Australia Resources. Commodity price sustainability key. AUSTRALIA Recommendation changes. Event. Impact. Outlook. Neutral to Outperform

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1 AUSTRALIA Recommendation changes Neutral to Outperform OZ Minerals Western Areas St Barbara Alacer Gold Outperform to Neutral Beadell Resources Troy Resources Diversified majors BHP Billiton Rio Tinto South32 Iron-ore Fortescue Metals Mt Gibson Iron Coal New Hope Corporation Whitehaven Coal Base metals Alumina OZ Minerals Sandfire Resources Independence Group Western Areas Clean TeQ Holdings Gold Newcrest Mining Evolution Mining Northern Star Resources Regis Resources St Barbara Saracen Minerals Alacer Gold Gold Road Resources Perseus Mining Beadell Resources Dacian Gold Doray Minerals Troy Resources Outperform Outperform Outperform Outperform Outperform Outperform Neutral Outperform Outperform Outperform Neutral Outperform Outperform Neutral Outperform Neutral Neutral Outperform Neutral Outperform Outperform Neutral Neutral Restricted Neutral Neutral 14 March 217 Macquarie Securities (Australia) Limited Commodity price sustainability key Event Macquarie s commodities team has updated its price forecasts, with the key changes being upgrades to cobalt, alumina and nickel and cuts to our coking coal forecasts. The spot price upside risk has been largely removed from our forecasts with the exception of iron-ore and cobalt while downside risk remains for nickel. Impact Upgrade and downgrades driven by structural supply changes: The key changes to our price forecasts for CY17 are rises of 47% for cobalt, 16% for iron-ore and 12% for nickel and a 12% cut to coking coal. In CY18 the key changes are upgrades of 29% for cobalt, 21% for alumina and a 9% cut to coking coal. We note that significant changes in supply side fundamentals, concerns over DRC sourced cobalt and proposed winter curtailments for alumina, and a lack of favourable Chinese intervention on coking coal supply have all be key drivers behind the update. Price targets fall as focus shifts to FY18: Incorporating the commodity price changes has translated to generally mixed changes to earnings for most stocks in our coverage universe. However shifting focus to FY18, our lower price forecasts for bulk commodities drives 7-13% cuts to price targets for BHP, RIO, FMG and WHC to better reflect the increased earnings volatility between our forecasts and spot prices. Outlook Overweight bulk commodity producers: Iron-ore price upside risk remains significant for BHP, RIO and FMG and has the potential to drive material earnings upgrades and deliver further capital management surprises over the next six months. The emerging supply curtailments for aluminium and alumina and a belief that China will re-instate the 276 day policy should boost thermal coal prices and drive material upside risk to the earnings outlook for S32 and AWC. We continue to see value in all five stocks, with RIO, S32 and AWC our preferred picks and FMG offering the most upside under a spot price scenario. Our forecasts for S32 are 28% above consensus for FY18 while our AWC earnings estimates are double consensus for CY18. Value emerging in base metals: We have upgraded OZL and WSA to Outperform after incorporating the commodity price changes. The release of the full-feasibility study for OZL presents a material near-term catalyst for the stock while we prefer WSA over IGO for nickel exposure, with the supply outlook expected to become clearer in coming months. CLQ offers unique exposure to the improving outlook for cobalt. Gold volatility continues: Gold equities continue to trade in volatile ranges, and we would expect this to continue while the gold price trades within the US$1,15/oz-US$1,25/oz range. We have upgraded SBM and AQG to Outperform on valuation grounds while we cut BDR and TRY to Neutral due to higher currency costs and emerging operational risks respectively. Our preference in gold is now EVN, SBM, AQG and GOR. Please refer to page 37 for important disclosures and analyst certification, or on our website

2 Cobalt Iron-ore Nickel Lithium Thermal coal Gold Alumina Silver Aluminium Zinc Copper Lead Manganese Coking coal Cobalt Alumina Manganese Nickel Thermal coal Aluminium Gold Iron-ore Lithium Copper Silver Zinc Lead Coking coal Upgrading near-term outlook for bulks and battery raw materials Macquarie s Commodities team has upgraded its price outlook for a number of key commodities. The most significant upgrades are to cobalt, which has seen a near 1% rise in spot prices in the last few months on the back of strong battery demand. We also lift our iron-ore and nickel price forecasts to reflect strong steel demand and increased risk of closures from the Philippines respectively. We also cut our coking coal forecast by 12% for CY17 to reflect price movements and the lack of near-term favourable China policy intervention on coal supply. In CY18 the 29% upgrade to our cobalt forecasts dominate the landscape, although we also lift our CY18 alumina price forecast by 21% to account for the impact of likely winter production curtailments for both alumina and aluminium. Our manganese price forecast rises 9% in CY18 while coking coal is again the only material downgrade, falling 9%. Fig 1 CY17 upgrades to cobalt, iron-ore and nickel Fig 2 CY18 upgrades to cobalt and alumina 5.% 4.% 3.% 2.% 1.%.% (1.%) 5.% 4.% 3.% 2.% 1.%.% (1.%) Source: Bloomberg, Macquarie Research, March 217 Source: Bloomberg, Macquarie Research, March 217 Upgrading South American currencies Macquarie s economics team has made some material adjustments to our South American exchange rate forecast, which primarily reflect recent strength in the exchange rate. We cut our US$/BRL forecast by more than 2% over the next two years, and 16% in CY19. We note that spot US$/BRL exchange rate has fallen from 4:1 to close to 3:1 over the past twelve months. The economics team also makes some modest cuts to our Chilean Peso and South African Rand forecasts, also largely reflecting recent strength in the spot rate. We note that our Australian dollar forecasts are unchanged. We note that S32 has the largest exposure to these currencies in our coverage universe. Fig 3 Stronger Brazilian real reflects recent moves Exchange rates 1Q17E 2Q17E 3Q17E 4Q17E CY17e CY18e CY19e CY2e Long-term A$/US$ - old A$/US$ - new Change (%) % % % % % % % % % US$/ZAR - old US$/ZAR - new Change (%) (5%) (4%) (1%) % (3%) % % % % US$/BRL - old US$/BRL - new Change (%) (2%) (2%) (21%) (23%) (21%) (23%) (16%) (5%) (11%) US$/CLP - old US$/CLP - new Change (%) (3%) (4%) (4%) (4%) (4%) (7%) (7%) % % Source: Bloomberg, IRESS, Macquarie Research, March March 217 2

3 Upgrading alumina but cutting coking coal Our commodities team has made a number of changes to our bulk commodity price forecasts reflecting changing supply/demand fundamentals but also incorporating recent price movements. The most significant changes are to alumina, where we upgrade our CY18 forecast by 21% and CY19 and CY2 by 11% and 15% respectively. The upgrades reflect the likely impact of the proposed winter supply curtailments in China and also slower delivery of new supply ex China. Our iron-ore prices increase by 16% for CY17, although the upgrade is only in the 1QCY17 and 2QCY17, with our forecasts rising 42% and 18% respectively. Steel demand expectations have been stronger than we had expected and combined with some wet weather impacts has resulted in a much tighter iron-ore market in the near-term. Our forecasts for CY18 and CY19 are unchanged. The decline in spot coking coal prices has been more aggressive than we were anticipating and we now expect the quarterly contract price for the 2QCY17 to come in around US$175/t, 24% lower than our previous forecast. We have also rebased for forecasts for the remainder of CY17 and CY18 on the back of the cut to the 2QCY17 forecast. We note that with Chinese thermal coal prices around RmB63/t an immediate resumption of the 276 working day policy is less likely, although we still expect this to occur should Chinese thermal coal prices fall back towards RmB5/t. We also upgrade near-term thermal coal prices to reflect recent price strength. Manganese prices have been extremely volatile, falling from US$9.1/mtu to US$4.6/mtu so far this year. Lower grade prices are down from the December peak of US$8.2/mtu to US$3.2/mtu. The supply side response to soaring prices late last year was significant but with lower grade prices now below breakeven for many higher cost South African producers, we believe the price decline is close to bottoming. We have also upgrading our near-term price outlook for lithium reflecting recent spot price moves. We note that most of the hard rock lithium producers have fixed price agreements in the near-term hence are not overly impacted by the price upgrades. Fig 4 Upgrading iron-ore near-term and alumina medium term but cutting coking coal Bulk commodities 1Q17E 2Q17E 3Q17E 4Q17E CY17e CY18e CY19e CY2e Long-term Iron-ore (US$/t)- old Iron-ore (US$/t)- new Change (%) 42% 18% % % 16% % % (8%) % Hard Coking Coal (US$/t)- old Hard Coking Coal (US$/t)- new Change (%) % (24%) (14%) (1%) (11%) (9%) % % % PCI coal (US$/t) - old PCI coal (US$/t) - new Change (%) % (24%) (14%) (1%) (12%) (9%) % % % Soft Coking Coal (US$/t)- old Soft Coking Coal (US$/t)- new Change (%) % (24%) (14%) (1%) (12%) (9%) % % % Thermal Coal Spot Price (US$/t)- old Thermal Coal Spot Price (US$/t)- new Change (%) 9% 3% % 4% 4% 3% % % % Manganese Ore (US$/mtu)- old Manganese Ore (US$/mtu)- new Change (%) (19%) % % 7% (5%) 9% 7% 7% 9% Ferro-manganese (US$/t)- old 1,3 1,15 1, , Ferro-manganese (US$/t)- new 1,444 1,43 1,235 1,4 1, ,4 1,4 78 Change (%) 11% 24% 18% 7% 15% 9% 7% 7% 9% Bauxite Spot (US$/t)- old Bauxite Spot (US$/t)- new Change (%) % % % % % % % % % Alumina Spot (US$/t)- old Alumina Spot (US$/t)- new Change (%) (1%) % 2% 8% 2% 21% 11% 15% 7% Lithium (US$/t) - old 1, 9, 8, 8, 8,75 7,5 7, 6,75 5,151 Lithium (US$/t) - new 11, 1,5 9,5 8, 9,75 7,5 7, 6,75 5,151 Change (%) 1% 17% 19% % 11% % % % % Source: Bloomberg, IRESS, Macquarie Research, March March 217 3

4 Cobalt and nickel prices upgraded We have made some material upgrades to our cobalt and nickel price forecasts. Cobalt prices have been the standout performer in 217 with prices rising from US$15/lb to US$25/lb in 217. Strong demand for mobile batteries and a reluctance from major phone manufactures to consume cobalt mined illegally in the Democratic Republic of Congo have been key drivers behind the strong price rise. Nickel prices have been volatile, falling on the back of the partial lifting of the nickel ore export ban in Indonesia. However we believe the risk of larger than expected closures from the Philippines mine audit is rising, and we have upgraded our nickel price forecasts for CY17 by 12% and CY18 and CY19 by 6% and 4% respectively. Changes to other base metal forecasts are minimal. Fig 5 Stronger outlook for cobalt and nickel Base Metals 1Q17E 2Q17E 3Q17E 4Q17E CY17e CY18e CY19e CY2e Long-term Aluminium (US$/lb)- old Aluminium (US$/lb)- new Change (%) 1% 1% % % 1% 2% % % % Copper (US$/lb)- old Copper (US$/lb)- new Change (%) % % % % % % % % % Nickel (US$/lb) - old Nickel (US$/lb) - new Change (%) 1% 18% 18% 11% 12% 6% 4% % % Cobalt (US$/lb) - old Cobalt (US$/lb) - new Change (%) 43% 55% 45% 45% 47% 29% 1% 6% % Lead (US$/lb) - old Lead (US$/lb) - new Change (%) % % % % % % % % % Zinc (US$/lb) - old Zinc (US$/lb) - new Change (%) % % % % % % % % % Source: Bloomberg, IRESS, Macquarie Research, March 217 Gold prices back below US$1,2/oz Spot gold prices have come under pressure in recent weeks falling from US$1,25/oz to just under US$1,2/oz ahead of an expected interest rate rise at the next US Federal Reserve meeting on 14/15 March. However prices are still trading well above our previous forecasts and we lift our 1QCY17 and 2QCY17 forecasts by 9% and 4% to better reflect current spot prices. We make modest adjustments to our forecast beyond CY17 and make only modest adjustments to our silver price forecasts for CY17. Given the lack of exposure within our ASX coverage universe we have not included the changes to our PGM forecasts. Fig 6 Gold and silver largely unchanged Base Metals 1Q17E 2Q17E 3Q17E 4Q17E CY17e CY18e CY19e CY2e Long-term Gold (US$/oz) - old 1,115 1,125 1,275 1,35 1,216 1,375 1,363 1,4 1,25 Gold (US$/oz) - new 1,215 1,175 1,25 1,325 1,241 1,381 1,375 1,4 1,25 Change (%) 9% 4% (2%) (2%) 2% % 1% % % Silver (US$/oz) - old Silver (US$/oz) - new Change (%) 4% % % % 1% % % % % Source: Bloomberg, IRESS, Macquarie Research, March 217 Upside risks remain for iron-ore, cobalt and coal The upside risk to our base case forecasts compared to spot prices have diminished for CY17 but there remains material upside risk to our CY18 forecasts for a number of commodities. Iron-ore continues to be the dominant driver of upgrades under a spot price scenario. Iron-ore prices have fallen US$1/t from the peak but remain 36% above our CY17 forecast and 8% higher than our CY18 forecast. 14 March 217 4

5 Aside from iron-ore the commodity offering the most upside risk is cobalt. Only CLQ and IGO have any meaningful cobalt exposure within our coverage universe, however CLQ is not expected to be in production until after 22 and IGO s cobalt exposure is modest. The cuts to our coking coal forecasts have left modest upside risk to our forecasts for the remainder of CY17 (excluding 1QCY17 contract price) and also increased upside risk to CY18. Current spot prices are 5% higher than our 2Q-4QCY17 forecasts and 28% higher than our CY18 estimate. We see a similar profile for thermal coal with spot prices 8% higher than our CY17 forecast and 21% higher than CY18. Most base metals are trading at modest discounts to our forecast for CY17 and CY18, with nickel the clear standout. Current spot prices for nickel are 1% and 15% lower than our CY17 and CY18 forecasts respectively while zinc, lead and tin prices are 5-1% lower over both years. We are also seeing downside risk to our manganese price forecast for CY17 emerge after a dramatic fall in the spot price. Fig 7 CY17 spot price upside vs Macq forecasts Fig 8 CY18 spot price upside vs Macq forecasts 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% (1.%) (2.%) 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% (1.%) (2.%) Source: Bloomberg, Platts, IRESS, Macquarie Research, March 217 Source: Bloomberg, Platts, IRESS, Macquarie Research, March 217 Mixed changes to earnings for the majors but cuts to price targets Incorporating the changes to our commodity prices has had a mixed impact on the earnings outlook for the diversified majors. The lift in our near-term iron-ore price forecasts has driven strong earnings upgrades for both BHP and RIO, which see FY17 earnings rise 1% and 18% respectively. However for FY18 and beyond the 9% cut to our CY18 hard coking coal price and 8% cut to CY2 iron-ore price sees cuts of 3-6% to earnings for BHP over the FY18-FY21 years. RIO s outlook is more mixed with earnings marginally higher in FY18 and FY19 but down 6% and 4% in FY2 and FY21 due to the lower iron-ore price. We have included RIO s December Y/E for completeness. The impact on S32 s earnings is more mixed. Our EPS falls 4% in FY17 due to the lower manganese and coking coal prices while the medium-term upgrades to alumina are partially offset by the stronger Brazilian real and weaker coking coal prices with earnings for FY18 up 2% and FY19 and FY2 up 7%. Fig 9 Mixed changes to earnings for diversified majors Y/E June Code FY17e FY18e FY19e FY2e FY21e BHP Billiton BHP 1% (6%) (3%) (6%) (4%) Rio Tinto RIO 18% 1% 2% (6%) (4%) South32 S32 (4%) 2% 7% 7% 12% Y/E December Code CY17e CY18e CY19e CY2e CY21e Rio Tinto RIO 2% 3% 2% (11%) 4% Source: Macquarie Research, March March 217 5

6 Price targets cut as we shift focus to FY18 Our price targets for BHP, RIO and S32 are based on a 5/5 blend of NPV and forward EV/EBITDA estimates. With much of the upside risk to our FY17 estimates now removed post the commodity price upgrades we shift our focus to FY18. We cut our ASX and LSE price targets for BHP by 9% to A$3. and 15.9 respectively while our JSE target falls 7% to ZAR26. RIO sees more modest cuts due to the greater impact of higher iron-ore and alumina prices offsetting the coking coal cuts. Our price targets fall 4% for A$76. and 5% to 42. for the ASX and JSE listing respectively. The impact on S32 s earnings is surprisingly modest and results in a 3% cut to our ASX target to A$3.7 while our LSE and JSE targets are unchanged at 2.3 and ZAR37 respectively. Fig 1 Cuts to targets as focus shifts to FY18 Company Code Market Cap (US$m) Rating Share price Price target old Price target new Change TSR BHP Billiton ASX: BHP 89,264 Outperform A$23.67 A$33. A$3. (9%) 3% BHP Billiton LSE: BLT 89,264 Outperform (9%) 31% BHP Billiton JSE: BIL 89,264 Outperform ZAR22 ZAR28 ZAR26 (7%) 32% Rio Tinto ASX: RIO 73,53 Outperform A$58.97 A$79. A$76. (4%) 35% Rio Tinto LSE: RIO 73,53 Outperform (5%) 38% South32 ASX: S32 1,743 Outperform A$2.66 A$3.8 A$3.7 (3%) 45% South32 LSE S32 1,743 Outperform % 46% South32 JSE S32 1,743 Outperform ZAR26.28 ZAR37. ZAR37. % 47% Source: IRESS, Macquarie Research, March 217 We expect capital management to remain a key focus for the diversified majors in 217. RIO has already announced a US$.5bn share buy-back and we expect S32 to launch a similar size buy-back around its 3QFY17 production result. The strong 1HFY17 result and buoyant spot prices should see all three stocks return strong dividends on an FY17 basis. Our forecasts call for BHP to pay a 5.2% yield, RIO a 6.4% yield and S32 a 5.9% yield. Material upside risk at spot into 218 for the diversified majors The upgrades to our near-term commodity price forecasts have significantly reduce the upside risk to our FY17 earnings forecasts compared to spot prices, although upside risk remains on iron-ore. Similarly FY18 forecasts have seen some of the upside risk removed, with the exception of ironore. We note that spot iron-ore prices are 74% higher than our FY18 forecast and there remains some upside risk to our manganese and coking coal price forecasts for FY18. Running spot prices delivers a broadly similar result for BHP for FY17 between Macquarie forecasts, Bloomberg consensus and spot prices. The upside for RIO is more significant given it is a December Y/E company. Fig 11 FY17/CY17 earnings upside comparison Fig 12 FY18 earnings upside comparison 14, Consensus (US$m) Macquarie (US$m) Spot (US$m) 14, Consensus (US$m) Macquarie (US$m) Spot (US$m) 12, 12, 1, 1, 8, 8, 6, 6, 4, 4, 2, 2, BHP RIO BHP RIO Source: Bloomberg, Macquarie Research, March 217 Source: Bloomberg, Macquarie Research, March March 217 6

7 A better comparison is FY18 where both the spot price scenario and Bloomberg Consensus are higher than our forecasts for both BHP and RIO, although the upside for BHP appears larger compared to consensus. We attribute this largely to our sub US$6/bbl oil price forecasts over both years. Similarly for S32 the variance between our forecasts and a spot price scenario is modest for FY17 following our latest commodities update. However the variances into FY18 and FY19 are significant with our forecasts well above Bloomberg consensus estimates for both years while a spot price scenario delivers further upside to both our forecasts and consensus. We attribute the variance largely to our more bullish outlook for alumina prices. Fig 13 South32 EBITDA (US$m) comparison Fig 14 South32 earnings (US$m) comparison 4, 3,5 3, 2,5 2, 1,5 1, 5 Consensus Macquarie Spot 2, 1,8 1,6 1,4 1,2 1, Consensus Macquarie Spot FY17e FY18e FY19e FY17e FY18e FY19e Source: Bloomberg, Macquarie Research, March 217 Source: Bloomberg, Macquarie Research, March 217 Bulk commodity pure play earnings also mixed Incorporating the near-term upgrade to our iron-ore price forecasts drives a 28% upgrade to FMG s FY17 earnings although we note the upgrade was tempered by an increase in our assumed pricing discount. We now expect FMG to realise 82% of benchmark for the 3QFY17 and 84% for the 4QFY17. We make similar upgrades for MGX but given the company s high net cash position our price target is unchanged. The upgrades to our alumina price forecasts have materially improved the outlook for AWC from CY18 and beyond with our CY18 earnings rising 63% and CY19 39%. The larger percentage rises in CY2 and CY21 are due to our previous earnings forecasts being more marginal. Earnings for coal producers were mixed. NHC benefited from the lift in our thermal coal price forecasts with earnings up 1-3% over the next three years. WHC s semi-soft coking exposure meant that the cuts to our coking coal price forecasts more than offset the thermal coal price increases with earnings falling 3% for FY17 and FY18 and 8% for FY19. Fig 15 Mixed changes to earnings for pure play bulk commodities Y/E June Code FY17e FY18e FY19e FY2e FY21e Fortescue Metals Group FMG 28% 7% 19% (7%) (8%) Mt Gibson Iron MGX 43% 8% 24% (14%) (6%) Whitehaven Coal WHC (3%) (3%) (8%) (%) (%) New Hope Corporation NHC* 1% 21% 29% 11% 24% Y/E December Code CY17e CY18e CY19e CY2e CY21e Alumina AWC (1%) 63% 39% 976% 259% Source: Macquarie Research, March 217 *July Y/E 14 March 217 7

8 Price targets rise and fall for pure play bulk commodities The bulk of our price targets are based on a 5/5 blend of EV/EBITDA multiples and NPV. With much of the upside risk to our FY17 estimates now removed post the commodity price upgrades we shift our focus to FY18. This combined with the changes to our earnings estimates drives an 11% cut to our price target for FMG to $6.8. Fig 16 Cuts to targets as focus shifts to FY18 Company Code Market Cap (A$m) Rating Share price Price target old Price target new Change Fortescue Metals FMG 19,25 Outperform A$6.11 A$7.6 A$6.8 (11%) 17% Mt Gibson Iron MGX 45 Outperform A$.41 A$.55 A$.55 % 34% Whitehaven Coal WHC 2,719 Neutral A$2.65 A$3.2 A$2.8 (13%) 6% New Hope Corp NHC 1,354 Outperform A$1.63 A$2.1 A$2.3 1% 51% Alumina AWC 5,328 Outperform A$1.85 A$2.2 A$2.4 9% 41% Source: IRESS, Macquarie Research, March 217 TSR Material upside risk at spot prices for FMG We note that running a spot price scenario delivers materially higher earnings for FMG than both our base case scenario and also Bloomberg consensus. Our earnings forecasts for FMG are 1% higher than Bloomberg Consensus for FY17 but 37% lower for FY18. We suspect our iron-ore price forecasts are below consensus for FY18 and FY19. Moving into FY18 and FY19 the spot price scenario upside is significant. In FY18 using spot prices delivers earnings 19% higher than consensus and 36% higher than our forecasts. MGX s earnings outlook is modest over the next two years, hence while there is some variance between our forecasts and a spot price scenario, the consensus sample size is also small. Coal producers still have upside risk vs consensus in FY18, with our forecasts for WHC and NHC 5% and 73% higher than consensus averages respectively. A spot price scenario delivers a materially higher outcome for NHC in particular due to its greater exposure to thermal coal. We note that our coking coal price forecasts are much closer to current spot prices than thermal coal for FY18 and our forecasts for NHC are also well above Bloomberg consensus for FY18, although like MGX the sample size is smaller. Our forecasts for AWC are also well ahead of Bloomberg consensus for both CY17 and CY18, with upside of 43% and 1% for both years respectively. We note that our forecasts are much closer to spot with a spot price scenario delivering CY17 earnings 13% higher than our estimate while our forecasts and a spot price scenario are broadly in line for CY18. Fig 17 Material spot upside to FMG s earnings (U$m) Fig 18 Coal has earnings upside for FY18 at spot 4,5 Consensus Macquarie Spot 6 Consensus (US$m) Macquarie (US$m) Spot (US$m) 4, 3,5 5 3, 4 2,5 2, 3 1,5 2 1, 5 1 FY17e FY18e FY19e MGX WHC NHC AWC Source: Bloomberg, Macquarie Research, March 217 Source: Bloomberg, Macquarie Research, March March 217 8

9 Upgrades for nickel producers is significant Incorporating the material upgrades to our near-term nickel price forecasts has significantly improved the earnings outlook for WSA and IGO. Our earnings for WSA rise 25% in FY18 and 27% in FY19 while the upgrades for IGO are more modest at 11% and 12% for FY18 and FY19 respectively. The changes to our copper price forecasts were modest and as a result we see only slight changes to our earnings forecasts for copper producers. The upgrades to our short and medium-term forecasts for cobalt were significant, however as we did not change our long-term prices, CLQ only sees an upgrade to its first year of production in FY2. Fig 19 Mixed changes to earnings for pure play bulk commodities Y/E June Code FY17e FY18e FY19e FY2e FY21e Sandfire Resources SFR 1% (%) % % % Independence Group IGO 17% 11% 12% 4% 1% Western Areas WSA 552% 25% 27% 4% 1% Clean TeQ Holdings CLQ % % % 23% 1% Y/E December Code CY17e CY18e CY19e CY2e CY21e OZ Minerals OZL 2% 1% 1% (%) % Source: Macquarie Research, March 217 Upgrading OZL and WSA on valuation and nickel upside risk We have upgraded OZL from Neutral to Outperform despite making only modest changes to our earnings forecasts. OZL is set to release the final feasibility study in the next few weeks and we expect improved financial metrics, including reduced capex, will be a positive catalyst for the stock. SFR remains our preferred pure copper play stock on valuation grounds. We have left our recommendation on IGO at Neutral despite the improved near-term earnings outlook. IGO is set to release updated guidance for the Nova ramp up in April and we retain a cautious view ahead of that announcement. However we are upgrading WSA from Neutral to Outperform on the back of the improved earnings outlook and potential positive catalyst from the aforementioned Philippines mining audit. We recently initiated coverage on CLQ with an Outperform rating and a $1.5 price target. CLQ offers a unique exposure to cobalt, with its Syerston project in NSW targeting first production in 22. Syerston is forecast to produce 19ktpa of nickel and 3ktpa of cobalt in sulphate as opposed to concentrate, enabling CLQ to directly target Lithium-ion battery manufacturers. Fig 2 Cuts to targets for SFR and OZL as focus shifts to FY18 Company Code Market Cap (A$m) Rating old Rating - new Share price Price target old Price target new Change Sandfire Resources SFR 976 Outperform Outperform A$6.19 A$8. A$7.8 (3%) 31% Independence Group IGO 2,53 Neutral Neutral A$3.5 A$4. A$4. % 16% Western Areas WSA 64 Neutral Outperform A$2.22 A$2.6 A$2.7 4% 24% Clean TeQ Holdings CLQ 464 Outperform Outperform A$.97 A$1.5 A$1.5 % 55% OZ Minerals OZL 2,38 Neutral Outperform A$7.97 A$1.4 A$9.6 (8%) 24% Source: IRESS, Macquarie Research, March 217 TSR Base metal earnings less variable A comparison of our earnings forecasts for OZL, SFR, IGO and WSA for FY17 and FY18 demonstrate much lower variances to our base case both under a spot price scenario and also using Bloomberg consensus data. We note spot price scenarios for FY17 are generally lower than our forecasts for all four base metal miners with the variance to consensus more mixed. For FY18 we note that our forecasts are below consensus for OZL and IGO but above for SFR and WSA. We caution that the sample sizes for the mid-cap base metal miners is much smaller than the large cap miners. We have not included CLQ in this comparison as the company does not have meaningful earnings until beyond FY2. 14 March 217 9

10 Fig 21 Low variance to consensus and spot in FY17 Fig 22 OZL and IGO consensus higher than Macq Consensus (US$m) Macquarie (US$m) Spot (US$m) Consensus (US$m) Macquarie (US$m) Spot (US$m) OZL SFR IGO WSA OZL SFR IGO WSA Source: Bloomberg, Macquarie Research, March 217 Source: Bloomberg, Macquarie Research, March 217 Gold miners see two upgrades and two downgrades We make only modest changes to our earnings forecasts for gold producers compared to bulk and base metal miners due to the more modest changes to our gold and silver price forecasts. Price targets fall slightly for some producers, while the more material cuts to our target for BDR reflect the recent capital raising and stronger Brazilian Real outlook. The ~3% reduction in price targets for DRM and TRY reflect increasing operational risks at Andy Well for DRM and Karouni for TRY. We have upgraded both AQG and SBM from Neutral to Outperform with share price volatility opening up the value gap. Conversely we cut our ratings on BDR and TRY from Outperform to Neutral to reflect the increasing operating risk. We keep all other recommendations unchanged. Fig 23 Two recommendation upgrades and two recommendation downgrades Company Code Market Cap (A$m) Rating old Rating - new Share price Price target old Price target new Change Newcrest Mining NCM 16,725 Neutral Neutral A$21.82 A$24. A$24. % 11% Evolution Mining EVN 3,29 Outperform Outperform A$1.92 A$2.7 A$2.5 (7%) 31% Northern Star NST 2,324 Neutral Neutral A$3.87 A$4. A$4. % 3% Regis Resources RRL 1,519 Neutral Neutral A$3.4 A$3. A$3. % (1%) St Barbara SBM 1,175 Neutral Outperform A$2.32 A$3. A$2.9 (3%) 25% Alacer Gold AQG 681 Neutral Outperform A$2.31 A$2.9 A$2.8 (3%) 21% Saracen Mineral SAR 779 Neutral Neutral A$.97 A$1.1 A$1.1 % 14% Gold Road GOR 448 Outperform Outperform A$.52 A$.8 A$.7 % 55% Perseus Mining PRU 341 Neutral Neutral A$.33 A$.33 A$.32 (3%) % Beadell Resources BDR 329 Outperform Neutral A$.27 A$.35 A$.3 (14%) 11% Dacian Gold DCN 276 Restricted A$1.89 Doray Minerals DRM 17 Neutral Neutral A$.3 A$.5 A$.34 (32%) 13% Troy Resources TRY 7 Outperform Neutral A$.16 A$.25 A$.17 (28%) 16% Source: IRESS, Macquarie Research, March 217 TSR The changes to our gold producer earnings forecasts are mixed, with modest upgrades to FY17 earnings offset by cuts to FY18. The changes are generally less than 1% and demonstrate the significant earnings leverage offered by gold miners given the changes to our gold price forecasts were just a 6% rise for 1HCY17 and a 2% fall for 2HCY March 217 1

11 Fig 24 Gold earnings changes reflect earnings leverage Y/E June Code FY17e FY18e FY19e FY2e Newcrest Mining NCM 12% (4%) 6% 2% Evolution Mining EVN 9% (2%) 2% 1% Northern Star NST 6% (3%) 2% 1% Regis Resources RRL 7% (4%) 2% 1% St Barbara SBM 6% (4%) 3% 1% Saracen Mineral SAR 8% (5%) 3% 1% Gold Road GOR nm nm nm nm Perseus Mining PRU 7% (7%) 5% 1% Dacian Gold DCN na na na na Doray Minerals DRM nm (2%) 19% 6% Troy Resources TRY nm (4%) 4% 2% Y/E December Code CY17e CY18e CY19e CY2e Alacer Gold AQG 17% 17% 4% % Beadell Resources BDR (8%) (24%) (2%) na Source: Macquarie Research, March 217 We note that there is only modest variances between our forecasts and a spot price scenario for FY17 but material downside risks to FY18. We caution that the sample size for many gold miners is less than five and we have only included the larger producers in this analysis. Fig 25 FY17 earnings variations vs consensus/spot Fig 26 FY18 earnings variations vs consensus/spot 6 Consensus (A$m) Macquarie (A$m) Spot (A$m) 8 7 Consensus (A$m) Macquarie (A$m) Spot (A$m) NCM EVN NST RRL SBM SAR NCM EVN NST RRL SBM SAR Source: Bloomberg, Macquarie Research, March 217 Source: Bloomberg, Macquarie Research, March 217 Fig YTD performance of ASX gold miners shows volatility 3% 2% 1% % (1%) (2%) (3%) SBM NCM NST RRL AQG BDR PRU SAR TRY GOR EVN OGC DCN TGZ DRM Source: IRESS, Macquarie Research, March March

12 Fig 28 BHP summary financials BHP Billiton ASX: BHP Price: (A$ps) Year end: Jun Rating: Outperform Up/dn TSR LSE: BLT Price: ( ps) 12.5 Diluted shares (m) 5,323 ASX Target: 3. 27% 3% JSE: BIL Price: (ZARps) LSE Target: % 31% Mkt cap: (US$m) 89,264 JSE Target: % 32% ASSUMPTIONS FY14 FY15 FY16 FY17e FY18e FY19e FY2e ASSUMPTIONS FY14 FY15 FY16 FY17e FY18e FY19e FY2e FY21e Exchange Rate A$/US$ Commodity prices Exchange Rate USDBRL Iron-ore (US$/t) Exchange Rate USDZAR Hard coking coal (US$/t) RATIO ANALYSIS FY14 FY15 FY16 FY17e FY18e FY19e FY2e Thermal coal (US$/t) Diluted share capital m 5,338 5,333 5,322 5,323 5,323 5,323 5,323 Copper (US$/lb) EPS (diluted and pre sig. items) US Nickel (US$/lb) P/E x 6.9x 49.7x 78.x 12.x 2.4x 24.9x 19.8x Brent Crude (US$/bbl) CFPS US West Texas (US$/bbl) P/CF x 5.x 6.5x 11.9x 7.x 11.x 9.5x 8.6x Henry Hub (US$/mmbu) DPS US Dividend yield % 6.8% 7.% 1.7% 5.2% 3.% 2.4% 3.% Production by commodity Franking Level % 1% 1% 1% 1% 1% 1% 1% Iron-ore Book value per share US$ps WAIO (mt) - 1% shipments P/Book value x 1.1x 1.3x 1.6x 1.5x 1.4x 1.4x 1.3x WAIO (mt) - BHP share R.O.E. (pre sig items) % 18% 6% -1% 13% 8% 6% 7% Samarco (mt) - BHP share R.O.A. (pre sig items) % 15% 1% 3% 12% 8% 6% 7% Total Iron-ore (mt) - BHP share Interest Cover x 19.4x 19.3x 3.4x 14.6x 11.6x 9.9x 12.7x Coal EBITDA per share US$ps Coking coal (mt) - 1% EV/EBITDA x 3.6x 5.2x 9.3x 4.7x 6.x 6.2x 3.9x Coking coal (mt) FCF Yield % 13% 7% 4% 15% 6% 7% 9% Thermal coal (mt) EARNINGS FY14 FY15 FY16 FY17e FY18e FY19e FY2e Copper (kt) Revenue US$m 67,26 44,636 3,912 4,775 37,721 37,121 38,13 Escondida - (1%) 1,153 1, ,71 1,63 1,55 1,45 Operating Costs US$m (35,638) (22,761) (16,526) (18,899) (2,69) (21,137) (2,541) Cerro Colorado Operational EBITDA US$m 31,568 21,875 14,386 21,876 17,112 15,984 17,589 Spence Associates US$m 1, (2,14) Olympic Dam Corporate & Other Costs US$m (44) (571) 58 (77) (124) (127) (13) Antamina Underlying Ebitda US$m 32,359 21,852 12,34 22,167 17,442 16,39 17,913 Total Copper (kt) 1,714 1,78 1,58 1,52 1,66 1,637 1,62 1,63 D&A & Impairments US$m (9,498) (9,986) (8,871) (7,864) (8,458) (8,777) (8,829) Petroleum (mmboe) Underlying Ebit US$m 22,861 11,866 3,469 14,33 8,984 7,532 9,84 Conventional production Adjustments US$m 551 (3,196) (9,74) 75 Unconventional Production Profit from Operations US$m 23,412 8,67 (6,235) 14,378 8,984 7,532 9,84 Total Net Interest US$m (1,176) (614) (1,24) (976) (777) (758) (717) Profit Before Tax US$m 22,236 8,56 (7,259) 13,42 8,27 6,775 8,366 EBITDA BY COMMODITY Tax Expense US$m (7,12) (3,666) 1,52 (4,84) (2,913) (2,45) (2,97) Net Earnings US$m 15,224 4,39 (6,27) 8,562 5,293 4,37 5,396 Petroleum (US$bn) Copper (US$bn) Iron-ore (US$bn) Coal (US$bn). Other (US$bn) Discontinued operations US$m (1,512) 35. Minority interests US$m (1,392) (968) (178) (731) (637) (561) (619) Attributable Profit US$m 13,832 1,91 (6,385) 7,831 4,657 3,89 4,777 Adjustments US$m (385) 4,57 7, Underlying Profit US$m 13,447 6,417 1,215 7,871 4,657 3,89 4, CASHFLOW FY14 FY15 FY16 FY17e FY18e FY19e FY2e Net Earnings US$m 15,224 4,39 (6,27) 8,562 5,293 4,37 5,396 Interest/Tax/D&A US$m 9,34 11,72 15,99 1,5 6,918 8,833 9, Working Capital/other US$m 1,16 3, (66) (795) Net Operating Cashflow US$m 25,364 19,296 1,625 17,952 11,417 13,31 14,69 Capital Expenditure (cash basis) US$m (15,181) (11,581) (7,281) (5,398) (6,137) (7,23) (6,413) 15. Acquisitions/(Disposals) US$m 1,882 Other US$m (713) (1,573) 36 1,76 1. Free cash flow US$m 11,352 6,142 3,38 13,63 5,28 6,287 8,277 Dividends US$m (6,387) (6,498) (4,13) (2,882) (4,365) (2,236) (2,52) Minority dividends & payments US$m 1,183 (51) (87) (791) (637) (561) (619) 5. New Equity US$m (354) (346) (16) (68) Debt Drawdown/(Repayment) US$m (91) (931) 4,67 (3,5). Net Financing Cashflow US$m (6,468) (8,276) 284 (7,241) (5,1) (2,796) (3,121) FY13 FY14 FY15 FY16 FY17e FY18e FY19e FY2e FY21e FY22e FY23e FY24e FY25e Net change in cash US$m 4,884 (2,134) 3,664 6, ,491 5,156 VALUATION BALANCE SHEET FY14 FY15 FY16 FY17e FY18e FY19e FY2e Projects US$m US$ A$m A$/sh GBPm GBP ZARm ZAR Cash US$m 8,83 6,753 1,319 16,725 17,3 2,494 25,65 Petroleum 17, , , , Other current assets US$m 13,493 9,616 7,395 8,786 7,35 7,55 7,753 Iron-ore 52, , , , Property, Plant & Equipments US$m 18,787 94,72 83,975 81,17 79,111 77,56 75,35 Copper 17, , , , Other Non-current assets US$m 2,33 14,139 17,264 17,352 15,738 16,328 17,197 Coal 16, , , , Total Assets US$m 151, ,58 118, , , , ,95 Nickel West (955) (.18) (1,274) (.24) (764) (.14) (12,417) (2.33) Debt US$m 34,589 31,17 36,421 31,544 31,544 31,544 31,544 Group and unallocated (667) (.13) (889) (.17) (533) (.1) (8,668) (1.63) Payables US$m 1,258 7,418 5,42 6,1 4,989 5,126 5,295 Other.... Other liabilities US$m 21,184 15,447 17,59 21,423 15,49 15,393 16,526 Cash 16, , , , Total Net Assets / Equity US$m 85,382 7,545 6,71 64,911 67,575 69,824 72,585 Debt (31,544) (5.93) (42,59) (7.9) (25,235) (4.74) (41,72) (77.5) Net Debt / (Cash) US$m 25,786 24,417 26,12 14,819 14,541 11,5 5,894 Net Equity Value (WACC 1% Nom) 87, , , ,135, Gearing (net debt/(nd + equity)) % 23% 26% 3% 19% 18% 14% 8% Price Target (5/5 NPV and 8.x EV/Ebitda) AUD 3. GBP 15.9 ZAR 26. Gearing (net debt/equity) % 3% 35% 43% 23% 22% 16% 8% Source: BHP, Macquarie Research, March March

13 Fig 29 RIO summary financials Rio Tinto ASX: RIO Price: (A$ps) Year end: Dec Rating: Outperform Up/dn TSR LSE: RIO Price: ( ps) 32.3 Diluted shares (m) 1,786 ASX Target: % 35% Mkt cap: (US$m) 73,53 LSE Target: % 38% ASSUMPTIONS CY14 CY15 CY16 CY17e CY18e CY19e CY2e ASSUMPTIONS CY14 CY15 CY16 CY17e CY18e CY19e CY2e Exchange Rate A$/US$ Commodity prices Exchange Rate C$/US$ Iron-ore (US$/t) Exchange Rate USDZAR Hard coking coal (US$/t) RATIO ANALYSIS CY14 CY15 CY16 CY17e CY18e CY19e CY2e Thermal coal (US$/t) Diluted share capital m 1,859 1,825 1,797 1,786 1,786 1,786 1,786 Copper (US$/lb) EPS (underlying, undiluted) US Alumina (US$/t) P/E x 8.9x 18.1x 15.9x 1.4x 17.4x 18.7x 14.2x Aluminium (US$/lb) CFPS US P/CF x 5.9x 8.8x 9.1x 6.4x 8.8x 8.6x 7.2x Production by commodity DPS US Iron-ore (1% Basis) Dividend yield % 4.8% 4.8% 3.8% 5.8% 3.4% 3.2% 4.2% Pilbara (mt) Franking Level % 1% 1% 1% 1% 1% 1% 1% Iron Ore Company of Canada (mt) Book value per share US$ps Iron-ore (1%) P/Book value x 1.5x 1.9x 1.8x 1.7x 1.6x 1.6x 1.5x Iron-ore (RIO Reported Share) R.O.E. (pre sig items) % 12% -4% 1% 16% 9% 8% 11% Pilbara (mt) R.O.A. (pre sig items) % 14% 9% 1% 14% 9% 8% 9% Iron Ore Company of Canada (mt) Interest Cover x 25.3x 11.4x 8.5x 2.7x 14.x 13.8x 15.8x Iron-ore (RIO Reported Share) EBITDA per share US$ps Aluminium (RIO Share) EV/EBITDA x 4.4x 7.x 6.2x 4.4x 6.x 5.9x 5.1x Bauxite (mt) FCF Yield % 11% 7% 9% 14% 5% 5% 1% Alumina (mt) EARNINGS CY14 CY15 CY16 CY17e CY18e CY19e CY2e Aluminium (mt) Revenue US$m 47,664 34,857 33,781 36,894 3,94 32,555 34,746 Copper (RIO Share) Operating Costs US$m (3,376) (24,192) (21,88) (21,98) (2,768) (22,2) (23,392) Mined Copper (kt) Operational EBITDA US$m 17,288 1,665 11,973 14,986 1,172 1,354 11,354 Refined Copper (kt) Corporate Costs & EAU Adjustments US$m 2,377 1,956 1,537 2,919 2,789 2,764 2,844 Total Copper (mt) Underlying Ebitda US$m 19,665 12,621 13,51 17,96 12,961 13,119 14,197 Coal (RIO Reported Share) Depreciation & Amortisation US$m (4,86) (4,646) (4,794) (5,29) (4,939) (5,332) (5,697) Thermal coal (mt) Operational Ebit US$m 14,85 7,975 8,716 12,877 8,22 7,786 8,5 Semi-soft Coking Coal (mt) Impairments US$m (473) (2,791) (249) Hard Coking Coal (mt) Share of EAU Profit/(Loss) US$m Total Coal (mt) Adjustments US$m (2,397) (1,569) (1,672) (1,397) (1,48) (1,418) Other (RIO Share) Profit from Operations US$m 12,56 3,976 7,116 12,98 7,118 6,849 9,1 Diamonds (kcts) 13,871 17,394 17,953 2,24 2,11 19,73 19,393 Net Interest US$m (585) (698) (1,22) (621) (572) (563) (537) Uranium (mlbs) Other Finance Costs US$m (2,423) (4,4) 249 (4) (4) (4) (4) TiO2 Feedstock (kt) 1,442 1,89 1,48 1,192 1,192 1,192 1,192 Profit Before Tax US$m 9,552 (726) 6,343 11,77 6,146 5,886 8,73 Borates (kt) Tax Expense US$m (3,53) (993) (1,567) (3,323) (1,844) (1,766) (2,422) Net Earnings US$m 6,499 (1,719) 4,776 7,754 4,32 4,12 5,651 Post-tax exceptionals US$m EBITDA BY COMMODITY Minority Interests US$m (159) (27) Attributable Profit US$m 6,527 (866) 4,617 7,727 4,614 4,31 5, Iron Ore (US$bn) Aluminium (US$bn) Post-tax adjustments to underlying US$m 2,778 5, Copper & Coal (US$bn) Diamonds and Minerals (US$bn) Other (US$bn) Underlying Profit US$m 9,35 4,54 5,1 7,727 4,614 4,31 5,681 CASHFLOW CY14 CY15 CY16 CY17e CY18e CY19e CY2e Net Earnings US$m 6,499 (1,719) 4,776 7,754 4,32 4,12 5,651 Interest/Tax/D&A US$m 6,322 7,722 4,319 5,429 5,339 5,732 6,97 Working Capital/other US$m 1,465 3,38 (218) (622) (57) (478) (58) Net Operating Cashflow US$m 14,286 9,383 8,877 12,561 9,134 9,374 11,241 Capital Expenditure US$m (7,418) (4,55) (2,658) (5,39) (5,576) (5,567) (4,91) Disposals/(Acquisitions) US$m (744) (135) (354) 58 Other US$m 1, ,5 Free cash flow US$m 7,783 4,783 6,773 1,8 3,558 3,87 7,15 Dividends US$m (3,71) (4,76) (2,725) (5,188) (3,25) (2,571) (2,929) New Equity US$m 1,291 (1,925) 11 (5) Debt Drawdown/(Repayment) US$m (3,34) (1,681) (4,948) Other US$m Net Financing Cashflow US$m (5,436) (7,67) (7,491) (5,688) (3,25) (2,571) (2,929) FX Adjustment US$m (14) (17) (35) Net change in cash US$m 2,27 (3,57) (753) 4, ,236 4, CY13 CY14 CY15a CY16a CY17e CY18e CY19e CY2e CY21e CY22e CY23e CY24e CY25e BALANCE SHEET CY14 CY15 CY16 CY17e CY18e CY19e CY2e VALUATION Cash US$m 12,423 9,366 8,21 12,593 12,92 14,138 18,359 Projects US$m US$/sh A$m A$/sh GBPm GBP/sh Other current assets US$m 8,72 6,188 6,885 6,344 5,791 6,25 6,646 Iron Ore 58, , , Property, Plant & Equipments US$m 68,693 61,57 58,855 56,37 56,944 57,179 55,572 Copper & Diamonds 2, , , Other Non-current assets US$m 18,9 14,953 15,322 15,757 16,72 16,694 17,354 Energy & Minerals 7, , , Total Assets US$m 17,827 91,564 89,263 91,1 91,79 94,216 97,932 Aluminium 12, , , Debt US$m 25,219 23,624 18,392 17,63 17,63 17,63 17,63 Cash 12, , , Payables US$m 8,38 6,919 7,15 6,588 6,14 6,444 6,92 Debt (17,63) (9.87) (23,57) (13.16) (14,14) (7.9) Other liabilities US$m 19,76 16,893 17,991 18,487 18,717 19,244 19,78 Group & Unallocated (1,446) (.81) (1,927) (1.8) (1,156) (.65) Total Net Assets / Equity US$m 54,594 44,128 45,73 48,296 49,349 5,897 53,62 Net Equity Value (WACC 1% Nom) 93, , , Net Debt / (Cash) US$m 12,796 14,258 1,191 5,37 4,728 3,492 (729) Price Target (5/5 NPV and 7.x EV/Ebitda) AUD 76. GBP 42. Gearing (net debt/(nd + equity)) % 19% 24% 18% 9% 9% 6% (1%) Gearing (net debt/equity) % 23% 32% 22% 1% 1% 7% (1%) Source: RIO, Macquarie Research, March March

14 Fig 3 S32 summary financials South32 ASX: S32 Price: (A$ps) 2.66 Mkt cap: (A$m) 14,295 Year end: Jun Rating: Outperform Up/dn TSR LSE S32 Price: ( $ps) 1.65 Mkt cap: (US$m) 1,743 Diluted shares (m) 5,374 ASX Target: % 45% JSE S32 Price: (ZARps) LSE Target: 2.3 4% 46% JSE Target: % 47% ASSUMPTIONS FY14 FY15 FY16 FY17e FY18e FY19e FY2e ASSUMPTIONS FY14 FY15 FY16 FY17e FY18e FY19e FY2e FY21e Exchange Rate A$/US$ Commodity prices Exchange Rate USDBRL Aluminium (US$/lb) Exchange Rate USDZAR Alumina (US$/t) RATIO ANALYSIS FY14 FY15 FY16 FY17e FY18e FY19e FY2e Manganese ore (US$mtu) Diluted share capital m 5,324 5,324 5,324 5,374 5,374 5,374 5,374 Ferromanganese (US$/t) 1,44 1, ,25 1,63 1,14 1,4 1,4 EPS (diluted and pre sig. items) US Nickel (US$/lb) P/E x 23.9x 18.5x 77.1x 7.9x 8.3x 1.x 12.3x Thermal coal (US$/t) CFPS US Coking coal (US$/t P/CF x 1.x 7.7x 14.2x 9.2x 7.1x 7.7x 9.1x Silver (US$/oz) DPS US Lead (US$/lb) Dividend yield %.%.%.5% 5.9% 6.1% 4.% 3.3% Zinc (US$/lb) Franking Level % % % % % 5% 1% 1% Book value per share US$ps Production by commodity P/Book value x.8x 1.x 1.1x 1.x.9x.8x.8x Alumina R.O.E. (pre sig items) % 1% % -17% 14% 11% 8% 6% Worsley (kt) 3,916 3,819 3,961 3,974 3,965 4, 4, 4, R.O.A. (pre sig items) % 4% 6% 3% 13% 13% 1% 8% Alumar (kt) 1,262 1,328 1,335 1,313 1,35 1,32 1,28 1,28 Interest Cover x -2.x -1.9x.2x -.9x -1.x -1.x -1.x Total alumina (kt) 5,178 5,147 5,296 5,287 5,315 5,32 5,28 5,28 EBITDA per share US$ps Aluminium EV/EBITDA x 7.7x 6.x 9.2x 3.4x 2.9x 2.8x 2.2x Hillside (kt) ROIC % 3.3% 5.% 1.5% 11.7% 5.5% 5.3% 4.9% Bayside (kt) 89 FCF Yield % 1% 16% 6% 12% 17% 15% 11% Mozal (kt) EARNINGS FY14 FY15 FY16 FY17e FY18e FY19e FY2e Alumar (kt) 14 4 Sales Revenue US$m 8,344 7,743 5,812 7,334 7,666 7,69 7,21 Total aluminium (kt) 1,184 1, Other Revenue US$m Coal Total Revenue US$m 8,344 7,743 5,812 7,334 7,666 7,69 7,21 South Africa Energy Coal (mt) Operating Costs US$m (6,918) (5,892) (4,826) (4,894) (5,52) (5,233) (5,253) Illawarra Coking Coal (mt) Operational EBITDA US$m 1,426 1, ,44 2,614 2,377 1,957 Manganese ore Associates US$m 62 (6) (23) GEMCO (kt) 2,865 2,942 3,71 3,124 3,125 3,125 3,125 3,125 Corporate & Other Costs US$m (5) (9) Hotazel (kt) 1,566 2,355 1,711 1,84 1,74 1,74 1,74 1,74 Underlying Ebitda US$m 1,483 1,849 1,131 2,76 2,799 2,541 2,135 Total manganese ore (kt) 4,431 5,297 4,782 4,928 4,865 4,865 4,865 4,865 D&A US$m (823) (848) (775) (711) (782) (862) (817) Other Underlying Ebit US$m 66 1, ,5 2,17 1,679 1,318 Cerro Matoso Nickel (kt) Adjustments US$m (323) (482) (1,797) 166 Cannington Silver (moz) Profit from Operations US$m (1,441) 2,216 2,17 1,679 1,318 Cannington Lead (kt) Net Interest US$m (187) (6) (14) (148) (137) (118) (48) Cannington Zinc (kt) Profit Before Tax US$m (1,545) 2,68 1,88 1,561 1,27 Tax Expense US$m (47) (431) (7) (571) (582) (484) (393) EBITDA BY COMMODITY Minorities US$m Aluminium Alumina Nickel Manganese Ag/Pb/ZN Coking Coal Energy Coal Net Earnings US$m (1,615) 1,497 1,298 1, ,5 Earnings Adjustments US$m ,753 (141) 3, Underlying Earnings US$m ,356 1,298 1, ,5 CASHFLOW FY14 FY15 FY16 FY17e FY18e FY19e FY2e Profit from Operations US$m (1,441) 2,216 2,17 1,679 1,318 2, Interest/Tax/D&A US$m 1,67 1,433 2,451 (353) (63) ,5 Working Capital/other US$m 15 (114) (13) (33) Net Operating Cashflow US$m 1,419 1, ,56 2,24 1,848 1,569 1, Capital Expenditure US$m (59) (629) (387) (619) (373) (421) (57) 5 Acquisitions/(Disposals) US$m Dividends received US$m Free cash flow US$m 1,35 1, ,338 1,859 1,574 1,22 FY14 FY15 FY16 FY17e FY18e FY19e FY2e Dividends US$m (245) (768) (554) (392) VALUATION New Equity US$m (4) (12) Projects US$m US$ A$m A$/sh GBPm GBP ZARm ZAR Debt Drawdown/(Repayment) US$m (658) (96) 193 (54) (25) (19) Worsley Alumina 1, , , , Net Financing Cashflow US$m (658) (1) (64) (822) (579) (412) South Africa Aluminium 1, , , , Net change in cash US$m 1,35 1, ,274 1, Mozal Aluminium ,53.84 Brazil Aluminium , South Africa Energy Coal 1, , , , BALANCE SHEET FY14 FY15 FY16 FY17e FY18e FY19e FY2e Illawarra Metallurgical Coal 1, , , , Cash US$m ,225 2,51 3,538 4,533 5,341 Australia Manganese , , PP&E & Mine Development US$m 1,353 9,55 8,651 8,562 8,153 7,712 7,63 South Africa Manganese , Other US$m 6,968 5,295 3,498 4,372 4,26 4,393 4,484 Cerro Matoso , Total Assets US$m 17,685 15,489 13,374 15,434 15,717 16,638 17,428 Cannington 1, , , , Debt US$m 1,24 1, ,97 1,43 1, Third party products Total Liabilities US$m 4,735 4,454 3,952 4,56 3,598 3,325 3,171 Group and unallocated.... Total Net Assets / Equity US$m 12,95 11,35 9,422 1,874 12,119 13,313 14,257 Cash 2, , , , Net Debt / (Cash) US$m (312) (1,44) (2,494) (3,515) (4,342) Debt (1,19) (.21) (1,479) (.28) (924) (.17) (14,749) (2.74) Gearing (net debt/(nd + equity)) % 5% 4% (3%) (15%) (26%) (36%) (44%) Net Equity Value (@ 1% Nom) 11, , , , Gearing (net debt/equity) % 5% 4% (3%) (13%) (21%) (26%) (3%) Price Target (5% 6.x EV/Ebitda/5% NPV) AUD 3.7 GBP 2.3 ZAR 37. Source: S32, Macquarie Research, March March