MMG. A year of consolidation in 2017 AUSTRALIA/HONG KONG. Event. Impact. Earnings and target price revision. Price catalyst. Action and recommendation

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1 AUSTRALIA/HONG KONG AU / 128 HK Outperform Price (at 4:, 13 Mar 217 GMT) A$4.9/HK$2.85 Valuation - DCF (WACC 7.%, ERP 5.%, RFR 3.3%) A$4.86/HK$ month target A$5.5/HK$ month TSR % Volatility Index Very High GICS sector Materials Market cap A$m 3,722 3-day avg turnover A$m. Number shares on issue m Investment fundamentals Year end 31 Dec 216A 217E 218E 219E Revenue m 2, ,87.6 3, ,7.4 EBIT m , , ,292.5 Reported profit m Adjusted profit m Gross cashflow m , , ,41.3 CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % 69.2 nmf PER adj x nmf PER rel x nmf Total DPS.... Total div yield %.... ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x AU vs Small Ordinaries, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March 217 (all figures in USD unless noted, TP in AUD) 29 March 217 Macquarie Securities (Australia) Limited A year of consolidation in 217 Event We recommence coverage of following the completion of the sale of Golden Grove. Impact Las Bambas makes first earnings contribution. We expect Las Bambas to be the key driver of s future earnings and cash flow. The mine s bottom quartile cost structure provides insulation against a falling copper price and significant upside leverage to continued price improvement. Realising value through rationalisation. recently completed the US$21m sale of the Golden Grove mine to EMR Capital, realising a significant multiple to our valuation of the asset. Funds from the sale will be used to pay down corporate debt in FY17. In an equally significant transaction, has reached agreement to sell its Century mine and associated infrastructure. Whilst is still required to provide financial support and guarantees, the sale will result in the removal of significant balance sheet liabilities. Still meaningful capex to be spent. has guided to a total capex spend of US$85m to US$9m in FY17. Dugald River will account for US$33m of the expenditure and we expect the bulk of the US$52m to US$57m balance to be spent at Las Bambas. Balance sheet a focus before further inorganic growth. We expect to remain more highly geared than its non-soe backed peers but we also believe that managing its balance sheet is a key focus for the company. We expect this to be prioritised over further inorganic growth in the near term. Earnings and target price revision Incorporating s FY16 earnings result, asset sales, updated mining assumptions, capex guidance and new commodity price and FX forecasts have resulted in a number of meaningful changes to our forecasts: FY17 up 58%, FY18 up 45%. We lift our target price to HK$3.2/sh/A$5.5/sh from HK$3./sh/A$5.1/sh. Price catalyst 12-month price target: A$A$5.5 based on a 5:5 bend NAV 7x EV/EBITDA methodology. Catalyst: Given its leverage, we expect moves in the copper price to be the key macro driver of the stock. De-leveraging should also provide positive momentum. Notwithstanding our comments on managing the balance sheet, growth is a key company goal and we expect this to be a long-term driver, with the potential for near-term surprises should the opportunity arise. Action and recommendation Maintain Outperform. offers unparalleled leverage to copper in the mid-cap resources sector. We expect the near term to be a period of consolidation for the company but longer term, we believe that Las Bambas provides the basis for further acquisitions and growth. Please refer to page 6 for important disclosures and analyst certification, or on our website

2 FY17 a year of consolidation Las Bambas makes first earnings contribution reported a US$98.7m loss in CY16 with the full year result very much reflecting a year of two halves. The company reported a loss of US$93.5m in the 1H16 with a recovery in copper price and commercial production at Las Bambas a key feature of the 2 Las Bambas comfortably exceeded company production guidance for CY16, producing 33,227t against guidance of 25,t to 3,t. Actual C1 costs for CY16 were US$1.2/lb, at the lower end of company guidance. Despite only operating commercially for the second half, the mine s earnings still eclipsed the remainder of the portfolio. Fig 1 Mine by mine Ebitda and Ebitda margin Y/E Dec Ebitda () Ebitda margin (%) Las Bambas % Sepon % Kinsevere % Century (1.1) -42% Australian operations % Source:, Macquarie Research, March 217 We expect Las Bambas to be the key driver of s future earnings and cash flow. The mine s bottom quartile cost structure provides insulation against a falling copper price and significant upside leverage to continued improvement. We expect cash flows from the mine to be robust although near-term capex requirements and interest payments are likely to see much of this cash consumed internally in FY17. Fig 2 Las Bambas forecast Ebitda Fig 3 Las Bambas forecast cash flow H16a 217e 218e 219e 22e Macq forecasts Spot +1% H16a 217e 218e 219e 22e Macq forecasts Spot +1% Source:, Macquarie Research, March 217 Source:, Macquarie Research, March 217 Realising value by rationalising the portfolio recently completed the US$21m sale of the Golden Grove mine to EMR Capital. The sale price realised a significant multiple to our A$16m valuation. In our view, the transaction was a logical one for, realising meaningful value from a non-core asset at a time when additional cash is desirable. Funds from the sale will be used to pay down corporate debt in FY17. The company expects to book a net profit after tax of between US$1m and US$3m from the sale. In an equally significant transaction, has reached agreement to sell its Century mine and associated infrastructure to Century Bull. Century Bull plans to reprocess the substantial zinc tailings at the mine: once done, this will complete a significant portion of the rehabilitation required at the site. 29 March 217 2

3 Whilst is still required to provide financial support and guarantees, the sale will result in the removal of significant balance sheet liabilities. Century s book value amounted to a net liability of US$148.2 million, which included a significant rehabilitation liability of US$317. million. As a condition of the agreement, must provide a bank guarantee of up to A$193m and make an additional contribution of A$34.5m to support Century Bull over the next 3 years and also establish a A$12m community fund. expects to report a modest post tax loss of between US$5m and US$2m on the sale. Still meaningful capex to be spent at Las Bambas and Dugald River has guided to a total capex spend of US$85m to US$9m in FY17. Dugald River will account for US$33m of the expenditure. Although commercial production has been achieved at Las Bambas, there is still a large capital programme underway. With its other assets effectively ex-capex, we expect the bulk of the US$52m to US$57m balance to be spent a Las Bambas. Balance sheet a focus before further inorganic growth We expect to remain more highly geared than its non-soe backed peers but we also believe that managing its balance sheet is a key focus for the company. We expect this to be prioritised over further inorganic growth but at the same time believe that funding capacity would still be available should the right opportunity arise. reported total borrowings of US$1,339.5m at December 31 and net debt of US$9,786.8m, and the company reported a gearing ratio on a 1% basis was 79% (Las Bambas ownership 62.5%, inclusive of the US$2,262m shareholder loan). Fig 4 Group borrowings Net debt (1% basis) 9,786.8 Shareholder loan + contributed equity 2,589.6 Net debt + equity 12,376.4 Source: Company data, Macquarie Research, March 217 The vast majority of the Group s debt is associated with Las Bambas and is held by South America Management Group in 3 main facilities totalling US$9,219m. The balance of the Group debt is corporate or associated with the Dugald River Project. Fig 5 Las Bambas Facilities Maturity Interest rate Acquisition Facility LIBOR plus 35bp Project Facility 5, LIBOR plus 355bp Shareholder Term Loan 2, Total 9,219 Source: Company data, Macquarie Research, March 217 reported a number of other available debt facilities at the balance date and in combination with current cash reserves and forecast cash flows for its near-term obligations. Fig 6 Other available facilities Entity Facility Facility limit Drawn () Undrawn () Note South America Working Capital Revolver LB only South America Project Facility 5,988 5, LB Corporate ICBC Term 3 1 Matures Apr 217 Corporate Dugald River Facility Source: Company data, Macquarie Research, March March 217 3

4 CY11 CY12 CY13 CY14 CY15 CY16 CY17e CY18e CY19e CY2e CY21e CY22e CY23e CY24e CY25e CY26e CY27e CY28e CY29e CY3e CY1 CY11 CY12 CY13 CY14 CY15 CY16 CY17e CY18e CY19e CY2e CY21e CY22e CY23e CY24e CY25e CY26e CY27e CY28e CY29e CY3e CY1 CY11 CY12 CY13 CY14 CY15 CY16 CY17e CY18e CY19e CY2e CY21e CY22e CY23e CY24e CY25e CY26e CY27e CY28e CY29e CY3e Copper equiv (kt) Fig 7 Revenue by metal () Fig 8 forecast capex spend () 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Gold Zinc Copper Copper equivalent Lead Silver Moly , 7, 6, 5, 4, 3, 2, 1, Sepon () Kinsevere () Century () Rosebery () Golden Grove () Dugald River () Izok Corridor () Las Bambas () Source:, Macquarie Research, March 217 Source:, Macquarie Research, March 217 Fig 9 Forecast Las Bambas production and costs Fig 1 Net debt/gearing (kt/koz) Copper production (kt) Moly production (kt) AISC (US$/lb) Gold production (koz) C1 cash costs (US$/lb) Debt Net cash / (debt) () Gearing (net debt/(nd + equity)) Gearing (net debt/equity) 1% 5% % -5% -1% -15% -% Source:, Macquarie Research, March 217 Source:, Macquarie Research, March 217 Fig 11 Operating and free cash flow () Fig 12 Asset NPV breakdown 2, 1,5 1, 5 (5) (1,) (1,5) (2,) (2,5) Rosebery 2% Resources & Development projects 6% Dugald River 13% Sepon 5% Las Bambas 66% Kinsevere 8% Operating cash flow () Free cash flow () Source:, Macquarie Research, March 217 Source:, Macquarie Research, March March 217 4

5 Fig 13 summary model Source:, Macquarie Research, March 217 Limited HKEx: Mkt cap: (HK$m) 15,431 Year end: Dec Rating: Outperform Up/dn TSR ASX: 4.9 Mkt cap: (A$m) 2,629 Diluted shares (m) HK$ Target: % 12% A$ Target: % 12% ASSUMPTIONS CY14 CY15 CY16 CY17e CY18e CY19e CY2e ATTRIBUTABLE MINE OUTPUT CY14 CY15 CY16 CY17e CY18e CY19e CY2e Copper Production (kt) Exchange Rate HK$/US$ Sepon kt Copper (US$/lb) Kinsevere kt Gold (US$/oz) 1,36 1,16 1,248 1,241 1,381 1,375 1, Las Bambas kt Zinc (US$/lb) Other kt Lead (US$/lb) Total copper production kt Gold Production (kt) Sepon koz RATIO ANALYSIS CY14 CY15 CY16 CY17e CY18e CY19e CY2e Las Bambas koz Rosebery koz Diluted share capital m 5,414 5,414 5,414 8,6 8,6 8,6 8,6 Golden Grove koz EPS (diluted and pre sig. items) US Total gold production koz P/E x 2.x -11.4x -44.5x 4.9x 5.9x 5.9x 5.5x Zinc Production (kt) CFPS US Century kt P/CF x 23.1x 54.7x 21.4x 12.7x 18.4x 16.5x 15.7x Rosebery kt DPS US Golden Grove kt Dividend yield %.%.%.%.%.%.%.% Dugald River kt Franking Level % % % % % % % % Total zinc production kt Book value per share x Total lead production kt P/Book value x.2x.2x.2x.3x.3x.3x.3x Total silver production koz 4,713 5,138 5,83 4,644 2,853 2,857 2,858 R.O.E. (pre sig items) % 3% -9% % 5% 4% 4% 5% AISC R.O.A. (pre sig items) % 2% -2% 2% 1% 9% 9% 9% Sepon (US$/lb) Interest Cover x 3.1x -2.7x.8x 3.1x 2.7x 2.9x 3.4x Kinsevere (US$/lb) EBITDA per share US$ps Las Bambas (US$/lb) EV/EBITDA x 1.2x 23.5x 1.2x 4.x 4.2x 3.6x 3.x Century (US$/lb) EARNINGS CY14 CY15 CY16 CY17e CY18e CY19e CY2e FORECAST EARNINGS BY MINE Sales Revenue 2,48 1,951 2,526 4,88 3,873 4,7 3,972 Other Revenue Total Revenue Operating Costs (1,531) (1,313) (1,483) (1,635) (1,75) (1,822) (1,724) Operational EBITDA ,46 2,453 2,168 2,186 2,247 Exploration Expense/Write-offs (73) (42) (39) (39) (4) (41) (42) Corporate & Other Costs (112) (185) (58) (5) (51) (52) (54) EBITDA ,363 2,76 2,92 2,152 D&A (537) (64) (685) (818) (84) () (768) EBIT 244 (228) 265 1,545 1,272 1,292 1,384 Net Interest (79) (85) (313) (499) (472) (439) (41) Significant Items (897) 2 Profit Before Tax 164 (1,21) (48) 1, Tax Expense (65) 162 (5) (355) (267) (284) (327) Minorities (127) (28) (64) (112) Reported NPAT 99 (1,26) (45) Rosebery (US$/lb) Golden Grove (US$/lb) Significant Items (897) 2 RESERVES AND RESOURCES Adjusted NPAT 99 (129) (45) Copper/Gold Reserves Mt Cu (%) Mo Au (g/t) Cu (Mt) (ppm) CASHFLOW CY14 CY15 CY16 CY17e CY18e CY19e CY2e Proved Mo (kt) Au (Moz) Ag (g/t) Probable Net Profit Total Interest/Tax/D&A , Copper/Gold Resources Mt Cu (%) Mo Au (g/t) Ag (g/t) Cu (Mt) Mo Au Working Capital/other (3) 2 5 (6) (ppm) (kt) (Moz) Net Operating Cashflow ,81 1,251 1,391 1,46 Measured Capex (1,38) (1,959) (771) (953) (416) (38) (33) Indicated Investments 1,16 25 (95) Inferred Sale of PPE and Other (2,895) (39) 19 Total Free cash flow (2,16) (1,465) (125) ,12 1,13 Polymetallic Reserves Mt Cu (%) Pb (%) Zn (%) Cu (Mt) Pb Zn Au (g/t) Dividends Paid (64) (8) (4) (Mt) (Mt) Debt 2,178 1,82 (421) (1,287) (652) (575) (575) Proved Equity Issuance Probable FX impact Total Net Financing Cashflow 2,114 1, (1,77) (652) (575) (575) Polymetallic Resources Mt Cu (%) Pb (%) Zn (%) Cu (Mt) Pb (Mt) Zn (Mt) Au (g/t) Net change in cash (46) (22) Measured BALANCE SHEET CY14 CY15 CY16 CY17e CY18e CY19e CY2e Indicated Inferred Cash ,58 Total PP&E & Mine Development 11,11 11,873 12,84 12,219 11,831 11,411 1,974 Other 2,138 2,189 2,593 2,437 2,48 2,44 2,42 EQUITY DCF VALUATION Total Assets 13,49 14,66 15,23 14,989 14,755 14,769 14,884 Projects US$ps HK$ps A$CDI Debt 8,29 1,263 1,253 9,792 9,139 8,565 7,99 Sepon Total Liabilities 2,37 2,222 2,387 3,24 3,425 3,543 3,678 Kinsevere Total Net Assets / Equity 11,184 12,438 12,843 11,749 11,331 11,225 11,26 Las Bambas 6, Net Debt / (Cash) 7,958 9,665 9,71 9,459 8,623 7,612 6,482 Rosebery Gearing (net debt/(nd + equity)) % 42% 44% 43% 45% 43% 4% 37% Dugald River 1, Gearing (net debt/equity) % 71% 78% 76% 81% 76% 68% 58% Resources & Development projects Investments... EARNINGS SENSITIVITIES Corporate (476) (.6) (.46) (.78) Y/E December CY15 CY16 CY17e CY18e CY19e CY2e NPV Net Cash (Debt) (6,738) (.84) (6.49) (11.5) 1% change in copper price 85% 58% 75% 126% 15% 85% 55% Net Equity Value (@ 9% WACC) 2, % change in zinc price 71% 6% 9% 15% 11% 4% 17% Price Target HK$/A$CDI (5/5 Blend of NPV and 7.x EV/Ebitda) % change in gold price 6% % 3% 5% 4% 2% 2% 1, 1, 1, - Sepon Kinsevere Century Rosebery Golden Grove Las Bambas 29 March 217 5

6 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie South Africa Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3 index return Neutral (Hold) return within 5% of Russell 3 index return Underperform (Sell) return >5% below Russell 3 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 6 1% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4 6% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3 4% in a year. Low medium stock should be expected to move up or down at least 25 3% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 216 AU/NZ Asia RSA USA CA EUR Outperform 57.53% 5.72% 45.57% 42.28% 6.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients) Neutral 33.9% 33.97% 43.4% 5.11% 37.23% 35.62% (for global coverage by Macquarie, 8.5% of stocks followed are investment banking clients) Underperform 8.56% 15.3% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients) AU vs Small Ordinaries, & rec history 128 HK vs HSI, & rec history (all figures in AUD currency unless noted) (all figures in HKD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March month target price methodology AU: A$5.5 based on a 5:5 bend NAV 7x EV/EBITDA methodology 128 HK: HK$3.2 based on a 5:5 NAV 7x EV/Ebitda methodology Company-specific disclosures: AU: MACQUARIE CAPITAL LIMITED or one of its affiliates managed or co-managed a public offering of securities of Ltd in the past 12 months, for which it received compensation. 128 HK: Macquarie Group Limited together with its affiliates beneficially owns 1% or more of the equity securities of Ltd. Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 2-Sep-216 AU Outperform A$5. 8-Aug-216 AU Outperform A$ Jun-216 AU Neutral A$ Mar-216 AU Outperform A$3.18 Date Stock Code (BBG code) Recommendation Target Price 2-Sep HK Outperform HK$3.1 8-Aug HK Outperform HK$ Jun HK Neutral HK$ Mar HK Outperform HK$ Dec HK Outperform HK$ Sep HK Outperform HK$ Aug HK Outperform HK$ Jul HK Outperform HK$ Jul HK Outperform HK$ May HK Outperform HK$ Apr HK Outperform HK$ Apr HK Outperform HK$ March 217 6

7 This publication was disseminated on 29 March 217 at 1:52 UTC. 2-Mar HK Outperform HK$ Mar HK Outperform HK$ Jan HK Outperform HK$3.23 Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN , AFSL , a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by, a division of Macquarie Equities Limited ABN AFSL ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Apart from Macquarie Bank Limited ABN (MBL), any MGL subsidiary noted in this research,, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at Macquarie Group 29 March 217 7