BBG Ticker: TNG AU Price: A$0.13 Mkt Cap: A$78.6m BUY

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1 22 January 2016 METALS & MINING Initiation of Coverage Marketing Communication (Connected Research) TNG Limited # BBG Ticker: TNG AU Price: A$0.13 Mkt Cap: A$78.6m BUY Strategic Metals Leader World Class V-Ti-Fe Project TNG Limited (TNG AU) # owns the Mount Peake titano-magnetite project in the Northern Territory of Australia. TNG aims to produce high grade and purity vanadium and titanium dioxide as well as pig iron. The 2015 DFS indicated potential for average production of 17ktpa of V 2 O 5, 223ktpa of TiO 2 and 602tpa of pig iron over the 15 year Life of Mine (LoM). With initial capex of A$970m, our analysis indicates strong operating margins and free cash flow generation resulting in strong pre and post-tax NPV valuation. Significantly De-risked Development Project TNG is entering the final stages of the permitting and environmental process and is now aiming to secure project financing. With support from the Northern Territory government, which awarded Mount Peake major project status, we expect the final regulatory hurdles to be approved. The DFS released in July 2015 highlighted the strong potential of the Mount Peake project including the positive results of the test-work on TNG s TiVAN metallurgical process. This will enable the production of three high value end products. This process is key to the strong operating margins and free cash flow generation potential of Mount Peake and is 100% owned by TNG. TNG has also secured agreements for offtakes and other strategic partnerships with leading global firms that underpins our confidence in management to develop the project through to commissioning. Vanadium Exposure Company Description A natural resource development company in Australia with a focus on its 100% owned Mt. Peake V-Ti-Fe project. One Year Price Performance (A$) /15 4/15 7/15 10/15 1/16 Price % chg 1mn 3mn 12mn -22.5% -37.0% 20.1% 12mn high/low: 0.275/0.095 SOURCE: FactSet, as of 19/01/16 close. Market: Price target: Shares in issue: Australian Securities Exchange A$ m Free float: 62% Major shareholders Volume (RHS) Price (LHS) (m shs) Warren & Marilyn Brown 11.1% Bonos PTY Ltd 11.1% AOSU INV & DEVT CO PTY 7.88% We believe that there is significant upside potential in the vanadium market due to the advent of vanadium redox flow batteries (VRB) alongside growing global demand for higher quality steel alloys using vanadium. VRB technology has significant advantages over substitutes in commercial energy storage applications. TNG offers investors rare exposure to this potential. Recommendation and Target Price While securing financing is the major milestone that will drive a rerating of the stock, our DCF valuation indicates that development of the Mount Peake project will enable the realisation of strong upside potential. We are initiating coverage with a BUY recommendation and target price of A$0.73/sh. Oliver O Donnell, Mining Analyst +44 (0) odonnell@vsacapital.com Paul Renken, Senior Geologist +44 (0) prenken@vsacapital.com #VSA Capital acts as Financial Advisor and Corporate Broker to TNG Limited. This research brochure is a MARKETING COMMUNICATION. It is not investment research and has not been prepared in accordance with legal requirements designed to promote investment research independence and is also not subject to any prohibition on dealing ahead of dissemination of investment research.

2 Investment Case Advanced Development and Strong Track Record TNG s share performance since the start of 2015 was strong, now up 25% since January 2015 while in the first nine months of 2015 the shares rallied 95%, in stark contrast to the majority of the mining industry. This has largely been a result of strong management resulting from the successful and consistent completion of project development milestones as well as strategic partner agreements and the decision to employ new metallurgical processing technology. As a result, TNG s flagship V-Ti-Fe Mount Peake project has been significantly de-risked and with the DFS completed TNG is seeking financing alongside the few remaining regulatory requirements. TNG has completed a number of other milestones including offtake agreements that have not directly contributed to the results of the DFS but have strengthened the investment case for TNG. Indeed, the remaining development milestones other than the financing are limited. The Environmental Impact Statement has now been submitted with no issues currently anticipated. Also outstanding is the signature of the final Native Title Agreement after which the Mining Leases are expected to be granted during early Since the Northern Territory (NT) Government granted Major Project status to Mount Peake we believe there is limited risk associated with the licensing process. TNG is targeting first concentrate production for Q as per the DFS assuming a best case scenario regarding the receipt of regulatory approvals, permitting and financing. Strong Project Economics In 2015 the major achievement was the publication of the DFS, in July, which clearly demonstrates the strong potential economics of the project. The key findings of the DFS, which projects a mine life of 15 years and a pre-tax NPV of A$4.9bn based on an 8% discount rate and with initial capital of A$970m. Our analysis, which applies more conservative commodity pricing than in the DFS (particularly with regard to the titanium pigment pricing) as well as tax assumptions confirms the strong return potential and is also based on an 8% discount rate. One of the crucial findings of the DFS is the value that can be unlocked by upgrading the products in the downstream refinery to high purity vanadium, titanium pigment and pig iron. The additional revenues from higher value byproducts strengthen the operating margins and free cash flow (FCF) generation and on a by-product basis, the cash costs are likely to be in the lowest quartile of the cost curve. Furthermore the location of Mount Peake has resulted in low infrastructure capital costs and we believe that with both strong operating margins and low capital costs there is the potential for strong returns from the Mount Peake project. Production Outlook, kt Revenue By End Product, A$m 1,400 1,200 1,000 Pig iron Titanium pigment Vanadium 2,000 1,800 1,600 1,400 Pig iron Titanium pigment Vanadium ,200 1, SOURCE: Company data, VSA Capital Research. SOURCE: Company data, VSA Capital Research

3 EBITDA and Margins Strong Free Cash Flow Generation 800 EBITDA, A$m EBITDA margin, % % 90% 80% 70% 60% Free Cash Flow, A$m % % 30% 20% 10% (200) (400) (600) 0 0% (800) SOURCE: Company data, VSA Capital Research. SOURCE: Company data, VSA Capital Research. Innovative Hydrometallurgical Extraction Process The critical factor which differentiates TNG s investment case from peers is the solvent extraction process, known as TiVAN, designed to extract high purity vanadium, iron and titanium oxides from magnetite concentrates for which TNG owns the patent and process entirely. The process development has been supported by the global engineering firm, SMS Siemag, based in Germany and Mineral Engineering Technical Services has been independently assessed by the Australian Government s Commonwealth Scientific and Industrial Research Organisation (CSIRO). Ultimately it is the TiVAN process which enables TNG to produce the three high quality, value add end products which drive the strong margins and free cash flow generation. Indeed, we expect strong EBITDA margins (above 35% from Year 4 onwards). The end products are battery grade, vanadium pentoxide (99% purity), iron oxide (99% purity), which will be upgraded to pig iron, and titanium dioxide (65% purity), which may be further refined to produce a high purity pigment above 90% purity. The completion of pilot test-work on the TiVAN process was announced in July 2015 and demonstrated stronger than expected results, underpinning our positive view on the Mount Peake project. The test-work included the crushing, grinding and beneficiation of a bulk sample from Mount Peake. Pre-processing and feed preparation also achieved positive results while the TiVAN leaching phase was also successful and potential economies of scale were identified. The solvent extraction circuit was also successfully tested on a continuous basis. Given that the process as a whole has not been operated on a commercial scale there is uncertainty associated with the ramp up. However, given that the test-work has demonstrated positive results and the component technologies are not themselves new we believe that this risk has been somewhat mitigated. A key result from the test-work has been the improved feed quality to the leaching circuit, due to the early removal of iron. The higher concentrate feed has resulted in a higher grade titanium grade with consequent higher recoveries above 90%. Critically, this has enabled TNG to continue the downstream processing of titanium through to a titanium dioxide pigment using an industry standard chloride process to create a significantly higher value product. The TiVAN process on site is also enabling diversification of the vanadium products and since completion of the DFS, TNG signed a binding agreement with Woojin Industries, a major ferro-vanadium group from South Korea. As well as the offtake agreement, TNG also secured an agreement to employ Woojin s technology to convert V 2 O 5 to ferrovanadium, the plant will be installed in Darwin at the same site as the refinery. Due to the strong infrastructure in the NT, TNG opted to locate the downstream refinery and the TiVAN processing stage close to Darwin; around 1,200km North of the mine site (but just 75km to the rail) and 22km by road from the - 3 -

4 Darwin East Arm port. The refinery process plant and the pig iron and titanium pigment plants will be located in Darwin and will be upgraded to full production as part of a two phase development during years 5/6 according to the DFS. Due to the distance between mine site and refinery TNG has opted for separate environmental studies for the two locations, however, no significant pushbacks are expected. Based in Darwin, where TNG intends to export endproducts from the deep water port, the company have added the option of sourcing feedstock from alternative mines should the Mount Peake resource be depleted after the projected 15 year mine life. Given that over two thirds of vanadium resources globally are found in similar ore types we believe there is significant flexibility for sourcing plant feedstock over the long term. Tier 1 Jurisdiction Australia is consistently ranked as one of the top destinations for mining capital investment due to the long history of mining in the region and consequently the region from is well understood by investors. However, TNG s investment case is further enhanced by the strong support from the regional government to date. In September 2013, the NT Government awarded Major Project status to the Mount Peake project. Major project status means that a specific NT government team is appointed to the project to ensure its progress is facilitated efficiently. In awarding the project the viability of the project as well as management s ability to deliver has been assessed by the government. Consequently we are confident that the outstanding licenses will be award ed to TNG in the near term. Furthermore, the R&D development work which TNG has undertaken has resulted in an A$1.9m tax rebate from the NT government in December 2015, which has strengthened TNG s cash position to ca$6.6m (as of 10 December 2015). Australia has well developed networks for road and rail. However, it is important to highlight that the Mount Peake project is particularly well located and the capital requirements for infrastructure are estimated at just A$100m. The mine itself is located around 20km from a gas pipeline which will enable a gas fired power plant to generate electricity for the site. The Adelaide-Darwin railway runs around 100km to the East of the mine site, meaning just a rail siding and road capable of supporting road trains must be built despite the fact that the mine is c1,500km South of Darwin. In addition, TNG s aquifer drilling in March 2015 proved the availability of a long term source of water to supply all the requirements of the mine site at Mount Peake from a local source. TNG has also demonstrated that this source can be exploited sustainably. Typically, the infrastructure spending requirements associated with magnetite mines often run into billions of dollars significantly reducing the potential returns. However, we believe that t he infrastructure requirements are modest given the geographical location of the project. Offtake Agreements & Strategic Partnerships Throughout the development of the Mount Peake project the support of strategic partners has been vital. The track record to date of support from leading global firms is a key reason that we believe investors should have confidence in management s ability to deliver the Mount Peake project. Although the DFS demonstrates the strong potential of the project securing offtake agreements in industrial minerals and specialty metals markets is critical to realising that potential. TNG has to date made significant positive progress with high profile, market leading firms: Vanadium Products Binding Offtake Agreement; Woojin Industries in September 2015 signed a binding Life of Mine offtake agreement to purchase a minimum of 60% of all vanadium products produced from Mount Peake at an annually agreed market price, which includes a floor price above TNG s cost of production es timate. TNG also secured an agreement to employ Woojin s technology to convert V 2 O 5 to ferro-vanadium. This plant will be installed in Darwin at the same site as the refinery and will enable TNG to diversify its vanadium product range. Gunvor MoU; In November 2014 TNG signed a Memorandum of Understanding (MoU) with Gunvor, one of the largest global commodity trading houses, for the sale and marketing of the iron product from Mount Peake. As well as offtake and marketing the MoU also considers development funding and sales strategies. Global Pacific Partners Letter of Intent (LoI); In August 2014 TNG furthered their progress towards binding agreements for the management of TNG s logistical services, pre-production funding and offtake of titanium - 4 -

5 products on a fixed rate basis with an LoI. This represented the next step following an earlier signed MoU. GPP is a diversified global chemical distributor and is considering entry into titanium pigment markets. Caterpillar Equipment Financing MoU; TNG signed an MoU with Caterpillar Financial Australia to consider the provision of project and/or equipment finance. Should TNG convert this to a binding agreement it is anticipated that Caterpillar could form part of the project financing consortium for Mount Peake. MoU with Vanadium Redox Battery (VRB) Manufacturer; In May 2015, TNG signed a non-binding MoU with a vanadium redox flow battery manufacturer for the supply of vanadium product from Mount Peake along with the installation of a VRB unit on site. SMS Siemag support for TiVAN process; In April 2015, TNG secured the involvement of SMS Siemag, one of the world s leading metallurgical engineering and plant building companies. SMS Siemag has overseen the pilot TiVAN testwork and supported TNG s completion of the DFS and will oversee the final TiVAN design. There is also further potential for SMS to be involved in the refinery construction. Again the involvement of an industry leader underpins our confidence that the findings of the DFS are robust. Commodity Price Upside Although a magnetite ore body, Mount Peake is a strategic metals project foremost and despite recent weak performance for pricing in both the vanadium and titanium markets, the outlook for both markets is positive, in our view. Indeed, by the time of commissioning for Mount Peake, according to the current schedule, we expect prices for both vanadium and titanium to have recovered. There is also a significant upside scenario whereby battery technology which relies on vanadium, could drive major price outperformance. Due to the significant level of production of vanadium that comes from China and the minor contribution of vanadium earnings to listed Western miners earnings, TNG offers investors one of the few opportunities to gain significant exposure to this upside potential. The disruptive impact from the vanadium redox flow battery market should, alongside increasing steel quality in China, increase demand for vanadium by CAGR 5% until 2020, creating market deficits and driving higher prices. Vanadium redox batteries (VRB) are an alternative to the lithium-based battery technologies which have to date been preferred by major technology and EV firms. We believe there is significant potential for VRB technology in commercial storage and renewable energy since there are significant economies of scale, unlike in lithium-ion batteries. We also note that with spot pricing now at cus$2.4/lb, and at multi year lows, TNG has strong downside protection through its binding offtake agreement with Woojin that uses a floor price based on the company s cash costs estimate of US$2.35/lb plus a 20% margin. This agreement covers a minimum of 60% of all vanadium production from Mount Peake. The Chinese government is undertaking a significant programme known as Made in China 2025 whereby it is targeting a significant increase in the quality of its manufactured goods in order to prevent being squeezed by the emergence of new low cost producers and to allow China to compete more effectively with developed nations. Vanadium use in steel alloys is likely to increase as a result of this strategy as China seeks to move domestic production away from the low grade commodity steels in order to meet the increasing standards of domestic manufacturers

6 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Vanadium price performance Titanium pigment price performance V2O5, US$lb 4,000 Average Annual Prices, US$/t 3,500 3,000 2,500 2,000 1,500 1, SOURCE: Bloomberg, VSA Capital Research. SOURCE: Chemours, VSA Capital Research. Price volatility is relatively limited in the titanium pigment market; however, prices have been in a downward trend since However, this now appears to be stabilising around US$2,300/t and we believe that further downside risk is limited. Lead indicators, however, are positive and we expect some modest price recovery over the medium term towards a more normalised level based on historical pricing. In 2016 we anticipate global GDP growth of 4%, to drive continued positive demand growth in the pigment market which is the major driver for titanium dioxide demand. Our positive view on demand growth is supported by leading Chinese macro indicators. To date the recovery in global demand has occurred despite weakness in the Chinese market and we expect the current recovery in the Chinese housing market to underpin the recovery in global pigment demand over the medium term. Following significant government stimulus in 2015, house prices in the top 70 cities have begun to rise, along with sales, which have in the past led construction starts by six to twelve months. Spin out Potential for Exploration Assets As well as the flagship Mount Peake development project, TNG also owns a number of early stage exploration assets. These are non-core assets and up until November 2015 were due to be spun out as Todd River Resources. However the BoD decided that due to the weak market conditions this would be deferred. The planned spin out would have been carried out via a distribution in-specie, and consequently investors in TNG would retain investment exposure to these other assets. However, we believe that little value is currently attributable to the exploration assets and the spin-out would have a negligible impact on the market valuation of TNG

7 Valuation Our NAV-based valuation approach is based on DCF analysis using a discount rate of 8% and P/NAV multiple of 0.5x. We believe that the current valuation of the exploration assets is negligible in the wider context of our NAV valuation and do not attribute a value. Our P/NAV of 0.5x reflects the risk associated with the project since financing has yet to be secured. We highlight that our DCF valuation and consequent target price is dependent on TNG securing financing for the project. Our blended target price for TNG is A$0.73/sh. TNG NAV Valuation Division Division NAV A$m P/NAV Fair Equity Value (A$m) Mount Peake 1, x 520 Total NAV (A$m) 520 Consolidated Net Debt (5) Total Equity Value 525 No. of shares (m) 715 Current Price (A$/sh.) 0.13 Target price A$/sh SOURCE: Company data, VSA Capital Research. Sensitivity Analysis Our sensitivity analysis on the NPV of the Mount Peake project demonstrates that even at multi-year low pricing the project continues to generate both free cash flow and positive returns. Indeed, as one of the lowest cost vanadium and titanium projects globally, we believe that the current price weakness is simply not sustainable and assessing the project against normalised prices is more appropriate. We have used an 8% discount rate, VSA s macro assumptions although flat commodity pricing is assumed throughout the life of mine. The DFS used average commodity prices of US$13,333/t for vanadium and US$3,576/t for titanium pigment alongside US$438/t for pig iron. While these reflect reasonable long term assumptions, given the current price environment we believe that it is appropriate to demonstrate the strength of the project economics even at lower commodity prices. Mount Peake, Sensitivity Analysis, Post-tax NPV A$m (Commodity prices in US$/t) 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 2, , ,032 1,134 1,236 1,339 1,441 1,544 3,000 1,522 1,625 1,727 1,830 1,932 2,035 2,137 2,239 3,500 2,218 2,321 2,423 2,525 2,628 2,730 2,833 2,935 4,000 2,914 3,016 3,119 3,221 3,324 3,426 3,529 3,631 SOURCE: Company data, VSA Capital Research., X axis vanadium pentoxide prices in US$/t, Y Axis, titanium pigment prices in US$/t. Mount Peake, Sensitivity Analysis, Pre-tax NPV A$m (Commodity prices in US$/t) 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 2, ,064 1,210 1,356 1,502 2,500 1,472 1,619 1,765 1,911 2,057 2,204 2,350 2,496 3,000 2,466 2,612 2,759 2,905 3,051 3,198 3,344 3,490 3,500 3,460 3,606 3,753 3,899 4,045 4,192 4,338 4,484 4,000 4,454 4,600 4,747 4,893 5,039 5,186 5,332 5,478 SOURCE: Company data, VSA Capital Research., X axis vanadium pentoxide prices in US$/t, Y Axis, titanium pigment prices in US$/t. We have included pre-tax sensitivity to provide clarity between the DFS results and our post-tax analysis. There are some differences due the rounding of assumed commodity prices and the macro assumptions used across the period

8 We highlight that the tax rate of 30% is the publicised benchmark rate for the Northern Territory in Australia and negotiations between TNG and the government are ongoing. Given the regional impact of the broad downturn in commodity pricing alongside Mount Peake s designation as a major project we believe that there is potential for more favourable tax rates. However, we have conservatively assumed the full 30% in our model. Peer Group Comparison With the majority of production coming from China, and forming only a minor part of Glencore s (GLEN LN) and Evraz s (EVR LN) earnings profile, pure investment exposure for most Western investors is only possible at the junior end of the market. Due to the broad downturn in commodity markets, even within this select group there are still challenges associated with gaining vanadium investment exposure since diversified development companies such as Flinders Mines (FMS AU) and King River Copper (KRC AU) have taken the decision to put their vanadium projects on hold to focus on core projects. Of those projects still in the development stage, TNG has the most technically de-risked project globally and is, in our view, best placed to deliver its project. Of those remaining listed companies, Largo Resources (LGO CN) and TNG (TNG AU) offer the strongest exposure, in our view. However, their respective share price performance has been markedly different. LGO s ramp up challenges combined with recent V 2 O 5 price weakness have hampered share price performance while TNG as a development company has continued to successfully achieve its milestones which has overshadowed recent weak commodity price performance. We expect TNG s shares to remain supported with potential upside as the remaining regulatory hurdles are completed and given our commodity outlook we expect commissioning to coincide with stronger market pricing. Risks Commodity Prices. The company is primarily exposed to the vanadium, titanium and pig iron markets and unexpected changes to commodity prices are likely to affect our valuation while failures in the development of the redox flow battery market could substantially reduce the upside potential from the vanadium market. Financing Risk. Given the challenging conditions for commodity markets and natural resources companies there is a heightened risk of TNG failing to secure project financing. However, we believe that by securing offtake agreements and significantly de-risking the project, management have minimised this risk as far as possible. Construction Risk. The potential for delays and operating issues are an inherent industry risk and there is the potential for delays to the construction of the project. Metallurgy Risk. The Mount Peake project s defining feature is the TiVAN process and is critical to the success of the project, given that the process as a whole has not been operated on a commercial scale there is uncertai nty associated with the ramp up. However, given that the testwork has demonstrated positive results and the component technologies are not themselves new we believe that this risk has been somewhat mitigated

9 Listed vanadium exposure comparison, ex-china Company Bloomberg Ticker Market Cap, US$m Asset location Development Stage Production/ Cash costs Grade, %, M&I Contained V2O5 M&I, kt Grade, %, Inf'd Contained V2O5 Largo Resources LGO CN Brazil Producing (ramp up) 12ktpa at US$3.9/lb 1.11% % 251 Bushveld Minerals BMN LN South Africa PFS due H ktpa at US$3.3/lb % 87 Vanadiumcorp Resources VRB CN 4.12 Canada Exploration n/a 0.80% % 554 Flinders Mines FMS AU Australia Project on hold n/a % 663 TNG ltd TNG AU Australia DFS completed 17.56ktpa at US$2.5/lb 0.29% % 62 King River Copper KRC AU 6.20 Australia Project on hold n/a 0.33% 1, % 9,672 Australian Vanadium AVL AU 5.42 Australia Commence PFS in 2016 n/a 0.59% % 482 Syrah Resources SYR AU Mozambique Scoping Study US$3.7/lb 0.42% % 755 SOURCE: Company data, VSA Capital Research, Bloomberg. Inf'd, kt - 9 -

10 Business Overview & Financial Model Summary VSA Commodity Price Forecasts FY 2014A FY 2015A FY 2016F FY 2017F FY 2018F FY 2019F FY 2020 FY 2021 LT V 2O 5, (US$/t) 12,591 10,471 10,500 10,700 11,000 11,500 12,000 13,000 13,500 Titanium pigment, (US$/t) 2,750 2,400 2,300 2,400 2,500 2,500 2,500 2,500 2,500 Pig Iron, (US$/t) SOURCE: Bloomberg, VSA Capital Research. We believe there is significant potential for major market disruption in the vanadium market due to the advent of vanadium redox flow batteries. However, given the historical price performance of vanadium pentoxide and the short spikes that characterise periods of market tightness we believe that it is appropriate to model Mount Peake based on a recovery in pricing to a long term average. Regarding titanium dioxide pigment pricing, the market is dominated by the five major producers and consequently, prices despite recent weakness, are relatively stable. However, we believe that a recovery in demand and stronger global capacity utilisation should result in upward pricing pressure. Pig iron prices are trading at multi year lows and while we expect some recovery from these lows, the market fundamentals appear weak over the medium term and our forecasts reflect a cautious outlook. It is important to note that our price deck is more conservative than that used in the DFS in which TiO 2 prices averaged US$3,569/t for the period. V 2 O 5 prices averaged US$13,590/t and pig iron prices were US$426/t over the LoM, which are largely in line with our assumptions. Key macro assumptions FY 2012A FY 2013A FY 2014A FY 2015A FY 2016F FY 2017F FY 2018F FY 2019F FY 2020F Australia CPI (%) 2% 2% 2% 2% 2% 3% 3% 3% 3% A$/US$ SOURCE: IMF, VSA Capital Research. We incorporate IMF macro projections into our model for TNG, which indicate modest levels of inflation in Australia, the company s main operating region. However, there is likely some negative impact on A$ denominated earnings due to currency appreciation as the A$/US$ recovers from multi-year lows. Mount Peake Overview TNG s 100% owned Mount Peake Vanadium-Titanium-Iron project and the tenement area covers 1,900km 2 ; 235km to the North West of Alice Springs in the NT. The DFS which was published in July 2015 is based on the production of a magnetite concentrate on site at Mount Peake before being railed to a TiVAN Refinery 10km from Darwin port. The TiVAN process which has been developed, in part, by TNG will enable TNG to extract high purity vanadium pentoxide, titanium dioxide and iron oxide from the magnetite concentrate; this will subsequently be processed in downstream plants to produce high grade titanium pigment and pig iron. The project is planned in two phases, with a twelve month initial construction period with first ore expected to be mined in Q This ore will be stored in an ROM stockpile before first commercial production in Phase 1 milling capacity is targeted at 3Mtpa rising to 6Mtpa for Phase 2. During Phase 1 concentrate will be exported from Darwin whilst the refinery is completed at which point, at Phase 2, mine site production will be ramped up and concentrate processed using the TIVAN process. Before railing, concentrate will be trucked c100km from the mine site to rail terminal. In Phase 1, TNG has capacity to produce between ktpa of concentrate rising to 1,800ktpa in Phase 2 which begins in year 7 or 2023 assuming construction begins in Consequently average Phase 1 vanadium production is 11ktpa rising to 18.5ktpa in Phase 2 while TiO 2 production is expected to average 150ktpa and 247ktpa in Phase 1 and 2 respectively. Pig iron production is forecast to average 365ktpa in Phase 1 and 681ktpa in Phase

11 Mount Peake Mine Plan Highlights 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F 2032F 2033F 2034F Production (kt) Vanadium Titanium pigment Pig Iron Revenue, A$m Vanadium Titanium pigment Pig Iron EBITDA Margin, % 25% 31% 33% 32% 35% 37% 36% 40% 38% 39% 37% 39% 37% 41% 36% 33% EBIT Tax, A$m (30%) - - (30) (52) (60) (59) (123) (150) (141) (156) (146) (152) (150) (155) (139) (128) (95) (9) Capex (650) (320) (10) (10) (541) (271) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (18) (4) Free Cash Flow (650) (320) (308) (35) SOURCE: Company data, VSA Capital Research

12 Location of Mount Peake Project SOURCE: Company data, VSA Capital Research. Capital Costs The capital costs for both phases 1 and 2 have been spread over two years each in Years 1 and 2 (2017/18) and 5 and 6 (2022/23) respectively. Phase 1 capex is expected to be A$970m while Stage 2 is expected to be A$793m, which each include a 5% contingency on equipment and 8% on construction costs. Naturally the expenditure is weighted towards the plants and refinery and equipment. For a project of this nature the infrastructure requirements are relatively limited due to the beneficial location of the project and the existing infrastructure. An on-site gas fired power station for electricity generation will be constructed with gas expected to be sourced from the Amadeus Pipeline, just 20km form the mine site. Only a 100km road suitable for trucks is necessary to link the mine site with the rail siding. New rail sidings and rail spurs will be built both at the mine site and at the Darwin Refinery Site to link to the Darwin-Adelaide railway. Overall infrastructure requirements contribute to just 6% of the total requirement a crucial factor underpinning strong project potential. Capital Cost Breakdown Stage 1 & 2, Life of Mine, A$m Stage 1 Stage 2 Total Total Infrastructure Total Mining Total Water Supply Total Concentrator Total Tailings Total Refinery Pig Iron Plant Equipment Titanium Plant Equipment Total Port Handling (containers) Total ,763 SOURCE: Company data, VSA Capital Research

13 The low capital costs are critical to the our strong free cash flow expectations, and we expect the project to be FCF positive in all but the years of initial capital intensity (Years 1, 2, 5 & 6) during the construction of the mine and plant and then the Phase 2 downstream construction. Tax and Royalties Although the DFS does not make any assumption for tax rates as negotiations with the State remain open, we have conservatively assumed a 30% rate on corporate profits in line with the upper end of NT guidelines. A 2.5% royalty on the value of all three products is also payable over the LoM to the NT government. Geology and Resource Estimates Exploration in the early 2000s indicated the presence of significant magnetic anomalies. Subsequent drilling has confirmed the presence of significant magnetite hosted V-Ti mineralisation which is the cause of the magnetic anomalies. More focussed drilling by TNG has outlined the Mount Peake V-Ti-fe Resource to be hosted within the magnetite rich portion of a gabbro that intrudes the basal units of the regional Basin sediments. Potential Mineralisation around Mount Peake SOURCE: Company data, VSA Capital Research. The deposit contains a maiden Probable ore reserve compliant with JORC standard of 41.1Mt of 0.42% V 2 O 5, 8% TiO 2, and 28% Fe at a cut-off grade of 15% Fe. However, extensive drilling has been carried out over only a small portion of the known mineralisation within the tenement package, indicating significant potential upside for the resource and consequently LoM although there are no near term plans for further drilling. We also note that the mineralised zone is not a concordant layer within the sill but an elongated trough shaped channel thinning towards the margins, and is

14 therefore relatively easily defined. We are therefore confident that the mineralisation continues beyond the limits of the defined resource along the magnetic anomaly. Reserves and Resources Mount Peake Ore, Mt Fe, % V 2O 5, % TiO 2, % Fe, Mt V 2O 5, Mt TiO 2, Mt Reserves Proven Probable % 0.42% 8.0% Total % 0.42% 8.0% Resources Measured % 0.29% 5.5% Indicated % 0.29% 5.3% Inferred % 0.25% 4.7% Total % 0.28% 5.4% SOURCE: Company data, VSA Capital Research, Resource cut-off at 0.1% Vanadium, Resources inclusive of Reserves. The LoM is currently estimated to be around 15 years; however, we believe that with the geological upside potential this could further extend this. Furthermore, ore minerals with vanadium as the primary element rarely occur in nature, and titano-magnetite ore hosts more than a third of the world s vanadium reserves. Consequently we believe that even if it is deemed inappropriate to extend the LoM beyond the currently defined parameters there are sufficient global resources to enable the shipping of ore to Darwin for refining using the TiVAN process following mine closure. Exploration Assets Map of Non-Core Assets SOURCE: Company data, VSA Capital Research

15 As well as the flagship Mount Peake development project, TNG also owns a number of early stage exploration assets. These are non-core assets and up until November 2015 were due to be spun out as Todd River Resources. However the BoD decided that due to the weak market conditions this would be deferred. The planned spin out would be carried out via an distribution in-specie, and consequently investors in TNG would retain investment exposure to these other assets. However, we believe that little value is currently attributable to the exploration assets and the spin out would have a negligible impact on the market valuation of TNG. The exploration assets include: Mt Hardy Copper; Located c300km North West of Alice Springs, TNG currently owns a tenement of c700km 2 that is located within Mt Hardy copper field, that has been mined historically. The Tanami highway runs through the tenement. Drilling highlights include, 0.65% Cu, 0.39% Pb, and 0.87% Zn and 3m at 1.16% Cu, 0.59% Pb and 1.67% Zn. Manbarrum Zinc-Lead-Silver; TNG owns 100% of the Manbarrum prospecting licenses which cover c400km 2. Exploration is at an early stage although historic drill work has been carried out previously. McArthur Copper; Also in the NT the tenement is around 65km South West of the McArthur zinc mine. There are two significant copper targets within the license area and rock chip sampling by previous owners has indicated copper grades greater than 2% Cu. Sandover Copper; Located 100km North East of Alice Springs the Sandover License is prospective for base metal, rare earth, gold and uranium deposits although TNG believe that the copper is the most prospective of these possibilities. JV Projects; TNG has signed three JV projects with Western Desert Resources on the Tennant Creek, Petermans and Goddards tenements. WDR has an earn in option of up to 80% on each of the projects all located within the NT and each with copper or copper-gold targets. Exploration is at a very early stage currently

16 Vanadium Market Vanadium s major use is as a steel additive, accounting for around 90% of current demand. Steel alloys containing just c0.1% vanadium can be up to two times stronger than non-alloyed steel and retain their strength at high temperatures making these alloys particularly suitable for drill bits, engine turbines etc, as a result, the steel industry is the major driver of price performance which has typically been stable punctuated by short periods of extreme volatility. Having been above US$15/lb in 2008 prices fell sharply during the GFC and have since stabilised around the US$5/lb level. Although the downturn in the steel industry has been painful, we anticipate a recovery in the Chinese housing market which will be crucial to a recovery in Chinese domestic steel demand. Leading indicators such as the house prices in China s Top 70 cities have turned positive in recent months and we believe this could result in modest steel price recovery over the coming months. Furthermore, China s increasing focus on the environment should lead to increasing efforts to shutter inefficient steel mills thereby reducing existing overcapacity which should provide support for prices over the longer term. We also anticipate increasing investment in renewable energy where larg e scale battery storage plays a crucial role. Vanadium Price Performance 30 V2O5, US$lb SOURCE: Bloomberg, VSA Capital Research. However, significant market disruption may be driven by increasing demand from battery manufacturers. Although currently accounting for a small portion of demand, there is significant potential for strong demand growth driven by the battery market. Vanadium redox batteries (VRB) are an alternative to the lithium-based battery technologies which have to date been preferred by major technology and EV firms, and while we believe that VRB technology is unlikely to compete against devices and EVs there is significant potential for VRB technology in commercial storage. Therefore, we believe that VRB technology can exist alongside lithium ion technology due to the differences in application suitability. Vanadium Redox Flow Batteries Due to the bulky nature of VRBs, the technology has been more suited to grid storage as well as the advantage that capacity can be increased simply by using larger storage tanks. Vanadium can exist in four states oxidation (V 2+ V 3+ V 4+ V 5+ ), each of which holds a different electrical charge, and it is this property which ha s made VRB technology possible. The battery has two cells, the electrolyte in the negative half contains V 3+ and V 2+ ions, and the electrolyte in the positive half contains VO 2+ and VO 2 + ions. The University of Tennessee estimates that 46 tonnes of V 2 O 5 is required for a 1MW capacity VRB

17 Vanadium Redox Battery SOURCE: RedT Energy, VSA Capital Research. The cells are separated by an ion exchange membrane and a reversible reaction allows the electrical energy to be stored and returned. A redox reaction occurs changing the composition of the electrolyte and creating a surplus of electrons at the negative terminal relative to the positive terminal and when the battery is in use the electrons flow from the negative terminal to the positive terminal generating an electric current. Since the electrolytes are simply connected to storage tanks and then pumped into the cells it is possible to increase the storage capacity by increasing the size of the storage tanks and therefore the volume of electrolyte. This is unlike other b attery types where other components must also be expanded. This means that VRBs become cheaper per KWh stored which is the key advantage over lithium-ion technology for large scale commercial storage. This is particularly true when deployed in conjunction with renewable energy solutions where battery storage can smooth delivery of electricity to the grid from volatile power generation sources such as wind and solar. VSA Capital Vanadium Price Forecast FY 2014A FY 2015A FY 2016F FY 2017F FY 2018F FY 2019F FY 2020F FY 2021F LT US$/t 12,591 10,471 10,500 10,700 11,000 11,500 12,000 13,000 13,500 US$/lb SOURCE: Bloomberg, VSA Capital Research. Demand Outlook We expect lithium-ion battery technology to remain dominant in the EV and personal device markets. However, due to VRBs economies of scale compared to lithium-ion we believe that there is strong potential for VRB in the commercial and industrial storage spaces. We believe that a combined take off in VRB technology alongside a recovery in the global steel market as well as increasing use of higher quality steel products could add up to 30ktpa vanadium demand by 2020, which would imply a CAGR of 4-5% and a market size of around 120ktpa. We believe there are two key structural drivers for increased vanadium demand from the steel industry. Firstly, as China enters a new phase of its development we expect demand growth for higher quality steel products which require increased alloy content in line with other developed nations. Secondly, environmental legislat ion relating to vehicle emission s means that we believe there will be greater demand for light weight, high strength steels in order to improve fuel economy. China is undertaking a major initiative known as Made in China 2025 to significantly increase the quality of its manufactured goods which will likely underpin this trend. Furthermore, given our positive view on the uptake of sources of renewable energy generation we believe that an increase in industrial scale storage is necessary in order to properly harness this potential

18 Total Tonnes Consumed (V2O5Equiv) Vanadium demand by end uses China Vanadium Intensity Below Developed Peers 5% 4% 1% 50,000 45,000 40,000 China 35,000 Steel Alloy Titanium Alloy Chemical Catalyst Other 30,000 25,000 20,000 15,000 10,000 LatAm EU North America 5,000 91% % 0.04% 0.06% 0.08% 0.10% 0.12% % of Vanadium Used / Tonne of steel SOURCE: Largo Resources, VSA Capital Research. SOURCE: Largo Resources, VSA Capital Research. Past pricing performance indicates that the market, due to the large source of by-product production, tends to reach a pinch point in terms of supply and demand before prices rally sharply. The previous sharp price rallies have typically followed disruptive market events rather than incremental changes to the market fundamentals and we believe that the roll out of VRB technology could provide the disruption necessary to drive strong positive price performance. Supply Outlook Vanadium supply in 2014 reached record levels of 113kt with the market in a small surplus and in 2015 pricing weakened further. However, pressure from weak iron ore and steel prices has also had a significant impact since vanadium-bearing slag is by far the largest source of production with over half of the market supplied as co-product material. It is also usually the cheapest source of production. Therefore as well as being the key driver of demand, the steel industry is also crucial to production. However, production is relatively unresponsive to vanadium prices. As a consequence there are a limited pool of producers who offer investment exposure to vanadium and even fewer offering pure exposure to the market. China is, currently, the largest producer of the metal and near term increases in supply are largely expected to come from existing Chinese producers. It is therefore difficult for Western investors to gain exposure

19 Vanadium Supply is Concentrated Inventory destocking 10,000 10% 5,000 17% 20% 53% China South Africa Russia Other 0-5,000-10,000-15,000 Annual Inventory Change, t SOURCE: Largo Resources, VSA Capital Research. SOURCE: TTP Squared, VSA Capital Research. There are a number of listed companies with vanadium development projects. However, given that prices are currently at ten year lows, sourcing project finance for new projects is proving challenging. Despite this, Largo Resources (LGO CN) successfully commissioned a primary vanadium project in Brazil in However, it has encountered ramp up issues and consequently cut production guidance by c1.5kt to around 6.5kt although this is planned to rise to above 12ktpa. In addition to the strong demand growth potential we note that inventories of vanadium have fallen sharply over the past three years and we believe the market is positioned for the start of a restocking phase. We expect the combination of stronger demand and low inventories to result in a tight vanadium market which will be in balance by 2018 before moving to widening deficits in following years

20 Titanium Dioxide Market Titanium dioxide is mined primarily as ilmenite or rutile, which are upgraded to create products with higher titanium dioxide contents for commercial applications. The major application, which accounts for 80-90% of annual demand is as a pigment in paints, varnishes, paper and plastics, due to its opacity, UV resistance and non-toxic properties. The remainder of demand is accounted for by titanium metal and welding flux material. Typically, demand for titanium dioxide has grown in line with global GDP. Total global demand in 2014 was c5.5mt. VSA Capital Titanium Pigment Price Forecast FY 2014A FY 2015A FY 2016F FY 2017F FY 2018F FY 2019F FY 2020F FY 2021F LT US$/t 2,750 2,400 2,300 2,400 2,500 2,500 2,500 2,500 2,500 SOURCE: Chemours, VSA Capital Research. Price volatility is relatively limited in the titanium market. However, prices have been on a downward trend since 2012 although appear to have stabilised around the US$2,300/t as reflected by quarterly pricing, according to Chemours (CC US) (one of the leading global producers). We believe that further downside risk is now limited although do not expect significant price recovery. Lead indicators, however, are positive and we expect some modest price recovery over the medium term. In 2016 we anticipate global GDP growth of 4% to drive continued positive demand growth in the pigment market which is the major driver for titanium dioxide demand. TiO 2 Price Performance 4,000 Average Annual Price, US$/t 3,500 3,000 2,500 2,000 1,500 1, E SOURCE: Chemours, VSA Capital Research. There are two main process routes for titanium dioxide production; the sulphate process and chloride process. The sulphate process can process lower grade cheaper ores but typically has higher operating costs. The ore is dissolved in sulphuric acid from which hydrated titanium dioxide is precipitated and subsequently heated to remove the water. The use of sulphuric acid requires careful environmental management. The chloride process requires higher grade ores but has lower operating costs. Combined with coke and chlorine in a chlorinator, titanium chloride is produced from the ore which is then burnt with oxygen and other gases to produce titanium dioxide. The sulphate pr ocess is by far the more prevalent although for higher quality end products the chloride process route is preferred