© Minerals Value Service GmbH 2013

November, 2013

1

www.mvs-corp.com

2 Copyright: MVS

New Generation of Miners, James Rilett MVS

Introduction: MVS and Bryanston Resources, achieving excellence in technical

marketing and iron ore analytics

The rapidly evolving iron ore market – more liquidity, sophistication and derivatives

present opportunities for price risk management for all market participants

West Africa overview - commercial and technical benchmarking exercise, key

challenges and outcomes for the next generation of miners

What can be learned from the new generation’s best practices?

3 Copyright: MVS

About MVS

Founded 2011, Munich Germany, by team of consultants, metallurgists, traders and

software developers

2012 Opened London office and continued to grow diverse and eminent client

base

Sep, 2013 signed a financing and marketing deal with McGraw Hill Financial making

a significant investment in the continuing development of the business

Leading edge web based Iron Ore analytical modelling and pricing system

4 Copyright: MVS

Bryanston resources - a global presence drawing on

international experience

Bryanston is the fastest growing firm in its space –

ca. 100 employees are serving clients globally – soon offices to cover all major mining regions

Opening 2014

Recent projects

Existing offices

Western

Africa

North America

South

America

Southern Africa

ANZ

South East Asia

Europe

Asia

London

Zug

Tel Aviv

Lagos

Johannesburg

Shanghai

Moscow

Rio de

Janeiro

New Delhi

Perth

Munich

Singapore

Toronto

5 Copyright: MVS

The Global Commodities Markets are evolving – where is Iron Ore on its evolutionary journey?

Pricing Mechanism Evolution

Pricing Mechanism in

Iron Ore industry ?

Benchmark Pricing: Yearly fixed prices to an agreed reference

Short- Term Pricing: Ongoing negotiation, e.g. after each transaction

Index Pricing: Spot market traded reference

Financial Markets Participation

Terminal Markets

Financial settlement: Paper traded derivatives

Journalistic Pricing: Based on published transactions

Natural Gas

Crude Oil

Ferrochrome

Chrome

Iron Ore

6 Copyright: MVS

How does Iron Ore compare to other Global commodities in its sophistication and liquidity?

Bubble size indicates relative market size

Highly liquid markets:

Adjacent markets develop

• Vibrant spot and financial

market further encourage

adjacent markets to

develop

Low liquidity markets:

Benchmark Sales

• Sales based on yearly

benchmark prices

• Market liquidity very limited,

most deals closed on long-

term basis

• Large variety of product

types

Liquid markets : Financial

markets exist

• Intermediaries facilitate

shorter-term transactions

• Liquid financial forward /

futures market develops

• Creative financial

structures emerge e.g.,

swaps, options

Hybrid markets: Benchmark

and spot sales

• Producers shift increasing

volume to shorter

contracts

• Single reference product

emerges as the pricing

standard to simplify

trades

• Period typically

accompanied by greater

volatility

Physical vs.

Paper traded volumes

Ma

rket

Liq

uid

ity

Commodity Market Evolutions

Gold

Crude Oil

Copper

Aluminum

Natural Gas

ZincNickel

Thermal Coal

Platinum

Iron Ore

Met Coal

Chrome Ore

BM Concentrates

7 Copyright: MVS

MVS is helping large and junior mining and trading organisations incorporate sophisticated VIU pricing & analytics to their toolkit

BC

A

Understand the specific needs of

each of your customer's

products and their technical processes

Geo-server calculates best

routing and optimal cost under various constraints

(land and seaborne)

Identify best uses and adjust prices

based on customer needs,

freight differentials and value-in-use

Logistic options and optimal cost routing

Mine data, production

and product options

Customer process and burden mix

options

“Best”customer and

portfolio optimization

Input data and parameters

Value-in-Use calculation engine

1 2 43

Take whole value chain into

account to determine real

value of iron ore in a given

application

Proprietary databases and

external sources

+/-

Fair price

=

VIU 1

VIU 2

“fair pricing”and best

customers

Iron Ore specs

Plant database

Logistics and costs

Mine Information

Steelmill process

Prices indexes

Observed differentials

Cloud-based server

Value to MVS user

8 Copyright: MVS

Junior minors are using detailed customer analysis and VIU methodologies to better negotiate terms

• Fully integrated from Mining (Coal & IO) through Final

Product

• Crude Steel Capacity: – 4mtpa

• Utilisation: ~98%

• Hot Metal Production 2012: ~4mt

• Iron Ore Demand: 7mtpa

• 1mtpa captive supply

• 0.2mtpa purchased locally

• 5.8mtpa imported

• Majority ore supplied by Rio Tinto & Vale

• Captive Power Supply: Yes – generate in excess of

100% of required supply

• Captive Coking Coal: Yes – 100% of required coal,

premium quality source

• Location:

• Zhongyang County, Shanxi Province

• ~700km by rail from port

Customer intelligence

• Has Long term contracts but regularly purchases on

spot

• Prefers CFR basis

• Comfortable using Platts 62% as base

• Will pro rata for higher FE content

Buying Terms

Benefit of

harder ore

Benefit of high

Fe Content

Low ZA ore %

means Alkali is

less of an issue

Push for DDP and

then concede CFR

We are competing

with international

supply

There is A LOT AfricaOre can do to infer SteelCorp preferences

• Fe

• Alkali

• Moisture

• Sulfur

• Pricing Formula

• Index reference

• Price average

interval

• Discounts

• Credit Risk

• Shipping Terms

• Prov. Payment %

• Cancellation Terms

Customer Preferences

-0.2

0.1

0.4

0.7

1Price

Service TermsQuality

Price

Quality Service

Terms

Increasing value

for Steel Company

9 Copyright: MVS

Juniors have sophisticated tools available to calculate freight netbacks and to rank their best customers on a CFR basis

10 Copyright: MVS

West Africa: The new Pilbara?

Burkina Faso

Be

nin

Ghana

Côte

d'Ivoire

Liberia

Sierra

Leone

Equatorial Guinea

Gabon

Nigeria

The Democratic Republic of Congo

Congo

Cameroon

Gambia

Senegal

Guinea

Central

African Republic

Guinea Bissau

To

goPort Pepel

Lolabe

Pointe-

Noire

Greenville

Buchanan

Port

African Minerals

Tonkolili

20

2011

Sundance Resources

Mbalam

35

2017

Afferro Mining

Nkout

35

2017

London Mining

Marampa

5

2011

Aluvance

Bikoula

2015

Severstal

Putu

12

2017

Core Mining

Avima

35

2016

Arcelor

Yekepa

152

2011

Rio Tinto

Simandou

951

2015

Sable Mining

Nimba

10

2014

Company

Project

Annual production target Mtpa

Production Start date

Bellzone

Kalia

10

2015

Kogi Iron

Agbaja

20

2015

Tawana

Mofe Creek

Warri

Simandou

Zanaga Iron Ore

Zanaga

30

2014

Equatorial Resources

Badondo

2015

Equatorial Resources

Mayoko

2

2014

Exxaro

Mayoko

102

2013

11 Copyright: MVS

Reviewing each West African mining project from 3 perspectives to assess their attractiveness to investors

Cost Perspective Commercial Perspective Risk Perspective

Domestic

Logistics

Analysis

FOB Cost

Opex

Analysis

Capex

Analysis

Technical VIU

Analysis

Netback

Post-FOB

Logistics

Analysis

Overall Risk

Assessment

Opex

Risk

Country

Risk

Market

Risk

Capex

Risk

Overall Project Attractiveness Compared to Benchmarks

Logistics

Risk

Cost

Perspective

Commercial

Perspective

12 Copyright: MVS

Company Project Large Small Large Small Large Small Netback ($/t)1

Aluvance Bikoula

Rio Tinto Simandou

Core Mining Avima

ArcelorMittal Yekpa2

Sable Nimba3

Sundance Res. Mbalam

Equatorial Res. Badondo

Equatorial Res. Mayoko

Exxaro Mayoko

Severstal Putu

Afferro Nkout

African Minerals Tonkolili

Bellzone Kalia

London Mining Marampa

Zanaga Iron Ore Zanaga

From a commercial and technical ViU perspective, we rank the West African projects by product quality Total Technical Value in Use difference vs Platts 62% at different furnaces ($/t)

1. Netback calculated as the average price received for 10mtpa supplied (5% of customers’ burden mix), based on Platts 62% long-term price of $110/t2. Yekepa specs not disclosed, Nimba specs taken as proxy (similar location & ore body) 3. Nimba specs used are the averaged lumps / fines of consolidated specs : 63.1% Fe, 0.07% P, 2.6% SiO2, 2.5% Al2O3, 4.2% LOINote: Projects ranked by netback valueSource: Company reports, Bryanston analysis

6.2

1.3

8.3

14.9

6.2

1.2

-5.0

-10.7

1.7

1.3

-3.1

-6.9

7.4

7.8

-12.2

20.3

-8.3

-4.8

1.6

2.2

1.5

-17.4

7.8

1.5

9.2

10.8

15.5

8.6

8.0

6.4

1.7

6.4

1.2

-5.6

1.2

-3.3

-11.6

0.7

-7.5

-12.9

-6.2

-3.8

-8.6

1.2

8.1

1.6

0.9

6.7

16.7

1.2

9.1

6.7

-3.9

6.8

1.2

-13.8

-9.4

1.2

1.4

1.6

6.8

8.2

9.1

17.0

-6.6

1.9

1.7

9.0

9.0

10.6

12.2

-21.7

-10.4

-5.5

2.8

1.9

-15.9

23.5

No DSO

No DSO

Tie

r 1

Tie

r 2

Tie

r 3

Tie

r 1

Tie

r 2

Tie

r 3

87.5

78.8

97.6

102.6

83.4

87.8

87.8

108.0

85.8

82.8 92.0

70.9

78.8

97.5

91.6

92.6

98.788.8

99.8

91.6

83.2

79.2

85.368.2

63.4

66.5

13 Copyright: MVS

Case Study: CORE mining’s Avima project, 2 phase approach, Phase 1 - road and river port loading

Source: CORE mining

14 Copyright: MVS

Case Study: CORE mining’s Avima project, 2 phase approach, significant volumes predicted 2018 onwards

Source: CORE mining

15 Copyright: MVS

Case Study: CORE mining’s Avima project Phase 2 sees significant cost reductions and real volumes at truly competitive CIF costs

Source: CORE mining

16 Copyright: MVS

Bryanston West Africa Iron Ore benchmarking studyKey Takeaways

Exxaro Mayoko, Sable Nimba and African Minerals Tonkolili rank in the top 3 most

attractive West Africa Iron Ore projects in our investor-perspective analysis

There is a high importance of developing early contact and relationships with the

highest netback European customers

Capex and logistics costs are the key differentiators of project

attractiveness for investors

The West Africa region has an abundance of high quality DSO. The ‘best customer’

ranking is very similar for all projects

Chinese customers are well positioned on the netback curve and this should be the

priority market for the majority of DSO volume

17 Copyright: MVS

What lessons can be learned from the next generation

best practices?Key Takeaways

Through engaging directly with the emerging derivatives markets juniors are

increasingly able to capture and protect value from active price risk management

Breaking into and sustaining sales in Europe is proving hard but they are

capturing opportunity by dealing directly with China, in an INFORMED way

By using the latest technical marketing methodologies and technologies juniors

are able to achieve better pricing terms both in spot and term agreements