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Deutsche Bank Markets Research Australasia Australia M&M - Diversified Resources Industry Australian Mining Sector Date 15 January 2018 Recommendation Change 1Q18 commodity review: mining cycle recovery to continue in 2018 Sector outlook positive in 2018 on record FCF, capital returns and macro ________________________________________________________________________________________________________________ Deutsche Bank AG/Sydney Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. Paul Young Research Analyst (+61) 2 8258-2587 [email protected] Matthew Frydman Research Analyst (+61) 2 8258-2607 [email protected] Tim Hoff Research Analyst (+61) 2 8258-1424 [email protected] Key Changes Company Target Price Rating BHP.AX 29.50 to 34.50(AUD) - RIO.AX 79.00 to 83.50(AUD) - S32.AX 2.80 to 3.10(AUD) - AWC.AX 2.10 to 2.20(AUD) - WHC.AX 3.50 to 4.40(AUD) - ILU.AX 7.20 to 7.50(AUD) - FMG.AX 4.70 to 5.00(AUD) - MIN.AX 15.00 to 20.00(AUD) - AQG.AX 4.00 to 4.30(AUD) - NCM.AX 19.00 to 20.00(AUD) - NST.AX 4.40 to 4.70(AUD) - OGC.AX - Hold to Buy RRL.AX 3.20 to 3.50(AUD) - EVN.AX 2.20 to 2.40(AUD) - SBM.AX 3.20 to 3.40(AUD) Buy to Hold DCN.AX 2.80 to 3.20(AUD) - IGO.AX 3.70 to 3.90(AUD) Hold to Sell SFR.AX 7.80 to 8.20(AUD) - WSA.AX 2.40 to 2.80(AUD) - OZL.AX 7.70 to 8.60(AUD) - SYR.AX 4.50 to 4.90(AUD) - ORE.AX 5.70 to 6.80(AUD) - Source: Deutsche Bank Top picks BHP (BHP.AX),AUD31.53 Buy Rio Tinto (RIO.AX),AUD80.62 Buy Sandfire Resources (SFR.AX),AUD7.23 Buy OceanaGold Corporation (OGC.AX),AUD3.20 Buy Source: Deutsche Bank After a 2yr recovery in commodity prices and sector re-rate we see the sector as fairly valued on a P/NPV basis (at 1x). However, commodities are trading well above historical real averages and marginal cost but global demand should continue to improve even with our view of a softening Chinese property market. Base metals look more attractive than the bulks. The mining cycle is still in a recovery phase, and sector FCF and capital returns should continue to improve despite rising operating costs and sustaining capex. We see 2018 as the year M&A accelerates. The sector is trading on c.10% FCF yield, with gearing dropping to just 7% in 2018. Our top picks are RIO, BHP, SFR & OGC. Commodity outlook; trading above historical real averages but macro positive All but two commodities (aluminium and nickel) are trading above historical real averages (back to 1980), however with ongoing supply side discipline and a positive demand outlook (DBe global GDP growth forecast 3.8%), with a modest slowdown in China (mostly from credit tightening and lower property sales), we think commodity prices could remain supported in 2018. There appears to be upside risk to demand from China, SE Asia and other emerging markets mostly on infrastructure and machinery. An ongoing weaker USD will also be positive for commodities due to upward pressure on marginal costs. Base metals S/D fundamentals continue to look more attractive than the bulks which we expect to weaken post Chinese heating season on increased supply. We prefer aluminium, nickel, zinc and copper. Sector themes; capital management, growth capex, M&A, cost inflation. Management teams should remain disciplined in 2018. Capital returns should increase further with ongoing buybacks from RIO, S32 (BHP should announce buyback in Aug) possibly supplemented with special dividends, possibly from AWC, S32 and WHC. With sector gearing at record low levels (sub-10%) we think companies will increase growth capex, but it will remain below mid-cycle and we think the sector is short high quality projects. M&A should increase also (likely gold, coal, lithium, mid and large cap base metals). The other things to watch are rising operating costs (labour, oil, stripping and contractor rates) and sustaining capex (holiday hangover). Sector outlook and top picks; BUY; RIO, BHP, SFR, OGC; SELL; ILU, IGO The Australian mining sector is fairly valued on a P/NPV basis at 1xNPV on our price deck but remains attractive on an EV/EBITDA (6x) and FCF yield basis (c. 10% average for 2018) vs. historical averages. We remain positive on both RIO and BHP with improving shareholder and group returns (ROCE), production growth and record FCF yields. In base and precious metals, we rate SFR, OGC, AQG and DCN a BUY and NCM, NST, RRL, IGO & WSA a SELL. We upgrade OGC to BUY (0.85xNPV), and downgrade SBM to HOLD (1.1xNPV) and IGO to SELL on valuation (1.3xNPV). Valuation and sector risks PT’s set broadly in-line with DCF derived valuations. Company risks; commodity/currency movements (p14). Ratings, PTs and estimates changed for several companies under coverage (see Figures 2 and 3). Distributed on: 15/01/2018 05:30:00 GMT 7T2se3r0Ot6kwoPa
Transcript
Page 1: Australian Mining Sector Recommendationpg.jrj.com.cn/acc/Res/CN_RES/INDUS/2018/1/15/64f1eb90-e126-4da… · Australia M&M - Diversified Resources Change Industry Australian Mining

Deutsche Bank Markets Research

Australasia

Australia

M&M - Diversified Resources

Industry

Australian Mining Sector

Date

15 January 2018

Recommendation Change

1Q18 commodity review: mining cycle recovery to continue in 2018

Sector outlook positive in 2018 on record FCF, capital returns and macro

________________________________________________________________________________________________________________ Deutsche Bank AG/Sydney

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.

Paul Young

Research Analyst

(+61) 2 8258-2587

[email protected]

Matthew Frydman

Research Analyst

(+61) 2 8258-2607

[email protected]

Tim Hoff

Research Analyst

(+61) 2 8258-1424

[email protected]

Key Changes

Company Target Price Rating

BHP.AX 29.50 to 34.50(AUD)

-

RIO.AX 79.00 to 83.50(AUD)

-

S32.AX 2.80 to 3.10(AUD) -

AWC.AX 2.10 to 2.20(AUD) -

WHC.AX 3.50 to 4.40(AUD) -

ILU.AX 7.20 to 7.50(AUD) -

FMG.AX 4.70 to 5.00(AUD) -

MIN.AX 15.00 to 20.00(AUD)

-

AQG.AX 4.00 to 4.30(AUD) -

NCM.AX 19.00 to 20.00(AUD)

-

NST.AX 4.40 to 4.70(AUD) -

OGC.AX - Hold to Buy

RRL.AX 3.20 to 3.50(AUD) -

EVN.AX 2.20 to 2.40(AUD) -

SBM.AX 3.20 to 3.40(AUD) Buy to Hold

DCN.AX 2.80 to 3.20(AUD) -

IGO.AX 3.70 to 3.90(AUD) Hold to Sell

SFR.AX 7.80 to 8.20(AUD) -

WSA.AX 2.40 to 2.80(AUD) -

OZL.AX 7.70 to 8.60(AUD) -

SYR.AX 4.50 to 4.90(AUD) -

ORE.AX 5.70 to 6.80(AUD) -

Source: Deutsche Bank

Top picks

BHP (BHP.AX),AUD31.53 Buy

Rio Tinto (RIO.AX),AUD80.62 Buy

Sandfire Resources (SFR.AX),AUD7.23 Buy

OceanaGold Corporation (OGC.AX),AUD3.20

Buy

Source: Deutsche Bank

After a 2yr recovery in commodity prices and sector re-rate we see the sector as fairly valued on a P/NPV basis (at 1x). However, commodities are trading well above historical real averages and marginal cost but global demand should continue to improve even with our view of a softening Chinese property market. Base metals look more attractive than the bulks. The mining cycle is still in a recovery phase, and sector FCF and capital returns should continue to improve despite rising operating costs and sustaining capex. We see 2018 as the year M&A accelerates. The sector is trading on c.10% FCF yield, with gearing dropping to just 7% in 2018. Our top picks are RIO, BHP, SFR & OGC.

Commodity outlook; trading above historical real averages but macro positive All but two commodities (aluminium and nickel) are trading above historical real averages (back to 1980), however with ongoing supply side discipline and a positive demand outlook (DBe global GDP growth forecast 3.8%), with a modest slowdown in China (mostly from credit tightening and lower property sales), we think commodity prices could remain supported in 2018. There appears to be upside risk to demand from China, SE Asia and other emerging markets mostly on infrastructure and machinery. An ongoing weaker USD will also be positive for commodities due to upward pressure on marginal costs. Base metals S/D fundamentals continue to look more attractive than the bulks which we expect to weaken post Chinese heating season on increased supply. We prefer aluminium, nickel, zinc and copper.

Sector themes; capital management, growth capex, M&A, cost inflation. Management teams should remain disciplined in 2018. Capital returns should increase further with ongoing buybacks from RIO, S32 (BHP should announce buyback in Aug) possibly supplemented with special dividends, possibly from AWC, S32 and WHC. With sector gearing at record low levels (sub-10%) we think companies will increase growth capex, but it will remain below mid-cycle and we think the sector is short high quality projects. M&A should increase also (likely gold, coal, lithium, mid and large cap base metals). The other things to watch are rising operating costs (labour, oil, stripping and contractor rates) and sustaining capex (holiday hangover).

Sector outlook and top picks; BUY; RIO, BHP, SFR, OGC; SELL; ILU, IGO The Australian mining sector is fairly valued on a P/NPV basis at 1xNPV on our price deck but remains attractive on an EV/EBITDA (6x) and FCF yield basis (c. 10% average for 2018) vs. historical averages. We remain positive on both RIO and BHP with improving shareholder and group returns (ROCE), production growth and record FCF yields. In base and precious metals, we rate SFR, OGC, AQG and DCN a BUY and NCM, NST, RRL, IGO & WSA a SELL. We upgrade OGC to BUY (0.85xNPV), and downgrade SBM to HOLD (1.1xNPV) and IGO to SELL on valuation (1.3xNPV).

Valuation and sector risks PT’s set broadly in-line with DCF derived valuations. Company risks; commodity/currency movements (p14). Ratings, PTs and estimates changed for several companies under coverage (see Figures 2 and 3).

Distributed on: 15/01/2018 05:30:00 GMT

7T2se3r0Ot6kwoPa

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Australian Mining Sector

Page 2 Deutsche Bank AG/Sydney

Table Of Contents

1Q18 commodity review ...................................................... 3 Commodity price revisions .......................................................................................3 Sector earnings estimates and changes ...................................................................4 Valuation, price target and recommendation changes ..............................................6 Valuation and comps tables .................................................................................... 10 P/NPV vs. Free Cash Flow yield (base case) ........................................................... 12 FCF yield (base case vs. spot) ................................................................................ 13 Gearing vs. interest cover ....................................................................................... 14

Iron ore ................................................................................. 15 Seaborne market moving to small surplus in 2018 ................................................. 15 Steel production and demand ................................................................................. 17 Iron ore supply ........................................................................................................ 19 Sector valuation and risks ....................................................................................... 21 Company valuation and risks .................................................................................. 22

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Deutsche Bank AG/Sydney Page 3

1Q18 commodity review

Commodity price revisions

Figure 1: DB commodity price revisions (prices are in nominal terms)

Spot 2017A 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F 2020F 2021F 2022F LT (nom) LT (real)

Aluminium (USc/lb) 98 89 100 102 104 104 103 104 98 93 90 93 83

% Chg from previous 0% 5% 7% 11% 12% 9% 13% 8% 3% 0% 2% 0%

Alumina Index (USD/t) 429 354 360 340 320 320 335 330 330 325 325 336 300

% Chg from previous 0% 6% 6% 7% -6% 3% 0% 0% 0% 0% 2% 0%

Bauxite (CFR China, USD/t) 50 49 48 48 48 48 48 47 52 55 55 56 50

% Chg from previous 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 2% 0%

Copper (USc/lb) 322 280 318 322 331 331 326 340 350 343 335 336 299

% Chg from previous 0% 8% 13% 11% 7% 10% 8% 0% 0% 0% 2% 0%

Nickel (USc/lb) 570 472 549 533 542 557 545 592 659 725 792 839 749

% Chg from previous 0% 8% 3% 3% 4% 4% 0% 2% 3% 4% 3% 0%

Zinc (USc/lb) 155 131 150 150 136 127 141 123 118 115 115 118 105

% Chg from previous 0% 10% 10% 11% 12% 11% 8% 4% 2% 2% 2% 0%

Gold (USD/oz) 1322 1259 1310 1280 1280 1260 1283 1266 1305 1344 1383 1457 1300

% Chg from previous 0% 5% 2% 4% 2% 3% 0% 0% 0% 0% 2% 0%

Silver (USD/oz) 17 17 17 17 17 17 17 18 20 21 22 22 20

% Chg from previous 0% -7% -3% 1% -3% -3% -7% -3% -2% 2% 2% 0%

Zircon (USD/t) 1130 960 1150 1250 1250 1350 1250 1358 1358 1287 1369 1401 1250

% Chg from previous 0% 0% 0% 0% 0% 0% 0% 0% 0% 2% 2% 0%

Rutile (USD/t) 780 754 880 900 920 920 905 955 955 1006 1095 1120 1000

% Chg from previous 0% 0% 0% 0% 0% 0% 0% 0% 0% 2% 2% 0%

Li2CO3 - China (98.5% min, USD/t) 19,173 18,934 21,700 21,700 20,010 20,010 20,855 16,688 14,112 12,108 10,481 12,241 10,440

% Chg from previous 0% 0% 0% -1% -1% -1% -1% 0% 1% 2% 4% 0%

Li2CO3 – China (99.5% min, USD/t) 20,999 21,195 24,500 24,500 23,000 23,000 23,750 19,181 16,221 13,918 12,047 14,071 12,000

% Chg from previous 0% -1% -1% -1% -1% -1% -1% 0% 1% 2% 4% 0%

Spodumene Conc. (6%, USD/t) 833 900 875 875 825 869 716 576 455 465 528 450

% Chg from previous 0% -1% -1% -1% -1% -1% -1% 0% 1% 2% 4% 0%

Manganese ore (USD/dmtu) 7.0 6.0 6.5 5.5 4.5 4.5 5.3 4.5 4.2 4.1 4.0 4.1 3.7

% Chg from previous 0% 18% 22% 0% 0% 11% 5% 0% 0% 0% 2% 0%

Fe Fines to China (CIF, USD/t) 75 71 75 65 65 60 66 58 58 58 60 64 57

% Chg from previous 0% 36% -7% 0% 9% 8% 0% 0% 0% 2% 2% 0%

Premium HCC (US$/t) 261 210 230 200 180 160 193 150 140 139 139 142 127

% Chg from previous 0% 31% 5% 9% 7% 13% 7% 0% 0% 0% 2% 0%

Thermal Coal (Japanese) 79 85 90 90 90 89 90 88 84 76 75 67

% Chg from previous 0% 0% 10% 10% 10% 7% 11% 19% 12% 0% 6% 3%

Thermal Coal (Newcastle FOB) 106 88 100 90 90 90 93 85 82 78 73 75 67

% Chg from previous 0% 22% 15% 14% 8% 15% 9% 21% 13% 5% 6% 3%

US Nat gas (US$/mmBtu) 3.1 3.0 2.9 2.9 2.9 3.2 3.0 3.1 3.3 3.3 3.3 3.4 3.0

% Chg from previous 0% -3% 0% 0% 0% -1% 0% 0% -3% -3% -3% -5%

Oil - WTI (US$/bbl) 64 51 59 57 54 54 56 56 57 57 57 67 60

% Chg from previous 0% 20% 10% 4% 4% 9% 6% 4% 0% -7% 2% 0%

Oil - Brent (US$/bbl) 69 55 65 63 60 60 62 62 63 65 65 73 65

% Chg from previous 0% 23% 15% 9% 9% 14% 11% 9% 8% 1% 6% 3%

Australia (AUD/USD) 0.79 0.77 0.78 0.78 0.78 0.78 0.78 0.78 0.78 0.77 0.76 0.75 0.75

% Chg from previous 0% 0% 0% 0% 0% 0% 0% 1% 1% 0% 0% 0%

South African Rand (USD/ZAR) 12.39 13.31 12.52 12.68 12.82 12.98 12.75 13.45 14.20 15.00 15.90 16.66 16.66

% Chg from previous 0% -4% 1% 3% 4% 1% 10% 9% 2% 8% 13% 13%

Brazilian Real (USD/BRL) 3.21 3.19 3.27 3.24 3.27 3.29 3.27 3.35 3.45 3.54 3.65 3.70 3.70

% Chg from previous 0% 5% 2% 1% 0% 2% 0% 0% -1% 0% 0% 0%

Freight (W Aus to Qingdao Cape) 6.9 6.7 9.0 9.0 9.0 9.0 9.0 9.2 9.3 9.5 9.7 10.1 9.0

% Chg from previous 0% 13% 13% 13% 13% 13% 12% 11% 0% 0% 2% 0%

Freight (Tubarao to Qingdao Cape) 17.4 14.3 19.0 19.0 19.0 19.0 19.0 19.3 19.7 20.0 20.4 20.7 18.5

% Chg from previous 0% 12% 12% 12% 12% 12% 12% 13% 14% 14% 2% 0% Source: Deutsche Bank, Bloomberg, Spot prices as at 11-January-2018

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Page 4 Deutsche Bank AG/Sydney

Sector earnings estimates and changes

We have increased 2018 and 2019 earnings for the stocks under coverage by

an average of 19% and 12%, respectively.

Figure 2: EPS & PT changes (LHS: Dec-year-end; RHS: Jun-year-end)

PT (A$/sh) CY17E CY18E CY19E PT (A$/sh) FY18E FY19E FY20E

AQG 4.30 EPS, USc/sh 33 16 40 BHP 34.50 EPS, USc/sh 169 174 175

8% % Chg 0% 1% 28% 17% % Chg 23% 18% 9%

AWC 2.20 EPS, USc/sh 13.1 11.3 10.5 CLQ 1.60 EPS -2 -2 -3

5% % Chg 17% 7% -4% 0% % Chg n/a n/a n/a

ILU 7.50 EPS 25.0 54.4 47.7 DCN 3.20 EPS 0 23 33

4% % Chg 4% 26% 21% 14% % Chg n/a 19% 4%

OGC 3.70 EPS, USc/sh 21 29 24 EVN 2.40 EPS 16 18 21

0% % Chg 2% 14% 5% 9% % Chg 13% 11% 1%

OZL 8.60 EPS 59 52 37 FMG 5.00 EPS, USc/sh 45 30 33

12% % Chg 7% n/a n/a 6% % Chg 28% -13% -14%

RIO 83.50 EPS, USc/sh 492 511 463 IGO 3.90 EPS 21 36 42

6% % Chg 5% 8% 0% 5% % Chg 34% 14% 4%

SYR 4.90 EPS, USc/sh -6 5 24 MIN 20.00 EPS 161 237 190

9% % Chg n/a n/a 14% 33% % Chg 12% 7% 5%

NCM 20.00 EPS, USc/sh 69 115 137

5% % Chg 24% 14% 3%

NST 4.70 EPS 36 42 42

7% % Chg 13% 9% 3%

ORE 6.80 EPS, USc/sh 19 32 35

19% % Chg 42% 28% 40%

RRL 3.50 EPS 26 21 24

9% % Chg 8% 4% -1%

SFR 8.20 EPS 88 127 136

5% % Chg 21% 29% 9%

SBM 3.40 EPS 37 29 29

6% % Chg 17% 13% 1%

S32 3.10 EPS, USc/sh 27 30 29

11% % Chg 38% 49% 48%

WHC 4.40 EPS 62 52 40

26% % Chg 41% 51% 56%

WSA 2.80 EPS 7 14 19

17% % Chg 82% 12% -3%

Source: Deutsche Bank, Company data

Company-specific changes are as follows (note we have rolled forward all

company NPVs to Dec H 2018):

Diversified and Bulks BHP: earnings up on higher oil, iron ore, copper and met coal

forecasts.

Rio Tinto: earnings up on higher iron ore, met coal, copper, aluminium

price forecast. Offset slightly by a lift in our Pilbara and aluminium

smelter unit cost assumptions.

South32: earnings up with upgrades to met coal, alumina, and base

metals (aluminium, zinc, nickel).

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Deutsche Bank AG/Sydney Page 5

Alumina (AWC): earnings up in CY17 with upgraded 4Q17 MtM

alumina spot of US$446/t and upgrades to our 2018 alumina price

forecast to US$335/t.

Iluka: earnings up on lower D&A. No changes to our zircon price

forecasts. We already assume a realised zircon price of US$1,250/t

(FOB) in 2018 and US$1,360/t in 2019.

Fortescue: earnings up in FY18 on higher 62% headline price. FY19

and FY20 earnings down after lowering our assumed realisations

which were partly offset by its mine plan change at Cloud Break and

upsized Eliwana (including product grades at both)

Mineral Resources: incorporated Wodgina carbonate plant into model

and now assume 4.4Mt of DSO sales in FY18 and 5.2Mt in FY19. This

is an increase from our previous forecasts of 4.1Mt and 4.9Mt

respectively.

Whitehaven: EPS up on higher thermal prices. Also lowered semi-soft

production at Maules Creek as the economics of producing high

quality thermal are more attractive. Increased thermal premiums at

Maules Creek

Gold Newcrest, Evolution, Northern Star, Regis, St Barbara, Dacian: FY18E

earnings higher on upgraded gold price forecast, valuations generally

higher on rolling over valuation period to Dec-18 half. NCM & EVN

also benefit from the upgraded copper price forecast. SBM

downgraded to HOLD on valuation (1.1xNPV), despite the increase in

valuation and price target.

OceanaGold: Upgraded gold and copper price forecasts have

benefitted CY18/19 earnings, valuation up slightly after tightening

Haile assumptions. Upgrade to BUY on valuation (0.85xNPV)

Alacer Gold: Valuation has benefited from incorporating additional

oxide life with reserves from Çakmaktepe.

Copper OZ Minerals: CY18/19 earnings higher on the upgraded copper price

forecast, NPV higher after extending mine life at Prominent Hill.

Sandfire: FY18/19 earnings and valuation higher on the upgraded

copper price forecast.

Nickel Independence Group: FY18/19 earnings and valuation higher on the

upgraded nickel forecast. Despite the increase in valuation and price

target, downgrade to SELL on valuation (1.3xNPV). At spot FX and

commodities, IGO is pricing in flat US$8.75/lb nickel.

Western Areas: FY18/19 earnings higher on the upgraded nickel

forecast. Valuation higher after incorporating Cosmos/Odysseus

development based on PFS assumptions.

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Battery Materials Orocobre: Higher earnings from a higher realised price in 1H18.

Incorporating the lithium hydroxide facility into our model has

increased our NPV by c. 20%.

Syrah: CY18 earnings higher on higher production forecasts. NPV

higher on mine life assumptions, partially offset by delayed production

from the Louisiana downstream facility.

CleanTeQ: Earnings and NPV largely unchanged after rolling valuation

period; higher cobalt deck largely impacts development period.

Valuation, price target and recommendation changes

Full changes to valuation and recommendations are given in the table below.

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Figure 3: DB ratings based on a 12 month forecast return

Code Previous rating Current rating Previous NPV, A$/sh New NPV A$/sh % change Last price Target Up/downside P v/s NPV

AQG Buy Buy $4.05 $4.28 6% $2.22 $4.30 94% -48%

OGC Hold Buy $3.66 $3.73 2% $3.20 $3.70 16% -14%

SFR Buy Buy $7.83 $8.25 5% $7.23 $8.20 13% -12%

SYR Buy Buy $4.50 $4.88 8% $4.44 $4.90 10% -9%

BHP Buy Buy $29.56 $34.56 17% $31.53 $34.50 9% -9%

DCN Buy Buy $2.78 $3.18 15% $3.00 $3.20 7% -6%

CLQ Buy Buy $2.08 $2.09 1% $1.51 $1.60 6% -28%

RIO Buy Buy $78.42 $83.36 6% $80.62 $83.50 4% -3%

ORE Hold Hold $5.68 $6.80 20% $7.03 $6.80 -3% 3%

OZL Hold Hold $7.75 $8.58 11% $8.92 $8.60 -4% 4%

MIN Hold Hold $14.54 $19.81 36% $20.87 $20.00 -4% 5%

FMG Hold Hold $4.71 $4.99 6% $5.33 $5.00 -6% 7%

EVN Hold Hold $2.23 $2.41 8% $2.56 $2.40 -6% 6%

WHC Hold Hold $3.45 $4.37 27% $4.72 $4.40 -7% 8%

SBM Buy Hold $3.17 $3.35 6% $3.72 $3.40 -9% 11%

AWC Hold Hold $2.07 $2.15 4% $2.57 $2.20 -14% 20%

NCM Sell Sell $18.87 $19.54 4% $22.95 $20.00 -13% 17%

WSA Sell Sell $2.39 $2.81 18% $3.35 $2.80 -17% 19%

RRL Sell Sell $3.20 $3.46 8% $4.29 $3.50 -18% 24%

S32 Sell Sell $2.81 $3.12 11% $3.87 $3.10 -20% 24%

NST Sell Sell $4.38 $4.68 7% $5.96 $4.70 -21% 27%

IGO Hold Sell $3.67 $3.91 6% $4.95 $3.90 -21% 27%

ILU Sell Sell $7.16 $7.48 4% $9.95 $7.50 -25% 33%

Source: Deutsche Bank (last prices as at 12-January-2018), Company data

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Figure 4: Australian valuation table for diversified, bulk and mineral sands companies using DB forecasts and spot pricing

Rating NPV Analyst

A$/sh 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019

Diversified - Large Caps

Bhp Buy 34.56 Dbe US6,732 US9,037 US8,861 US20,296 US25,421 US24,411 20 15 14 26 16 15 US12,280 US10,170 US11,655 9 8 9 7 6 6 PY

Spot US6,732 US10,176 US13,296 US20,296 US27,238 US31,319 20 13 10 26 14 11 US12,280 US11,555 US15,051 9 9 12 7 5 5

% change 0% 13% 50% 0% 7% 28% 0% -11% -33% 0% -14% -26% 0% 14% 29% 0% 14% 29% 0% -7% -22%

Rio Tinto Buy 83.36 Dbe US8,734 US8,777 US7,755 US18,678 US17,624 US15,874 13 12 14 7 3 4 US12,960 US10,321 US7,554 11 9 7 6 6 7 PY

Spot US8,740 US10,974 US12,031 US18,682 US21,018 US22,393 13 10 9 6 (0) (5) US12,966 US12,451 US12,420 11 11 12 6 5 5

% change 0% 25% 55% 0% 19% 41% 0% -20% -36% 0% -113% -247% 0% 21% 64% 0% 21% 64% 0% -16% -29%

South32 Sell 3.12 Dbe US1,146 US1,340 US1,419 US2,290 US2,562 US2,662 14 11 10 (16) (20) (24) US1,843 US1,691 US1,868 12 11 13 6 6 5 PY

Spot US1,146 US1,572 US2,342 US2,290 US2,856 US3,830 14 10 6 (16) (22) (30) US1,843 US2,014 US2,814 12 13 19 6 5 4

% change 0% 17% 65% 0% 11% 44% 0% -15% -39% 0% -11% -26% 0% 19% 51% 0% 19% 51% 0% -10% -30%

Iron Ore

Fortescue Metals Hold 4.99 Dbe US2,093 US1,411 US941 US4,744 US3,688 US2,862 6 9 14 27 29 31 US3,541 US733 US712 27 6 5 3 4 6 PY

Spot US2,093 US1,684 US2,266 US4,744 US4,078 US4,752 6 8 6 27 24 11 US3,541 US1,105 US2,366 27 8 18 3 4 3

% change 0% 19% 141% 0% 11% 66% 0% -16% -58% 0% -15% -64% 0% 51% 232% 0% 51% 232% 0% -10% -40%

Mineral Resources Hold 19.81 Dbe 201 302 444 464 590 735 19 13 9 (9) (5) (7) 76 81 194 2 2 5 8 6 5 PY

Spot 201 323 572 464 619 917 19 12 7 (9) (6) (13) 76 97 299 2 2 8 8 6 4

% change 0% 7% 29% 0% 5% 25% 0% -6% -22% 0% -20% -81% 0% 19% 54% 0% 19% 54% 0% -5% -20%

Others

Alumina Hold 2.15 Dbe US376 US325 US303 US380 US328 US308 15 18 19 (0) 3 4 US310 US351 US325 5 6 6 16 18 19 PY

Spot US376 US629 US668 US380 US621 US661 15 9 9 (0) (5) (4) US310 US644 US678 5 11 12 16 10 9

% change 0% 93% 120% 0% 89% 114% 0% -48% -55% 0% -279% -204% 0% 84% 108% 0% 84% 108% 0% -47% -53%

Iluka Resources Sell 7.48 Dbe 105 228 200 381 516 470 40 18 21 13 (7) (10) 377 293 129 9 7 3 12 9 10 PY

Spot 105 151 100 381 407 329 40 28 42 13 (4) (3) 377 255 46 9 6 1 12 11 14

% change 0% -34% -50% 0% -21% -30% 0% 50% 99% 0% 40% 73% 0% -13% -65% 0% -13% -65% 0% 27% 43%

Whitehaven Coal Hold 4.37 Dbe 367 632 537 714 1,058 895 13 8 9 9 (7) (17) 514 920 730 11 19 15 7 5 6 PY

Spot 367 748 939 714 1,224 1,467 13 6 5 9 (11) (31) 514 1,080 1,290 11 22 27 7 4 4

% change 0% 18% 75% 0% 16% 64% 0% -16% -43% 0% -61% -79% 0% 17% 77% 0% 17% 77% 0% -14% -39%

Note: PY - Paul Young

Free Cash Flow FCF Yield % EV/EBITDA (x)Underlying NPAT ($m) Underlying EBITDA ($m) PER (x) Net Debt to Equity %

Source: Deutsche Bank, Bloomberg Finance LP, Stock prices as on 12-January-2018 Future data are forecasts

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Figure 5: Australian valuation table for gold, copper, nickel and other companies using DB forecasts and spot pricing

Rating NPV Analyst

A$/sh 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019

Gold

Evolution Mining Hold 2.41 Dbe 207 275 297 714 740 770 21 16 15 19 6 (6) 414 378 431 10 9 10 7 6 6 MF

Spot 207 280 328 714 746 814 21 15 13 19 6 (7) 414 383 459 10 9 11 7 6 6

% change 0% 2% 10% 0% 1% 6% 0% -2% -9% 0% -4% -16% 0% 1% 7% 0% 1% 7% 0% -1% -5%

Oceanagold Corporation Buy 3.73 Dbe US 128 US 180 US 149 US 364 US 368 US 343 12 9 10 13 6 (1) US 57 US 114 US 132 4 7 9 5 5 5 MF

Spot US 128 US 194 US 177 US 364 US 387 US 381 12 8 9 13 6 (2) US 57 US 114 US 148 4 7 10 5 5 5

% change 0% 8% 19% 0% 5% 11% 0% -7% -16% 0% -2% -77% 0% 1% 12% 0% 1% 12% 0% -5% -10%

Alacer Gold Buy 4.28 Dbe US 98 US 46 US 116 US 62 US 93 US 291 5 11 4 7 20 13 US (285) US (127) US 52 (56) (25) 10 7 5 1 MF

Spot US 98 US 51 US 136 US 62 US 100 US 324 5 10 4 7 20 11 US (285) US (125) US 67 (56) (24) 13 7 4 1

% change 0% 11% 18% 0% 7% 11% 0% -10% -15% 0% -2% -15% 0% 2% 30% 0% 2% 30% 0% -7% -10%

Regis Resources Sell 3.46 Dbe 138 131 109 253 251 218 16 17 20 (22) (27) (3) 101 120 (65) 5 5 (3) 8 8 9 MF

Spot 138 132 119 253 253 233 16 16 18 (22) (27) (4) 101 121 (57) 5 6 (3) 8 8 9

% change 0% 1% 10% 0% 1% 7% 0% -1% -9% 0% 0% -25% 0% 1% 12% 0% 1% 12% 0% -1% -7%

Newcrest Mining Sell 19.54 Dbe US 394 US 529 US 881 US 1,408 US 1,633 US 1,958 35 26 16 20 11 2 US 739 US 750 US 869 5 5 6 11 9 8 MF

Spot US 394 US 550 US 970 US 1,408 US 1,665 US 2,092 35 25 14 20 11 1 US 739 US 766 US 942 5 6 7 11 9 7

% change 0% 4% 10% 0% 2% 7% 0% -4% -9% 0% -2% -46% 0% 2% 8% 0% 2% 8% 0% -2% -6%

St Barbara Hold 3.35 Dbe 160 184 144 321 335 282 12 10 13 (35) (44) (52) 250 150 148 14 8 8 5 5 6 MF

Spot 160 187 162 321 339 308 12 10 11 (35) (44) (53) 250 152 164 14 8 9 5 5 6

% change 0% 2% 13% 0% 1% 9% 0% -2% -11% 0% 0% -2% 0% 2% 11% 0% 2% 11% 0% -1% -9%

Northern Star Resources Sell 4.68 Dbe 189 219 256 461 474 507 19 16 14 (64) (60) (67) 154 136 248 4 4 7 7 7 6 MF

Spot 189 223 285 461 480 548 19 16 13 (64) (60) (68) 154 139 273 4 4 8 7 7 6

% change 0% 2% 11% 0% 1% 8% 0% -2% -10% 0% 0% -1% 0% 3% 10% 0% 3% 10% 0% -1% -7%

Dacian Gold Buy 3.18 Dbe (19) (0) 46 (20) 9 109 nm nm 13 (66) 64 (17) (49) (174) 117 (9) (29) 19 nm nm 5 MF

Spot (19) 0 56 (20) 10 123 nm nm 11 (66) 63 (21) (49) (174) 126 (9) (29) 21 nm nm 4

% change 0% 906% 21% 0% 9% 13% na na -18% 0% -1% -24% 0% 0% 8% 0% 0% 8% na na -11%

Copper

Sandfire Resources Buy 8.25 Dbe 78 139 201 234 327 411 15 8 6 (28) (45) (66) 133 152 270 12 13 24 4 3 2 MF

Spot 78 139 186 234 327 389 15 8 6 (28) (45) (65) 133 152 255 12 13 22 4 3 3

% change 0% 0% -8% 0% 0% -5% 0% 0% 8% 0% 0% 1% 0% 0% -6% 0% 0% -6% 0% 0% 6%

Oz Minerals Hold 8.58 Dbe 177 155 111 484 456 387 15 17 24 (29) (14) (7) 127 (288) (130) 5 (11) (5) 4 4 5 MF

Spot 177 145 88 484 443 355 15 18 30 (29) (14) (6) 127 (292) (147) 5 (11) (6) 4 5 6

% change 0% -6% -21% 0% -3% -8% 0% 7% 27% 0% 1% 11% 0% -2% -13% 0% -2% -13% 0% 3% 9%

Nickel

Western Areas Sell 2.81 Dbe (12) 18 38 52 82 113 nm nm 24 (30) (30) (26) 65 6 (10) 7 1 (1) 15 9 7 MF

Spot (12) 22 38 52 88 113 nm 42 24 (30) (30) (26) 65 10 (9) 7 1 (1) 15 9 7

% change 0% 21% 0% 0% 7% 0% na na 0% 0% -2% -2% 0% 54% 5% 0% 54% 5% 0% -6% 0%

Independence Group Sell 3.91 Dbe 39 121 214 151 335 422 nm 24 14 9 3 (8) (196) 116 288 (7) 4 10 20 9 7 MF

Spot 39 129 232 151 346 448 nm 23 13 9 3 (10) (196) 124 311 (7) 4 11 20 9 7

% change 0% 6% 9% 0% 3% 6% na -6% -8% 0% -15% -14% 0% 7% 8% 0% 7% 8% 0% -3% -6%

Others

Orocobre Hold 6.80 Dbe US 19 US 39 US 68 US 19 US 40 US 69 nm 30 17 (23) (16) (6) US (8) US (18) US (23) (1) (2) (2) nm 28 16 TH

Spot US 19 US 39 US 52 US 19 US 40 US 53 nm 30 23 (23) (16) (6) US (8) US (18) US (23) (1) (2) (2) nm 28 21

% change 0% 0% -24% 0% 0% -23% na 0% 31% 0% 0% -2% 0% 0% -2% 0% 0% -2% na 0% 31%

Syrah Resources Buy 4.88 Dbe US (15) US 13 US 70 US (15) US 28 US 120 nm nm 15 (34) (19) (29) US (129) US (59) US 60 (14) (6) 6 nm 33 8 TH

Spot US (15) US 22 US 56 US (15) US 40 US 99 nm 47 18 (34) (23) (30) US (129) US (44) US 48 (14) (4) 5 nm 24 9

% change 0% 65% -19% 0% 40% -17% na na 23% 0% -16% -4% 0% 26% -19% 0% 26% -19% na -28% 21%

Clean Teq Holdings Ltd Buy 2.09 Dbe (12) (11) (12) (12) (11) (12) nm nm nm (76) (19) (84) (16) (73) 18 (2) (8) 2 nm nm nm TH

Spot (12) (11) (12) (12) (11) (12) nm nm nm (76) (19) (84) (16) (73) 18 (2) (8) 2 nm nm nm

% change 0% 0% 0% 0% 0% 0% na na na 0% 0% 0% 0% 0% 0% 0% 0% 0% na na na

Note: MF - Matthew Frydman

TH- Tim Hoff

Underlying NPAT ($m) Underlying EBITDA ($m) PER (x) Net Debt to Equity % Free Cash Flow FCF Yield % EV/EBITDA (x)

Source: Deutsche Bank, Bloomberg Finance LP, Stock prices as on 12-January-2018 Future data are forecasts

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Valuation and comps tables

Figure 6: Australian valuation table for all covered companies

Source: Deutsche Bank, Bloomberg Finance LP…….Future data are forecasts

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Figure 7: Australian valuation table for all covered companies (continued)

Rating M Cap Net debt EV Underlying NPAT ($m) Underlying EBITDA ($m) EBITDA Margin % Net Debt to Equity % FCF Yield % Analyst

(A$m) (A$m) (A$m) 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019

Diversified - Large Caps

Bhp 6 Buy 160,390 21,268 181,658 US6,732 US9,037 US8,861 US20,296 US25,421 US24,411 53 56 54 26 16 15 9 8 9 PY

Rio Tinto 12 Buy 129,287 9,866 139,153 US8,734 US8,777 US7,755 US18,678 US17,624 US15,874 47 44 40 7 3 4 11 9 7 PY

South32 6 Sell 20,050 -2,137 17,912 US1,146 US1,340 US1,419 US2,290 US2,562 US2,662 33 34 33 (16) (20) (24) 12 11 13 PY

Gold

Alacer Gold 12 Buy 651 (98) 552 US 98 US 46 US 116 US 62 US 93 US 291 33 40 58 7 20 13 (56) (25) 10 MF

Dacian Gold 6 Buy 618 (89) 529 (19) (0) 46 (20) 9 109 nm 15 35 (66) 64 (17) (9) (29) 19 MF

Evolution Mining 6 Hold 4,333 399 4,732 207 275 297 714 740 770 48 49 52 19 6 (6) 10 9 10 MF

Newcrest Mining 6 Sell 17,613 1,953 19,566 US 394 US 529 US 881 US 1,408 US 1,633 US 1,958 40 43 48 20 11 2 5 5 6 MF

Northern Star Resources 6 Sell 3,595 (392) 3,203 189 219 256 461 474 507 54 50 52 (64) (60) (67) 4 4 7 MF

Oceanagold Corporation 12 Buy 1,968 323 2,292 US 128 US 180 US 149 US 364 US 368 US 343 53 48 47 13 6 (1) 4 7 9 MF

Regis Resources 6 Sell 2,163 (117) 2,046 138 131 109 253 251 218 47 44 40 (22) (27) (3) 5 5 (3) MF

St Barbara 6 Hold 1,917 (160) 1,757 160 184 144 321 335 282 50 51 46 (35) (44) (52) 14 8 8 MF

Total / weighted aver. 32,858 45 45 49 2 (2) (10) 5 5 7

Iron Ore

Fortescue Metals 6 Hold 16,597 3,431 20,028 US2,093 US1,411 US941 US4,744 US3,688 US2,862 57 49 41 27 29 31 27 6 5 PY

Mineral Resources 6 Hold 3,914 (104) 3,810 201 302 444 464 590 735 32 23 26 (9) (5) (7) 2 2 5 PY

Total / weighted aver. 20,510 52 44 38 20 22 23 22 5 5

Copper

Oz Minerals 12 Hold 2,664 (625) 2,040 177 155 111 484 456 387 51 46 40 (29) (14) (7) 5 (11) (5) MF

Sandfire Resources 6 Buy 1,142 (125) 1,017 78 139 201 234 327 411 44 53 54 (28) (45) (66) 12 13 24 MF

Total / weighted aver. 3,806 49 48 44 (29) (23) (24) 7 (4) 4

Nickel

Independence Group 6 Sell 2,905 161 3,066 39 121 214 151 335 422 36 43 51 9 3 (8) (7) 4 10 MF

Western Areas 6 Sell 914 (140) 774 (12) 18 38 52 82 113 24 34 41 (30) (30) (26) 7 1 (1) MF

Total / weighted aver. 3,819 33 41 48 (0) (5) (13) (4) 3 7

Others

Alumina 12 Hold 7,401 118 7,519 US 376 US 325 US 303 US 380 US 328 US 308 32 28 27 (0) 3 4 5 6 6 PY

Iluka Resources 12 Sell 4,166 305 4,471 105 228 200 381 516 470 35 46 43 13 (7) (10) 9 7 3 PY

Orocobre 6 Hold 1,484 (66) 1,418 US 19 US 39 US 68 US 19 US 40 US 69 23 206 301 (23) (16) (6) (1) (2) (2) TH

Syrah Resources 12 Buy 1,319 (131) 1,187 US (15) US 13 US 70 US (15) US 28 US 120 nm 22 45 (34) (19) (29) (14) (6) 6 TH

Whitehaven Coal 6 Hold 4,843 311 5,154 367 632 537 714 1,058 895 41 47 41 9 (7) (17) 11 19 15 PY

Clean Teq Holdings Ltd 6 Buy 874 (86) 788 (12) (11) (12) (12) (11) (12) 0 0 0 (76) (19) (84) (2) (8) 2 TH

Sector (simple) average 40 47 53 (12) (7) (16) 3 2 7

Sector (weighted) average 48 48 47 13 7 5 10 8 8

Note: PY - Paul Young; MH - Matthew Frydman, TH - Tim Hoff

YE

Source: Deutsche Bank, Bloomberg Finance LP

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P/NPV vs. Free Cash Flow yield (base case)

We compare FCF yield to P/NPV (over 2017 to 2019) below. Our top picks are: BHP and RIO (+9% FCF yield), and SFR (+15% FCF yield, 0.9x P/NPV).

Figure 8: P/NPV vs. average FCF yield from 2017E-2019E (post all capex but before dividends)

FMG

AQG, -23%

AWCBHP

DCN

EVN

IGO

MINNCM

OGC

ORE

OZL SYR

RIO

RRL

SFR

SBM

S32

WHC

ILU

WSA

NST

CLQ

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0.4 0.6 0.8 1.0 1.2 1.4

FCF yield

P/NPV

Bulks Gold & precious metals Other Div. miners Base metals

Source: Deutsche Bank

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FCF yield (base case vs. spot)

FCF yields across the sector are presented below at our base case and at spot, with many companies demonstrating 8-10+% FCF yields.

Figure 9: CY18E/FY18E FCF yield (base case vs. spot)

19%

13%11%

9%6%

9%8%

6%

8% 7% 7%5% 5%

4% 4%2%

1%

-2%

-6%-8%

-11%

-25%

-29%

22%

13% 13%11% 11%

9% 9% 8%8% 7% 6% 6% 6%

4% 4%2% 1%

-2%

-4%

-8%-11%

-24%

-29%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

WHC SFR S32 RIO AWC EVN BHP FMG SBM OGC ILU RRL NCM IGO NST MIN WSA ORE SYR CLQ OZL AQG DCN

DBe Spot

Source: Deutsche Bank

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Gearing vs. interest cover

Balance sheets have generally continued to improve over the past 6 months as shown in Figure 10.

Figure 10: Gearing (ND/E) vs. interest cover (EBIT/net interest) for CY/FY18E

FMG

AQG

AWC, 111

BHP

DCN, 64%

EVN

IGO

MIN, 66

NCMOGC

ORE

OZL

SYR

RIO

SFR, -66, -45%

SBM, -94, -44%

S32

WHC

WSA

ILU

NST, -60%

CLQ

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-60 -40 -20 0 20 40 60

Gearing (ND/E)

Net Interest Cover

Bulks Gold & precious metals Other Div. miners Base metals CLQ

Source: Deutsche Bank, SYR has a low equity base (minimal raisings to date) and we expect debt funding to be sourced in the next 12 months. This leads to a high ND/E position.

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Deutsche Bank AG/Sydney Page 15

Iron ore

Seaborne market moving to small surplus in 2018

The iron ore price exceeded expectations in 2017 averaging US$71/t (CIF

delivered to China) compared to US$58/t in 2016. A combination of supply side

discipline from the major iron ore producers and Rio Tinto and Vale, ongoing

supply disruptions from operations such as Samarco, Minas Rio and a further

fall in non-traditional supply resulted in a 3% lift in seaborne iron ore supply.

On the other hand, demand was relatively flat. We estimate that the seaborne

iron ore market registered a small 20Mt surplus in 2017 which mostly found its

way into Chinese port stockpiles.

Strong steel demand in China (+3-5%) and emerging markets combined with

ongoing steel capacity cuts in China (both Induction Furnace and Blast

Furnace) resulted in a further sharp reduction in Chinese steel exports,

tightening the steel market and boosting the steel price, in turn pushing

Chinese steel spreads and steel mill margins to record levels. This combined

with the rise in the coking coal price resulted in an ongoing preference for high

grade iron ore (+62% Fe fines, 63-63% lump, and +65% pellets) boosting the

benchmark fines price.

Our base case in 2018 is for flat Chinese and global steel demand and a

modest 1% reduction in seaborne iron ore demand. We see seaborne supply

increasing by a further 2% to 1,515Mt mostly driven by further increases from

the majors. This will increase the market surplus to 65Mt even with further

reductions in Chinese domestic iron ore production (from 250Mt to 220Mt) and

shipments from non-majors such as India and the Middle East (Iran).

Chinese heating season cuts (2 + 26 policy) have reduced steel production by

over 10% as expected, however the iron ore price strengthened throughout

December which was unexpected. Steel and iron ore prices seasonally pick up

Nov onwards. Indeed, Chinese steel prices rallied strongly over December. The

uplift in iron ore price was mostly likely due to restocking by Chinese mills,

sustained strength in the steel price, and the ongoing influence of traders.

We expect Chinese steel production to increase from March and for both steel

and iron ore prices to retrace from current levels. We also expect Chinese EAF

production to rebound and for blast furnaces to continue increasing their scrap

% in the BOF, both of which are negative for seaborne iron ore demand.

We have lifted our 2018 benchmark iron ore price forecast by 8% to US$66/t

but have reduced our lump forecasts by US$3/t to US$78/t. Looking at the

quarterly price profile, we forecast an average price of US$75/t for fines in

1Q18 and US$65/t in 2Q.

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Page 16 Deutsche Bank AG/Sydney

Figure 11: DB seaborne iron ore SD model summary

Seaborne Exports 2014 2015 2016 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e

Brazil Mt 350 368 360 357 382 403 420 419 418 417 414 409

growth % 4% 5% -2% -1% 7% 6% 4% 0% 0% 0% -1% -1%

Australia Mt 747 808 859 881 917 925 918 929 941 931 931 929

growth % 24% 8% 6% 2% 4% 1% -1% 1% 1% -1% 0% 0%

South Africa Mt 63 61 61 63 57 55 55 55 55 55 55 53

growth % 11% -3% 0% 3% -10% -3% 0% 0% 0% 0% 0% -4%

India Mt 10 2 2 19 6 0 0 0 0 0 0 0

growth % -16% -80% -17% 1029% -70% -100% 0% 0% 0% 0% 0% 0%

South East Asia Mt 17 1 0 0 0 0 0 0 0 0 0 0

growth % -55% -93% -100% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Middle East Mt 31 23 27 31 18 10 8 8 6 4 2 0

growth % -7% -23% 17% 13% -41% -48% -14% -5% -26% -36% -56% -126%

South America ex Brazil Mt 28 30 33 33 35 35 35 34 34 34 33 33

growth % 5% 10% 9% 0% 5% 0% -1% -1% -1% -1% -1% -1%

Europe Mt 27 23 23 23 24 24 24 24 24 24 22 22

growth % 3% -12% 0% 0% 4% -1% -1% 0% 0% 0% -6% 0%

Africa ex South Africa Mt 37 20 23 25 26 26 26 26 26 26 26 26

growth % 9% -47% 18% 7% 4% 2% 0% 0% 0% 0% 0% 0%

Other exports Mt 31 48 46 51 51 54 44 40 39 38 36 34

Total Traded iron ore supply

Mt 1,341 1,385 1,436 1,483 1,515 1,531 1,530 1,535 1,542 1,528 1,520 1,506

growth % 14% 3% 4% 3% 2% 1% 0% 0% 0% -1% -1% -1%

Seaborne Imports

China steel production (crude steel)

Mt 875 844 879 875 854 838 835 831 827 823 818 814

China Hot Metal (BF) Mt 771 764 778 795 766 748 744 738 732 725 719 713

growth % 6% -1% 2% 2% -4% -2% -1% -1% -1% -1% -1% -1%

China Mt 931 1011 1082 1077 1058 1040 1042 1042 1041 1040 1039 1037

growth % 19% 9% 7% -1% -2% -2% 0% 0% 0% 0% 0% 0%

Japan Mt 140 135 134 130 130 130 129 129 129 129 127 125

growth % 0% -3% -1% -3% 0% 0% 0% 0% 0% 0% -1% -2%

S. Korea Mt 78 79 77 79 79 79 79 79 79 79 79 79

growth % 14% 2% -3% 2% 0% 0% 0% 0% 0% 0% 0% 0%

Taiwan Mt 24 24 25 25 24 24 25 25 25 25 25 25

growth % 8% 0% 4% 0% -4% 2% 2% 0% 0% 0% 0% -1%

India Mt 0 0 0 0 0 2 14 15 16 17 18 19

growth % 0% 0% 0% 0% 0% 0% 537% 11% 5% 4% 5% 7%

South East Asia Mt 0 0 2 5 10 14 18 21 26 27 29 31

growth % 0% 0% 0% 175% 105% 42% 28% 20% 20% 6% 6% 6%

Europe Mt 122 122 119 120 123 124 126 127 128 128 129 129

growth % 1% 0% -3% 1% 2% 1% 2% 0% 0% 0% 1% 0%

Other imports Mt 7 23 27 26 27 25 14 12 11 11 11 10

Total traded iron ore imports

Mt 1,302 1,395 1,465 1,461 1,450 1,438 1,448 1,451 1,455 1,456 1,456 1,454

growth % 17% 7% 5% 0% -1% -1% 1% 0% 0% 0% 0% 0%

Notional market balance Mt 38 -10 -29 22 65 93 82 84 86 72 64 52

China imported fines (62% CFR)

USD/t 97 56 58 71 66 58 58 58 60 64 64 64

Iron Ore lump USD/t 93 63 66 81 78 68 68 68 70 73 73 73

Iron Ore pellets USD/t 182 126 131 143 130 125 125 123 123 129 129 129

Source: Deutsche Bank, CRU, CEIC, Wood Mackenzie, Bloomberg

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Deutsche Bank AG/Sydney Page 17

Figure 12: Iron ore price and China rebar and HRC price Figure 13: Seasonal trends in seaborne iron ore and

Chinese steel prices (2010 to 2017)

0

50

100

150

200

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Se

p-0

9

Ma

r-10

Se

p-1

0

Ma

r-11

Se

p-1

1

Ma

r-12

Se

p-1

2

Ma

r-13

Se

p-1

3

Mar-

14

Se

p-1

4

Ma

r-15

Se

p-1

5

Ma

r-16

Se

p-1

6

Ma

r-17

Se

p-1

7

(US$/t)(RMB/t)

China HRC average price

China Rebar average price

China import Iron Ore Fines 62% Fe spot (CFR Tianjin port) (RHS)

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

HRC Price (MoM %∆) Rebar Price (MoM %∆)

Iron Ore Price (MoM %∆) Copper Prices (MoM %∆) Source: Deutsche Bank, NBS, CEIC, Bloomberg, CISA

Source: Deutsche Bank, Bloomberg Finance LP

Steel production and demand

Global steel production was up 5.5% YoY to the end of November 2017 driven

by growth across most of the key regions. Chinese steel production was up

5.3% YoY but dropped from 72.4Mt in October to 66.1Mt in November due to

the heating season cuts and had dropped to around 64-65Mtpm in early

December. This equates to a 200ktpd drop from the peak and compares to our

350ktpd estimate leading into 2 + 26 heating season cuts under the worst case

scenario, where utilisation rates are cut to 50%. In fact, data shows that

utilisation rates in Tangshan were cut to 50% by mid-November and the China

average declined from 84% to 72%. Therefore expect the data from mid to late

December to show a further drop in steel production. Spread over the four

months, this still equates to 20Mt lower steel production and a 30Mt drop in

imported iron ore demand.

Figure 14: Monthly Chinese steel production (adjusted

for unreported induction furnace production)

Figure 15: Global monthly steel production (2015-2017)

by key region

45

50

55

60

65

70

75

80

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

Nov

Dec

(Mt)

2010 2011 2012 20132014 2015 2016 2017

(Mt)

0

20

40

60

80

100

120

140

160

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

European Union (28) Other Europe C.I.S (6)

North America SouthAmerica Africa

MiddleEast China India

Japan SouthKorea Other Asia

Source: Deutsche Bank, Bloomberg Finance LP

Source: Deutsche Bank, WSA

We estimate that Chinese steel demand increased 3% in 2017 however based

on official steel production figures and adjusting for unreported production

from Induction Furnaces (IF) – apparent demand was up closer to 5%. Looking

ahead, our forecasts do assume a fading impact from both property and

infrastructure construction; on an annual basis, we expect zero growth in 2018

and a mild 3% contraction in 2019. In other words, a relatively stable outlook

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M&M - Diversified Resources

Australian Mining Sector

Page 18 Deutsche Bank AG/Sydney

at a time when capacity is still falling, with a reduction of a further 40Mt in

2018 after the closure of almost 300Mt in the prior 2-3 years. However, our flat

outlook for 2018 assumes a fall in Chinese property sales and little demand

growth from exports and benefits from the One-Belt-One-Road (OBOR)

initiative. There is a possibility that Chinese steel demand grows again in 2018.

Chinese steel mill and trader inventories declined further in December remain

low and steel exports increased slightly in November to 5.4Mt from 5Mt in

October.

Figure 16: Adjusted China crude steel supply and demand

Mt 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E

Legal capacity 976 1030 1150 1120 1060 1010 970 970 970

Legal production 724 797 823 804 812 855 854 838 835

YoY 10.1% 3.2% -2.3% 1.0% 5.4% -0.1% -1.9% -0.4%

Utilization of legal capacity 79% 75% 71% 74% 83% 86% 86% 86%

Illegal capacity (IF) 120 150 150 150 140 0

IF production (estimated) 31 71 52 40 67 20

YoY 127% -26% -24% 69% -70%

Utilization of IF 52% 35% 27% 46% 29%

Adjusted total capacity 1096 1180 1300 1270 1200 1010 970 970 970

Adjusted total production 755 868 875 844 879 875 854 838 835

YoY 15% 1% -4% 4% 0% -2% -2% 0%

Real utilization 76% 71% 66% 71% 79% 86% 86% 86%

Net import(export) (45) (51) (87) (106) (102) (74) (55) (60) (65)

Total Apparent Consumption (Adj.) 710 817 788 738 777 801 799 778 770

YoY 15% -3% -6% 5% 3% 0% -3% -1% Source: Deutsche Bank, Wind

Figure 17: HRC spread-concurrent vs. coking coal Figure 18: Rebar spread-concurrent vs coking coal

500

1,000

1,500

2,000

2,500

700

1,700

2,700

3,700

4,700

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

China HRC spread @ spot ore+spot coking coal (concurrent)China HRC spot (LHS)1.65*spot ore +0.6*coking coal(LHS)Average

4Q avgspread 2115

RMB/t2Q avg spread 1389

3Q avg spread 1935

RMB/t 1Q avg spread 1442

500

1,000

1,500

2,000

2,500

700

1,700

2,700

3,700

4,700

Dec

-11

Mar

-12

Jun

-12

Sep

-12

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

China rebar spread @ spot ore+spot coking coal (concurrent)China domestic rebar (LHS)1.65*spot ore +0.6*coking coal(LHS)Average

RMB/t RMB/t2Q avg spread1873

3Q avg spread 2102

1Q avg spread 1410

4Q avg spread 2332

Source: Deutsche Bank, Bloomberg Finance LP, Sx coal

Source: Deutsche Bank, Bloomberg Finance LP, Sx coal

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Deutsche Bank AG/Sydney Page 19

Figure 19: Traders’ steel inventory in 26 major cities Figure 20: Large and medium steel mills' inventory

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Dec

-07

Ap

r-0

8A

ug-

08

Dec

-08

Ap

r-0

9A

ug-

09

Dec

-09

Ap

r-1

0A

ug-

10

Dec

-10

Ap

r-1

1A

ug-

11

Dec

-11

Ap

r-1

2A

ug-

12

Dec

-12

Ap

r-1

3A

ug-

13

Dec

-13

Ap

r-1

4A

ug-

14

Dec

-14

Ap

r-1

5A

ug-

15

Dec

-15

Ap

r-1

6A

ug-

16

Dec

-16

Ap

r-1

7A

ug-

17

Dec

-17

Rebar Wire rod HRC Medium Plate CRCmt

-45%

-30%

-15%

0%

15%

30%

45%

60%

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Large & medium steel mills' inventory YoY (RHS)mt

Source: Deutsche Bank, Wind, Mysteel

Source: Deutsche Bank, CISA

Figure 21: China steel product exports Figure 22: Monthly crude steel production - NBS

-50%

-30%

-10%

10%

30%

50%

70%

90%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Au

g-1

1N

ov-

11

Feb

-12

May

-12

Au

g-1

2N

ov-

12

Feb

-13

May

-13

Au

g-1

3N

ov-

13

Feb

-14

May

-14

Au

g-1

4N

ov-

14

Feb

-15

May

-15

Au

g-1

5N

ov-

15

Feb

-16

May

-16

Au

g-1

6N

ov-

16

Feb

-17

May

-17

Au

g-1

7N

ov-

17

Steel products export YoY (RHS)mt %

-20%

-10%

0%

10%

20%

30%

40%

50%

30

35

40

45

50

55

60

65

70

75

80N

ov-

08

Feb

-09

May

-09

Au

g-0

9N

ov-

09

Feb

-10

May

-10

Au

g-1

0N

ov-

10

Feb

-11

May

-11

Au

g-1

1N

ov-

11

Feb

-12

May

-12

Au

g-1

2N

ov-

12

Feb

-13

May

-13

Au

g-1

3N

ov-

13

Feb

-14

May

-14

Au

g-1

4N

ov-

14

Feb

-15

May

-15

Au

g-1

5N

ov-

15

Feb

-16

May

-16

Au

g-1

6N

ov-

16

Feb

-17

May

-17

Au

g-1

7N

ov-

17

Crude steel production - NBS Reported YOY(RHS)mt %

Source: Deutsche Bank, CEIC, China Customs

Source: Deutsche Bank, CEIC

Iron ore supply

Based on Bloomberg shipping data, the shipments from the Big 5 iron ore

miners rebounded strongly in December. Rio operated at 382Mtpa, BHP

307Mtpa, FMG 174Mtpa, all above guidance, and Roy Hill 54Mtpa (close to

nameplate). Vale shipped 98Mt in the December Q. The strong December

performance seemed to have little impact on the iron ore price.

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Page 20 Deutsche Bank AG/Sydney

Figure 23: Australian iron ore shipments (Mt): Strong

recovery from the majors in December

Figure 24: Annualised run-rate by company

28.6 27.5 29.5 29.2 27.5 31.8

18.5 22.1 22.6 22.2 23.225.6

13.614.8 14.3 13.4 11.7

14.54.43.8 4.4 3.6 4.7

4.5

1.32.1

2.0 1.8 1.7

1.666.5

70.3 72.9 70.2 68.7

78.0

0

20

40

60

80

Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

(Mt)

Rio BHP FMG Hancock Utah

343 330354 351

330

382

222

265 272 266 278307

163 177 172 161140

174

53 46 53 44 56 54

16 25 24 21 21 190

50

100

150

200

250

300

350

400

450

Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

RIO BHP FMG Roy Hill Utah

(Mtpa)

Source: Deutsche Bank, Bloomberg Finance LP. Shipping data to 31st Dec.

Source: Deutsche Bank, Bloomberg Finance LP. Shipping data to 31st Dec.

Chinese iron ore imports from non-traditional suppliers (excl. Australia and

Brazil) has dropped to 14Mt (annualising c. 170Mtpa) in November, down from

the peak of 17.5Mt (210Mtpa) in May. The key reduction has mostly come

from India. Chinese domestic iron ore concentrate production has also been on

a downward trend, declining to c. 240Mtpa (62% Fe Eq) in December down

from a peak of 285Mtpa in April (see Figure 8).

Figure 25: Chinese imports of iron ore from the non-

traditional countries haven’t come back

Figure 26: Chinese iron ore production (domestic)

0

10

20

30

Mar-

08

Se

p-0

8

Mar-

09

Se

p-0

9

Mar-

10

Se

p-1

0

Mar-

11

Se

p-1

1

Mar-

12

Se

p-1

2

Mar-

13

Se

p-1

3

Mar-

14

Se

p-1

4

Mar-

15

Se

p-1

5

Mar-

16

Se

p-1

6

Mar-

17

Se

p-1

7

(Mt)

South Africa Ukraine India Iran Peru Others

0%

20%

40%

60%

80%

100%

200

220

240

260

280

300

Jan

/16

Mar/

16

May/1

6

Jul/16

Se

p/1

6

Nov/1

6

Jan

/17

Mar/

17

May/1

7

Jul/17

Se

p/1

7

Nov/1

7

(Mt)Conc. Production (Mt)

Conc. Utilisation rate (%)

Source: Deutsche Bank, Bloomberg Finance LP

Source: Deutsche Bank, Mysteel

Chinese mills continue to prefer high grade iron ore to maximise steel output.

The lump premium has retraced from the highs seen in September with the

rise in the coking coal price and increased supply from BHP and RIO. Pellet

premiums remain high due to pellet plant closures in China and strong demand

from Europe and the Middle East. The discount of high alumina 58% Fe

remains at 35-40%. With high levels of lower grade 58% Fe at Chinese ports,

ongoing supply side reform in China, and a further 60-70Mt of high grade

supply expected from Rio, Vale and BHP over the next 2yrs, we see 58% Fe

realisations remaining under pressure.

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Figure 27: : 62% Fe benchmark vs. low grade 58% Fe

discount (low alumina): realisation has recovered

marginally

Figure 28: 62% Benchmark vs. Lump and Pellet

premium: pellet premium has doubled since July, though

lump has pulled back

50%

60%

70%

80%

90%

100%

110%

120%

130%

Jan

-16

Ap

r-16

Jul-1

6

Oct-

16

Jan

-17

Ap

r-17

Jul-1

7

Oct-

17

Ja

n-1

8

58% Std. Alumina (dmtu) 58% Low Alumina (dmtu)65% (dmtu) 62% benchmark

30

40

50

60

70

80

90

100

110

120

130

Jan

-16

Ap

r-16

Jul-1

6

Oct-

16

Jan

-17

Ap

r-17

Jul-1

7

Oct-

17

Jan

-18

62%Fe 62% + Lump 62% + Pellet

(US$/dmt)

Source: Deutsche Bank, Bloomberg Finance LP

Source: Deutsche Bank, Bloomberg Finance LP

The Mysteel Chinese port stocks at the key 24 ports stood at 148Mt at the end

of 2017. The split was 93Mt of 60-65% ore, 47Mt of 56-60% material and 8Mt

of lower grade 50-56% Fe ore. BHP and RIO’s inventory has been steady at

around 10-12Mt or 16-18 days of consumption, however FMG’s stocks

continue to increase and now stand at 20.5Mt or 44 days of consumption, up

from a low of 12 days in early 2017.

Figure 29: High grade vs. low grade Chinese port stocks:

low grade continues to grow

Figure 30: Ore inventory by Aus. company: RIO, BHP

steady, FMG growing – points to high grade demand

0

20

40

60

80

100

120

140

160

Ja

n-1

6

Ap

r-16

Jul-1

6

Oct-

16

Ja

n-1

7

Ap

r-17

Jul-1

7

Oct-

17

(Mt) 50-56% 56-60% 60-65%

0

10

20

30

40

50

60

Jan

/16

Ap

r/16

Jul/16

Oct/16

Jan

/17

Ap

r/17

Jul/17

Oct/17

(Mt) RIO BHP FMG Roy Hill Others

Source: Deutsche Bank, Mysteel, Shanghai Steelhome E-Commerce, Bloomberg Finance LP

Source: Deutsche Bank, Mysteel, Shanghai Steelhome E-Commerce, Bloomberg Finance LP

Sector valuation and risks

For the mining sector, our company valuations are based on DCF-derived NPVs

over the life of the operations and projects. An NPV multiple is applied in

some cases when setting the share price target. Multiples applied to DB

stocks are dependent on the company’s product types, exposure to

commodity prices, earnings growth and upside potential, and risks associated

with the development of projects. Forward multiples are also taken into

consideration at times when setting price targets. Typically though, PTs are set

broadly in-line with NPVs.

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Page 22 Deutsche Bank AG/Sydney

Risks associated with the mining sector include deviations in the commodity

and currency prices away from DB forecast assumptions. Other risks specific

to the sector are potential variations to capex budgets and schedules

associated with project development. For those operations in production,

operations can be affected by mechanical and technical challenges as well as

inclement weather. The operating costs can vary over time as the price of

labour, consumables and fuels change.

Company valuation and risks

Alumina

We have set our PT broadly in line with our life-of-mine derived DCF NPV,

which assumes a LT Al price of US83c/lb (real), Index alumina of US$300/t

(real), US$339/t caustic soda (real), 0.75 AUDUSD and 10% nominal WACC (in-

line with the sector). We calculate our AWC valuation by discounting AWC's

operating cash flows from the alumina and aluminium production.

Key upside risks include; higher alumina and aluminium prices driven by

stronger Chinese demand, the possibility of capacity cuts in China, lower

operating costs and further efficiency gains from assets. Downside risks

include; lower alumina and aluminium prices, additional Chinese refinery

restarts, currency price strength and cost pressure from rising caustic soda,

labour, and energy (natural gas).

BHP Billiton Ltd

We value BHP using life-of-mine cash flows with a nominal WACC of 9%. Our

price target is set broadly in line with our NPV, which assumes a long-term

AUDUSD of 0.75, long-term (2023) Brent oil of US$65/bbl, WTI oil of

US$60/bbl, US natural gas of US$3.0/mmbtu, iron ore fines of US$57/t (CIF

Asia), coking coal of US$127/t, copper US$2.99/lb (all real in 2018 $).

The key risks to our forecasts include variance in commodity prices and

exchange rates vs. our estimates. Downside risks include delivery risk on

longer-dated growth projects such as Jansen potash, the petroleum growth

projects (both US Onshore and the GoM), Spence Hypogene and Olympic

Dam. Other risks include a higher cost of litigation associated with Samarco

than expected, and potential production outages due to industrial action. A

continued medium-term slowdown in Chinese steel demand may result in

lower iron ore and coking coal demand and therefore lower bulk commodity

prices. Sustained higher US Onshore oil volumes could limit upside in both the

oil price and US nat gas price limiting drilling, volumes and earnings from the

Permian oil field dry gas fields.

Fortescue Metals

Our price target is set broadly in line with our DCF-derived NPV. We use DCF

analysis over the life of the mine/resource using a nominal WACC of 10% and

assume a long run iron ore price of US$57/t (real) and AUDUSD of 0.75.

Downside risks include the potential for a further drop in the iron ore price due

to weaker Chinese steel demand around heating season cuts, widening

discounts for lower grade ore, and an increase in strip ratios. Upside risks

include lower costs, weaker FX, stronger production, and strong dividend yield

support.

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Deutsche Bank AG/Sydney Page 23

Mineral Resources

Our price target is set broadly in line with our DCF-derived NPV. We use DCF

analysis over the life of the mining and crushing projects using a nominal

WACC of 10% and assume a long run iron ore price of US$57/t (real), long run

spodumene price of US$450/t (2025,real) and AUDUSD of 0.75. We assume

100-130Mtpa of crushing volumes until FY20, then dropping to 114Mt from

FY20, and sliding volumes to contract completion in FY30 (DBe).

Upside risks includes stronger iron-ore and lithium prices than our current

estimates, accretive M&A, asset sales above our NPV, and a weaker currency.

Downside risks include the loss of crushing volumes if mining companies

terminate contracts, a stronger AUD, weaker iron ore prices and larger product

discounts, and weaker medium term spodumene prices.

Rio Tinto

We value Rio Tinto using discounted cash flow analysis of each of its assets.

Our Price Target is set broadly in-line with our valuation using life of mine cash

flows (9.3% WACC), which assumes a long-term AUDUSD of 0.75, long-term

(2023), iron ore fines of US$57/t (CIF Asia), coking coal of US$127/t, copper

US$2.99/lb, aluminium US83c/lb (all real in 2018 $).

Key upside and downside risks to our view include movements in iron ore,

copper, coal and aluminium prices away from those that we currently forecast.

Earnings for the group are strongly biased to iron ore and copper (c. 75% of

operating earnings) therefore production levels, prices for those commodities

are an important consideration. Specifically, for the aluminium division risks

include changes to Chinese demand for bauxite, alumina and aluminium.

South32

We derive our valuation for South32 from a sum-of-the-parts DCF model,

aggregating life of mine cash flows for each asset. We derive a group NPV

using a nominal WACC of 10% and assuming real long-term FX and prices of:

AUD/USD of 0.75, ZAR/USD 16.66, aluminium US83c/lb, nickel US749c/lb,

manganese US$3.70/dmtu, alumina US$300/t, coking coal US$127/t, export

South African thermal coal of US$65/t and zinc of US105c/lb. We set our target

price in line with our NPV.

The key upside risks include sustained high commodity prices for longer than

we forecast, medium term structural cost out and better than expected

production creep.

Whitehaven Coal Limited

Our price target is set broadly in line with our NPV, which is calculated using a

long term real thermal coal price of US$67/t for 6,000kcal, US$88/t semi-soft

and HV PCI, and 0.75 AUDUSD. We use a DCF approach (life of mine operating

cash flows) discounting with a 10% nominal WACC.

Downside risks include possible stronger FX and higher operating costs and

upside risks include higher prices for thermal, PCI and semi-soft driven by a

continuation of China's 276d policy, stronger production from Narrabri and

Maules Creek, and a potential sell-down of the Vickery project.

Iluka Resources

Our price target is set at the life-of-mine NPV for existing operations. We

assume a long term (2023) zircon price of US$1,250/t, a rutile price of

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US$1,000/t, SR of US$950/t and chloride ilmenite of US$180/t (all real prices in

2018 $). We use a 75c AUDUSD long-term assumption. The Eucla Basin forms

the bulk of the valuation along with the Mining Area C iron ore royalty. We

apply a nominal WACC of 10% for the mineral sands business. We use a

nominal WACC of 6% for MAC to reflect the lower risk of the business.

Key upside risks include: a faster-than-expected improvement in demand and

prices for both zircon (mostly related to Chinese property) and TiO2 feedstock

(related to global pigment demand), lower costs and capex, a weaker AUD,

and stronger iron ore prices which positively impact the MAC royalty.

Newcrest Mining Ltd

Our valuation is a DCF-based calculation with the PT set at 1x P/NPV. Our DCF

is based on life-of-mine scenarios and assumes: long-term prices of

US$1,300/oz gold, US$2.99/lb copper and a 7% real WACC.

Key upside risk factors include: (1) production and costs better than guidance

(2) stronger-than-expected performance as Cadia East continues to ramp up (3)

delivery of sustainable improvements at Lihir (4) continued deleveraging faster

than anticipated (5) re-stating dividend payments sooner than expected (6)

stronger commodity prices and weaker AUDUSD.

Evolution Mining

Our 12-month target is set at 1.0x the LOM NPV, consistent with other mid-tier

gold producers in our Australian coverage list. Our long-term forecasts for

valuation determinations are gold US$1,300/oz, AUDUSD 0.75 and a 7% real

WACC. We value exploration at a nominal A$400m in our NPV.

Key downside risks would be failure to convert resources into reserves at low

mine life assets, which would reduce confidence in the future of those

operations. Cowal plant upgrade capex increases. Additional downside risks

include operational underperformance and lower AUD gold and copper prices

than we forecast. Key upside risks include higher AUD gold prices, operational

outperformance, resource conversion and corporate activity.

Northern Star Resources

Our 12-month target is set at 1.0x the NPV consistent with all other gold

producers in our Australian coverage list. Our long-term forecasts for valuation

determinations are gold US$1,300/oz, AUDUSD 0.75 and a 7% real WACC.

NST's production profile is leveraged to i) successful resource definition and

conversion into economic ounces and ii) AUD gold price which can influence

returns on marginal ounces in the mine plan. Key upside risks include: i)

significant exploration success that materially adds mine life at a mature asset,

ii) continuing cost deflation as currently being experienced in the industry and

iii) higher AUD gold prices than our forecasts.

Regis Resources

Our target price is set at 1.0x NPV. The NPV is derived from a life-of-mine DCF.

Our long-term forecasts for valuation determinations are gold US$1,300/oz and

AUDUSD 0.75. When calculating the DCF we use a 7% real WACC.

Now that Regis has three operational assets (Garden Well, Rosemont and

Moolart Well), the longevity of production will rely on ongoing resource

delineation, additional satellite pits being brought on and reconciliation with

the reserve model. Upside risks include i) better operational performance, ii)

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particularly higher grades and better recovery at Garden Well and iii) positive

exploration results which generate mine life extensions.

Oceana Gold

Our 12-month price target is set in line with the NPV, consistent with other

gold producers in our Australian coverage list. Our long-term forecasts used in

our valuation are US$1,300/oz gold, AUDUSD 0.75 and NZDUSD of 0.63 from

2023. We have assumed a real discount rate of 9%.

Key downside risks include: (i) delayed ramp-up of operations at Haile; and (ii)

macro risks including lower gold, copper prices and FX rates.

Alacer Gold

We derive our valuation using a life-of-mine DCF on the combined asset suite.

We model the Çöpler asset on the projected profile but recognize some

amendments are likely with the release of the update technical report. We

have a long-term gold price assumption of US$1,300/oz and use a 9.5% real

WACC. Our target price is set in line with our NPV, consistent with other mid-

tier gold names on the ASX.

Key downside risks from lower gold prices, weak gold production, higher oxide

operating costs and lower production, further permitting issues, geopolitical

risks associated with Turkey, project delays & capital cost over-runs with the

Çöpler sulphide expansion.

St. Barbara

Our 12-month target is set at 1.0x the LOM NPV, in line with other ASX-listed

gold companies under coverage. Our long-term forecasts for valuation

determinations are: gold US$1,300/oz, AUDUSD 0.75. Our DCF uses a 8% real

WACC.

Key upside risks include: operational outperformance, exploration success,

modelled mine life extension, higher gold prices and lower AUDUSD.

Downside risk from operational underperformance and project risk, failure to

convert resources to reserves lower gold prices, stronger AUDUSD.

Dacian Gold

Our 12-month price target is set at 1.0x LOM NPV consistent with the other

mid-tier gold producers in our Australia coverage list. Our long-term forecasts

for DCF valuation determinations are: gold US$1,300/oz, AUDUSD 0.75 and a

9% real WACC.

DCN's production profile is leveraged to i) delivery of the Mount Morgan

project, ii) successful resource definition and conversion into economic ounces

and iii) AUD gold price which can influence returns on marginal ounces in the

mine plan. Key down side risks include i) delays in project delivery, ii) lower

AUD gold price, iii) unsuccessful resource to reserve conversion, iv) project

cost overruns and delays to project.

Sandfire Resources

Our price target is set broadly in line with our DCF valuation. The DCF is based

on long-term prices of US$2.99/lb for copper, US$1,300/oz for gold and 0.75

for AUDUSD. Given the prospectivity of SFR's tenure we also include $100m

for further exploration upside (resource additions and new discoveries). We

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apply a real WACC of 9% consistent across our copper stocks.

Project-specific downside risks included higher-than-expected operating costs,

lower grades and recoveries. Macro risks include movements in copper and

gold prices and the AUDUSD.

OZ Minerals

Our price target is set broadly in line with our DCF valuation (1x NPV). The DCF

is based on long-term copper of US$2.99/lb, US$1,300/oz gold and AUDUSD of

0.75. We discount the operating cash flows from OZL's Prominent Hill mine

over the life of the operation, using a real discount rate of 9%, in line with the

sector average. We include a 9.5% risk-weighted valuation for Carrapateena to

capture the project and funding risks.

Upside risk from better-than-expected operating & cost performance at

Prominent Hill, Carrapateena improvements, higher commodity prices, lower

FX. Downside risk from lower-than-expected operating & cost performance at

Prominent Hill, Carrapateena delays, lower commodity prices, stronger FX.

Independence Group

Our price target is set in line with our DCF valuation which assumes long-term

real prices of US$7.49/lb for nickel, US$2.99/lb for copper, US$1.05/lb for zinc,

US$20/oz for silver and US$1,300/oz for gold, and AUDUSD of 0.75. We

discount the life of mine cash flow from Nova, Long Nickel, Tropicana and

Jaguar/Bentley using a Real discount rate of 8%, consistent across the nickel

companies in our coverage universe.

Key up side risks include operational outperformance, exploration success,

mine life extensions at Nova and Tropicana, higher AUD gold and/or base

metal prices.

Western Areas

Our price target is set broadly in line with our DCF valuation. Our DCF is based

on a long-term real nickel price of US$7.49/lb and AUDUSD of 0.75. We discount

the life of mine cash flow from WSA's operations using a real discount rate of

8%, consistent across the nickel mining companies in our coverage universe.

Upside risks include better operational performance, exploration success and a

higher AUD nickel price.

Orocobre

Our price target is set broadly in line with our DCF valuation. The DCF is based

on a long-term realised lithium carbonate price of US$8,862/t, US$500/t for

borates products, AUDUSD 0.75 and USDARS of 17.3. We discount the life-of-

mine cash flow from ORE's Olaroz lithium project (66.5% equity basis) and the

Borax Argentina business using a real discount rate of 8.7%. We also ascribe a

nominal A$125m for exploration.

Downside/Upside risks specific to ORE include plant performance, weather

events and pond performance.

Macro risks include adverse movements in the lithium carbonate and borates

prices and FX movements in the Australian dollar and Argentinean Peso. There

is also risk associated with the high inflation rate in Argentina.

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Syrah Resources

Our price target is set broadly in line with our DCF valuation. The DCF is based

on a flat weighted average graphite concentrate price of US$920/t, uncoated

spherical graphite price of US$3,000/t, coated spherical graphite price of

US$7,000/t and 0.75 LT AUDUSD. We discount the life-of-mine cash flow from

SYR's Balama project using a real discount rate of 10%. The higher rate is a

way of incorporating the risk associated with the Mozambique economy and

the volatile nature of minor metal markets.

Downside risks specific to SYR include project delays or capital overruns at

Balama. Operational risks include lower grade graphite than expected and/or

lower recoveries through the plant. Macro risks include movements in the

graphite prices and FX movements in the AUD. Establishing offtake

agreements with key customers and achieving successful product qualification

is a further risk to the investment. There is also inherent country risk in

Mozambique, which was rated 139th in the World Bank's 'Country Economy

Ranking'.

CleanTeQ

Our 12-month target is set with a 75% risk weighting for the Clean TeQ Sunrise

project valuation. Our long-term forecasts for valuation determinations are

nickel US$7.49/lb, Cobalt US$25/lb, Scandium US$500/kg, AUDUSD 0.75 and

a 8.7% real discount rate.

CLQ's development profile is leveraged to i) the successful funding of the

Clean TeQ Sunrise project, ii) delivery of the Definitive Feasibility Study due in

1Q 2018, iii) delivery of capital and cost assumptions and iv) movement in the

nickel and cobalt markets.

Key downside risks include: i) capital overruns, ii) project delays, iii) operational

performance issues using HPAL and Resin-In-Pulp technology and iv) lower

nickel/cobalt/scandium prices and higher AUD.

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Appendix 1

Important Disclosures

*Other information available upon request

Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Paul Young/Matthew Frydman/Tim Hoff

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.

Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock

Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.

Newly issued research recommendations and target prices supersede previously published research.

35 %

53 %

13 %28 % 19 %

4 %0

20

40

60

80

100

120

Buy Hold Sell

Australia Universe

Companies Covered Cos. w/ Banking Relationship

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Additional Information

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M&M - Diversified Resources

Australian Mining Sector

Page 32 Deutsche Bank AG/Sydney

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Page 33: Australian Mining Sector Recommendationpg.jrj.com.cn/acc/Res/CN_RES/INDUS/2018/1/15/64f1eb90-e126-4da… · Australia M&M - Diversified Resources Change Industry Australian Mining

David Folkerts-Landau Group Chief Economist and Global Head of Research

Raj HindochaGlobal Chief Operating Officer

Research

Michael Spencer Head of APAC Research

Global Head of Economics

Steve Pollard Head of Americas Research

Global Head of Equity Research

Anthony KlarmanGlobal Head of Debt Research

Paul Reynolds Head of EMEA

Equity Research

Dave Clark Head of APAC

Equity Research

Pam Finelli Global Head of

Equity Derivatives Research

Andreas Neubauer Head of Research - Germany

Spyros Mesomeris Global Head of Quantitative

and QIS Research

International Production locations

Deutsche Bank AG

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Deutsche Bank AG

Filiale Hongkong

International Commerce Centre,

1 Austin Road West,Kowloon,

Hong Kong

Tel: (852) 2203 8888

Deutsche Securities Inc.

2-11-1 Nagatacho

Sanno Park Tower

Chiyoda-ku, Tokyo 100-6171

Japan

Tel: (81) 3 5156 6770

Deutsche Bank AG London

1 Great Winchester Street

London EC2N 2EQ

United Kingdom

Tel: (44) 20 7545 8000

Deutsche Bank Securities Inc.

60 Wall Street

New York, NY 10005

United States of America

Tel: (1) 212 250 2500


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