Sandfire Resources. Strong result but guidance light A$6.10 AUSTRALIA. Event. Impact. Earnings and target price revision.

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1 AUSTRALIA SFR AU Price (at 06:37, 29 Jul 20 GMT) Outperform A$6.10 Valuation A$ - DCF (WACC 10.0%, beta 1.7, ERP 5.0%, RFR 3.8%) month target A$ month TSR % Volatility Index Medium GICS sector Materials ket cap A$m day avg turnover A$m 8.5 Number shares on issue m 6.9 Investment fundamentals Year end 30 20A 20E 2016E 2017E 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 20 (all figures in AUD unless noted) 29 July 20 Macquarie Securities (Australia) Limited Strong result but guidance light Event SFR reported a strong 4QFY production result. Copper in concentrate production of 18.6kt was 9% higher than we had forecast while C1 cash costs of US$0.98/lb were 7% lower than we had anticipated. However ongoing results from drilling at Monty remain the key catalyst for the stock. Impact 4QFY production result ahead of expectation: SFR s 4QFY production result was strong. Copper in concentrate production was 9% higher than we had expected. Higher mill throughput and slightly higher average grades was the key driver behind the production beat. Cash costs of US$0.98/lb were 7% better than expected, reflecting the stronger production result. Higher shipments drive cash flow beat: SFR s copper concentrate shipments for the 4QFY were higher than production. Contained copper and gold in the 82kt of concentrate shipped were 20% and 10% higher than we had expected. The higher shipments resulted in net debt at the end of e falling to just $m, well below our $49m net debt forecast. Guidance slightly lower due to softer grades: SFR expects to produce 65-68kt of copper and 35-40koz of gold in concentrate in FY16, with the midpoint 6% and 8% lower than our forecasts, respectively. Higher mine and mill throughput rates have been offset by lower grades for both commodities. Importantly, the cost-saving initiatives have enabled cash cost guidance of US$ /lb in line with our forecast despite the lower grades. Drilling updates on Monty expected soon: The latest hole into the Monty discovery failed to intersect any mineralisation. Drilling has now moved to test the vertical extensions of the previous intersections. A successful result would define Monty across three planes, enabling early resource tonnage potential calculations to be made. Earnings and target price revision The net impact of the incorporating the 4QFY is a 6% increase in our FY earnings estimate while the softer production guidance for FY16 sees our earnings forecast fall 8% for FY16. Our price target falls 1% to $8.00. Price catalyst 12-month price target: A$8.00 based on a DCF methodology. Catalyst: Drilling results at Monty present the most material catalyst for SFR in the near-term. The next two holes are particularly important as they could provide vertical extensions to the discovery for the first time. Action and recommendation Maintain Outperform: SFR s 4QFY production result was strong with all key metrics coming in ahead of our expectations. Guidance for FY16 was a little soft on production due to lower grades, but in line on cash costs. The release of further drilling results from Monty remain the key catalyst for SFR in the short-term. Please refer to page 7 for important disclosures and analyst certification, or on our website

2 4QFY production result analysis Ore mined at DeGrussa during the 4QFY of 432mt was 7% higher than we had forecast. The 1.7mtpa run rate suggests there could be upside to our 1.5mtpa base case assumption for the remaining life of the project. Average grades mined were also higher than expected for both copper and gold. The performance of the process plant at DeGrussa was also better than we had expected with throughput of 400kt 7% higher than our forecast. Like mine production the 1.6mtpa run rate for the process plant suggests there could be upside to our 1.5mtpa life of mine throughput assumption. Fig 1 4QFY result beat on output and costs Key Statistics Macq Actual Variance Ore Mined (kt) % Ore Milled (kt) % Grade (%) 5.0% 5.0% 2% Grade (g/t) % Production Macq Actual Variance Concentrate (kt) % Copper (kt) % Gold (koz) (1%) Shipments Macq Actual Variance Concentrate (kt) % Copper (kt) % Gold (koz) % Cash costs Macq Actual Variance Mining % Processing (11%) Admin (8%) Transport and TC/RC (6%) By-product (0.32) (0.34) 8% C1 cash cost (7%) Royalty (4%) C2 cash cost (7%) Depreciation % C3 Cash cost (4%) Source: Macquarie Research, July 20 SFR expects to produce 65-68kt of copper and 35-40koz of gold in concentrate in FY16, with the midpoint 6% and 8% lower than our forecast respectively. Higher mine and mill throughput rates have been offset by lower grades for both commodities. Importantly, the cost savings initiatives have enabled cash cost guidance of US$ /lb in line with our forecast despite the lower grades. We have made a number of changes to our production forecasts to bring our estimates in line with guidance. We also make changes to our medium-term forecasts to reflect higher milling rates. The net impact of the 4QFY is a 6% increase in our FY earnings estimate while the softer production guidance for FY16 sees our earnings forecast fall 8% for FY16. Our price target falls 1% to $8.00 after incorporating the earnings changes. Fig 2 Earnings changes are mixed and only modest fall in price target Y/E e FYe FY16e FY17e FY18e Price Target Net profit (A$m) - old Net profit (A$m) - new Change 6% (8%) 4% 7% (1%) Source: Macquarie Research, July July 20 2

3 Monty exploration update SFR has released a further update from drilling at the Monty prospect at Doolgunna. SFR is earning a 70% interest in Monty and the rest of the Springfield tenements from Talisman Mining (TLM AU, Not Rated) by spending A$m on drilling. Three diamond holes and one RC hole have been completed to date. The initial discovery hole at Monty returned an intersection of 18.9% Cu and 2.1g/t Au from 409m downhole. The second and third holes have returned massive sulphide intersections of 11.8% Cu and 2.9g/t Au from 417m downhole and 18m at 108m downhole. The second hole was 75m along strike from the first with the third hole extending the strike to 200m. Fig 3 Monty prospect location of recent drilling results to date Source: SFR, July 20 Mining inventory could be bigger than DeGrussa Drilling to date has identified mineralisation over a strike of 200m, vertical height of 300m and an average width of ~m. The average grade of the third holes is not yet known. Our mining inventory assumption is based on 10% Cu, which is 50% lower than the bottom end of our calculated resource potential to reflect uncertainties around continuity of mineralisation between drill results. Fig 4 Mining inventory calculation Key variables High Low Macq Strike (m) Depth (m) Width (m) 10 Specific Gravity (x) 5 5 Ore tonnes 4,500,000 3,000,000 2,000,000 Grade (%) 10% 10% 10% Copper (t) 450, , ,000 Source: Macquarie Research, July 20 The current JORC resources at DeGrussa stand at 3.6% Cu and 1.3g/t Au (376kt contained copper and 456koz contained gold) of which 4.4% Cu and 1.5g/t Au (343kt contained copper and 368koz contained gold) is underground. Our initial estimates for Monty suggest it could potentially contain more copper than the current resource at DeGrussa. 29 July 20 3

4 Apr Aug Apr 16 Aug Apr 17 Aug Apr 18 Aug Apr 19 Aug Apr 20 Aug Apr 21 Aug Fig 5 DeGrussa quarterly mine forecasts Fig 6 DeGrussa annual mine forecasts Mined (kt) Grade (Cu %) 6.00% 5.00% 4.00% Mined (kt) Grade (Cu %) 6.00% 5.00% 4.00% % % % % % % % % Source: SFR, Macquarie Research, July 20 Source: SFR, Macquarie Research, July 20 Fig 7 DeGrussa quarterly shipments and cash costs Fig 8 DeGrussa annual shipments and cash costs Copper in conc (kt) (LHS) Cash costs (US$/lb) (RHS) 90.0 Copper in conc (kt) Cash costs (US$/lb) FY FY FYe FY16e FY17e FY18e FY19e FY20e FY21e 0.00 Source: SFR, Macquarie Research, July 20 Source: SFR, Macquarie Research, July 20 Fig 9 SFR cash build vs. market cap Fig 10 SFR NPV breakdown 2,000 1,500 Net cash / (debt) A$m ket Cap (A$m) Other Projects 2% Resources 7% 1, Monty's 21% 0 (500) DeGrussa (net of corp and debt) 70% Source: SFR, Macquarie Research, July 20 Source: SFR, Macquarie Research, July July 20 4

5 Fig 11 SFR summary financials ASX: SFR Price: (A$ps) 6.10 Year end: Rating: Outperform Up/dn TSR Mkt cap: (A$m) 957 Diluted shares (m) 6.9 Target: % 35% ASSUMPTIONS FY FY FYe FY16e FY17e FY18e FY19e ATTRIBUTABLE MINE OUTPUT FY FY FYe FY16e FY17e FY18e FY19e Exchange Rate (A$/US$) Copper Production (equity) Spot Copper Price (US$/lb) DeGrussa kt Gold price (US$/oz) 1,604 1,295 1,223 1,125 1,206 1,306 1,375 Monty's kt RATIO ANALYSIS FY FY FYe 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 10.8x 12.2x 10.5x 7.3x 5.6x 4.5x 3.6x CFPS A Cash Copper Price US$lb P/CF x 4.2x 4.5x 4.4x 4.1x 3.5x 2.9x 2.5x Net Cash Cost (per pay lb Cu) US$/lb DPS A Notional Cash gin US$/lb Dividend yield % 0.0% 1.6% 2.5% 4.6% 5.2% 7.0% 8.4% AISC US$/lb Franking Level % 0% 0% 0% 100% 100% 100% 100% Book value per share x DeGrussa A$m P/Book value x 4.5x 3.3x 2.6x 2.0x 1.6x 1.2x 1.0x R.O.E. (pre sig items) % 42% 27% 25% 28% 29% 28% 27% OPERATIONAL OUTLOOK R.O.A. (pre sig items) % 25% 23% 22% 26% 28% 31% 31% Interest Cover x 8.7x 9.2x 16.7x 65.6x x -46.7x -23.7x EBITDA per share A$ps EV/EBITDA x 4.3x 4.8x 4.2x 3.1x 2.2x 1.3x 0.6x EARNINGS FY FY FYe FY16e FY17e FY18e FY19e Sales Revenue A$m Other Revenue A$m Total Revenue A$m Operating Costs A$m (192) (282) (294) (289) (305) (310) (288) Operational EBITDA A$m Exploration Expense/Write-offs A$m (22) (20) (9) () () () (9) Corporate & Other Costs A$m (10) (7) (6) (7) (7) (7) (8) EBITDA A$m D&A A$m (126) (95) (92) (97) (100) (105) (102) EBIT A$m DeGrussa (kt) Monty (kt) Cash costs (US$/lb) FY12 FY FY FYe FY16e FY17e FY18e FY19e FY20e FY21e FY22e Net Interest A$m (16) () (8) (3) 1 6 RESERVES AND RESOURCES (ATTRIBUTABLE) Profit Before Tax A$m Copper reserves Tax Expense A$m (38) (34) (40) (56) (73) (92) (1) Project (kt) Mt % Cu Cu (kt) Minorities A$m DeGrussa open pit % 33 Adjusted NPAT A$m DeGrussa underground % 343 Significant Items (post tax) A$m (1) Total high grade reserves (kt) % 376 Reported NPAT A$m Copper Resources Project (kt) Mt % Cu Cu (kt) CASHFLOW FY FY FYe FY16e FY17e FY18e FY19e DeGrussa open pit % 33 Net Profit A$m DeGrussa underground % 546 Interest/Tax/D&A A$m Total high grade resources (kt) % 579 Working Capital/other A$m (21) 6 17 (0) (1) (7) (3) Monty's Mining Inventory % 200 Net Operating Cashflow A$m Gold reserves Capex A$m (188) (98) (92) (120) (102) (57) (41) Project (koz) Mt g/t Au Au (koz) Investments A$m (1) (6) (16) DeGrussa open pit Sale of PPE and Other A$m DeGrussa underground Free cash flow A$m Total gold reserves (koz) Dividends Paid A$m 0 0 (20) (27) (49) (52) (72) Debt A$m (66) (126) (41) (16) (11) (89) 0 Gold resources Equity Issuance A$m Project (koz) Mt g/t Au Au (koz) Other A$m DeGrussa open pit Net Financing Cashflow A$m (60) (126) (59) (43) (60) (1) (72) DeGrussa underground Net change in cash A$m (23) (19) Total gold resources (koz) BALANCE SHEET FY FY FYe 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 ,184 Undeveloped Resources Debt A$m Other Projects Total Liabilities A$m Unpaid capital Total Net Assets / Equity A$m Corporate/forwards (26) (0.17) Net Debt / (Cash) A$m (72) (193) (418) (691) Net cash (debt) 0.08 Gearing (net debt/(nd + equity)) % 49% 26% 3% (18%) (49%) (116%) (245%) Net Equity Value (@ 11% WACC) 1, Gearing (net debt/equity) % 98% 35% 4% (%) (33%) (54%) (71%) Price Target (1.0x NPV) 8.00 Source: SFR, Macquarie Research, July July 20 5

6 Fundamentals Macquarie Quant View The quant model currently holds a strong positive view on Sandfire Resources. The strongest style exposure is Profitability, indicating this stock is efficiently converting its investments to earnings as proxied by ratios such as ROE, ROA etc. The weakest style exposure is Quality, indicating this stock is likely to have a weaker and less stable underlying earnings stream. 89/1064 Global rank in Materials % of BUY recommendations 68% (/19) Number of Price Target downgrades 5 Number of Price Target upgrades 6 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. 1.0 OceanaGold Corporation Oz Minerals OceanaGold Corporation Oz Minerals Sirius Resources Independence Group NL Western Areas Sirius Resources Independence Group NL Western Areas % -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 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. OceanaGold Corporation Oz Minerals Sirius Resources Independence Group NL Western Areas OceanaGold Corporation Oz Minerals Sirius Resources Independence Group NL Western Areas % -50% 0% 50% 100% 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. 3m Recom. Revisions Volatility 250 Day 250d Volatility Consensus Recommendation CPS Revisions 3 Month Momentum 6 Month EPS Growth FY1 DPS Revisions 3 Month -38% -26% -31% Negatives Positives -25% 36% 33% 33% 32% -40% -20% 0% 20% 40% 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(/1064) Percentile relative to market(/4) 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) 29 July 20 6

7 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 >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% 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 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 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 % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 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 30 e 20 AU/NZ Asia RSA USA CA EUR Outperform 46.23% 58.36% 47.27% 44.20% 60.65% 43.01% (for US coverage by MCUSA, 9.68% of stocks followed are investment banking clients) Neutral 37.67% 25.65% 29.09% 49.29% 34.19% 40.93% (for US coverage by MCUSA, 5.53% of stocks followed are investment banking clients) Underperform 16.10%.99% 23.64% 6.52% 5.16% 16.06% (for US coverage by MCUSA, 1.38% of stocks followed are investment banking clients) SFR AU vs Small Ordinaries, & rec history (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$8.00 based on a DCF methodology Company-specific disclosures: SFR AU: The analyst and/or associated parties own or have other interests in securities issued by. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of NL's equity securities. Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 24-Jul-20 SFR AU Outperform A$ Jul-20 SFR AU Outperform A$ Jul-20 SFR AU Outperform A$6.90 -Jul-20 SFR AU Outperform A$ SFR AU Outperform A$6.50 -May-20 SFR AU Outperform A$ SFR AU Outperform A$ SFR AU Outperform A$ Feb-20 SFR AU Outperform A$ Jan-20 SFR AU Outperform A$6.80 -Jan-20 SFR AU Outperform A$ SFR AU Outperform A$ Nov-20 SFR AU Outperform A$ Aug-20 SFR AU Outperform A$ Jul-20 SFR AU Outperform A$ May-20 SFR AU Outperform A$ SFR AU Outperform A$ SFR AU Outperform A$ July 20 7

8 25-Apr-20 SFR AU Neutral A$ Jan-20 SFR AU Neutral A$8. 28-Jan-20 SFR AU Neutral A$ SFR AU Neutral A$8.70 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. Analyst certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN , AFSL No ) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN , AFSL No ) ("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. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. 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The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at 29 July 20 8