OZ Minerals OZL AU / OZL.AX

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1 Mining Australia OZ Minerals OZL AU / OZL.AX Current A$4.05 Market Cap Avg Daily Turnover Free Float Target A$6.00 US$1,104m US$9.90m 82.9% Prev. Target A$6.00 A$1,229m A$10.54m m shares Up/Downside 48.1% COMPANY NOTE Important: The recommendation has been made on a 12 month view and may not suit you investment needs or timeframe. The basis it is prepared on is summarised on the last page of this report. PLEASE CONTACT YOUR ADVISER TO DISCUSS THIS GENERAL RECOMMENDATION BEFORE ACTING ON IT Morgans Financial Limited (A.B.N ) AFSL A Participant of ASX Group Sourced from CIMB Securities (Australia) Limited ( CSAL ) ABN AFS Licence number OZL Show Style "View Doc Map" There are very few like Carrapateena that offer the potential of multi-decade production at low operating costs Terry Burgess, OZ Mineral s CEO Why Carrapateena will sell The market is broadly dismissive of the potential for OZ Minerals to attract material interest or realise any significant value from the sale of a stake in the Carrapateena development asset in South Australia. Given that finding a partner is a pre-requisite for advancing to a Definitive Feasibility Study the success of the sale process is a key catalyst for the stock. It is our view that Carrapateena will attract interest from credible partners and is a unique asset that will compete globally for capital. We reiterate our Add recommendation and A$6.00 target price. We review Carrapateena and four other globally significant copper development assets being invested in by a range of major mining and metals companies. Our conclusion is that Carrapateena is competitive with these assets on key metrics including capital intensity, grade, operating costs and life-of-mine. We are also of the view that its Australian jurisdiction is increasingly attractive to foreign partners. Globally competitive asset Carrapateena has been criticised for its high capital intensity (US$ per tonne of annual copper production), yet we find that it is lower than these peer projects with the exception of Frieda River. It ranks second on grade behind Rio s Resolution project and on cash costs it s at the top of the class even under more conservative exchange rate assumptions. It s mine life of 24 years, based only on its current reserves, compares strongly behind Resolution (resources only) and Las Bambas (27 years). As a Conviction partially drilled out underground mine with adjacent resources we see potential extensions for Carrapateena. In an attractive jurisdiction Carrapateena s setting is exceptionally well suited to mining operations, in our view, with favourable topography, little competition for land use, excellent infrastructure and access to a skilled, available labour force. Add to that a Government working to attract mining investment, a transparent business environment and a falling Australian dollar, and Carrapateena looks a compelling long-term opportunity. Mis-priced by the market We see the potential for OZ Minerals to attract credible bidders to invest in Carrapateena at a valuation ahead of our current ~A$1.00/sh. We think this would drive a material re-rating as a result of the de-risking of the advancement of the project and proceeds of the transaction. Vol m Source: Bloomberg Price Close Relative to S&P/ASX 200 (RHS) Sep-13 Dec-13 Mar-14 Jun week share price range Current Target Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue (A$m) Operating EBITDA (A$m) Net Profit (A$m) (294.4) rmalised EPS (A$) rmalised EPS Growth (58%) (148%) NA 25% 169% FD rmalised P/E (x) 9.49 NA DPS (A$) Dividend Yield 7.41% 4.94% 4.94% 4.94% 4.94% EV/EBITDA (x) P/FCFE (x) NA NA NA Net Gearing (23.7%) (15.6%) (3.8%) (4.3%) (14.4%) P/BV (x) ROE 4.77% (2.44%) 0.73% 0.93% 2.51% % Change In rmalised EPS Estimates 0% 0% 0% rmalised EPS/consensus EPS (x) SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT.

2 PEER COMPARISON Research Coverage Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside OZ Minerals OZL AU AU ADD 1, % Sandfire Resources SFR AU AU HOLD % Rolling P/BV (x) Jan-10 Jan-11 Jan-12 Jan-13 Jan month Forward Rolling FD P/E (x) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 OZ Minerals Sandfire Resources OZ Minerals Sandfire Resources Peer Aggregate: P/BV vs ROE Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan % 9.6% 7.2% 4.8% 2.4% 0.0% Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan % 125% 100% 75% 50% 25% 0% -25% -50% -75% -100% Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs) 12-mth Fwd FD P/E (x) (See Footnote) (lhs) FD EPS Growth (See Footnote) (rhs) Valuation FD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x) Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 OZ Minerals NA Sandfire Resources Growth and Returns FD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 OZ Minerals % NA 25.0% -2.4% 0.7% 0.9% 4.94% 4.94% 4.94% Sandfire Resources 147.0% 5.9% 36.1% 39.8% 30.8% 32.2% 0.88% 2.01% 2.74% SOURCE: CIMB, COMPANY REPORTS Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends. NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively. 2

3 BY THE NUMBERS Share price info P/BV vs ROE Share px perf. (%) 1M 3M 12M % Relative % % Absolute % Major shareholders % held % M&G Group % % JCP Investment Partners % MLC Investments Ltd % % Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan mth Fwd FD rmalised P/E vs FD 1,400 rmalised EPS Growth 1,200 1, Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 1,500% 1,143% 786% 429% 71% -286% -643% -1,000% Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs) 12-mth Fwd Rolling FD rmalised P/E (x) (lhs) Diluted rmalised EPS Growth (rhs) Profit & Loss (A$m) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Total Net Revenues Gross Profit Operating EBITDA Depreciation And Amortisation (174.7) (218.5) (269.0) (285.9) (309.7) Operating EBIT (102.7) Financial Income/(Expense) Pretax Income/(Loss) from Assoc n-operating Income/(Expense) Profit Before Tax (pre-ei) (95.7) Exceptional Items 18.8 (331.3) Pre-tax Profit (427.0) Taxation (47.1) (8.2) (8.9) (24.0) Exceptional Income - post-tax Profit After Tax (294.4) Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Preference Dividends (Australia) Net Profit (294.4) rmalised Net Profit (62.5) Fully Diluted rmalised Profit (62.5) Cash Flow (A$m) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F EBITDA Cash Flow from Invt. & Assoc. Change In Working Capital (118.3) (11.0) 15.8 (Incr)/Decr in Total Provisions Other n-cash (Income)/Expense Other Operating Cashflow Net Interest (Paid)/Received Tax Paid (6.5) (14.2) (21.7) Cashflow From Operations Capex (291.4) (391.3) (350.7) (194.7) (71.5) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments (55.0) Other Investing Cashflow (114.1) (75.5) (35.1) (25.7) (26.4) Cash Flow From Investing (460.5) (463.3) (385.8) (220.4) (97.9) Debt Raised/(repaid) Proceeds From Issue Of Shares (101.1) 0.0 (0.3) Shares Repurchased Dividends Paid (124.6) (91.0) (60.6) (60.7) (60.7) Preferred Dividends Other Financing Cashflow Cash Flow From Financing (225.7) (91.0) (60.9) (60.7) (60.7) Total Cash Generated (227.3) (300.7) (276.8) Free Cashflow To Equity (1.6) (209.7) (215.9) Free Cashflow To Firm 0.8 (206.1) (214.7) SOURCE: CIMB RESEARCH, COMPANY DATA

4 BY THE NUMBERS Balance Sheet (A$m) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Total Cash And Equivalents Total Debtors Inventories Total Other Current Assets Total Current Assets 1, Fixed Assets 1,364 1,305 1,387 1,295 1,057 Total Investments Intangible Assets Total Other n-current Assets Total n-current Assets 2,082 1,871 1,989 1,898 1,660 Short-term Debt Current Portion of Long-Term Debt Total Creditors Other Current Liabilities Total Current Liabilities Total Long-term Debt Hybrid Debt - Debt Component Total Other n-current Liabilities Total n-current Liabilities Total Provisions Total Liabilities Shareholders' Equity 2,786 2,328 2,273 2,234 2,229 Minority Interests Total Equity 2,786 2,328 2,273 2,234 2,229 Key Ratios Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F Revenue Growth (11.7%) (34.7%) 21.6% 13.0% 12.6% Operating EBITDA Growth (43%) (65%) 145% 10% 23% Operating EBITDA Margin 34.0% 18.0% 36.3% 35.4% 38.6% Net Cash Per Share (A$) BVPS (A$) Gross Interest Cover N/A N/A Effective Tax Rate 23.7% 0.0% 33.0% 30.0% 30.0% Net Dividend Payout Ratio 68% NA 364% 291% 108% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 6.33% (3.64%) 0.60% 0.96% 2.69% ROCE (%) 6.26% (3.38%) 0.84% 1.30% 3.52% SOURCE: CIMB RESEARCH, COMPANY DATA

5 Table of Contents 1. BACKGROUND p.5 2. COMPARABLES p.7 3. SWOT ANALYSIS p.8 4. GLOBAL PEERS p SUMMARY p VALUATION AND RECOMMENDATION p.15 Why Carrapateena will sell 1. COMPETETIVE WITH WITH GLOBAL ASSETS We review a number of global copper assets that have recently been developed or are flagged for development by the world s major mining companies. We conclude that Carrapateena is competitive with these assets on a number of metrics. Given that these assets have attracted capital we believe they provide concrete examples of why potential investment partners will have interest in Carrapateena and why OZ Minerals will be able to sell a stake to advance its development. We include PanAust s Frieda River project in PNG, MMG s Las Bambas project in Peru, Rio Tinto s Resolution project in the US and Antofagasta s Antucoya project in Chile. We have chosen these on the basis of scale and type of deposit, stage of development and the project partners involved. Figure 1: Global copper project comparisons [Carrapateena is] in one of the best and safest mining jurisdictions in the world Terry Burgess, OZ Mineral s CEO Project Carrapateena Frieda River Las Bambas Resolution Antucoya Owners OZ Minerals PanAust/ Highlands MMG JV Rio Tinto/ BHP Billiton Antofagasta/ Marubeni Contained Copper (Resources, Cueq Mt) Copper equivalent grade (Reserves) 1.18% 0.68% 0.76% 1.52% 0.35% Annual production (Cueq ktpa) C1 cash costs (US$/lb) $0.49 $1.35 $0.79 $1.19 $2.05 Life-Of-Mine (LOM, yrs) (US$m) $2,488 $1,700 $6,000 $8,500 $1,900 Capital Intensity ($/tpa Cueq) $18,317 $10,474 $21,119 $21,015 $25,333 Capital Intensity Carrapateena ranks second behind PanAust s Frieda River project in PNG which is by far the lowest. Resolution is the only other underground project and Carrapateena compares favourably with it. We would expect Carrapateena to be more expensive than Frieda due to the large upfront capital typically required for underground caving operations. The fact that Frieda is so far below other open-pit operations gives us cause for concern that the current capital estimate may be too low. Copper equivalent grade The mining industry has an adage that grade is king and Carrapateena ranks second in this group on the metric of copper equivalent grade. The top-ranked project, Resolution in Arizona, USA has an incredibly tough permitting path ahead of it but the 1.52% Cu grade is also far ahead of its peers and is likely a key reason Rio has retained it as one of just two greenfield development projects in its copper portfolio. Mine Life Carrapateena s currently estimated 24 year mine life ranks third in this group of projects. It is worth noting that this is based on Carrapateena s existing Ore Reserve base, a much higher confidence measure than Mineral Resources. Typically it is much more costly to define Ore Reserves for an underground mine due to the expense of drilling at depth. For example, Resolution, the only other underground project, has only Inferred Resources (the lowest confidence

6 category), in part due to the deposit being under 1,400m of cover compared with Carrapateena at 460m below surface. Usually a minimum 20 year mine life would be expected for assets of this scale and all of these meet that criteria, including Carrapateena. Figure 2: Capital Intensity (US$/Cueq tpa) Figure 3: Capital Intensity vs Grade vs LOM (bubble size) $30,000 $30,000 $25,000 $25,000 $20,000 $15,000 $20,000 $15,000 $10,000 $5,000 $0 Carrapateena Frieda River Las Bambas Resolution Antucoya $10,000 $5,000 $0 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80% C1 cash costs Carrapateena s best-in-class C1 cash costs of US$0.49/lb benefit from a combination of significant gold credits, relatively high grade and Australian dollar denominated operating costs. OZ Minerals assumes US$1,225/oz Au and FX of Is this a potential low-ball estimate and cause for concern? The key driver is the unit operating costs, which OZ Minerals forecasts at A$23/t. This is in-line with peers and our estimates of other caving operations and combined with the gold credits looks reasonable. The exchange rate is well below current spot levels and slightly below our 0.85 long-term forecast. If we input an exchange rate of 1:1 in our model together with our LT gold price of US$1,200/oz we estimate C1 cash costs of between US$ /lb (due to some US$ denominated input costs and gold credits). This is still very competitive and comfortably in the bottom quartile of the 2014 global C1 cash cost curve. Figure 4: OZ Minerals copper projects - C1 cash cost basis US$/t 8,000 Prominent Hill 6,000 Carrapateena 4,000 Figure 5: C1 cash costs (US$/lb) $2.50 $2.00 2, ,000-4,000-6,000 $1.50 $1.00 $0.50-8,000-10,000-12,000 Cumulative supply (Mt) $0.00 Carrapateena Frieda River Las Bambas Resolution Antucoya SOURCES: CIMB, CRU

7 Jurisdiction We see Carrapateena s Australian jurisdiction increasingly as an advantage. The recent repeal of the Carbon Tax and Mining Tax sent an accommodative signal to the mining industry. Labour and equipment availability and cost inflation across the mining industry are all improving and the Australian dollar is finally beginning to fall. In terms of comparing the attractiveness of doing business across a range of countries we look at the Corruption Perceptions Index. Australia ranks in the top ten globally on this measure, ahead of the other project jurisdictions we are comparing plus many other major copper producing countries. A notable appearance near the bottom of the list is PNG, comparable with the DRC. Figure 6: Transparency International Corruption Perceptions Index Country Rank/177 Denmark 1 Australia, Canada 9= United States 19 Chile 22 Peru, Zambia 83= Philippines 94 Indonesia 114 PNG 144 DR Congo 154 Afghanistan/rth Korea/Somalia 175= SOURCES: CIMB, TRANSPARENCY INTERNATIONAL Australian dollar exposure A falling Australian dollar is not only attractive for Carrapateena but is also relevant for an investment in OZ Minerals as a whole, which offers a largely Australian-dollar denominated cost base against US-dollar revenues. Our in-house AUD forecast drops to 0.85 from 2018 onwards and the valuation of both the company and Carrapateena are very sensitive to it. For Carrapateena, a 10% increase to our AUD forecast cuts our current valuation by 55%, from A$291m to A$132m. A 10% reduction to our forecast increases our valuation for Carrapateena by 67% to A$487m. Figure 7: Carrapateena valuation and OZ Minerals target price using various AUD/USD scenarios Carrapateena valuation (A$m) OZ Minerals TP (A$ps) Base case Spot rate % higher AUD/USD than base case % lower AUD/USD than base case SOURCES: CIMB For the company, our valuation increases 32% on the lower exchange rate assumption and decreases 27% on the higher exchange rate assumption. 2. TRANSACTION METRICS We look at some recent transactions that have occurred for global copper assets and find that our current modelled valuation for Carrapateena looks easily justifiable by a potential acquirer, particularly if a premium for control was to be paid. Figure 8 contains a sample of copper transactions that have been initiated since December We accept that the EV/resource is a crude metric of valuation although it does provide first pass means of benchmarking these assets. Our current NPV-based valuation of Carrapateena of A$291m equates to US$34/t of copper equivalent resource. This looks undemanding when compared to the transactions in the list below, with the exception of PanAust's recent acquisition of Frieda River in PNG. The EV/ Resource valuation of Frieda River of US$11/t

8 of copper resource is less than 0.2% of the in-situ resource value and to us appears as an outlier compared to its peers. We believe that the most directly comparable assets to Carrapateena of those presented in Figure 8 are the most recent transactions due to the assets being at a similar stage of development. These are the Intrepid and Blackthorn merger (EV/Resource - US$73/t) and Sandfire's investment in Tintina Resources (EV/Resource - US$65/t). Figure 8: Copper transactions list Completion date Asset Acquirer / Seller Asset Status Annouced value (US$m) % acq EV / Resources EV / Reserves t complete Kitkumba Copper Intrepid Mines / Blackthorn Resources BFS underway % /09/2014 Black Butte Copper Sandfire Resources / Tintina Resources Completed PEA 15 36% 65 N/A 25/08/2014 Frieda River PanAust Ltd / Glencore Xstrata plc BFS due mid % 11 N/A 1/08/2014 Las Bambas MMG, GXIIC, CITIC / Glencore Xstrata plc Construction 60% complete 5, % /10/2013 Pinto Valley Capstone Mining / BHP Billiton BHP restarted Dec % 160 2,231 17/07/2013 Eagle Lundin Mining / Rio Tinto Production - Dec qtr % /12/2011 Antucoya Marubeni / Antofagasta plc Board approval - Dec % CARRAPATEENA SWOT ANALYSIS We start with a SWOT analysis, getting straight into what we see as the key advantages and disadvantages of Carrapateena. We think these are compelling points on their own and immediately highlight unique points of difference. 3.1 Strengths Attractive, low risk, mining friendly jurisdiction in South Australia Established mining infrastructure including road, rail, port access, grid power, identified water sources. Two large, established, successful operations nearby (Olympic Dam and Prominent Hill). Geographical setting attractive to mining flat topography, little competition for land use and ample space. Outside the Woomera Prohibited Area. State Government vying to attract mining investment, particularly after cancellation of Olympic Dam expansion Long mine life, initially 24 years Manageable scale of 12.4Mtpa similar to Prominent Hill mine High grade deposit delivers strong operating margins and bottom quartile C1 cash costs of US$0.49/lb High quality concentrate, high grade, low uranium impurities, no arsenic High volume low-cost Block Caving mining method underground rock factory competitive with open-pit mining costs Skilled, established, available labour force Good metallurgical recoveries of copper (92%) and gold (70%) via conventional crush-grind-float process. Uranium reduced below penalty levels. Simple, land based valley fill tailings storage facility Supportive stakeholders and community. Permitting in place for exploration decline development (Mining Lease yet to be granted)

9 3.2 Weaknesses Large CapEx of A$2,985m diminishes financial returns of the project Low Internal Rate of Return of 13% leaves little room for error in execution/operation Long lead time to production, indicatively stated as 2022 Significant upfront capital required before it can be confirmed mining method will be successful. Definitive Feasibility Study alone $390m Pre-conditioning of the cave is planned, increasing capital costs Relatively high royalty rate of 5% from year 6. Grade of Inferred Resources is approximately 30% lower than the Indicated Resources on which the Ore Reserves are based. Good quality mine planning is crucial. Once the design is implemented it is literally set in stone for the long term and very difficult and costly to change 3.3 Opportunities Mine life extensions at depth (development of Lift Three), below current reserve base Exploration success at the nearby Khamsin and Fremantle Doctor projects show potential to provide either supplementary feed, expanded production capacity or an extended mine life Clean, arsenic free concentrate has potential to become a strategic marketing advantage due to increasing quantities of copper concentrate globally requiring blending as a result of high arsenic content. Mining fleet automation particularly seven years from now Use of ports closer to Carrapateena may offer transport cost savings Sensitivity of financial returns to mine life extension? Weaker Australian dollar makes this project more compelling for both potential partners and equity investors Possible synergies with Prominent Hill operations by utilisation or relocation. 3.4 Threats Pre-conditioning requirement increases execution risk and indicates that the rock mass is not ideally suited to caving Funding and development risk OZ Minerals will not proceed with the project unless a partner is found to share the funding of the project. If a partner is not found the project will not advance OZ Minerals has no direct experience of the block cave mining method at its current operations While the understanding of caving mining methods has progressed significantly in the last decade, it remains a field that is continuing to evolve

10 Figure 9: Project summary - Carrapateena Country Australia Ownership 100% Government free-carry Government buy-in Reserves (Cueq kt) 3,194 Reserves (Cu eq grade) 1.18% In-situ ore value (US$/t) $79 Avg production (Cueq ktpa) 136 Operating Costs (US$/t milled) $17 C1 cash costs (US$/lb) $0.49 CAPEX (US$m) $2,488 Capital Intensity (US$/tpa) $18,317 Development Stage Pre-Feasibility completed Mining Method Underground Block Cave Processing method 12.4Mtpa Standard crush-grind-float Tailings Storage Land-based TSF dam Permitting Retention lease including exploration decline. Mining Lease end 2016 indicative Power Two connections to existing national grid Water Groundwater borefield Concentrate transport 50km to railway access to Adelaide port Life-of-Mine (years) 24 years on current Ore Reserves Construction commencement 2018 indicative Production commencement 2022 indicative 4. GLOBAL COPPER DEVELOPMENT PROJECTS We have considered a range of comparable large-scale copper projects globally that are either in development or committed to being developed by some of the world s largest mining companies, including Rio Tinto, BHP Billiton and Antofagasta. We also note that all of the projects are JV s and partners include CITIC Metals, one of China s largest metals importing, marketing and distribution companies, and Marubeni, one of Japan s largest international conglomerates. This also demonstrates the partnership model sought by OZ Minerals is an established approach to sharing the risk on such substantial developments. All of these companies have made significant investments in these assets, in some cases recently, in others over many years. They are all major stakeholders in the long term success of these projects. It is our view that these provide concrete examples of the types of assets that are competing globally for capital from the world s top mining companies. In reviewing them we also form the view that OZ Minerals Carrapateena project is competitive on most, if not all, fronts with all of these projects and hence is well placed to attract an investment partner to fund the next stage of its development.

11 4.1 PanAust / Highlands Pacific: Frieda River, PNG PanAust (PNA AU, not rated) recently completed the acquisition of an 80% interest in the Frieda River copper-gold project in PNG. Previous owner-managers of the project, Glencore-Xstrata, had spent an estimated US$400m to complete a Bankable Feasibility Study on a proposed 52Mtpa open-pit operation. It was designed to produce an average of 214ktpa Cu in concentrate and 308kozpa gold for 20 years. CapEx for this project had been estimated at US$5,000m. PanAust has since put forward a revised concept for its feasibility study which is smaller scale and focused on higher grade portions of the orebody. The Study is to be completed by vember 2015 at which time an application for a Special Mining Lease will be lodged. CapEx is estimated at US$1,700m, does not include sustaining and expansion CapEx or any estimate of closure costs. Key advantages include: Best-in-class capital intensity Low strip ratio, near surface open-pit Mid-size scale looks achievable, draws on Phu Kham experience Key challenges include: Meeting greenfields development schedule and budget Infrastructure and logistics power and transport Gaining and retaining social license and community support Deep-sea tailings placement Figure 10: Project summary - Frieda River Country Papua New Guinea Ownership 80% PanAust/20% Highlands Pacific Government free-carry Government buy-in up to 30%, sunk cost basis Reserves (Cueq kt) 4,080 Reserves (Cu eq grade) 0.68% In-situ ore value (US$/t) $46 Avg production (Cueq ktpa) 162 Operating Costs (US$/t milled) $22 C1 cash costs (US$/lb) $1.35 CAPEX (US$m) $1,700 Capital Intensity (US$/tpa) $10,474 Development Stage Bankable Feasibility due mid-2015 Mining Method Large scale open pit, 0.7:1 strip Processing method 30Mtpa. Standard crush-grind-float Tailings Storage 75% land-based, 25% deep-sea Permitting Mining License lodge v-15 Power 30Mtpa. Standard crush-grind-float Water Site-based catchment, positive water balance Concentrate transport Truck and barge 680km to port Life-of-Mine (years) 20 years on estimated mining inventory Construction commencement 2016 indicative Production commencement 2019 indicative

12 4.2 MMG JV: Las Bambas, Peru The Las Bambas copper project in Peru (100%) was acquired from Glencore-Xstrata in August 2014 by a consortium led by MMG Ltd for US$5,850m. MMG is the 62.5% owner and operator of the JV. The other partners are Guoxin Investment Co. (22.5%) and CITIC Metal Co. (15%). The project is currently under construction with US$3,500m spent as at end 2013 of an estimated US$6,000m CapEx. This implies a minimum spend by MMG of US$8,350m in acquisition and development costs. Open-pit pre-stripping is underway and first production is expected in The project will be one of the top annual producers at 450ktpa copper for the first five years with average LOM production ~300ktpa. The large scale (51Mtpa) drives economies of scale and best-in-class unit operating costs of US$12/t. The project has overcome permitting delays and local protests which saw commissioning pushed back from 2014 to late 2015 and CapEx increase from US$4,230m to US$5,200m. The latest estimate of US$6,000m is subject to an update from MMG, which we expect is imminent given the recent close of the transaction. Key advantages include: Development near complete Very low unit production costs, low C1 cash costs High grade copper concentrate, average ~35% Key challenges include: Ore grades at the lower end of range Concentrate transport logistics, 710km to port Elevation 4,000m above sea level Figure 11: Project summary - Las Bambas Country Peru Ownership MMG 62.5%/Guoxin 22.5%/CITIC 15% Government free-carry Government buy-in Reserves (Cueq kt) 7,216 Reserves (Cu eq grade) 0.76% In-situ ore value (US$/t) $51 Avg production (Cueq ktpa) 284 Operating Costs (US$/t milled) $12 C1 cash costs (US$/lb) $0.79 CAPEX (US$m) $6,000 Capital Intensity (US$/tpa) $21,119 Development Stage Under Construction Mining Method Open pit Processing method 51Mtpa. Standard crush-grind-float. Separate molybdenum concentrate Tailings Storage Land based TSF Permitting Approved 2011 Power 130km connection to national grid Water Challhuahuacho River Concentrate transport Truck 710km to Matarani port Life-of-Mine (years) 27 Construction commencement 2011 Production commencement commissioning 2015

13 4.3 Rio Tinto 55%/BHPBilliton 45%: Resolution, USA The Resolution copper project is one of the 10 largest undeveloped copper deposits in the world. It is one of just two copper development projects committed to by Rio since rationalising its global copper portfolio over the last couple of years. There are currently no Ore Reserves defined but an Inferred Mineral Resource of 26.4Mt contained copper at a very high grade of 1.52% Cu are likely reasons Rio and BHP are persevering through an extraordinary permitting process. In vember 2013 the General Plan of Operations was submitted to the US Forest Service for review, a process expected to take many months. Following this, a comprehensive environmental review required by the National Environmental Policy Act (NEPA) will begin, for which Rio has allowed five years. In parallel with this, Resolution requires US Congress approval of land exchange legislation to secure what it needs for mining, plus the revocation of a previous withdrawal of Mineral Title. Two attempts to call a vote on this in late 2013 were aborted after special-interest groups made defeat look likely. The company last gave conditional guidance in 2013 that these processes may be complete by 2018, followed by nine years of construction and development. The operation itself is not without challenges either. It is estimated that up to US$1,000m has been spent to date including two exploration shafts at US$350m each. It is 1,400m underground to top of the orebody and ambient rock temperatures of C require significant ventilation and refrigeration. Key advantages include: High grade, large, long-life resource Water, power and transport infrastructure Access to skilled labour, relatively low cost Key challenges include: Permitting uncertainty, duration and cost, Complex stakeholder relationships and design requirements Mine depth and ambient rock temperature issues Figure 12: Project summary - Resolution Country USA Ownership 55% Rio / 45% BHP Government free-carry Government buy-in Resources (Cueq kt) 26,402 Resources (Cu eq grade) 1.52% In-situ ore value (US$/t) $102 Avg production (Cueq ktpa) 404 Operating Costs (US$/t milled) $23 C1 cash costs (US$/lb) $1.19 CAPEX (US$m) $8,500 Capital Intensity (US$/tpa) $21,015 Development Stage Pre-Feasibility Mining Method Underground Panel Caving Processing method 30Mtpa Standard crush-grind-float Tailings Storage Land-based valley fill TSF Permitting Mine Plan of Operations submitted vember 2013 Power Arizona grid power (hydro and geothermal) Water Central Arizona Project aqueduct system Concentrate transport Slurry pipeline and rail loop Life-of-Mine (years) 40 Construction commencement 2018 Subject to permitting/land Access Legislation Production commencement 2026 Subject to permitting/land Access Legislation

14 4.4 Antofagasta 70%/Marubeni 30%: Antucoya, Chile Antucoya is a copper oxide deposit located 125km from Antofagasta in Chile at an elevation of 1,700m. The project is currently under development and first production from the conventional open pit is expected to be achieved in 2015 using Heap Leach, Solvent-Extraction-Electro-Winning (SX-EW) processing. Project development was temporarily halted in December 2012 as Antofagasta undertook a cost review of the project. Construction recommenced in March 2013 after Antofagasta renegotiated its contracts and had increased certainty around costs. Antucoya contains 1,106mt of resources at 0.31% copper including 642mt of reserves at 0.35% copper. Despite the low operating costs per tonne, low grades drive a relatively high C1 cash cost. For the first five years of the operation, Antofagasta expects to produce 85ktpa of copper cathodes from the project. Despite the challenging cost environment in Chile, Antofagasta was able to attract a 30% investment from Marubeni in December 2011 for US$350m, implying an EV/resource multiple of US$342 per tonne. Whilst we wouldn t expect a partner to value Carrapateena at a similar multiple given the early stage nature of the project (Antucoya was about to hit construction when the Marubeni deal was completed), we believe Carrapateena is a much better quality project with higher grades and lower capital intensity and cash costs. Key advantages include: - Development underway, near term production - The SXEW process produces high quality copper cathodes - Low unit operating costs per tonne of ore (Heap Leach) Key challenges include: - High capital intensity at over US$22,000/t using Antofagasta s estimate of achieving 85kt of copper production in year 1 to 10 - Low grade deposit resulting in relatively high C1 cash costs - Intensive acid consumption (exposure to acid market supply and disposal issues) and energy use Figure 13: Project summary - Antucoya Country Chile Ownership Antofagasta (70%) / Marubeni (30%) Government free-carry Government buy-in Reserves (Cueq kt) 2,218 Reserves (Cu eq grade) 0.35% In-situ ore value (US$/t) $23 Avg production (Cueq ktpa) 75 Operating Costs (US$/t milled) $13 C1 cash costs (US$/lb) $2.05 CAPEX (US$m) $1,900 Capital Intensity (US$/tpa) $25,333 Development Stage In construction Mining Method Conventional open pit Processing method Heap leach SXEW Tailings Storage Spent ore stacked Permitting outstanding approvals remaining Power On rthern Power Grid Water Untreated seawater from pipeline Concentrate transport Copper cathodes trucked to port Life-of-Mine (years) 20 Construction commencement 2012 Production commencement 2015 indicative

15 5. SUMMARY 5.1 Key strengths Carrapateena competes well with a range of global copper development assets that have recently attracted significant investment from credible mining companies and production offtakers. In particular the high grades, long-life and bottom quartile operating costs are key strengths of the project. An additional advantage we note is the high grade (30%-35%) and clean concentrate Carrapateena will produce. This compares with the industry benchmark of 24%-25% and is a particular advantage to offtakers. From a project execution perspective the topography, land-use, water, power and mining infrastructure are all (in our view) more appealing than the peer projects that have all attracted investment. Combined with an attractive jurisdiction that is trying to attract mining investment and a dropping Australian dollar we think that Carrapateena is a compelling proposition for a long term partner that may have a low cost of capital and be more focused on security of supply. Although the market may not view the returns as attractive on a short term investment horizon, it will likely pay for the de-risking and advancement of the project that a participating partner will bring. We think that the unique advantages of Carrapateena make it very competitive in the global market and that OZ Minerals is well placed to divest a portion of this asset. 6. VALUATION AND RECOMMENDATION 6.1 Reiterate Add recommendation, TP A$6.00/sh We reiterate our Add recommendation and see a potential mis-pricing of Carrapateena in the market, which in general we think is very sceptical of a partner investing in the asset. It is our view that OZ Minerals has a very good chance of divesting a stake to a credible partner for than the valuation we currently attribute. Should this occur an upward re-rating is likely. Downside risks to our earnings and valuation relate to lower-than-forecast copper and gold commodity prices. A higher-than-estimated AUD/USD could also have a negative effect on our operating costs estimates, although it would be more than offset by the positive impact of higher exchange rates on revenues. Other risks are delays to growth plans, higher-than-forecast capital expenditure and a value-destructive M&A deal.

16 Figure 14: OZ Minerals - Financial summary Capital profile Dec Year End 2012A 2013A 2014F 2015F 2016F Number of shares (m) 303 NPAT Reported (A$m) Share price (A$/share) 4.05 NPAT rmalised (A$m) Market capitalisation (A$m) 1,229 EPS (A ) Enterprise value (A$m) 1,119 Operating cashflow per share (A ) Enterprise value (US$m) 1,261 DPS (A ) P/E (x) Valuation A$m A$ps P/CF (x) Prominent Hill 1, EV/EBITDA (x) Carapateena EPS Growth -56% -147% -127% 25% 169% Investments Yield (%) 7.4% 4.9% 4.9% 4.9% 4.9% Total Operations 1, Net cash/ (debt) Production (Equity share) 2012A 2013A 2014F 2015F 2016F Corporate overheads (188) (0.62) Total Copper production (kt) Exploration Total Gold production (koz) Total Valuation 1, Target price premium 0% Cash Costs 2012A 2013A 2014F 2015F 2016F Target price 6.00 Weighted average cash costs (A$/lb) P/NPV 0.68 Weighted average cash costs (US$/lb) Weighted average total costs (US$/lb) OZ Minerals NPV operational split Assumptions 2012A 2013A 2014F 2015F 2016F Investments 11% Exploration Net cash/ (debt) 5% 4% Carapateena 15% Prominent Hill 65% Copper price (US$/lb) Gold price (US$/oz) 1,670 1,419 1,293 1,325 1,306 US$/A$ Profit & Loss (A$m) 2012A 2013A 2014F 2015F 2016F Sales revenue Other revenue Total revenue Operating costs EBITDA Depreciation EBIT Net interest income / (expense) Abnormals Pre-Tax Pre-tax profit Tax expense / (benefit) Profit after tax NPAT Sensitivity NPV(A$) 2014F 2015F Minorities % increase in Copper price NPAT (reported) % appreciation in A$/US$ Significant items NPAT (underlying) NPV sensitivity WACC PT 10.4% 6.00 Profitability Analysis (%) 2012A 2013A 2014F 2015F 2016F 0.0% EBIT margin 16% n/m 2% 3% 8% 5.0% EBITDA margin 34% 17% 36% 35% 39% 10.0% 6.20 Effective tax rate 24% 31% 33% 30% 30% 15.0% 4.20 ROA - EBIT / (total assets - cash) 7% -5% 1% 1% 4% Production and costs ROE - NPAT / equity 5% -3% 1% 1% 3% (kt) (US$/lb) Cashflow 2012A 2013A 2014F 2015F 2016F Receipts from Customers Payments to Suppliers Other Operating cashflow Total Operating cashflow Total Investing cashflow Total Financing cashflow Net Change in cash Balance Sheet Analysis 2012A 2013A 2014F 2015F 2016F Cash A 2013A 2014F 2015F Total Current Assets 1, Property, Plant and Equipment 1, , , , ,057.2 Copper Production (equity share) (kt) (LHS) Weighted Ave C1 Cash Costs (US$/lb) (RHS) Total n-current Assets 2, , , , ,659.9 Weighted Ave C3 Total Costs (US$/lb) (RHS) Short term debt Total Current liabilities Reserves Ore (mt) Cu (%)pper (mt) Au (g/t) Gold (moz) Long term debt Prominent Hill % Total n-current liabilities Net Assets 2, , , , ,228.9 Total Debt Net Debt (Cash) Resources Ore (mt) Cu (%)pper (mt) Au (g/t) Gold (moz) Gearing - net debt/ (net debt + equity) nm nm nm nm nm Prominent Hill % 2, Net debt / EBITDA nm nm nm nm nm Carapateena % 6, Shares on issue SOURCES: CIMB

17 QUEENSLAND PORT MACQUARIE (02) BRISBANE HEAD OFFICE (07) SCONE (02) BRISBANE - EDWARD STREET (07) SYDNEY LEVEL 9 (02) BUNDABERG (07) SYDNEY LEVEL 33 (02) CAIRNS (07) SYDNEY HUNTER STREET (02) CALOUNDRA (07) (02) EMERALD (07) SYDNEY REYNOLDS EQUITIES (02) GLADSTONE (07) WOLLONGONG (02) GOLD COAST (07) IPSWICH/SPRINGFIELD (07) ACT KEDRON (07) CANBERRA (02) MACKAY (07) MILTON (07) VICTORIA MT GRAVATT/CAPALABA (07) MELBOURNE (03) NOOSA (07) BRIGHTON (03) REDCLIFFE (07) CAMBERWELL (03) ROCKHAMPTON (07) CARLTON (03) SPRING HILL (07) FARRER HOUSE (03) SUNSHINE COAST (07) GEELONG (03) TOOWOOMBA (07) RICHMOND (03) TOWNSVILLE (07) SOUTH YARRA (03) YEPPOON (07) TRARALGON (03) WARRNAMBOOL (03) NEW SOUTH WALES SYDNEY (02) WESTERN AUSTRALIA ARMIDALE (02) PERTH (08) BALLINA (02) BALMAIN (02) SOUTH AUSTRALIA CHATSWOOD (02) ADELAIDE (08) COFFS HARBOUR (02) NORWOOD (08) GOSFORD (02) HURSTVILLE (02) NORTHERN TERRITORY MERIMBULA (02) DARWIN (08) NEUTRAL BAY (02) NEWCASTLE (02) TASMANIA NEWPORT (02) HOBART (03) ORANGE (02) DISCLAIMER The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual s relevant personal circumstances. Morgans Financial Limited ABN , its related bodies corporate, directors and officers, employees, authorised representatives and agents ( Morgans ) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk. This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever. Although CIMB Securities (Australia) Ltd (ABN ), its related bodies corporate, directors and officers, employees, authorised representatives and agents ("CIMB Securities Australia") may have been involved in the preparation of certain content for this Research Report, this Research Report constitutes general advice provided by Morgans to the recipient of this report under its Australian financial services licence and Morgans is solely responsible for the content of this report. CIMB Securities Australia do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. DISCLOSURE OF INTEREST Morgans and CIMB Securities Australia may from time to time hold an interest in any security referred to in this report and may, as principal or agent, sell such interests. Morgans or CIMB Securities Australia may previously have acted as manager or co-manager of a public offering of any such securities. Morgans' affiliates or CIMB Securities Australia affiliates may provide or have provided banking services or corporate finance to the companies referred to in the report. The knowledge of affiliates concerning such services may not be reflected in this report. Each of Morgans and CIMB Securities Australia advises that it may earn brokerage, commissions, fees or other benefits and advantages, direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities. Some or all of Morgans' Authorised Representatives may be remunerated wholly or partly by way of commission. RECOMMENDATION STRUCTURE For a full explanation of the recommendation structure, refer to our website at If you no longer wish to receive Morgans publications please advise your local Morgans office or write to Morgans, Reply Paid 202, Brisbane QLD 4001 and include your account details