© Minerals Value Service GmbH 2014

Americas Iron Ore, Rio de Janeiro

November, 2014

1

James.Rilett@mvs-corp.com www.mvs-corp.com

Disclaimer

Whilst every effort has been made to ensure the accuracy of the information in this document, the content of this document is provided without any guarantees, conditions or warranties as to its accuracy, completeness or reliability. It is not to be construed as a solicitation or an offer to buy or sell iron ore, related products, commodities, securities or related financial instruments. To the extent permitted by law, we, other members of our group of companies and third parties connected to us hereby expressly exclude: All conditions, warranties and other terms which might otherwise be implied by statute, common law or the law of equity. Any liability for any direct, indirect or consequential loss or damage incurred by any person or organisation reading or relying on this document including (without limitation) loss of income or revenue, loss of business, loss of profits or contracts, loss of anticipated savings, loss of goodwill and whether caused by tort (including negligence), breach of contract or otherwise, even if foreseeable. MVS Research Team Nick Pickens nick.pickens@mvs-corp.com Isabel Tang isabel.tang@mvs-corp.com Alex Griffiths alex.griffiths@mvs-corp.com Tamer Guner tamer.guener@mvs-corp.com Martin Pachtner m.pachtner@mvs-corp.com Alexandra Vachnadze a.vachnadze@mvs-corp.com Congmin Wang congmin.wang@mvs-corp.com

Minerals Value Service (MVS) Company Profile Data and analysis for the global iron ore market

• Founded in 2011, by mining experts and commodities

traders.

• MVS entered into a strategic partnership with McGraw

Hill Financial (Platts) in September 2013.

• A growing team of 22 researchers, developers and

market professionals.

• Offices and team members in London, Munich,

Singapore, Moscow and Shanghai.

• Over 50% of the global seaborne iron ore market

subscribes to MVS’ online analytics application.

• MVS frequently delivers presentations at international

conferences and is invited to comment on market

events.

“RPT-POLL-LIMITED UPSIDE FOR IRONORE IN H2, MORE RISKS IN 2015 - RTRS 02-Jul-2014 00:52 By Manolo Serapio Jr and Maytaal Angel SINGAPORE/LONDON, July 1 (Reuters) - Iron ore prices are expected to steady in the second half of the year after a plunge in the first six months on a flood of new supply to top buyer China, but further weakness is seen in 2015, a Reuters poll showed. A decade of short supply is coming to an end as an expansion binge by global miners increases output, knocking the price of the steelmaking raw material down 30 percent in the first half and forcing high-cost Chinese producers to curb production. While the commodity rebounded quickly from a similar price slump in 2012, it has struggled to regain its footing after this year's fall. "The dynamic has shifted to a buyers' market," said James Rilett, chief executive of consultancy Minerals Value Service.”…

“Platts and Commercial Partner MVS Expand Iron Ore Value Analytics Platform

LONDON, April 9, 2014 / -- Platts, with its commercial partner Minerals Value Service GmbH, today announced several enhancements to the Minerals Value Service (MVS) online analytics platform, which allows traders and miners of iron ore to calculate and compare grade-specific values of the commodity under varying buying and selling scenarios...”

June 27, 2014 8:56 am

Surplus iron ore spells trouble for miners

Smaller producers are suffering as ore prices continue to drop

As the half year end approaches one commodity stands out from the others – and not in a good way.

Iron ore has slumped 30 per cent in 2014 as a wave of new supply has crashed on to the market overwhelming demand…But it is not just the spot price that has

captured the attention of investors, analysts and traders. So too has the widening price differential between benchmark and lower grade ore. The spread between

62 per cent and 58 per cent ore is currently about $17 a tonne, versus an average of 10 last year. Above and beyond the market moving into surplus James Rilett, of

MVS, a research house, says a couple of factors are driving the widening “quality spread”….

MB IRON ORE: Third of China's iron ore port stocks could be linked to irregular finance

Nearly a third of all Chinese iron ore port stocks could be tied up in irregular financing deals, according to Mineral

Value Services (MVS) ceo James Rilett….

Stockholm 26 June 2014 11:49

MVS in the Press 2014

5 Copyright: MVS

MVS Research & Analytics Key presentation themes

1. Global Market context

• Price & Value cycle, the MVS approach

• Demand summary

• Iron ore supply growth

2. Pricing

• Fe grade premiums

• Impurity discounts technical and market observed values

• Quality premiums – Lump ore

• Chinese supply side response and price elasticity

• Chinese demand and pricing-in of environmental uncertainty

3. China Focus

6 Copyright: MVS

Value maximization and price discovery cycle for iron ore MVS’ core competency in technical modelling and market analytics and research

7 Copyright: MVS

Demand summary Overall pricing under pressure, as weakening demand growth meets new supply

• Chinese steel production is still growing, up 2.7% in the first seven months of this year, according to

official figures.

• However, estimates from CISA suggest that demand growth in the first half of this year was just 0.4%.

• Accelerating steel product exports, up 37% ytd 2014; this has helped alleviate changes in underlying

domestic demand, but indicates shift in demand patterns.

• Concerns over weaker manufacturing and property slowdown

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Invento

ries

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ese

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t)

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re p

rice

62%

Fe ($/t

)

Inventories Iron Ore Price 62% Fe

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Chinese House Prices, Newly Built Y-o-Y

Iron ore inventories remain high Concerns of sustainability of property market

8 Copyright: MVS

Iron ore supply growth Imminent wall of supply is “de-risked”

• Rio Tinto’s recent report states 290Mt a year

production rate reached and ahead of schedule.

Also on track to 2015 360Mt target.

• BHP Billiton upgraded production guidance for the

full year. For iron ore bulls in the market, we

suggest hope of a second half falter in planned

supply are fading fast.

• Vale moving ahead with expansion plans and FMG

has reached target production of 155Mtpa on time.

• Other metals markets such as copper, it is common

practice for analysts to build in a “disruption

allowance” on supply forecasts. So, why should the

supply outlook for iron ore be comparatively “de-

risked”?

9 Copyright: MVS

China’s domestic supply Will higher cost production be displaced?

• The top three producers occupy the lowest positions, significant volumes of Chinese domestic supply are sitting at the top

end. Assuming global demand growth for iron ore of 3% in each of 2014 and 2015 we estimate and additional iron ore

requirement of 59Mt this year, or 119Mt to 2015.

• On the supply side, we estimate planned additions to the global market to be just over 140Mt this year, accumulating to

over 290Mt next year. This implies that to maintain a balanced market, 84Mt of marginal production would need to come

out of the market, increasing to 175Mt the following year.

• How price inelastic is Chinese

supply?

• It is estimated apparent

Chinese domestic ore

production fell by around 5%

in the first half of this year,

but the trend accelerated in

the second quarter.

• Rio Tinto’s Sam Walsh as gone

on record saying 125Mt has

been closed.

143294

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2013 2014E 2015E

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onnes

China Domestic Ore Supply Current Iron Ore Imports to China

Cumulative New Seaborne Supply Displacement of China's Domestic Ore

China's Iron Ore Demand

10 Copyright: MVS

Quality spreads are becoming tradable Price action leads to volatile inter-grade, inter index movements

11 Copyright: MVS

Quality considerations: Not just about % Fe differential. Implied pricing for chemical specs based on mark-to-market technical value in use versus market observed pricing

• Based on current input prices, the market is currently trading above the average Fe, silica and phosphorous differential that is implied by technical value in use analysis for Chinese steel mills.

Possible differential price direction, on the

assumption of mean reversion to VIU

Market Observed

Chinese Steel Mill Category Coastal Large Coastal Medium Coastal Small Inland Large Inland Medium Inland Small Index/Spot Trades

Representative Blast Furnace BF106201 BF020306 BF025501 BF025401 BF01710 BF018201

Anshan I&S

Bayuquan-Yingkou Nanjing I&S

Minmetal

YingkouBaotou

Shougang

ShuichengSichuan Desheng Spot Market/Platts

Fe $ per 1% change $0.90 $0.87 $0.87 $1.21 $1.17 $1.55 $1.45

SiO2 $ per 1% change $0.51 $0.46 $0.49 $0.56 $0.50 $0.66 $1.60

Al2O3 $ per 1% change $0.53 $0.49 $0.57 $0.59 $0.55 $0.73 $0.50

S $ per 0.01% change $0.43 $0.59 $0.43 $0.53 $0.48 $0.50 $0.50

P $ per 0.01% change $0.30 $0.41 $0.30 $0.37 $0.33 $0.35 $0.50

MVS Mark-to-Market Value In Use Sensitivities

12 Copyright: MVS

Impurity discount: Implied silica penalties what can we extrapolate from a limited spot market data set? Average $2/dmt per 1% silica over 4.5%

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/t

Implied Penalty for SiO2 > 4.5%, 60-63% % Fe [RHS] IODEX 62 [LHS] Trades 60-63 % Fe, >7% SiO2 [LHS]

13 Copyright: MVS

A fundamental case for VIU pricing – the relationship between adjacent markets in the steel complex Is there/should there be a coke price correlation?

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rice

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Implied Silica Penalty $/dmt

14 Copyright: MVS

China’s domestic supply Grades do appear to be declining…

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Implied Fe Grade "Crude Ore" Output

• Implied grades are now sub-20% as implied by NBS pig iron production, total crude ore output and iron ore import data.

• Impacts implied cost of production and beneficiation to higher grade sinter and pellet feed concentrates

• Supports “marginal” production argument for seaborne iron ore players

15 Copyright: MVS

China’s domestic supply …but not just about Fe grade

0.00%

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1.00%

1.20%

45% 50% 55% 60% 65% 70%

Sulp

hur

%

Fe %

China Brazil Australia China Average Brazil Average Australia Average

• Sinter feed impurity content should also be a factor with drive to environmental performance

• Sinter plants have stringent criteria for SO2 emissions

• MVS products specification database indicates generally higher S content for Chinese domestic feed

• Sample includes 43 Chinese sinter feed products, 12 Australia fines, 16 Brazilian fines/sinter feed

China Average

Brazil Average

Australia Average

16 Copyright: MVS

Mid-Oct, Tangshan (Hebei) Tangshan city issues the “Tangshan City Air Quality and Production Restrictions for APEC”, informing that in the Tangshan region, over 40 Iron and Steel (I&S) businesses are required to stop/reduce sintering and coking activities by one-third.

Oct 21st, Bazhou & Dachang (Hebei) Steel plants in Langfang Region’s Bazhou and Dachang Autonomous Region receive notice that from November 1st-12th, all sintering plants and rolling lines in these regions must completely stop production.

Nov 2nd, Beijing To uphold the air quality standards for the Beijing APEC summit, the Environmental Protection Agency (EPA) will shortly establish 16 supervisory small groups, for Beijing and its respective neighboring regions.

Nov 3rd, Anyang (Henan); Liaoning; Hebei EPA announces that it is it is supervising the pollution reduction in Anyang, to eliminate illegal polluting businesses with law enforcement. Relevant change measures must be reported to the EPA. At Anshan Steel, 3 blast furnaces stop production. In Handan (Hebei), many steel plants were inspected, and requested to stop production. During the night, 5 cities of Hebei Province begin to implement the “Level I heavy air pollutant reduction measures for the APEC summit” - highest pollutant reduction measure taken for APEC.

Handan I&S

Anshan Steel

Tangshan I&S

Hebei Qianjin

The visible hand of Chinese market forces Local and regional government clamp down on steel making and sintering Mid October 2014 ahead of Beijing APEC conference

17 Copyright: MVS

Nov 6th, Shandong The highest level of emergency pollutant reduction during the APEC summit period. Geographic scope extends to 6 regions in the Shandong Province: Jinan, Zibo, Dongying, Dezhou, Liaocheng, Binzhou. According to sources, this mainly affected construction steel production plants in these regions. Production output (not stated, presumably hot metal) for the day drops below 50,000 tons.

November 7th, Hebei Hebei Province issues a written notice requesting all iron and steelmaking, coking (amongst other) industries with elevated pollutant-release sources, i.e. overhead chutes, to stop production (furnace standby). Local government release the decision to stop production, that inspection groups must start key inspection, and that these pollutant reduction measures will be in place until further notice.

November 8th, Hebei Many steel plants in Hebei Province have already received the above notice, and are organizing production stoppages.

November 9th, Hebei Over 30 steel plants in several Hebei areas have planned orderly production stoppages, with a portion of blast furnaces already having stopped production.

Zhangdian I&S

Guangfu Group

The visible hand of Chinese market forces Local and regional government clamp down on steel making and sintering Mid October 2014 ahead of Beijing APEC conference

18 Copyright: MVS

So what does this mean for the market? What do short term price swings and knee jerk environmental constraints have to do with long term value and price discovery? Can it explain the new lows?

Blast Furnace Production Stoppages

• 73 steel plants in Hebei 287 blast furnaces Combined volume 265,766 m3

• As of Nov 10th @ 1800h,Blast Furnaces: 236 (82.23%) Volume: 201,786 m3 (75.92%).

Recap of impact of measures taken by Chinese regulators

• Chinese domestic ore production to be decreased. Vehicle land transport from ports being restricted.

Blast furnace, sintering, coking facilities’ production suspended.

• Port stocks at 44 Chinese ports build 1.43 mt+ Oct 31st – Nov 14th

Short term reduced demand… 3.1 - 5.1 Mt iron ore consumption (MVS Estimates)

19 Copyright: MVS

Quality premiums: Lump ore pricing structural shifts? …lump premiums declined against market consensus forecast; 2014 has been volatile and Q3-Q4 has seen a rebound

• Expected restrictions on sintering in China were overdone, mills refused to pay higher premiums and alternative forms of raw material were sourced in alternative locations

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H1 2014 vs H1 2013 (% Change)

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Total China Hebei Province

Jiangsu Province Liaoning Province

• In winter 2013 pressure from government focused on mills in Hebei province, which accounts for over 25% of China’s total steel output.

• Some sinter plants were taken off line and steel production was absorbed by capacity in other provinces, characterised by different regional norms in terms of burden mix, notably scrap and pellet.

20 Copyright: MVS

The move back from lump to fines could be a catalyst for higher Fe grade differential Understanding the forward looking supply side picture for quality

• On our assumption that that the impact of sinter plant closures coinciding with APEC, will be short-lived

and consumers will find alternative feed at lump premiums >$0.20/dmtu, we would expect a move back into

the market for fines to be for higher grade material.

• On our recent visit we asked how easily steel plants could switch between low and high grade fines,

depending on the price spread.

• Two mills suggested they could substitute up to 30% low for high grade fines at times when the price

spread is significant. In terms of volume, this “swing” in demand is potentially even greater than that of

lump.

21 Copyright: MVS

Quality premiums: Lump and pellet supply/demand China’s iron ore pellet imports continue to decline and support direct charge premia

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• Lump is linked to the availability of pellet, which

remains limited for now.

• Market dynamic is currently favourable for lump based

on strong pellet fundamentals.

• Demand side is relatively short direct charge ore

overall, reflected in consistent high pellet premiums.

• According to the steel mills MVS spoke to, Pellets are

preferred method of controlling furnace chemistry.

• With winter approaching domestic production of

concentrate (destined for pellet feed) will also be

affected, supporting demand for seaborne material.

• Supportive near term fundamentals with imports of

pellet into China down by over 35% over the first six

months of the year when compared to 2013.

• Brazil exports declined the most, down by over half

from 3.7Mt to 1.6Mt over the period. Platts’ suggest

demand in China is “steady” and contract premiums for

65% Fe-plus pellets $30-40/t range.

22 Copyright: MVS

China focus: Alternate supply and logistics considerations MVS inland transport cost curve for 150 China’s steel mills

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Cumulative Blast Furnace Capacity in China (Mt)

210 Mt

Current Domestic-Seaborne Spread

5 Year Average Domestic-Seaborne Spread

Additional steel mill capacity potentially in the market for seaborne supply based on widening domestic-seaborne spread and current inland freight costs.

• Spread between domestic prices and seaborne alternatives has now over extended, we think this should switch

up to 300 million tonnes of iron ore purchases to the seaborne market.

• These fundamentals should force domestic prices lower and/or a supply response from domestic miners that

struggle to operate at sub $80 equivalent prices.

• The battleground for higher cost producers is against Chinese market inefficiency.

23 Copyright: MVS

China Pricing: an imperfect market forms the battleground MVS adjusted prices for domestic concentrate at 30 steel mills in China shows a lack of switching to seaborne

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ansh

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hangjiang

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Domestic Iron Ore Purchases, normalized to Platts Index CFR Qingdao - Feb '14

Domestic Iron Ore Purchase Prices at the Mill (DDP) - Feb '14

Spot Platts Fe 62 IODEX Price, CFR Qingdao - Feb '14Seaborne

competitive

Domestic competitive

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hangjiang

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Domestic Iron Ore Purchases, normalized to Platts Index CFR Qingdao - Sept '14

Domestic Iron Ore Purchase Prices at the Mill (DDP) - Sept '14

Spot Platts Fe 62 IODEX Price, CFR Qingdao - Sept '14

Seaborne competitive

Domestic competitive

……February 2014

September 2014……

24 Copyright: MVS

Tough times… get smarter about your value maximisation www.mvs-corp.com sales@mvs-corp.com