Company Review. Metals X Limited. Meekatharra acquisition secured (eventually) MLX A$0.26 (TP A$0.32) Recommendation Buy Risk Assessment Higher

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1 13 June 2014 Metals X Limited Meekatharra acquisition secured (eventually) MLX announced on 13 June 2014 that the creditors of GMK Exploration, a subsidiary of Reed Resources, agreed to the sale of the Meekatharra Gold Operations (MGO) to MLX for a revised price of ~A$10m (A$9.4m in cash and 24m Reed shares held by MLX). The A$10m consideration is A$2.3m higher than the original 14 May offer price of A$7.7m, with the increase in response to a five-minutes-to-midnight offer announced by the administrator from another unnamed party. MLX states that the acquisition has received FIRB approval and is now proceeding towards settlement. Even at a ~30% higher price, the purchase of a fully refurbished 2.5Mtpa CIP Process Plant (Bluebird), plus a Resource of 3.55Moz 1.75g/t Au), represents excellent value in our opinion. The consideration equates to A$13 per Reserve ounce and A$3 per Resource ounce - significantly below recent corporate activity medians of A$99/oz and A$24/oz respectively. Recent corporate activity in the Australian gold sector MLX A$0.26 (TP A$0.32) Recommendation Buy Risk Assessment Higher Resources - Diversified David Brennan, CFA Senior Resources Analyst dbrennan@ords.com.au (02) Source: Companies, compiled by Ord Minnett The most attractive element of the acquisition is that it provides a relatively low-cost/low-risk vehicle for advancing the group s higher-grade underground Central Murchison Gold Project (15.5Mt 2.36g/t = 1.2Moz), located some 100km to the South-East of the MGO plant. Our initial NPV estimate for the CMGP Reserves of A$97m underpins a A$153m valuation (A$143m net the A$10m consideration) for a combined CMPG/MGO operation. As we currently value the CMGP at just A$42m ( 46% of its mid-2012 purchase price from Westgold), we suggest that the acquisition could potentially add some A$101m or A$0.06ps to our target price for MLX of A$0.32ps. Key Financials Year-end June FY13A FY14E FY15E FY16E FY17E Spot Tin (US$/t) 21,577 22,315 22,875 23,625 24,240 Spot Gold (US$/oz) 1,600 1,308 1,300 1,300 1,313 AUD:USD (average) Sales volume (Sn t) 3,345 3,062 3,464 3,233 3,233 Sales volume (Au oz) 0 144, , ,779 0 Revenue (A$m) EBITDA (A$m) Reported NPAT (A$m) Normalised NPAT (A$m) EPS Reported (A$) EPS Normalised (A$) DPS (A$) PE multiple (x) Net debt / (cash) (A$m) Capex (A$m) Source: Iress, Company Data, Ord M innett Est. Share price: $ Jun 13, 2014 Metals X Limited ASX Code MLX 52 week range $ $0.27 Market Cap (A$m) 435 Shares Outstanding (m) 1,655 Avg Daily Turnover (shares) 1,804,572 ASX All Ordinaries 5,358 FY14E BV per share (A$) 0.21 EPS FY14E (A$) 0.05 FY14E Net Debt/(Cash) (A$m) (78) Relative price performance Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Source: Iress MLX Consensus earnings ASX Small Resources FY14E FY15E NPAT (A$m) (C) NPAT (A$m) (OM) EPS (A$) (C) EPS (A$) (OM) Target Price (Consensus) Target Price (Ord Minnett) Source: Bloomberg, Ord Minnett A$0.37 A$0.32 Page 1

2 Table 1: Estimated NPV of CMGP Reserves and NPV-derived value of CMGP/ MGO Resources Estimated NPV of CMGP Reserves Year Project Financial year Total Reserve - opening (Mt) Reserve - closed (Mt) Reserve - mined & processed (Mt) Grade (g/t Au) Contained ounces (koz Au) ,173 Mill recovery 94% 94% 94% 94% 94% 94% 94% 94% - Recovered ounces (koz Au) ,103 Gold price (US$/oz) 1,300 1,300 1,300 1,326 1,353 1,380 1,407 1,435 - AUD:USD exchange rate Gold price (A$/oz) 1,411 1,529 1,625 1,658 1,691 1,724 1,759 1,794 - Revenue (A$m) ,863 Operating costs (A$m) - (89) (182) (186) (189) (193) (197) (137) (1,174) Road haulage costs to MGO (A$m) - (13) (26) (27) (27) (28) (28) (20) (168) Royalty expenses (A$m) - (3) (7) (7) (8) (8) (8) (5) (47) Costs (A$m) - (105) (215) (220) (224) (229) (233) (163) (1,389) EBITDA (A$m) Project Debt Interest (A$m) EBT (A$m) Tax (A$m) - (9) (22) (23) (23) (24) (24) (17) (142) EAT (A$m) Cash inflow from equity raising (A$m) Cash inflow from debt financing (A$m) Debt principal repayment (A$m) Pre-production capex (A$m) (15) (15) Development capex (A$m) - (10.0) (20.0) (20.0) (20.0) (20.0) (20.0) (10.0) (120) Maintenance/Other capex (A$m) - (2.5) (5.0) (5.0) (5.0) (5.0) (5.0) (2.5) (30) Project cashflow (A$m) (15) Discount rate 10% PV of cash flow (A$m) 97 CMGP cost assumptions Operating costs (A$/t) Road haulage costs (A$/t) Cost inflation nm 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Royalty on revenue (% ) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Estimated value of CMGP & MGO CMGP Reserves CMGP Resources (excluding Reserves) MGO Reserves MGO Resources (excluding Reserves) Total CMGP and MGO assets Value (A$m) (Koz Au) 1,173 Asset value (A$/oz) 83 3, , , Discount na 90% 80% 95% Asset value less A$10m purchase price Current value attached to CMGP (A$m) Uplift relative to current valuation (A$m) Uplift relative to current valuation (A$/ps) Source: Company, Ord Minnett forecasts Note: The NPV s for the CMGP Resources and the MGO Reserves/Resources are based on discounts of 80-95% to the estimated NPV of the CMGP Reserves (i.e., A$83/oz). Road haulage costs assumes A$0.10/t per kilometre and an average haulage distance of 100km. Operating costs of A$70/t based on 2013 Project DFS average onsite operating costs of A$66/t. Page 2

3 SWOT analysis Strengths MLX is currently the only ASX listed producer of tin. With a global lack of advanced tin projects, MLX is well positioned to immediately benefit from any uplift in the tin price. Ability to utilise tax losses against future earnings MLX reported accumulated tax losses of ~A$180m (prior to acquisition of Alacer s Australian gold operations which also comes attached with tax losses). Diversified commodity exposure, with exposure to both risk on (base-metals) and risk-off (gold) assets. MLX s operational assets all have significant infrastructure with no major capital expansions required to maintain production levels. MLX s balance sheet remains robust with FY14E forecast cash reserves of A$78m (excluding A$10m in the BMJV) and no corporate debt. Opportunities Ability to monetise Wingellina. We currently ascribe a modest nominal valuation to Wingellina the ability of MLX to secure a strategic deal whereby they maintain a minority interest in the project with no capital requirement could create value significantly beyond our current estimates. As the only currently producing ASX listed tin producer, and with expansion potential through the Rentails project, MLX is well positioned to benefit from any price gains (from a tightening of tin supply driven by regulatory reform in Indonesia and depletion of known tin Resources). Ability to continue to build Resource and Reserve base at Renison. MLX have been successful in defining additional Resources since assuming control of Renison. Both the Trident and Chalice gold deposits remain open down plunge. The ability to define further Resources and Reserves could extend mine life and improve MLX s return on investment. Weaknesses MLX s most recent (March 2014) biannual estimate of mineral resources and ore reserves, boosted Reserves by 43% to 75.8kt Sn metal from 53kt, with ore increasing by 33% to 5.5Mt (4.1Mt previously). At a mill throughput rate of 700kt this equates an eight year LOM. MLX is Australia s largest tin producer and is in the top-10 globally. An eightyear LOM for a company of this stature in the tin market reflects the overall tightness in the global supply/demand balance. The Reserve grade of 1.38%Sn is below current production levels of 1.4 to~1.5%sn Limited mine life at recently acquired gold operations. Additional investment in extensional Resource drilling will likely be required to extend mine life. Development projects require significant capex in currently constrained capital environment Significant environmental liabilities attached to recently acquired Higginsville and South Kalgoorlie Operations Limited liquidity MLX has an average daily turnover of approximately 1.7m shares. Threats MLX remains exposed to adverse movements in both commodity prices (gold and tin) and foreign exchange rates. Historically, production at Renison has been negatively impacted by geotechnical issues. While we believe that operations have since moved away from these problematic zones, production interruptions as a result of geotechnical issues could still occur (negatively impacting forecast cash flows). Funding, permitting and development risks remain around MLX s growth projects (Rentails, CMGP, Rover 1). Ineffective allocation of cash resources. MLX may elect to invest future cash flows and current cash reserves in projects or acquisitions that do not deliver satisfactory returns. Page 3

4 Financial Statements Metals X (MLX) Year ending June Profit & Loss Statement (A$m) FY13A FY14E FY15E FY16E FY17E Assumptions FY13A FY14E FY15E FY16E FY17E Revenue Spot Tin (US$/t) 21,577 22,315 22,875 23,625 24,240 Operating costs (48) (145) (187) (174) (43) Spot Nickel (US$/t) 15,499 16,535 17,637 17,637 17,990 Corporate (5) (7) (7) (7) (7) Spot copper (US$/lb) 7,352 7,165 6,614 6,063 6,184 Other (Royalty/Exploration) (13) (20) (21) (25) (9) Spot Gold (US$/oz) 1,600 1,308 1,300 1,300 1,313 EBITDA AUD:USD Depreciation & Amortisation (11) (29) (32) (32) (19) Operating profit (11) Production Profile FY13A FY14E FY15E FY16E FY17E NOI Renison (t) (50% basis) 3,345 3,062 3,464 3,233 3,233 EBIT (4) Higginsville (oz) 0 125, , ,779 0 Interest income South Kalgoorlie (oz) 0 18,846 15, Interest expense (0) (0) Tax expense Operating costs FY13A FY14E FY15E FY16E FY17E Reported NPAT Renison (A$/t) 13,070 12,749 11,886 13,207 13,405 Normalised NPAT Higginsville (A$/oz) EBITDA Margin (%) 0% 38% 35% 37% 39% South Kalgoorlie (A$/oz) , Effective tax Rate (%) nm 0% 0% 0% 0% Leverage FY13A FY14E FY15E FY16E FY17E EPS Reported (A$) Net Debt/Equity -22% -22% -35% -40% -46% EPS Normalised (A$) Net Debt/Total Assets -21% -20% -31% -37% -44% EPS grow th (%) nm na 12% 8% -70% Interest Cover (x) -11 na na na na DPS (A$) Dil Av no. of shares (m) 1,590 1,690 1,690 1,690 1,690 Valuation Ratios (x) FY13A FY14E FY15E FY16E FY17E Dil YE no. of shares (m) 1,690 1,690 1,690 1,690 1,690 Normalised P/E Price/OP Cash Flow Cash Flow Statement (A$m) FY13A FY14E FY15E FY16E FY17E EV (A$m) EBITDA EV/EBITDA nm Investment in w orking capital (2) (7) (6) 1 24 ROE (%) nm 25% 22% 19% 5% Tax expense Operating Cash Flow NPV Valuation NPV (A$m) Capex (20) (83) (37) (65) (28) Renison Reserves (50% interest) 185 Other investments Renison Resources (50% interest) 40 Investing Cash Flow 1 (83) (37) (65) (28) Rentails (50% interest) 27 Net interest received / (paid) Renison exploration 9 Debt draw dow n / (repayment) (4) (0) CMGP 42 Dividends paid Rover 3 Equity raised / (repaid) Higginsville Reserves 127 Financing Cash Flow (2) Higginsville Resources 16 Non-operating & Other South Kalgoorlie - Inventory (5) Inc/(Dec) in Cash South Kalgoorlie - Resources 0 Wingellina 10 Balance Sheet (A$m) FY13A FY14E FY15E FY16E FY17E PV of corporate costs (37) Cash & Deposits Enterprise value 417 Receivables FY14E cash* 88 Inventories Investments 3 Other Current Assets Corporate Debt 0 PPE and Exploration & Development MLX Equity value (NPV) 508 Deferred tax asset Risk-w eighting (discount) Other Non Current Assets Risk-w eighted NPV (A$m) Total Assets month NPV target value (A$) Payables and other current Liabilities month NPV target value is based on NPV value escalated by ROE and adjusted for dividends Short Term Debt *Note: FY14E Cash includes estimated A$10m held in BMJV Long Term Debt Other Non Current Liabilities EPS (A$)* PER (X) Target value (A$) Total Liabilities PE multiple valuation Total Equity * Based on one- year rolling EPS Net Debt (Cash) (61) (78) (153) (214) (257) Weighted Target Price* Major Shareholders (%) Date Target value Weighting Valuation method APAC Resources 24.0% (A$) (%) Jinchuan Group 10.6% Jun-14 1-year NPV % Blackrock 6.3% EPS/PER % Source: Company, Bloomberg, Ord Minnett estimates. * Target price is a one- year out target price Target price (A$) NPV/share (A$) Current (A$) () 0.01 (0.02) % Capital gain / (loss) % Page 4

5 Please contact your Ord Minnett Adviser for further information on our document. Research Tim Smart Head of Institutional Research Sydney David Brennan, CFA Senior Resource Analyst Sydney Paresh Patel Senior Research Analyst Sydney John Young Senior Research Analyst Melbourne Brad Dunn Analyst Sydney Nicholas McGarrigle Analyst Sydney Ord Minnett Branches Adelaide Level Grenfell Street Adelaide SA 5000 Tel: (08) Fax: (08) Brisbane Level Eagle St Brisbane QLD 4000 Tel: (07) Fax: (07) Buderim Sunshine Coast 1/99 Burnett Street Buderim QLD 4556 Tel: (07) Fax: (07) Caloundra, Sunshine Coast Bulcock Street Caloundra QLD 4551 Tel: (07) Fax: (07) Canberra 101 Northbourne Avenue Canberra ACT 2600 Tel: (02) Fax: (02) Coffs Harbour Suite 4 21 Park Avenue Coffs Harbour NSW 2450 Tel: (02) Fax: (02) Gold Coast Level 7, 50 Appel Street Surfers Paradise QLD 4217 Tel: (07) Fax: (07) Mackay 45 Gordon Street Mackay QLD 4740 Tel: (07) Fax: (07) Melbourne Level Collins Street Melbourne VIC 3000 Tel: (03) Fax: (03) Newcastle 426 King Street Newcastle NSW 2300 Tel: (02) Fax: (02) Tamworth Suite Peel Street Tamworth NSW 2340 Tel: (02) Fax: (02) Wollongong Level 1 17 Flinders Street Wollongong NSW 2520 Tel: (02) Fax: (02) Head Office Sydney Level 8, NAB House 255 George Street Sydney NSW 2000 Tel: (02) Fax: (02) International Hong Kong 1801 Ruttonjee House 11 Duddell Street Central, Hong Kong Tel: Fax: Page 5

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