Iron Ore Producer ATLAS IRON LIMITED (AGO) AGO.asx Speculative Buy. Highly profitable again at these iron ore prices.

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1 Iron Ore Producer AGO.asx Speculative Buy Atlas Iron Limited (AGO) ATLAS IRON LIMITED (AGO) Highly profitable again at these iron ore prices. At the iron ore prices (benchmark 62% ~US$78.4/DMT), we estimate AGO is generating ~A$15 per tonne pre-hedging (at June, AGO had ~1.7Mt capped ~US$67/t). Even with hedges, at current prices AGO should generate A$90m EBITDA in FY18, and net cash should be $40m by June We would expect AGO should have repaid / refinanced the term loan over the next year, with less onerous cash sweeps to deal with. We assume that Corruna Downs development is deferred but with the current iron ore prices it is possible for it to be brought forward again. AGO still has a substantial iron ore portfolio of development assets that could be developed at current iron ore prices. That is part of the reason that our spot valuation is significant. It should be noted that we discount our development valuation substantially for the other North Pilbara assets (Eg McPhee Creek) and place very modest value for the South East Pilbara assets. As majors (BHP / RIO / DMG / Roy Hill) and other producers (eg MIN.asx and MGX.asx) look to develop replacement tonnes further inland, the AGO development assets could become more attractive. As a reminder, McPhee Creek has 56.3% and the Davidson Hub has 56.0%. Un-risked, at current iron ore prices, assuming development, these assets should be worth >A$1b and our spot valuation could push to 20cps. Maintaining our Speculative Buy We maintain our Speculative Buy recommendation, a valuation of 2.2cps (spot valuation 9.9cps). AGO remains speculative given that at consensus prices the mines are only marginally profitable, and the Company is still in process of diversifying. However, commodities across the board appear to be stronger than consensus expectations. If consensus upgrades to >$70/t long term, then the market could begin to attribute significant value to the other AGO assets. Additionally, AGO has assets prospective for other minerals (eg copper and lithium) and the team s track record for asset development suggests diversification is likely. Fig. 1: AGO development assets unrecognized today 11 Sep 2017 Share Price $ Valuation $ mth price target $0.039 Brief Business Description Iron ore miner and developer Brief Investment Conclusion Balance sheet in better position. Valuation depends on robust iron ore prices or diversification. Chairman & MD Eugene Davis (Non Exec. Chairman) Cliff Lawrenson (MD) Top Shareholders Legg Mason 10.2% Bain Capital Credit 6.1% Company Address Level 18, Raine Square, 300 Murray Street, Perth WA 6020 Issued Capital 9,264.2m - fully diluted 9,264.2m Market Cap - fully diluted $176m $176m Cash (30 Jun '17a) $101m Debt (30 Jun '17a) $105m EV $180m Resources - Hematite (Mt) 1,144.5 Reserve - Hematite (Mt) A$ M Sep-16 Atlas Iron Limited Jan-17 May Sep-17 Volume - RHS Source: IRESS AGO Shareprice - LHS Sector (S&P/ASX SMALL RESOURCES) - LHS Author: Trent Barnett Head of Research Ph: E: trent.barnett@hartleys.com.au Hartleys has a beneficial interest in 10m Atlas options. Source: AGO Hartleys Limited ABN (AFSL ) 141 Page St Georges 1 of 8 Terrace, Perth, Western Australia, 6000 Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Further information concerning Hartleys regulatory disclosures can be found on Hartleys website

2 Atlas Iron Ltd Share Price AGO $0.019 includes sth pilbara! Speculative Buy Key Market Information Directors Company Information Share Price $ Eugene Davis (Non Exec. Chairman) Level 18, Raine Square, 300 Murray Street Market Capitalisation $176m Cliff Lawrenson (MD) Perth, WA, 6020 Daniel Harris (Non Exec.) Tel: (08) Week High-Low $ $0.009 Cheryl Edwardes (Non Exec.) Fax: (08) Issued Capital (current) m Alan Carr (Non-Executive Director) Web: Chris Els - CFO Issued Capital (fully diluted inc. ITM options, DRP) 9264m Mark Hancock - CCO Top Shareholders Current Legg Mason 10.2% Options (ITM) 0.0m Bain Capital Credit 6.1% Hedging - 1 Yearly Turnover/Volume $ Reserves & Resources Valuation $ Reserves Mt %Fe cutoff Twelve month price target $ Abydos P&L Unit Jun 16a Jun 17a Jun 18e Jun 19e 6 Wodgina Production (attrib) Mt Mt Webber Net Revenue A$m Corunna Downs Operating Costs A$m (587) (592) (402) (396) 9 McPhee Creek Shipping Costs A$m (101) (122) (100) (104) 10 Mt Dove Stocks Overheads A$m (32) (20) (20) (20) Port Stocks EBITDA pre exp,dev,hdg. A$m Total Jun-17 margin 8.4% 15.7% 11.3% 12.6% Resources Mt %Fe Exploration & dev A$m 8.9 (3.5) (0.1) - Abydos Total Costs A$m (711) (738) (521) (521) Wodgina 0.0 EBITDA A$m Mt Webber margin 9.5% 15.3% 11.3% 12.6% Corunna Downs Depreciation/Amort A$m (85) (75) (77) (78) McPhee Creek EBIT A$m (10) 59 (11) (3) Davidson Creek Hub Net Interest A$m (34) (13) (7) (4) Miralga Creek norm. Pre-Tax Profit A$m (44) 46 (17) (7) Others norm. Tax Expense A$m Total 1, Jun-17 norm. NPAT A$m (44) 46 (17) (7) Production Summary Unit Jun 16a Jun 17a Jun 18e Jun 19e Abnormal Items A$m (115) Iron Ore - sales WMT Reported Profit A$m (159) 48 (17) (7) Iron Ore - production WMT Cashflow Unit Jun 16a Jun 17a Jun 18e Jun 19e Iron Ore - attributed WMT Operating Cashflow A$m Iron Ore - dry DMT Income Tax Paid A$m Costs Unit Jun 16a Jun 17a Jun 18e Jun 19e Interest A$m (29) (8) (7) (4) Total cash costs $A/WMT Operating Activities A$m exploration $A/WMT PP&E and Proj Devel. A$m (15) (6) (8) (8) op EBITDA / tonne milled ore $A/WMT Exploration (exp. & cap.) A$m (4) (7) (3) - - pre hedging $A/WMT Investments A$m (8) (20) - - EBITDA / tonne milled ore $A/WMT Investment Activities A$m (27) (33) (12) (8) C1: Oper Cash Cost = (a) $A/WMT Net Borrowings A$m (19) (114) (40) - less shipping = (aa) $A/WMT Equity A$m (a) + Royalty = (b) $A/WMT Dividends Paid A$m C2: (a) + deprec & am = (c) $A/WMT Financing Activities A$m 28 (114) (40) - (a) + development = (d) $A/WMT Net Cashflow A$m AISC: (c) + Royalty $A/WMT Free cash flow A$m (13.6) (d) + Royalty $A/WMT Balance Sheet Unit Jun 16a Jun 17a Jun 18e Jun 19e EBITDA $m Cash A$m Price Assumptions Unit Jun 16a Jun 17a Jun 18e Jun 19e Other Current Assets A$m Iron Ore (fob) received US$/WMT Total Current Assets A$m Iron Ore (62%, cfr) Benchmark US$/DMT Property, Plant & Equip. A$m A$:US$ Exchange Rate Exploration A$m Oil Price US$/bbl Investments/other A$m Share base Jun 16a Jun 17a Jun 18e Jun 19e Tot Non-Curr. Assets A$m Ordinary - end period 8,996 9,261 9,261 9,261 Total Assets A$m Ordinary - wgted avg 9,067 9,168 9,261 9,261 Short Term Borrowings A$m Sensitivity Analysis Val.($/s) FY18 EBITDA Other A$m Base Case Total Curr. Liabilities A$m Spot Prices (223.4%) 90 (36.0%) Long Term Borrowings A$m Spot USD/AUD 0.80, Iron Ore US$78.4/t, shipping rate US$8/t. Other A$m Operating Costs +/--10% / 0.06 (-100.0% / 164.8%) 5.00 / Total Non-Curr. Liabil. A$m AUDUSD +/--10% / 0.05 (-100.0% / 139.4%) 0.70 / Total Liabilities A$m Iron Ore - Fines +/--10% / 0.00 (140.6% / %) / 7.36 Net Assets A$m Oil - Brent +/--10% / 0.02 (-44.0% / -5.1%) / Net Debt (Net Cash) (40) (101) Share Price Valuation (NAV) Est. $m Est. $/share Total Assets / Total Debt >2x 3.3x 5.4x 8.0x 7.6x Nth Pilbara Current Mines (Wodg, Web, Aby, Corr.) Ratio Analysis Unit Jun 16a Jun 17e Jun 18e Jun 19e Nth Pilbara Expansion (Miral. Mc Phee) Cashflow Per Share cps Sth East Pilbara Cashflow Multiple x 33.8x 1.2x 3.3x 2.5x Exploration / Port optionality Earnings Per Share cps (0.5) 0.5 (0.2) (0.1) Investments Price to Earnings Ratio x -3.9x 3.8x -10.3x -24.2x Cash Dividends Per Share cps Corporate Overheads (91) (0.010) Dividend Yield % 0.0% 0.0% 0.0% 0.0% NPV maintenance capex (26) (0.003) Payout Ratio 0.0% 0.0% 0.0% 0.0% Total Debt (105) (0.011) Net Debt / ND + Equity % 29.2% 1.2% -14.9% -50.9% NPV income tax - - Interest Cover X na 4.7 na na Options & Other Equity - - Return on Equity % na 16% na na Total Analyst: Trent Barnett Last Updated:11 Sep 17 Sources: IRESS, Company Information, Hartleys Research Page 2 of 8

3 Fig. 2: Hartleys Earnings Changes FY16a actual f'cast FY17a actual % chg Old FY18e New % chg Old FY19e New % chg Old FY20e New % chg Production (attrib) % % % % Implied sale price (cfr A$/WMT) % % % % Implied sale price (cfr A$/DMT) % % % % Benchmark price (cfr A$/DMT) % % % % Benchmark price (cfr US$/DMT) % % % % VIU discount -26% -27% 2% -22% -22% 0% -18% -18% 0% -19% -19% 0% Revenue % % % % Operating costs (720) (775) (734) -5% (539) (521) -3% (533) (521) -2% (766) (754) -2% /t production % % % % costs/t (benchmark USD) % % % % EBITDA pre exp & dev & hedg % % % % Total Costs (711) (764) (738) -3% (549) (521) -5% (538) (521) -3% (771) (754) -2% /t production % % % % EBITDA % % % % Depreciation/Amort (85) (76) (75) -2% (79) (77) -3% (82) (78) -4% (84) (80) -5% /t production (6) (5) (5) -2% (8) (8) -3% (9) (9) -4% (6) (6) -5% EBIT (10) % (38) (11) -73% (22) (3) -87% % Net Interest (34) (12) (13) 9% (7) (7) -2% (5) (4) -15% (5) (4) -23% - per tonne % % % % Pre-Tax Profit (44) % (45) (17) -62% (27) (7) -73% % Tax Expense nm - - nm - - nm - - nm NPAT (44) % (45) (17) -62% (27) (7) -73% % Abnormal Items (115) - 2 nm - - nm - - nm - - nm Reported Profit (159) % (45) (17) -62% (27) (7) -73% % DPS nm - - nm - - nm - - nm capex (19) (21) (13) -37% (20) (12) -42% (21) (8) -63% (59) (58) -2% net debt (net cash) nm (7) (40) nm (46) (101) 121% (98) (168) 70% Source: Hartleys Fig. 3: AGO Source: AGO Page 3 of 8

4 Fig. 4: AGO mineral resources Source: Hartleys COMMODITY PRICE ASSUMPTIONS Fig. 5: Iron Ore Price Assumption 62% Fe US$/t Hartleys Assumption for Valuations China import iron ore fines 62% Index (US$) A$/t Hartleys Assumption for Valuations China import iron ore fines 62% Index (A$) Source: IRESS, Hartleys Research PRICE TARGET Our twelve-month price target is $0.039 (from $0.027). Page 4 of 8

5 Fig. 6: Price Target Methodology AGO Price Target Methodology Weighting Today 12 mth out NPV 50% $0.017 $0.022 NPV using spot commodity and fx prices 25% $0.071 $0.078 NPV using spot, unrisked all development, unfunded 1% $0.194 $0.21 Net cash 15% $0.000 $ x EV/EBITDA 5% $0.037 $0.050 Iron ore price calls (71.0Mt over 6yrs, avg 4% $0.094 $0.065 Risk weighted composite $ Months Price Target $0.039 Shareprice - Last $ mth total return (% to 12mth target + dividend) 102.7% Source: Hartleys Page 5 of 8

6 Fig. 7: Assumption Key assumptions and risks for valuation Risk of not realising assumption Risk to valuation if assumption is incorrect Comment Commodity prices (iron ore) will meet forecasts Moderate High AGO s revenues and cash flows are derived from the sale of iron ore, with final received prices linked to the spot iron ore market. If iron ore price falls below AGO s breakeven price then there is downside risk to our valuation. Corunna Downs Moderate Low We assume development in FY20, but this could be brought forward. Highly risked valuation for development assets outside Corunna Normalisation of value-in-use discount No adverse movements in AUD/USD exchange rates Debt can be serviced and repaid Mines can be successfully commissioned and operated Conclusion Source: Hartleys Research Moderate Low AGO has a large portfolio of development assets that could have substantially value at just above consensus iron ore expectations. Moderate High We assume a return to the long run value-in-use discount of AGO quality iron ore versus benchmark. If the discount is higher than usual, than our profit estimates will be lower. Moderate High AGO operating costs are largely AUD denominated, with the exception of iron sales and freight rates which are USD denominated. Falling AUD is positive for operating margins, but poor for debt translation. Moderate Low AGO is now in a modest net cash position, and refinancing seems a much lower risk Low High Atlas has an operational track record which provides some comfort that mines can be successfully commissioned, ramped up and operated within guidance. We believe that investing in AGO is still risky, but in a better position than for some time. Page 6 of 8

7 EV/EBITDA BANDS Fig. 8: Shareprice.70 Using Hartleys base case commodity forecasts AGO Actual Hartleys Target 8x EV/EBITDA 6x EV/EBITDA 4x EV/EBITDA 2x EV/EBITDA 1x EV/EBITDA Source: Hartleys Estimates, IRESS Fig. 9: Shareprice.70 Using spot commodity prices AGO Actual 8x EV/EBITDA 6x EV/EBITDA 4x EV/EBITDA 2x EV/EBITDA 1x EV/EBITDA Source: Hartleys Estimates Page 7 of 8

8 HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research Mike Millikan Resources Analyst John Macdonald Resources Analyst Paul Howard Resources Analyst Aiden Bradley Research Analyst Michael Scantlebury Junior Analyst Janine Bell Research Assistant Corporate Finance Dale Bryan Director & Head of Corp Fin. Richard Simpson Director Ben Crossing Director Ben Wale Associate Director Stephen Kite Associate Director Scott Weir Associate Director Scott Stephens Associate Director Rhys Simpson Manager Registered Office Level 6, 141 St Georges TcePostal Address: PerthWA 6000 GPO Box 2777 Australia Perth WA 6001 PH: FX: info@hartleys.com.au Note: personal addresses of company employees are structured in the following manner:firstname.lastname@hartleys.com.au Hartleys Recommendation Categories Buy Accumulate Neutral Reduce / Take profits Sell No Rating Speculative Buy Share price appreciation anticipated. Share price appreciation anticipated but the risk/reward is not as attractive as a Buy. Alternatively, for the share price to rise it may be contingent on the outcome of an uncertain or distant event. Analyst will often indicate a price level at which it may become a Buy. Take no action. Upside & downside risk/reward is evenly balanced. It is anticipated to be unlikely that there will be gains over the investment time horizon but there is a possibility of some price weakness over that period. Significant price depreciation anticipated. No recommendation. Share price could be volatile. While it is anticipated that, on a risk/reward basis, an investment is attractive, there is at least one identifiable risk that has a meaningful possibility of occurring, which, if it did occur, could lead to significant share price reduction. Consequently, the investment is considered high risk. Institutional Sales Carrick Ryan Justin Stewart Simon van den Berg Chris Chong Digby Gilmour Tia Hall Wealth Management Nicola Bond Bradley Booth Adrian Brant Nathan Bray Sven Burrell Simon Casey Tony Chien Tim Cottee David Cross Nicholas Draper John Featherby Ben Fleay James Gatti John Goodlad Andrew Gribble David Hainsworth Murray Jacob Gavin Lehmann Shane Lehmann Steven Loxley Andrew Macnaughtan Scott Metcalf David Michael Jamie Moullin Chris Munro Michael Munro Ian Parker Matthew Parker Charlie Ransom Mark Sandford David Smyth Greg Soudure Sonya Soudure Dirk Vanderstruyf Samuel Williams Jayme Walsh Disclaimer/Disclosure The author of this publication, Hartleys Limited ABN ( Hartleys ), its Directors and their Associates from time to time may hold shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities. Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice mentioned in publications to clients. Hartleys has beneficial interest in 10m Atlas Iron Limited options. Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs. Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued. Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. Page 8 of 8