Australia Resources. Commodity cuts bite hard AUSTRALIA. Event. Impact. Outlook. Recommendation changes None

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1 AUSTRALIA Recommendation changes None BHP Billiton Price Target Outperform A$22.80 A$27.00 TSR 26% Rio Tinto Price Target Outperform A$47.99 A$57.00 TSR 26% South32 Price Target Outperform A$1.42 A$1.80 TSR 28% Fortescue Metals Group Outperform Price $1.81 Target $2.15 TSR 19% Iluka Resources Underperform Price $6.61 Target $6.10 TSR (5%) Whitehaven Coal Neutral Price $0.99 Target $1.30 TSR 25% Alumina Outperform Price $1.18 Target $1.60 TSR 39% *We also update forecasts for SFX and PDZ 24 September 2015 Commodity cuts bite hard Event We have updated our earnings forecasts for the diversified majors and ASX bulk commodity miners to incorporate material cuts to our commodity price forecasts. Impact Material cuts to our steel raw material forecasts: We have downgraded our iron-ore price forecasts by ~10-15% over the next five years and also reduce our long-term forecast by 18% to US$65/t. We also lower hard coking coal forecasts by ~10% and manganese by 15-20%. The downgrades reflect cuts to our steel demand forecasts a lack of supply response and lower costs. Base metals also take a hit: The weaker demand outlook has also impacted our base metals forecasts, with average cuts over the next five years of 12% for alumina, 25% for nickel, 10% for copper and 7% for aluminium and zinc. We make only modest cuts to our precious metals forecasts. Currency cuts partially offset the downgrades: Cuts to our key exchange rate forecasts have partially offset the cuts to our bulk and base metal commodity price forecasts, but were also partly responsible for the downgrades. We have reduced our A$/US$, BRL/US$ and ZAR/US$ forecasts by 8-10% over the next five years. Diversified majors suffer material downgrades: We have downgraded our earnings forecasts for BHP by 13%, 19% and 23% for FY16, FY17 and FY18 respectively. Our earnings forecasts for RIO also suffer with cuts to our CY16, CY17 and CY18 forecasts of 11%, 19% and 26% respectively. Our price target for BHP declines 13% to A$27.00 while our price target for RIO falls 11% to A$57. S32 suffers more than its diversified peers, with our target falling 18% to A$1.80. Bulk commodity plays take a significant hit: The cuts to our iron-ore and coal price forecasts have translated to material cuts to our earnings forecasts and valuation for the bulk commodity producers. Our earnings for FMG rise 59% in FY16e but fall 50% and 67% for FY17e and FY18e respectively. WHC s outcome was mixed with FY17e earnings rising 6% but FY18e falling 11%. AWC sees reductions of 17%, 47% and 49% for CY15e, CY16e and CY17e. We have also lowered our mid to long term rutile and zircon forecasts by 29% and 8% respectively, which results in cuts to our CY16, CY17 and CY18 forecasts for ILU of 52%, 30% and 44% respectively. Outlook Safety at the bottom end of the cost curve: The cuts to our earnings forecasts are material and have significantly reduced the cash generating potential of not only the diversified majors but also the pure play bulk commodity producers. Our stock preference is driven by producers with assets towards the bottom end of cost curves that can generate cash flow through the cycle. We still see value in BHP and RIO at current levels and maintain our Outperform ratings. The upside for S32 and FMG has been reduced significantly although we maintain our positive stance on both stocks. The outlook for mineral sands remains weak and we keep our Underperform rating on ILU. Please refer to page 16 for important disclosures and analyst certification, or on our website

2 Rutile Nickel Manganese Alumina Iron-ore Coking coal Zircon Copper Thermal coal Aluminium Zinc Lead Silver Gold Macquarie Wealth Management Material cuts to our commodity price forecasts We have made some material cuts to our commodity price forecasts to reflect the perfect storm of weak demand, an absence of material supply cuts and declining cost curves due to lower energy prices and exchanges rates. For more detail on the commodity price cuts see today Commodities Comment. The most significant cuts are to our rutile and nickel price forecasts which fall 29% and 23% on average over the next five years. Bulk commodities also see significant cuts with manganese down 16% on average and alumina, iron-ore and coking coal down 10-12%. Cuts to other commodity prices, including the base metals are around 5-10% over the next five years. Fig 1 Average cuts to our commodity price forecasts for FY16-FY20 0% (5%) (10%) (15%) (20%) (25%) (30%) (35%) Weaker currencies provide some relief A contributor to the bearish outlook for commodity prices due to the negative impact on cost curves, weaker currencies provide some relief to the downgrades to our commodity outlook from an earnings perspective. Macquarie s Economics team recently pulled back its expectations for the key commodity currencies in their latest The Global Macro Outlook. Cuts to our global growth forecasts, incorporating further weakening of the Chinese RMB and declining commodity prices are all key drivers behind the cuts to our commodity currencies. We note that the US Federal Reserve interest rate cycle remains a key potential catalyst for commodity currencies and our base case remains for a rate rise in December, although the speed of the increases are likely to be more gradual given the weaker global economic outlook. We cut our A$/US$ forecasts by 7-9% over the next three years, expecting a trough of 0.63 for the first nine months of We also lower our long-term A$/US$ forecast from 0.82 to We make similar cuts to the other key commodity currencies, ZARUSD, BRLUSD and CLPUSD, although changes to the long-term are less severe. Fig 2 Key commodity currencies cut by 5-8% Y/E June FY16e FY17e FY18e FY19e Long-term AUSUSD - Old AUDUSD - New Change (6%) (7%) (7%) (9%) (9%) ZARUSD - Old ZARUSD - New Change (9%) (8%) (5%) (1%) 0% BRLUSD - Old BRLUSD - New Change (8%) (8%) (7%) (5%) (5%) CLPUSD - Old CLPUSD - new Change (8%) (8%) (7%) (5%) (5%) 24 September

3 Bulk commodities hit the hard We have made some material cuts to our iron-ore price forecasts to reflect the changes to our steel demand forecasts, a lack of supply response and lower energy prices and exchange rates, which have all conspired to lower the longer-term outlook for iron-ore. We cut our FY16 and FY17 prices by 3% and 10% and our FY18 and FY19 prices by 15%. We have removed our previous forecasts beyond FY20, reverting to our new long-term real price of US$65/t from CY21. However when factoring in the lower A$/US$ exchange rate the cuts to our iron-ore price forecasts are less severe. We are actually upgrading our FY16 forecast by 4% and only cut our FY17 estimate by 3%. However our longer-term forecasts fall by 11%, although our real A$ longterm iron-ore price of A$87/t will see the major Australian iron-ore producers continue to generate strong returns from their respective businesses. Fig 3 Iron-ore cuts higher in the long-term Y/E June FY16e FY17e FY18e FY19e Long-term (real) Iron-ore (US$/t)- old Iron-ore (US$/t)- new Change (%) (3%) (10%) (15%) (15%) (19%) Iron-ore (A$/t)- old Iron-ore (A$/t)- new Change (%) 4% (3%) (9%) (7%) (11%) The weaker steel demand outlook has resulted in similar cuts to our hard coking coal price forecasts which fall 9-12% over the next four years. We had previously revised down our longterm price hence we make a smaller adjustment than iron-ore of just 3%. Cuts to our soft coking coal prices are less severe. We note in A$ the hard coking coal cuts are largely reversed with declines of only 2-3% over the next four years and an upgrade to our long-term price in A$. A more stable spot thermal coal price in the last few months has driven an upgrade to our FY16 thermal coal price of 2%. However weaker demand assumptions are likely to see a more subdued pricing outlook for FY17 and we cut our forward forecasts by 10-11%. Like hard coking coal, in A$ the cuts are offset by weaker currencies with prices rising 10% in A$ in FY16 and falling 2-3% from then on. The weaker steel demand outlook and a lack of supply cuts have translated to more material cuts to our pricing outlook for manganese and ferromanganese. We cut our manganese ore prices by 14-18% over the next four years and also pull back our longer-term price by 6%. The cuts to our ferromanganese forecasts are slightly higher than for manganese ore. The reduction in our pricing outlook for alumina largely reflects continued supply growth in both alumina and aluminium. Fig 4 Coal prices also hit hard, but not in A$ Y/E June FY16e FY17e FY18e FY19e Long-term (real) Hard Coking Coal (US$/t)- old Hard Coking Coal (US$/t)- new Change (9%) (10%) (11%) (12%) (3%) Soft Coking Coal (US$/t)- old Soft Coking Coal (US$/t)- new Change (3%) (3%) (4%) (5%) (9%) Thermal Coal (US$/t)- old Thermal Coal (US$/t)- new Change 2% (10%) (11%) (11%) (7%) Manganese Ore (US$/mtu)- old Manganese Ore (US$/mtu)- new Change (14%) (15%) (17%) (18%) (6%) Alumina Spot (US$/t)- old Alumina Spot (US$/t)- new Change (11%) (13%) (12%) (12%) (3%) 24 September

4 Nickel hit hardest of the base metals With a further 5mtpa of Chinese aluminium capacity growth planned for the next five years and similar levels of alumina we believe prices will need to remain depressed to keep supply out of the market. We reduce our aluminium price forecasts by 5% in FY16 and ~8% from then on including our long-term price. However as with the cuts to our coal price forecasts, after factoring in reductions in our A$/US$ forecasts, aluminium prices received by Australian based assets have remained largely unchanged. Weak demand and high inventories have driven a material change in our view for nickel. We make severe cuts to our forecasts over the next few years, reducing our FY16 and FY17 average nickel prices by 23% and 28% respectively. We also lower our long-term price from US$10.89/lb to US$8.62/lb and note that our price forecast assumes only a modest recovery over the next 12 months. Cuts to our other base metal forecasts are less severe and largely reflect the base effect of weaker demand and reductions in cost curves due to weaker currencies. Over the next four years we cut copper prices by 9% on average, zinc prices by 7% and lead prices by 4%. We note that our long-term prices for copper, zinc and lead remain unchanged. Fig 5 Severe cuts to nickel prices, but other base metals also suffer downgrades Y/E June FY16e FY17e FY18e FY19e Long-term (real) Aluminium (US$/lb)- old Aluminium (US$/lb)- new Change (5%) (8%) (8%) (6%) (8%) Nickel (US$/lb) - old Nickel (US$/lb) - new Change (23%) (28%) (24%) (22%) (21%) Copper (US$/lb)- old Copper (US$/lb)- new Change (%) (6%) (9%) (11%) (10%) 0% Zinc (US$/lb) - old Zinc (US$/lb) - new Change (12%) (10%) (7%) (3%) 0% Lead (US$/lb) - old Lead (US$/lb) - new Change (5%) (9%) (7%) (1%) 0% Mineral sands and zircon prices take a hit We have made substantial downgrades to our ilmenite and rutile forecasts which fall 40% and 30% respectively. Our cuts are primarily driven by a more conservative view of the potential for a rapid transition to a consumer driven economy. Recent production cuts from feedstock producers are unlikely to balance the substantial reduction in demand from the pigment industry which is also reducing output. In addition we believe high global inventories of both stockpiled HMC and finished product are likely to cap any near term price recovery. Fig 6 Mineral sands see significant cuts while zircon downgrades are more modest Y/E June FY16e FY17e FY18e FY19e Long-term (real) Ilmenite (US$/t) - old Ilmenite (US$/t) - new Change (30%) (38%) (39%) (40%) (40%) Rutile (US$/t) - old 958 1,025 1,065 1, Rutile (US$/t) - new Change (23%) (29%) (29%) (28%) (29%) Zircon (US$/t) - old 1,090 1,125 1,210 1,285 1,081 Zircon (US$/t) - new 1,000 1,035 1,125 1,175 1,031 Change (8%) (8%) (7%) (9%) (5%) 24 September

5 Gold and silver prices upgraded in A$ terms We have made only modest changes to our gold and silver price forecasts in this update, cutting our US$ forecast by less than 2% for both gold and silver in FY16 and make almost no changes to our forecasts beyond FY17. However after incorporating the changes to our A$/US$ forecasts, our gold and silver price forecasts in A$ rise 9-10% in the medium and long-term. Fig 7 Gold and silver prices largely unchanged in US$ but upgraded in A$ Y/E June FY16e FY17e FY18e FY19e Long-term (real) Gold (US$/oz) - old 1,125 1,206 1,306 1,375 1,250 Gold (US$/oz) - new 1,113 1,203 1,306 1,375 1,250 Change (1%) (0%) 0% 0% 0% Silver (US$/oz) - old Silver (US$/oz) - new Change (2%) (0%) 0% 0% 0% Gold (A$/oz) - old 1,580 1,732 1,724 1,690 1,524 Gold (A$/oz) - new 1,670 1,864 1,859 1,852 1,667 Change 6% 8% 8% 10% 9% Silver (A$/oz) - old Silver (A$/oz) - new Change 5% 8% 8% 10% 9% Prices targets cut but no recommendation changes We have not made any recommendation changes after incorporating our new commodity price and FX forecasts but make material cuts to price targets for all the large cap ASX Resource stocks with the exception of WHC, which benefits from our long-term cut to the A$/US$ exchange rate. We cut targets for BHP, RIO, S32 and FMG by 11-18% while our targets for AWC and ILU fall just 6% as both stocks benefit from the weaker A$/US$ forecast. Fig 8 Price targets cut but no changes to recommendations Company Code Old New Old New Change Diversified BHP Billiton BHP Outperform Outperform (13%) Rio Tinto RIO Outperform Outperform (11%) South32 S32 Outperform Outperform (18%) Alumina Alumina AWC Outperform Outperform (6%) Iron-ore Fortescue Metals Group FMG Outperform Outperform (14%) Mineral Sands Iluka Resources ILU Underperform Underperform (6%) Sheffield Resources SFX Neutral Neutral (25%) Coal Whitehaven Coal WHC Neutral Neutral % Prairie Mining PDZ Neutral Neutral % We note that our UK and South African price targets for BHP fall more than our ASX target due to only our A$/US$ long-term FX assumption changing from 0.82 to Our GBPUSD and ZARUSD long-term forecasts were left unchanged, hence the LSE and JSE listings absorbed the full ~20% reduction in our US$m NPV for BHP. Fig 9 BHP price target falls more in the UK and SA Price Target ASX (A$) LSE( ) JSE (ZAR) Price Target - Old Price Target - New Change (13%) (22%) (19%) 24 September

6 Our price target reductions for RIO differ with our ASX target falling 11% to A$57 while our LSE target falls 18% to 27. We note the smaller cut in our ASX target reflects the cut to our long-term A$/US$ exchange rate, whereas our GBP/USD and ZAR/USD long-term rates remained unchanged. Fig 10 RIO price target falls more in the UK ASX LSE Price Target - Old Price Target - New Change (11%) (18%) We note that our UK price target for S32 falls more than our ASX and JSE targets due to only our A$/US$ long-term FX assumption changing from 0.82 to Our GBPUSD and ZARUSD longterm forecasts were left unchanged, hence the LSE listing absorbed the full ~25% reduction in our US$m NPV for S32. We have brought our JSE target in line with BHP and RIO on FX conversion and combined with rounding impacts, reduced the downgrade to the JSE target to 16%. Fig 11 S32 price target falls more in the UK Price Target ASX (A$) LSE( ) JSE (ZAR) Price Target - Old Price Target - New Change (18%) (23%) (16%) Earnings cuts are significant We have downgraded our earnings forecasts for BHP by 13%, 19% and 23% for FY16, FY17 and FY18 respectively. Our earnings forecasts for RIO also suffer with cuts to our CY16, CY17 and CY18 forecasts of 11%, 19% and 26% respectively The cuts to our iron-ore and coal price forecasts have translated to material cuts to our earnings forecasts and valuation for the bulk commodity producers. Our earnings for FMG rise 59% in FY16 but fall 50% and 67% for FY17 and FY18 respectively. WHC s outcome was mixed with FY17 earnings rising 6% but FY18 falling 11%. AWC sees reductions of 17%, 47% and 49% for CY15, CY16 and CY17. We have also lowered our mid to long term rutile and zircon forecasts by 29% and 8% respectively, which results in cuts to our CY16, CY17 and CY18 forecasts for ILU of 52%, 30% and 44% respectively. Fig 12 Material cuts to earnings Change CY15/FY15a CY16/FY16e CY17/FY17e CY18/FY18e Diversified BHP Billiton BHP (13%) (19%) (23%) Rio Tinto* RIO 8% (11%) (19%) (26%) South32 S32 (23%) (33%) (34%) Alumina Alumina* AWC (17%) (47%) (49%) (63%) Iron-ore Fortescue Metals Group FMG 59% (50%) (67%) Mineral Sands Iluka Resources* ILU 15% (52%) (30%) (44%) Sheffield Resources SFX (296%) (7%) (8%) (3%) Coal Whitehaven Coal WHC nm 6% (11%) Prairie Mining PDZ (1%) (2%) (2%) 24 September

7 Fig 13 BHP Billiton summary financials BHP Billiton ASX: BHP Price: (A$ps) Year end: Jun Rating: Outperform Up/dn TSR LSE: BLT Price: ( ps) Diluted shares (m) 5,324 ASX Target: % 26% JSE BIL Price: (ZARps) LSE Target: % 28% Mkt cap: (US$m) 86,301 JSE Target: % 27% ASSUMPTIONS FY13 FY14 FY15 FY16e FY17e FY18e FY19e ASSUMPTIONS FY13 FY14 FY15 FY16e FY17e FY18e FY19e FY20e Exchange Rate A$/US$ Commodity prices Exchange Rate USDBRL Iron-ore (US$/t) Exchange Rate USDZAR Hard coking coal (US$/t) RATIO ANALYSIS FY13 FY14 FY15 FY16e FY17e FY18e FY19e Thermal coal (US$/t) Diluted share capital m 5,469 5,176 5,318 5,324 5,324 5,324 5,324 Copper (US$/lb) EPS (diluted and pre sig. items) US Nickel (US$/lb) P/E x 11.2x 6.3x 45.3x 25.0x 17.4x 13.0x 10.5x Brent Crude (US$/bbl) CFPS US West Texas (US$/bbl) P/CF x 6.3x 4.7x 6.3x 9.9x 9.6x 8.5x 7.4x Henry Hub (US$/mmbu) DPS US Dividend yield % 5.1% 7.4% 7.6% 7.6% 7.6% 7.6% 7.8% Production by commodity Franking Level % 100% 100% 100% 100% 100% 100% 100% Iron-ore Book value per share US$ps WAIO (mt) - 100% P/Book value x nm 1.0x 1.2x 1.3x 1.3x 1.2x 1.2x WAIO (mt) - BHP share R.O.E. (pre sig items) % nm 18% 6% 6% 8% 11% 13% Samarco (mt) - BHP share R.O.A. (pre sig items) % nm 15% 10% 6% 8% 10% 12% Total Iron-ore (mt) - BHP share Interest Cover x 18.0x 19.4x 19.3x 8.4x 11.0x 13.7x 17.0x Coal EBITDA per share US$ps Coking coal (mt) - 100% EV/EBITDA x 0.9x 3.5x 5.1x 7.3x 6.3x 5.5x 4.7x Coking coal (mt) Thermal coal (mt) EARNINGS FY13 FY14 FY15 FY16e FY17e FY18e FY19e Copper (kt) Revenue US$m 65,953 67,206 44,636 35,329 37,861 42,451 47,451 Escondida - (100%) 1,129 1,153 1, ,101 1,109 1,101 1,093 Operating Costs US$m (36,079) (35,638) (22,868) (19,558) (19,601) (21,382) (23,473) Cerro Colorado Operational EBITDA US$m 29,874 31,568 21,768 15,771 18,260 21,068 23,978 Spence Associates US$m 1,142 1, Olympic Dam Corporate & Other Costs US$m (708) (404) (464) (482) (494) (507) (521) Antamina Underlying Ebitda US$m 30,308 32,359 21,852 15,694 18,202 21,118 24,182 Total Copper (kt) 1,668 1,714 1,708 1,498 1,641 1,669 1,677 1,674 D&A & Impairments US$m (7,378) (9,498) (9,986) (8,818) (8,561) (8,741) (9,012) Petroleum (mmboe) Underlying Ebit US$m 22,930 22,861 11,866 6,876 9,641 12,376 15,169 Conventional production Adjustments US$m (1,928) 551 (3,196) Unconventional Production Profit from Operations US$m 21,002 23,412 8,670 6,876 9,641 12,376 15,169 Total Net Interest US$m (1,276) (1,176) (614) (823) (878) (902) (890) Profit Before Tax US$m 19,726 22,236 8,056 6,053 8,763 11,475 14,279 EBITDA BY COMMODITY Tax Expense US$m (6,906) (7,012) (3,666) (2,119) (3,067) (4,016) (4,998) Net Earnings US$m 12,820 15,224 4,390 3,935 5,696 7,458 9,281 Petroleum (US$bn) Copper (US$bn) Iron-ore (US$bn) Coal (US$bn). Other (US$bn) Discontinued operations US$m 0 0 (1,512) Minority interests US$m (1,597) (1,392) (968) (478) (711) (781) (1,053) Attributable Profit US$m 11,223 13,832 1,910 3,457 4,985 6,678 8,228 Adjustments US$m 985 (385) 5, Underlying Profit US$m 12,208 13,447 7,109 3,457 4,985 6,678 8, CASHFLOW FY13 FY14 FY15 FY16e FY17e FY18e FY19e Net Earnings US$m 12,820 15,224 4,390 3,935 5,696 7,458 9,281 Interest/Tax/D&A US$m 7,792 9,034 11,720 7,944 7,245 7,266 7, Working Capital/other US$m (458) 1,106 3, (297) (478) (347) Net Operating Cashflow US$m 20,154 25,364 19,296 12,283 12,644 14,247 16,342 Capital Expenditure US$m (24,410) (17,003) (12,957) (8,419) (6,848) (7,267) (7,079) 15.0 Acquisitions/(Disposals) US$m 4,780 1, Other US$m 88 (713) (1,652) Free cash flow US$m 612 9,530 5,462 3,864 5,795 6,980 9,263 Dividends US$m (6,167) (6,387) (6,498) (6,598) (6,601) (6,601) (6,655) Minority dividends & payments US$m (837) 1,183 (501) (478) (711) (781) (1,053) 5.0 New Equity US$m (424) (354) (346) Debt Drawdown/(Repayment) US$m 7,172 (910) (931) (150) (200) (200) (200) 0.0 Net Financing Cashflow US$m (256) (6,468) (8,276) (7,225) (7,513) (7,582) (7,908) FY13 FY14a FY15a FY16e FY17e FY18e FY19e FY20e FY21e FY22e FY23e FY24e FY25e Net change in cash US$m 356 3,062 (2,814) (3,361) (1,717) (603) 1,355 VALUATION BALANCE SHEET FY13 FY14 FY15 FY16e FY17e FY18e FY19e Projects US$m US$ A$m A$/sh GBPm GBP ZARm ZAR Cash US$m 5,677 8,803 6,753 3,392 1,675 1,072 2,427 Petroleum 24, , , , Other current assets US$m 13,276 13,493 9,616 8,384 9,288 10,742 11,799 Iron-ore 71, , , , Property, Plant & Equipments US$m 100, ,787 94,072 93,673 91,960 90,486 91,552 Copper 26, , , , Other Non-current assets US$m 19,660 20,330 14,139 14,126 14,870 15,921 17,005 Coal 18, , , , Total Assets US$m 139, , , , , , ,783 Aluminium, Manganese and Nickel (2,140) (0.40) (2,853) (0.54) (1,337) (0.25) (27,820) (5.23) Debt US$m 33,187 34,589 31,170 30,970 30,770 30,570 30,370 Group and unallocated (4,481) (0.84) (5,975) (1.12) (2,801) (0.53) (58,255) (10.94) Payables US$m 11,146 10,258 7,418 6,468 7,165 8,286 9,102 Other Other liabilities US$m 19,554 21,184 15,447 13,781 11,697 9,565 9,886 Cash 4, , , , Total Net Assets / Equity US$m 75,291 85,382 70,545 68,356 68,161 69,799 73,426 Debt (31,120) (5.85) (41,493) (7.79) (19,450) (3.65) (404,560) (75.99) Net Debt / (Cash) US$m 27,510 25,786 24,417 27,578 29,095 29,498 27,943 Net Equity Value (WACC 8.8% Nom 106, , , ,389, Gearing (net debt/(nd + equity)) % 27% 23% 26% 29% 30% 30% 28% Price Target AUD GBP ZAR Gearing (net debt/equity) % 37% 30% 35% 40% 43% 42% 38% Source: BHP, Macquarie Research, September September

8 Fig 14 Rio Tinto summary financials Rio Tinto ASX: RIO Price: (A$ps) Year end: Dec Rating: Outperform Up/dn TSR LSE: RIO Price: ( ps) Diluted shares (m) 1,838 ASX Target: % 26% Mkt cap: (US$m) 63,051 LSE Target: % 27% ASSUMPTIONS CY12 CY13 CY14 CY15e CY16e CY17e CY18e ASSUMPTIONS CY12 CY13 CY14 CY15e CY16e CY17e CY18e Exchange Rate A$/US$ Commodity prices Exchange Rate C$/US$ Iron-ore (US$/t) Exchange Rate USDZAR Hard coking coal (US$/t) RATIO ANALYSIS CY12 CY13 CY14 CY15e CY16e CY17e CY18e Thermal coal (US$/t) Diluted share capital m 1,849 1,858 1,859 1,818 1,818 1,818 1,818 Copper (US$/lb) EPS (diluted and pre sig. items) US Alumina (US$/t) P/E x 6.8x 6.2x 6.8x 13.1x 14.7x 14.9x 14.0x Aluminium (US$/lb) CFPS US P/CF x 6.7x 4.2x 4.5x 7.0x 6.7x 6.6x 6.6x Production by commodity DPS US Iron-ore (100% Basis) Dividend yield % 4.9% 5.6% 6.3% 6.7% 6.9% 7.1% 7.3% Pilbara (mt) Franking Level % 100% 100% 100% 100% 100% 100% 100% Iron Ore Company of Canada (mt) Book value per share US$ps Iron-ore (100%) P/Book value x nm 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x Iron-ore (RIO Reported Share) R.O.E. (pre sig items) % nm 2% 12% 6% 8% 8% 9% Pilbara (mt) R.O.A. (pre sig items) % nm 15% 14% 9% 8% 8% 8% Iron Ore Company of Canada (mt) Interest Cover x 82.6x 39.3x 25.3x 12.9x 10.1x 9.6x 9.7x Iron-ore (RIO Reported Share) EBITDA per share US$ps Aluminium (RIO Share) EV/EBITDA x 4.5x 3.8x 3.9x 5.7x 5.9x 6.0x 6.0x Bauxite (mt) Alumina (mt) EARNINGS CY12 CY13 CY14 CY15e CY16e CY17e CY18e Aluminium (mt) Revenue US$m 50,942 51,171 47,664 34,863 33,422 35,019 36,504 Copper (RIO Share) Operating Costs US$m (36,321) (33,090) (30,376) (23,580) (22,773) (24,396) (25,956) Mined Copper (kt) Operational EBITDA US$m 14,621 18,081 17,288 11,283 10,648 10,623 10,548 Refined Copper (kt) Corporate Costs & EAU Adjustments US$m 4,624 3,428 2,377 2,484 2,653 2,839 3,113 Total Copper (mt) Underlying Ebitda US$m 19,245 21,509 19,665 13,767 13,302 13,462 13,661 Coal (RIO Share) Depreciation & Amortisation US$m (4,624) (4,791) (4,860) (4,740) (5,035) (5,375) (5,178) Thermal coal (mt) Operational Ebit US$m 14,621 16,718 14,805 9,027 8,267 8,087 8,483 Semi-soft Coking Coal (mt) Impairments US$m (16,227) (7,531) (473) (439) Hard Coking Coal (mt) Share of EAU Profit/(Loss) US$m 1, Total Coal (mt) Adjustments US$m (1,845) (1,973) (2,397) (1,940) (1,421) (1,452) (1,483) Other (RIO Share) Profit from Operations US$m (2,395) 7,912 12,560 7,131 7,278 7,136 7,634 Diamonds (kcts) 13,122 16,026 13,872 20,247 24,092 24,215 23,807 Net Interest US$m (177) (425) (585) (697) (821) (846) (876) Uranium (mlbs) Other Finance Costs US$m 141 (3,982) (2,423) (1,824) (400) (400) (400) TiO2 Feedstock (kt) 1,595 1,622 1,442 1,182 1,192 1,192 1,192 Profit Before Tax US$m (2,431) 3,505 9,552 4,610 6,057 5,890 6,358 Borates (kt) Tax Expense US$m (589) (2,426) (3,053) (1,806) (1,817) (1,767) (1,907) Net Earnings US$m (3,020) 1,079 6,499 2,805 4,240 4,123 4,450 Post-tax exceptionals US$m (7) EBITDA BY COMMODITY Minority Interests US$m (1) 2, (182) Iron Ore (US$bn) Aluminium (US$bn) Attributable Profit US$m (3,028) 3,665 6,527 2,623 4,243 4,177 4,453 Copper & Coal (US$bn) Diamonds and Minerals (US$bn) Post-tax adjustments to underlying US$m 12,297 6,552 2,778 2, Other (US$bn) Underlying Profit US$m 9,269 10,217 9,305 4,740 4,243 4,177 4,453 CASHFLOW CY12 CY13 CY14 CY15e CY16e CY17e CY18e Net Earnings US$m (3,020) 1,079 6,499 2,805 4,240 4,123 4,450 Interest/Tax/D&A US$m (1,420) 6,762 6,322 6,193 5,435 5,775 5,578 Working Capital/other US$m 13,870 7,237 1,465 (106) (452) (456) (604) Net Operating Cashflow US$m 9,430 15,078 14,286 8,892 9,223 9,442 9,425 Capital Expenditure US$m (17,595) (12,944) (7,418) (5,747) (6,043) (7,114) (6,039) Acquisitions/(Disposals) US$m (20) (57) (744) Other US$m (628) 2,055 1, Free cash flow US$m (8,813) 4,132 7,783 4,014 3,180 2,328 3,386 Dividends US$m (3,038) (3,322) (3,710) (4,127) (4,247) (4,373) (4,464) New Equity US$m 1, ,291 (1,976) Debt Drawdown/(Repayment) US$m 7,887 2,122 (3,034) (1,238) Other US$m Net Financing Cashflow US$m 6,324 (934) (5,436) (7,328) (4,247) (4,373) (4,464) FX Adjustment US$m (138) (117) (140) (110) Net change in cash US$m (2,627) 3,081 2,207 (3,424) (1,067) (2,045) (1,078) FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 BALANCE SHEET CY12 CY13 CY14 CY15e CY16e CY17e CY18e VALUATION Cash US$m 7,135 10,216 12,423 8,999 7,932 5,886 4,808 Projects US$m US$/sh A$m A$/sh GBPm GBP/sh Other current assets US$m 13,375 12,066 8,702 6,753 6,553 7,019 7,336 Iron Ore 63, , , Property, Plant & Equipments US$m 76,985 70,827 68,693 65,437 66,445 68,184 69,045 Copper & Coal 18, , , Other Non-current assets US$m 20,942 17,916 18,009 17,522 17,883 18,549 19,296 Diamonds & Minerals 4, , , Total Assets US$m 118, , ,827 98,710 98,812 99, ,485 Aluminium 9, , , Debt US$m 26,904 28,551 25,219 23,837 23,837 23,837 23,837 Cash 10, , , Payables US$m 10,025 8,976 8,308 6,470 6,278 6,726 7,029 Debt (23,837) (13.12) (31,783) (17.29) (14,898) (8.20) Other liabilities US$m 23,768 19,996 19,706 17,730 18,031 18,661 19,217 Group & Unallocated (3,634) (2.00) (4,845) (2.64) (2,271) (1.25) Total Net Assets / Equity US$m 57,740 53,502 54,594 50,673 50,666 50,416 50,403 Net Equity Value (WACC 11% Nom) 78, , , Net Debt / (Cash) US$m 19,769 18,335 12,796 14,838 15,905 17,951 19,029 Price Target AUD GBP Gearing (net debt/(nd + equity)) % 26% 26% 19% 23% 24% 26% 27% Gearing (net debt/equity) % 34% 34% 23% 29% 31% 36% 38% Source: RIO, Macquarie Research, September September

9 Fig 15 South32 summary financials South32 ASX: S32 Price: (A$ps) 1.42 Mkt cap: (A$m) 7,533 Year end: Jun Rating: Outperform Up/dn TSR LSE S32 Price: ( $ps) 0.66 Mkt cap: (US$m) 5,306 Diluted shares (m) 5,324 ASX Target: % 28% JSE S32 Price: (ZARps) LSE Target: % 31% JSE Target: % 30% ASSUMPTIONS FY14 FY15 FY16e FY17e FY18e FY19e FY20e ASSUMPTIONS FY14 FY15 FY16e FY17e FY18e FY19e FY20e FY21e Exchange Rate A$/US$ Commodity prices Exchange Rate USDBRL Aluminium (US$/lb) Exchange Rate USDZAR Alumina (US$/t) RATIO ANALYSIS FY14 FY15 FY16e FY17e FY18e FY19e FY20e Manganese ore (US$mtu) Diluted share capital m 5,324 5,324 5,324 5,324 5,324 5,324 5,324 Ferromanganese (US$/t) 1,044 1, ,070 1,150 1,284 EPS (diluted and pre sig. items) US Nickel (US$/lb) P/E x 51.5x 189.5x 24.2x 11.0x 8.5x 8.2x 8.2x Thermal coal (US$/t) CFPS US Coking coal (US$/t P/CF x 5.3x 4.1x 7.3x 6.2x 5.5x 5.3x 5.8x Silver (US$/oz) DPS US Lead (US$/lb) Dividend yield % 0.0% 0.0% 1.0% 4.0% 5.0% 5.0% 4.0% Zinc (US$/lb) Franking Level % 0% 0% 100% 100% 100% 100% 100% Book value per share US$ps Production by commodity P/Book value x 0.4x 0.5x 0.5x 0.4x 0.4x 0.4x 0.4x Alumina R.O.E. (pre sig items) % 1% 0% 2% 4% 5% 5% 5% Worsley (kt) 3,916 3,819 3,950 3,955 3,960 3,960 3,960 3,960 R.O.A. (pre sig items) % 4% 6% 4% 5% 6% 6% 6% Alumar (kt) 1,262 1,328 1,320 1,320 1,320 1, Interest Cover x -2.0x -1.9x -1.3x -1.0x -1.0x -1.0x -1.0x Total alumina (kt) 5,178 5,147 5,270 5,275 5,280 4,960 3,960 3,960 EBITDA per share US$ps Aluminium EV/EBITDA x 4.0x 3.1x 4.0x 3.2x 2.6x 2.3x 1.7x Hillside (kt) ROIC % 3% 5% 2% 3% 4% 3% 3% Bayside (kt) Mozal (kt) EARNINGS FY14 FY15 FY16e FY17e FY18e FY19e FY20e Alumar (kt) Sales Revenue US$m 8,344 7,743 6,626 6,849 7,334 7,558 7,205 Total aluminium (kt) 1,184 1, Other Revenue US$m Coal Total Revenue US$m 8,344 7,743 6,626 6,849 7,334 7,558 7,205 South Africa Energy Coal (mt) Operating Costs US$m (6,918) (5,820) (5,181) (5,253) (5,532) (5,751) (5,526) Illawarra Coking Coal (mt) Operational EBITDA US$m 1,426 1,923 1,444 1,596 1,802 1,807 1,680 Manganese ore Associates US$m 62 (6) (50) GEMCO (kt) 2,865 2,942 3,078 3,163 3,192 3,192 3,192 3,192 Corporate & Other Costs US$m (5) (68) (60) (60) (60) (60) (60) Hotazel (kt) 1,566 1,682 1,667 1,830 1,830 1,830 1,830 1,830 Underlying Ebitda US$m 1,483 1,849 1,334 1,547 1,750 1,748 1,657 Total manganese ore (kt) 4,431 4,624 4,745 4,993 5,022 5,022 5,022 5,022 D&A US$m (823) (848) (794) (774) (791) (776) (697) Other Underlying Ebit US$m 660 1, Cerro Matoso Nickel (kt) Adjustments US$m (323) (482) (130) Cannington Silver (moz) Profit from Operations US$m Cannington Lead (kt) Net Interest US$m (187) (60) (93) (74) (57) (38) (18) Cannington Zinc (kt) Profit Before Tax US$m Tax Expense US$m (47) (431) (98) (217) (280) (289) (292) EBITDA BY COMMODITY Minorities US$m Aluminium Alumina Nickel Manganese Ag/Pb/ZN Coking Coal Energy Coal Net Earnings US$m ,000 Earnings Adjustments US$m Underlying Earnings US$m ,500 CASHFLOW FY14 FY15 FY16e FY17e FY18e FY19e FY20e 2,000 Profit from Operations US$m ,500 Interest/Tax/D&A US$m 1,067 1, Working Capital/other US$m 15 (114) (29) (39) (46) 15 (1) 1,000 Net Operating Cashflow US$m 1,419 1,838 1,034 1,206 1,359 1,435 1,309 Capital Expenditure US$m (590) (629) (627) (682) (775) (664) (677) 500 Acquisitions/(Disposals) US$m Dividends received US$m (50) Free cash flow US$m 1,035 1, FY12 FY13 FY14 FY15 FY16e FY17e FY18e FY19e FY20e Dividends US$m (160) (213) (266) (266) VALUATION New Equity US$m Projects US$m US$ A$m A$/sh GBPm GBP ZARm ZAR Debt Drawdown/(Repayment) US$m 0 (658) (89) (82) (76) (71) (66) Worsley Alumina 1, , , Net Financing Cashflow US$m 0 (658) (89) (242) (289) (337) (332) South Africa Aluminium , Net change in cash US$m 1,035 1, Mozal Aluminium , Brazil Aluminium , South Africa Energy Coal , , BALANCE SHEET FY14 FY15 FY16e FY17e FY18e FY19e FY20e Illawarra Metallurgical Coal , , Cash US$m ,206 1,509 1,944 2,281 Australia Manganese 1, , , PP&E & Mine Development US$m 10,353 9,550 9,382 9,291 9,275 9,163 9,143 South Africa Manganese Associates US$m 6,968 5,295 5,120 5,334 5,700 5,874 5,902 Cerro Matoso , Total Assets US$m 17,685 15,489 15,415 15,831 16,484 16,981 17,326 Cannington 1, , , , Debt US$m 1,024 1, Third party products , Total Liabilities US$m 4,735 4,454 3,738 3,830 4,110 4,235 4,097 Group and unallocated (318) (0.06) (423) (0.08) (199) (0.04) (4,129) (0.78) Total Net Assets / Equity US$m 12,950 11,035 11,677 12,001 12,374 12,746 13,230 Cash , Net Debt / (Cash) US$m (331) (710) (1,215) (1,618) Debt (1,023) (0.19) (1,364) (0.26) (640) (0.12) (13,302) (2.50) Gearing (net debt/(nd + equity)) % 5% 4% 0% (3%) (6%) (11%) (14%) Net Equity Value (@ 9.5% WACC) 7, , , , Gearing (net debt/equity) % 5% 4% 0% (3%) (6%) (10%) (12%) Price Target AUD 1.80 GBP 0.85 ZAR Source: S32, Macquarie Research, September September

10 Fig 16 Fortescue Metals Group summary financials Fortescue Metals ASX: FMG Price: (A$ps) 1.81 Year end: Jun Rating: Outperform Up/dn TSR Mkt cap: (A$m) 5,636 Diluted shares (m) 3,114 Target: % 19% Mkt cap: (US$m) 3,970 ASSUMPTIONS FY13 FY14 FY15 FY16e FY17e FY18e FY19e ATTRIBUTABLE MINE OUTPUT FY13 FY14 FY15 FY16e FY17e FY18e FY19e Exchange Rate A$/US$ Iron-ore Mined (kt) Spot iron-ore (62% CIF) US$/t Cloudbreak (mt) mt Spot iron-ore (62% CIF) A$/t Christmas Creek (mt) mt RATIO ANALYSIS FY13 FY14 FY15 FY16e FY17e FY18e FY19e Firetail (mt) mt Diluted share capital m 3,115 3,119 3,128 3,128 3,128 3,128 3,128 Kings Valley (mt) mt EPS (diluted and pre sig. items) A FMG Mined (mt) mt P/E x 3.2x 1.9x 14.9x 10.1x 21.2x 16.9x 10.1x Nullagine JV (mt) - 100% mt CFPS A Iron Bridge (mt) mt P/CF x 2.7x 1.0x 3.3x 3.9x 2.5x 2.5x 2.3x Total mt DPS A Iron-Ore Shipped (100%) mt Dividend yield % 5.5% 11.0% 2.8% 0.6% 0.6% 0.0% 0.0% C1 Cash costs US$/wmt Franking Level % 100% 100% 100% 100% 100% 100% 100% All in cash costs US$/wmt Book value per share A$ps CFR 62% Fe Equ costs US$/dmt P/Book value x 1.1x 0.7x 0.6x 0.5x 0.5x 0.5x 0.5x OPERATIONAL OUTLOOK R.O.E. (pre sig items) % 34% 36% 4% 5% 2% 3% 5% Cloudbreak (mt) Christmas Creek (mt) Firetail (mt) R.O.A. (pre sig items) % 15% 21% 5% 5% 4% 4% 6% Kings Valley (mt) Nullagine JV (mt) - 100% Iron Bridge (mt) Interest Cover x 5.6x 6.5x 1.7x 1.9x 1.4x 1.6x 2.2x EBITDA per share A$ps EV/EBITDA x 4.6x 2.2x 4.8x 4.2x 4.2x 3.7x 2.9x EARNINGS FY13 FY14 FY15 FY16e FY17e FY18e FY19e 80.0 Sales Revenue US$m 8,120 11,753 8,574 6,689 6,595 7,103 7,793 Other Revenue US$m Total Revenue US$m 8,411 11,879 8,651 6,689 6,595 7,103 7, Operating Costs US$m (4,703) (6,131) (6,051) (4,093) (4,306) (4,759) (5,226) 20.0 Operational EBITDA US$m 3,708 5,748 2,600 2,596 2,289 2,344 2,567 Exploration Expense/Write-offs US$m (45) (16) (52) (20) (21) (21) (22) 0.0 Corporate & Other Costs US$m (110) (112) (94) (89) (91) (94) (96) EBITDA US$m 3,553 5,620 2,454 2,487 2,177 2,229 2,449 RESERVES AND RESOURCES (ATTRIBUTABLE) D&A US$m (463) (965) (1,405) (1,380) (1,380) (1,380) (1,380) Iron-ore reserves EBIT US$m 3,090 4,655 1,049 1, ,069 Project Mt Fe CaFe SiO2 Al2O3 P LOI Net Interest US$m (553) (720) (629) (574) (553) (517) (480) Cloudbreak % 62.4% 5.1% 2.8% 0.05% 8.3% Profit Before Tax US$m 2,537 3, Christmas Creek 1, % 62.8% 5.2% 2.7% 0.05% 8.0% Tax Expense US$m (720) (1,173) (104) (160) (73) (100) (177) Firetail % 62.7% 6.3% 2.6% 0.11% 6.5% Minorities US$m 0 (10) Kings and Queens % 61.8% 7.1% 2.7% 0.06% 8.9% Adjusted NPAT US$m 1,817 2, Total Reserves 2, % 62.4% 5.8% 2.8% 0.06% 8.2% Significant Items (post tax) US$m (71) (22) Iron-ore resources Reported NPAT US$m 1,746 2, Project Mt Fe CaFe SiO2 Al2O3 P LOI Cloudbreak 1, % 61.8% 6.1% 3.4% 0.05% 8.3% Christmas Creek 2, % 61.2% 6.3% 3.4% 0.05% 7.9% CASHFLOW FY13 FY14 FY15 FY16e FY17e FY18e FY19e Firetail % 62.4% 6.4% 3.0% 0.11% 6.7% Net Profit US$m 1,746 2, Kings and Queens 1, % 60.8% 7.8% 3.3% 0.07% 8.7% Interest/Tax/D&A US$m 181 1,876 1,019 1,436 1,293 1,406 1,457 Fortescue Mines 5, % 61.2% 6.7% 3.3% 0.06% 8.2% Working Capital/other US$m (837) (18) (40) (69) Greater Chichester % 61.5% 5.9% 3.3% 0.07% 7.1% Net Operating Cashflow US$m 2,111 5,395 1, ,447 1,599 1,800 Greater Solomon 2, % 61.3% 6.9% 3.7% 0.08% 7.3% Capex US$m (6,355) (1,995) (849) (320) (356) (396) (432) Eliwana and Flying Fish % 63.2% 5.2% 2.9% 0.09% 6.5% Investments US$m Nyidinghu 2, % 62.9% 4.9% 3.3% 0.15% 8.7% Sale of PPE and Other US$m Total Resources 11, % 61.7% 6.3% 3.4% 0.09% 8.0% Free cash flow US$m (4,055) 4, ,091 1,204 1,369 Magnetite Reserves Mt Mass Recovery (Fe) (SiO2) (Al2O3) Dividends Paid US$m (131) (581) (343) (69) (20) 0 0 North Star % 67.2% 5.5% 0.3% Debt US$m 4,033 (3,174) (257) 19 (20) (20) (4,817) Magnetite Resources Equity Issuance US$m (20) (17) (30) Project Mt Mass Recovery Fe SiO2 Al2O3 Other US$m North Star 2, % 30.9% 40.6% 2.4% Net Financing Cashflow US$m 3,882 (3,772) (630) (50) (40) (20) (4,817) Glacier Valley 2, % 32.3% 39.2% 1.8% Net change in cash US$m (173) ,051 1,184 (3,448) West Star % 28.3% 43.4% 3.4% Total 5, % 31.4% 40.1% 2.1% VALUATION BALANCE SHEET FY13 FY14 FY15 FY16e FY17e FY18e FY19e Projects A$m A$ps Cash US$m 2,158 2,398 2,381 2,984 4,035 5,218 1,770 Fortescue Operations 15, PP&E & Mine Development US$m 17,159 18,068 17,729 16,669 15,645 14,660 13,712 Undeveloped Resources Exploration US$m Other resources Total Assets US$m 20,867 22,694 21,360 20,727 20,788 21,066 16,807 Unpaid capital Debt US$m 12,691 9,557 9,569 9,588 9,568 9,548 4,731 Prepayments (963) (0.31) Total Liabilities US$m 15,578 15,111 13,823 12,886 12,796 12,841 8,170 Corporate (558) (0.18) Total Net Assets / Equity US$m 5,289 7,583 7,537 7,841 7,993 8,225 8,637 Cash 2, Net Debt / (Cash) US$m 10,533 7,159 7,188 6,604 5,533 4,330 2,961 Debt (9,564) (3.06) Gearing (net debt/(nd + equity)) % 67% 49% 49% 46% 41% 34% 26% Net Equity Value (@ 10% WACC) 6, Gearing (net debt/equity) % 199% 94% 95% 84% 69% 53% 34% Price Target (1x NPV) 2.15 Source: FMG, Macquarie Research, September September

11 Fig 17 Iluka Resources summary financials Iluka Resources ASX: ILU Price: (A$ps) 6.61 Year end: Dec Rating: Underperform Up/dn TSR Mkt cap: (A$m) 2,768 Diluted shares (m) Target: % -5% ASSUMPTIONS FY13 FY14 FY15e FY16e FY17e FY18e FY19e ATTRIBUTABLE MINE OUTPUT FY13 FY14 FY15e FY16e FY17e FY18e FY19e Exchange Rate A$/US$ Valuable Heavy Mineral Production (equity) Zircon US/t Zircon (kt) Rutile US/t Rutile (kt) Synthetic rutile US/t Synthetic rutile (kt) Ilmenite US/t Total Z/R/SR production (kt) Saleable ilmenite RATIO ANALYSIS FY13 FY14 FY15e FY16e FY17e FY18e FY19e Valuable Heavy Mineral Sales (equity) Diluted share capital m Zircon (kt) EPS (diluted and pre sig. items) A Rutile (kt) P/E x 74.4x 142.7x 21.7x 22.0x 15.9x 23.7x 23.7x Synthetic rutile (kt) CFPS A Total Z/R/SR sold (kt) P/CF x 92.6x 10.3x 9.1x 9.7x 11.2x 23.1x 20.1x DPS A Z/R/SR C1 A$/t 1, Dividend yield % 1.4% 2.9% 2.5% 1.8% 2.5% 1.7% 1.7% Notional Cash Margin A$/t Franking Level % 100% 100% 100% 100% 100% 100% 100% Z/R/SR AISC A$/t 1,451 1,147 1, ,148 1,232 1,249 Book value per share x Operational EBIT Contribution P/Book value x 1.8x 1.9x 1.9x 1.8x 1.7x 1.6x 1.6x Perth Basin A$m R.O.E. (pre sig items) % 2% 1% 9% 8% 11% 7% 7% Eucla Basin A$m R.O.A. (pre sig items) % 2% 1% 8% 8% 10% 7% 7% Murry Basin A$m Interest Cover x 0.0x 0.0x 18.2x -54.4x -52.0x nmf nmf USA A$m EBITDA per share A$ps Revenue to cash cost ratio x EV/EBITDA x 13.2x 13.3x 8.1x 9.4x 7.7x 10.2x 10.2x OPERATIONAL OUTLOOK EARNINGS FY13 FY14 FY15e FY16e FY17e FY18e FY19e Sales Revenue A$m Other Revenue (MAC royalty) A$m Total Revenue A$m Operating Costs A$m (458) (433) (507) (464) (472) (471) (478) Operational EBITDA A$m Exploration Expense/Write-offs A$m (45) (45) (39) (33) (34) (35) (36) Corporate & Other Costs A$m (126) (101) (72) (101) (102) (103) (105) EBITDA A$m D&A A$m (182) (192) (148) (106) (104) (105) (105) EBIT A$m Net Interest A$m (12) (15) (11) 3 5 (4) (18) Profit Before Tax A$m Tax Expense A$m 6 14 (54) (54) (75) (50) (50) Minorities A$m Adjusted NPAT A$m Significant Items (post tax) A$m (19) (82) Reported NPAT A$m (kt) 450 Zircon Synthetic rutile Rutile Z/R//SR AISC FY12 FY13 FY14 FY15e FY16e FY17e FY18e FY19e FY20e FY21e FY22e FY23e FY24e CASHFLOW FY13 FY14 FY15e FY16e FY17e FY18e FY19e Net Profit A$m RESERVES Interest/Tax/D&A A$m ILU Reserves Working Capital/other A$m (39) 42 (51) 60 (43) (69) (75) Project Classification Mt HM HM Mt Ilmenite Zircon Rutile Net Operating Cashflow A$m Western Australia Proved % % 14.0% 2.0% Capex A$m (51) (48) (119) (136) (204) (213) (215) Probable % % 10.0% 5.0% Investments A$m 0 (19) Jacinth-Ambrosia Proved % % 51.0% 4.0% Sale of PPE and Other A$m (5) 0 (4) Probable % % 52.0% 4.0% Free cash flow A$m (25) (93) (77) Murray Basin Proved % % 10.0% 19.0% Dividends Paid A$m (63) (42) (80) (71) (63) (54) (46) Probable % % 14.0% 19.0% Debt A$m 84 (101) (56) (70) Virginia Proved % % 15.0% 0.0% Equity Issuance A$m (2) (5) Probable % % 19.0% 0.0% Other A$m ILU Total Reserves Total % % 18.7% 6.0% Net Financing Cashflow A$m 19 (148) (136) (141) (63) Net change in cash A$m (6) (20) (22) 45 EQUITY DCF VALUATION BALANCE SHEET FY13 FY14 FY15e FY16e FY17e FY18e FY19e Projects A$m A$ps Cash A$m Western Australia PP&E & Mine Development A$m 1,430 1,315 1,117 1,087 1,117 1,217 1,326 Jacinth-Ambrosia 1, Inventories A$m Murray Basin Total Assets A$m 2,369 2,173 2,307 2,269 2,381 2,502 2,779 Virginia Debt A$m Other Projects & undeveloped resources Total Liabilities A$m MAC 5% WACC Total Net Assets / Equity A$m 1,538 1,435 1,462 1,538 1,642 1,713 1,784 Corporate (314) (0.75) Net Debt / (Cash) A$m (28) (107) (87) Net debt (cash) 38 (0.09) Gearing (net debt/(nd + equity)) % 12% 4% (2%) (7%) (6%) 3% 9% Net Equity Value (@ 9% WACC) 2, Gearing (net debt/equity) % 13% 4% (2%) (7%) (5%) 4% 10% Price Target 6.10 Source: ILU, Macquarie Research, September September