Sandfire Resources. Swings to net cash A$5.34 AUSTRALIA. Event. Impact. Earnings and target price revision. Price catalyst. Action and recommendation

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1 AUSTRALIA SFR AU Price (at 6:11, 7 Jul 216 GMT) Outperform A$5.34 Valuation A$ - DCF (WACC 9.%, beta 1.4, ERP 5.%, RFR 3.3%) month target A$ month TSR % Volatility Index Medium GICS sector Materials Market cap A$m 84 3-day avg turnover A$m 5.3 Number shares on issue m Investment fundamentals Year end 3 Jun 215A 216E 217E 218E Revenue m EBIT m Reported profit m Adjusted profit m Gross cashflow m CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % PER adj x PER rel x Total DPS Total div yield % Franking % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x SFR AU vs Small Ordinaries, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, July 216 (all figures in AUD unless noted) 8 July 216 Macquarie Securities (Australia) Limited Swings to net cash Event SFR reported preliminary 4QFY16 production results that beat our forecasts by 6-7%. The stronger result enabled SFR to move from a net debt to net cash position for the first time since production began at DeGrussa. We upgrade the stock from Neutral to Outperform. Impact Strong production result: SFR s 4QFY16 preliminary production result was strong with copper and gold production beating our forecasts by 7% and 6%, respectively. The strong finish to the year enabled SFR to beat the top end of guidance for copper and hit the middle of guidance for gold. C1 cash cost data has not been released by SFR but indicated it expects to be at the bottom end of the US$ /lb guidance range. Cash flow generation increasing: The strong production result saw SFR repay another $2m in debt by the end of June. SFR s net cash position of $1m at the end of June was $2m better than we had expected. Reduced underground development should see mine cash flow at DeGrussa increase over the next two to three years. We note that SFR s free cash flow yield is expected to increase from ~5% in FY16 to 25% by FY18 using spot prices and over 3% on our forecasts. Earnings and target price revision Incorporating the stronger 4QFY16 production result, higher cash balance and reduced debt and interest costs has translated to a 7% upgrade to our FY16 earnings forecasts. The improved earnings outlook and cash balance drive a 3% lift in our price target to $6.1. Price catalyst 12-month price target: A$6.1 based on a NPV/5.xEV/Ebitda blend methodology. Catalyst: SFR is set to report its full 4QFY16 production result on 28 July. Securing an agreement with Talisman Mining (TLM AU, Not Rated) to develop or consolidate ownership of Monty presents a potential positive catalyst for the stock. Action and recommendation Upgrading from Neutral to Outperform: SFR s 4QFY16 production result was impressive and enabled the company to beat the upper end of its copper production guidance for the year. The resulting strong cash flow has enabled SFR to swing from net debt to net cash three months earlier than we had anticipated. With mine development now reducing, we expect SFR s cash flow generation to increase significantly over the next 2-3 years, benefiting from lower capital expenditure and increased grades as Monty is brought on line. We continue to prefer SFR over (OZL AU, A$6.4, Underperform, TP: A$5.3, Hayden Bairstow) for copper exposure. We are upgrading our recommendation on SFR from Neutral to Outperform, underpinned by a strong and rising free cash flow yield, and the likelihood that dividends will increase now that SFR has moved to net cash. Please refer to page 6 for important disclosures and analyst certification, or on our website

2 4QFY16 production beat our forecasts SFR s 4QFY16 production result was better than we had expected. Copper and gold production of 17.8kt and 11.2koz were 7% and 6% higher than we had anticipated, respectively. For the fullyear, DeGrussa produced 68.2kt of copper, beating the top end of the 65-68kt guidance range and 37.6koz of gold in the middle of the 35-4koz guidance range. Copper concentrate shipments from DeGrussa were also better than we had expected with contained copper of 17.8kt 1% higher than we had forecast although contained gold of 1.2koz was 8% lower than we had expected. The higher copper shipments enabled SFR to swing from a net debt position to a $1m net cash position at the end of June. Fig 1 SFR swings to net cash earlier than expected 4QFY16 production result Macq Actual Variance Production Copper (kt) % Gold (koz) % Shipments Concentrate (kt) (1%) Copper (kt) % Gold (koz) (8%) Balance sheet Cash (A$m) % Debt (A$m) 65 5 (23%) Net cash / (debt) (A$m) (12) 1 nm Source: SFR, Macquarie Research, July 216 SFR has not yet released guidance for FY17, but with development rates set to fall 23% in FY17 and 74% in FY18, the cash generation from DeGrussa, assuming flat copper and gold prices, should continue to improve. The potential addition of Monty in FY17/FY18 is expected to provide a further boost to production and cash flows. Fig 2 Underground development set to fall Fig 3 Mine cash flow should increase as a result 8, Development (m) Capex (A$m) 1. 8 Copper production (kt) Mine cash flow (A$m) 3 7, 6, 5, , , 2, 1, FY16e FY17e FY18e FY16e FY17e FY18e Source: SFR, Macquarie Research, July 216 Source: SFR, Macquarie Research, July 216 Upgrading earnings and price target Incorporating the stronger 4QFY16 production result, higher cash balance, and reduced debt and interest costs has translated to a 7% upgrade to our FY16 earnings forecasts. The improved earnings outlook and cash balance drive a 3% lift in our price target to $6.1. Fig 4 Upgrading FY16 earnings and price target Y/E June FY16e FY17e FY18e FY19e FY2e Price Target Net profit (A$m) - old Net profit (A$m) - new Change 7% % % % % 3% Source: SFR, Macquarie Research, July July 216 2

3 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19 Dec 19 Mar 2 Jun 2 Sep 2 Dec 2 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Fig 5 DeGrussa quarterly mine forecasts Fig 6 DeGrussa annual mine forecasts Mined (kt) Grade (Cu %) 6.% 5.% 4.% Mined (kt) Grade (Cu %) 6.% 5.% % 2.% % 3.% 6 2.% 25 1.%.% 4 1.%.% Source: SFR, Macquarie Research, July 216 Source: SFR, Macquarie Research, July 216 Fig 7 DeGrussa quarterly shipments and cash costs Fig 8 DeGrussa annual shipments and cash costs Copper in conc (kt) (LHS) Cash costs (US$/lb) (RHS) 1. Copper in conc (kt) Cash costs (US$/lb) FY13 FY14 FY15 FY16e FY17e FY18e FY19e FY2e FY21e Source: SFR, Macquarie Research, July 216 Source: SFR, Macquarie Research, July 216. Fig 9 SFR cash build vs market cap Fig 1 SFR NPV breakdown 1, 9 8 Net cash / (debt) A$m Market Cap (A$m) Other Projects 2% Resources 17% Monty's 11% DeGrussa (net of corp and debt) 7% Source: SFR, Macquarie Research, July 216 Source: SFR, Macquarie Research, July July 216 3

4 Fig 11 SFR summary financials ASX: SFR Price: (A$ps) 5.34 Year end: Jun Rating: Outperform Up/dn TSR Mkt cap: (A$m) 84 Diluted shares (m) Target: % 18% ASSUMPTIONS FY13 FY14 FY15 FY16e FY17e FY18e FY19e ATTRIBUTABLE MINE OUTPUT FY13 FY14 FY15 FY16e FY17e FY18e FY19e Exchange Rate (A$/US$) Copper Production (equity) Spot Copper Price (US$/lb) DeGrussa kt Gold price (US$/oz) 1,64 1,295 1,223 1,167 1,36 1,35 1,381 Monty's kt RATIO ANALYSIS FY13 FY14 FY15 FY16e FY17e FY18e FY19e Copper (kt) kt Diluted share capital m Payable Copper Production mlb EPS (diluted and pre sig. items) A Gold (koz) P/E x 9.4x 1.6x 12.1x 16.1x 8.6x 4.7x 5.6x CFPS A Cash Copper Price US$lb P/CF x 3.7x 4.x 3.8x 6.4x 4.3x 2.6x 3.2x Net Cash Cost (per pay lb Cu) US$/lb DPS A Notional Cash Margin US$/lb Dividend yield %.% 1.9% 2.4% 2.2% 3.9% 6.6% 5.2% AISC US$/lb Franking Level % % % 5% 1% 1% 1% 1% Mine Ebit Book value per share x DeGrussa A$m P/Book value x 3.9x 2.9x 2.4x 2.2x 1.8x 1.4x 1.2x Monty's A$m R.O.E. (pre sig items) % 42% 27% 24% 13% 21% 3% 21% OPERATIONAL OUTLOOK R.O.A. (pre sig items) % 25% 23% 22% 13% 2% 31% 22% Interest Cover x 8.7x 9.2x 8.9x 19.x 1951x -52.7x -16.5x EBITDA per share A$ps EV/EBITDA x 3.9x 4.3x 3.8x 4.9x 3.1x 1.3x 1.x FCF Yield % 4% 13% 13% 5% 13% 34% 29% EARNINGS FY13 FY14 FY15 FY16e FY17e FY18e FY19e Sales Revenue A$m Other Revenue A$m 4 1 Total Revenue A$m Operating Costs A$m (192) (282) (37) (298) (282) (33) (321) Operational EBITDA A$m Exploration Expense/Write-offs A$m (22) (2) (19) (22) (13) (12) (8) Corporate & Other Costs A$m (1) (7) (5) (6) (7) (7) (7) EBITDA A$m D&A A$m (126) (95) (9) (91) (11) (117) (12) EBIT A$m DeGrussa (kt) Monty (kt) Cash costs (US$/lb) FY12a FY13a FY14a FY15a FY16e FY17e FY18e FY19e FY2e FY21e FY22e Net Interest A$m (16) (14) (15) (4) () 5 12 RESERVES AND RESOURCES (ATTRIBUTABLE) Profit Before Tax A$m Copper reserves Tax Expense A$m (38) (34) (36) (23) (42) (77) (64) Project (kt) Mt % Cu Cu (kt) Minorities A$m DeGrussa open pit % 35 Adjusted NPAT A$m DeGrussa underground % 353 Significant Items (post tax) A$m (1) (13) 1 Total high grade reserves (kt) % 388 Reported NPAT A$m Copper Resources Project (kt) Mt % Cu Cu (kt) CASHFLOW FY13 FY14 FY15 FY16e FY17e FY18e FY19e DeGrussa open pit % 35 Net Profit A$m DeGrussa underground % 443 Interest/Tax/D&A A$m Monty % 99 Working Capital/other A$m (21) (9) (9) 6 Total high grade resources (kt) % 577 Net Operating Cashflow A$m Gold reserves Capex A$m (188) (98) (94) (84) (86) (38) (23) Project (koz) Mt g/t Au Au (koz) Investments A$m (1) (6) (16) (4) DeGrussa open pit Sale of PPE and Other A$m DeGrussa underground Free cash flow A$m Total gold reserves (koz) Dividends Paid A$m (2) (19) (22) (39) (55) Debt A$m (66) (126) (41) (72) (5) Gold resources Equity Issuance A$m 5 3 Project (koz) Mt g/t Au Au (koz) Other A$m DeGrussa open pit Net Financing Cashflow A$m (6) (126) (58) (91) (22) (89) (55) DeGrussa underground Net change in cash A$m (23) (19) 5 (47) Monty Total gold resources (koz) BALANCE SHEET FY13 FY14 FY15 FY16e FY17e FY18e FY19e EQUITY DCF VALUATION Cash A$m Projects A$m A$ps PP&E & Mine Development A$m DeGrussa Exploration A$m Monty's Total Assets A$m Undeveloped Resources Debt A$m Other Projects Total Liabilities A$m Unpaid capital. Total Net Assets / Equity A$m Corporate/forwards (17) (.11) Net Debt / (Cash) A$m (1) (98) (347) (533) Net cash (debt) Gearing (net debt/(nd + equity)) % 49% 26% 4% (3%) (27%) (132%) (312%) Net Equity Value (@ 9% WACC) Gearing (net debt/equity) % 98% 35% 4% (3%) (21%) (57%) (76%) Price Target (5/5 Blend of NPV and 4.x FY17 EV/Ebitda) (1.x NPV) 6.1 Source: SFR, Macquarie Research, July July 216 4

5 Fundamentals Macquarie Quant View The quant model currently holds a marginally positive view on Sandfire Resources. The strongest style exposure is Profitability, indicating this stock is efficiently converting investments to earnings; proxied by ratios like ROE or ROA. The weakest style exposure is Price Momentum, indicating this stock has had weak medium to long term returns which often persist into the future. 426/158 Global rank in Materials % of BUY recommendations 33% (6/18) Number of Price Target downgrades 3 Number of Price Target upgrades 5 Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Materials) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score % -8% -6% -4% -2% % 2% 4% 6% 8% 1% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple % -5% % 5% 1% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Consensus Recommendation Price Upside 3m Recom. Revisions Price to Sales NTM CFROI Profit Margin FY1 DPS Revisions 3 Month Momentum 6 Month -34% Negatives Positives -28% -17% -18% 22% 31% 27% 32% -4% -2% % 2% 4% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/158) Percentile relative to market(/398) Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 8 July 216 5

6 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie South Africa Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3 index return Neutral (Hold) return within 5% of Russell 3 index return Underperform (Sell) return >5% below Russell 3 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 6 1% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4 6% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3 4% in a year. Low medium stock should be expected to move up or down at least 25 3% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 March 216 AU/NZ Asia RSA USA CA EUR Outperform 5.34% 59.9% 46.67% 44.76% 6.66% 46.12% (for global coverage by Macquarie, 3.72% of stocks followed are investment banking clients) Neutral 34.14% 25.66% 32.% 49.9% 3.33% 35.1% (for global coverage by Macquarie, 4.79% of stocks followed are investment banking clients) Underperform 15.52% 15.26% 21.33% 5.33% 9.2% 18.78% (for global coverage by Macquarie, 2.31% of stocks followed are investment banking clients) SFR AU vs Small Ordinaries, & rec history OZL AU vs Small Ordinaries, & rec history (all figures in AUD currency unless noted) (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, July month target price methodology SFR AU: A$6.1 based on a NPV/5.xEV/Ebitda blend methodology OZL AU: A$5.3 based on a NPV methodology Company-specific disclosures: OZL AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Limited's equity securities. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of OZ Minerals Ltd in the past 24 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 6-Jul-216 SFR AU Neutral A$ Jun-216 SFR AU Neutral A$ May-216 SFR AU Neutral A$ Apr-216 SFR AU Neutral A$ Apr-216 SFR AU Neutral A$ Jan-216 SFR AU Outperform A$ Dec-215 SFR AU Outperform A$ Oct-215 SFR AU Outperform A$ Oct-215 SFR AU Outperform A$ Jul-215 SFR AU Outperform A$8. 24-Jul-215 SFR AU Outperform A$8.1 2-Jul-215 SFR AU Outperform A$ Jul-215 SFR AU Outperform A$ Jul-215 SFR AU Outperform A$ Jun-215 SFR AU Outperform A$ May-215 SFR AU Outperform A$ Mar-215 SFR AU Outperform A$6.7 8 July 216 6

7 This publication was disseminated on 8 July 216 at 6:3 UTC. 1-Mar-215 SFR AU Outperform A$ Feb-215 SFR AU Outperform A$ Jan-215 SFR AU Outperform A$ Jan-215 SFR AU Outperform A$7. 9-Dec-214 SFR AU Outperform A$ Nov-214 SFR AU Outperform A$7. 29-Aug-214 SFR AU Outperform A$ Jul-214 SFR AU Outperform A$ May-214 SFR AU Outperform A$7. 1-Mar-214 SFR AU Outperform A$ Sep-213 SFR AU Outperform A$8.1 Target price risk disclosures: SFR AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. OZL AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN , AFSL , a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by, a division of Macquarie Equities Limited ABN AFSL ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. 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