exploration. With the Government releasing land from the Woomera exclusion zone near to OZL existing exploration tenements, it is likely that OZL will pick up some of these prospective properties. The $50m regional exploration budget may see some exploration success, however, the Gawler Craton has ~100m thick cover rocks, signifi cantly increasing the risk of exploration in the area.

OUR VIEWWe see the recent acquisition of Carrapateena as a positive for OZL, with production starting in 2018 and replacing some of the production gap at a time when Prominent Hill is tailing off. The Prominent Hill underground development is underway at Ankata, where the expected 1.2Mtpa production is set to ramp up from early 2012. We see a short term increase in production but longer term however; the concern remains that post 2018 when the Malu pit ends there will be a signifi cant feed shortfall for the 10Mtpa mill. We see OZL’s success in fi lling the expected production gap as critical to their growth going forward and the company is aggressively pursuing reserve expansion through its signifi cant $20m near mine exploration spending and $50m regional exploration programme. OZL is also looking for another project, either domestic or international, and is well placed for an acquisition given its strong cash position of A$700m (post the Carrapteena deal). Lower expected gold grades and a strong Australian dollar has driven OZL’s cash cost from US$0.44/lb in the Dec Q CY2010, to US$0.70/lb for the remainder of CY2011. We expect the impact of the higher cost will be largely mitigated by the rising Cu and Au prices. We retain our HOLD recommendation with a price target of $1.49/sh.

OZ Minerals Limited OZL ($1.43)


Further growth needed Analyst: Alex Passmore, Gary Watson




OZ Minerals Limited $1.43 Year End December 31


A$:US$ 0.93 1.06 1.03 0.98Copper (US$/lb) 3.44 4.33 4.26 4.10Lead (US$/lb) 0.78 0.79 0.80 0.82Zinc (US$/lb) 0.98 1.09 1.11 1.10Nickel (US$/lb) 9.83 11.92 11.60 11.21Gold (US$/oz) 1356 1483 1507 1548Silver (US$/oz) 20.13 39.91 42.60 42.45


Prominent Hill Copper (kt) 112 114 118 118Gold (koz) 196 188 195 195Copper Cash Cost (US/lb net) 0.61 0.69 0.67 0.67 Carrapateena Copper (kt) 0.00 0.00 0.00 0.00Gold (koz) 0.00 0.00 0.00 0.00Copper Cash Cost (US/lb net) na na na na


Sales Revenue 1148.9 1141.1 1195.2 1221.0 Other Income 36.3 9.1 9.3 61.1 Operating Costs 341.8 385.9 401.8 429.1 Exploration Exp. 31.4 22.9 13.0 13.2 Corporate/Admin 47.0 40.0 40.0 40.0 EBITDA 765.0 701.5 749.6 799.7 Depn & Amort 152.6 169.4 168.0 168.0 EBIT 612.4 532.1 581.6 631.7 Interest 37.1 (0.0) (0.0) (0.0)Operating Profi t 575.3 532.1 581.6 631.7 Tax expense 221.3 159.6 174.5 189.5 Minorities 0.0 0.0 0.0 0.0 Abnormals 190.4 0.0 0.0 0.0 NPAT 544.4 372.5 407.1 442.2 Normalised NPAT 411.2 364.5 398.4 432.7

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 411.2 364.5 398.4 432.7 + Interest/Tax/Expl Exp 280.3 182.5 187.5 202.8 - Interest/Tax/Expl Inc 224.5 205.4 200.4 216.0 + Depn/Amort 152.6 169.4 168.0 168.0 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 619.5 511.0 553.4 587.5 - Capex 79.9 381.4 87.6 36.7 - Other investing cashfl ow 114.9 0.0 0.0 0.0 - Working Capital Increase 293.8 0.0 0.0 0.0 Free Cashfl ow 131.0 129.5 465.8 550.8 - Dividends (ords & pref) 93.6 615.3 194.3 226.7 + Equity raised/ZFX acquisiton 123.9 0.0 0.0 0.0 + Debt drawdown (repaid) (121.0) 0.0 0.0 0.0 Net Change in Cash 40.3 (485.8) 271.5 324.1 Cash at End Period 1334.2 848.4 1119.9 1444.1 Net Cash/(LT Debt) 1334.2 848.4 1119.9 1444.1


Cash/Bullion 1334.2 848.4 1119.9 1444.1Total Assets 3386.9 3728.9 3944.4 4220.6Total Debt 0.0 0.0 0.0 0.0Total Liabilities 95.9 267.7 279.1 284.5Shareholders Funds 3291.0 3461.2 3665.3 3936.1 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) 16.5 na na naReturn on Equity (%) 12.5 10.5 10.9 11.0

Substantial Shareholders

Shares (m) % issued capBlackrock Inv Mgmt 336.6 10.8Bank of America 215.0 6.9Ausbill Dexia 189.5 6.1M&G 170.0 5.4

Valuation A$m A$/sh

Prominent Hill 2879 0.92 Carrapateena 250 0.08 Exploration 730 0.23 Equity Investments 232 0.07 Cash 861 0.27 Debt 0 0.00 Corporate (255) (0.08)Total @ 8% Real 4951 1.49

DCF Valuation Sensitivity A$/sh

Patersons NPV 1.49 NPV at fl at spot Cu and AUDUSD $1.55/shImplied Cu price at current stock price US$3.30/lb


Prominent Hill Copper Production Summary


Prominent Hill Ore Reserves (Mt) (g/t, %) (kt, Moz) Cu 74.5 1.21 905 Au 0.67 1595 Ag 3.08 7375 Prominent Hill Mineral Resources (Mt) (g/t, %, ppm) (kt, Moz)Copper-Gold Zone Cu 200.3 1.23 2473 Au 200.3 0.50 3.1 Ag 200.3 3.00 19.3Gold only Zone Cu 85.2 0.08 1.5 Au 85.2 1.50 4.1 Ag 85.2 1.00 2.7 Carrapateena Resource Cu 203.0 1.31 2659 Au 203.0 0.56 3.66 Ag 203.0 6.00 39.16 U 203.0 227 46.08

Directors

Name PositionNeil Hamilton Non-Executive ChairmanTerry Burgess Managing DirectorMicheal Eager Non Executive DirectorBrian Jamieson Non Executive DirectorDean Pritchard Non Executive DirectorPaul Dowd Non Executive DirectorCharles Lenegan Non Executive Director

Prominent Hill70%

Carrapateena6%

Exploration18%

Equity Investments6%

(kt)

(US$/l

b)

Copper (kt)Copper Cash Cost (US/lb net) Copper (US$/lb)

0

30

60

90

120

150

2010A 2011F 2012F 2013F0.0

1.0

2.0

3.0

4.0

5.0

Investment Summary





12 Months

Shar

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(A$)

Volu

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3.00

3.50

4.00

4.50

5.00

5.50

6.00

0

8000

16000

24000

32000

40000

Shares on issue (m) 778.7 3mth ADT ($m) 33Market Cap. ($m) 2600.8 Debt est ($m) 720.952 week range $3.25 - $5.57 Cash est ($m) 241.6

Year End June 30 2010A 2011F 2012F 2013F Reported NPAT (A$m) (39.5) (3.9) 164.2 212.8 Recurrent NPAT (A$m) (12.8) (5.2) 177.4 223.4 Recurrent EPS (cents) (1.8) (0.7) 22.8 27.0 EPS Growth (%) na na na 12.6 PER (x) (187.9) (497.3) 14.7 12.4 EBITDA ($m) 20.2 87.2 343.7 404.8 EV/EBITDA (x) 129.2 31.6 7.9 6.2 Capex ($m) 190.6 103.3 33.8 33.2 Free Cashfl ow (259.5) (48.2) 200.2 254.9 FCFPS (cents) (36.1) (6.2) 25.7 30.8 PFCF (x) (9.2) (54.0) 13.0 10.8 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• PDN Starting to Meet Expectations. March quarterly production came in at 1.40mlb, 6% below of estimate of PSL est: 1.48mlb this was a result of factors largely outside PDN’s control. This was made up of 606klb (PSL est. 585klb) from Kayelekera and 795.8klb (PSL: 899klb) from Langer Heinrich. At Langer Heinrich the installation of a pilot splash fl ash heat exchange in stage II has improved extraction rates to 94.8% (from 88%).

• Watch-out LH Stage III Front-End Commissioning in April. While the March Q met our expectations PDN reports that it expects to commission the front end (crusher, scrubbing unit) of LH Stage III in April. However, the NIMC-IX columns are behind schedule and won’t be commissioned until late in the June quarter. This is in-line with comments in our site visit note we released in February. Therefore we believe there is potential for production disruptions as the Stage III circuit is included over the next two quarters. However, once at nameplate it has the potential to operate more effi ciently than Stage I and III.

• Newmont 6.7% holding in PDN an Overhang. Recently Newmont (NEM-US) released a substantial holding notice in PDN of 6.7%. The reason relates to NEM’s takeover of TSX-listed Fronteer Gold who late last year did a deal with PDN to sell its uranium assets for $260m in shares. There are restrictions on selling the stock until 2 June 2011 and we believe the stock is an overhang for the PDN stock. The world’s largest gold producer is unlikely to want to retain its stake in an emerging uranium producer.

• FY2011 Guidance Downgraded to 6mlb. In the March quarterly PDN downgraded its FY2011 production to the lower end of PDN’s 6-6.3mlb range.

• Langer Heinrich Stage IV. PDN is targeting increasing production at Langer Heinrich to 8.7mlbpa. We expect capital costs to be in the $75-100m range and will require additional water. Currently PDN uses 1.5GLpa and in order to increase production to Stage IV it will require 5-6GLpa. The water could come from the Areva desalination plant or a new plant by Namwater. We estimate that LH Stage 4 could add $0.29/sh to our valuation.

• Catalysts. April-May 2011: LH Stage III Front-End Commissioning; Late June Q: LH Stage III Back End; Dec Q: LH Stage 4 Feasibility; Update on Water Availability Ongoing.

OUR VIEWOverall, PDN is starting to meet production expectations; however, investors should remain cautious with the implementation of Langer Heinrich Stage III and Namibian BEE policies being considered. We believe there could be some production disruption while Stage III is implemented, however, once up and running there are some new components that have the potential to improve production and lower costs. One of the biggest catalysts for PDN is access to additional water for LH Stage IV we estimate if PDN had access to water their 1.0x NAV could improve from $3.00 to $3.20. On 15 April, PDN released its March quarterly activities report; uranium production was 6% lower than our estimates at 1.40mlb (PSL est: 1.48). As a result PDN revised its production guidance down to 6mlb which is at the lower end of last quarter’s 6-6.3mlb range (PSL est: 5.9mlb). The reason for the lower production was heavy rainfall (10 times the average in March) and a fuel shortage at Kayelekera. Revenues from sales (1.4mlb sold) was US$92.5m (PSL est: US$81.8m) at an averaged realised price of US$66.28/lb. We retain our HOLD rating and our price target is $3.52/sh based on a 1.2x NAV.

Paladin Energy Limited PDN ($3.34)


Starting to Meet Expectations; LH Stage 3 Analyst: Simon Tonkin, Rhys Bradley




Paladin Energy Limited $3.34 Year End June 30


A$:US$ 0.89 0.99 1.05 1.00Uranium (US$/lb) 61.75 60.00 62.50 66.40

Sensitivities -10% 0% +10% % Chg

FX (A$:US$) 3.52 3.52 3.53 0U Price 3.10 3.52 3.94 12Langer Heinrich Grade 3.27 3.52 3.78 7Kayelekera Grade 3.48 3.52 3.57 1Langer Heinrich Opex 3.69 3.52 3.35 (5)Kayelekera Opex 3.55 3.52 3.49 (1)


Langer Heinrich U3O8 (mlbs) 3.4 4.1 9.0 9.0Kayelekera U3O8 (mlbs) 1.0 2.2 3.1 3.1Total Production (mlbs) 4.3 6.2 12.1 12.1 Reported Cash Costs (US$/lb) 26.06 26.56 26.16 26.68Total Cash Costs (US$/lb) 33.07 34.94 35.63 36.28Price Received - ($US/lb) 54.20 54.91 62.07 66.29


Sales Revenue 202.0 305.3 723.6 772.8 Other Income 10.8 (11.1) 5.1 5.9 Operating Costs 156.0 180.4 341.7 351.2 Exploration Exp. 17.1 16.4 14.2 14.5 Corporate/Admin 21.7 11.2 12.2 12.5 EBITDA 18.0 86.1 360.5 400.5 Depn & Amort 15.0 44.9 82.6 82.6 EBIT 3.0 41.2 278.0 318.0 Interest 20.2 30.6 12.5 0.0 Operating Profi t (17.2) 10.7 265.5 318.0 Abnormals (pre-tax) 8.1 18.4 0.0 0.0 Tax expense 10.0 (5.2) 93.5 112.0 Minorities 0.0 1.6 0.0 0.0 NPAT (35.3) (4.1) 172.0 206.0 NPAT (Adj) (27.1) (16.7) 185.8 222.6


Adjusted Net Profi t (33.9) (16.7) 185.8 222.6 + Interest/Tax/Expl Exp 69.0 36.1 120.2 126.5 - Interest/Tax/Expl Inc 61.1 46.0 129.3 132.7 + Depn/Amort 15.0 44.9 82.6 82.6 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (11.0) 18.3 259.3 298.9 - Capex (+asset sales) 170.4 102.4 35.5 33.2 - Working Capital Increase 27.5 42.4 0.0 0.0 Free Cashfl ow (208.9) (126.5) 223.8 265.7 - Dividends 0.0 0.0 0.0 0.0 - Other 1.8 0.0 0.0 0.0+ Equity Raised 364.1 1.5 0.0 0.0 + Debt Drawdown (Repaid) 129.2 (25.9) (44.5) (371.8)Net Change in Cash 282.6 (150.9) 179.3 (106.1)Cash at End Period 348.8 197.9 377.2 271.1 Net Cash/(LT Debt) (245.9) (511.1) (287.3) 40.3


Cash 348.8 197.9 377.2 271.1Total Assets 1957.6 2056.8 2198.1 1673.1Total Debt 730.1 844.4 800.0 41.2Total Liabilities 1001.2 1115.5 1071.1 323.4Shareholders Funds 956.4 941.2 1127.1 1349.6 Ratios Net Debt/Equity (%) 25.7 54.3 25.5 naInterest Cover (x) 0.2 1.3 22.3 naReturn on Equity (%) na na 15.3 15.3

Substantial Shareholders No. Shares %

HSBC Custody Nominees (Aust) Ltd 172.40 24.00 Top 20 587.24 81.74

Valuation US$m US$/sh

Langer Heinrich 2015.1 2.29 Kayelekera 477.9 0.46 Canadian Assets 233.9 0.27 Exploration (inc. Mt Isa) 634.4 0.72 Listed investments 72.1 0.08 Corporate (73.8) (0.08)Forwards (8.1) (0.01)Unpaid Capital 2.7 0.00 Cash (est.) 181.3 0.21 Debt (inc. Con Note) 720.9 (0.82)NAV (@ 10% disc rate) 3,536 3.11 Price Target (1.2x NAV) 3.74


Total NAV 10% Discount 3335 2.94Price Target 3335 3.52 Exchange Rate (US$/A$) 1.06




Measured & Indicated Resources Mt % U3O8 U3O8 (t)Langer Heinrich 124.3 0.05 67,758Kayelekera 22.2 0.08 17,760Manyingee 7.9 0.10 7,900Angela & Pamela 11.4 0.11 12,540Valhalla 34.7 0.08 28,778Total 200.5 0.053 134,736

Inferred Resources Mt % U3O8 U3O8 (t)Langer Heinrich 18.5 0.06 11,100Kayelekera 3.9 0.06 2,153Manyingee 4.2 0.07 2,940Oobagooma 7.1 0.12 8,520Valhalla 9.1 0.06 5,851Total 42.8 0.071 30,564

Directors

Name PositionJohn Borshoff Managing Director/CEORick Crabb Non-Executive ChairmanSean Llewelyn Non-Executive DirectorDonald Shumka Non-Executive DirectorIan Noble Non-Executive DirectorPeter Donkin Non-Executive DirectorPhilip Bailey Non-Executive DirectorGillian Swaby Company Secretary

Langer Heinrich65%

Kayelekera15%

Exploration(inc. Mt Isa)

20%

(mlb

spa)

(US$/l

b)

Total Production (mlbs) Price Received ($US/lb)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2010A 2011F 2012F 2013F0

20

40

60

80

100

Investment Summary





12 Months

Shar

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(A$)

Volu

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1.25

1.75

2.25

2.75

3.25

0

1000

2000

3000

4000

5000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 56.9 41.2 55.6 48.7 Recurrent NPAT ($m) 56.5 36.4 55.6 48.7 Recurrent EPS (cents) 26.9 17.4 26.5 23.2 EPS Growth (%) 47.0 (35.6) 52.5 (12.3)PER (x) 7.7 12.0 7.9 9.0 EBITDA ($m) 132.0 100.5 126.7 116.9 EV/EBITDA (x) 2.3 3.3 2.1 1.9 Capex ($m) 33.0 24.6 25.0 25.5 Free Cashfl ow 105.2 13.5 74.2 66.7 FCFPS (cents) 50.2 6.4 35.3 31.8 PFCF (x) 4.1 32.5 5.9 6.5 DPS (cents) 16.5 9.0 8.0 7.0 Yield (%) 7.9 4.3 3.8 3.4 Franking (%) 100.0 100.0 100.0 100.0


• Slightly Better Quarter. PAN recorded 3% better production in the March Q compared to the December Q. During the March Q Savannah was impacted by heavy rains, however, PAN was able to access higher grade mining areas recording a grade of 1.43% Ni (PSL est. 1.35% Ni) with throughput down by 17% vs. PSL est. The heavy rains impacted concentrate shipments with 4,500t of nickel valued at $7m remaining on site. Production from Lanfranchi was 10% lower than expectations mainly due to lower availability of the underground equipment fl eet due to major component failures on trucks and loaders.

• FY2011 Guidance Revised Downward by 5%. In its March quarterly, PAN revised its FY2011 production guidance down by 5% to 17-17.2kt from 18-19kt in the previous quarter. We had 17.4kt however, inputting this quarters production fi gures we have revised our estimate down to 17kt Ni.

• Higher Costs Beginning to Bite. We have taken this opportunity to review our PAN model and costs have been gradually rising over the past year. We have incorporated these higher costs into our model which results in a $0.30/sh impact to our NAV now $1.92/sh (previously $2.36/sh).

• Completed Gidgee Acquisition; Targeting 500,000oz Reserve. PAN has $96m in cash following the $15.5m acquisition of the Gidgee Gold Project in Western Australia. PAN plans to recommission the existing Gidgee gold processing plant with an initial reserve target of 3-5Mt at 5g/t Au for 500koz Au. This is targeted as the next leg of growth for PAN.

• Record Exploration Expenditures in FY11. PAN is spending $12m in FY11 on various global and domestic exploration projects including Savannah and Lanfranchi to provide an option on potential new discoveries. PAN has had some success and plans to drill the following targets: 1) Helmut South: several more high-grade hits down plunge 2) Helmut South Extension: Narrow high grade sulphides returned 3) Cruickshank: PAN released an updated resource estimate 4) East Kimberley JV: Drill testing of targets expected in June Q 5) Drake (Scandinavia): Ten high quality Zn-Cu targets ready for testing.

• Catalysts. 1) Ongoing Exploration Results 2) July 2011 - June Q Report 3) Continued Strategic Investments/Acquisitions.

OUR VIEWOverall, we believe PAN is an attractive nickel story with excellent leverage to nickel prices and exploration upside; however we believe the stock is fairly priced based on current production expectations. PAN’s diversifi cation into gold at the established Gidgee project (plant infrastructure) will take some time to prove up with the fi rst milestone the delineation of a 500,000oz gold reserve estimate. In addition, PAN has a number of exploration properties (East Kimberley, Norrland (Sweden), Tushtena (Alaska) and Drake (Scandinavia)) which could yield signifi cant discoveries however, further exploration work is needed. PAN also has investments in Ampella (AMX) and Magma Metals (MMW). For the March Q, PAN reported consolidated production of 4,166t Ni (up 3% previous quarter and below our estimate of 4,500t) at cash costs of US$5.95/lb (10% lower than previous quarter and above our estimate of US$5.30/lb). However, PAN has revised its FY2011 production guidance downward by 5-10% to 17-17.2kt of nickel. PAN’s costs have been gradually rising and we have incorporated these into our fi nancial model, with the impact on our NAV $0.30 to $1.92/sh (previously $2.36/sh). We retain our HOLD rating.

Panoramic Resources Limited PAN ($2.08)


Higher Costs Beginning to Bite Analyst: Simon Tonkin, Tim McCormack




Valuation A$m A$/sh

Savannah Project 97 0.46 Copernicus-Salk 0 0.00 Lanfranchi 165 0.78 Forwards (4) (0.02)Puts & Calls 1 0.00 Corporate (39) (0.18)Cash 98 0.47 Investments/TD 7 0.03 Debt (2) (0.01)Exploration 79 0.37 Unpaid capital 2 0.01 NPV 403 1.92Price Target 403 1.92

Sensitivities +10% 0% -10%

Nickel Price 2.53 1.92 1.27 A$ : $US 1.27 1.92 2.74




Reserves Kt Metal Grade (%) Metal (kt)Savannah 6,220 Ni 1.20 74.6 Cu 0.62 38.6 Co 0.06 3.7Lanfranchi 376 Ni 4.60 17.3Deacon 2,443 Ni 2.52 61.6Total 9,039 Ni 1.59 144.1 Resources Kt Metal Grade (%) Metal (kt)Savannah 6,049 Ni 1.53 92.5 Cu 0.81 49.0 Co 0.08 4.8Copernicus JV 812 Ni 1.23 10.0 Cu 0.82 6.7 Co 0.04 0.3Lanfranchi 5,327 Ni 1.31 69.7Deacon 2,301 Ni 2.42 55.7Total 14,489 Ni 1.76 255.0

Directors

Name PositionChristopher de Guingand Non-Executive ChairmanPeter Harold Managing DirectorChris Langdon Non Executive DirectorJohn Rowe Non Executive DirectorBrian Phillips Non Executive DirectorChris Williams Chief Operating Offi cerTrevor Eton Chief Financial Offi cer

Substantial Shareholders Shares (m) %M&G 40.0 19.5AMP 12.1 5.9Eley Griffi ths 11.6 5.7


A$:US$ 0.89 0.99 1.05 1.00 Nickel (US$/lb) 8.75 11.12 11.75 11.43 Copper (US$/lb) 3.04 4.00 4.31 4.20 Cobalt (US$/lb) 12.92 15.52 15.26 15.57 Zinc (US$/lb) 0.94 1.03 1.11 1.11 Lead (US$/lb) 0.95 1.10 1.20 1.18


Nickel (t) Savannah 7,273 6,936 7,605 7,459Copernicus 0 0 0 0Lanfranchi 10,005 10,024 10,708 10,708Total Nickel Production (t) 17,278 16,960 18,313 18,167 Cobalt (t) Savannah 386 364 363 363Copernicus 0 0 0 0Lanfranchi 0 0 0 0 Copper (t) Savannah 4,019 3,705 4,070 4,070Copernicus 0 0 0 0Lanfranchi 684 823 775 775 Cash Cost per lb payable (A$/lb) 5.34 6.06 5.91 6.06 Cash Cost per lb payable (US$/lb) 4.77 6.01 6.22 6.06 Total Cost per lb payable (US$/lb) 6.50 7.81 8.08 7.85 Spot Nickel price (US$/lb) 8.75 11.12 11.75 11.43 Realised Nickel Price (US$/lb) 9.07 10.34 11.74 11.03


Sales Revenue 284.1 282.9 325.9 321.1Other Income 4.5 11.2 6.4 9.0Operating Costs 139.1 175.4 188.5 195.8Exploration Exp. 7.1 8.2 6.9 7.0Corporate/Admin 10.4 9.9 10.2 10.4EBITDA 132.0 100.5 126.7 116.9Depn & Amort 52.7 44.7 47.3 47.3EBIT 79.4 55.9 79.4 69.6Impairments/MTM adjustment (0.4) (4.8) 0.0 0.0Interest 0.8 0.1 0.0 0.0Operating Profi t 79.0 60.5 79.4 69.6Tax expense 22.1 19.3 23.8 20.9NPAT 56.9 41.2 55.6 48.7 Normalised NPAT 56.5 37.6 55.6 48.7

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 56.9 41.2 55.6 48.7 + Interest/Tax/Expl Exp 30.0 27.6 30.7 27.9 - Interest/Tax/Expl Inc 23.9 32.0 34.4 31.7 + Depn/Amort 52.7 44.7 47.3 47.3 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 115.6 81.5 99.2 92.2 - Capex (+asset sales) 38.7 30.2 25.0 25.5 - Working Capital Increase (22.6) 43.4 0.0 0.0 Free Cashfl ow 99.5 7.9 74.2 66.7 - Dividends (ords & pref) 24.6 21.6 18.6 14.5 + Equity raised 0.6 0.0 0.0 0.0 + Debt drawdown (repaid) (5.4) (13.6) 0.0 0.0 Net Change in Cash 70.1 (27.3) 55.5 52.3 Cash at End Period 137.5 110.1 165.7 217.9 Net Cash/(LT Debt) 132.8 110.1 165.7 217.9


Cash 137.4 110.1 165.7 217.9Total Assets 416.8 371.8 417.3 450.4Total Debt 4.7 2.1 0.0 0.0Total Liabilities 125.7 105.9 112.4 111.3Shareholders Funds 291.1 265.9 304.9 339.1 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) 104.1 397.5 na naReturn on Equity (%) 19.5 15.5 18.2 14.4

Year End June 30Panoramic Resources Limited $2.08

Lanfranchi48%

Savannah Project29%

Exploration23%

(t)

(US$/l

b)

Total Nickel Production (t) Cash Cost per lb payable (US$/lb)Realised Nickel Price (US$/lb) Spot Nickel price (US$/lb)

0

4,000

8,000

12,000

16,000

20,000

2010A 2011F 2012F 2013F 2014F 2015F0.00

2.00

4.00

6.00

8.00

10.00

12.00

Investment Summary





12 Months

Shar

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(A$)

Volu

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0.00

0.50

1.00

1.50

2.00

2.50

3.00

0

1500

3000

4500

6000

7500

9000

10500


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (18.1) 32.5 48.0 112.0 Recurrent NPAT ($m) (18.1) 32.5 48.0 112.0 Recurrent EPS (cents) (4.2) 7.0 10.3 24.1 EPS Growth (%) na na 47.6 133.1 PER (x) (57.7) 34.3 23.2 10.0 EBITDA ($m) (16.4) 50.9 80.2 190.8 EV/EBITDA (x) (64.0) 22.0 14.7 5.7 Capex ($m) 56.0 40.6 98.0 17.5 Free Cashfl ow (86.5) 2.7 (42.5) 107.7 FCFPS (cents) (19.9) 0.6 (9.1) 23.1 PFCF (x) (12.1) 418.7 (26.3) 10.4 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Solid March Q production. The Moolart Well operations delivered 22koz for the Q, at a low cash cost of $545/oz (excl royalties, $599 incl royalties) compared to the Australian gold sector (AQG’s Australian ops: A$508/oz, SBM’s ops: A$800/oz). The Moolart Well gold plant is performing well above expectations at 2.32Mtpa annualised rate achieved for the Q, with a 2.5Mtpa rate being reached at the end of the Q.

• A second major project. The large Garden Well project (2.12moz Au resource and 1.6moz Au reserve) is progressing rapidly with the company having commenced purchasing long lead time items of ~$14m for the development, indicating this project is likely to be given the go ahead. The Garden Well DFS is also on track for completion in June 2011 Q. Capex for the project has been revised down to $110m from $165m with project construction commencing in September 2011 Q. RRS plans to process 4Mtpa for 180koz from the forecast production start in Sept 2012 Q at an operating cost of $572/oz (excl royalties).

• Significant resource and reserve base. Between Moolart Well, Garden Well and Erlistoun, RRL currently has total Au resources of 164.1Mt at 1.1 g/t for 5.8moz Au, of which 42% (50.5Mt at 1.52g/t for 2.47moz Au) are reserves. Drilling last quarter and through 2011 is focused on Garden Well targeting the conversion of inferred to indicated resources, as well as further defi ning the extent of mineralisation both along strike and at depth. Encouraging results from RC and diamond drilling outside the current Garden Well resource have included highlights such as 20m at 3.73g/t Au, and 29.48m at 2.72g/t Au.

• Re-optimisation studies at Moolart Well. RC drilling of 3,983m was completed during the quarter to test for extensions to and infi ll of the known mineralisation at Moolart Well, with assay results pending. Pit re-optimisation work has commenced on existing reserves at Lancaster, Lancaster North, Stirling, Stirling North and on the Blenheim prospect (no reserve to date) with studies expected to be completed from June Q onwards.

• Catalysts. 1) Completion of Garden Well DFS study and approval, 2) Conversion of resources to reserves, 3) Results of pit re-optimisation studies (June Q onwards).

• Risks. 1) further AUD appreciation, 2) Garden Well DFS results.

OUR VIEWRRL reported 22,005oz of Au production for the March Q 2011, down marginally from 23,851oz in the December Q although an impressive result given the high rainfall experienced by all operators is the eastern goldfi elds during the period. The company’s second major project, Garden Well, will be given the go ahead following completion of the DFS during the June Q and the recent announcement of their intent to award the mining contract to MACA, who currently provide mining services at the Moolart Well project. The combination of these two major projects will see production increase signifi cantly over the next few years, with forecasts to produce >100koz in 2013 as Moolart ramps up and Garden Well comes online. Despite RRL being a domestic gold producer and hence exposed to the current strong AUD the company has the ability to grow revenues and earnings via organic growth at a time when many in the sector are struggling to do so. RRL has a proven ability of delivering on targets, We are upgrading our recommendation to BUY from HOLD with a price target of $3.13/sh and see confi rmation of Garden Well metrics and a successful ramp up in production as key elements to watch.

Regis Resources Limited RRL ($2.40)

Recommendation: BUY

Upgrading expectations for Garden Well Analyst(s): Alex Passmore, Byron Benvie, Rhys Bradley




Regis Resources Limited $2.40 Year End June 30




FX (A$:US$) 3.64 3.13 2.71 (13)Gold Price 2.64 3.13 3.59 15Gold Grade 2.96 3.13 3.29 5Operating costs 3.17 3.13 3.07 (2) EV:Reserve (A$/oz) 432 EV:Resource (A$/oz) 184


Production (koz) Moolart Well 81 106 106 105Garden Well 0 0 100 185Total 81 106 206 290 Cost Summary Cash Costs (A$/oz) 555 566 586 607Total Costs (A$/oz) 766 818 839 860


Sales Revenue 106.6 149.0 309.9 486.0 Other Income 0.9 2.1 5.3 11.6 Operating Costs 48.5 60.1 112.4 179.5 Exploration Exp. 1.9 3.4 4.6 5.8 Corporate/Admin 6.1 7.3 7.4 7.6 EBITDA 50.9 80.2 190.8 304.6 Depn & Amort 15.9 26.9 32.2 36.5 EBIT 35.1 53.3 158.6 268.1 Interest 2.5 5.3 9.9 7.5 Operating Profi t 32.5 48.0 148.7 260.6 Tax expense 0.0 0.0 36.7 78.2 FX Adjustment 0.0 0.0 0.0 0.0 Abnormals NPAT 32.5 48.0 112.0 182.4 Normalised NPAT 22.8 33.6 104.1 182.4

Cash Flow (A$m) 2011F 2012F 2013F 2014F

Adjusted Net Profi t 22.8 33.6 104.1 182.4 + Interest/Tax/Expl Exp 3.8 8.7 51.2 91.5 - Interest/Tax/Expl Inc 21.8 28.5 70.9 110.1 + Depn/Amort 15.9 26.9 32.2 36.5 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 20.6 40.7 116.6 200.4 - Capex (+asset sales) 40.6 98.0 17.5 2.1 - Working Capital Increase (12.3) 0.0 0.0 0.0 Free Cashfl ow (7.7) (57.3) 99.1 198.3 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 8.2 0.0 0.0 0.0 + Debt drawdown (repaid) 16.3 98.0 17.5 (48.9)Net Change in Cash 16.8 40.7 116.6 149.3 Cash at End Period 26.3 67.0 183.7 333.0 Net Cash/(LT Debt) (4.3) (61.5) 37.5 235.8


Cash/Bullion 26.3 67.0 183.7 333.0 Total Assets 186.3 317.9 439.5 573.0 Total Debt 30.6 128.6 146.1 97.2 Total Liabilities 73.5 171.5 189.0 140.1 Shareholders Funds 112.8 146.4 250.5 432.9 Ratios Net Debt/Equity (%) 3.8 42.0 na naInterest Cover (x) 13.9 10.0 16.0 35.8Return on Equity (%) 28.9 32.8 44.7 42.1

Valuation A$m A$/sh

Moolart Well 395.9 0.85 Garden Well 482.8 1.04 Exploration 185.0 0.40 Unpaid capital 41.3 0.09 Corporate (28.9) (0.06)Forwards (9.3) (0.02)Cash 12.4 0.03 Debt (39.8) (0.09)NPV (@ 8% discount rate) 1039.4 2.23 Price Target (1.4x NPV) 3.13

NPV Sensitivity



Committed Production 150 48 150 20




Reserves Mt Au g/t Au kozMoolart Well 12.5 1.5 607Erlistoun 2.7 2.4 205Garden Well 35.3 1.5 1,660Total 50.5 1.5 2,472 Resources Mt Au g/t Au kozMoolart Well 91.8 0.8 2,214Erlistoun 5.3 1.9 324Regional 18.0 2.0 1,129Garden Well 49.0 1.4 2,143Total 164.1 1.1 5,809

Directors

Name PositionNick Giorgetta Non-Executive ChairmanMark Clark Managing DirectorMorgan Hart Executive DirectorMark Okeby Non-Executive DirectorRoss Kestel Non-Executive Director Substantial Shareholders Shares %Newmont Capital Pty Ltd 70.4 16.3Citicorp Nominees Pty Ltd 34.1 7.9J P Morgan Nominees Australia Ltd 24.6 5.7

Moolart Well67%

Exploration31%

Cash2%

(koz

)

(A$/o

z)


0

50

100

150

200

250

300

350

2011F 2012F 2013F 2014F 2015F 2016F200

300

400

500

600

700

800

Investment Summary





12 Months

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1600

2400

3200

4000

Volu

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'000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (1.3) (6.7) 9.7 17.1 Recurrent NPAT ($m) (1.3) (1.1) 9.7 17.1 Recurrent EPS (cents) (0.5) (0.4) 2.2 3.0 EPS Growth (%) na na na 33.9 PER (x) (57.1) (68.7) 12.9 9.6 EBITDA ($m) (1.3) (0.5) 12.5 26.5 EV/EBITDA (x) (54.9) (155.8) 9.7 5.0 Capex ($m) 0.1 3.8 6.2 42.2 Free Cashfl ow (3.0) (10.6) 0.0 (29.0)FCFPS (cents) (1.1) (4.0) 0.0 (5.1)PFCF (x) (25.5) (7.2) 3,734.0 (5.7) DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• Fine tuning the plant. SFZ began commissioning of the Ponte Verde plant in early February and reached a production rate of ~460ktpa in March while operating on a single shift. A second shift will be introduced at the plant in the coming months to reach targeted production of 720ktpa. Some teething problems have been encountered in the early stages of commissioning the plant which has delayed sales. Issues with lower than expected production and high phosphorous levels have been addressed, bringing the lump and sinter products within specifi cation.

• Upcoming drilling. The Ponte Verde project requires further drilling to infi ll proven mineralised areas for JORC-compliant resources. There is also scope to expand the exploration target base as the ore body is open at depth and deeper drilling is required below 150m. Vale’s adjoining 1.5Bt deposit extends down to 300m and we believe the Ponte Verde deposit is likely to be expanded at depth also. A 6,000m-8,000m diamond drilling programme is due to commence in the coming months and the drilling contractor is due to be appointed at the time of printing this document.

• Concentrator due for Dec Q delivery. SFZ is in the process of adding a concentrator to the Ponte Verde plant to recover high grade fi nes material. The concentrator should be on site in the Dec Q 2011. Fines will be stockpiled until the completion of the concentrator at which time it is expected that the concentrate will be sold to local pellet plants (VALE). The addition of the pellet plant should provide additional sales of ~400ktpa at with at a cash cost of ~US$20/t.

• Appointment of new CEO. SFZ recently appointed Philip Hopkins to the CEO position. Mr Hopkins has 30 years experience as a mining engineer, including several senior positions at BHP within their Iron Ore and Stainless Steel divisions. We do note he has not held a CEO/MD position previously.

• Future M&A Potential. Given the fact that Vale requires access to the Ponte Verde site to fully realise their neighbouring 1.5Bt resource, there is a signifi cant possibility that Vale will attempt to acquire the Ponte Verde project rather than cohabitate with SFZ.

• Catalysts. 1) Drilling results at Ponte Verde 2)Successful ramp up 3) Finalisation of sales contracts 4) Corporate activity.

OUR VIEWWhile some of the heat has come out of the market, SFZ’s share price has fallen further in comparison to well below its listing price of $0.36/sh, primarily due to the lack of news fl ow from the company. A lacklustre March Quarterly report did little to shed light on SFZ’s progress or the company’s upcoming catalysts. We anticipate positive news fl ow to recommence shortly with the upcoming announcements of sales agreements and the commencement of the Ponte Verde resource drilling programme during the June Q. The commissioning of the plant at Ponte Verde has been slower than expected with problems arising from higher than normal phosphorous content in the benefi ciated product. The issue appears to have been resolved with SFZ beginning to stockpile saleable lump and fi nes products while the sales agreements are under negotiation. Once Ponte Verde is in full production we expect to see cash margins of ~$35/t, generating free cash of circa US$35m annually. Currently SFZ is trading at 10.0x FY12 EBITDA and 4.7x FY13 EBITDA (fully diluted). With a 40% discount to our NPV of $1.03/sh, we rate this company a BUY with a price target of $0.62/sh.

South American Ferro Metals Limited SFZ ($0.30)

Recommendation: BUY

Fine tuning the plant Analyst: Gary Watson




South American Ferro Metals Limited $0.30 Year End June 30


A$:US$ 0.89 0.99 1.05 1.00 Iron Ore Lump (US$/t) 89.7 143.8 143.8 145.2Iron Ore Fines (US$/t) 76.4 119.5 119.5 119.5 Iron Ore Lump (A$/t) 100.4 145.1 136.6 145.2Iron Ore Fines (A$/t) 85.5 120.6 113.6 119.5


Production (Mt) Lump Production 0.00 0.07 0.33 0.36Fines Production 0.00 0.18 0.82 0.91Total 0.0 0.3 1.1 1.3 Cost Summary (US$/t) Cash Cost (US$/t) 0.00 36.18 25.59 15.57Total Cost (US$/t) 0.00 37.97 26.84 15.91Iron Ore Price Received (US$/t) 0.00 32.16 38.17 44.43


Sales Revenue 0.0 5.2 24.8 40.5 Other Income 0.1 0.5 0.0 0.7 Operating Costs 0.0 2.7 12.3 14.8 Exploration Exp. 0.0 0.0 0.0 0.0 Corporate/Admin 1.4 3.5 0.0 0.0 EBITDA (1.3) (0.5) 12.5 26.5 Depn & Amort 0.0 0.2 0.6 0.3 EBIT (1.3) (0.7) 11.9 26.1 Interest 0.0 0.4 0.0 0.3 Abnormals 0.0 (5.6) 0.0 0.0 Operating Profi t (1.3) (6.7) 11.9 25.9 Tax expense 0.0 0.0 2.2 8.8 Minorities 0.0 0.0 0.0 0.0 NPAT (1.3) (6.7) 9.7 17.1 Normalised NPAT (0.9) (6.7) 9.7 17.1


Adjusted Net Profi t (1.3) (6.7) 9.7 17.1 + Interest/Tax/Expl Exp 0.0 0.4 2.2 9.1 - Interest/Tax/Expl Inc 0.0 0.6 6.3 13.2 + Depn/Amort 0.0 0.2 0.6 0.3 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow (1.3) (6.7) 6.2 13.2 - Capex (+asset sales) 0.1 3.8 6.2 42.2 - Working Capital Increase 1.6 0.0 0.0 0.0 Free Cashfl ow (3.0) (10.6) 0.0 (29.0)- Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 1.8 13.9 0.0 57.0 + Debt drawdown (repaid) 0.0 0.0 0.0 40.0 Net Change in Cash (1.2) 3.3 0.0 68.0 Cash at End Period 1.3 4.6 4.7 72.6 Net Cash/(LT Debt) 1.3 4.6 4.7 32.6


Cash/Bullion 1.3 4.6 4.7 72.6 Total Assets 3.6 11.1 20.8 134.8 Total Debt 0.1 0.1 0.1 40.1 Total Liabilities 0.1 0.4 0.4 40.4 Shareholders Funds 3.5 10.6 20.3 94.4 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) na (1.7) na 97.0 Return on Equity (%) na na 47.7 18.1

Valuation A$m A$/sh

Ponte Verde (Stage 1) 220 0.39Ponte Verde (Stage 2) 327 0.58Exploration 10 0.02Corporate (30) (0.05)Unpaid Capital 58 0.10Cash (est) 8 0.01Debt 0 0.00Total @ 10% Discount Rate 594 1.04 Price Target 0.63


Iron Ore Price 0.54 0.63 0.72


Production Summary


Resources Iron Ore Mt % Fe % Al+Si % LOIPonte Verde (Non-JORC) 149 39.18 38.06 Total 149.1 39.18 38.06 0.00

Directors

Name PositionTerry Willsteed ChairmanPhillip Hopkins CEOStephen Fabian Non-Executive DirectorPhilip Re Non-Executive DirectorStephen Turner Non-Executive DirectorPaul Lloyd Non-Executive Director Substantial Shareholders Shares (m) %Topix Management Ltd 16.2 10.3Grafton Resource Investment 13.3 8.5Massif Limited 11.2 7.1

Ponte Verde (Stage 1)40%

Exploration2% Ponte Verde (Stage 2)

58%

(mt)

0.0

1.0

2.0

3.0

4.0

5.0

2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F0

20

40

60

80

100

(A$/t

)

Production (mt)Cash Costs (US$/t)Iron Ore Price Received (US$/t)

Disclosure: Patersons was lead manager to a placement of 41.7m SFZ shares at $0.36/sh to raise $15m in October 2010. It received fees for this service. This analyst declares a benefi cial interest in SFZ securities.

Investment Summary





12 Months

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(A$)

Volu

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0.00

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1.00

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15000


Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (40.2) 64.5 129.1 89.4 Recurrent NPAT ($m) (40.2) 54.8 129.1 89.4 Recurrent EPS (cents) (2.2) 7.5 39.5 27.4 EPS Growth (%) na na 429.6 (30.7)PER (x) (91.0) 26.6 5.0 7.2 EBITDA ($m) 39.0 125.8 276.2 190.1 EV/EBITDA (x) 14.4 4.5 2.0 2.9 Capex ($m) 85.9 101.1 32.6 24.9 Free Cashfl ow (1.2) (29.6) 242.8 164.4 FCFPS (cents) (0.1) (4.0) 74.4 50.4 PFCF (x) (3,074.4) (49.3) 2.7 3.9 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 0.0 0.0 0.0 0.0


• CAH deal looks marginally dilutive. On our estimates SBM is trading on an EV of $2250/oz of normalised annual production (in FY12 SBM is set to produce 350ozpa which equates to an even cheaper EV of $1,500/oz) while CAH, at the offer price, is trading on an EV of $2,900/oz normalised annual production (120koz). Hence the deal looks dilutive for SBM shareholders.

• Lower forecasting risk with steady recent production and costs. Mined ore supply at both Marvel Loch and Leonora is the constraint on both operations. However SBM has maintained gold production in excess of 60kozpa (61.5koz for the March Q) for four consecutive Qs. This indicates the reliability and stability of the operation has improved markedly from its previous history via more stable milling operations.

• Guidance for FY11. SBM has downgraded its FY11 guidance marginally from 265-295koz to 255koz-270koz. Leonora will contribute 130-135koz at A$680-720/oz cash costs, while Marvel Loch (Southern Cross) will contribute 115-125koz at A$850-900/oz cash costs.

• Production set to jump by 45%. FY12 production will be a peak at 360koz on our estimates (SBM guidance 330-370kozpa) as an improved gold grade at Gwalia deeps and the King of the Hills underground ore sources impact.

• Ounces per vertical metre steps up to 6000+. The Gwalia underground mine progresses at the rate of 40m vertically per annum. The upper areas SBM has been mining over the past 2 years have been running at 3000oz pvm with a lift in grade and a wider ore body dimension the Au ounces within each vertical metre of depth is set to double which will have a marked increase in positive cash fl ow impact.

• Marvel Loch mine life is short. This operation is set to close at the end of FY12 as mineable reserves are depleted. Current ore reserves are 5.4Mt at 2.8g/t Au for 500koz although Marvel Loch and Nevoria Pit (2.3Mt at 3.0g/t Au) are the main commercial propositions. As this mine is wound down group production will fall by c.100koz however on our forecasts FY12 will be a peak production year where high grades at Gwalia come into the profi le.

OUR VIEWSBM is on the cusp of a record year in terms of production and costs. In FY11 the company has demonstrated production stability, while in FY12 earnings are set to jump ($64m to $129m NPAT PSL est) as production from the company’s fl agship Leonora Operation move into overdrive with an impressive 6000oz pvm to be extracted at the Gwalia underground. Further out the company requires bolt-on acquisitions or exploration success with rapid development to produce more than 240kozpa as Southern Cross Operations (Marvel Loch) are set to close in 2012 with ore reserves fully depleted. SBM’s management is cognisant of this and has increased its exploration efforts and is actively looking at projects where value can be added. Our $2.92/sh valuation for the stock is based on 1x NAV. SBM has retraced to $2.08/sh and represents good comparative value at these levels particularly with looking toward the impending jump in production and cash fl ow. While major additions to project value and SBM’s production profi le are diffi cult to identify (meaning that SBM is not in the ‘strategic’ category) we believe the market will applaud the upcoming strong FY12 Upgrade to BUY from Hold.

St Barbara Limited SBM ($1.985)

Recommendation: BUY

Question marks over CAH deal Analyst: Alex Passmore




Valuation A$m A$/sh

Southern Cross 6 0.02 Leonora (Gwalia) 778 2.38 Listed Investments 5 0.02 Forwards 55 0.17 Unpaid Capital 1 0.00 Corporate (31) (0.10)Exploration (resources @ 40/oz) 71 0.22 Cash 82 0.25 Debt (inc CN) (12) (0.04)Price Target (NAV) 954 2.92

Sensitivity

Patersons base case valuation $2.92Valuation at spot gold, A$ $3.25/shImplied spot A$ gold price at current SP A$1200/oz

Hedging koz 1-Year 3-years % Reserves

Bought Puts (A$1,425/oz) 250.0 19 40 10Sold Calls (A$1,615/oz) 250.0 19 40 10




Reserves (A$1075/oz to 2010, $850/oz thereafter) Mt Au g/t Au kozSouthern Cross 5.5 2.8 500Leonora 10.2 7.3 2406Total 15.69 5.7 2906 Resources Mt Au g/t Au kozSouthern Cross 19.9 3.5 2257Leonora (Tarmoola = 2.1Moz) 27.7 6.1 5394Total 47.6 5.0 7651

Directors

Name PositionColin Wise ChairmanTim Lehany Managing Director & CEODouglas Bailey Non-Executive DirectorPhil Lockyer Non-Executive DirectorRobert Rae Non-Executive Director Substantial Shareholders Shares (m) %M&G Investments 50.00 15.36Hunter Hall 13.36 4.10


A$:US$ 0.89 0.99 1.05 1.00Gold Price (US$/oz) 1093 1356 1483 1507Gold Price (A$/oz) 1222 1368 1409 1507


Production (kt) Southern Cross/Marvel Loch 122 116 103 0Leonora 109 134 256 242Total Production 231 250 359 242 Cost Summary Weighted Ave Gold Cash Cost 917 860 742 610 (A$/oz)Weighted Ave Gold Total Cost 1161 1112 996 865 (A$/oz)Gold Price Realised 1220 1450 1584 1508 (post Hedging, A$/oz)


Sales Revenue 296.8 369.0 569.1 364.5Other Income 7.7 5.4 0.0 0.0 Operating Costs 219.4 223.7 266.5 147.5 Exploration Exp. 5.2 8.2 6.1 6.2 Corporate/Admin 21.4 16.6 20.4 20.8 Unrealised loss/(gain) on hedging 19.5 0.0 0.0 0.0 EBITDA 39.0 125.8 276.2 190.1 Depn & Amort 71.9 58.5 91.0 61.7 EBIT (32.9) 67.4 185.1 128.4 Interest 7.3 2.6 0.8 0.8RSPT 0.0 0.0 0.0 0.0Operating Profi t (40.2) 64.8 184.4 127.7 Tax expense 0.0 10.0 55.3 38.3 Abnormal Losses / Minorities 0.0 (9.7) 0.0 0.0 NPAT (40.2) 64.5 129.1 89.4 Normalised NPAT (40.2) 64.5 129.1 89.4

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (40.2) 64.5 129.1 89.4 + Interest/Tax/Expl Exp 12.5 20.7 62.2 45.3 - Interest/Tax/Expl Inc 12.7 6.8 6.9 7.0 + Depn/Amort 71.9 58.5 91.0 61.7 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 31.5 136.9 275.4 189.3 - Capex (+asset sales) 85.9 101.1 32.6 24.9 - Working Capital Increase (53.2) 46.0 0.0 0.0 - Other Investing (2.7) (2.7) 0.0 0.0 Free Cashfl ow (1.2) (10.2) 242.8 164.4 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 124.0 0.0 0.0 0.0 + Debt drawdown (repaid) (75.5) (1.5) 0.0 0.0 Net Change in Cash 50.0 (9.0) 242.8 164.4 Cash at End Period 104.0 95.0 337.9 502.3 Net Cash/(Debt) 90.0 82.6 325.4 489.8


Cash/Bullion 102.2 95.0 337.9 502.3Total Assets 479.2 549.6 697.2 824.9Total Debt 13.9 12.5 12.5 12.5Total Liabilities 129.7 135.6 154.1 192.4Shareholders Funds 349.5 414.0 543.0 632.4 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) (4.5) na na 169.9 Return on Equity (%) na 15.6 23.8 14.1

Year End June 30St Barbara Limited $1.985

Leonora (Gwalia)91%

Exploration (resources @ 40/oz)

8%

Southern Cross1%

(koz

)

(A$/o

z)

Total Production Weighted Ave Gold Cash Cost (A$/oz)

Gold Price Realised (post Hedging, A$/oz)

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2010A 2011F 2012F 2013F 2014F 2015F0

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Investment Summary





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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (8.3) 8.4 23.5 80.6 Recurrent NPAT ($m) (8.3) 8.4 23.5 80.6 Recurrent EPS (cents) (0.2) 3.2 7.2 24.9 EPS Growth (%) na na 125.0 243.5 PER (x) (351.7) 25.8 11.5 3.3 EBITDA ($m) 1.8 26.4 48.4 126.3 EV/EBITDA (x) 1,692.0 8.5 5.5 1.5 Capex ($m) 0.0 8.7 73.3 22.1 Free Cashfl ow 5.6 45.0 (41.6) 75.1 FCFPS (cents) 0.2 17.2 (12.8) 23.2 PFCF (x) 527.1 4.8 (6.5) 3.6 DPS (cents) 0.0 0.0 0.0 0.0 Yield (%) 0.0 0.0 0.0 0.0 Franking (%) 100.0 100.0 100.0 100.0


• Targeting 150,000ozpa by 2013. TAM is targeting a substantial uplift in gold production over the next 12-18 months. The major contributor will be the Central Tanami Project which has a signifi cant resource of 1.5Moz and large scale processing facility. In addition, TAM recently completed its Stage 1 upgrade to the Western Tanami treatment facility and is looking at options to further increase capacity to 500ktpa (from 350ktpa) during 2012. In the March Q production from the Western Tanami operations was adversely affected by the record rainy season. March Q production was 4,000oz Au we expect this to improve to 15koz in the June Q.

• Stock undervalued. Based on our all of our valuation metrics, TAM is attractive. Our 1.0x NAV of $1.81 is based on our sum of the parts valuation. On a P/CF (13)/(14) basis we determine a value between $1.27-$1.70/sh and on an EV/oz basis TAM is trading at $116/oz compared to the peer average of $178/oz.

• Situated in a well-endowed gold region. TAM’s Central Tanami Project is analogous in geological setting and located 100km north-west of Newmont’s 2.5Moz Callie mine which produces 400kozpa. NEM recently discovered a parallel orebody and expects to add up to 75% to reserves over the next decade. In addition, NEM has identifi ed three Callie lookalike targets. The majority of drilling on TAM’s tenements has been shallow and has not tested the deeper Callie-style targets. TAM has budgeted $A15m for exploration this year which will include exploration of deeper targets.

• Leverage to gold price. Given that TAM is unhedged it is highly leverage to the gold price. For example a 10% increase in the gold price has a 17% increase to our 1.0x NAV. TAM’s production opportunities are likely to be in the third quartile of the cash cost curve, however, based on the current spot price of gold TAM has a signifi cant margin from our cash cost projections ($700/oz). If we place the spot price into our model this increases our valuation to $3.15/sh.

• Signifi cant exposure to Tanami Region. TAM has direct and indirect control of over 35,000km2 of ground in the Tanami region through 100% ownership in the Western and Central Tanami tenements and a 25% fully diluted interest in ABM resources (ABU).

• Catalysts. Ongoing exploration results; May reserve statement; end-CY2011 CTP Feasibility; mid-2012 CTP Production.

OUR VIEWTanami Gold NL (TAM:ASX) is an Australian based gold producer and explorer. TAM’s production focus has been on its Western Tanami Operation located in north-east Western Australia where it expects to produce 40koz Au in FY2011. In mid-2012, we expect the production focus to shift to TAM’s recently acquired Central Tanami Project, located in the Northern Territory, which is currently under feasibility study. The Central Tanami Project contains approximately 75% of TAM’s 2Moz resource and has much larger widths and a larger processing facility which we believe will make a signifi cant contribution to TAM’s push to increase production to >150,000koz of gold by 2013. In addition, to its production targets one of the most exciting upside for TAM is targeting deeper Callie style targets which have the potential for higher grades and large size. TAM has signifi cant exposure to the TAM region through its 25% stake in ABM Resources. The next big catalyst for TAM is its reserve update expected in May this will be followed by a feasibility for the Central Tanami Project at the end of CY2011. We are retain our BUY rating and our price target increases to $1.81 due to our higher gold price.

Tanami Gold NL TAM ($0.83)

Recommendation: BUY

Australia’s Next Mid-Tier Gold Miner Analyst: Simon Tonkin







FX (A$:US$) 2.20 1.81 1.50 (17)Gold Price 1.47 1.81 2.16 19Gold Grade 1.65 1.81 2.01 11Operating Costs 1.93 1.81 1.70 (6)Recovery 1.74 1.81 1.88 4


Production (koz) Western Tanami 48 41 75 97Central Tanami 0 0 7 71Total TAM Share of Production 43 37 75 158 Cost Summary Cash Costs (US$/oz) 697 944 829 761Total Costs (US$/oz) 727 1039 982 909Price Received (US$/oz) 1,197 1,369 1,484 1,508


Sales Revenue 57.1 65.1 106.5 238.7 Other Income 0.3 3.0 2.4 2.4 Operating Costs 41.0 38.5 60.5 114.8 Exploration Exp. 10.7 0.8 0.0 0.0 Corporate/Admin 3.9 2.4 0.0 0.0 EBITDA 1.8 26.4 48.4 126.3 Depn & Amort 4.2 10.5 8.2 16.5 EBIT (2.4) 15.9 40.2 109.8 Interest 5.9 2.0 2.4 2.4 Abnormals (pre-tax) 0 0 0 0Operating Profi t (8.3) 13.9 37.9 107.4 Tax expense 0.0 5.5 14.4 26.8 Abnormals (post-tax) 0.0 0.0 0.0 0.0 NPAT (8.3) 8.4 23.5 80.6 Normalised NPAT 0.4 9.2 23.5 80.6

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 0.4 1.8 23.5 80.6 + Interest/Tax/Expl Exp 0.0 2.8 16.8 29.2 - Interest/Tax/Expl Inc 0.0 6.0 16.8 29.2 + Depn/Amort 4.2 10.5 8.2 16.5 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 4.6 9.0 31.7 97.2 - Capex (+asset sales) 0.0 8.7 73.3 22.1 - Working Capital Increase (0.9) (44.6) 0.0 0.0 Free Cashfl ow 5.6 45.0 (41.6) 75.1 - Dividends (ords & pref) 0.0 0.0 0.0 0.0 + Equity raised 0.0 0.0 45.0 0.0 + Debt drawdown (repaid) 0.0 (39.4) 14.7 0.0 Net Change in Cash 5.6 1.1 23.1 75.1 Cash at End Period 6.7 7.9 31.0 106.1 Net Cash/(LT Debt) (48.5) (7.9) 0.5 75.6


Cash/Bullion 6.7 7.9 31.0 106.1 Total Assets 89.0 79.9 168.1 248.7 Total Debt 55.2 15.8 30.5 30.5 Total Liabilities 68.4 49.5 66.7 66.7 Shareholders Funds 20.6 30.4 101.4 182.0 Ratios Net Debt/Equity (%) 235.7 26.1 na naInterest Cover (x) na 8.1 17.0 46.3Return on Equity (%) na 27.6 23.2 44.3

Year End June 30

Valuation A$m A$/sh

Western Tanami 152.0 0.47 Central Tanami 282.0 0.87 Unpaid Capital 47.5 0.15 ABM Resources 25.9 0.08 Exploration 90.2 0.28 Corporate 0.0 0.00 Forwards 0.0 0.00 Cash 6.1 0.02 Debt (15.8) (0.05)NPV (@ 8% discount rate) 587.9 1.81




Reserves Mt Au g/t Au koz

Total 0.0 0.0 0 Resources M&I Mt Au g/t Au koz (eq)Coyote (Western Tanami) 551.0 13.5 238Sandpiper (Western Tanami) 493.0 4.0 64Kookaburra (Western Tanami) 594.0 2.6 51Stockpiles (Western Tanami) 100.0 2.4 8MLS153 (Central Tanami) 3,258.0 2.0 209MLS167 (Central Tanami) 5,324.0 3.2 550MLS168 (Central Tanami) 1,168.0 2.0 77MLS180 (Central Tanami) 1,417.0 2.9 134MLSA172 (Central Tanami) 1,272.0 2.6 106Stockpiles (Central Tanami) 1,400.0 0.7 32Total 15,577.0 2.9 1,468 Resources Inferred Mt Au g/t Au koz (eq)Western Tanami 1,380.0 4.4 194Central Tanami 4,319.0 2.7 368Total 5,699.0 3.1 562 Total 21,276.0 3.0 2,030

Directors

Name PositionMr Denis Waddell Non-Executive ChairmanMr Graeme Sloan Managing DirectorMr Alan Senior Non-Executive DirectorMr Lee Seng Hui Non-Executive Director Substantial Shareholders %Allied Properties Resources Limited 23.5Sun Hung Kai Investment Services Limited 10.6

Tanami Gold NL $0.83

Central Tanami60%

ABM Resources6%

Cash1%

Western Tanami33%

(koz)

(US$/o

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Total TAM Share of ProductionCash Costs (US$/oz)Price Received (US$/oz)

Investment Summary





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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) (5.4) 18.0 77.6 53.0Recurrent NPAT ($m) (5.4) 18.0 77.6 53.0 Recurrent EPS (cents) (5.8) 19.5 84.5 57.7 EPS Growth (%) na na 332.4 (31.7)PER (x) (63.0) 18.8 4.4 6.4 EBITDA ($m) 7.7 46.3 154.8 108.4 EV/EBITDA (x) 31.2 5.2 1.6 2.2 Capex ($m) 43.3 41.5 16.2 18.0 Free Cashfl ow (46.5) (2.1) 99.3 63.8 FCFPS (cents) (50.6) (2.3) 108.1 69.5 PFCF (x) (7.3) (159.0) 3.4 5.3 DPS (cents) 4.0 8.0 8.0 8.0 Yield (%) 1.1 2.2 2.2 2.2 Franking (%) 100.0 100.0 100.0 100.0


• Casposo turnaround imminent. Recent high cash costs have resulted from issues associated with the tailings fi ltration process. These have now been rectifi ed and production is set to increase, which will see a corresponding drop in cash costs. PSL’s FY12 forecast calls for production of 100koz Au. Stockpiles at the mine de-risk the mining operation (146kt stockpile of ore at 7.1g/t Au and 97.7g/t Ag). Throughput of 1100tpa is forecast for the coming Q, with signifi cant silver credits of 171g/t (Reserve grades) providing negative production costs for much of the mine life at PSL’s forecast silver prices.

• Andorinhas (Brazil) on target. FY11 production remains on target for >40koz, with YTD production of 34koz, and production for the June Q expected to be >10koz at cash costs YTD of $606/oz. Furthermore, the sale of iron ore should deliver an additional $3m in initial payment by the end of CY2011, and US$3mpa in royalties. Exploration is continuing in the area with opportunities at depth and regionally with geological mapping required to better identify drill targets.

• Exploration upside. Further drilling at Julieta, located to the north east of Casposo, will target deeper vein systems down dip aiming to intersect higher grades. At Castano Nuevo (Argentina) deeper underground drilling is anticipated in the June Q to identify higher grade deposits. TRY will aim expand Casposo’s life out to 10 years with further exploration of the ore body along strike to the south-east and at depth.

• WSA Sandstone JV. The Sandstone mill has now been placed on care and maintenance. The WSA JV has provided some encouraging results to date including 26.2m at 0.4% Ni, and will continue to provide TRY with exposure to nickel exploration.

• Positive FY12 Outlook. Ramping up to production of 130koz of Au (equiv.) for FY12. We forecast that cash fl ow from production will cover company overheads and further exploration. We also anticipate the company will look to resume paying dividends over the coming year(s).

• Catalysts. 1) Achieving budget production at Casposo for June of ~1,100tpd. 2) Expanding Casposo mine life to 10 + years. 3) Drilling results from exploration (Julieta and Castano Nuevo).

OUR VIEWTroy Resources (TRY) is an unhedged, low cost gold and silver producer focused on South America. The coming months will see TRY’s fl agship Casposo Project in Argentina ramp up to full production. The operation will produce a total of 320koz Au and 11.6Moz Ag on our base case estimates. While production fl uctuates y-on-y it will average 80kozpa Au with signifi cant silver credits (15-30kozpa Au equivalent). On a by-product basis this results in negative operating costs from FY14 onwards. Casposo commissioning has been prolonged as seen in the March Q production result, however we highlight the coming June Q as a key turnaround event. Problems experienced in the tailings fi ltration system leading to throughput constraints have been resolved. The next key value driver is an upgrading of Casposo reserves to facilitate a 10-yr life. In addition we continue to watch the Sandstone Nickel JV with Western Areas ($4m over 4 years for 70%) which has recently shown positive results. TRY also stands to benefi t from recent currency fl uctuations with costs incurred in Brazilian Real and Argentina Peso’s. Following a tumultuous year the Board appears to be operating well. We rate TRY a BUY with a $4.66/sh price target.

Troy Resources NL TRY ($3.68)

Recommendation: BUY

Troy on target for turnaround Analyst: Alex Passmore, Rhys Bradley




Troy Resources NL $3.68 Year End June 30


A$:US$ 0.89 0.99 1.05 1.00Gold (US$/oz) 1093 1356 1483 1507Silver (US$/oz) 17.28 29.77 42.63 42.53Gold (A$/oz) 1222 1368 1409 1507Silver (A$/oz) 19.33 30.03 40.50 42.53

Sensitivity -10% +0% +10%Delta 10%

A$:US$ 5.28 4.66 4.15 (11%)Gold Price 4.21 4.66 5.11 10%Silver Price 4.42 4.66 4.90 5%Operating Costs 4.81 4.66 4.52 (3%)Grade 4.19 4.66 5.14 10%


Gold production (koz) Sandstone 30 5 0 0Andorinhas 32 46 45 45Casposo 0 16 85 41Total Production 61 67 130 86 Silver Production (koz) Casposo 0 266 1,244 1,281 Cost summary Wtd Ave Cash Costs (US$/oz) 808 481 126 137Wtd Ave Cash Costs (A$/oz) 904 485 120 137Wtd Ave Total Costs (A$/oz) 1,117 844 410 470Realised price (A$/oz) 1,215 1,365 1,410 1,508


Sales Revenue 73.3 106.6 233.9 185.1 Other Income 1.5 0.7 2.6 5.9 Operating Costs 51.2 45.5 66.0 66.5 Exploration Exp. 7.3 5.7 6.6 6.7 Corporate/Admin 8.5 9.7 9.2 9.3 EBITDA 7.7 46.3 154.8 108.4 Depn & Amort 13.3 19.5 37.8 28.9 EBIT (5.5) 26.8 117.0 79.5 Interest 0.1 2.1 0.6 0.0 Operating Profi t (5.6) 24.6 116.4 79.5 Tax expense (0.2) 6.7 38.8 26.5 Abnormals 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 NPAT (5.4) 18.0 77.6 53.0 Normalised NPAT (3.9) 17.2 81.5 55.7

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t (3.7) 16.4 77.6 53.0 + Interest/Tax/Expl Exp 7.2 14.2 45.9 33.2 - Interest/Tax/Expl Inc 7.1 14.2 45.9 33.2 + Depn/Amort 13.3 19.5 37.8 28.9 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 9.6 36.0 115.4 81.9 - Capex (+asset sales) 43.3 41.5 16.4 18.0- Working Capital Increase 11.2 (1.5) 0.0 0.0 Free Cashfl ow (44.9) (4.0) 99.3 63.8 - Dividends (ords & pref) 4.4 5.2 7.0 7.0 + Equity raised 26.0 0.0 0.0 0.0 + Debt drawdown (repaid) 0.0 20.7 (20.7) 0.0 Net Change in Cash (24.2) 14.3 71.6 56.7 Cash at End Period 13.4 27.7 99.3 156.2 Net Cash/(LT Debt) 13.4 7.1 99.3 156.2


Cash/Bullion 13.4 27.7 99.3 156.2Total Assets 153.7 189.9 239.9 279.8Total Debt 0.0 20.7 0.0 0.0Total Liabilities 28.1 53.5 32.7 26.5Shareholders Funds 125.6 136.5 207.1 253.3 Ratios Net Debt/Equity (%) na na na naInterest Cover (x) na 12.5 212.3 naReturn on Equity (%) na 13.1 37.5 20.9

Valuation A$m A$/sh

Sandstone 0.0 0.00Andorinhas 66.2 0.72Casposo 319.6 3.48Listed Investments 3.8 0.04Exploration 26.5 0.29Unpaid Capital 10.6 0.12Corporate (14.1) (0.15)Cash (est.) 15.4 0.17Debt 0.0 0.00 NPV (@ 8% Discount Rate) 428 4.66 Price Target 4.66

Hedging koz Strike

Bought Puts 5.0 A$900/oz



Reserves & Resources (as at 30 June 2010)

Reserves (Gold/Silver) Mt Au(g/t) Ag(g/t) Au kozAndorinhas (Brazil) 1.0 7.00 224Casposo (Argentina) 2.0 5.22 171 829Sandstone (Australia) 0.7 1.70 36Total 3.0 5.81 171 1,053

Resources (Gold/Silver) Mt Au(g/t) Ag(g/t) Au kozAndorinhas (Brazil) 2.3 5.1 369Casposo (Argentina) 2.6 5.22 189 1,139Sandstone (Australia) 15.5 1.49 739Total 4.9 5.16 189 1,508

Reserve (Iron Ore) Mt Fe% ktAndorinhas (Brazil) 2.8 64% 1.79Total 2.8 1.79

Resources (Iron Ore) Mt Fe% ktAndorinhas (Brazil) 6.5 51% 3.30Total 6.5 3.30

Directors

Name PositionDavid Dix Non-Executive ChairmanPaul Benson CEO & MDKen Nilsson Executive DirectorFred Grimwade Non-Executive DirectorRobin Parish Non-Executive DirectorJohn Jones Non-Executive DirectorFred Grimwade Non-Executive Director

Substantial Shareholders Shares (m) %Warrigal Pty Ltd 6.0 8.5John Jones & Ass. 3.5 5.0Robin Parish 3.8 5.4Fidelity 3.5 5.0Top 20 34.3

Casposo83%

Andorinhas17%

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Investment Summary





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Year End June 30 2010A 2011F 2012F 2013F Reported NPAT ($m) 13.8 131.4 169.8 389.4 Recurrent NPAT ($m) 13.8 131.4 169.8 389.4 Recurrent EPS (cents) 7.7 73.1 94.5 216.7 EPS Growth (%) na 853.7 29.2 129.4 PER (x) 81.5 8.5 6.6 2.9 EBITDA ($m) 82.8 296.2 341.2 659.6 EV/EBITDA (x) 15.2 3.8 3.0 1.0 Capex ($m) 94.9 60.0 108.0 52.5 Free Cashfl ow (56.4) 140.4 126.1 413.7 FCFPS (cents) (31.4) 78.1 70.1 230.2 PFCF (x) (19.9) 8.0 8.9 2.7 DPS (cents) 6.0 7.0 9.0 0.0 Yield (%) 1.0 1.1 1.4 0.0 Franking (%) 100 100 100 0


• Strong March Q. WSA reported a strong March Q with a record 6,813t nickel concentrate sales from its Forrestania Project. Record sales offered WSA full exposure to the strong LME nickel price which averaged US$26,903/t for the period. Cash and nickel sales receivables totalled A$208.3m which represents a 33% net improvement from previous Q. Xstrata was added as an offtake partner joining BHP, Jinchuan and MRE. We see this as a major positive with the market demand for WSA nickel concentrate high.

• Low cash costs. WSA maintained a low average cash cost for nickel in concentrate of US$2.23/lb for the Q. A slight increase in cash costs compared with the December Q was driven by increased operating costs at the Spotted Quoll mine. The YTD average cash cost of US$1.98/lb nickel 21% below WSA’s long term guidance of US$2.50/lb nickel. WSA remains one of the lowest cost nickel miners in Australia.

• Consistent performance. Production fi gures were down slightly on last Q with 131,024t at 5.6% nickel being mined. This was due to the majority of ore being mined from development drives at the Flying Fox operation. Mill throughput remained consistent with past Qs with Ni recoveries increasing from 90% to 92% and achieving 6,226t of nickel in concentrate. Consistent production and increased recovery refl ect the success of the plant upgrade in June 2010. Future modifi cations will see capacity increase from 0.55Mtpa to 1Mtpa in line with production ramp up.

• Extending mine life. Recent drilling has indicated continuity of mineralisation down dip of the Stage 1 underground development at Spotted Quoll. This drilling should add 40-50kt nickel to the Spotted Quoll resource. A major drilling program at the Flying Fox underground operation is targeting extensions to know sulphide mineralisation and aiming to extend the mine life beyond ten years.

• New underground development progressing. The Spotted Quoll underground has made solid progress with signifi cant infrastructure already in place. Development mining began in April 2011 with the contract being awarded to Barminco. Commencement of underground ore mining will target 10,000tpa nickel and should largely coincide with the closure of the Spotted Quoll open pit operation.

• Key JV arrangements. WSA remains active in its regional exploration via a number of strategic joint ventures. With a 70% interest in the Sandstone and Lake King JV’s and an 80% interest in the Kawana JV WSA maintains good exposure to potential new nickel discoveries.

OUR VIEWSince the Cosmic Boy concentrator upgrade at the beginning of FY2011, consistent improvements in production and recovery rates have been realised, with the March Q no exception. WSA’s improved throughput has the company on track to produce ~25,000t of nickel in concentrate for FY2011. Record nickel in concentrate sales for the March Q of 6,813t which coincided with strong average LME nickel prices of US$26,903/t or US12.20/lb (PSL long term est: US$8/lb). Consistently low production costs, record sales and a 27% improvement in nickel prices have seen the share price run up 67% since the beginning of FY2011. Cash and nickel sales receivables totalled A$208.8m at the end of the March Q which represents a net positive movement of 33% from the December Q. WSA continues an aggressive drilling campaign aimed at proving up resource extensions and extending mine life to both the Flying Fox and Spotted Quoll underground operations. With strong production performance, open offtake arrangements, and full control of the Forrestania greenstone belt, we believe WSA should trade on a premium to NAV, accordingly ascribe a 1.4x multiple to derive a price target of $7.42/sh. BUY

Western Areas NL WSA ($6.25)

Recommendation: BUY

Consistent Performer Analyst: Alex Passmore, Tim McCormack





A$:US$ 0.89 0.99 1.05 1.00Copper (US$/lb) 3.04 4.00 4.31 4.20Lead (US$/lb) 0.95 1.10 1.20 1.18Zinc (US$/lb) 0.94 1.03 1.11 1.11Nickel (US$/lb) 8.75 11.12 11.75 11.43Tin (US$/lb) 7.33 12.27 14.71 12.67Palladium (US$/oz) 369 568 595 350Iron Ore Fines (US$/t) 76.44 119.53 107.08 70.60


Nickel Production (t) Flying Fox 9,746 15,588 16,368 15,717Spotted Quoll 732 12,639 10,920 10,981Diggers South 0 0 0 5,429New Morning/ Daybreak 0 0 0 0Cosmic Boy 0 0 0 2,025Total Ni in Concentrate (t) 10,478 28,226 27,288 34,152 Cash Cost (US$/lb) per lb prod. 3.53 2.97 3.08 0.00Total Cost (US$/lb) per lb prod. 5.42 4.63 4.91 0.00 Realised Price Received (US$/lb) 8.87 11.12 11.76 0.00


Sales Revenue 162.7 495.5 477.1 861.3 Other Income 30.7 (6.7) 11.5 14.4 Operating Costs 84.6 172.6 124.9 193.3 Exploration Exp. 11.9 8.0 10.2 10.4 Corporate/Admin 14.1 12.0 12.2 12.5 EBITDA 82.8 296.2 341.2 659.6 Depn & Amort 34.7 73.6 74.4 87.2 EBIT 48.1 222.6 266.8 572.4 Interest 25.7 32.3 24.3 16.1 Operating Profi t 22.4 190.3 242.6 556.4 Tax expense 8.6 58.9 72.8 166.9 Minorities/Abnormals 0.0 0.0 0.0 0.0 NPAT 13.8 131.4 169.8 389.4 Normalised NPAT 15.7 133.2 169.8 389.4

Cash Flow (A$m) 2010A 2011F 2012F 2013F

Adjusted Net Profi t 13.8 131.4 169.8 389.4 + Interest/Tax/Expl Exp 46.3 107.1 115.1 201.2 - Interest/Tax/Expl Inc 50.6 107.1 125.3 211.6 + Depn/Amort 34.7 73.6 74.4 87.2 +/- Other 0.0 0.0 0.0 0.0 Operating Cashfl ow 44.1 205.0 234.0 466.2 - Capex (+asset sales) 94.9 60.0 108.0 52.5 - Working Capital Increase 5.6 4.6 0.0 0.0 Free Cashfl ow (56.4) 140.4 126.1 413.7 - Dividends (ords & pref) 5.4 12.6 12.6 27.0 + Equity raised 0.0 0.0 0.0 0.0 + Debt drawdown (repaid) 20.6 0.0 0.0 (209.0)Net Change in Cash (21.2) 127.8 113.5 177.7 Cash at End Period 70.4 198.2 311.7 489.4 Net Cash/(LT Debt) (138.6) (10.8) 102.7 489.4


Cash 70.4 198.2 311.7 489.4Total Assets 384.0 561.9 719.0 949.9Total Debt 209.0 209.0 209.0 0.0Total Liabilities 306.5 365.5 365.5 233.9Shareholders Funds 77.5 196.3 353.6 716.0 Ratios Net Debt/Equity (%) 178.8 5.5 na naInterest Cover (x) 1.9 6.9 11.0 35.6Return on Equity (%) 17.8 66.9 48.0 54.4


Jungle Creek Gold Mines 25.8 14.3Northmead Holdings 10.2 5.7UBS 10.1 5.6

Valuation A$m A$/sh

Flying Fox 616 3.43 Diggers South 76 0.42 New Morning/ Daybreak 20 0.11 Cosmic Boy 14 0.08 Spotted Quoll 328 1.83 Investments 11 0.06 Unpaid capital 0 0.00 Forwards 0 0.00 Corporate (57) (0.32)Exploration 115 0.64 Cash 164 0.91 Debt (incl CN) (334) (1.86)Total @ 8% Discount Rate 952 5.30 Price Target (1.4 x NAV) 1333 7.42

Valuation sensitivity

Patersons base case NAV $5.30 Valuation at fl at spot NI and AUDUSD $5.46 Implied Ni price at current SP US$12.80/lb




Reserves kt Ni % Ni ktFlying Fox 1,062 5.5 58.7Spotted Quoll 1,980 4.2 82.7Diggers 2,109 1.5 30.8Total 5,150.7 3.34 172.2 Resources kt Ni % Ni ktFlying Fox 1,891 4.6 86.4Spotted Quoll 1,806 6.0 108.1New Morning/Daybreak 2,144 1.4 30.7Cosmic Boy 376 2.4 9.0Diggers South 7,800 1.0 80.3Diggers Rocks 2,229 0.9 19.3Beautiful Sunday 480 1.4 6.7Total 16,726 2.04 340.4

Directors

Name PositionTerry Streeter ChairmanJulian Hanna Managing DirectorDan Lougher Operations DirectorRobin Dunbar Non Executive DirectorDavid Cooper Non Executive DirectorRick Yeates Non Executive Director

Western Areas NL $6.25 Year End June 30

Spotted Quoll28%

Exploration10%

Flying Fox53%

Diggers South6%

New Morning/Daybreak2%

Cosmic Boy1%

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Explorers and Developers




Directors & Shareholders


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Shares on issue (m) 472.1 3mth ADT ($m) 0.63ITM Options (m) 10.3 EV ($m) 79.1Market Cap. ($m) 147.1 Debt est ($m) 0.052 week range $0.08 - $0.44 Cash est ($m) 68.0

Directors PositionKevin Maloney ChairmanAlistair Cowden Managing DirectorJason Brewer Non-Executive DirectorFiona Harris Non-Executive DirectorPeter Ingram Non-Executive DirectorHeikki Solin Non-Executive Director

Shareholders Holding (%)National Nominees Ltd 14.89Tulla Resources Group Ltd 4.82ANZ Nominees Ltd 4.28Merrill Lynch (Australia) Nominees Pty Ltd 3.18Finnish Industry Investment 2.99Prufrock Partners Ltd 2.54Sovereign Gold Nl/C 2.27Dempsey Resources Pty Ltd 2.03


• Outokumpu Project, Finland. The project is located 400km north-east of Helsinki in Finland, is low risk and low capital cost (A$46m), and involves the refurbishment of an existing processing plant at Luikonlahti and the development of an underground mine at Kylylahti (Figure 1). AOH recently completed a $70m capital raising at 31cps, therefore this project is fully funded and is currently progressing on schedule. Kylylahti is a sulphide deposit containing an 8.4Mt resource at 1.25% Cu, 0.54% Zn and 0.68g/t Au as well as 0.2% Ni and 0.24% Co, of which 4.3Mt are reserves running at 1.56% Cu. The Luikonlahti processing plant has a 550ktpa capacity (with potential to increase to 800ktpa) giving the Outokumpu Project an expected mine life of 8 years based on current resources. Potential exists for mine life extension with several smaller deposits in the area bringing the total project resource to 17.8Mt (at 0.87% Cu). Three clean and penalty-free concentrate products: Cu-Au, Zn, and a low grade Co-Ni will be generated by fl otation with expected recoveries of 90% (Cu), 70% (Au) and 50% (Zn).

• Roseby Copper Project, Queensland. The project covers >1,400km2 and is situated 95km NE of Mt Isa in Queensland (Figure 2). The project contains total resources of 133Mt at an average of 0.68% Cu and 0.06g/t Au, for 900kt Cu and 250koz Au (Figure 3). The resource is spread across 11 deposits with four of these containing >10Mt and two >30Mt. The mineralisation is of two dominant types: oxidized sedimentary-hosted containing mainly native Cu, and IOCG style Cu-Au sulfi de. Defi nition of many of the resources is limited to shallow depths, giving the current and ongoing drilling potential to expand resources both at depth and along strike - Altona’s target is a 50% resource increase to 200Mt by mid 2011. A DFS for the project was published in 2010 and estimated capital costs of A$217m based on open pit mining and a 5Mtpa conventional fl otation concentrator operation. The company has recently announced it will update this study to include a larger resource size and an increased production rate of 8Mtpa. Xstrata has an option to earn 51% into the Roseby Project by spending $15m on exploration and resource defi nition drilling, or by spending $10m and completing a DFS by 30 June 2012.

• Attractively Priced. AOH is attractively priced relative to its peers. Based on an EV/resource metric the company is trading at A$50/t Cu compared to the A$150/t Cu average for Australian listed copper explorers and developers. Producer’s average over $1000/t therefore AOH has signifi cant value upside.

• Catalysts. 1) Early 2012 Outokumpu production 2) Ongoing: Roseby resource expansion 3) Continued strong copper prices.

OUR VIEWIn early 2010, Altona Mining Ltd (AOH) was formed through the merger of Vulcan Resources Limited and Universal Resources Limited. AOH is a copper explorer and developer with a strategy to build production from its two 100% assets: Outokumpu in Finland and Roseby in Australia. AOH expects to commence production at Outokumpu from early 2012 at the rate of 8ktpa, with annual production building towards 35ktpa Cu and 15koz Au by 2014 when Roseby is expected to come online. The Outokumpu Project has low capital costs of A$46m, is fully funded, and has good potential to extend the planned 8 year mine life by inclusion of regional satellite deposits. A DFS update has commenced at the Roseby Project which will evaluate upgrading the processing capacity from 5Mtpa to 8Mtpa, and ongoing drilling is expected to substantially upgrade the current 900kt Cu and 250koz Au resource base. We see AOH becoming a mid-tier copper producer over the next 3 years and given the signifi cant discount to its peers (A$50/t vs $150/t), we will continue to monitor its progress toward achieving its production targets which could see a signifi cant re-rating of the stock. We rate AOH as a Speculative BUY.

Altona Mining Limited AOH ($0.31)


Attractively Priced Cu Developer Analyst: Byron Benvie, Simon Tonkin




Figure 1: Map showing layout of the Outokumpu Project, Finland

Figure 2: Map showing location of the Roseby Project showing regional mineral deposits






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Directors PositionRobert Pett ChairmanBenjamin Bell CEOSimon Trevisan Executive DirectorRichard Lockwood Non-Executive DirectorChristopher Kelsall Non-Executive Director

Shareholders Holding (%)Transcontinental Group 17.7CQS Asset Management 14.7NEFCO Nominee Pty Ltd 8.7Mr Denis Rakich 8.4Tenalga Pty Ltd 7.7Batterbury Holdings Pty Ltd 6.2


• Boddington South: Targeting a New Gold Province. AUC has secured tenure over the majority of the Katanning greenstone belt. AUC’s tenements contain parallel structures and similar geology to Newmont’s 26Moz Boddington gold mine, the largest in Australia. AUC is targeting Boddington-style mineralisation which precipitates gold deposits on the contact between the granite (acid) and the mafi c (alkaline) rocks. AUC has 15km of strike on its 80% owned JV ground with gold mineralisation (resources) and anomalism recorded along the entire length. In addition AUC has 85km of strike on its 100% owned ground and recently secured a further 33km from a 60% JV with Dominion Mining. Based on our analysis we believe there is multi-million ounce potential.

• Resource Estimate in May. Drilling at Boddington South has initially focused on the Jinkas deposit (the largest in the area) thus far AUC has established in excess of 900m of gold mineralisation to a depth of 100m. Based current drilling we believe this has the potential to yield a resource of approximately 400koz Au at 3.5g/t Au. A resource estimate will be completed in May. Drilling has shifted to focus on the Dingo and Jackson orebodies which if mineralized could provide 8km of mineralized strike. AUC has planned a 100,000m RC/Diamond program in June and will test the orebody to a strike of 1.4km and to 500m depth.

• Favourable Mining Location. The project is located 300km SE of Perth, Western Australia and within 30km from the wheat belt town of Katanning. The proximity to large centres means that it is an attractive location for miners and with signifi cant infrastructure already in place.

• Excellent Management Team to Drive Discovery. The team is led by Benjamin Bell a geologist and geophysicist with 15 years in the mineral industry which included a stint at Regis Resources. Robert Pett is Chairman with over 27 years’ experience and has been involved in the successful exploration, development, operation and fi nancing of more than ten mining projects worldwide.

• Other Projects Have Signifi cant Potential. AUC’s other projects are highly prospective for further discoveries. The Yamarna project is the most progressed with a hit of 31m at 0.58% Cu and 0.35% Ni. AUC’s Doolgunna Station project adjacent to Sandfi re Resources DeGrussa discovery.

• Catalysts. 1) Ongoing positive drill results Dingo/Jackson 2) May - Katanning Gold Discovery Resource Estimate 3) April Follow-up Drill Program at Yamarna.

OUR VIEWAusgold Limited (“AUC”) has utilised some of the latest advances in exploration technology to target areas in Australia that are highly prospective for gold and copper ore bodies. The company has pegged 12,500km2 within Australia based on work by the Centre for Exploration Targeting, an internationally renowned group affi liated with the University of Western Australia and Curtin University. We recently visited AUC’s fl agship Katanning Gold Discovery located 300km southeast of Perth and were impressed with the potential to establish a new gold province. AUC has 15km of strike on its 80% owned JV ground with gold mineralisation (resources) and anomalism recorded along the entire length. Thus far at the Jinkas deposit AUC has discovered continuous mineralisation along 900m of strike. We are awaiting drill results (150 holes) from Dingo which is located 3km south of Jinkas with drilling underway at Jackson (2km north of Jinkas). This has the potential to prove up 8km of strike. In addition, AUC has secured a number of other highly prospective projects. We believe there is potential for a multi-million ounce gold discovery which could be the biggest new discovery since Tropicana. We have a Speculative Buy rating on AUC.

Ausgold Limited AUC ($1.50)


Targeting a New Gold Province Analyst: Simon Tonkin

Disclosure: Patersons was lead manager in an IPO for AUC in December 2009 that raised $10m at $0.20/sh. Patersons received a fee for this service.




Figure 1: Project location Figure 2: Granite-Mafi c trend and gold occurances

Figure 3: Project JV and Newmont mine location





Azimuth Resources Limited AZH ($0.285)


Gold in Guyana Analyst: Byron Benvie, Simon Tonkin

OUR VIEWAzimuth Resources (AZH), formerly Epsilon Energy Limited, is a junior explorer seeking dual listing on the TSX and focussed on several early and advanced exploration projects in Guyana, South America (see Figure 1). The projects are mainly prospective for gold but also have potential to host uranium mineralisation, and cover a combined area of 11,330km2. A large proportion of the licence areas are underlain by geological terrain considered equivalent to that hosting the gold deposits of West Africa. A recently announced A$1.3m geophysical exploration campaign covering 7,330km2 of this terrain is seen as a key catalyst for value creation from these properties. AZH’s cornerstone project is West Omai where intensive drilling is currently underway to defi ne a maiden resource at the Hicks and Smarts Prospects. Our expectation is for a ~600koz Au combined resource to be defi ned here by August 2011. This potential resource is the main driver for our preliminary A$0.41/sh valuation, but we note signifi cant upside potential as further drilling upgrades this resource and mineralised extensions continue to be identifi ed along strike of the Hicks-Smarts trend. We therefore rate AZH a Speculative BUY.


• Advanced exploration at West Omai. The Hicks and Smarts Prospects (Figure 2) are both are undergoing a resource drillout, with a maiden resource for both projects due by the end of August 2011. These deposits comprise sub-vertically dipping, greenstone-hosted lode style mineralisation (Figure 3). Drill results from Smarts are continuing to be released and regular positive news fl ow is expected from the two drill rigs (a third is expected during May) currently on site. Our expectations based on preliminary calculations, are for a combined ~600koz Au maiden resource to be announced in August, with further drilling possibly doubling this. The discovery of new artisanal workings along strike of the Hicks-Smarts trend, indicate signifi cant potential for further strike extensions to this resource going forward.

• 80km strike of virgin granite-greenstone terrain is interpreted as underlying the sand cover at the East Omai Project, based on airborne geophysics. This terrain is highly prospective for further gold mineralisation.

• Detailed airborne geophysical surveys have recently been commissioned over 7,330km2 of the West and East Omai projects at a cost of A$1.3m. The work is expected to begin in mid May 2011, providing a focus for future exploration activities and assisting in the discovery of new deposits.

• Attractive valuation. Preliminary valuation calculations based on our estimate of a ~600koz resource at the Hicks-Smarts prospects indicate a valuation of A$0.41/sh. The valuation is highly sensitive to the resource size at Hicks-Smarts. We see signifi cant upside to the current share price on the back of drilling and resource announcements, despite the stock having seen a better than 500% return over the last 12 months.

• Experienced board and Management. The AZH board and management team have signifi cant experience in mining project development, with their Exploration Manager having a 27 year background in gold exploration.

• Catalysts. 1) Drilling and resource defi nition (Q3 2011) at the Hicks-Smarts prospect. 2) Geophysical anomaly defi nition and positive follow up at East Omai. 3) Drilling along strike of the Hicks Smarts trend showing extension of mineralised trend.


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Directors PositionMichael Hunt Non-Executive ChairmanDominic O’Sullivan Managing DirectorRichard Monti Executive DirectorDean Felton Non-Executive Director Shareholders Holding (%)National Nom Ltd 14.04Macquarie Bank Ltd 8.67Javelin Minerals Inc 8.29ANZ Nom Ltd 6.20Gundyco PL 5.39Goornong Gees Mining Ltd 4.42Riverview Corp 3.37Di Capo Pasquale 2.14Greatcity Corp PL 2.13UBS Wealth Mgnt Aust Nom 1.92HSBC Custody Nom Aust Ltd 1.77NBCN Inc <Pinetree Resource> 1.43





Figure 1: Location of AZH projects in Guyana

Figure 2: Hicks-Smarts soil sampling results

Figure 3: Cross sections representing mineralized lodes at the Hicks-Smarts prospects






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Directors PositionDavid Smith Non-Executive ChairmanLen Jubber Managing DirectorGeoff Stanley Non-Executive DirectorRonnie Beevor Non-Executive DirectorClive Jones Non-Executive DirectorJames McClements Non-Executive DirectorDavid Tucker Non-Executive DirectorMason Hills Alternate for James McClements

Shareholders Holding (%)Clive Jones 6.5Resource Capital Fund 5.9Peter Batton 4.2Alastair Clayton 2.3Global Management 1.8


• Op Cost Savings Identified; Etango (BMN 80%) Remains Marginal. Despite some internal estimates of a US$4/lb op. cost saving (to US$38/lb) for the Etango project it remains marginal at our long term uranium price of US$70/lb. We note that BMN has delineated an impressive resource of 212.7mlb (M+Ind+Inf) however grades are 30% below the operating Rossing mine and 60% lower than EXT. On the positive side Etango ore has the best leach characteristics of the alaskite-hosted ores as well as requiring a lower acid consumption. Lab test work has suggested that additional oxidants may not be required potentially providing further operating cost savings.

• Etango Needs Strategic Partner. In BMN’s March quarterly report BMN states one of their aims in 2011 is to secure a strategic partner. The price tag for the development of the Etango project is $638m and we believe in the post-Fukushima environment that BMN alone will fi nd it diffi cult to raise the required capital especially when the spot uranium price is at US$57.44/lb. Therefore we believe for the project to proceed a strategic partner would be needed.

• Refi nance/Extension of Convertible Note. BMN will need to refi nance/extend its $10m convertible which is due on 16 Dec 2011. RCF the holder of the note is a large institutional holder of BMN and would likely be able to refi nance the note. However, this would likely be at a lower price and could be dilutionary for existing shareholders. BMN reported $18.7m in cash at the end of Mar 2011 this followed a $15m share placement at $0.50/sh in Dec 2010. BMN intends to spend approximately $5m per quarter so will need to raise additional capital by the end of the year.

• Risks Remain. Several risks remain in the development of the Etango project these include: 1) Financing: In the short term, BMN needs to refi nance its convertible note and secondly fi nance a project with capital costs of 9x BMN current market capitalisation. 2) Water: BMN needs access to water and negotiations are continuing with Namwater. 3) Mine Licence: The grant of the mining licence has taken longer for BMN than previous submissions. The original submission was in Dec 2009 and will now be updated to include: larger resource and site layout refi nements to be submitted in June.

• Catalysts. 1) Deal with strategic partner 2) June 2011 Submission of updated ESIA and mining licence 3) 2012 DFS completion.

OUR VIEWWe continue to believe that Bannerman’s 80% owned Etango project in Namibia is a marginal asset at our long term uranium price of US$70/lb. In our view, in the post-Fukushima environment BMN will fi nd it more diffi cult to access funding to continue development of the project. In the short term BMN will need to extend or refi nance its $10m convertible note in December 2011. Over the longer term, the capital cost of Etango is US$638m before mining fl eet (US$64m) which is 9x the current market capitalisation of BMN. Therefore, BMN will need to secure a deal with a strategic partner who would likely want control of the project and consequently this would likely be dilutionary for BMN shareholders. While fi nancing is the largest risk we have identifi ed other risks which include: BEE, access to water and grant of mining licence. The main reason Etango is less attractive and higher cost than other alaskite-hosted uranium projects already in production/development is its lower grade which is >30% lower than the operating Rossing mine and 60% lower than EXT. We maintain our SELL rating and we suspend our target price.

Bannerman Resources Limited BMN ($0.355)


Highly Leveraged to Uranium Price Analyst: Simon Tonkin




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Figure 1: BMN project location and infrastructure

Figure 2: Etango pit outline and targets Figure 3: Etango example cross sections






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Directors PositionDavid Tyrwhitt Non-Executive ChairmanJozsef Patarica Managing DirectorClive Wright Non-Executive Director

Shareholders Shares (m) Holding (%)Senegal Nominees (SARL Grouped) 24.6 10.51Mr Lamine Diouf 10.7 4.58UBS Nominees 9.4 4.03Reama Pty Ltd 5.7 2.47


• 240koz Resource at Makabingui. BSR has released its maiden resource of 240,000oz Au from its Makabingui project in Senegal. This is approximately 20% larger than we had anticipated at a grade of 2.3g/t Au based on 3 discrete zones over a strike length of 600m. We believe there is good potential to continue to expand the resource given that zones 1 and 2 remain open along strike and zone 3 remains open to the north and south. Initial metallurgical test work has indicated 99% recoveries from Zone 1 North (oxide and sulphide) using cyanide leaching and gravity gold recovery.

• Located in a Multi-Million Ounce Gold Province. BSR aims to fi nd at least one multi-million ounce gold deposit. There is good potential considering BSR’s location which is within close proximity to a number of large deposits which include: Sadiola (14Moz) owned by AngloGold Ashanti, Massawa (3.5Moz) owned by Randgold and Sabodala (3.5Moz) owned by Teranga Gold.

• Early Stage, Attractive Entry into West Africa. Based on the maiden resource of 240koz this would place BSR on an EV/oz resource attributable at $81/oz compared to the peer average of $178/oz. We note if BSR is able to defi ne 1Moz then the EV/oz drops to $19.50/oz. Therefore, BSR is a relatively attractive entry point for a gold project with multi-million ounce potential in West Africa. In addition recent takeout activity has provided higher valuations for West African gold companies with Redback (RBI-T) taken out in late 2010 for $660/oz by Kinross.

• 12 Other Prospects. BSR has identifi ed a number of other prospects in their 70% owned northern and southern tenements mainly from regional drill programs and termite geochemistry. While the focus is on Makabingui the company will continue to progress these targets towards drilling.

• Alluvial Operation (BSR 63%) Underway. BSR has commenced a small scale alluvial operation called Douta on its central permit. First gold was poured in November 2010 with the operations main benefi ts being: training for the Senegalese and to establish good governmental relationships. The fi rst gold shipment was 964oz with 728oz produced in the March Q.

• Strong Financial Position. BSR had $2.03m in cash at the end of the March Q with $688,000 coming from gold sales from its alluvial gold operation. The company expects to spend $1.65m in the March Q. Therefore BSR may need to raise further funds to continue its aggressive exploration program.

• Catalysts. Ongoing Drill Results.

OUR VIEWBassari Resources (BSR) is a gold explorer with a strategic tenement position in the well-endowed Birimian gold belt in eastern Senegal, West Africa. The company’s main focus is development of its 70%-owned Makabingui project. The project has multi-million ounce potential with a number of prospects to be followed up. The company’s main focus is the Makabingui project where it has defi ned a resource of 240,000oz (8% Measured + 65% Indicated + 27% Inferred) at 2.3g/t from three zones over a strike length of 600m. This is about 20% largest than we had previously anticipated and further drilling will be needed to improve the confi dence in the resource and continue to expand its size. Based on our analysis the company is trading on an EV/oz resource of $81/oz below the peer average of $178/oz. We note if BSR is able to defi ne 1Moz then the EV/oz drops to $19.50/oz. Therefore, BSR is a relatively attractive entry point for a gold project with multi-million ounce potential in West Africa. BSR also has adjacent tenure to the north and south of the Makabingui project where 8 further prospects have been identifi ed.

Bassari Resources Limited BSR ($0.092)

Multi-Million Ounce Gold Potential in W.Africa Analyst: Simon Tonkin

Disclosure: Patersons was joint lead manager and underwriter for a $7m rights issue at $0.12/sh conducted in December 2010. Patersons received a fee for this service.




Figure 1: BSR project location in relation to other deposits in Senegal

Figure 2: BSR resources (240,000oz)







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Directors PositionJohn Atkins Non-Executive ChairmanDavid Hutton Managing DirectorJon Young Non-Executive DirectorJeff Gresham Non-Executive Director

Shareholders Holding (%)Norilsk Nickel 11.5FMR Investments 8.0Abbotsleigh Pty Ltd 3.1


• Attractive Nickel Projects in the Leinster District. BRW has landholding of 750km2 with two projects in the Leinster district: 1) Miranda Project and 2) Wildara Project Group. Both projects contain interpreted strike extensions of premier nickel sulphide ultramafi c belts. At the Miranda BRW has interpreted a 14km extension to the Mt Goode Ultramafi c belt which hosts the Cosmos nickel deposits. Multiple targets have been selected for drill testing at both locations. A 3,100m is underway with 8 of 10 holes completed. BRW reports that there have been multiple prospective sulphide - bearing ultramafi c intersections with assays awaited. Following the completion of drilling BRW is planning a Downhole TEM survey to develop further drill targets.

• Cloncurry Copper Project in Queensland Has Several Impressive Drill Targets. At the Eloise Exploration Project BRW has a 480km2 landholding in the Cloncurry district where multiple high grade copper targets have been identifi ed within a 20km radius of the Eloise copper mine (BRW 30% NPI). Historical drill intercepts up to 4.7% copper. Fieldwork and drilling is expected to commence in the June Q 2011.

• Altia JV Could Offer Signifi cant Upside. BHPB is earning 70% of the silver – lead – zinc rights on the Altia JV, which is contained within BRW’s Eloise Exploration Project and represents approximately 2% of the project’s total area. BHPB is testing the Altia deposit which has potential to provide additional high grade silver feed to BHPB’s Cannington mill located 120km away. BHPB is currently reviewing the results of its 2010 drilling program at Altia before determining whether further drilling is warranted. BRW expects a decision to made by the end of May 2011.

• Solid Cash Position. BRW had $4.5m in cash at the end of March following a Share Purchase Plan and subsequent placement to raise $3.8m. This should provide suffi cient funding for the 2011 exploration program. In addition, BRW divested its East Kimberley tenements to Panoramic Resources Limited for $0.36m.

• Catalysts. 1) Assay Results from 3,100m program at Leinster Nickel Projects with 8 of 10 holes completed 2) end-May BHPB Decision on Continuation of Altia JV 3) 2H/CY2011 drilling at the Altia JV 4) June Q Eloise Copper Drilling.

OUR VIEWBRW is focussed on two premier regions: 1) the Leinster Nickel project in Western Australia where the company has several high priority nickel sulphide targets along trend from the world class Cosmos and Perseverance nickel deposits. BRW has completed 8 of 10 holes from its 3,100m drill program at its Miranda and Wildara projects. BRW has reported sulphide bearing sulphide intersections with assays awaited. BRW is planning a Downhole TEM survey following completion of the drilling to assist in targeting further mineralisation. 2) Cloncurry Copper Project in Queensland which has a number of copper, silver and gold targets in close proximity to the Eloise Copper mine. Mill production is expected to recommence in May 2011 at the Eloise copper mine whereby BRW owns a 30% NPI (adjusted for previous losses) and could supply additional cash fl ow to help fund exploration activities in the region. BRW plans to commence drilling of multiple high grade copper targets on BRW’s 100% owned exploration ground in the June Q 2011. Further discoveries by BRW could supply additional satellite feed to the Eloise Copper mine. BRW has $4.5m in cash at the end of March 2011.

Breakaway Resources Limited BRW ($0.061)

Targeting Ni and Cu Discoveries Analyst: Simon Tonkin

Disclosure: Patersons was lead manager and part underwriter of an SPP and placement which raised $3.7m at 7.1cps in November 2010. Patersons received a fee for this service. Jon Young, a director of BRW, is a Director, Private Clients at Patersons Securities.




Figure 1: Project location

Figure 2: Project targets






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Name PositionMr Peter Lynch Executive ChairmanMr Pat Hanna Executive DirectorMr Jim Middleton Managing Director & CEOMr Domenic Martino Non Executive DirectorMr Duncan Cornish CFO & Company SecretaryMr Chris Turvey Exploration & Resource Manager Substantial Shareholders Shares (m) %Peter Lynch 55.00 17.22Domenic & Sandra Martino 36.51 11.08Patrick Hanna 25.00 7.83


• Building a Portfolio of Prospective Coal Opportunities. Cokal (formerly known as Altera Resources Ltd) is pursuing a coking coal strategy focused on Kalimantan and Tanzania as well as in QLD. Late last year a successful purchase of options to acquire between 50% and 75% of four strategically located coal exploration projects in Kalimantan, Indonesia was concluded. CKA has a Farm-in Joint Venture with Dragon Energy Ltd which holds Exploration Permits for Coal in the Surat/Clarence-Moreton and Bowen Basins in QLD. The company has entered a number of Joint Ventures in Tanzania, one of which recently secured a tenement to explore part of a Karoo basin, coal bearing formations found throughout Southern Africa.

• Coking Coal Targets are a high priority and the Indonesian exploration projects are the primary targets at the moment. All the projects are within the highly prospective Murawai coking coal basin in Central Kalimantan and two of these are adjacent to BHP Billiton’s coking coal tenements and have several surface coal outcrops within their boundaries. CKA commissioned an independent geological report by the international consulting fi rm SRK Consulting on the 4 Kalimantan coal exploration projects. SRK is of the opinion that all of the coal projects are prospective and worthy of further exploration, including drilling and additional sample analyses.

• Busy on the ground since the start of the year geologists have been mapping the known and new outcrops of coal on the projects in Kalimantan. The company is looking to expand the drilling program and hopes to employ additional drill rigs as soon as possible.

• River to Production. CKA is endeavoring to evaluate the quality of the coal in the next month, release a maiden inferred resource by the end of the year and start scoping studies soon after, on a timeline to bring the projects into production during 2013.

• Strong Board and Management headed by Peter Lynch, previously CEO and Director of Waratah Coal Inc, a TSX listed company taken over by the Mineralogy Group in 2008. All members of the board and management have extensive experience in building exploration companies and in the design, technical and operational aspects of thermal and coking coal projects.

• Well fi nanced and popular. The market re-rated Cokal after the non brokered private placement to Passport Capital. This has put the company into a well fi nanced position, with $20m in the bank, to actively pursue their high priority exploration targets. These projects are in the very early stages and but the company has ambitions to start production very quickly in a small scale.

OUR VIEWCokal Limited has emerged from the restructuring of Altera Resources. The company has exploration permits in the Surat/Clarence-Moreton and Bowen Basins, a joint venture in Tanzania, and they have recently purchased options to acquire shares in four exploration projects in Kalimantan, Indonesia. The company is targeting metallurgical coal tenements primarily on the overseas projects. The focus is on developing the Indonesian assets and bring them into production by 2013. Geologists have been going over the ground in Kalimantan since the start of the year to map out the drilling program. CKA has secured one drill rigs and would like to increase that number to 5 or 6 with a target to bring a maiden resource to the market by late Q3 or early Q4 this year. The Tanzanian JV has secured a tenement to explore part of the Karoo basin, which may share many characteristic with the Riversdale and Moatize deposits in Mozambique. A drill rig has been secured and scouting is due to begin once the dry season begins. The board and senior management are one of the strongest teams in the industry and though it is very early days, the combination of assets, management, and coking coal strength is very attractive.

Cokal Limited CKA ($0.69)

Targets in the Jungle Analyst: Andrew Harrington, Matthew Trivett




Figures 1 and 2: Indonesia - Murawai deposit

Figure 3: Tanzania - Karoo Basin extension of Mozambique

Figure 4 and 5: Bowen & Clarence Moreton Basin






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Directors PositionChristopher Bain Non-Executive ChairmanJohn Quayle Managing DirectorBernhard Hochwimmer Executive DirectorDean Turnball Executive DirectorStephen Poke Non-Executive DirectorRichard Udovenya Non-Executive Director

Shareholders Holding (%)Russel Simpson 5.7North East Geologica 3.9Hochwimmer Bernhard 3.9


• Unicorn An Unexplored Mo-Ag-Cu Porphyry System. Initial drilling has identifi ed a very large mineralised intrusive system consisting of multiple mineralised rhyolitic quartz feldspar porphyry pulses. The system shows very broad pervasive molybdenum mineralisation above 350ppm with large intervals of signifi cant mineralisation including 106m @ 0.08% Mo, 0.15% Cu and 4.5ppm Ag (DUNDD005). Based on stream and soil sampling a 500m diameter target area has been defi ned which we calculate could contain up to 350Mt. Grades appear encouraging with >0.05% Mo a potentially mineable grade.

• Unicorn Drilling to Recommence in May. Further drilling is expected to be conducted in May. DTM plans to conduct a series of deep diamond drill holes of up to 800m in length to establish the size and grade of Mo-Cu-Ag mineralisation. The fi rst hole will test the interpreted continuation and northern extent of the M1 mineralisation and test the M2 mineralised horizon. This will assist in targeting the resource program which will consist of a series of 100m spaced holes with angled holes of east-west drilling. There will be approximately 2500m of deep drilling.

• Excellent Infrastructure. DTM’s projects are located in north-eastern Victoria close to hydro-power, water, paved highways, towns and mining supportive communities. Therefore this would be conducive to a development scenario.

• Molybdenum (Moly) Market. The major use of Moly is to strengthen and rust proof steel. Moly use is somewhat energy related as it is used in pipelines, drill pipe, tubing in nuclear plants and as a catalyst to crack the sulphur out of crude oil and its price is correlated strongly with oil price. The Moly market is fairly small being 488mlbpa (220,000t) in 2010 with 47% of supply by-products from copper mines and 53% from large primary mines and smaller mines. The LME began trading of Moly future in February 2010 with the current price US$17.50/lb.

• Other Projects. DTM have highly prospective tenure with a number of other projects identifi ed other than Unicorn these include: 1) Morgan 2) Mountain View 3) Bunroy and Boebuck.

• Stronger Financial Position. DTM is in a stronger fi nancial position after a $2m placement and 1 for 3 rights issue at 6.5cps. For every two shares shareholders received a listed option exercisable at 10cps. DTM has a cash position of approximately $1.63m at the end of March.

• Catalysts. 1) May - recommencement of Drilling at Unicorn 2) Further positive drill results from the Unicorn project.

OUR VIEWDart Mining NL (DTM) is a Victorian focussed precious and base metals explorer that has a strategic tenement position. Dart appears to have discovered a new mineral province within northeast Victoria that has similar rocks (Lachlan fold) to the large Cadia and Ridgeway copper mines in NSW. At DTM’s fl agship property the Unicorn Mo-Cu-Ag project which outcrops at surface DTM has returned some very encouraging Mo-Cu-Ag drill results. DTM recently appointed Mr Lindsay Ward as Managing Director he is a qualifi ed geologist with 25 years of industry experience and will drive DTM to fully evaluate the Unicorn discovery. Drilling is expected to recommence in May to continue to defi ne the extent and grade of the mineralisation which has a 500m diameter footprint at surface and is a similar size to the giant Climax and Henderson mines in the US. DTM plans to carry out a series of deep diamond drilled holes 800m in length with the aim to move towards the establishment of a maiden resource estimate. We would expect a resource estimate to be released by the end of 2011. In addition, DTM has a number of other Mo and Au porphyry targets within Victoria that have had some encouraging results.

Dart Mining NL DTM ($0.06)

Large Moly System To Be Drilled In May Analyst: Simon Tonkin

Disclosure: Patersons was lead manager and underwriter for a $2m rights issue and placement at $0.065/sh conducted in November 2010. Patersons received a fee for this service.




Figure 1: DTM project location

Figure 2: Unicorn IP drill targets







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Name PositionTony Bellas Non Executive ChairmanCraig Ransley Deputy ChairmanMichael Avery MD and Joint Company SecretaryMike Chester Non-Executive DirectorHon. Alan Griffi ths Non-Executive DirectorMark Turner Chief Operating Offi cerNorah St. George CFO and Joint Company SecretaryTony Mooney General Manager Stakeholder RelationsCameron Switzer Exploration Manager Substantial Shareholders Shares (m) %The Chairman 1 Pty Ltd 200.0 48.4Och-Ziff Capital Management 52.1 12.6 Springsure Mining Pty Ltd 40.0 9.7 UBS AG 30.6 7.4 Credit Suisse AG 29.5 7.1


• A Simple Objective has been pursued by the management team when it fi rst started. This was to secure prospective tenements close to infrastructure. They have achieved this objective with their 3 primary targets in Queensland, the Hughenden project on the Mt Isa – Townsville rail line, the Kolan project close to rail to Gladstone and the Sierra project on the main rail line west of Rockhampton.

• Focus of South Gobi. The project covers large coal prospects located in the South Gobi desert approximately 60km to the Chinese border and adjacent to two operating coal mines. There are 3 drill rigs on site to establish a JORC compliant resource and the mining lease on the South Gobi Project is expected to be issued in Q3 2011.

• Near Term Cash Flow. The South Gobi project does not have the infrastructure focus but management believes it will provide positive cash fl ow in the near future. Production could begin early next year or possibly late this year. The project is expected to require minimal capex (~$20m) and produce about 2Mtpa ROM. Coal is sold at the mine gate and the majority of the mining logistics will be handled by a contractor. Negotiations are currently progressing and an agreement with a mining contractor is expected to be fi nalised shortly.

• Assets on the Galilee Basin. The Hughenden project is one of the largest coal exploration tenement portfolios on the Galilee Basin. The drilling program has been signifi cantly delayed by the extraordinary wet season and fl ooding last year. 3 drill rigs have resumed drilling and the company is looking to expand the program with an additional rig. The project is located near Pentland and the main rail line to Townsville. The company has already started negotiations to secure rail and port capacity.

• And the Others. Kolan in the Maryborough Basin has re- started to confi rm the coking coal target. Drilling the Sierra Project in the Bowen Basin will commence once the EL is granted later this year.

• Different Management Structure. The company has a management agreement with Chairman 1, the major shareholder and original owner of the assets in the Galilee, Maryborough and Bowen Basins. Chairman 1 will receive $2.5mpa for 5 years to manage Guildford and for each 100Mt of JORC compliant indicated resources defi ned on the original Queensland assets a fee of $20m will be paid to Chairman 1 up to a maximum of $100m.

OUR VIEWSince fl oating mid last year Guildford has moved quickly to secure multiple targets in major Queensland and Mongolian Coal Basins which the share price has refl ected in a positive manner. This portfolio will allow the company to explore coking coal, thermal coal and PCI targets. The company is in a very strong fi nancial position with over $40m in the bank and it is utilising those funds by initiating an intensive drilling program in both Mongolia and Australia. The South Gobi Mongolian project has now secured the third drill rig and is well down the road to being issued a mining lease for the tenement. The fi rst hole on this Project has been completed and has intersected approximately 8 metres net of coal contained in three coal seams with the deepest seam estimated at 87m. If key milestones, are met the project is expected to start production late this year or in early 2012. Drilling has re-started on the Australian assets after being held up by the extraordinary wet season last year. The company expects 6 rigs (from the current 3) to defi ne the assets in the Galilee, Maryborough and Bowen Basins. The main negative, in our view, is the management fee of $2.5mpa for 5 years and the success fee of $20m for each 100Mt of JORC compliant indicated resource defi ned on the original Queensland assets up to a maximum of $100m.

Guildford Coal Limited GUF ($1.30)

Fast Mover Analyst: Andrew Harrington, Matthew Trivett




Figure 1: Mongolian Projects

Figure 2: Galilee Basin - Hughenden Projects







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Name PositionMr David Barwick ChairmanMr Andrew Gillies Non Executive DirectorMr John Haley Non Executive Director & Company SecretaryMr Michael Hansel Non Executive DirectorMr Mike O’Brian Chief Executive Offi cerMr Theo Psaros Chief Operating Offi cerMr Neil Mackenzie-Forbes Exploration Manager Substantial Shareholders Shares (m) %Matallica Minerals Limited 80.0 45.3 Bank of America Corporation 20.1 11.4 ACD Services Ltd 2.6 1.5


• MetroCoal (MTE) holds a portfolio of tenements in the Surat Basin and it has identifi ed prospective thermal coal seams suitable for conventional opencut and underground mining. It also has identifi ed zones applicable to Underground Coal Gasifi cation. The company is actively drilling the Columboola and Bundi projects with 3 rigs on each.

• A systematic drilling program on the Columboola Project is being conducted to establish an initial inferred resource and identify project areas for future infi ll drilling. Early results have confi rmed the Macalister Seam Package is continuous across the tenement. In addition, economic thicknesses of the Bulwer and Condamine seams have been identifi ed, implying there the potential for multi- seam underground thermal coal mining.

• The Bundi Project drilling program has just begun and initial results (fi rst 5 holes of a 70 hole program) indicate the potential for two working seams. Thicker than anticipated Kogan and Macalister Upper Seams were intersected with up to 7m in thickness.

• MTE is in a strong fi nancial position with $14.2m in the bank as at the 31 March 2011. The majority of these funds were raised by a successful placement to institutional and sophisticated investors. MTE entered into a JV agreement with Sinocoal where Sinocoal acquired a 51% interest in the Columboola Project and pre-emptive rights over MTE’s other tenements for an agreed expenditure commitment of $30m. Sinocoal has waived pre-emptive rights over the Bundi Project and MTE has appointed Caldrex Capital to market a JV proposal.

• Both the Columboola and Bundi projects are well located to the proposed Surat Basin Rail (SBR) link connecting to Gladstone but as with other explorers in the region they are dependant on the successful completion of the rail line. MetroCoal plans to seek participation in the SBR project later in 2011 and this will follow its application for 12Mtpa capacity of the second stage of the Wiggins Island Coal Export Terminal development.

• MTE has an experienced Board and Management team to move the company from explorer to producer over the next fi ve years. The team have considerable knowledge and expertise covering geology, mining, fi nancial management and investment, and business development.

• The main shareholder and original owner of the MTE, Metallica Minerals, is unlikely to participate in future fund raising by the company and MTE is focusing on JVs at the asset level to develop its projects.

OUR VIEWMetroCoal is an emerging coal explorer focused on the Surat Basin. It has a number of tenements but its main focus is on the Columboola, Bundi and Norwood projects around Wandoan and Miles. Current JORC compliant resources total 709Mt (686Mt Inferred and 23Mt Indicated). Like other projects in the Surat it is dependant on infrastructure development, primarily the Surat Basin Rail Link and WICET Stage 2, to which is has applied for a 12Mtpa allocation. The company is in a fi nancially strong position with $14m in the bank on top of the recent sale of 51% of Columboola to Sinocoal for $30m. The JV will develop a 5Mtpa underground thermal coal mine with initial production most likely in 2016. The company is actively pursuing a partner for the Bundi project and with a JORC compliant resource already identifi ed management believes it should attract a premium to the Columboola transaction. Details of any transaction should emerge during the second half this year. Metro has not had the same run up in value prices seen in other junior coal plays but it has not had experienced the depreciation in value seen recently. The company has an experienced Board and Management team to move the company forward. Accordingly we retain our Speculative BUY recommendation with a price target of $0.50/sh.

MetroCoal Limited MTE ($0.41)


Quiet Achiever Analyst: Andrew Harrington, Matthew Trivett

Disclosure: Patersons acted as lead manager for a two tranche placement of 35m MTE shares at A$0.30/sh to raise A$10.5m in October 2010. It received fees for this service.




Figure 1: Tenement Location Map

Figure 2: Bundi and Norwood Target Areas and EPC Boundary






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Name PositionMr Gordon Galt ChairmanMr Glen Lewis Managing DirectorMr James Beecher Non Executive DirectorMr Michael Davies Non Executive DirectorMr Mike Chester Non Executive DirectorMr Andrew Poole Non Executive DirectorMrs Megan Etcell Commercial Manager & Company SecretaryMr Gary Cambourn Project ManagerMr Kenny Barry Safety, Training, Environment & Community Mgr Substantial Shareholders Shares (m) %Taurus Funds Management 125.3 19.5 Pooles Australia 48.5 7.5 Sparta Group 42.2 6.6 Jonca Investments 33.1 5.1


• Emerging coal developer NuCoal Resources (NCR) acquired 100% of the Doyles Creek project in the Lower Hunter Valley in conjunction with a reconstruction and re-listing of the Company in February 2010. Last month NCR also acquired a 49% stake in Dellworth Pty Ltd a New South Wales based company that holds two exploration licenses in close proximity to Doyles Creek.

• The Doyles Creek project has recently expanded resources from an inferred resource of 420.3Mt to 12.9Mt indicated resource and 484.8 inferred resource. The ongoing drilling program is expected to upgrade further resources to the indicated category. We expect new JORC compliant resource statements from the company in the second half of 2011. The Pre-Feasibility Study on the Doyles Creek project has commenced and is scheduled for completion in June 2012. Management has indicated that the project would be suitable for a multi seam longwall mining.

• The newly elected NSW government proposed a review of Exploration Licences (EL) and its Strategic Regional Land Use Policy has highlighted the Doyle Creek Project. NCR supports the review and an independent probity review on the granting of this EL was conducted last year which found “the then Minister acted within the powers afforded to him under the legislation.”

• The company will acquire 100% of the Dellworth assets once they satisfy the requirements of the new change of ownership clause added to recently granted exploration licenses set by the new NSW government. Management is very confi dent they will meet all criteria in this formal process and NCR has a management agreement in place until the process is concluded. This will enable NCR to conduct detail analysis of historic drill results and design an exploration process which is expected to begin in the September quarter this year.

• NCR is progressing discussions for rail and port access. NCR has applied for PWCS port access in the July 2011 nominations.

• A successful capital raising of $30m was completed last quarter which should be adequate fund to complete a Bankable Feasibility Study on Doyles Creek and develop the Dellworth assets.

• An extension to the Doyles Creek project, and a part of the EL being granted, is the establishment of a specialised coal centric training facility run in parallel with the proposed mining operations. The facility will help to address the critical skills shortage currently being experienced in the mining sector and the wider community.

OUR VIEWNuCoal successfully reconstructed and re-listed the company early last year as an emerging coal developer with the acquisition of the Doyles Creek project in the Lower Hunter Valley. The company has grown its presence in the established Hunter Coalfi eld region with the recent acquisition of the Dellworth assets and the expansion of the Doyles Creek resources. The political environment and the process surrounding the granting of Doyles Creek exploration licence (EL) have been an unwelcome development to management and shareholders and the share price has been tending downwards since February. The EL issue is unlikely to disappear immediately as the newly elected NSW government raised the issue while it was in opposition although an independent probity review did fi nd “the then Minister acted within the powers afforded to him under the legislation.” The company was given a vote of confi dence by the investment community as it successfully completed a $30m capital raising last quarter. This will allow the company to complete a BFS, upgrade the resources of the Doyles Creek and develop the Dellworth assets. An extension to the Doyles Creek project is the establishment of a specialised underground coal mining training facility to help to address the skills shortage currently being experienced in the mining sector.

NuCoal Resources NL NCR ($0.38)

Drilling in the Hunter Analyst: Andrew Harrington, Matthew Trivett




Figure 1: Doyles Creek Project Timeline

Figure 2: Location Map Figure 3: Doyles Creek Stratigraphic Column







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Directors PositionMelissa Sturgess ChairmanDavid Pettman Deputy ChairmanRichard Chase CEO ElectDr Evan Kirby Non-Executive DirectorMike Langoulant Finance DirectorMartin Churchouse Technical Director

Shareholders Holding (%)International Finance 6.2JP Morgan Chase & Co 6.1JP Morgan Asset Management 4.8Investec Asset Management 3.5Henderson Global 2.0


• Tulu Kapi Progresses to Prefeasibility. NYO indicated that the PEA has shown positive project returns and therefore is progressing to Pre-Feasibility Study. The PEA looked at an open pit and then underground scenario with a processing facility of 2Mtpa. The process route chosen was Carbon-In-leach (CIL). Capital costs are estimated at US$200m however cash costs came in at US$14.50/t for open pit and US$35.83/t for underground. There was limited information on the split of open pit vs underground however NYO indicates that higher grade underground feed improves the project economics initial studies on Lodes 3 and 4 indicate potential to be developed from underground. On 9 December 2010, NYO discovered the Feeder Zone beneath the currently defi ned resource returning a peak intersection of 15.7m at 37.04g/t Au. Therefore, Tulu Kapi is a work in progress with a lower grade open pit resource and a higher grade feeder zone. The trade off will be whether there is enough high grade material to justify an underground mine or to stay with open pit or a combination of the two.

• Outstanding Near-Mine and Regional Targets. NYO are well cashed up with A$32m to execute an aggressive exploration campaign. NYO is targeting three areas for exploration: 1) Tulu Kapi Resource Extensions: NE, SW and deep high grade FZ (all being drilling). 2) Proximal/Advanced Targets: Within 25km of Tulu Kapi and include: Soyoma (results expected), Dina (target below Soyoma), Guji (aim to drill mid-2011), Chago (along trend), Syenite Hill (along trend from Tulu Kapi). Discoveries at these near mine targets could supply satellite feed to the central processing mill. 3) Regional Targets: these would be stand alone mining operations.

• Government Support for Mine Development. Ethiopia currently has one operating mine Lege Dembi which produces approximately 100-120kozpa Au. Given the positive contribution to the economy, the Ethiopian Government is keen for Nyota to move to a development scenario. NYO has lodged its Mining Licence application with the Ethiopian Government.

• New CEO announced. Recently, NYO has announced that it has appointed Mr Richard Chase as CEO effective 1 June 2011. He has 19 years experience in the resources sector: 8 working for SAMAX Resources (acquired by Ashanti Goldfi elds) and the last 8 with Ambrian Capital Plc.

• Catalysts. 1) Ongoing Drill Results Tulu Kapi and regional 2) End-2011 Prefeasibility Results 3) Infi ll/Regional Drilling Underway.

OUR VIEWNyota Minerals (NYO) is an east African gold company with its main focus on the development of the Tulu Kapi deposit in Ethiopia which has a JORC compliant inferred resource of 1.2Moz Au at a grade of 1.18g/t Au. NYO recently completed a positive Preliminary Economic Assessment and is progressing the project to Pre-feasibility Study. The resource has a signifi cant amount of exploration upside with recent positive drill results from the Northern and South Eastern extensions and the discovery of a deeper feeder zone late last year. The feeder zone hole returned 15.7m at 37.04g/t Au from 490m since then a number of other positive intersections have been released. Further work is likely to grow the feeder zone and a number of trade-off studies will determine if the operation targets the underground or the open-pit or a combination of the two. In addition, NYO has a signifi cant number of outstanding exploration targets within the greenstone belt in western Ethiopia derived from soil geochemistry, airborne and ground geophysics, trenching and rock sampling. We recently visited site and were impressed with the potential for further discoveries in the area which could provide additional feed for a central processing facility. NYO is well cash up with $32m in the bank. We have a Spec Buy on NYO.

Nyota Minerals Limited NYO ($0.265)


Targeting an Underexplored Gold Province Analyst: Simon Tonkin





Figure 2: Tenement locations






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Shares on issue (m) 401.0 3mth ADT ($m) 0.038ITM Options (m) 164.0 EV ($m) 69.5Market Cap. ($m) 80.0 Debt est ($m) 0.052 week range $0.145 - $ 0.265 Cash est ($m) 10.5

Directors PositionGreg Bittar Managing DirectorNeil Biddle Technical DirectorJohn Berry Project DevelopmentPaul Lynch Mine Development & OperationsAnthony Peterson Exploration & Resource DevelopmentStacey Apostolou Commercial & Company SecretaryEddie Fry Indigenous Relations Consultant

Shareholders Holding (%)Jerry Ren 59.0Huaxi Steel 6.0Directors 2.0Others 33.0


• Signifi cant drilling targets. The aggressive 2011 drilling program began in April and aims to deliver resource upgrades to the Sherwin Creek/Mount Scott areas, complete the resource build up at Hodgson Downs and examine high potential un-tested targets. First drill holes of the 2011 program are intersecting continuous near surface oolitic hematite mineralisation identical to the Hodgson Downs deposit 70km to the south-west. We view homogeneity of mineralisation as an important facet of the project as it ultimately determines the effectiveness of benefi ciation. The combined exploration target stands at 400-500Mt at 40-48% Fe.

• Major processing breakthrough. SHD’s latest announcement regarding metallurgical test work demonstrates that by introducing a SLon Magnetic Separator into a progressive grinding circuit, fi rst class grades of >60% Fe can be delivered while maintaining a robust yield of 56%. We view yield as a key catalyst of the projects economics. Indicative capital and operating costs for incorporating magnetic separation are yet to be disclosed.

• Well funded to progress project. The recent capital raising of $8.5m at $0.16/sh has SHD well positioned to accelerate the drilling and development of its Roper River Iron Ore Project. Funding will also be used to progress ongoing feasibility studies including the Gulf of Carpentaria scoping study and provide general working capital. A further $2.5m may become available through a share purchase plan to eligible shareholders whereby up to $10,000 of shares may be purchased at $0.16/sh.

• Gulf Infrastructure Service. Establishing this facility and associated infrastructure in JV with WDR has become a core focus for the company. All scoping and feasibility studies imply the export of product through the Gulf of Carpentaria and prudent development is essential to coincide with production. Forthcoming feasibility studies will provide clarity on the capex involved in establishing the facility which will invariably see SHD return to the market for additional funding.

• Cheap on EV to resource basis. Despite the need to benefi ciate all of SHD’s resource it remains attractive on a EV/resource basis. Assuming a recovery yield of 56% saleable product the stock is trading on an EV/t of A$1.10/t product. If SHD can deliver on indicative metallurgical testing through to production then SHD remains an excellent value for money exposure to the iron ore market.

OUR VIEWSHD’s strategic tenement holding in the highly prospective Roper River region in the Northern Territory is the primary focus of development for the company. In just 6 months drilling at the 100% owned Roper River Iron Ore Project, SHD has fi rmed up a resource of 106.6Mt at 47% Fe. Latest metallurgical test work on the resource has indicated a saleable product of >60% Fe at robust recovery yield of 56% can be achieved through the introduction of a SLon magnetic separator into the benefi ciation circuit. Initial drill results of the 2011 drilling program continue to confi rm extensions of oolitic hematite mineralisation consistent with the existing resource. Combined exploration targets for the Hodgson Downs, Sherwin Creek & Mount Scott Deposits stand at 400-500Mt at 40-48% Fe. We believe developing the Gulf of Carpentaria Infrastructure Service under Joint Venture with Western Desert Resources to provide a cost effective means of export to market is a key aspect of the project. Scoping studies and environmental work critical to advancing the bulk loading facility are already underway and SHD remains confi dent that a multi-user export facility will be ready by mid 2013. With the recent capital raising of $8.5m, SHD is well funded in the near term and we believe the company offers an attractive entry point into the iron ore market.

Sherwin Iron Limited SHD ($0.13)

Infrastructure and yield the key to success Analyst: Tim McCormack




Figure 1: Location of the Roper River Iron Ore Project, Northern Territory

Figure 2: Typical deposit style cross-section

Figure 3: Proposed trans shipping infrastructure - Maria Island Figure 4: Key targets within the tenement holding







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Name PositionMr Neville Sneddon ChairmanMr Nick Jorss Managing DirectorMr Andrew Martin DirectorMr Stephen Bizzell DirectorMr Viv Forbes DirectorMr Vaughan Wishart Project Development ManagerMr Mike McKee Operations ManagerMr Duncan Cornish CFO & Company Secretary Substantial Shareholders Shares (m) %St Lucia Resources International Pty Ltd 31.7 25.4 Bank of America Corporation 7.1 5.7 Kinetic Investment Partners Limited 6.3 5.0 Stephen Bizzell 5.8 4.7

Investment Highlights• Project Development. There are two projects in

the development stage, the Range in the Surat and Mackenzie River in the Bowen. SMR aim to have both start production by 2015. The Mackenzie River project is located between the operating Ensham mine and the Washpool development belonging to AQA. It is one of the very few opencut coking coal projects left in Queensland not in the hands of the majors.

• Resources with potential. Drilling has been completed on the Range project to identify a JORC compliant Inferred Resource of 219Mt. The high quality export thermal coal target continues to be drilled to enable detailed analysis of the coal and upgrade resources. A conceptual mining study has been completed for a 5Mtpa open cut mine with potential to expand production signifi cantly. A JORC compliant Inferred Resource of 99Mt has been identifi ed on Mackenzie River. The second stage has recently commenced although it has been affected by continuing wet weather. The drilling program objective is to test a 70-80Mt target in the north of the tenement and establish a resource for a 2Mtpa open pit coking coal operation.

• Other Projects. There are fi ve other tenements held by the company in the Bowen Basin. A scout program is currently underway on the Tennyson (previously Emerald) project. The company reported that numerous coal seams have been intersected and it is confi dent that the 200-290Mt exploration target will be easily achieved in the next few months. Drilling has commenced on the Belview Project with an exploration target to be determined in the next 4-5 months. The target coking coal seams on this project are mined in nearby Cook Colliery and Leichhardt Colliery. Drilling on the Kerlong Project is expected to follow. Kerlong will target coking and PCI seams similar to Coppabella and Burton.

• Infrastructure. All the Bowen Basin projects are located in close proximity to rail lines which access coal terminals at either Gladstone or Dalrymple Bay. The Range project is well located to the proposed Surat Basin Rail link connecting to Gladstone. Stanmore has applied for an allocation of capacity of the Wiggins Island Export Terminal Stage 2.

• Expansion fully funded. The successful renounceable rights issue late last year has the company in a strong fi nancial position. This allows the company to fund the drilling programs already outlined and progress the Mackenzie and Range projects to further milestones. Scoping and pre-feasibility studies on Range are well progressed in conjunction with statutory approvals such as the ML and EIS, while a conceptual mining study is underway on Mackenzie.

OUR VIEWStanmore Coal (SMR) is a coal company that has been listed for less than two years and in that time is has progressed from an early stage exploration company to a development company and it remains fi rmly on track to be a producing company. Production is expected in 2015 from two projects, the Mackenzie River in the Bowen Basin and the Range in the Surat Basin. These projects currently have a combined inferred JORC compliant resource of 318Mt of coking and thermal coal, which further drilling should expand and upgrade. Both projects are dependant on allocation from the WICET Stage 2 port development. Also, the Range is a thermal coal project dependant on the Surat Basin Rail Link to be completed. Both infrastructure projects are progressing. We view SMR as being well positioned to secure an initial 7Mt allocation at WICET with prefeasibility studies, ML applications and EIS either underway or due to begin next quarter. The company is continuing to explore its other tenements and some encouraging results thave surfaced on the Tennyson and Belview Projects in the Bowen basin. The share price of SMR has been under pressure since mid April but the market can expect a good fl ow of information on resource establishment and expansion over the next 6 months.

Stanmore Coal Limited SMR ($1.20)

On the Path to Production Analyst: Andrew Harrington, Matthew Trivett




Figure 1: Location Map Figure 2: Mackenzie River Geological Plan

Figure 3: The Range Product Flow Sheet

Figure 4: Project Timeline




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Directors PositionWarren Staude Non-Executive ChairmanRichard Henning Managing DirectorSimon Fleming Executive DirectorBevan Tarratt Non-Executive DirectorBob Cleary Non-Executive DirectorJay Stephenson Company Secretary

Shareholders Holding (%)Glenn Whiddon 11.8Citigroup Global 7.4Thesis Asset Management 4.2


• Large Resource with Upside for +100mlb. SHE has a signifi cant resource of 65mlb U3O8 which remains open at depth and along strike with excellent potential to expand the resource beyond 100mlb. The mineralisation is shale-hosted and also has a signifi cant amount of vanadium (conservatively assumed to average 3,500ppm V2O5 based on adit sampling) which as a by-product credit improves the economics of the project. SHE plans to conduct chemical assays which can be higher than spectrometer readings, which has the potential improve the overall uranium grade beyond 400ppm U3O8.

• Positive Pre-Scoping Study Results. In early March, SHE released a positive pre-scoping study results which indicated cash costs of US$24.50/lb (following vanadium by-product credits) these costs were mid-US$40/lb for the uranium only extraction process. On this basis considering our long term uranium price forecast of US$70/lb SHE will need to extract the vanadium to improve the project economics. Initial bench scale metallurgical test work has been encouraging with excellent leach recoveries of >90% for uranium. Vanadium recoveries at 50% should improve with more intensive leach conditions.

• South Korean Nuclear Friendly Jurisdiction. South Korea has 21 nuclear reactors which require 9mlb of U3O8 annually. SHE aims to sell its uranium to KEPCO to provide a domestic source of supply. In addition, the project is located near infrastructure.

• Cheap on EV/lb Basis. SHE is currently cheap on an EV/lb basis trading at A$0.50/lb in the ground (excluding vanadium) compared to the peer average of A$1.70/lb. Therefore there is signifi cant upside to the current share price if SHE can successfully progress the project to a development scenario.

• Biggest Risks Metallurgy and Community. The biggest risks for SHE are: i) Metallurgy – initial results are encouraging; ii) Community Relations: SHE are only in the initial stages of community consultation with the town of Chubu located in the adjacent valley. It will be imperative to foster positive relations to allow a smooth permitting process.

• Potential Second Project at Gweson: In April, SHE released assays results from 8 diamond holes with the best intercept: 8m at 245ppm U3O8 and 3,471ppm V2O5. All intercepts were between 73 and 183m depth. The results at Gwesan are encouraging and suggest a potential second project other than SHE’s key Daejon project (located 50km NE).

• Catalysts: May - Commence Prefeasibility; May/June Metallurgical test work on 3x20kg samples.

OUR VIEWWe recently visited Stonehenge Metals fl agship Daejon Uranium Project in South Korea. The project contains an inferred resource of 65mlb of uranium grading 320ppm U3O8 and has a signifi cant vanadium by-product credit which is the key to the project. Initial results from a pre-scoping study have indicated cash costs of $24.50/lb uranium (assuming vanadium by-product credits) and mid-40’s for uranium extraction. Bench scale uranium recoveries are >90%, however, vanadium recoveries are 50% and this is where SHE is looking to improve through applying more intensive leach conditions such as: 1) higher temperatures 2) more acid 3) medium pressure leach or 4) Salt roast. SHE is currently cheap on an EV/lb of uranium basis trading at A$0.50/lb in the ground (excluding by-products) compared to the peer average of A$1.70/lb. Our analysis suggests that as SHE continues to progress the project the stock could appreciate towards $0.30/sh. Therefore we rate the stock as a Speculative Buy with the biggest risks i) metallurgy and ii) community relations to allow a smooth permitting process. SHE had $3.9m at the end of the March Q and should provide suffi cient capital for the near term.

Stonehenge Metals Limited SHE ($0.12)


Vanadium Key to Unlocking Project Value Analyst: Simon Tonkin

Disclosure: Patersons was co-manager of a $2.8m placement at $0.056/sh with an attaching 10c option in June 2010. Patersons received a fee for this service.




Figure 1: SHE project locations

Figure 2: Exploration potential on top of 65mlb resource






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Directors PositionJohann Jacobs ChairmanMatthew Gauci Managing DirectorStephen Hunt Non-Executive DirectorMark Chalmers Non-Executive DirectorFrank Poullas Non-Executive DirectorJohn Nethersole CFO

Shareholders Holding (%)IMX 29.0Acorn 14.0Geiger 10.0


• MRU Mkuju River Project Mark II? UNX’s tenure is immediately south of MRU. MRU is currently the subject of a takeover for $1.02b which values its current resource of 101.4mlb at A$10.06/lb. UNX’s 2010 drill program has focused on drilling the Likuyu North prospect located 30km southwest of MRU’s Nyota deposit. The prospect has been defi ned over a strike length of ~600m. In 2010, 16 diamond holes were recently completed all of which intersected uranium mineralisation. Assay results were very encouraging and include 10.5m at 1,124ppm U3O8, including 2m at 2,135ppm U3O8, 13m at 614ppm U3O8 including 4.5m at 1,154ppm U3O8 and 2m at 1,244ppm U3O8. Subsequently, UNX has commenced a 6,000m aircore drilling program to extend the high grade mineralized zone over 5km to establish a resource in 2H/CY2011.

• Targeting MRU Style Mineralisation and Large Higher-Grade ISR Deposits. UNX has initially been targeting shallow sandstone hosted deposits at Likuyu North (which the drilling is targeting) which is the same type of mineralisation as Mantra and PDN’s Kayelekera mine. These horizons tend to be multi-layered and shallow <70m and are free dig meaning lower cost to mine. In addition, UNX will be targeting roll front style deposits which tend to be large and of an even higher grade these have the potential to be mined using ISR (In-Situ Recovery) extraction techniques. The ISR method of mining is the lowest cost method of uranium extraction and is used at Beverley-Four Mile, Kazakhstan and in the US.

• Radiometric Survey Identifi es 5 Main Anomalies; Drilling to Recommence in March 2011. Based on radiometric surveys UNX appears to have identifi ed fi ve similar targets to MRU which total 69km of strike. Likuyu North (5km), Likuyu South (18km), Matemanga Cluster (10km), Mteramwahi North (17km) and Mteramwahi South (19km).

• Coal Project to Be Drilled in June 2011. UNX is aiming to drill its Songea Coal project in June 2011. The project covers an area of 3,500km2 where 11 coal fi elds have been identifi ed. It is located in close proximity (50km) to the Ketewaka (804Mt) and Ngaka (250Mt) coalfi elds.

• Strong Cash Position Following Raising. UNX has $5.1m in cash and this is expected to grow with the exercise of company options (would bring in $1.5-5m) and the expected divestiture of its non-core Australian assets in the June Q which would include the 14mlb Thatcher Soak project in Western Australia.

• Catalysts. June/July: Likuyu North Drill Results; 2H/CY2011: Resource Update; June 2011 Commencement of Drilling at Songera Coal Project.

OUR VIEWUNX’s main focus is its Mkuju Uranium Project in Southern Tanzania. UNX’s tenure is located adjacent to Mantra Resource’s (MRU) Mkuju River project (MRP), MRU are currently in the process of being acquired for $1.02b all cash/dividend offer by Russian-state owned uranium miner ARMZ. UNX stock has come off following the Fukushima disaster in Japan, prior to this it had performed well due to the ARMZ-MRU takeover and encouraging high grade drill results at its Mkuju Uranium Project. We believe the Fukushima impact is likely to remain in the short to medium term, however, with further drilling UNX has a good opportunity to establish a high grade resource at its Likuyu North prospect by the end of 2011. In addition, UNX has identifi ed through a radiometric survey on its Mkuju Uranium Project extensive uranium anomalies over 64km of strike within four prospect areas. UNX also holds the Songea Coal project in Southern Tanzania where exploration is continuing and expects to commence drilling in June 2011. There are two established coalfi elds adjacent to the Songea Coal project with resources exceeding 1bt of coal. Finally, UNX is also looking to divest its non-core uranium assets in Australia.

Uranex NL UNX ($0.335)

Mantra Resources Look-a-like Plus Coal? Analyst: Simon Tonkin

Disclosure: Patersons was lead manager and underwriter for a $5.8m rights issue at $0.14/sh conducted in October 2010. Patersons received a fee for this service.




Alligator Rivers(Target generation)

Bremer Bas(6000m drilling

Mkuju and SongeaMkuju and Songea(8,500m km(8,500m km22, 20,000m drilling underway, 20,000m drilling underway))

Thatcher Soak(14M lbs U3O8 @ 100ppm cut off)

Manyoni(29M lbs U308 @ 100ppm)

$?

Database of uranium prospects

Early Stage Exploration

Scoping Studies

Feasibility Studies

Production

Advanced ExplorationAdvanced Exploration

sing)

s Project Generation


Figure 2: Project status

Figure 3: Likuyu North drilling






Shares on issue (m) 154.7 3mth ADT ($m) 0.233ITM Options (m) 7.2 EV ($m) 54.1Market Cap. ($m) 55.9 Debt est ($m) 0.052 week range $0.25-$0.48 Cash est ($m) 1.8

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Directors PositionRick Allert ChairmanNorm Gardner Managing DirectorLaurence Ackroyd Company SecretaryGraham Bubner Non-Executive DirectorDavid Cloke Non-Executive DirectorMichael Ashton Non-Executive DirectorPhil Lockyer Non-Executive Director

Shareholders Holding (%)Directors 17.0


• Strong fi nancial position. WDR recently announced a Share Subscription Agreement with Permat Holdings whereby up to $12m will be raised through a placement of 40m shares at $0.30. The placement is viewed as a cornerstone to the development of the Roper Bar Iron Ore Project. Parallel to the placement WDR intends to offer existing shareholders a one for eight non-renounceable rights issue at $0.30 to raise an additional $5.8m. Closing date for the rights issue is May 23rd with funds raised to be concentrated on developing the Roper Bar project as well providing working capital for WDR’s gold, base metals and geothermal projects in the NT.

• Direct Shipping Ore (DSO) to underpin early cash fl ows. The availability of 14.5Mt DSO to WDR is a key benefi t given the potential for early cash fl ow at an achievable capital expenditure rate. With a signifi cant capex requirement to develop the Gulf Infrastructure Service WDR can spread capital intensity by operating a low cost DSO operation in the formative stages of production.

• Gulf Infrastructure Service. The JV between WDR and SHD to develop the Gulf Infrastructure Services is a regionally signifi cant step forward in improving the accessibility to this emerging province. As it stands WDR and SHD will be responsible for the development, funding and operation of the bulk commodity stockpiling and loading facilities in the Gulf of Carpentaria. This facility will deliver large scale production potential with signifi cant operating cost benefi ts. We see WDR’s close proximity to the coast and developmental hub as a signifi cant competitive advantage over more isolated iron ore players.

• Attractive on an EV per tonne basis. WDR is trading on an EV per DSO tonne of A$3.80/t. However based on the current total resource and applying a yield of 50% to benefi ciate to a saleable product WDR is trading on A$0.35/t of product, one of the lowest in our suite of iron ore stocks covered. As WDR demonstrates the viability of the benefi ciation project the potential for a re-rating to the sector average implies signifi cant upside to WDR’s current equity value.

• Metallurgical test work. Current metallurgical test work has allowed the oolitic hematite to be upgraded to saleable grade via simple crush-grind-gravity separation circuit. Preliminary results have indicated grades ~58% Fe at a yield of approximately 50%. WDR is currently investigating the cost benefi t of introducing WHIMS or SLon magnetic separators to further improve product grade and yield.

OUR VIEWThe unrelenting Northern Territory wet season has seen a slow start to 2011 fi eld program with excessive rainfall hampering access to WDR’s fl agship Roper Bar Project. In light of this WDR has concentrated on critical pre-feasibility studies relating to the development of the Gulf Infrastructure Service and environmental studies for the proposed mining leases and transport corridors. WDR’s resource inventory grew to 312Mt at 40% Fe during the March Q on the back of a positive drilling program which ceased in mid January due the wet season. WDR is set to embark on a well funded aggressive drilling campaign to increase resource inventories and importantly grow the 14.5Mt of direct shippable ore (DSO) that is currently in resource. Pivotal to the longer term success of the project is an effective means of concentrating the lower grade hematite into a saleable product. Initial metallurgical test work has shown Dense Media Separation can upgrade the resource to a saleable grade ~58% Fe with further enrichment capable through the introduction of magnetic separation. WDR remains well funded for 2011 and we should see a steady news fl ow regarding essential infrastructure, resource upgrade and clarity on metallurgy. Attractive on EV/resource basis with a DSO resource <50kms from the coast. We rate WDR a SPEC BUY.

Western Desert Resources WDR ($0.335)


Un-locking potential in the NT Analyst: Tim McCormack

Disclosure: Patersons was lead manager for WDR Resources Ltd for the placement of 37.5m shares at $0.32/sh in November 2010, which raised $6.45m. Patersons was lead manager and underwriter to the placement of 20.8m shares of a $0.40/sh in November 2009, which raised $8.33m. It received a fee for these services.




Figure 1: Key company projects in the Northern Territory

Figure 2: Roper Bar Project and proposed transport corridor

Figure 3: Timeline for the Roper Bar Project






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Shares on issue (m) 248.2 3mth ADT ($m) 0.77ITM Options (m) 7.3 EV ($m) 116.9Diluted Market Cap. ($m) 146.9 Debt est ($m) 0.052 week range $0.17 - $0.79 Cash est ($m) 30.0

Directors PositionWenxiang Gao ChairmanMr Anthony Wehby Vice ChairmanMr Rimas Kairaitis Director and CEOMr Stephen Woodham Non-Executive DirectorDr Guoqing Zhang Non-Executive DirectorMr Robin Chambers Non-Executive DirectorRichard Hill Non-Executive DirectorChristine Ng Non-Executive Director

Shareholders Holding (%)Yunnan Tin Australia TDK Resources Pty Ltd 15.0Wonderful Investments Ltd 9.8Yunnan Tin YTC holdings Pty Ltd 6.0ANZ Nominees Ltd 4.7Kaymac Nominees Pty Ltd 3.0J P Morgan Nominees Australia Ltd 2.5Locksley Holdings Pty Ltd 2.0Smiff Pty Ltd 1.9B & M Jackson Pty Ltd 1.5


• Hera Gold Project. The project is located 100km south-east of Cobar and is situated in the Cobar Basin which hosts a series of small to medium-sized sediment hosted base metal deposits, of which four are operating mines (see Figure 1). The central Main Lens extends for approximately 600m along strike represents the bulk of the deposit. The Hera resource presently contains 2.18Mt at 0.2% Cu, 2.8% Pb, 3.9% Zn, 4g/t Au and 15.6 g/t Ag (~560koz Au Eq). An updated resource estimate from a recently completed drilling programme at the Far West Lens is expected by end May 2011. A DFS is underway at Hera to establish an underground mine which will produce base metals and gold (recoveries >92%). The DFS will also assess the possibility of scaling-up the Hera process plant from the 350ktpa to 700ktpa to accommodate ores sourced from an integrated Hera-Nymagee development.

• Nymagee Copper Joint Venture (YTC 90%). The property adjoins immediately north of the Hera Gold Project and includes the Nymagee Copper Mine which last operated in 1918 and has seen historical production of 422kt at 5.8% Cu. YTC (operator) with JV partner CBH Resources (10%), have recently announced positive results from its ongoing drilling program at Nymagee, with highlights such as 69m at 1.5% Cu including 19m at 3.0% Cu. The mineralisation at Nymagee comprises narrow (true widths of ~3-5m) steeply dipping Cu-rich and distinct Pb-Zn-Ag rich lode structures at depth, and broader widths of shallow Cu-sulfi de with open pit potential. Preliminary metallurgical testwork on Nymagee ore indicates that +92% recoveries of Cu can be achieved. Separate fl otation concentrates/circuits will likely be required for the Cu-rich and Pb-Zn-Ag rich ores.

• Exploration Upside. We believe further extensions to the mineralized lenses are likely at the Hera Project. At Nymagee the mineralisation remains open at depth and to the north and south.

• Mineralisation at Nymagee is similar to CSA mine. The Nymagee deposit has many similarities to Glencore’s CSA mine (Figure 2). The Nymagee mineralisation appears narrower than CSA’s but we estimate that YTC could defi ne 150kt contained Cu. On this basis we estimate a value of $47m based on our average EV/t resource for Cu explorers and developers but we note this value could increase by as much as 4x once YTC achieves producer status. We would value the current 560koz Au eq. resource at Hera at A$90m (using our average EV/oz Au resource for Au explorers and developers). This gives a total A$137m, which is approximately equal to YTC’s EV.

• Catalysts. 1) Maiden resource at Nymagee and Hera DFS in August 2011. 2) Production expected by January 2013.

OUR VIEWYTC Resources Ltd (YTC) is a gold and base metal exploration and development company focussed on: 1) the Hera Gold Project and 2) the adjacent Nymagee Copper Joint Venture near the town of Cobar in NSW. YTC acquired these projects from CBH Resources in September 2009. A DFS study is currently underway focussed on developing an integrated mining and processing hub to accommodate both of the deposits which are located in close proximity to each other. YTC aims to move to producer status by 2013. The company is well funded with A$30m in cash on hand to fund its DFS and aggressive exploration programme at the Nymagee Copper deposit. Recent drilling at the Nymagee Project continues to reveal high grade Cu, as well as Pb-Zn-Ag mineralisation with a maiden resource expected in August 2011. Based on our estimates we believe that this could approach 150kt Cu and YTC has an existing 560koz Au Eq. resource at Hera. We see a combined value of ~A$137m for these two projects, which is approximately YTC’s EV. With YTC moving toward achieving producer status and continuing to increase the size of its resources, their valuation is likely to increase substantially. We therefore rate YTC as a Speculative BUY.

YTC Resources Limited YTC ($0.575)


Imminent copper producer Analyst: Byron Benvie, Simon Tonkin




Figure 1: Regional view showing the location of the Nymagee and Hera projects in the Cobar Basin, as well as surrounding deposits

Figure 2: Comparison of mineralisation at the Nymagee and CSA deposits






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Name PositionBevan Tarratt ChairmanDr Eric Lilford Managing DirectorGino D’Anna Executive Director and Company SecretaryDavid Greenwood Non-Executive and Technical Director Substantial Shareholders Shares (m) %Sin-Tang Development 40.9 6.7 Whiddon Glenn Ross 40.6 6.7 Clay Fraser John 35.9 5.9 Monti Richard 31.1 5.1


• High value product. ZYL’s primary project is Kangwane an opencut Anthracite operation, adjacent to an existing, profi table operating mine. The coal produced, anthracite, has very high energy and low moisture and ash. Energy is between 6,000-6,700kcal/kg. Anthracite also has very high carbon content, burns very cleanly and at a very high temperature. It is priced in between traditional thermal coal and hard coking coal and is favoured by the metal refi ning customers if South Africa.

• Early 2013 start up. ZYL has plans for Phase 1 production of 2Mtpa RoM coal and 1.5Mtpa saleable coal. The Capex is expected to total only around $30m. We suspect that following from the MoU for the power station that ZYL will be looking to a bigger 4Mtpa RoM mine in order to maximise the use of the available rail infrastructure. Kangwane could also benefi t from the existing power, water, and handling infrastructure at the adjacent Nkomati mine, which is currently operating below capacity.

• Early offtake MoU. A non-binding MoU for off-take with an International Power Utility has been signed. The company specialises in the construction and operation of specifi cally engineered and designed modular power stations whereby the furnaces and boilers are exclusively designed to accommodate the characteristics of high energy coal. The power station will be built in close proximity, down the rail line from Kangwane.

• 100km from Port. Kangwane has a rail siding, with a capacity of 1.2Mtpa, in the south-eastern edge of the property that is about 100km from the export port of Maputo. It is currently in use by the Anthracite mine to south of Kangwane called Nkomati but only to around 120-300ktpa so there is plenty of spare capacity.

• A talented and driven MD. The MD of ZYL is Eric Lilford, who has more that 20 years of operational experience in African mining, including gold, platinum, copper and coal. He was Mine Overseer for the Rietspruit and Khutula coal mines which produced over 3Mtpa. He has an impressive track record of project feasibility and development work.

• Re-listing expected in May. ZYL has been in a trading halt for over 2 months at the time of writing due to a number of corporate actions including the lodging of a re-compliance prospectus to satisfying ASX Listing Rules and requirements. The majority of these requirements have been satisfi ed including the successfully placement of $30m of shares to institutional investors and consolidation of the existing share registry. It is continuing to work with the ASX to satisfy the fi nal conditions and apply for the re-quotation to the Offi cial List of the ASX.

OUR VIEWZYL is one of our preferred coal exploration companies with a majority stake in Kangwane, an opencut anthracite project in south Africa. A capital raising of $30m associated with the lodging of a re-compliance prospectus will ensure the company has suffi cient funds for its share of the feasibility study, commercial development and mine construction at the Kangwane Project. The project has a rail siding with a capacity of 1.2Mt while the railway has spare carrying capacity and access to port facilities. Some of the coal may be consumed locally as a non-binding MOU with a power company has been signed with a utility company which is planning on building a modular power station near to Kangwane. The board has extensive operational experience in African mining including coal. They have appointed SRK Consulting to independently manage the BFS and Olympic Park to undertake the drilling program at the Kangwane Project which commenced in mid February. We expect that ZYL will be hitting milestones with new resources, the completion of studies, agreements and permits. The company has been suspended while it re-complies with the ASX rules to change from a tech company to a resources company. It will be relisted shortly and we maintain our Speculative Buy recommendation with a price target of $0.40/sh.

ZYL Limited ZYL ($0.23)


Near term, near to port, funded Analyst: Andrew Harrington

Disclosure: Patersons acted as joint lead manager to the placement of 150m ZYL shares at $0.20/sh to raise $30m in April 2011. Patersons was lead manager of the placement of 48.1m ZYL shares at $0.016/sh to raise $0.769m in July 2010. It received fees for these services.




Figure 1: Kangwane Location Map

Figure 3: Depth to Roof Lower Seam Figure 4: Strip Ratio (bcm/t)

Figure 2: Geological Plan

Figure 5: Project Timeline




Notes

Research

Alex Passmore - Head of Research Phone: (+61 8) 9263 1239 Email: [email protected]

Andrew Quin - Research Strategy Coordinator Phone: (+61 8) 9263 1152 Email: [email protected]

Tony Farnham - Economist Phone: (+61 8) 9258 8973 Email: [email protected]

Metals and Mining

Byron Benvie - Associate Analyst Phone: (+61 8) 9263 1189 Email: [email protected]

Rhys Bradley - Associate Analyst Phone: (+61 8) 9225 2836 Email: [email protected]

Andrew Harrington - Coal Analyst Phone: (+61 2) 8238 6214 Email: [email protected]

Tim McCormack - Associate Analyst Phone: (+61 8) 9263 1647 Email: [email protected]

Simon Tonkin - Senior Resources Analyst Phone: (+61 8) 9225 2816 Email: [email protected]

Matthew Trivett - Research Analyst Phone: (+61 7) 3737 8053 Email: [email protected]

Gary Watson - Associate Analyst Phone: (+61 8) 9263 1110 Email: [email protected]

Oil and Gas

Scott Simpson - Senior Oil & Gas Analyst Phone: (+61 8) 9263 1679 Email: [email protected]

Industrials

Jonathan Kriska - REIT Analyst Phone: (+61 2) 8238 6245 Email: [email protected]

Russell Wright - Retail Analyst Phone: (+61 2) 8238 6219 Email: [email protected]

Small Cap Industrials

Graeme Carson - Industrial Analyst Phone: (+61 3) 9242 4076 Email: [email protected]

Allan Franklin - Industrial Analyst Phone: (+61 3) 9242 4001 Email: [email protected]

George Galanopoulos - Industrial Analyst Phone: (+61 3) 9242 4172 Email: [email protected]

David Gibson - Industrial Analyst Phone: (+61 8) 9263 1664 Email: [email protected]

Ben Kakoschke - Industrial Analyst Phone: (+61 3) 9242 4181 Email: [email protected]

Quantitative

Mark Barsdell - Quantitative Analyst Phone: (+61 3) 9242 4187 Email: [email protected]

Kien Trinh - Quantitative Analyst Phone: (+61 3) 9242 4027 Email: [email protected]

Institutional Dealing

Phil Schofi eld Phone: (+61 2) 8238 6223 Email: pschofi [email protected]

Michael Brindal Phone: (+61 2) 8238 6274 Email: [email protected]

Gordon Anderson Phone: (+61 2) 8238 6276 Email: [email protected]

Dan Bahen Phone: (+61 8) 9263 1274 Email: [email protected]

Artie Damaa Phone: (+61 2) 8238 6215 Email: [email protected]

Paul Doherty Phone: (+61 3) 8803 0108 Email: [email protected]

Trent Foxe Phone: (+61 2) 8238 6265 Email: [email protected]

Peter Graham Phone: (+61 3) 9242 4129 Email: [email protected]

Chris Kelly Phone: (+61 3) 9242 4078 Email: [email protected]

Jason Lal Phone: (+61 2) 8238 6262 Email: [email protected]

Ben McIlvride Phone: (+61 2) 8238 6253 Email: [email protected]

Jeremy Nugara Phone: (+61 3) 8803 0166 Email: [email protected]

Trevor Pike Phone: (+61 3) 8803 0110 Email: [email protected]

Joe Wang Phone: (+61 8) 9263 1125 Email: [email protected]

Rob Willis Phone: (+61 7) 3737 8021 Email: [email protected]

Sandy Wylie Phone: (+61 8) 9263 1232 Email: [email protected]

Important Notice: Copyright 2011. The contents contained in this report are owned by Patersons Securities Limited (‘Patersons’) and are protected by the

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transmitted or distributed in any way without prior written permission from Patersons. Modifi cation of the materials or use of the materials for any other

purpose is a violation of the copyrights and other proprietary rights of Patersons.

Disclaimer: Patersons believes that the information or advice (including any fi nancial product advice) contained in this report has been obtained from

sources that are accurate at the time of issue, but it has not independently checked or verifi ed that information and as such does not warrant its accuracy

or reliability. Except to the extent that liability cannot be excluded, Patersons accepts no liability or responsibility for any direct or indirect loss or damage

caused by any error in or omission from this report. You should make and rely on your own independent inquiries. If not specifi cally disclosed otherwise,

investors should assume that Patersons is seeking or will seek corporate fi nance business from the companies disclosed in this report.

Warning: This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is

appropriate to your particular investment objectives, fi nancial situation or particular needs. Prior to making any investment decision, you should assess, or seek

advice from your adviser, on whether any relevant part of this report is appropriate to your individual fi nancial circumstances and investment objectives.

Disclosure: Patersons, its director and/or employees may earn brokerage, fees, commissions and other benefi ts as a result of a transaction arising from any

advice mentioned in this report. Patersons as principal, its directors and/or employees and their associates may hold securities in the companies the subject

of this report, as at the date of publication. These interests did not infl uence Patersons in giving the advice contained in this report. Details of any interests

may be obtained from your adviser. Patersons as principal, its directors and/or employees and their associates may trade in these securities in a manner

which may be contrary to recommendations given by an authorised representative of Patersons to clients. They may sell shares the subject of a general

‘Buy’ recommendation, or buy shares the subject of a general ‘Sell’ recommendation.

Stock recommendations: Investment ratings are a function of Patersons expectation of total return (forecast price appreciation plus dividend yield) within

the next 12 months. The investment ratings are Buy (expected total return of 10% or more), Hold (-10% to +10% total return) and Sell (> 10% negative

total return). In addition we have a Speculative Buy rating covering higher risk stocks that may not be of investment grade due to low market capitalisation,

high debt levels, or signifi cant risks in the business model. Investment ratings are determined at the time of initiation of coverage, or a change in target price.

At other times the expected total return may fall outside of these ranges because of price movements and/or volatility. Such interim deviations from specifi ed

ranges will be permitted but will become subject to review by Research Management. This Document is not to be passed on to any third party without our

prior written consent.

PS-

FX

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Effective Date: 1 May 2011

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Patersons Resources Review May 2011

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