Morgan Stanley - Commodity Preferences Remain_

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					                                                                           MORGAN                STANLEY                 RESEARCH
                                                                           ASIA/PACIFIC


                                                                           Morgan Stanley Australia Limited+         Brendan Fitzpatrick
                                                                                                                     Brendan.Fitzpatrick@morganstanley.com
                                                                                                                     +61 2 9770 1148

                                                                                                                     Peter G Richardson
                                                                                                                     Peter.Richardson@morganstanley.com
                                                                                                                     +61 3 9256 8943

                                                                                                                     Stefan Hansen
                March 27, 2012                                                                                       Stefan.Hansen@morganstanley.com
                                                                                                                     +61 2 9770 1390


Industry View   Australia Metals &                                                                                   Sarah E Lester
                                                                                                                     Sarah.Lester@morganstanley.com
                                                                                                                     +61 3 9256 8436
Attractive
                Mining
                                                                           Table Heading
                Correction: Commodity                                      Industry Views
                Preferences Remain,                                        Industry

                                                                           Australia Gold
                                                                                                                                                       Industry View

                                                                                                                                                          Attractive

                Selective Positioning the Key                              Australia Metals & Mining
                                                                           Australia Coal
                                                                                                                                                          Attractive
                                                                                                                                                             In-Line


                Preferences for Gold, Copper and Iron Ore remain.          Recommendation and Price Target Changes
                The MS Commodities team has revised its forecasts                                      New               Old      New PT    Old PT    %
                                                                           Company                     Rec               Rec      A$/share A$/share Change
                with minor mark-to-market adj. in gold, base metals        Diversified and Iron Ore
                & iron ore. The outlook for Alumina and coal is weak       BHP Billiton                OW                OW          46.00        47.00        -2%
                                                                           Rio Tinto                   OW                OW          85.00        88.00        -3%
                resulting in 6-8% downgrades over the                      Fortescue                    EW               EW          5.60         5.60          0%
                medium-term. Key stock preferences: RIO, AQG,              Gindalbie                   OW                OW          0.80         0.80          0%
                                                                           Equatorial                  OW                OW          3.15         2.75         15%
                NCM & PNA.                                                 Copper
                                                                           PanAust                     OW                OW          4.20         4.20          0%
                                                                           OZ Minerals                 OW                OW          13.70        14.40        -5%
                Selective in the commodities: Uncertainty                  Ivanhoe Australia           OW                OW          2.20         2.20          0%
                surrounding the global growth outlook has been a           Nickel
                                                                           Western Areas               OW                OW          6.65          6.65         0%
                significant headwind to most commodity groups. That        Panoramic                   OW                OW          1.40          1.50        -7%
                said, favourable supply-side factors within copper, tin    Gold
                                                                           Newcrest                    OW                OW          39.25        39.25         0%
                and iron ore continue to make these the preferred          Alacer                      OW                OW          10.85        10.85         0%
                exposures. We remain positive on gold as a number          Gryphon Minerals            OW                OW          2.30         2.30          0%
                                                                           Medusa Mining               OW                OW          8.65         8.65          0%
                of factors still favour growth in investment demand.       Resolute Mining              EW               EW          2.35         2.35          0%
                                                                           Coal
                                                                           Gloucester                   EW                EW         8.00          8.00         0%
                Commodity prices mostly unchanged but alumina              Other
                and coal notable decliners: Most commodity price           Iluka                        EW                EW         18.00        18.40        -2%
                                                                           Alumina Ltd                  EW                EW         1.20         1.30         -8%
                forecasts remain largely unchanged, with current-year
                                                                           Source: Morgan Stanley Research
                impacts on the back of mark-to-market adjustments.
                Notable negative moves are in Alumina, down 7% over
                the 2012-14, due to rising Chinese self-sufficiency and
                downstream capacity reductions. Thermal and met
                coals have declined 6-8% over 2012-13, reflecting rising
                Chinese production and potential for oversupply.

                Selective in the sub-sectors: Within the preferred
                commodities, we see selective positioning as key.
                                                                           Morgan Stanley does and seeks to do business with
                Within Copper – Our preference is for PNA, given its       companies covered in Morgan Stanley Research. As
                rising gold byproduct exposure and near-term catalysts.    a result, investors should be aware that the firm may
                Gold – Our preference is for NCM, where we look past       have a conflict of interest that could affect the
                the issues of FY12 to the positives over a 12-month        objectivity of Morgan Stanley Research. Investors
                view; and AQG, where we see upside risk to current         should consider Morgan Stanley Research as only a
                                                                           single factor in making their investment decision.
                guidance on the back of the recent resource upgrade at
                Copler. Iron Ore – We prefer RIO over BHP, given its       For analyst certification and other important
                                                                           disclosures, refer to the Disclosure Section,
                iron ore dominated earnings, and remain cautious on        located at the end of this report.
                FMG.                                                       += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be
                                                                           associated persons of the member and may not be subject to NASD/NYSE restrictions on
                                                                           communications with a subject company, public appearances and trading securities held by a
                                                                           research analyst account.
                                                                                                          MORGAN            STANLEY                RESEARCH

                                                                                                          March 27, 2012
                                                                                                          Australia Metals & Mining




Australian Metals and Mining Coverage Summary (all prices as at 22 March 2012)
                                                   Diversified and Bulk Commodities                                                                        Metals                                                              Gold
                                                                    Equatorial                            Gloucester                              Western       Ivanhoe      Panoramic                  Alacer       Medusa              Resolute   Gryphon
                             Rio Tinto     BHB          Gindalbie     Res.         Iluka      Fortescue      Coal      PanAust     OZ Minerals     Areas        Australia    Resources   Alumina Ltd     Gold        Mining   Newcrest    Mining    Minerals
                             RIO.AX       BHP.AX        GBG.AX       EQX.AX       ILU.AX      FMG.AX       GCL.AX      PNA.AX       OZL.AX        WSA.AX         IVA.AX       PAN.AX      AWC.AX       AQG.AX        MML.AX   NCM.AX     RSG.AX     GRY.AX




Rating                     Overweight    Overweight    Overweight   Overweight Equal-Weight Equal-Weight Equal-Weight Overweight   Overweight    Overweight                                                                   E
                                                                                                                                                               Overweight Overweight Equalweight OverweightOverweightOverweight qual-WeighOverweight

Year end                       Dec          Jun           Jun          Jun             Dec      Jun         Jun         Dec           Dec           Jun              Dec       Jun          Dec          Dec          Jun       Jun       Jun         Jun
Price Target (A$/sh)          85.00        46.00          0.80         3.15           18.00     5.60        8.00        4.20         13.70          6.65             2.20      1.40         1.20        10.85         8.65     39.25      2.35        2.30
Current Price (A$/sh)         64.67         34.8          0.64         2.89           17.45     6.08        8.17        3.13          9.76          5.57             1.83      1.21         1.22         8.1          5.27     29.35       1.9        1.13
Upside/(Downside) (%)         31%          32%            25%          9%              3%       -8%         -2%         34%          40%            19%              20%       16%          -1%         34%           64%      34%        24%        104%

Market Cap (in AUD mm)       128,955      191,145         822          316            7,317    19,408       1,684       1,872        3,198         1,033            1,029      255         3,017        2,382         993      23,045     1,216       394
Bull Case Value (A$/sh)       120.10       62.60           1.69        7.65           25.20     9.60        10.60        6.49        18.90         10.30             5.15       3.60        2.80        16.20        11.95     62.00       3.90       3.57
Upside (%)                     89%         82%            164%        189%            49%       60%         33%         115%         97%           86%              186%       203%        135%         98%          136%      114%       118%       228%
Base Case Value (A$/sh)       98.90        53.30           1.15         3.77          19.80      6.60        8.60       4.77         15.40          7.60             2.94       1.95         1.50       10.85          9.05    38.60       2.47       2.41
Upside (%)                    53%          53%             80%          31%            13%       9%          5%         52%          58%            36%             61%        61%          23%          34%           72%      32%        30%       113%
Bear Case Value (A$/sh)       62.70        32.90           0.28         1.70          13.20      3.60        6.80       3.07         10.80          5.20             0.90       0.60         0.50        5.60          4.28    18.20       0.50       1.10
Downside (%)                   -2%          -4%           -56%         -36%           -22%      -40%        -15%        2%           13%            -6%             -50%       -50%         -58%        -32%          -15%     -37%       -72%        1%




Valuation Multiples at Last Close
CY/FY12e
P/E                             9.2x        9.8x          30.2x        N/A             7.5x     11.7x        NM          8.4x        10.6x         13.2x             54.5x     14.5x      2828.1x       12.0x         13.8x    21.8x      11.4x       NM
EV/EBITDA                       5.7x        5.8x         153.8x        N/A             4.2x      7.8x       34.7x        5.9x         3.6x          5.6x             32.4x      2.6x       51.1x        5.3x          12.3x    11.5x      4.9x        NM
EV/Sales                        2.2x        3.1x          18.3x        N/A             2.8x      3.6x        2.9x        2.7x         1.6x          3.4x             13.9x      0.7x        1.6x        3.0x          8.8x      5.4x      1.7x        N/A
FCF Yield                      1.4%        12.9%         -69.5%       -9.1%           15.3%    -18.8%       -6.9%       -0.7%        14.5%         -3.9%            -23.2%     -4.0%       -1.9%        2.9%          2.3%     -2.6%      0.1%      -14.5%

CY/FY13e
P/E                            7.2x         8.4x           5.1x         N/A            5.5x     7.3x        66.5x        5.2x         7.6x          8.9x             13.0x     7.5x         23.2x       6.7x          6.0x     11.1x       4.6x       NM
EV/EBITDA                      4.5x         4.9x           4.9x         N/A            3.1x     5.2x        23.1x        3.3x         2.7x          4.0x             10.7x     1.8x         14.1x       3.1x          5.5x     6.1x        2.1x       NM
EV/Sales                       1.9x         2.8x           2.7x         N/A            2.2x     2.7x         2.3x        1.9x         1.3x          2.4x              6.0x     0.6x          1.5x       2.0x          4.4x     3.6x        1.1x       N/A
FCF Yield                      5.8%        15.5%          -5.5%       -67.0%          21.7%     1.3%        -5.3%       18.6%        12.9%         15.0%            -11.2%    11.1%         4.1%       12.1%          6.5%     2.8%       18.4%     -36.1%

Implied Multiples on MS Price Target
FY13e
P/E                            9.8x        11.3x          6.4x         N/A            5.8x      6.7x        31.0x        7.0x         11.1x        10.7x            15.6x      9.3x         24.8x       8.9x          9.9x     14.8x       5.7x       N/A
EV/EBITDA                      5.6x        6.4x           5.7x         N/A            3.3x      4.8x        22.7x        4.6x         5.3x         4.8x             12.6x      2.5x         14.9x       4.4x          9.2x     8.0x        2.8x       N/A
EV/Sales                       2.5x        3.8x           3.1x         N/A            2.4x      2.5x        2.3x         2.7x         2.6x         2.9x              7.1x      0.8x          1.6x       2.8x          7.6x     4.8x        1.5x       N/A




Source: Morgan Stanley Research. Thomson Reuters e=Morgan Stanley Research estimates.




                                                                                                                                                                                                                 2
                                                                     MORGAN         STANLEY      RESEARCH

                                                                     March 27, 2012
                                                                     Australia Metals & Mining




We have made additions to explain our change in                      Key changes and commodity preferences
industry view for Australia Coal on page 3 of this report.
                                                                     We have revised our industry view for the Australian coal
This report was originally published on March 27, 2012,
                                                                     sector from Attractive to In-line. This is in response to our
and is being republished on March 27, 2012. Pricing data
                                                                     commodity team's weak outlook for coal markets, resulting in
and disclosures reflect the original publication date. To
                                                                     downgrades to our near-term coal price forecasts.
receive an electronic copy of the original version of this
publication, please send an e-mail to                                In base metals, preferences remain for copper and tin, with an
Equity_Research_Publishing@morganstanley.com with                    expectation of low inventories, tight supply and signs of
the publication title and date.                                      improving demand in the USA. Uncertainty over demand for
                                                                     other base metals including aluminium, alumina, nickel, lead
Commodity Outlook                                                    and zinc, combined with sizable surpluses, see these metals as
                                                                     continuing to be viewed negatively.
Commodity views sourced from the “Global Metals
Playbook: 2Q12”, Peter Richardson & Joel Crane,                      The Commodity Teams’ preferences remain with gold, despite
March 27, 2012.                                                      the extended period of profit taking in 4Q CY11. Negative real
                                                                     interest rates, potential further unconventional monetary policy
Key Metals and Mining Drivers for 2012                               in the US and Europe and heightened political tensions in the
                                                                     Middle East all serve to reinforce investment demand.
• Emerging Markets (EM) continue to drive global growth, but
  the pace has slowed;                                               In the bulk commodities, the outlook for steel making
                                                                     commodities is clouded by Eurozone and Chinese steel
• The market expects China’s growth to be slightly below trend       demand uncertainty. Metallurgical coal supplies are expanding,
  in 2012 and is concerned about a hard landing. We have a           while conversely iron ore supplies are at risk of constraint, with
  slightly different view, namely that the growth risk to our        iron ore remaining a preferred exposure.
  current GDP forecast is to the upside as the authorities are
  about to adopt a number of different stimulus measures to          Base metals: Copper, Nickel and Zinc forecasts for 2012 have
  confront these risks;                                              increased 3%, 1% and 3%, respectively, largely reflecting
                                                                     mark-to-market adjustments for 1QCY12. Beyond this our
• Developed market outlook mixed. Some US economic data              forecasts remain unchanged.
  has surprised to the upside, but many challenges remain for
  a sustainable recovery;                                            Focusing on copper specifically, persistent supply constraints
                                                                     were demonstrated in 2011, after the refined copper market
• Euro-zone concerns remain, with solvency and underlying            recorded its second consecutive annual deficit. This dynamic
  sovereign debt issues remaining largely unresolved.                of under-supply is expected to continue for two more years,
                                                                     particularly as demand in Europe and the US is strengthening.
• Strengthening USD/weakening Euro is a negative for
  commodities in general; however, a strengthening USD has,          We acknowledge the Chinese restocking cycle is mature
  ironically, encouraged a moderate return of investment             following a cycle which ramped up in 2HCY11 and maintained
  demand, and served to help weaken producer currencies;             momentum in 1QCY12; however, we believe imports will
                                                                     decline MoM in coming quarters due to decade high Shanghai
• Notwithstanding the strengthening USD, we see gold as              Exchange inventories and a large LME premium to SHFE.
  continuing to provide safe-haven status, despite the recent
  weakness.                                                          In nickel markets, the balance is expected to hinge on two
                                                                     supply sources. Firstly, five new High-Pressure Acid Leach
Exhibit 1
                                                                     (HPAL) projects are scheduled to start-up in 2012/13. These
Preferred Overweight Stocks by Commodity
                                                                     represent ~80% of forecast surplus and therefore success or
Exposure
                                                                     delay in execution will have a material impact on supply. The
Commodity                                Preferred Equity Exposure
Gold                                      Large caps – Newcrest
                                                                     second source is Chinese nickel pig iron (NPI), which may be
                                          Mid-caps – Alacer Gold     under threat from potential Indonesian export bans on
Copper                                                  Pan Aust     unprocessed ore. Over half of China’s NPI producers source
Iron ore                                                Rio Tinto    ore from Indonesia, and the possible bans is of concern.
Source: Morgan Stanley Research




                                                                                                                                    3
                                                                     MORGAN         STANLEY      RESEARCH

                                                                     March 27, 2012
                                                                     Australia Metals & Mining




The smelter-grade alumina (SGA) market recorded a surplus            Western Europe is forecast to decline 16.3% with no recovery
of 0.47Mt in 2011, despite declining capacity utilization rates.     expected before 2014. The more subdued steel market
The excess reflected rising capacity, particularly in China,         conditions anticipated in China exacerbates this European
which is moving very close to self-sufficiency. As a result          slowdown, and as such, seaborne iron ore demand is forecast
alumina imports in China fell by 56.4%, while bauxite imports        to increase 1% in 2012, and 5% in 2013. This compares with a
increased 46%. The pressure on Alumina producers has been            CAGR of 7.2% between 2006 and 2011. On the supply side,
exacerbated by the shut-in of downstream smelting capacity           factors continue to be supportive of deficit markets. Export
globally. Our spot alumina price forecasts have declined 7%pa        bans in Karnataka and proposed export caps from Goa in India
between 2012 and 2014 due to this structural change in global        continue to have a significant impact on the short to medium
alumina markets.                                                     term outlook. This is in addition to the market supportive factors
                                                                     discussed in the previous playbook, including the low-grade
Precious metals: Our forecasts for gold and silver remain            high-cost marginal domestic Chinese producers effectively
largely unchanged, with only the 2012e forecast declining 1%,        placing a floor on price.
reflecting mark-to-market impacts of the March 2011 quarter.
                                                                     Mined energy: Uranium price forecasts remain unchanged
Despite the recent volatility, which we attribute partly to          from the substantial declines from the 1Q12 playbook as we
investors cashing out following the reduced likelihood of            see the insufficient supply curtailment and lack of rising
additional unconventional monetary policy in the US, we              demand as unsupportive of rising prices. Thermal coal price
believe the bull market remains in-tact. We still see a great        forecasts have reduced 6% and 8% for 2012 and 2013,
majority of factors that contributed to the gold bull market as      respectively, as Australian export prices have come under
still being in place even if the balance among them is changing.     pressure from weakening Chinese prices and the back-wash
These factors include:                                               effect of extra South African coal in the Asian marketplace.

    •    The decline in hedging by mining companies, and the         Macro risks to the view
         emergence of de-hedging as a positive demand
         factor;                                                     Developed market growth risks: Potential for policy errors in the
                                                                     US and Eurozone remain high, particularly in the latter, given
    •    The decline of DM central bank sales and the rise of        the unprecedented issues facing the economic union.
         EM central bank purchases;                                  A hard landing in China: This remains a major concern in the
                                                                     market, in part from banking sector risk linked to local
    •    The inability of gold mining companies to respond to
                                                                     government financing vehicles or bad debt exposures in the
         higher incentive pricing to lift output, and;
                                                                     property construction sector. The risks from excess policy
    •    The LT growth in physical investment demand                 tightening in a rapidly weakening external or domestic policy
         resulting from a variety of financial market risks and      environment continue to worry the market in the face of
         opportunities (not just the liquidity trade).               ongoing weak data flow on domestic manufacturing and
                                                                     international trade.
We continue to expect rising prices in precious metal prices in      The upside risk or bull case is a swift and convincing solution to
2013 to reflect the benefits of negative real interest rates, with   Europe’s sovereign debt crisis and a balanced US
gold again our favoured precious metal.                              medium-term deficit reduction plan and extension of fiscal
                                                                     stimulus for all of CY 2012 with a stronger than expected
Steelmaking raw materials: Despite softer steel markets in
                                                                     forecast 2012 GDP outcome on both sides of the Atlantic.
Europe and China, iron ore deficits persist, albeit smaller
than previously forecast. Demand for seaborne iron ore in




                                                                                                                                    4
                                                                          MORGAN         STANLEY       RESEARCH

                                                                          March 27, 2012
                                                                          Australia Metals & Mining




Exhibit 2
The upside (or downside) we see between the current share price and our 12mth target price

                                                   PT Upside/(Downside) to Current Prices
    60%                                                                                                  104%

    50%                                                                                                         64%
                                                                        40%
    40%
                                                                              34%                                 34% 34%
               32% 31%
    30%                         25%                                                                                     24%
                                                                                    20% 19%
    20%                                                                                          16%
                                            9%
    10%
                                                       3%
      0%
                                                            -1%   -2%
   -10%                                          -8%
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Source: Morgan Stanley Research estimates




                                                                                                                            5
                                                                                          MORGAN                   STANLEY                   RESEARCH

                                                                                          March 27, 2012
                                                                                          Australia Metals & Mining




Miners still undervalued, selective positioning the key. Prefer Gold,
Copper and Iron Ore.
Most of the miners under coverage are trading at                                          Exhibit 4

discounts to valuation and past historical metrics                                        Fwd PERs compared to past norms – a mixed bag
                                                                                                                                                                      Fwd PER at a premium to historical
We still see the mining equities as having priced in the                                                                                    >100%               93%
deterioration of macro conditions throughout the latter half of
                                                                                                                                    39%
2011 and early 2012. This bearish theme is ongoing due to a                                                                                                           26%
                                                                                                                                                    17%
number of factors including dovish commentary from the                                                                                                                       8%
                                                                                                                                                                                          13%
                                                                                                                                                          1%
Chinese Government on growth expectations, and continuing                                                       n/m n/m                                                                                      n/m


(but less-so) uncertainty regarding the Euro-zone debt                                      -8%                                                                                                        -8%
                                                                                                   -14% -12%
situation.                                                                                                                                                                         -21%         -19%

                                                                                                                             -36%
                                                                                                                                      Fwd PER at a discount to historical
As a result, we observed most mining equities trading well




                                                                                                                                                                                                 MML
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                                                                                                                                                                       WSA
                                                                                                                                    AWC
below underlying valuations with a disconnection occurring
from historical metrics.
                                                                                          Source: Company data, Morgan Stanley Research

We continue to see value in mining equities exposed to our                                We acknowledge downside risks remain in terms of global
preferred commodities, namely iron ore, gold and copper,                                  macro-economic conditions; however, in our view, the key is to
which have been demonstrated by the Morgan Stanley                                        identify equities with strong fundamentals exposed to
Commodities team as having sound supply/demand                                            commodities with a supportive supply/demand outlook and
fundamentals over the short-term which Is expected to be                                  avoid those with commodity exposures which may see them
supportive of price. That said, we highlight company specific                             suffer on weak sentiment.
factors which may cause us concern with certain equities within
our preferred commodity exposures (i.e. FMG).                                             Mining sector underweight, but for how much longer?

Conversely, there are a number of commodities which our                                   We believe that there is a collective underweight position of
Commodities Team see as being the least preferred, namely                                 considerable note across the mining sector. As we look back at
Aluminium, Lead and Zinc, due largely to the risk of                                      the events in the market that took place during 2011; there was
over-supply and under-demand, which will likely weigh on                                  the most notable swing in sentiment towards the miners that
prices until an appropriate response is triggered, either on the                          has occurred over the past five years. Having started the year
supply or demand side, to bring markets closer to balance.                                at a strongest overweight position since late 2008, the sector
                                                                                          finished the year at the strongest underweight position since
Exhibit 3                                                                                 early 2008.
P/NPV for covered ASX miners – discounts to
valuation                                                                                 This took place despite most commodity prices retaining levels
  0%                                                                                      that have the majority of the miners still making healthy
                                         -5%                                              operating margins; Aluminium and alumina being notable
-10%                     -8%
                                  -12%
                                                                                          exceptions.
-20%
                               -19%
                  -23%
                                                                            -25%
                                                                                   -23%
                                                                                -24%      While Europe is in recession and the market fears a
-30%                                                          -27%
                                                                                          ‘hard-landing’ in China, there have been signs of improvement
       -35%-35%                                        -34%
-40%                                           -38%-37%    -38%                           in the outlook by leading indicators in the US and parts of Asia.
                                                                        -42%
              -44%
-50%

                                                                     -53%
                                                                                          On the past four of five occasions that such an underweight
-60%                                                                                      position has been created in the sector, it subsequently rallied
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                                                                                          +30%. Our P/NPV analysis (Exhibit 3) certainly suggests that
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                                                                                          such a move is possible, as it would only return the sector to
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         P
         e




        ol
       es



      ph
   ry




   R




                                                                                          fair value.
 G




Source: Company Data, Morgan Stanley Research




                                                                                                                                                                                                                   6
                                                                       MORGAN         STANLEY      RESEARCH

                                                                       March 27, 2012
                                                                       Australia Metals & Mining




So while we acknowledge the ongoing risks, and continue to             equities are now priced for a pessimistic outlook, as shown in
skew our risk ratings to the bear case, we are also becoming           the P/NPV chart in Exhibit 3, but showing signs of recovery.
increasingly mindful that the potential for a rally in the sector is
building.                                                              As the most recent data in Exhibit 5 shows, resource equities
                                                                       have rebounded from the end-of-2011 lows; however, the
Resources index hits resistance, the next quarter                      index is currently finding resistance at a level similar to that
looks telling if miners will once again lead the                       encountered during the brief rally in October 2011. The
commodity price recovery                                               movements of the resource equity index over the next three
                                                                       months will likely be key. In our view, the best buying
As in previous quarterly price review updates, we have taken
                                                                       opportunity may be as equity prices turn upward and break
the Non-Rural component of the G5 RBA Index of Commodity
                                                                       through this resistance level, even while commodities continue
prices (in AUD terms) and charted it against the ASX200
                                                                       to be weak, given the lag effect demonstrated in Exhibit 6. That
Resources index. As would be expected, there is a correlation
                                                                       said, selective positioning in equities exposed to commodities
between the commodity price index and the miners.
                                                                       with favourable supply/demand fundamentals is essential in
                                                                       our view.
Through the 2008/09 Global Financial Crisis, the mining
equities led the commodity index by about six months. We see
this as reflecting equity investors collectively taking a view on
the macro conditions and factoring in a deteriorating outlook
into the equity price ahead of the commodity prices easing.

The equities then find support even as commodity price
softness continues
However, as the commodity prices soften with continued macro
uncertainty through 2009, the miner index found support as this
was already factored into the valuations and earnings outlook.
This process was about six months into the GFC. We see the
current cycle as being in a very similar situation, whereby the




                                                                                                                                     7
                                                                  MORGAN         STANLEY      RESEARCH

                                                                  March 27, 2012
                                                                  Australia Metals & Mining




Exhibit 5
ASX200 Resources Index vs RBA G5 commodity prices: The resources index finds resistance at near- 5,000

                       140                                                                         7,000

                       120                                                                         6,000

                       100                                                                         5,000

                         80                                                                        4,000

                         60                                                                        3,000

                         40                                                                        2,000

                         20                                                                        1,000

                              0                                                              -
                              Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
                                 G5 RBA Commodity Prices (A$ basis)               ASX200 Resources Index
Source: RBA data, Bloomberg




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                                                                  MORGAN         STANLEY      RESEARCH

                                                                  March 27, 2012
                                                                  Australia Metals & Mining




Company impacts – Alumina/coal exposures earnings downgraded
Alumina Ltd (AWC) – Significant earnings downgrades,               Bulks and Large diversified, generally near-term
Maintain EW                                                        modest downgrades, but outlook unchanged.
Despite our expectations that the Mining sector is generally       Our commodities team has downgraded its 2012e forecast for
trading at a discount to valuation, there are company- and         iron ore by 3%. This has had a modest impact to FMG’s
commodity-specific situations to consider. In this case, our       FY12e earnings, which decline by 3%. Remains EW.
commodities team has further downgraded their outlook for
Alumina given the unfavourable fundamentals of aluminium           For BHP and RIO, both stocks have significant exposure to
feedstock markets as China alumina self-sufficiency grows.         iron ore and coal (RIO – thermal, BHP – met, in general) and
This has resulted in further downward revisions to the alumina     therefore would be expected to be negatively impacted by the
metal spot price outlook (2012 – 2014: -7%, 2015: -5%) from        downgrades in these commodity forecasts. For RIO, over the
our last commodities update in January 2012. This has had a        near-term, our CY12e and CY13e EPS forecasts decline 8%
significant impact on AWC’s earnings, where we now forecast        and 3%, respectively. Our PT declines 3% to A$85/sh.
a CY12e EPS of just over breakeven, i.e. US0cps from               For BHP, our EPS forecasts for FY12e, FY13e and FY14e
US3cps), CY13e EPS US5cps (from US10cps) and CY14e                 decline 2%, 7% and 7%, respectively. FY12e EPS impacts
EPS of US9cps (from US11cps). The large % changes in               were less then later years due to only a six month impact of
AWC’s earnings due to the commodity price downgrades are           the commodity price change in FY12e, whereas FY13e
due to both AWC’s high earnings sensitivity to alumina metal       incorporates both the 2012e and 2014e price changes.
pricing and the reduced EPS falling from an already low base.
                                                                   Preferences remain gold, copper and iron ore
We expect AWC to be required to draw down on its
US$295mn available debt facility given the reduced forecast        We continue to see Gold as a preferred commodity
cash flows over 2012. A dividend over 2012 is unlikely in our      exposure, given the volatile and uncertain current macro
view and we maintain our EW rating on the stock.                   outlook, despite the recently renewed strength observed in the
                                                                   USD. Thematics that have been supportive of the gold price
Gloucester Coal – Weak coal market outlook                         remain: negative real interest rates, net buying by central
impacts earnings, but stock remains supported by                   banks and political tensions in the Middle East, despite the
Yancoal bid. Remain EW                                             tempering of expectations of further US quantitative easing.
Our commodities team has downgraded its 2012e and 2013e            At the current price, we see significant value in Newcrest
metallurgical coal forecasts by 6% for both years. Thermal         (NCM). We acknowledge the company has had a number of
coal has been downgraded over the same period by 6% and            operational setbacks over the past 12-18 months, and we see
8%, respectively, on a calendar year basis. Beyond this met        downside risk to its FY12e guidance. We believe this risk is
and thermal coal forecasts are unchanged. Our FY12e,               largely in the price and see ~$30/sh as an opportune entry
FY13e and FY14e EPS forecasts for GCL have declined to             point to a large-cap gold stock with strong long-term
A1cps (from A6cps), A15cps (from A31cps) and A93cps (from          operational metrics and significant FY13 growth catalysts.
A103cps), respectively. The earnings reductions highlight
GCL’s high sensitivity to commodity prices, particularly in the    Another preferred gold exposure is Alacer Gold (AQG). We
near-term while our EPS forecasts are falling off a low base.      believe that there is upside risk to current production guidance,
The sensitivity of GCL's earnings to coal prices include a 70%     driven by a recent upgrade to its Copler mine resource by
movement in GCL earnings for every 10% move in coking              900koz (+13%)
coal prices for FY13e, whilst the company's EPS is even more       There were very modest copper and nickel price upgrades in
sensitive to thermal coal prices. A 10% move in thermal coal       current 2012 period. We continue to see copper as having the
prices for FY13e results in a 110% move in FY13e EPS based         best fundamentals among the base metals, in our view, as
on our assumptions. The sensitivity moderates in FY14e to          supply disruptions combined with restocking in China are
~45% of EPS for 10% moves in both thermal and met coals.           likely to lead to market deficits. PanAust (PNA) is our
Our PT remains $8.00/sh and we maintain our EW rating. We          preferred copper miner. It has the benefits of gold
see GCL’s current price as more reflective, and support by,        by-product credits and near-term catalysts: a new mine
the current bid by Yancoal, and less on the fundamental            starting up in 1Q 2012, and an expansion at its primary mine in
outlook for met and thermal coal markets.                          2Q 2012.



                                                                                                                                 9
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                                                                               March 27, 2012
                                                                               Australia Metals & Mining




The minerals sand complex saw no forecast price changes in                      on the zircon market outlook but acknowledge that growth in
the current review. We see the maintenance of the zircon                        TiO2 pricing has given ILU a more balanced earnings profile.
prices may come at the cost of volume losses, as ILU uses its                   We maintain EW.
market dominant position to support prices. We are cautious


Exhibit 6
EPS Changes Summary from Revised Commodity Price Forecasts
                                                 Previous Forecast                 Revised Forecast                       % Difference
 Company                        Currency    2012e      2013e      2014e      2012e        2013e       2014e       2012e      2013e       2014e
 BHP Billiton                     US$/sh    3.76 e     4.67 e     4.95 e     3.70 e       4.33 e      4.81 e      -2%         -7%        -3%
 Rio Tinto                        US$/sh    7.85 e     9.64 e     9.51 e     7.26 e       9.32 e      9.49 e      -7%         -3%         0%
 Fortescue Metals                 US$/sh    0.55 e     0.87 e     1.49 e     0.54 e       0.87 e      1.51 e      -2%         0%          1%
 Gindalbie                         A$/sh    0.02 e     0.13 e     0.33 e     0.02 e       0.12 e      0.33 e      -1%         -1%         0%
 Equatorial                        A$/sh    (0.12) e   (0.10) e   (0.31) e   (0.12) e    (0.11) e   (0.32) e       2%         5%          2%
 Alumina Limited                  US$/sh    0.03 e     0.10 e     0.11 e     0.00 e       0.05 e      0.09 e      -98%       -45%        -20%
 OZ Minerals                       A$/sh    1.00 e     1.30 e     1.29 e     0.92 e       1.29 e      1.30 e      -8%         -1%         1%
 PanAust Limited                  US$/sh    0.38 e     0.62 e     0.59 e     0.39 e       0.62 e      0.59 e       3%         0%          0%
 Ivanhoe Australia                 A$/sh    0.03 e     0.14 e     0.40 e     0.03 e       0.14 e      0.40 e       4%         0%          0%
 Western Areas NL                  A$/sh    0.43 e     0.62 e     0.92 e     0.42 e       0.62 e      0.92 e      -3%         0%          0%
 Panoramic Resources               A$/sh    0.09 e     0.16 e     0.33 e     0.08 e       0.16 e      0.33 e      -10%        0%          0%
 Newcrest Mining                   A$/sh    1.41 e     2.63 e     4.05 e     1.34 e       2.65 e      4.07 e      -5%         1%          1%
 Alacer Gold Corp.                US$/sh    0.72 e     1.27 e     1.08 e     0.70 e       1.26 e      1.07 e      -3%         0%          0%
 Gryphon Minerals Ltd              A$/sh    (0.03) e   (0.03) e   0.72 e     (0.04) e    (0.04) e     0.72 e       6%         13%         1%
 Medusa Mining Ltd                US$/sh    0.40 e     0.91 e     1.45 e     0.40 e       0.91 e      1.45 e      -2%         0%          0%
 Resolute Mining Ltd               A$/sh    0.18 e     0.41 e     0.52 e     0.17 e       0.41 e      0.53 e      -5%         0%          1%
 Gloucester Coal Limited           A$/sh    0.06 e     0.31 e     1.03 e     (0.01) e     0.12 e      0.94 e      -122%      -60%        -9%
 Iluka Resources Ltd               A$/sh    2.36 e     3.18 e     3.26 e     2.31 e       3.18 e      3.26 e      -2%         0%          0%
Source: Morgan Stanley Research estimates




                                                                                                                                                10
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                                                                                                   March 27, 2012
                                                                                                   Australia Metals & Mining




Exhibit 7
Australian Miners Relative Multiple Valuations

                                               P/E                                 EV/EBITDA                       Free Cash Flow Yield                        Dividend Yield
Company                   F2012e             F2013e      F2014e          F2012e     F2013e   F2014e             F2012e   F2013e    F2014e                F2012e    F2013e   F2014e
Diversified & Iron Ore
BHP Billiton               9.8 e              8.4 e        7.5 e          5.8 e        4.9 e       4.1 e         0.13 e       0.16 e       0.18 e        3.1%   e     3.2%   e      3.2%   e
Rio Tinto                  9.2 e              7.2 e        7.1 e          5.7 e        4.5 e       4.1 e         0.01 e       0.06 e       0.07 e        2.2%   e     2.3%   e      2.3%   e
Fortescue Metals           11.7 e             7.3 e        4.2 e          7.8 e        5.2 e       2.6 e        (0.19) e      0.01 e       0.24 e        1.3%   e     1.6%   e      2.4%   e
Gindalbie Metals Ltd       30.2 e             5.1 e        1.9 e         153.8 e       4.9 e       1.8 e        (0.69) e     (0.06) e      0.16 e        0.0%   e     0.0%   e      0.0%   e
Equatorial Resources Ltd    NM                 NM           NM             NM           NM          NM          (0.09) e     (0.67) e     (0.89) e       0.0%   e     0.0%   e      0.0%   e
Base Metals & Other
Alumina Limited          2,828.1 e            23.2 e      13.8 e          51.1 e      14.1 e       9.5 e        (0.02) e      0.04 e      0.08 e         0.0%   e    3.4%    e      4.3% e
OZ Minerals                10.6 e             7.6 e       7.5 e           3.6 e       2.7 e        2.2 e         0.14 e       0.13 e      0.16 e         3.8%   e    6.0%    e      5.3% e
PanAust Limited            8.4 e              5.2 e       5.5 e           5.9 e       3.3 e        2.8 e        (0.01) e      0.19 e      0.20 e         3.6%   e    7.7%    e      9.1% e
Ivanhoe Australia          54.5 e             13.0 e      4.5 e           32.4 e      10.7 e       3.2 e        (0.23) e     (0.11) e     0.21 e         0.0%   e    0.0%    e      0.0% e
Western Areas NL           13.2 e             8.9 e       6.0 e           5.6 e       4.0 e        2.7 e        (0.04) e      0.15 e      0.20 e         1.9%   e    2.2%    e      3.3% e
Panoramic Resources        14.5 e             7.5 e       3.6 e           2.6 e       1.8 e        1.0 e        (0.04) e      0.11 e      0.26 e         4.9%   e    6.0%    e      12.3% e
Iluka Resources Ltd        7.5 e              5.5 e       5.4 e           4.2 e       3.1 e        3.0 e         0.15 e       0.22 e      0.22 e         6.6%   e    9.1%    e      9.3% e
Gold
Newcrest Mining            21.8 e             11.1 e       7.2 e          11.5 e       6.1 e       4.3 e        (0.03) e      0.03 e      0.09 e         2.8%   e    3.3% e         3.7% e
Alacer Gold Corp.          12.0 e             6.7 e        7.8 e          5.3 e        3.1 e       3.5 e         0.03 e       0.12 e      0.09 e         0.0%   e    7.5% e         6.4% e
Gryphon Minerals Ltd        NM                 NM          1.6 e           NM           NM         1.1 e        (0.15) e     (0.36) e     0.65 e         0.0%   e    0.0% e         0.0% e
Medusa Mining Ltd          13.8 e             6.0 e        3.8 e          12.3 e       5.5 e       3.2 e         0.02 e       0.06 e      0.10 e         1.8%   e    1.8% e         1.8% e
Resolute Mining Ltd        11.4 e             4.6 e        3.6 e          4.9 e        2.1 e       1.5 e         0.00 e       0.18 e      0.27 e         0.0%   e    10.9% e        13.8% e
Coal
Gloucester Coal Limited     NM                66.5 e       8.7 e          34.7 e      23.1 e       5.5 e        (0.07) e     (0.05) e     0.12 e         0.0% e       0.0% e        0.0% e


Note: BHP Billiton, Fortescue, Western Areas, Newcrest Mining, Gindalbie, Gloucester Coal, Equatorial, Pamoramic, Gryphon, Medusa, Resolute all June Y/E, December Y/E otherwise.
Source: Morgan Stanley Research (e) estimates




                                                                                                                                                                                        11
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                                                                                               March 27, 2012
                                                                                               Australia Metals & Mining




Exhibit 8
Metals and Bulks Forecast Changes
Period              Aluminium                        Copper                          Nickel                           Lead                        Tin                    Zinc              Alumina (spot)
             New        Old       Chg       New        Old       Chg       New         Old      Chg       New          Old      Chg      New      Old     Chg    New     Old     Chg     New     Old     Chg
            US$/lb US$/lb          %       US$/lb US$/lb          %       US$/lb US$/lb           %      US$/t       US$/lb      %      US$/t    US$/lb   %     US$/lb US$/lb     %     US$/t   US$/t    %
2011         1.10                           4.01                           10.40                          1.09                          11.83                    1.00                    361
2012e        1.03      1.02       0%        3.80      3.70        3%        9.12      9.00       1%       0.99        1.00      -0.3%   10.71     9.61    11%    0.94   0.91     3%      321     345     -7%
2013e        1.11      1.11       0%        4.10      4.10        0%        9.89      9.89       0%       1.06        1.06       0%     11.63    10.28    13%    1.00   1.00     0%      347     372     -7%
2014e        1.22      1.22       0%        3.75      3.75        0%       10.50      10.50      0%       1.09        1.09       0%     10.75    10.75    0%     1.10   1.10     0%      381     408     -7%
2015e        1.25      1.25       0%        3.20      3.20        0%       11.00      11.00      0%       1.10        1.10       0%     11.00    11.00    0%     1.15   1.15     0%      396     419     -5%
2016e        1.30      1.30       0%        3.00      3.00        0%       11.50      11.50      0%       1.12        1.12       0%     10.50    10.50    0%     1.10   1.10     0%      418     429     -3%
2017e        1.34      1.34       0%        2.80      2.80        0%       11.80      11.80      0%       1.13        1.13       0%     10.00    10.00    0%     1.15   1.15     0%      428     428     0%
LT           1.33      1.33       0%        2.77      2.77        0%       11.89      11.89      0%       1.14        1.14       0%      8.11     8.11    0%     1.17   1.17     0%      427     427     0%


Period                 Gold                           Silver                        Platinum                        Palladium                   Rhodium                 Cobalt                  Zircon
             New       Old        Chg       New        Old       Chg       New         Old      Chg       New          Old      Chg      New      Old     Chg    New     Old     Chg     New     Old     Chg
            US$/oz US$/oz          %      US$/oz US$/oz           %       US$/oz US$/oz           %     US$/oz US$/oz            %      US$/oz US$/oz     %     US$/lb US$/lb     %     US$/lb US$/lb    %
2011         1,546                         32.91                           1,723                         734                             1,988                  16.69                   1,950
2012e       1,825     1,845       -1%      35.10      35.48      -1%       1,687      1,599      5%        738        674       10%     1,700    1,714    -1%   16.00   16.00    0%     2,500   2550     -2%
2013e       2,175     2,175       0%       41.83      41.83       0%       1,836      1,765      4%        801        713       12%     1,987    1,986    0%    17.50   17.50    0%     2,800   2800     0%
2014e       1,900     1,900       0%       36.54      36.54       0%       1,814      1,814      0%        795        795        0%     2,248    2,248    0%    19.00   19.00    0%     2,800   2800     0%
2015e       1,700     1,700       0%       32.69      32.69       0%       1,903      1,903      0%        988        988        0%     2,305    2,305    0%    16.00   16.00    0%     2,525   2525     0%
2016e       1,500     1,500       0%       28.85      28.85       0%       1,941      1,941      0%       1,192       1,192      0%     2,517    2,517    0%    15.00   15.00    0%     2,200   2150     2%
2017e       1,300     1,300       0%       25.00      25.00       0%       1,927      1,927      0%      1,617        1,617      0%     4,306    4,306    0%                            2,100
LT          1,189     1,189       0%       22.87      22.87       0%       2,212      2,212      0%      1,106        1106       0%     4,423    4,423    0%    17.46   17.46    0%     2,075   1966     6%


Period         Iron Ore Contract               HCC Contract                        LV PCI Coal              Semi Soft Coal                  Thermal Coal           Spot Uranium            Manganese Ore
             New      Old     Chg           New   Old     Chg              New         Old     Chg        New    Old     Chg             New    Old      Chg     New    Old    Chg       New   Old    Chg
            US$/t     US$/t        %       US$/t      US$/t       %        US$/t      US$/t       %      US$/t        US$/t      %      US$/t    US$/t    %     US$/lb US$/lb     %     US$/lb US$/lb    %
2011         159                             289                            218                            211                           130                    57.14                    6.33
2012e        151       156        -3%        207       221       -6%        151        161      -6%        138        148       -6%      115      125     -8%   52.18   52.06    0.2%    4.75   4.75     0%
2013e        160       160        0%         202       216       -6%        147        157      -6%        135        144       -6%      120      130     -8%   53.65   53.65    0%      5.30   5.30     0%
2014e        140       140        0%         225       225        0%        169        169       0%        162        162        0%      125      125     0%    55.27   55.27    0%      5.50   5.50     0%
2015e        125       125        0%         220       220        0%        167        167       0%        161        161        0%      115      115     0%    56.89   56.89    0%      6.00   6.00     0%
2016e        110       110        0%         210       210        0%        162        162       0%        155        155        0%      112      112     0%    58.50   58.50    0%      6.00   6.00     0%
2017e        105       105        0%         190       190        0%        148        148       0%        143        143        0%      110      110     0%    60.13   60.13    0%
LT            99        99        0%         172       172        0%        136        136       0%        131        131        0%      109      109     0%    65.00   65.00    0%      5.82   5.82     0%
Source: Morgan Stanley Research (e) estimates. NB: LT estimates are nominal 2018. Thermal coal periods are in JFY




                                                                                                                                                                            12
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                                                                   March 27, 2012
                                                                   Australia Metals & Mining




Price Target Methodologies for Equities
Price Target Changes flow from new commodity prices                Base Metals Miners
We have adjusted price targets for the companies within our        Amongst the copper companies, there is some variance to the
coverage because of the changes in Morgan Stanley’s                fiscal positions of the companies. Oz Minerals has a large net
commodity price forecasts. In general the movement of price        cash position providing strategic options. PanAust is able to
targets and earnings within the base metals, iron ore, mineral     self-fund its growth aspirations, while Ivanhoe is still examining
sands and gold was minimal given the small degree of changes       potential agreements with third parties to fund the remainder of
to our 2012 commodity price assumptions. Alumina and coal          its development plans at Merlin and Mt Dore. Nonetheless, we
exposed companies experienced the most significant impact to       have applied consistent Base-Bull-Bear weightings across the
near-term earnings; however while price targets did decrease a     sector of 55-05-40; these are consistent with the diversified
small amount, the specific companies in question (AWC and          miners and the rest of the mining subsectors.
GCL) have long-life assets, which minimize the valuation
decrease from near-term price changes.                             For the nickel companies, the 50-05-45 Base-Bull-Bear
                                                                   weighting is a further swing to the bear-case from the 55-5-40
Price Target Methodology                                           we had applied previously. The rationale for the adjustment to
For mining stocks, the Base Case valuation is determined           these weightings is to bring them more in line with the
using life-of-mine discounted cash flow (DCF) analysis. Using      Commodity Teams’ weightings for nickel metal.
this Base case, scenario analysis is conducted to determine a
Bull Case and a Bear Case valuation. The resultant Bull and        Coal Miners
Bear Case valuations comprise several components that              For the Australian coal miners, we continue to apply the same
include, but are limited to variations of: Commodity price,        55-05-40 Base-Bull-Bear weightings that we apply to the
currency forecast, production level, operating costs, capital      diversified and base metal miners.
costs, mine life extensions, exploration success, and project
start-up.                                                          Mineral Sands Miners
                                                                   We use a DCF analysis for Iluka’s producing assets; this
Extreme downside scenarios                                         includes the Mining Area C royalty, which is discounted at a
Beyond the Base-Bull-Bear case valuations, we have                 lower rate of 6%, as it is a top-line royalty and has inherently
determined ‘extreme downside’ values for BHP, RIO and OZL.         lower risk. Our Base-Bull-Bear weightings are unchanged at
These are not fundamental valuations, instead they identify the    60-10-30.
discount to Base case valuation that equity prices could reach
during periods of macro risk and volatility and the resultant      Gold Miners
concern that could develop regarding the commodity price           For large and mid-cap gold miners Newcrest, Medusa,
outlook. The need for these datapoints is a result of the          Resolute and Alacer Gold, we apply Base-Bull-Bear weightings
capacity for equities to trade at a discount to our fundamental    of 60-20-20. Our Bull and Bear Case values are derived using
valuations for durations that are shorter than the 12-month        our bull and bear case commodity prices assumptions and
horizon over which we apply our price targets and ratings.         sensitivities based on operating costs, capital expenditure and
                                                                   exploration success. For Gryphon Minerals, being a
Diversified Miners                                                 pre-development explorer, we further skew our weightings to
For the diversified miners and iron ore companies in our           the bear-case, with Base-Bull-Bear weightings of 70-10-20.
coverage (RIO, BHPB, FMG, GBG, EQX), the target price is
set at a weighted average of the three scenarios, namely bull,
base and bear-case scenarios, weighted at 5%, 55% and 40%,
respectively. The trend toward the bear case (as opposed to
bull case) recognises that in the current macro conditions there
is an increased likelihood of the bear case scenarios occurring.
The bear-case scenario is driven largely by the use of lower
bear-case pricing, which factors in weaker commodity demand
driven by increasing growth concerns.




                                                                                                                                 13
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                                                                                              March 27, 2012
                                                                                              Australia Metals & Mining




Exhibit 9
Metals and Mining Company Target Price Up/Downside and Bull – Bear case range

  250%




  200%




  150%


                                                                                                                                104%

  100%
                                                                                               BULL                                    64%


    50% 31% 32% 25%                                                                     40%
                                                                                                                                             34%   35%
                                                                                                price                                                    26%
                                                                                               target 20%       19%       18%
                                           9%
                                                             3%                               BEAR


                                                                   -1%      -2%
                                                  -8%


   -50%




 -100%
                                                                                        OZL




                                                                                                                                       MML
                                                                                                                                 GRY
                 RIO




                                   GBG




                                                    FMG




                                                                                                                                             NCM

                                                                                                                                                   AQG

                                                                                                                                                         RSG
                                                                               GCL
                          BHP




                                           EQX




                                                                                                 PNA
                                                             ILU




                                                                                                                          PAN
                                                                                                         IVA

                                                                                                                 WSA
                                                                      AWC




Share prices as of 20 March 2012     Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                               14
                                                                                               MORGAN            STANLEY    RESEARCH

                                                                                               March 27, 2012
                                                                                               Australia Metals & Mining




Exhibit 10
Australian Miners Under Coverage – Price Target Methodology
         Company     Bear      Base       Bull   Bear Wgt Base Wgt Bull Wgt Price Target A$/sh
         RIO         62.70     98.90     120.10     40%     55%       5%           85.00
         BHP         32.90     53.30      62.60     40%     55%       5%           46.00
         GBG          0.28     1.15       1.69      40%     55%       5%            0.80
         EQX          1.70     3.77       7.65      40%     55%       5%            3.15
         FMG          3.60     6.60       9.60      40%     55%       5%            5.60
         ILU         13.20     19.80      25.20     35%     55%      10%           18.00
         AWC          0.50     1.50       2.80      40%     55%       5%            1.20
         GCL          6.80     8.60       10.60     40%     55%       5%            8.00
         OZL         10.80     15.40      18.90     40%     55%       5%           13.70
         PNA          3.07     4.77       6.49      40%     55%       5%            4.20
         IVA          0.90     2.94       5.15      40%     55%       5%            2.20
         WSA          5.20     7.60       10.30     45%     50%       5%            6.65
         PAN          0.60     1.95       3.60      45%     50%       5%            1.40
         GRY          1.10     2.41       3.57      20%     70%      10%            2.30
         MML          4.28     9.05       11.95     20%     60%      20%            8.65
         NCM         18.20     38.60      62.00     20%     60%      20%           39.25
         AQG          5.60     10.85      16.20     20%     60%      20%           10.85
         RSG          0.50     2.47       3.90      20%     60%      20%            2.35
Source: Company Data, Morgan Stanley Research

Exhibit 11
Morgan Stanley vs. Consensus Commodity Price Forecasts
                                                        MS         Market                    MS         Market                     Market
              Calandar Year                  Unit      2012e       2012e        % Diff      2013e       2013e     % Diff   MS LT    LT      % Diff
              Base Metals
              Aluminium                    US$/lb       1.03         1.03        0%           1.11       1.13      -2%     1.33     1.20    11%
              Copper                       US$/lb       3.80         3.88        -2%          4.10       3.98      3%       2.77    3.00    -8%
              Nickel                       US$/lb      9.12         9.20         -1%         9.89       9.65       3%      11.89    9.74    22%
              Zinc                         US$/lb      0.94         0.95         -2%          1.00       1.07      -7%     1.17     1.09     7%
              Lead                         US$/lb      0.99         1.00         -1%          1.06       1.11      -5%     1.14     1.06     8%
              Tin                          US$/lb      10.71        10.83        -1%         11.63      10.86      7%      8.11     8.68    -7%
              Precious Metals
              Gold                         US$/oz      1,825        1,816        1%         2,175       1,988      9%      1,189   1,271    -6%
              Silver                       US$/oz      35.10        34.51        2%         41.83       38.50      9%      22.87   20.59    11%
              Platinum                     US$/oz      1,687        1,750        -4%        1,836       1,890      -3%     2,212   1,885    17%
              Palladium                    US$/oz       738          768         -4%         801         855       -6%     1,106    896     23%
              Bulks
              Iron Ore                      US$/t        151         151          0%          160        145      10%        99      90     11%
              Coking Coal                   US$/t        207         232         -11%         202        229      -12%      172     187     -8%
              HRC Steel Asia                US$/t        670         736          -9%         700        757       -8%      710     741     -4%
              Thermal Coal                  US$/t        115         118          -2%         120        119       1%       109     110     -1%
              Other
              Alumina                      US$/t        321          352         -9%         347         381       -9%      427     410      4%
              Uranium                      US$/lb      52.18        55.82        -7%        53.65       59.40     -10%     65.00   68.94     -6%
Source: Morgan Stanley Research. e=Morgan Stanley Research estimates. Note: Long-term prices nominal.




                                                                                                                                                     15
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                                                                                                 March 27, 2012
                                                                                                 Australia Metals & Mining




Exhibit 12
Morgan Stanley Base, Bull and Bear Case Forecasts and probability weightings
                 Period                  Aluminium                         Copper                             Nickel                            Zinc
                                  Bull      Base        Bear       Bull       Base       Bear        Bull      Base        Bear        Bull      Base     Bear
                                           US$/lb                            US$/lb                           US$/lb                            US$/lb
                 2012e           1.13       1.03       0.85        4.18       3.80       2.85      10.03       9.12  8.00              1.03      0.94     0.81
                 2013e           1.28       1.11       0.94        4.71       4.10       3.28      11.37       9.89  8.40              1.15      1.00     0.85
                 2014e           1.40       1.22       1.07        4.31       3.75       3.30      12.08      10.50 9.24               1.27      1.10     0.97
                 2015e           1.38       1.25       1.13        3.52       3.20       2.82      12.10      11.00 9.90               1.27      1.15     1.04
                 2016e           1.43       1.30       1.17        3.30       3.00       2.64      12.65      11.50 10.35              1.21      1.10     0.99
                 2017e           1.47       1.34       1.21        3.08       2.80       2.46      12.98      11.80 10.62              1.27      1.15     1.04
                 LT                         1.33                              2.77                            11.89                              1.17

                 Period                     Gold                             Silver                         Platinum                          Palladium
                                  Bull      Base        Bear       Bull       Base       Bear        Bull      Base        Bear        Bull      Base     Bear
                                           US$/oz                           US$/oz                            US$/oz                            US$/oz
                 2012e          2,044      1,825       1,642      39.32      35.10      31.59      1,856      1,687       1,552        812       738   679
                 2013e          2,436      2,175       1,958      46.85      41.83      37.64      2,020      1,836       1,561        881       801   680
                 2014e          2,090      1,900       1,710      40.19      36.54      32.88      1,995      1,814       1,542        874       795   675
                 2015e          1,870      1,700       1,530      35.96      32.69      29.42      2,093      1,903       1,617       1,087      988   840
                 2016e          1,650      1,500       1,350      31.73      28.85      25.96      2,135      1,941       1,650       1,311     1,192 1,013
                 2017e          1,430      1,300       1,170      27.50      25.00      22.50      2,120      1,927       1,638       1,779     1,617 1,375
                 LT                        1,189                             22.87 22.87                      2,212 2,212                       1,106

                 Period           Iron Ore Contract             Coking Coal Contract                    Thermal Coal                       Spot Uranium
                                  Bull      Base        Bear       Bull       Base       Bear        Bull      Base        Bear        Bull      Base     Bear
                                            US$/t                            US$/t                             US$/t                            US$/lb
                 2012e            167        151        121        227        207        165         132        115         98        59.80     52.00 42.90
                 2013e            176        160        134        222        202        169         132        120        102        61.70     53.65 45.60
                 2014e            147        140        126        236        225        203         131        125        110        66.33     55.27 44.22
                 2015e            131        125        113        231        220        198         121        115        101        68.27     56.89 45.51
                 2016e            116        110        100        221        210        191         118        112        101        73.13     58.50 46.80
                 2017e            110        105         97        200        190        175         116        110         99        75.16     60.13 48.10
                 LT                           99                              172                               109                             65.00
Source: Morgan Stanley Research. e=Morgan Stanley Research estimates. NB: LT estimates are nominal 2018. Thermal coal periods are in JFY




                                                                                                                                                                 16
                               MORGAN         STANLEY      RESEARCH

                               March 27, 2012
                               Australia Metals & Mining




Company Financial Summaries & Accompanying Risk Reward Pages




                                                                      17
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                                                                                               Australia Metals & Mining




Financial Summary: Rio Tinto
Rio Tinto - YE Dec                                      Price Ltd: $64.67
Commodity Price Assumptions         2010A      2011A     2012E     2013E     2014E      LT      Income Statement (US$m)             2010A     2011A     2012E     2013E     2014E
Exchange Rate US$/A$                 0.92       1.03      1.01      0.97      0.88      0.85    Operating Revenue                   56,576    60,537    62,925    72,463    73,543
Exchange Rate £/US                   1.60       1.61      1.53      1.50      1.61      1.60    Revenue from JV & Assoc              3,747     5,141    3,361     3,733     3,543
Aluminium US$/lb                     0.99       1.10      1.03      1.11      1.22      1.33    Revenue                             60,323    65,678    66,286    76,196    77,085
Copper US$/lb                        3.42       4.01      3.80      4.10      3.75      2.77    Cost of sales                       34,345    37,780    38,338    41,843    41,967
Coking Coal US$/t                    216        296       215       218       225       172     EBITDA                              25,978    27,898    27,948    34,353    35,118
Steaming Coal US$/t                  91         122       119       119       124       109     Depreciation                         3,959     4,344    5,130     5,532     5,661
Iron Ore - Fines US$/t               146        168       151       160       140       105     EBIT                                22,019    23,554    22,818    28,820    29,457
                                                                                                Net Interest charge                  -909      -735     -1,169    -1,128     -893
Production - RIO Share              2010A      2011A     2012E     2013E     2014E              Pre-tax profit (pre-exceptionals)   21,110    22,819    21,649    27,693    28,565
Iron Ore Mt                          180        192       200       223       252               Taxation                             5,338     6,331    6,495     8,308     8,569
Copper (Mined) Kt                    601        452       488       590       622               Minorities                           860       939      1,084     1,334     1,470
Thermal Coal Mt                      61          20        22        23       24                Net Profit (underlying)             14,912    15,549    14,070    18,051    18,525
Coking Coal Mt                        9          9         11        12       13                Non Recurring Items                  -588     -9,723      0         0         0
Aluminium kt                        3,787      3,823      4,082    4,330     4,565              Net Profit (headline)               14,324     5,826    14,070    18,051    18,525


Summary Valuation Measures          2010A      2011A     2012E     2013E     2014E              Cash Flow (US$m)                    2010A     2011A     2012E     2013E     2014E
Shares on issue                     1,973      1,950      1,937    1,937     1,937              Underlying EBIT                     22,019    23,554    22,818    28,820    29,457
Modelware EPS US$                    7.56       8.36     7.26 e    9.32 e    9.49 e             Movement in working capital          -191      1,784    -2,189     -691       74
EPS Growth YoY                      105%        11%       -13%      28%       2%                Movement in provisions               1,444     -232     2,124     1,110       97
PER, Ltd                             9.0        8.1        9.3      7.3       7.2               Other non-cash (incl exploration)   -1,213     2,167    4,854     5,249     5,379
PER, plc                             8.2        7.4        8.5      6.7       6.5               Operating Cashflow                  22,059    27,273    27,607    34,489    35,007
EV/EBITDA Ltd                        5.4        5.2        5.2      4.0       3.7               Net divs to JV/minority/assoc's      947       -548     -1,084    -1,334    -1,470
EV/EBITDA plc                        4.9        4.8        4.8      3.7       3.4               Interest                             -629      -498     -1,169    -1,128     -893
CFPS (US$/sh)                        9.57      10.20      9.91     12.17     12.49              Tax                                 -4,100    -6,197    -6,495    -8,308    -8,569
Dividend per share US$/sh            1.08       1.45      1.49      1.52      1.56              Net capex (incl exploration)        -4,591    -12,335   -15,995   -14,801   -13,518
Dividend yield %, Ltd               1.6%       2.1%       2.2%      2.2%     2.3%               Free Cashflow                       13,686     7,695    2,864     8,918     10,556
Dividend yield %, plc               1.7%       2.3%       2.4%      2.5%     2.5%               Acquisitions/disposals               2,880    -6,480      0         0         0
                                                                                                Equity dividends paid               -1,754    -2,236    -2,858    -2,930    -3,003
Net Cash/(Debt)                     -5,480    -12,134    -12,128   -6,139    1,414              Mgt of liquid resources              412      -3,421      0         0         0
Net debt:net debt + equity %         9%         19%       16%        7%       -2%               Drawdown/repayment of debt          -9,360     4,208      0         0         0
EBITDA/Sales                        43%         42%       42%       45%      46%                Equity issue/(buyback)                92        0         0         0         0
Capex/D&A                            1.2        2.8        3.1      2.7       2.4               Movement in cash                     5,956     -234       6       5,989     7,553
ROE %                               33%         10%       27%       28%      23%
ROIC, %                             18%         18%       15%       17%      16%                Balance Sheet (US$m)                2010A     2011A     2012E     2013E     2014E
P/Book                               2.1        2.4        1.9      1.6       1.3               Cash & Short Term Deposits           9,948     9,670    9,676     15,665    23,218
                                                                                                Receivables                          7,408     8,423    8,108     8,943     8,882
Sum-of-the-Parts Valuation                     US$M      US$/sh     £/sh     A$/sh              Inventories                          5,131     5,688    6,661     7,241     7,291
Iron Ore                                       83,675     42.92    25.24     49.87              Property, Plant & Equipment         56,024    64,967    76,108    85,661    93,800
Copper Group                                   30,627     15.71     9.24     18.48              Investments                          7,082    11,755    11,755    11,755    11,755
Energy                                         22,199     11.39     6.70     13.53              Deferred Tax Assets                  1,863     1,875    1,875     1,875     1,875
Aluminium                                      26,758     13.73     8.07     16.36              Other Assets                        25,317    17,167    17,167    17,167    17,167
Diamonds and Minerals                          12,097     6.21      3.65      7.14              Total assets                        112,773   119,545   131,350   148,306   163,988
Other Operations                               1,852      0.95      1.21      1.21              Creditors                            7,449     9,381    7,850     8,574     8,637
Exploration                                     500       0.26      0.15      0.31              Borrowings                          15,428    21,804    21,804    21,804    21,804
Corporate                                       -330      -0.17     -0.10    -0.20              Deferred Tax Liabilities             5,222     6,210    6,210     6,210     6,210
Net Cash/(Debt) (June 12)                     -12,989     -6.66     -4.76    -7.84              Provisions                          10,145     9,913    12,037    13,147    13,244
Total                                         164,389     84.30    49.40     98.90              Other Liabilities                   10,017    13,029    13,029    13,029    13,029
                                                                                                Total Liabilities                    48,261    60,337    60,930    62,765    62,924
                                                                                                Shareholders Equity                 58,247    52,539    63,751    78,873    94,395
                                                                                                Minorities                           6,265     6,669    6,669     6,669     6,669
                                                                                                Total Liabilties & Equity            64,512    59,208    70,420    85,542   101,064

E = Morgan Stanley Research estimates. Source: Company data, Morgan Stanley Research.




                                                                                                                                                                                   18
                                                                                                            MORGAN                            STANLEY           RESEARCH

                                                                                                            March 27, 2012
                                                                                                            Australia Metals & Mining




Risk-Reward Snapshot: Rio Tinto LTD (RIO.AX, A$64.67, OW, PT A$85.00)
Risk-Reward View: 31% Upside Potential to Price Target                                                                                                      Why Overweight
   A$140
                                                                                                                                                            • Highly leveraged to iron ore, a
       120                                                                                                    A$120.10 (+86%)                                 preferred commodity exposure and
                                                                                                                                                              diversified production base offers
       100
                                                                                                                                                              reduced cyclicality.
                                                                                                              A$85.00 (+31% )                               • Balance sheet de-gearing ongoing.
       80
                                                                                         A$ 64.67                                                             We estimate the company will be in a
       60
                                                                                                                   A$62.70 (-3%)                              net cash position in 1H12 despite
                                                                                                                A$54.40 (-16%)
                                                                                                                                                              significant growth capex.
       40
                                                                                                                                                            • Strong project pipeline particularly in
       20
                                                                                                                                                              iron ore with potential to accelerate
                                                                                                                                                              growth given strong forecast
        0                                                                                                                                                     cash flows.
        Mar-10                 Sep-10             Mar-11             Sep-11              Mar-12           Sep-12                        Mar-13
               Price Target (Mar-13)                   Historical Stock Performance                 Current Stock Price   WARNINGDONOTEDIT_RRS4RL~RIO.AX~




Source: Company Data, Morgan Stanley Research                                                                                                               Key Value Drivers
 Price target A$85.00                         Our price target is based on our sum-of-the-parts DCF under our
                                              base (55%), bull (5%), and bear-case (40%) price assumptions                                                  • Resilient macro theme surrounding
                                              and potential for cost and volume changes. We assume a WACC                                                     iron ore with supportive supply issues
                                              of 9.1%, cost of equity of 11.3% and cost of debt of 5.5%.                                                      and expected further growth in
                                                                                                                                                              Chinese steel production.
 Bull                 14x CY12e               Bull case pricing: Our bull case takes into account our bull case
 Case                 EPS                     pricing scenario as well as increased production volumes, lower                                               • Continuing decline in Chinese
 A$120.10                                     capex and lower opex.                                                                                           domestic iron ore supply.
                                                                                                                                                            • Current market conditions offer
 Base                 12 x CY12e              Base case pricing: Our base case DCF assumes our base case                                                      potential for value-accretive
 Case                 EPS                     commodity pricing, including copper peaking at US$4.10/lb in
                                                                                                                                                              transactions for companies with low
 A$98.90                                      2013e and long- term US$2.77/lb and iron ore peaking at US$160/t
                                                                                                                                                              gearing and strong cash flow such as
                                              with US$99/t long term and long-term oil price of US$90/bbl.
                                                                                                                                                              Rio Tinto.
 Bear                 7x CY12e                Bear case pricing: Our bear case scenario takes into account our
 Case                 EPS                     bear case pricing and lower operational performance, including
 A$62.70                                      higher capex, higher opex and lower production.                                                               Key Risks

 Extreme              -16% from      Sharp global downturn: Like in 2008/09, it is possible RIO may                                                         • Chinese consumption is key to our
 Downside             current levels trade at a -45% to the underlying valuation for an interim period on                                                     iron ore outlook, and lower-than-
 Case                                global macro concerns. We do note, however, that much of the                                                             expected demand growth would be
                                     debt risk that surrounded RIO during the GFC is no longer present.                                                       a negative.
Bear to Bull: Commodity prices the key value driver                                                                                                         • Capex and project timeline slippage
 Australian Dollar (A$)                                                                                                                                       on the US$34bn of capital projects
                                                                                                                                                              underway.
 140
                                                                                             6.92    4.11        0.47               120.10                  • The DLC gap closes with the Ltd
 120                                                                              9.74
              Price Target, 85.00               6.94        0.82     98.90                                                                                    listing trading towards the plc level.
                                       2.82
                                                                                                                                                            • Political risks in key operations
 100                   25.65

  80
         62.70                                                                                                                                                and projects, such as the Benga
  60
                                                                                                                                                              Mine.
  40

  20

   0
             Bear   Bear Prices Reduced Increased          Higher    Base     Bull Prices Increased Reduced     Lower                Bull
             Case                Prod     Costs            Capex     Case                    Prod    Costs      Capex                Case

Source: Morgan Stanley, Thomson Reuters




                                                                                                                                                                                                  19
                                                                                               MORGAN               STANLEY         RESEARCH

                                                                                               March 27, 2012
                                                                                               Australia Metals & Mining




Financial Summary: BHP Billiton
BHP Billiton - YE June                             Price Ltd:   $34.80
Commodity Price Assumptions              2011A       2012E      2013E      2014E        LT      Income Statement (US$m)             2011A     2012E      2013E      2014E
Exchange Rate US$/A$                      0.98        1.04       0.99       0.92        0.85    Revenue                             64,067    67,844     72,968     80,136
Exchange Rate £/US                        1.61        1.58       1.50       1.56        1.60    Cost of sales                       24,564    31,104     30,283     31,815
Aluminium                                 1.09        1.02       1.07       1.18        1.33    EBITDA                              39,503    36,740     42,685     48,321
Copper                                    3.93        3.77       3.93       3.95        2.77    Depreciation                        5,920     5,889       7,018      8,246
Coking Coal                               247         260        203        221         172     EBIT                                33,583    30,851     35,667     40,075
Steaming Coal                             106         126        116        121         109     Interest charge                      -561      -910       -978       -800
Iron Ore - Fines US$/t                    155         150        158        151         99      Pre-tax profit (pre-exceptionals)   33,022    29,941     34,689     39,275
Oil Price US$/bbl                          89          93         92         90         90      Taxation                            -6,785    -9,857     -11,266    -13,167
                                                                                                Minorities                           -298      -163       -127       -128
Production - BHPB Share                  2011A       2012E      2013E      2014E                Net Profit (reported)                23,648     19,921     23,296     25,980
Iron Ore Mt                               134         155        161        182                 Currency Net Mon. Liab               -142      -115       -139       -264
Coking Coal Mt                             33          38         43         50                 Non Recurring Items                 -1,822      0          0          0
Thermal Coal Mt                            70          72         76         80                 Net Profit (adjusted)               21,684    19,807     23,157     25,716
Petroleum mmboe                           159         220        219        234
Copper kt                                1,139       1,102      1,270      1,283                Cash Flow (US$m)                    2011A     2012E      2013E      2014E
Aluminium kt                             1,245       1,260      1,273      1,285                EBITDA (excl. JV's)                  39,090     36,369     42,235     47,891
                                                                                                Movement in working capital          777       -343       -824       -550
Summary Valuation Measures               2011A       2012E      2013E      2014E                Movement in provisions                0         0          0           0
Shares on issue                          5,349       5,349      5,349      5,349                Other non-cash (incl exploration)   -2,786     -519       540        573
Modelware EPS US$                        4.48 e      3.70 e     4.33 e     4.81 e               Operating Cashflow                   37,081     35,508     41,951     47,914
EPS Growth YoY                            78%        -17%        17%        11%                 Net divs to JV/minority/assoc's       12        98        324        303
PER, Ltd                                   7.8        9.5         8.1        7.3                Interest                             -455      -773       -978       -800
PER, plc                                   6.6        7.9         6.8        6.1                Tax                                 -6,558    -9,875     -11,266    -13,167
EV/EBITDA Ltd                             4.61        4.60       4.13       3.89                Net capex (incl exploration)        -16,464   -15,985    -17,006    -16,988
EV/EBITDA plc                             3.83        3.77       3.41       3.25                Free Cashflow                       13,616    8,974      13,025     17,262
CFPS                                      5.16        4.80       5.64       6.35                Acquisitions/disposals                0       -12,549      0          0
Dividend per share US$/sh                 101         111        116        117                 Equity dividends paid               -5,144    -5,910     -6,083     -6,159
Dividend yield %, Ltd                      2.9        3.2         3.3        3.3                Mgt of liquid resources               0         0          0          0
Dividend yield %, plc                      3.4        3.8         3.9        4.0                Drawdown/repayment of debt           -577     5,599        0          0
                                                                                                Equity issue/(buyback)              -10,297     44        256        289
Net Debt                                 5,823       18,825     11,627      235                 Movement in cash                    -2,402    -3,842      7,198     11,393
Net debt:net debt + equity %               9.2        20.8       11.5        0.2
EBIT/Sales                                52.4        45.5       48.9       50.0                Balance Sheet (US$m)                2011A     2012E      2013E      2014E
Capex/D&A                                  2.8        2.7         2.4        2.1                Cash & Short Term Deposits          10,084    6,242      13,440     24,832
ROE %                                      44          31         29         26                 Receivables                         10,290    9,307      10,091     10,857
ROIC, %                                    41          25         24         25                 Inventories                         6,517     8,052       7,919      8,642
ROIC spread over WACC, %                   31          15         13         13                 Property, Plant & Equipment         68,468    99,210     108,914    117,372
P/Book                                     3.0        2.4         1.9        1.6                Investments                         1,866     2,440       2,440      2,440
                                                                                                Deferred Tax Assets                 3,993     3,551       3,551      3,551
Sum-of-the-Parts Valuation               US$M       US$/sh       £/sh      A$/sh                Other Assets                        1,673     1,793       1,793      1,793
Petroleum                                27,785       5.19       3.25       5.78                Total assets                        102,891    130,595    148,147    169,487
Steel Make                              135,792      25.39      14.93      28.68                Creditors                           10,273    10,393     10,220     11,160
Energy Coal                              33,117       6.19       3.69       7.40                Borrowings                          15,907    25,067     25,067     25,067
Base Metals                              45,114       8.43       5.27       9.74                Deferred Tax Liabilities            6,376     11,010     11,010     11,010
Aluminium                                7,472        1.40       0.87       1.68                Provisions                          11,525    10,998     10,998     10,998
Stainless Steel Materials                14,797       2.77       1.73       3.22                Other Liabilities                   1,055     1,278       1,278      1,278
Other Minerals/Corporate                 -2,864      -0.52       -0.33      -0.67               Total Liabilities                    45,136     58,746     58,573     59,513
Enterprise Value                        261,213      48.85      30.53      55.84                Shareholders Equity                 58,748    73,010     90,735     111,135
Net Debt (June 12)                      -16,302      -3.05       -1.69      -2.54               Minorities                           -993     -1,161     -1,161     -1,161
Potential GHG DCF Impact Australia       -3,782      -0.71       -0.46      -0.83               Total Liabilties & Equity           102,891    130,595    148,147    169,487
DCF After GHG                           244,910      45.80      27.30      53.30
Source: Company Data, Morgan Stanley Research

E = Morgan Stanley Research estimates. Source: Company data, Morgan Stanley Research.




                                                                                                                                                                           20
                                                                                                     MORGAN                            STANLEY           RESEARCH

                                                                                                     March 27, 2012
                                                                                                     Australia Metals & Mining




Risk-Reward Snapshot: BHP Billiton Ltd (BHP.AX, A$34.80, OW, PT A$46.00)

Risk-Reward View: 32% Upside to our Price Target                                                                                                     Why Overweight?
   A$70
                                                                                                                                                     • The one-year forward P/E is well
      60
                                                                                                        A$62.60 (+80%)                                 below its historical average of ~10x.
                                                                                                                                                     • With one of the highest margins in the
      50                                                                                                                                               mining industry, the stock also has
                                                                                                       A$46.00 (+32% )                                 excellent defensive characteristics, in
      40                                                                          A$ 34.80                                                             our view, in the face of continuing
                                                                                                          A$32.90 (-5%)                                global macro economic uncertainties
      30                                                                                                 A$29.32 (-16%)
                                                                                                                                                       and in the event of weakness in
      20
                                                                                                                                                       commodity prices.
                                                                                                                                                     • Self-funded growth through FY20, an
      10                                                                                                                                               expectation of an ‘A’ grade credit
                                                                                                                                                       rating being maintained, a
      0                                                                                                                                                progressive dividend policy, and the
      Mar-10                 Sep-10         Mar-11            Sep-11              Mar-12          Sep-12                         Mar-13
              Price Target (Mar-13)              Historical Stock Performance                Current Stock Price   WARNINGDONOTEDIT_RRS4RL~BHP.AX~
                                                                                                                                                       potential for further capital
                                                                                                                                                       management plans (from FY13).
Source: Company Data, Morgan Stanley Research
 Price target A$46.00                    Our price target is based on our sum-of-the-parts DCF under our
                                         base (55%), bull (5%), and bear-case (40%) price assumptions for
                                                                                                                                                     Key Value Drivers and Catalysts
                                         key commodities and potential for cost and volume changes. We
                                         apply WACC of 8.7%, cost of equity 10.8% and cost of debt 5.5%.                                             • Strength in key commodities –
 Bull                12.4x PER           Bull case pricing: This valuation incorporates our bull case                                                  especially oil, iron ore, copper and
 Case                FY13e EPS           pricing scenario as well as increased production volumes, lower                                               coking coal.
 A$62.60                                 capex and lower opex.                                                                                       • Approval of key growth projects, like
 Base                10.6x PER      Base case pricing: This valuation incorporates our base case                                                       Olympic Dam expansion, WAIO Outer
 Case                FY13e EPS      pricing for commodities, including: copper peaking at US$4.10/lb in                                                Harbour and Jansen Potash.
 A$53.30                            2013e & long-term US$2.77/lb, iron ore peaking at US$160/t &                                                     • Successful development of US shale
                                    US$99/t long term, and long-term oil price of US$90/bbl.                                                           assets delivering accretive production
 Bear                6.5x PER       Bear case pricing: Our bear case scenario takes into account our                                                   and reserves.
 Case                FY13e EPS bear case pricing and lower operational performance, including
 A$32.90                            higher capex, higher opex and lower production.
 Extreme             -16% from      Sharp global downturn: Like in 2008/09, it is possible BHPB may                                                  Key Risks to Our Price Target
 Downside            current levels trade at a -40% to the underlying valuation for an interim period on
                                                                                                                                                     • Key commodity prices (oil, iron ore,
 Case                               global macro concerns.
                                                                                                                                                       copper, coking coal) and currency
                                                                                                                                                       movements (A$, C$, CLP).
Bear to Bull: Prices and operational performance are key value drivers                                                                               • The DLC gap closes, with the Ltd
  Australian Dollar (A$)
                                                                                                                                                       listing trading towards the plc level.
 70
                                                                                      2.33    1.16        1.16                                       • Political risks in key operations and
                                                                           4.66
 60
                                          2.33       1.75                                                                    62.60                     projects.
                                  3.49
 50                  12.80                                    53.30                                                                                  • Overpayment for acquisitions. The US
                                                                       Price Target, 46.00
 40                                                                                                                                                    Shale gas transaction is an example
 30        32.90                                                                                                                                       of commodity price outlook shifting
 20                                                                                                                                                    post an acquisition.
 10

  0
           Bear    Bear Prices Reduced Increased Reduced       Base     Bull Prices Increased Reduced Increased               Bull
           Case                Iron Ore exp capex Cu Prod      Case                  Iron Ore exp capex Cu Prod               Case
                                 Prod                                                  Prod

Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                          21
                                                                                                    MORGAN                     STANLEY         RESEARCH

                                                                                                    March 27, 2012
                                                                                                    Australia Metals & Mining




Financial Summary: Alumina Limited
AWAC & ALUMINA LIMITED - Consolidated                  Price: $1.22                                                                     Target Price:    1.20      -2% diff to last price

Assumptions (Yr to Dec)                     2011a      2012e      2013e        2014e    LT         Profit & Loss (US$m)                                 2011a    2012e       2013e          2014e
LME Aluminium US$/lb (spot)                   1.10      1.03           1.11     1.22     1.30      AWAC (AWC 40% share)
Alumina US$/t (Received)                      361        321           347       381     420       Sales Revenue                                        2,667    2,284       2,478          2,736
Oil price US$/bbl                             113        113            90        90         90    Expenses                                             -2,237   -2,028      -2,027         -2,158
Caustic Price US$/t                           375        450           450       450     400       EBITDA                                                 430      256         451            578
Exchange Rate Spot A$/US$                     1.04      1.01           0.97     0.87     0.84        Depreciation                                        -186     -183         -183          -183
                                                                                                   EBIT                                                   244       74         268            395
                                                                                                     Tax - AWAC operations                                -71      -21          -78          -114
Production                                  2011a      2012e      2013e        2014e               AWC share of net profit                                173       52         190            281
Alumina - AWAC 100% ('000t)                 15,700    15,904      15,904      15,904                 AWC revenue & expenses                               -17      -17          -17           -17
Alumina - 40% of AWAC ('000t)                6,280     6,362          6,362    6,362                 Net finance costs                                    -29      -34          -40           -40
Aluminium - AWAC 100% ('000t)                 357        368           379       390               AWC Pre-tax Profit                                     128        1         133            223
Aluminium - 40% of AWAC ('000t)               143        147           151       156               Tax - AWC                                                -1       0            0             0
                                                                                                   Profit attributable                                    127        1         133            223
                                                                                                   Signficant items (net of tax)                            1        0            0             1
Earnings Sensitivities                                 2012e      2013e        2014e               Profit after Non-Recurring Items                       128        1         133            224
Alumina +10%                                          >100%       >100%         75%
Aluminium +10%                                        >100%           20%       14%                Cashflow (US$m)                                      2011a    2012e       2013e          2014e
                                                                                                   Payments to suppliers & employees                      -18      -18          -18           -18
                                                                                                   Interest                                               -27      -34          -40           -40
Earnings Ratios                             2011a      2012e      2013e        2014e               Income taxes                                             0        0            0             0
Net Profit (A$m)                              127          1           133       223     2440      Dividends/distributions from associates                240       60         198            288
Issued Shares (M)                            2440       2440          2440      2440         0.0   Other                                                    -0       0            0             0
EPS (USc)                                      5.2        0.0           5.4      9.1               Net operating cash flows                               147        8         140            230
EPS Growth (%)                                          -99%    12094%          68%                Payments for property, plant, equipment                  0        0            0             0
CFPS (c) **                                    8.0        0.3           5.7      9.4               Proceeds from asset sales                                0        0            0             0
P/E (x)                                       22.0      44.6           12.4     10.8               Payment for Equity Investments                        -167     -105         -108          -111
P/CF (x)                                      15.2     350.7           21.2     12.9               Procees from return of invested capital                 17       17           18            18
FCF Yield (%)                                4.9%       0.3%          4.7%      0.0%               Other Investing Cashflows                                0        0            0             0
Dividend (c)                                   6.0        0.0           4.4      5.5               Net investing cash flows                              -149      -88          -90           -93
Dividend Yield (%)                           5.3%       1.8%          6.4%      5.5%               Repurchase of convertible bonds                       -168        0            0             0
Franking (%)                                  100        100           100       101               Proceeds from share issue                                0        0            0             0
Enterprise Value (US$M)                      3,449     3,659          3,678    3,664               Proceeds from borrowings                               285      220            0             0
EV/EBITDA                                     13.4      22.0            8.7      7.7               Repayment of borrowings                                -86        0            0             0
                                                                                                   Dividends paid                                        -171     -131          -68          -124
                                                                                                   Net financing cash flows                              -139       89          -68          -124
Ratios                                      2011a      2012e      2013e        2014e               FX Adj                                                   -1       0            0             0
Net debt/(net debt + equity)                  14%        20%           19%      18%                Net (Decrease)/Increase in Cash Held                   -93        9          -19            13
Interest Cover (X)                             5.5        1.0           4.0      6.2
Book value per share (A$/share)                1.2        1.2           1.2      1.3               Balance Sheet (US$m)                                 2011a    2012e       2013e          2014e
Price to book (X)                              1.0        1.1           1.0      1.0               Cash & short term deposits                              19       28           10            23
EBITDA/sales                                  16%       11%           18%       21%                Receivables                                            0.2      0.2         0.2            0.2
EBIT/Sales                                     9%        3%           11%       14%                Inventories                                              0        0            0             0
EV/EBITDA Multiple                             8.0      14.3            8.2      6.3               Investments                                          3,325    3,490       3,600          3,776
ROA (Pre-Tax Profit /Assets) %                 4%        0%             4%       6%                Property, Plant and equipment                          0.2      0.2         0.2            0.2
ROE (NPAT/Equity) %                            4%        0%             5%       7%                Intangibles                                              0        0            0             0
US$ EV/tonne prod'n                           566        592           595       593               Other assets                                             6        6            6             6
                                                                                                   Total assets                                         3,350    3,525       3,616          3,806
                                                                                                   Creditors                                                3        3            3             3
DCF Valuation                                          A$/sh      US$m        US$/sh               Borrowings                                             491      711         711            711
NPV Cashflows                                           1.57          3308      1.36               Other current liabilities                                2        2            2             2
 Less Corporate                                         -0.06         -134     -0.05               Other liabilities                                        1        1            1             1
 Less Net Debt                                          -0.01           -34    -0.01               Total liabilities                                      496      716         716            716
Alumina Limited DCF Valuation                           1.50          3141      1.29               Net assets                                           2,854    2,808       2,900          3,089
                                                                                                   Shareholder equity                                   2,854    2,808       2,900          3,089
Beta                                                    1.30                                       Minorities                                               0        0            0             0
Cost of Equity                                         13.8%                                       Total Shareholder equity                             2,854    2,808       2,900          3,089
WACC                                                    9.2%                                       Shareholder equity+Total liab.                       3,350    3,525       3,616          3,806
NB: Some ratios may vary from Modelware due to definitional differences
E = Morgan Stanley Research estimates. Source: Company data, Morgan Stanley Research.




                                                                                                                                                                                             22
                                                                                                           MORGAN                            STANLEY          RESEARCH

                                                                                                           March 27, 2012
                                                                                                           Australia Metals & Mining




Risk-Reward Snapshot: Alumina Ltd (AWC, A$1.22, EW, PT A$1.20)

Risk-Reward View: Alumina pricing key value driver                                                                                                         Investment Thesis
   A$3.00
                                                                                                                                                           • AWC invests worldwide in bauxite
                                                                                                              A$2.80 (+130%)
                                                                                                                                                             mining, alumina refining and selected
     2.50
                                                                                                                                                             aluminum smelting operations
                                                                                                                                                             through its 40% interest in AWAC
     2.00
                                                                                                                                                             (Alcoa), the world’s largest alumina
                                                                                                                                                             business, with a production capacity
     1.50
                                                                                      A$ 1.22                                                                approaching 16Mtpa.
                                                                                                                  A$1.20 (-2% )                            • The AWAC asset base is relatively
     1.00
                                                                                                                                                             low cost, and growth plans are
                                                                                                                                                             modest but tight industry
     0.50                                                                                                         A$.50 (-59%)                               fundamentals are returning.

     0.00
                                                                                                                                                           Key Value Drivers
        Mar-10                Sep-10          Mar-11                Sep-11             Mar-12            Sep-12                        Mar-13
              Price Target (Mar-13)                   Historical Stock Performance                 Current Stock Price   WARNINGDONOTEDIT_RRS4RL~AWC.AX~
                                                                                                                                                           • Alumina pricing is transitioning to an
                                                                                                                                                             independent price based on the
 Price Target A$1.20                    Our price target of A$1.20 is based on our sum-of-the-parts DCF                                                      industry supply / demand
                                        valuation under our bull, base and bear case assumptions                                                             fundamentals (de-linkage).
                                        weighted 5%, 55% and 40%, respectively. We assume WACC of                                                          • Traditionally alumina has been priced
                                        9.2%, cost of equity of 13.8% and cost of debt of 5.0%.                                                              from the LME aluminium price where
 Bull                51.5x CY13e Higher bull-case commodity price assumptions, also
                                                                                                                                                             aluminium industry structure has
 Case                EPS         operational efficiencies improve costs, production creep increases                                                          determined the price for alumina. We
 A$2.80                          output                                                                                                                      expect this price mechanism to be
                                                                                                                                                             removed from the industry by the end
 Base                27.6x CY13e Based on base case NPV valuation (alumina price received
                                                                                                                                                             of 2015.
 Case                EPS         US$321/t in 2012, US$347/t in 2013, and long term US$420/t
 A$1.50                          nominal).                                                                                                                 Key Risks to Our Price Target
 Bear                9.2x CY13e         Bear-case commodity price assumptions, operating constraints                                                       Upside
 Case                EPS                lead to rising costs and lower production volumes.                                                                 • Stronger achieved unit revenues due
 A$0.50                                                                                                                                                      to changing contract conditions.
                                                                                                                                                           • Stronger alumina volumes due to
Bear to Bull: Commodity prices the single biggest risk to consider                                                                                           smelter demand increasing.
                                                                                     Commodity price &
                                                                                                                                                           • Move to 100% of volumes on
                                       Opex +/- 10%           Production in/dec           FX                                                                 independent prices occurs earlier
                                                                                                                                                             than we forecast.
            Bull 2.80
                                                                                           0.90                                                            Downside
                                                                                                                                                           • AWC’s earnings are highly dependent
                                                                                                                                                             on alumina production volumes, and
                                                                     0.20
                                           0.20                                                                                                              prolonged disruption to operations
        Base 1.50                                                                                                                                            could significantly impair earnings.
                                                                                                                                                           • Weaker-than-expected metal
                                          -0.10                                                                           Current
       Target 1.20
                                                                     -0.20                                                 1.22

                                                                                                                                                             prices/economic growth and
        Bear 0.50
                                                                                           -0.70                                                             appreciation of the Australian dollar
                                                                                                   All values are in Euros                                   against the US dollar.
Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                               23
                                                                                        MORGAN         STANLEY           RESEARCH

                                                                                        March 27, 2012
                                                                                        Australia Metals & Mining




Financial Summary: Fortescue Metals Limited
Fortescue                                    Price:     $ 6.08                                           Price Target: $ 5.60               Up/(Down)    -8%

Assumptions (YE 30 June)                      FY11       FY12e       FY13e      FY14e   Income Statement (US$m)           FY11     FY12e      FY13e     FY14e
Iron Ore Fines (US$/t)                         155        150         158        148    Sales                             5,492    7,036      9,579     16,019
% Change YoY                                  103%        -3%         5%         -6%    Cost of Sales                     2,831    3,717      4,556      7,682
Iron Ore Lump (US$/t)                          171        164         172        169    EBITDA                            2,661    3,319      5,023      8,337
% Change YoY                                   95%        -4%         4%         -2%    D&A                                177      262         347       644
FX Avg Spot A$/US$                             0.98       1.04        0.99       0.90   EBIT                              2,484    3,057      4,677      7,693
                                                                                        Net interest benefit/(expense)    -430      -631       -856     -1,079
Sensitivities                                 FY11       FY12e       FY13e      FY14e   Tax                                529       744      1,108      1,918
EPS move for 10% change                                                                 Minorities                          0         0          0         0
Iron Ore                                       0%         15%         24%         17%   NPAT                              1,526    1,682      2,712      4,696
AUDUSD                                         0%         -6%         -8%         -5%   Significant items pre tax         -503        0          0         0
                                                                                        Reported NPAT                     1,022    1,682      2,712      4,696
Production                                    FY11       FY12e       FY13e      FY14e
Cloud Break                                    41         37          40         40     Cash flow Statement (US$m)         FY11    FY12e      FY13e     FY14e
Christmas Creek                                 0         18          30         44     EBITDA                            2,661     3,319     5,023     8,337
Solomon                                         0          0           0         45     Net interest                       -514     -630       -856     -1,079
FMG Ore                                        41         55          69         129    Tax                                -344     -519      -1,108    -1,918
Total Shipments                                41         57          72         131    Working capital                     140       22         47        -1
                                                                                        Other                               393       -8          0        0
Investment Fundamentals                       FY11       FY12e       FY13e      FY14e   Operating cashflow                2,336     2,185     3,106     5,338
Modelware Net Income (US$m)                   1,526      1,682       2,712      4,696   Capex                             -1,428   -5,879     -2,860     -689
Issued Shares (m)                             3,113      3,114       3,114      3,114   Free cash flow                      908    -3,694       246     4,649
Modelware EPS (US$/sh)                         0.49       0.54        0.87       1.51   Acquisitions                          0        0          0        0
PE (x)                                         19.5       16.9        10.5        6.0   Disposals                            10       35          0        0
EPS growth                                    97%         10%         61%        73%    Debt Raised/(Retired)             1,441     3,484         0        0
EV/EBITDA (x)                                  8.2         7.6         5.0        2.5   Equity Raising/(buyback)              2        1          0        0
FCF yield (%)                                  3%        -13%         1%         16%    Dividends Paid                      -96     -248       -280      -390
Dividend (c)                                   7.0         8.0        10.0       15.1   Other                              -895     -184          0         4
Franking (%)                                   0%         0%          0%        100%    Increase in Cash Deposits          1,370    -607        -34      4,263
Dividend yield (%)                             1%         1%          1%         2%
                                                                                        Balance Sheet (US$m)              FY11     FY12e      FY13e     FY14e
Ratios                                        FY11       FY12e       FY13e      FY14e   Cash                              2,663    2,084      2,051     6,314
Gearing (ND/E)                                82%        158%         98%        18%    Inventories                        417      232        314       488
Gearing (ND/ND+E)                             45%         61%         50%        15%    Receivables                        417      620        841      1,409
ND/EBITDA                                      0.8         1.9         1.2        0.2   PPE                               1,671    2,197      1,989     1,603
Interest Cover - EBIT/interest                 5.8         4.8         5.5        7.1   Exploration and Development       3,422    8,532      11,253    11,685
EBITDA/Sales                                  48%         47%         52%        52%    Other                               37      129        129       129
EBIT/Sales                                    45%         43%         49%        48%    Total assets                      8,626    13,794     16,577    21,628
ROA (NPAT/Assets) %                           12%         12%         16%        22%    Creditors                          813      777       1,053     1,637
ROE (NPAT/Equity) %                           63%         43%         43%        44%    Borrowings                        4,662    8,264      8,264     8,264
ROIC                                          26%         17%         23%        29%    Other Current Liabilities          108      281        356       513
US$ EV/tonne Annual Production                 530        472         359        146    Other Liabilities                  609      637        637       637
                                                                                        Total liabilities                 6,192    9,959      10,310    11,051
Unit Analysis (US$/t)                         FY11       FY12e       FY13e      FY14e   Net assets                        2,434    3,835      6,267     10,577
Revenue                                        135        127         138        124    Shareholders Equity               2,434    3,901      6,333     10,643
Cost of Sales                                   70        67           66        60     Minorities                           0        0          0         0
EBITDA                                          66        60           72        65     Total Equity                      2,434    3,901      6,333     10,643
D&A                                              4          5           5          5
EBIT                                            61        55           67        60     DCF Valuation                    Risk Wgt. US$m      US$/sh     A$/sh
Net interest                                   -11        -11         -12         -8    Chichester (95Mtpa)                 90%    17,748      5.70      6.50
Tax                                             13         13          16        15     Solomon (60Mtpa)                    75%     6,454      2.07      2.53
Minorities                                       0          0           0          0    Corporate                                   -131      -0.04     -0.05
NPAT                                            38        30           39        36     Net Debt (Dec 2011)                        -6,180     -1.98     -2.33
Operating Cash Flow                             58        39           45        41     Total Valuation                            17,892      5.70      6.60
E = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research.




                                                                                                                                                            24
                                                                                                          MORGAN                            STANLEY           RESEARCH

                                                                                                          March 27, 2012
                                                                                                          Australia Metals & Mining




Risk-Reward Snapshot: Fortescue Metals (FMG.AX, A$6.08, EW, PT A$5.60)
Risk-Reward: Price Target -8% to Current Share Price                                                                                                      Investment Thesis
                                                                                                                                                          • Iron ore markets will remain tight due
   A$12


                                                                                                                                                            to high cost Chinese supply that is
     10
                                                                                                               A$9.60 (+58%)                                having difficulty maintaining
                                                                                                                                                            production.
      8                                                                                                                                                   • FMG has undertaken aggressive
                                                                                  A$ 6.08                                                                   growth targets. Our valuation and
      6                                                                                                                                                     recommendation on the stock are
                                                                                                                 A$5.60 (-8% )
                                                                                                                                                            based on the company’s attaining
      4                                                                                                                                                     150mt/pa of production by 2015.
                                                                                                                 A$3.60 (-41%)

                                                                                                                                                          Key Value Drivers
      2
                                                                                                                                                          • The ability to convert resources to
      0
                                                                                                                                                            reserves to provide a long-life asset
      Mar-10             Sep-10            Mar-11            Sep-11               Mar-12                Sep-12                        Mar-13                base.
           Price Target (Mar-13)                Historical Stock Performance                      Current Stock Price   WARNINGDONOTEDIT_RRS4RL~FMG.AX~
                                                                                                                                                          • Potential to increase production
Source: Company data, Morgan Stanley Research                                                                                                               longer term and reduce unit costs
 Price Target A$5.60                  Price target is based on our risk weighted sum-of-the-parts DCF                                                       across an essentially fixed cost base.
                                      valuation of our bull (5%), base (55%), and bear (40%) case                                                         • Movements in iron ore prices.
                                      assumptions.
                                                                                                                                                          Potential Catalysts
 Bull case         9.4x FY13e         Higher bull case commodity price assumptions: Iron ore price
 A$9.60            PER on Bull        averages US$176/t in CY2013e and long term US$99/t (nominal).                                                       • Delivering a step up to a 95Mtpa
                   case               In addition, our bull case factors in aggressive company                                                              production rate targeted by the end of
                                      production targets, reaching 155Mtpa by June ’13.                                                                     2012 and the 155Mtpa rate by mid
                                                                                                                                                            2013.
 Base case         7.6x FY13e  Base case commodity price assumptions: Base case NPV
                                                                                                                                                          • On the downside, any funding, capital
 A$6.60            PER on Base valuation including base case iron ore price forecasts of
                   case        US$160/t in CY2013e and long term US$99/t (nominal).                                                                         cost or schedule issues that could
                                                                                                                                                            adversely impact on cash flows.
 Bear case         6.6x FY13e  Lower bear case commodity price assumptions: Iron ore
 A$3.60            PER on Bear average price is US$134/t in CY2013e and long term US$99/t                                                                 Key Risks
                   case        (nominal).
                                                                                                                                                          • Shipped volumes vary from our
                                                                                                                                                            forecasts.
Bear to Bull: Upside risk if FMG achieves bullish production targets                                                                                      • Iron ore pricing is stronger or weaker
                               Commodity and                                                                                                                than forecast.
                                 currency      Opex and Capex      Project schedules        Risk weightings
                                                                                                                                                          • Production costs above/below our
                                                                                                 1.57                                                       forecasts.
       Bull 9.60
                                                                                                                                                          • Global economy is weaker/stronger
                                                                           0.60                                                                             than expected.
                                   0.50
                                                     0.30
                                                                                                                                                          • Continued strength in the A$ would
      Base 6.60                                                                                                                                             have a negative impact on FMG’s
                                                                                                                                  Current
    Target 5.60                                                                                                                    6.08                     cash costs, thus deflating earnings.
                                   -1.50

                                                    -0.90
      Bear 3.60
                                                                          -0.65



                                                                                                   All values are in AUD
Source: Thomson Reuters, Morgan Stanley Research




                                                                                                                                                                                               25
                                                                                             MORGAN         STANLEY           RESEARCH

                                                                                             March 27, 2012
                                                                                             Australia Metals & Mining




Financial Summary: Gindalbie Metals Ltd
Gindalbie Metals Ltd                     Price:        $    0.64

Assumptions (YE 30 June)                 FY11          FY12e           FY13e      FY14e      Income Statement (A$m)            FY11    FY12e   FY13e   FY14e
Iron Ore Fines (US$/t)                    155           150             158        148       Sales                                9      68     489    1,100
% Change YoY                             103%           -3%             5%         -6%       Cost of Sales                       20      61     222      449
Iron Ore Lump (US$/t)                     171           164             172        169       EBITDA                             -11      7      267     651
% Change YoY                             95%            -4%             4%         -2%       D&A                                  1      1       21       41
FX Avg Spot A$/US$                        0.98          1.04            0.99       0.90      EBIT                               -12      6      246      610
                                                                                             Net interest benefit/(expense)      31      31     -28      -23
Sensitivities                            FY11          FY12e           FY13e      FY14e      Tax                                 -5     -11     -63     -170
EPS move for +10% change in:                                                                 Minorities                           0      0       0        0
Iron Ore price (USD/t)                     0%              19%          23%        20%       NPAT                                14      26     155      417
AUDUSD rate                                0%              -22%        -20%        -18%      Significant items pre tax            0      0       0        0
                                                                                             Reported NPAT                      14      26      155     417
Production - Karara Iron Ore Project (100%)
Magnetite concentrate                  0                    0            5              10   Cash flow Statement (A$m)         FY11    FY12e   FY13e   2014e
Direct Shipping Ore                    1                    1            2              2    EBITDA                             -11        7    267      651
       18
Total Shipments                        1                    1            7 100          12   Net interest                        12       31     -28     -23
        16                                                                                   Tax                                 0       -11     -63    -170
                                                                   2      80
        14                                        2                                          Working capital                     0       -91     -15      7
        12                                                                                   Other                               -3        0      0       0
                                     2                                    60                 Operating cashflow                  -2      -64     160     464
        10
                                                                                 A$/t
   Mt




         8                                                                                   Capex                             -381     -490    -205    -334
                                                                  14      40                 Free cash flow                    -384     -555     -45     130
         6               2                        13
                                    10                                                       Acquisitions                         0        0      0       0
         4                                                                20
                         5                                                                   Disposals                           0        0       0       0
         2     1                                                                             Debt Raised/(Retired)              383      337     -29      12
         0                                                                0                  Equity Raising/(buyback)            73      209      0       0
             FY12e     FY13e       FY14e        FY15e           FY16e                        Dividends Paid                      0        0       0       0
                                                                                             Other                              -53        0      0       4
         Concentrate         DSO           Operating Cash Costs (RHS)                        Increase in Cash Deposits           20       -8     -73     146

                                                                                             Balance Sheet (A$m)               FY11    FY12e   FY13e   2014e
                                                                                             Cash                               237     228     155     301
                                                                                             Inventories                         6       0       0       0
Investment Fundamentals                   FY11         FY12e           FY13e      2014e      Receivables                         72      67     134     167
Modelware Net Income (A$m)                  14           26             155        417       PPE                                698    1,177   1,351   1,635
Issued Shares (m)                          935         1,247           1,247      1,247      Exploration and Development         23      33      43      52
Modelware EPS (A$/sh)                      0.01         0.02            0.12       0.33      Other                               11      10      6       6
PE (x)                                     42.9         35.2             5.2        1.9      Total assets                      1,046   1,516   1,690   2,161
EPS growth                               -581%          22%            583%       169%       Creditors                          108      8       43      69
EV/EBITDA (x)                             -67.0        185.9             4.9        1.8      Borrowings                         362     699     670     682
FCF yield (%)                             -64%         -70%             -6%        16%       Other Current Liabilities           3       3       14      27
Dividend (c)                                0.0          0.0             0.0        0.0      Other Liabilities                   21      21      22      22
                                                                                             Total liabilities                  494     731     749     800
Ratios                                   FY11          FY12e           FY13e      2014e      Net assets                         553     785     940    1,361
Gearing (ND/E)                           23%            60%             55%        28%       Shareholders Equity                553     789     944    1,364
Current ratio                              2.3          21.9             4.0        4.2      Minorities                          0       0       0       0
Interest Cover - EBIT/interest             0.4          -0.2             8.8       26.2      Total Equity                       553     789     944    1,364
EBITDA/Sales                              NM            11%             55%        59%
EBIT/Sales                                NM             9%             50%        55%       DCF Valuation                                     A$m     A$/sh
ROA (NPAT/Assets) %                        1%            2%              9%        19%       Karara Stage 1 & 2                                1,675    1.34
ROE (NPAT/Equity) %                        3%            3%             16%        31%       Karara expansion to 30Mt                            0      0.00
ROIC                                      -1%            0%             11%        21%       Corporate                                          -60    -0.05
A$ EV/tonne Annual Production            1,275         1,229            184        101       Net Debt (Dec 2011e)                              -180    -0.14
                                                                                             Total Valuation                                   1,436    1.15
Source: Company data, Morgan Stanley Research (e) estimates
NB: Some ratios may vary from Modelware due to definitional differences




                                                                                                                                                          26
                                                                                                              MORGAN                                  STANLEY       RESEARCH

                                                                                                              March 27, 2012
                                                                                                              Australia Metals & Mining




Risk-Reward Snapshot: Gindalbie Metals (GBG, A$0.64 OW, PT A$0.80)
                                                                                                                                                                Investment Thesis
Risk-Reward View: Market is underestimating Karara potential
   A$1.80
                                                                                                                                                                • We believe that the market is yet to
                                                                                                                  A$1.69 (+164%)                                  apply full value to GBG’s share of the
     1.60
                                                                                                                                                                  Karara Iron Ore Project.
     1.40                                                                                                                                                       • Our positive view is predicated in the
     1.20
                                                                                                                                                                  company meeting its objectives of a
                                                                                                                                                                  16Mtpa operation by FY15.
     1.00
                                                                                                                                                                • Iron ore remains one of our key
     0.80                                                                                                          A$.80 (+25% )                                  commodity picks despite the recent
                                                                                         A$ 0.64
                                                                                                                                                                  volatility, with prices supported by
     0.60
                                                                                                                                                                  marginal Chinese production having
     0.40
                                                                                                                                                                  difficulty maintaining supply under the
                                                                                                                     A$.28 (-56%)
     0.20                                                                                                                                                         depressed price environment.

     0.00                                                                                                                                                       Key Value Drivers
        Mar-10              Sep-10               Mar-11                 Sep-11           Mar-12             Sep-12                         Mar-13
            Price Target (Mar-13)                     Historical Stock Performance                   Current Stock Price   WARN INGDONOTEDIT_RR S4R L~GBG.AX~
                                                                                                                                                                • The company’s goal is to reach Stage
                                                                                                                                                                  2 production of 16Mtpa by 2015.
 Price Target A$0.80                        Price target is the result of weightings applied to the Bull, Base and                                                Reaching this goal through on-time
                                            Bear Cases of 5%, 55% and 40%, respectively. We assume                                                                and on-budget development is key.
                                            WACC of 10.0%, cost of equity of 12.2% and cost of debt of 5.0%.                                                    • GBG is highly leveraged to iron ore
 Bull               4.0x FY13e              Bull-case commodity price assumptions: Iron ore price                                                                 prices, which in turn are strongly
 Case               PER on Bull             averages US$176/t in CY2013e and long term US$99/t (nominal).                                                         correlated with Chinese construction
 A$1.69             case                    In addition, our bull case factors in below definitive feasibility capex                                              demand.
                                            and operating cost savings of ~10% below estimates.
                                                                                                                                                                Potential Catalysts
 Base               3.4x FY13e  Feasibility study’s project parameters and base-case pricing:
                                                                                                                                                                • Stage 1 magnetite production, which
 Case               PER on Base We use definitive feasibility project parameters, as well as our
                                                                                                                                                                  is due to commence in early 2012.
 A$1.15             case        base-case iron ore price forecasts of US$158/t FY13e and
                                                                                                                                                                • Additional drilling results and resource
                                long-term US$99/t (nominal).
                                                                                                                                                                  updates from the Warriedar Project
 Bear               1.2x FY13e  Project timelines slip by 12 months and bear-case pricing: We                                                                     during 2012.
 Case               PER on Bear assume the Karara Project is delayed from full production by 12
 A$0.28             case        months. Our bear-case iron ore prices average US$134/t in FY13e                                                                 Key Risks to Our Price Target
                                and long-term US$99/t (nominal).                                                                                                • Development risk: As is typical of
                                                                                                                                                                  projects similar to Karara, there is a
Bear to Bull: Project delays would pose a significant downside risk                                                                                               risk of capital requirements beyond
                                                            Capital         Commodity price    Project Timeline
                                                                                                                                                                  feasibility estimates due to input cost
                                    Operating costs       expenditure           & FX              slippage
                                                                                                                                                                  inflation (e.g., labour, steel).
                                                                                 0.37                                                                           • Currency risk: Gindalbie’s project debt
        Bull 1.69
                                                                                                                                                                  funding is denominated in US dollars
                                         0.09
                                                             0.08                                                                                                 and a substantial portion of Karara
       Base 1.15                                                                                                                                                  capex is based in Australian dollars.
                                         -0.09
                                                            -0.09                                                                                               • Potential tax risk: We include our best
     Target 0.80
                                                                                                                                                                  estimate for MRRT (mineral
                                                                                                                                     Current

                                                                                 -0.44
                                                                                                                                      0.64
                                                                                                                                                                  resources rent tax) impact in our
       Bear 0.28                                                                                                                                                  model. Given the tax is not yet passed
                                                                                                    -0.25
                                                                                                                                                                  into law, uncertainty remains.
                                                                                                       All values are in AUD
                                                                                                                                                                • Commodity price risk.
Source: Morgan Stanley, Thomson Reuters




                                                                                                                                                                                                      27
                                                                                 MORGAN         STANLEY             RESEARCH

                                                                                 March 27, 2012
                                                                                 Australia Metals & Mining




Financial Summary: Equatorial Resources Ltd
Equatorial Resources                Price:   $2.89                                                  Price Target:    $3.15          Up/Downside:     9%

Assumptions (YE 30 June)             FY11 FY12e FY13e FY14e FY15e         L/T      Income Statement (A$m)            FY11 FY12e FY13e FY14e FY15e
Iron Ore Fines (US$/t)                 155   150   158   148   133         99      Sales                                 0    0     0     0    521
% Change YoY                         103%   -3%    5%   -6% -10%                   Cost of Sales                       -10  -18    -8    -8   -226
Iron Ore Lump (US$/t)                  171   164   172   169   157        126      EBITDA                              -10  -18    -8    -8    295
% Change YoY                          95%   -4%    4%   -2%   -7%                  D&A                                   0    0     0     0    -90
FX Avg Spot A$/US$                    0.98  1.04  0.99  0.98  1.03        0.85     EBIT                                -10  -18    -8    -8    385
                                                                                   Net interest benefit/(expense)        1    3   -12   -53    -71
Sensitivities to 10% chg              FY11 FY12e FY13e FY14e FY15e                 Tax                                   0   -1    -8   -24     54
Iron Ore                                     0%    0%    0%   40%                  Minorities                            0    0     0     0      0
AUDUSD                                       0%    0%    0% -35%                   NPAT                                 -9  -14   -12   -37    260
                                                                                   Significant items pre tax             2   20     0     0      0
Production (100%)                     FY11 FY12e FY13e FY14e FY15e                 Reported NPAT                        -6    6   -12   -37     81
Mayoko-Moussondji                        0     0     0     0   5.0
Badondo                                  0     0     0     0   0.0                 Cash flow Statement (A$m)         FY11 FY12e FY13e FY14e FY15e
TOTAL                                    0     0     0     0   5.0                 EBITDA                              -10  -18    -8    -8   295
                                                                                   Net interest                          1    3   -12   -53   -71
Shipments (equity share)              FY11 FY12e FY13e FY14e FY15e                 Tax                                   0    1     8    24   -54
Mayoko-Moussondji                        0     0     0     0   4.5                 Working capital                      -1    1     0     0   -21
Badondo                                  0     0     0     0   0.0                 Other                                 5    1     0     0     0
TOTAL                                    0     0     0     0   4.5                 Operating cashflow                   -6  -12   -12   -37   150
                                                                                   Capex                                -5  -18  -210  -260   -24
Costs, FOB A$/t                       FY11 FY12e FY13e FY14e FY15e                 Free cash flow                      -11  -30  -222  -297   126
Mayoko-Moussondji                        0     0     0     0    45                 Acquisitions                          0    0     0     0     0
Badondo                                  0     0     0     0     0                 Disposals                             1    0     0     0     0
Wgt Average                              0     0     0     0    45                 Debt Raised/(Retired)                -1    0   500     0   -50
                                                                                   Equity Raising/(buyback)             69    1     0     0     0
Costs, CFR A$/t                       FY11 FY12e FY13e FY14e FY15e                 Dividends Paid                        0    0     0     0     0
Mayoko-Moussondji                        0     0     0     0    48                 Other                                -3   63     0     0     0
Badondo                                  0     0     0     0     0                 Increase in Cash Deposits            56   34   278  -297    76
Wgt Average                              0     0     0     0    48
                                                                                   Balance Sheet (A$m)               FY11 FY12e FY13e FY14e FY14e
Investment Fundamentals               FY11 FY12e FY13e FY14e FY15e                 Cash                                56    90   368    71   147
Modelware Net Income (A$m)               -9   -14   -12   -37   260                Inventories                          0     0     0     0    14
Issued Shares (m)                       102   115   115   115   115                Receivables                          3     0     0     0    34
Modelware EPS (A$/sh)                 -0.09 -0.12 -0.11 -0.32  0.70                PPE                                  3     5     5     5    59
PE (x)                                  nm    nm    nm    nm     4.1               Exploration and Development          7    22   232   492   552
EPS growth                              nm    nm    nm    nm    nm                 Other                                3     0     0     0     0
EV/EBITDA (x)                           nm    nm    nm    nm    2.2                Total assets                        72   118   606   569   807
FCF yield (%)                          -4% -10% -76% -101%      0%                 Creditors                            2     0     0     0    14
Dividend (c)                            0.0   0.0   0.0   0.0   0.0                Borrowings                           0     0   500   500   450
Franking (%)                            0%    0%    0%    0%    0%                 Other Current Liabilities            0     0     0     0    14
Dividend yield (%)                    0.0% 0.0% 0.0% 0.0% 0.0%                     Other Liabilities                    0     0     0     0     0
                                                                                   Total liabilities                    2     0   500   500   478
Ratios                                FY11 FY12e FY13e FY14e FY15e                 Net assets                          70   118   106    69   329
Gearing (ND/E)                        -80% -77% 125% 621%     92%                  Shareholders Equity                 70   118   106    69   329
Current ratio                          29.6   0.0   0.0   0.0   7.1                Minorities                           0     0     0     0     0
Interest Cover - EBIT/interest          7.1   5.4  -0.6  -0.2   0.0                Total Equity                        70   118   106    69   329
EBITDA Margin                           0%    0%    0%    0%   57%
EBIT/Sales                              0%    0%    0%    0%   39%                 SOTP Valuation                    A$mn    Risk   A$mn    A$/sh       %
ROA (NPAT/Assets) %                    -9%    5%   -2%   -6%  10%                  Mayoko-Moussondji                   640   70%      448     3.90   103%
ROE (NPAT/Equity) %                  -289% -20% -10% -35% 117%                     Mayoko magnetite                                    30     0.26     7%
ROIC                                   -9%   -9%   -1%   -1%  16%                  Badondo                                             40     0.35     9%
                                                                                   Investments                                          0     0.00     0%
Source: Company data, Morgan Stanley Research (e) estimates                        Corporate                                          -70    -0.61   -16%
NB: Some ratios may vary from Modelware due to definitional differences            Net Debt (Dec 2012)                                -15    -0.13    -3%
                                                                                   Total Valuation                                    433     3.78   100%




                                                                                                                                                      28
                                                                                                                MORGAN                                   STANLEY   RESEARCH

                                                                                                                March 27, 2012
                                                                                                                Australia Metals & Mining




Risk-Reward Snapshot: Equatorial Resources (EQX, A$2.89, OW, PT $3.15)

Risk-Reward View: Wide value range because of early project stage                                                                                              Investment Thesis
   A$9.00
                                                                                                                                                               • Exposure to a new, DSO iron ore
     8.00
                                                                                                                A$7.65 (+165%)                                   project with existing infrastructure.
     7.00                                                                                                                                                      • Potential for competitive operating
     6.00                                                                                                                                                        costs and business margins.
                                                                                                                                                               • The project’s early-stage nature
     5.00
                                                                                                                                                                 makes it a ‘high-risk, high-reward’
     4.00
                                                                                        A$ 2.89
                                                                                                                                                                 proposition, in our view.
     3.00                                                                                                         A$3.15 (+9% )

                                                                                                                                                               Key Value Drivers
     2.00
                                                                                                                    A$1.70 (-41%)

     1.00
                                                                                                                                                               • Advancing the Mayoko-Moussondji
                                                                                                                                                                 project through studies, funding,
     0.00
        Mar-10              Sep-10           Mar-11                Sep-11               Mar-12             Sep-12                         Mar-13                 construction, and commissioning over
            Price Target (Mar-13)                    Historical Stock Performance                    Current Stock Price   WAR NIN GDONOTEDIT_RRS4RL~EQX.AX~
                                                                                                                                                                 the next three years.
                                                                                                                                                               • Resource upgrades, on both the
 Price Target A$3.15                      The base valuation is a from a sum-of-the-parts calculation. The
                                                                                                                                                                 Mayoko-Moussondji and Badondo
                                          price target is a weighted average of the base (55%), bull (5%) and
                                                                                                                                                                 projects.
                                          bear (40%) values. The downside skew is due to the macro outlook.
                                          We assume WACC of 10.6%, CoE of 12.6% and CoD of 5.0%.                                                               Potential Catalysts
 Bull               Metrics not           Project realises 100% of its potential: This upside scenario                                                         • We expect the pre-feasibility study on
 Case               meaningful            captures the un-risked value of the project. It also allows for a                                                      Mayoko-Moussondji in 4QFY12. This
 A$7.65             until FY15            three-year mine life extension and higher commodity prices.                                                            will provide more technical detail and
 Base               Metrics not           5Mtpa of 57% DSO iron ore starts shipping from FY15: Iron ore                                                          greater confidence about the cost and
 Case               meaningful            prices peak in FY13, then decline to a long-term US$99/t for 62%                                                       operating structures.
 A$3.77             until FY15            fines CFR.                                                                                                           • Initial commitments to project funding
                                                                                                                                                                 can follow the pre-feasibility study.
 Bear               Metrics not           Cost deterioration factored in, along with a project delay: The
 Case               meaningful            bear case allows for the capital costs to increase by 20%, the                                                       Downside Risks to Our Price Target
 A$1.70             until FY15            operating costs by 10% and the project to slip by one year.
                                                                                                                                                               • Capex and opex could be higher than
                                                                                                                                                                 we have anticipated.
Bear to Bull: Risk weightings applied because of project’s early stage                                                                                         • Production rates may not reach the
                           Commodity       Opex and                           Project       Mine life        Risk                                                forecast level.
                           and currency     Capex          Production         delays       extensions     weightings
                                                                                                                                                               • Project delays are possible around
                                                                                                              2.09
                                                                                                                                                                 either permitting or construction.
      Bull 7.65

                                                                                                                                                               Upside Risks to Our Price Target
                                                                                              0.55                                                             • Resource could be increased, adding
                                                               0.37                                                                                              to the mine life.
                                             0.39
                                0.46                                                                                                                           • Capex projections could be lower than
     Base 3.77                                                                                                                                                   those incorporated in our model,
    Target 3.15                 -0.59                                                                                                           Current          particularly if common infrastructure
                                                                                                                                                 2.89
                                             -0.79
                                                              -0.31
                                                                                                                                                                 costs are shared with Exxaro.
     Bear 1.70                                                                -0.40                                                                            • Operating parameters might be
                                                                                                              All values are in AUD
                                                                                                                                                                 determined to be better than
Source: Morgan Stanley Research, Thomson Reuters
                                                                                                                                                                 projected.




                                                                                                                                                                                                         29
                                                                                                                  MORGAN              STANLEY                RESEARCH

                                                                                                                  March 27, 2012
                                                                                                                  Australia Metals & Mining




Financial Summary: Iluka Resources
Iluka Resources                                                Last Price:                 $ 17.45                                                                    $   18.00        3% Up sid e/(d o w n sid e)

ASSUMPTIONS Yr to Dec                                      2011      2012e       2013e       2014e           LT     PROFIT AND LOSS (A$m)                                   2011    2012e     2013e       2014e
Zircon US$/t                                             1,950       2,550       2,800       2,800        2,100     To t al Reven u e                                     1,537     2,386     2,874       2,912
Rutile US$/t                                             1,069       2,400       2,500       1,900        1,300     Dir ect Cash Co st s                                   (629)     (670)     (764)       (833)
Synthetic Rutile US$/t                                     883       2,000       2,050       1,750        1,200     Ot h er Co st s                                          (94)     158       101         104
Ilmenite US$/t                                             118         175         175         155          130     EBITDA                                                1,001     1,558     2,009       1,975
Ir o n Pr ice US$/t                                        159         151         160         140          105     Dep r eciat io n                                       (225)     (190)     (190)       (190)
AUDUSD                                                    1.04        1.01        0.97        0.88         0.86     EBIT                                                    791     1,388     1,862       1,847
                                                                                                                    FX Hed g in g Gain / (lo ss) in EBIT                       1       (10)      (10)        (10)
EPS Sensitivity to 10% variation                           2011       2012e       2013e       2014e                 Net In t er est b en ef it /(exp en se)                    6         5         5           5
Zir o n                                                                 8%          8%          9%                  Pre-tax profit                                          761     1,378     1,895       1,939
TiO2                                                                    9%          7%          7%                  Tax Exp en se (Ben ef it s)                            (219)     (413)     (569)       (582)
AUDUSD                                                                -17%        -15%        -15%                  Min o r it ies                                           -         -         -           -
Ir o n Or e                                                             1%          1%          1%                  Profit attributable                                     542       964     1,327       1,357
                                                                                                                    Pr o f it f r o m Disco n t in u ed Op er at io          -         -         -           -
PRODUCTION, '000 tonnes                                    2011       2012e       2013e       2014e                 Net Profit                                              542       964     1,327       1,357
Zir co n                                                   602         502         532         532
Ru t ile                                                   281         226         226         226                  CASHFLOW ($M)                                           2011    2012e     2013e       2014e
Syn t h et ic Ru t ile                                     286         310         310         310                  EBITDA                                                1,001     1,558     2,009       1,975
Ir o n Or e f r o m MAC, Mt                                 44          49          55          65                  - In t er est (Paid )/Received                           (11)       11        55        114
                                                                                                                    -Tax p aid                                               (13)    (413)     (569)       (582)
SALES, '000 tonnes                                         2011       2012e       2013e       2014e                 -Wkg cap in cr ease, o t h er                          (229)        73      138         175
Zir co n                                                   515         452         532         532                  OPERATIONS CASH FLOW                                    750     1,228     1,633       1,682
Ru t ile                                                   266         226         226         226                   - Cap ex                                              (152)     (206)       (66)        (66)
Syn t h et ic Ru t ile                                     258         310         310         310                  FREE CASH FLOW                                          598     1,022     1,567       1,616
                                                                                                                     - Acq u isit io n s                                     -         -         -           -
    Zir co n r even u e r at io                            66%         50%         55%         61%                   + Disp o sals                                             4       -         -           -
    Ru t ile r even u e r at io                            19%         23%         21%         17%                   + Ot h er                                               -         -         -           -
    Syn Ru t ile r even u e r at io                        15%         27%         24%         22%                  INVESTING CASHFLOW                                         4       -         -           -
                                                                                                                    Eq u it y Raisin g / (Bu y Back)                         -         -         -           -
Operating costs, AT/t (Zr/Ru/SR)                            536         643         718         782                 Deb t Raised / (Ret ir ed )                            (182)       -         -           -
                                                                                                                    Divid en d Paid                                        (117)     (455)     (579)       (682)
Earnings Ratios                                            2011      2012e       2013e       2014e                  Ot h er                                                  (21)      -         -           -
Net Profit (A$m)                                           542         964       1,327       1,357                  FINANCING CASHFLOW                                     (320)     (455)     (579)       (682)
Issu ed Sh ar es (M)                                       417         417         417         417                  FX Ad ju st m en t s                                     -         -         -           -
Mo d elw ar e EPS (A$)                                    1.30        2.31        3.18        3.26                  Increase in cash deposits                               281       568       988         934
EPS Gr o w t h (% )                                         N/A       78%         38%           2%
CFPS (A$) *                                               1.80        2.95        3.92        4.04                  SUMMARY BALANCE SHEET ($M)                              2011    2012e     2013e       2014e
P/E (x)                                                   11.9          7.5         5.5         5.4                 Cash & short term deposits                              321       928     1,936       2,890
P/CF (x)                                                    9.7         5.9         4.5         4.3                 Receivab les                                            256       256       256         256
FCF Yield (%)                                              8.2%      14.1%       21.5%         0.0%                 In ven t o r ies                                        376       376       376         376
Divid en d (c)                                            75.0       115.7       159.1       162.8                  Pr o p er t y, Plan t an d eq u ip m en t             1,430     1,787     2,023       2,260
Dividend Yield (%)                                         4.8%        6.6%        9.1%        9.3%                 In t an g ib les                                           7        7         7           7
Fr an kin g (% )                                         100%        100%        100%        100%                   Ot h er asset s                                           64       64        64          64
En t er p r ise Valu e (A$M)                             7,116       6,509       5,501       4,547                  Total assets                                          2,454     3,418     4,662       5,852
EV/EBITDA* * (x)                                            7.1         4.2         2.7         2.3                 Cr ed it o r s                                          137       137       137         137
* * o n p r o ject ed EV in each year                                                                               Bo r r o w in g s                                       164       164       164         164
                                                                                                                    Ot h er cu r r en t liab ilit ies                       228       228       228         228
Valuation components                                                  A$m       Shares   A$/sh                      Ot h er liab ilit ies                                   391       391       391         391
Eu cla-Per t h Basin                                                3,493                 8.38                      Total liabilities                                       919       919       919         919
Mu r r ay Basin                                                     2,180                 5.23                      Net assets                                            1,535     2,499     3,743       4,933
US o p er at io n s                                                   327                 0.78                      Min o r it ies                                           -        454       951       1,466
MAC Ro yalt y                                                       1,820                 4.37                      Total Shareholder equity                              1,535     2,499     3,743       4,933
Exp lo r at io n                                                      216                 0.52                      S/holder equity+Tot. liabilities                      2,454     3,418     4,662       5,852
Co r p o r at e                                                   -   222              - 0.53
Net (Deb t )/Cash (Ju n '12e)                                         424                 1.02                      FINANCIAL RATIOS                                        2011    2012e      2013e       2014e
Total Valuation                                                     8,237        416.8   19.80                      Gear in g (ND/E)                                       -10%     -31%       -47%        -55%
                                                                                                                    EBITDA/Sales                                             65%      65%        70%         68%
WACC                                                                   9.0%                                         ROA (NPAT/Asset s) %                                    22%      28%        28%         23%
                                                                                                                    ROE (NPAT/Eq u it y) %                                  35%      39%        35%         28%
                                                                                                                    ROIC                                                    65%      73%        67%         51%
    NB: So m e r at io s m ay var y f r o m Mo d elw ar e d u e t o d ef in it io n al d if f er en ces
    So u r ce: Co m p an y d at a, Mo r g an St an ley Resear ch (e) est im at es
.




                                                                                                                                                                                                             30
                                                                                                               MORGAN                                  STANLEY   RESEARCH

                                                                                                               March 27, 2012
                                                                                                               Australia Metals & Mining




Risk-Reward Snapshot: Iluka Resources (ILU.AX, $17.45, EW, PT $18.00/sh)

Risk-Reward View: Our price target offers little upside - EW                                                                                                 Investment Thesis
                                                                                                                                                             • Pricing power remains with the
   A$30


                                                                                                                                                               supplier, and Iluka is the single largest
     25                                                                                                        A$25.20 (+44%)
                                                                                                                                                               supplier of zircon, as well as a global
                                                                                                                                                               leader in the primary mineral sands
     20
                                                                                     A$ 17.45                                                                  industry.
                                                                                                                A$18.00 (+3% )
                                                                                                                                                             • Iluka has rising earnings in 2012 over
     15                                                                                                                                                        2011 as contract prices are higher,
                                                                                                                A$13.20 (-24%)                                 but there is revenue risk if zircon
     10                                                                                                                                                        volumes need to be curtailed further.
                                                                                                                                                             • We acknowledge that on the higher
      5
                                                                                                                                                               EPS, the stock is trading below the
                                                                                                                                                               historical average for Fwd PER.
      0                                                                                                                                                      Key Value Drivers
      Mar-10             Sep-10           Mar-11                 Sep-11                Mar-12            Sep-12                         Mar-13
           Price Target (Mar-13)                    Historical Stock Performance                    Current Stock Price   WARNINGDONOTEDIT_RR S4RL~ILU.AX~   • Commodity prices and production
                                                                                                                                                               volumes are the biggest value drivers,
 Price Target $18.00                    Iluka’s producing assets are valued on a DCF methodology. The                                                          but rising commodity prices are
                                        price target reflects scenario weightings of 10% bull case, 55%                                                        partially offset by a rising AUD.
                                        base case and 35% bear case. WACC of 9.0% incorporates: cost
                                        of equity 10.8% and cost of debt 7.0%.                                                                               Potential Catalysts
 Bull              8.6x CY12e           Mineral sands demand strengthens: Stronger-than-expected                                                             • Rising commodity prices remain the
 Case              PER on Bull          pricing: on average 17% higher (AUD also higher), 10% more                                                             dominant driver of sentiment toward
 $25.20            case                 zircon output. Lower costs and capex.                                                                                  Iluka. Given the opaque nature of the
 Base              8.6x CY12e Base-case pricing and operational assumptions: Mineral                                                                           market, prices could yet surprise on
 Case              PER on Base sands prices rising through 2014 on supply deficits: due to the                                                                 the upside or downside.
 $19.80            case        ongoing supply deficit.                                                                                                       • Management could consider
                                                                                                                                                               diversifying operations beyond the
 Bear              8.1x CY12e Weak mineral sands demand and operational constraints:
                                                                                                                                                               mineral sands industry, as it seeks to
 Case              PER on Bear Value-depleting new investments, commodity prices remaining
                                                                                                                                                               reinvest. Depending on the nature
 $13.20            case        flat after 2011 on weaker macro demand. Production risk relates
                               to unforeseen operation issues.                                                                                                 and cost, any such investment could
                                                                                                                                                               be a positive or negative catalyst.
Bear to Bull: Mineral sands pricing is the largest driver of upside
                                                                                                                                                             Risk to Our Price Target
                          Zr, Ru, SR,    Iron ore
                          AUD pricing     pricing        Production       Cash costs       Cap Ex       Exploration
                                                                                                                                                             • During 1H 2012 the company
                                                                                                                                                               anticipates zircon market softness. If
                                                                             0.40                           0.10
     Bull 25.20                                              1.20                                                                                              this dissipates early there is upside
                                          1.30
                                                                                                                                                               risk to our price target and view.
                              2.40
                                                                                                                                                               Similarly if the softness is protracted
   Base 19.80
                                                                                                                                                               there is downside risk.
                                                                                                                                                             • Even more so than near-term prices
  Target 18.00                -1.70
                                          -0.50
                                                                                                                                            Current
                                                                                                                                             17.45
                                                                                                                                                               for mineral sands, long-term prices
                                                                                                                                                               are challenging to estimate. Our DCF
                                                            -2.60                                                                                              valuation varies with this input.
    Bear 13.20                                                               -1.40          -0.20          -0.20                                             • Iluka faces downside valuation risk
                                                                                                                                                               over a multi-year horizon if supply is
                                                                                                       All values are in AUD
                                                                                                                                                               over-stimulated.
Source: Morgan Stanley, Thomson Reuters




                                                                                                                                                                                                    31
                                                                                                        MORGAN              STANLEY               RESEARCH

                                                                                                        March 27, 2012
                                                                                                        Australia Metals & Mining




Financial Summary: OZ Minerals
OZ Minerals                                      Price:      $9.76                                                                     Target price      $13.70     40% Up sid e/d o w n sid e

ASSUMPTIONS Yr to Dec                                2011      2012e      2013e      2014e         LT   PROFIT AND LOSS (A$m)                             2011     2012e     2013e       2014e
Go ld US$/o z                                       1,546      1,825      2,175      1,900      1,300   To t al Reven u e                                1,116     1,170     1,302       1,360
Co p p er US$/lb                                     4.01       3.80       4.10       3.75       2.80   % Copper Revenue                                   78%      77%        77%         78%
Silver US$/o z                                      32.91      35.10      41.83      36.54      25.00   Co st o f sales                                   -530      -633       -661        -723
Oil US$/b b l                                       95.11      93.84      90.00      90.00      90.00   EBITDA                                             586       537        641         638
FX Av g Sp o t A$/US$                                1.03       1.01       0.97       0.88       0.86   Dep r eciat io n                                  -164      -165       -148        -150
                                                                                                        EBIT                                               421       372        492         488
                                                                                                        Net In t er est b en ef it /(exp en se)              34       18         46          56
Profit Sensitivities                                 2011      2012e      2013e      2014e              Pre-tax profit                                     456       390        538         543
Cu r r en cy (A$/US$ + 10% )                        -15%       -12%       -12%       -13%               Tax                                               -133      -105       -145        -147
Co p p er (US$/lb + 10% )                            23%        19%        20%        21%               Min o r it ies                                        0        0          0           0
Go ld (US$/o z + 10% )                                6%         5%         5%         6%               NPAT (adjusted)                                    323       285        393         397
                                                                                                        Sig n if ican t it em s (p o st t ax)               -48        0          0           0
                                                                                                        NPAT (reported)                                    275       285        393         397

PRODUCTION                                           2011      2012e      2013e      2014e              CASHFLOW ($M)                                     2011     2012e     2013e       2014e
Co p p er Pr o m in en t Hill (kt )                   108        108        108        113              EBITDA                                             586       537       641         638
Go ld Pr o d u ct io n (000 o z)                      160        140        127        130              - In t er est (Paid )/Receiv ed                      37       18         46          56
Silver Pr o d u ct io n (000 o z)                     613        608        360        316              -Tax p aid                                            -1    -105      -145        -147
                                                                                                        -Wkg cap in cr ease, o t h er                      103       126        -60          11
                                                                                                        OPERATIONS CASH FLOW                                725      576       481         557
Earnings Ratios                                      2011      2012e     2013e       2014e               - Cap ex                                         -193      -139      -100          -91
Net Profit (A$m)                                      323         285      393         397              FREE CASH FLOW                                      532      437       382         467
Issu ed Sh ar es (M)                                  314        309       304         304               - Acq u isit io n s                              -266         0          0           0
Mo d elw ar e EPS (A$)                               1.01       0.92      1.29        1.30               + Disp o sals                                         4       0          0           0
EPS Gr o w t h (% )                                              -8%      40%          1%                + Ot h er                                             0       0          0           0
CFPS (c) *                                          230.6      189.5     158.2       183.3              INVESTING CASHFLOW                                -262         0          0           0
P/E (x)                                               10.0       10.6       7.6         7.5             Eq u it y Raisin g /(Bu y Back) /Cap Ret u r n    -489      -100          0           0
P/CF (x)                                               4.2        5.2       6.2         5.3             Deb t Raised / (Ret ir ed )                            0       0          0           0
FCF Yield (%)                                         17%        14%        0%          0%              Divid en d Paid                                   -227      -142      -149        -173
Div id en d © (excl. sp ecial)                       60.0       37.4      58.1        52.2              Ot h er                                                0       0          0           0
Dividend Yield (%)                                   6.1%       3.8%      6.0%        5.3%              FINANCING CASHFLOW                                -715      -242      -149        -173
Fr an kin g (% )                                       0%      100%      100%        100%               FX Ad ju st m en t s                               -2.2        0          0           0
En t er p r ise Valu e (A$M)                        2,247      1,937     1,654       1,361              Increase in cash deposits                         -448       195       233         293
EV/EBITDA (x)                                          4.0        3.6       3.4         3.0
                                                                                                        SUMMARY BALANCE SHEET ($M)                        2011     2012e     2013e       2014e
                                                                                                        Cash & short term deposits                         886     1,081     1,314       1,607
Unit Analysis (US$/lb of Copper)                     2011      2012e      2013e      2014e              Receiv ab les                                       87       109       112         112
Co p p er Reven u e (less TC/RC, r o y alt ies       4.78        4.59       4.93       4.46             In ven t o r ies                                   192       101       161         164
By- Pr o d u ct Rev en u e                          -1.19       -0.99      -1.10      -0.94             Pr o p er t y, Plan t an d eq u ip m en t        1,243     1,147     1,059         960
To t al Cash Op er at in g Co st                     2.30        2.16       2.37       2.26             Exploration, Evaluation & Development              253       323       363         403
Ot h er Co st s                                     -3.35       -3.47      -3.59      -3.53             In t an g ib le Asset s                               0         0         0           0
EBITDA                                               2.54        2.29       2.62       2.24             Ot h er asset s                                    361       361       361         361
D&A                                                 -0.71       -0.70      -0.61      -0.53             Total assets                                     3,022     3,123     3,369       3,607
EBIT                                                 1.83        1.58       2.01       1.72             Cr ed it o r s                                      91       129       131         142
Net In t er est Ben ef it /(Exp en se)               0.15        0.08       0.19       0.20             Bo r r o w in g s                                     0         0         0           0
Tax                                                 -0.58       -0.45      -0.59      -0.52             Ot h er cu r r en t liab ilit ies                   23        28        28          29
Min o r it ies                                       0.00        0.00       0.00       0.00             Ot h er liab ilit ies                              115       128       129         131
Profit attributable                                  1.40        1.21       1.61       1.40             Total liabilities                                  228       286       288         302
Ab n o r m al it em s n et o f t ax                 -0.21        0.00       0.00       0.00             Net assets                                       2,794     2,837     3,081       3,304
Profit after abnormals                               1.19        1.21       1.61       1.40             Min o r it ies                                       -0        -0        -0          -0
                                                                                                        Total Shareholder equity                         2,794     2,837     3,081       3,304
                                                                                                        S/holder equity+Tot. liabilities                 3,022     3,123     3,369       3,607
DCF Valuation                                                 A$m       A$/sh        %
Pr o m in en t Hill                                           3,042      10.00       65%                FINANCIAL RATIOS                                   2011    2012e     2013e       2014e
Ot h er Eq u it y In v est m en t s                              307       1.01        7%               Net debt/(net debt + equity)                      -46%      -62%      -74%        -95%
Car r ap at een a & Exp lo r at io n                             450       1.48      10%                Cu r r en t r at io                                10.3       8.3      10.0        11.0
Co r p o r at e                                                 -186      -0.61       -4%               Debt cover - EBIT/interest                        145.3       0.0       0.0         0.0
Net (Deb t )/Cash (Dec 12)                                    1,081        3.56      23%                EBITDA/Sales                                      52%       46%       49%         47%
Total Valuation                                                4,694     15.40       100%               Bo o k valu e p er sh ar e (A$/sh ar e)            8.70      9.17    10.13       10.87
                                                                                                        ROA (NPAT/Asset s) %                                9%        9%      12%         11%
NB: So m e r at io m ay var y f r o m Mo d elw ar e d u e t o d ef in it io n al d if f er en ces       ROE (NPAT/Eq u it y ) %                           12%       10%       13%         12%
So u r ce: Co m p an y d at a, Mo r g an St an ley Resear ch (e) est im at es                           ROIC                                               19%       17%       20%         19%




                                                                                                                                                                                           32
                                                                                                            MORGAN                                 STANLEY             RESEARCH

                                                                                                            March 27, 2012
                                                                                                            Australia Metals & Mining




Risk-Reward Snapshot: Oz Minerals (OZL.AX, A$9.76, OW, PT A$13.70)

Bear to Bull: Commodity prices the upside driver on stable production                                                                                              Investment Thesis
   A$20
                                                                                                               A$18.90 (+94%)                                      • A copper play leveraged to LME
     18
                                                                                                                                                                     copper prices. The company has a
     16
                                                                                                                                                                     strong balance sheet following asset
     14                                                                                                        A$13.70 (+40% )                                       sales. Allocation of the cash will be a
     12                                                                                                                                                              key driver of company growth, with
                                                                                    A$ 9.76                    A$10.80 (+11%)
     10                                                                                                                                                              mine life potentially extended.
      8                                                                                                            A$7.70 (-21%)
                                                                                                                                                                   Key Value Drivers
      6

      4
                                                                                                                                                                   • Allocation of cash and successful
                                                                                                                                                                     corporate strategy.
      2
                                                                                                                                                                   • Operating costs remaining low.
                                                                                                                                                                   • Demand for metals, driven by macro
      0
      Mar-10             Sep-10             Mar-11             Sep-11               Mar-12                Sep-12                           Mar-13
           Price Target (Mar-13)                  Historical Stock Performance                      Current Stock Price   WAR N INGD ON OTED IT_RR S4R L~OZL.AX~
                                                                                                                                                                     economic conditions.
                                                                                                                                                                   • Commodity price trends.
 Price Target A$13.70                 Price target is based on our sum-of-the-parts DCF valuation under
                                      our bull, base, and bear case assumptions weighted 5%, 55%, and                                                              Potential Catalysts
                                      40%, respectively. Our WACC of 9.7% is derived using a beta of
                                                                                                                                                                   • Exploration success to extend the
                                      1.3, risk free rate of 5% and market risk premium of 5%.
                                                                                                                                                                     minable reserves at Prominent Hill.
 Bull               15.0x CY12e Higher bull case commodity price assumptions: Copper prices                                                                        • Gold resource statement for the
 Case               PER on Bull peak in 2013 at US$4.71/lb. M&A and exploration success.                                                                             Cambodia asset.
 A$18.90            case                                                                                                                                           • A Board decision for an exploration
 Base               16.7x CY12e Stable commodity price assumptions: Base-case NPV                                                                                    decline at Carrapateena is possible in
 Case               PER on Base valuation; copper at US$4.10/lb in 2013, and US$2.77/lb in the                                                                       mid-2012.
 A$15.40            case        long term.
                                                                                                                                                                   Key Risks to Our Price Target
 Bear               35.4x CY12e Lower bear case commodity price assumptions: Copper at
 Case               PER on Bear US$3.28/lb in 2013. Lower production and higher costs compared
                                                                                                                                                                   • Weaker-than-expected LME copper
 A$10.80            case        to the base case.                                                                                                                    prices.
                                                                                                                                                                   • Stronger-than-forecast AUD to USD,
 Extreme            -21% to           Sharp global downturn: Like in 2008/09, it is possible OZL may                                                                 reducing margins.
 Downside           current price     trade at a -50% to the underlying valuation for an interim period on
                                                                                                                                                                   • Stronger oil price, affecting about
                                      global macro concerns. We note however; OZL is in a significantly
                                                                                                                                                                     one-third of the operational cost base.
                                      better fiscal position than in 2008/09.
                                                                                                                                                                   • Value-reducing M&A.
                                                                                                                                                                   • Failure of exploration seeking to
Bear to Bull: Commodity prices the upside driver on stable production                                                                                                extend mineable reserves at
                               Commodity price                           Exploration          Production +/-                                                         Prominent Hill.
                                & FX +/- 10%     Cost base +/-10%       up/downside               10%
                                                                                                                                                                   • Disruption to production at Prominent
                                                                                                  1.10                                                               Hill.
       Bull 18.90
                                                                             0.50
                                                       0.90
                                    1.00

     Base 15.40

    Target 13.70                    -1.20
                                                       -0.90
                                                                            -0.50

      Bear 10.80
                                                                                                  -2.00
                                                                                                                                    Current
                                                                                                                                     9.76


                                                                                                     All values are in AUD

Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                                         33
                                                                                                         MORGAN          STANLEY            RESEARCH

                                                                                                         March 27, 2012
                                                                                                         Australia Metals & Mining




Financial Summary: PanAust
PANAUST LTD                                                Price:    $3.13                                                                   Target Price: $4.20   34% to TP
INPUTS                                                       2011     2012e        2013e        2014e       LT   PROFIT AND LOSS (US$m)                     2011 2012e 2013e     2014e
Copper                                                       4.01      3.80         4.10         3.75     2.80   Total Revenue                               576   732   911     1,079
Gold                                                        1,546     1,825        2,175        1,900    1,300   Cost of sales                              -300  -375  -365      -547
Silver                                                      32.91     35.10        41.83        36.54    25.00   EBITDA                                      276   357   546       532
AUDUSD                                                       1.04      1.01         0.97         0.88     0.86   Depreciation                                -60   -45   -49       -67
                                                                                                                 EBIT                                        216   312   497       465
EPS Sensitivity to 10% change                                         2012e        2013e        2014e            Net Interest benefit/(expense)              -12    -3     0         5
Copper                                                                 14%          10%          14%             Pre-tax profit                              204   309   496       470
Gold                                                                    7%           6%           8%             Tax Expense (Benefits)                      -57   -77  -124      -118
Silver                                                                  1%           1%           1%             Minorities                                   14     0     0         0
AUDUSD                                                                  0%           0%           0%             Net Profit                                  146   232   372       353

PRODUCTION                                                   2011     2012e        2013e        2014e            CASHFLOW (US$m)                            2011 2012e 2013e     2014e
Phu Kham - Copper, kt                                        59.9      64.2         70.0         61.9            EBITDA                                      276   357   546       532
Phu Kham - Gold, koz                                         53.6      51.0         54.9         54.9            - Interest (Paid)/Received                  -17    -3     0         5
Phu Kham - Silver, koz                                        538       547          342          342            -Tax paid                                   -36   -77  -124      -118
                                                                                                                 -Wkg cap increase, other                     17   -97    -2        27
Ban Houayxai - Gold, koz                                       0.0      84.6        104.2        104.2           OPERATIONS CASH FLOW                        239   180   419       446
Ban Houayxai - Silver, koz                                       0       205          506          689            - Capex                                   -274  -184   -48       -47
                                                                                                                 FREE CASH FLOW                              -35    -4   371       399
Inca de Oro - Copper, kt                                       0.0        0.0          0.0        31.3            - Acquisitions                             -28     0     0         0
Inca de Oro - Gold, koz                                        0.0        0.0          0.0        27.8            + Disposals                                  0     0     0         0
                                                                                                                  + Other                                      0     0     0         0
Total copper, kt                                              59.9      64.2         70.0         93.3           INVESTING CASHFLOW                          -28     0     0         0
Total gold, koz                                               53.6     135.6        159.1        186.9           Equity Raising / (Buy Back)                   1     0     0       -88
Total silver, koz                                              538       752          848        1,030           Debt Raised / (Retired)                      33     0     0         0
                                                                                                                 Dividend Paid                                 0   -29  -122       -88
Copper Equivalent, kt                                         71.3      96.8        112.2        140.8           Other                                         0     0     0         0
                                                                                                                 FINANCING CASHFLOW                           34   -29  -122      -176
TOTAL CASH COSTS                                             2011     2012e        2013e        2014e            FX Adjustments                               -1     0     0         0
Phu Kham, US$/lb                                             1.01      1.15         0.73         0.90            Increase in cash deposits                   -29   -33   249       224
Ban Houayxai, US$/oz                                            0       551          379          326
Inca de Oro, US$/lb                                          0.00      0.00         0.00         1.88            SUMMARY BALANCE SHEET (US$m)               2011 2012e 2013e     2014e
                                                                                                                 Cash & short term deposits                  156   123   372       596
                                                                                                                 Receivables                                  16   111   120       150
Earnings Ratios                                              2011     2012e        2013e        2014e            Inventories                                  56    58    37        63
Net Profit (US$m)                                              146       232          372          353           Property, Plant and equipment               525   709   757       804
Issued Shares (M)                                              593       593          593          593           Intangible Assets                            14    14    14        14
Modelware EPS (US$)                                           0.27      0.39        0.62          0.59           Other assets                                426   426   426       426
EPS Growth (%)                                              110%       45%          60%           -5%            Total assets                              1,193 1,440 1,726     2,053
CFPS (c) *                                                    40.3      30.3        70.7          75.2           Creditors                                    84    87    78       132
P/E (x)                                                       11.6       8.0          5.0          5.3           Borrowings                                  107   107   107       107
P/CF (x)                                                       7.8      10.3          4.4          4.2           Other current liabilities                    44    44    43        51
FCF Yield (%)                                                 -2%        0%          20%          22%            Other liabilities                            63    61    58        77
Dividend (c)                                                   0.0      11.7         25.1         29.7           Total liabilities                           299   298   285       368
Dividend Yield (%)                                           0.0%      3.8%         8.0%         9.5%            Net assets                                  894 1,142 1,441     1,685
Franking (%)                                                   0%        0%           0%           0%            Minorities                                  116   116   116       116
Enterprise Value (US$M)                                     1,939     1,851        1,601        1,378            Total Shareholder equity                    894 1,142 1,441     1,685
EV/EBITDA** (x)                                               16.9       7.0          5.2          2.9           S/holder equity+Tot. liabilities          1,193 1,440 1,726     2,053

FINANCIAL RATIOS                                             2011     2012e        2013e        2014e            DCF Valuation                                      A$m A$/sh       %
Net debt/(net debt + equity)                                  -6%       -1%         -23%         -41%            Phu Kham                                          1,356  2.29    48%
Current ratio                                                  1.6       2.0          3.9          4.1           Ban Houayxai                                        647  1.09    23%
Debt cover - EBIT/interest                                   -15.7     -58.4       -116.1       -108.6           Inc de Oro                                          734  1.24    26%
EBITDA/Sales                                                  48%       49%          60%          49%            Exploration                                         150  0.25     5%
Book value per share (A$/share)                               1.51      1.93         2.43         2.84           Corporate                                          -220 -0.37    -8%
ROA (NPAT/Assets) %                                           12%       16%          22%          17%            Net (Debt)/Cash                                     163  0.27     6%
ROE (NPAT/Equity) %                                           16%       20%          26%          21%            Total Valuation                                   2,828  4.77   100%
ROIC                                                          16%       19%          24%          19%            WACC                                      9.0%

NB: So m e r at io s m ay var y f r o m Mo d elw ar e d u e t o d ef in it io n al d if f er en ces
Source: Company data, Morgan Stanley Research (e) estimates




                                                                                                                                                                                  34
                                                                                            MORGAN             STANLEY      RESEARCH

                                                                                            March 27, 2012
                                                                                            Australia Metals & Mining




Risk-Reward Snapshot: PanAust (PNA.AX, A$3.13, OW, PT A$4.20)
                                                                                                                        Investment Thesis
Risk-Reward: Price Target Is 34% Premium to Share Price
  A$7.00                                                                                                                • A pure copper play leveraged to LME
                                                                                             A$6.49 (+107%)               copper prices, on which we have a
     6.00                                                                                                                 bullish view.
                                                                                                                        • Net cash balance; allocation of the
     5.00
                                                                                                                          cash will be a key driver of the
     4.00
                                                                                             A$4.20 (+34%)                company’s growth, with mine life
                                                                          A$ 3.13                                         potentially extended.
     3.00                                                                                       A$3.07 (-2%)
                                                                                                                        Key Value Drivers
     2.00
                                                                                                                        • Metal demand and pricing, influenced
     1.00                                                                                                                 by macroeconomic conditions.
                                                                                                                        • Copper and gold prices.
     0.00                                                                                                               • Production and sales volumes,
        Mar-10           Sep-10          Mar-11         Sep-11             Mar-12          Sep-12            Mar-13
                                                                                                                          boosted by upgrading resources and
        Price Target (Mar-13)              Historical Stock Performance              Current Stock Price
                                                                                                                          reserves and exploration success.
Source: Company data, Morgan Stanley Research
                                                                                                                        • Control of operating expense.
 Price Target A$4.20               Our price target of A$4.20/share is based on our sum-of-the-parts
                                   DCF valuation under our bull, base, and bear case assumptions                        Potential Catalysts.
                                   weighted 5%, 55%, and 40%, respectively. We assume WACC of
                                                                                                                        • Strengthening copper and gold prices.
                                   9.0%, cost of equity of 10.8% and cost of debt of 7.0%.
                                                                                                                        • On time and on budget delivery of
 Bull              17.1x CY12e Higher bull case commodity price assumptions: Copper prices                                expanded production at Phu Kham
 Case              PER on Bull peak in 2013 at US$4.71/lb.; opex reduction through improved                               and the new production at Ban
 A$6.49            case        plant performance.                                                                         Houayxai. PNA also has expansion
 Base              12.6x CY12e Stable commodity price assumptions: Base-case NPV                                          options in Chile via a JV with Codelco.
 Case              PER on Base valuation; copper at US$4.10/lb in 2013, and US$2.77/lb in the                           • Early-stage M&A in copper such as
 A$4.77            case        long term.                                                                                 new exploration ground in Southeast
                                                                                                                          Asia.
 Bear              8.1x CY12e Lower bear case commodity price assumptions: Copper at
 Case              PER on Bear US$3.28/lb in 2013 and failure to realise new commercially viable                        Key Risks to Our Price Target
 A$3.07            case        projects.
                                                                                                                        Downside
                                                                                                                        • Additional production outages and
Bear to Bull: Declining commodity prices largest downside risk
                                                                                                                          transport to port issues caused by
                                   Commodity          Production          Opex & capex
                                  prices inc/dec       inc/dec              inc/dec                                       adverse weather.
                                                                                                                        • Weaker-than-expected copper and
                                                         0.57                 0.09
            Bull 6.49                                                                                                     gold prices.
                                      1.06
                                                                                                                        • Stronger-than-expected AUD to USD;
                                                                                                                          rising fuel costs, reducing margins.
        Base 4.77
                                                                                                                        Upside
       Target 4.20
                                                                                                                        • Better-than-expected exploration
                                      -1.29                                                                               results
                                                                                                     Current
                                                                                                                        • Stronger-than-expected copper and
         Bear 3.07                                       -0.30               -0.11                    3.13
                                                                                     All values are in AUD                gold production.
Source: Thomson Reuters, Morgan Stanley Research
                                                                                                                        • Stronger-than-forecast gold prices.




                                                                                                                                                             35
                                                                                                    MORGAN            STANLEY             RESEARCH

                                                                                                    March 27, 2012
                                                                                                    Australia Metals & Mining




Financial Summary: Ivanhoe Australia
Ivanhoe Australia                                                       Last Price: $1.83                                     Target Price: $ 2.20         20% Up/downside
ASSUMPTIONS Yr to Dec                         2011       2012e      2013e      2014e         LT      PROFIT AND LOSS (A$m)                       2011     2012e    2013e    2014e
FX Avg Sp o t A$/US$                          1.03        1.01       0.97       0.88       0.86      To t al Reven u e                              0        76      195      555
Co p p er US$/lb                              4.01        3.80       4.10       3.75       2.80      Co st o f sales                              130        43        84     248
Go ld US$/o z                                1,546       1,825      2,175      1,900      1,300      EBITDA                                      -130        33      111      307
Mo lyb d en u m US$/lb                       15.82       14.38      14.00      14.00      13.00      Dep r eciat io n                               2        12        20       73
Rh en iu m US$/lb                            3,700       5,500      5,500      5,000      5,000      EBIT                                        -132        21        91     234
                                                                                                     Net In t er est b en ef it /(exp en se)        5         -2      -13      -10
Profit Sensitivities (A$m)                    2011       2012e      2013e      2014e                 Pre-tax profit                              -127        19        78     223
Cu r r en cy (+ 10% )                          0%        -21%       -14%       -14%                  Tax                                            0          0        0        0
Co p p er (+ 10% )                             0%         41%        25%         -5%                 Min o r it ies                                 0          0        0        0
Go ld (+ 10% )                                 0%         14%        10%          3%                 Profit attributable                         -126        19        78     223
Mo ly (+ 10% )                                 0%          0%         0%          8%                 Ab n o r m al it em s n et o f t ax            0          0        0        0
Rh en iu m (+ 10% )                            0%          0%         1%          6%                 Profit after abnormals                      -126        19        78     223

PRODUCTION                                    2011       2012e      2013e      2014e                 Osb o u r n e EBIT                              0       31      119      104
Co p p er Pr o d u ct io n (kt )               -           9.1       21.1       30.6                 Mer lin EBIT                                    0        0       -17     123
Go ld Pr o d u ct io n (ko z)                  -          13.6       34.0       34.0                 MT Do r e EBIT                                  0        0         0      29
Mo lyb d en u m Pr o d u ct io n (kt )         -           -          -          5.0
Rh en iu m Pr o d u ct io n (t )               -           -          -          7.1                 CASHFLOW ($M)                               2011     2012e    2013e    2014e
                                                                                                     EBITDA                                      -130        33      111      307
Total cash costs                              2011       2012e      2013e      2014e                 - In t er est (Paid )/Receiv ed                  6       -2      -13      -10
Osb o u r n e - Co p p er (n et ), US$/lb      -          1.65       1.21       1.41                 -Tax p aid                                       0        0        0        0
Mer lin - Mo ly (n et ), US$/lb                -           -          -         7.84                 -Wkg cap in cr ease, o t h er                    9      41        31        3
Mt Do r e - Co p p er (n et ), US$/lb          -           -          -         2.25                 OPERATIONS CASH FLOW                        -115        72      130      300
                                                                                                      - Cap ex & Exp lo r at io n                  -31     -307     -243       -92
Earnings Ratios                                2011      2012e      2013e      2014e                 FREE CASH FLOW                              -145      -235     -113      208
Net Profit (A$m)                             -126.4        18.6       77.9      223.3                 - Acq u isit io n s                             0        0        0        0
Issu ed Sh ar es (M)                         552.4       552.4      552.4      552.4                  + Disp o sals                                   0        0        0        0
Mo d elw ar e EPS (A$)                        -0.23        0.03       0.14       0.40                 + Ot h er                                       6        0        0        0
EPS Gr o w t h (% )                              n /a        n /a   320%       187%                  INVESTING CASHFLOW                               6        0        0        0
CFPS (A$)                                     -0.21        0.13       0.23       0.54                Eq u it y Raisin g / (Bu y Back)             180          0        0        0
P/E (x)                                         -8.0       54.5       13.0          4.5              Deb t Raised / (Ret ir ed )                   -31      100      150         0
P/CF (x)                                        -8.8       14.0         7.8        3.4               Divid en d Paid                                  0        0        0        0
FCF Yield (%)                                 -14%        -23%       -11%           0%               Ot h er                                         -3        0        0        0
Divid en d (c)                                  -           -          -          -                  FINANCING CASHFLOW                           146       100      150         0
En t er p r ise Valu e (A$M)                   844       1,079      1,193        985                 FX Ad ju st m en t s                             0        0        0        0
EV/EBITDA** (x)                                 -6.2       32.7       10.7          3.2              Increase in cash deposits                        7    -135        37     208

FINANCIAL RATIOS                              2011       2012e      2013e      2014e                 BALANCE SHEET ($M)                          2011     2012e    2013e    2014e
Gear in g (ND/ND+ E)                        -210%         21%        35%         -5%                 Cash & short term deposits                   166        32       68      276
EBITDA/Sales                                              44%        57%        55%                  Receivab les                                   4        10       17       48
ROA (NPAT/Asset s) %                         -40%          4%        10%        22%                  In ven t o r ies                              10        10       14       25
ROE (NPAT/Eq u it y) %                       -51%          7%        23%        39%                  Pr o p er t y, Plan t an d eq u ip m en t     77       342      544      543
                                                                                                     Exploration, Evaluation & Dev.                 0        30       50       70
DCF Valuation                                              A$m      A$/sh         %                  In t an g ib le Asset s                       10        10       10       10
Osb o r n e                                                 487      0.88      30%                   Ot h er asset s                               48        48       48       48
Mer lin                                                     489      0.88      30%                   Total assets                                 315       480      751     1020
Mt Do r e                                                   106      0.19        7%                  Cr ed it o r s                                34        11       20       54
Mt Ellio t                                                  423      0.77      26%                   Bo r r o w in g s                              0       100      250      250
In vest m en t s - 23% EXS, 10% ERM                           54     0.10        3%                  Ot h er cu r r en t liab ilit ies             11         6       11       10
Exp lo r at io n                                              45     0.08        3%                  Ot h er liab ilit ies                         25        99      127      141
Co r p o r at e                                              -36    -0.07       -2%                  Total liabilities                             69       216      408      455
Net (Deb t )/Cash (Ju n e 11)                                 58     0.10        4%                  Net assets                                   246       264      342      565
Total                                                      1625      2.94      100%                  Min o r it ies                                 0         0        0        0
                                                                                                     Total Shareholder equity                     246       264      342      565
Discount factor                             Beta        CoE    CoD            WACC                   S/holder equity+Tot. liabilities             315       480      751     1020
                                             1.20        11.0%  9.0%           9.8%
                                                                                                  N.B. Some calculations may vary from Modelware due to definitional difference
                                                                                                  So u r ce: Co m p an y d at a, Mo r g an St an ley Resear ch (e) est im at es




                                                                                                                                                                              36
                                                                                                                                  MORGAN                            STANLEY          RESEARCH

                                                                                                                                  March 27, 2012
                                                                                                                                  Australia Metals & Mining




Risk-Reward Snapshot: Ivanhoe Australia (IVA.AX, $1.83, OW, PT $2.20)

Risk-Reward View: Equity price recovered from its October 2011 lows,                                                                                                              Investment Thesis
but we still see upside, albeit with exploration and development risk
                                                                                                                                                                                  • A poly-metallic play leveraged to
   A$6.00
                                                                                                                                                                                    copper, moly and rhenium prices.
                                                                                                                                     A$5.15 (+181%)
                                                                                                                                                                                    Commodities on which we have a
                     5.00
                                                                                                                                                                                    bullish long term view
                                                                                                                                                                                  • Potential to add value through
                     4.00
                                                                                                                                                                                    exploration success extending
                                                                                                                                                                                    potential development mine-lives and
                     3.00
                                                                                                                                                                                    the commercialisation of additional
                                                                                                            A$ 1.83                   A$2.20 (+20% )
                                                                                                                                                                                    ore-bodies.
                     2.00
                                                                                                                                                                                  Key Value Drivers
                     1.00                                                                                                                A$.90 (-51%)                             • On-budget on-time delivery of
                                                                                                                                                                                    projects
                     0.00
                        Mar-10                  Sep-10             Mar-11                 Sep-11             Mar-12             Sep-12                        Mar-13
                                                                                                                                                                                  • Mine-life extensions
                                Price Target (Mar-13)                   Historical Stock Performance                      Current Stock Price   WARNINGDONOTEDIT_RRS4RL~IVA.AX~
                                                                                                                                                                                  • Exploration success
                                                                                                                                                                                  • Metal demand and pricing, influenced
 Price Target $2.20                                      Our price target is based on our sum-of-the-parts DCF valuation under                                                      by macro-economic conditions
                                                         our base, bull and bear case assumptions weighted 55%, 5% and                                                            • Copper, gold, molybdenum and
                                                         40%, respectively.                                                                                                         rhenium prices
 Bull                               19.9x                Exploration adds value and mine life at Merlin, Osborne/Kulthor and                                                      Potential Catalysts
 Case                               Bull Case            Mount Dore. Higher commodity prices, with moly peaking at over
 $5.15                              FY13e EPS            US$20/lb. Yet PER still elevated as mine still being delivered.                                                          • Release of NI 43-101 on the Osborne
                                                                                                                                                                                    and Kulthor copper-gold deposits
 Base                               20.9x                Projects delivered to company projection. Moly prices remain firm
                                                                                                                                                                                  • Feasibility and Pre-feasibility study
 Case                               Base Case            in the range of US$14/lb to US$17/lb. Demand for rhenium results in
                                                                                                                                                                                    results from the Merlin and Mount
 $2.94                              FY13e EPS            prices at US$3,000/kg and long-term at US$4,500/kg.
                                                                                                                                                                                    Dore projects respectively in late
 Bear                               40.1x                Project delays factored in. Lower bear-case commodity price                                                                March 2012
 Case                               Bear Case            assumptions; long-term moly prices decline to US$12/lb, and opex is                                                      • Scoping study results from the Mount
 $0.90                              FY13e EPS            20% above estimates.                                                                                                       Elliot Project due also by late-March.
                                                                                                                                                                                  • Progressive results from drilling at
Bear to Bull: Multiple factors contribute to the Bull and Bear valuations                                                                                                           Osborne, Kulthor and the regional
                                                                                                                                                                                    area over late 2011/early 2012.
                             6.00
                                                                                                                                         0.32
                                                                                                                             0.45                                                 Key Risks
                             5.00                                                                                 0.99                                     5.15
    Australian Dollar (A$)




                                                                                                                                                                                  • Project timing slippage could see
                             4.00                                                                       0.45
                                                                                0.40
                                                                                                                                                                                    delayed cash in-flows placing
                             3.00                                    0.82                                                                                                           pressure on funding capacity.
                                     Price Target, 2.20
                                                       0.46
                                                                                             2.94
                                                                                                                                                                                  • Commissioning issues present a
                             2.00
                                                                                                                                                                                    similar, albeit lower, risk.
                                                0.38
                             1.00                                                                                                                                                 • Capex over-runs.
                             0.00
                                     0.90
                                                                                                                                                                                  • Exploration drilling failure to add
                                     Bear       Higher     Lower      Lower     Project      Base      Mine Life   Higher    Higher Lower costs              Bull                   resources at Merlin, Osborne, Kulthor
                                     Case       costs    production commod. &   Delays       Case      extension commod. & production                       Case
                                                                       cur.                                         cur.                                                            and Mount Dore.
Source: Morgan Stanley, Thomson Reuters                                                                                                                                           • Weaker-than-expected metal prices.




                                                                                                                                                                                                                      37
                                                                                                 MORGAN             STANLEY                 RESEARCH

                                                                                                 March 27, 2012
                                                                                                 Australia Metals & Mining




Financial Summary: Newcrest Mining
Newcrest Mining                                                 Last Price:    $29.35                                           Price Target:    $39.25             Up/(Down):       34%
ASSUMPTIONS (Yr to Jun)                       FY11      FY12e       FY13e       FY14e       LT    PROFIT AND LOSS ($M)                              FY11      FY12e      FY13e     FY14e
Go ld US$/o z                                1,360      1,684       2,025       2,063    1,189    To t al Sales Reven u e                          4,102       4,428      6,715     8,483
Co p p er US$/lb                              3.87       3.77        3.93        3.95     2.77    Co st o f Op er at io n s                       -2,043      -2,333     -2,639    -2,719
Silv er US$/o z                              28.87      31.92       38.94       39.66    22.87    EBITDA                                           2,059       2,095      4,076     5,764
FX Av g Sp o t A$/US$                         0.98       1.04        0.99        0.92     0.85    Dep r eciat io n                                  -515        -512       -800      -905
                                                                                                  EBIT                                             1,544       1,583      3,276     4,858
Profit Sensitivities (%)                      FY11      FY12e       FY13e       FY14e             Net In t er est b en ef it /(exp en se)             -36         -90      -158      -147
Cu r r en cy A$/US$ + 10%                                 0%          0%          0%              Pre-tax profit                                   1,508       1,494      3,118     4,712
Go ld US$/o z + 10%                                       0%          0%          0%              Tax                                               -392        -412       -935    -1,413
Co p p er US$/lb + 10%                                    0%          0%          0%              Min o r it ies                                       58          53        86        98
                                                                                                  Profit attributable                              1,058       1,028      2,096     3,201
PRODUCTION (NCM Share)                        FY11      FY12e       FY13e       FY14e             Ot h er Ab n o r m als Net o f Tax                    0           0         1         2
Lih ir Islan d                                 791        580         973       1,102             Hed g e Rest r u ct u r e Net o f Tax             -150            0         0         0
Telf er                                        621        561         571         624             Profit after Non Recurring Items                   908       1,028      2,096     3,201
CVO                                            515        521         615         878
Go sso w o n g                                 463        415         478         478             CASHFLOW ($M)                                     FY11      FY12e      FY13e     FY14e
Hid d en Valley                                100        112         106         106             EBITDA                                            2059       2095       4076      5764
Bo n ikr o                                      50         94         159         166             + Div & Ot h er Rev en u e Receiv ed                  12         10         2         45
Mt Raw d o n                                    90         24          -           -              - In t er est Paid /(Receiv ed )                     -32        -94      -160      -192
Cr aco w                                        71         24          -           -              -Tax p aid                                         -107       -208       -935    -1413
Gold Production (koz)                         2,702      2,331       2,902       3,354            -Wkg cap in cr ease, o t h er                      -203            7     -220        -82
                                                                                                  OPERATIONS CASH FLOW                              1729       1810       2763      4121
Telf er                                       32.1       30.9        28.9        27.7              - Cap ex                                        -2013      -2494      -2156     -2165
CVO                                           43.3       44.8        51.2        63.4             FREE CASH FLOW                                     -284       -684        606     1956
Waf i Go lp u                                  -          -           -           -                - Acq u isit io n s                               -272            0        0          0
Copper Production (kt)                        75.4       75.7        80.1        91.1              + Ot h er                                             -9         -9        0          0
                                                                                                  INVESTING CASHFLOW                                 -281           -9        0          0
Unit Cash Cost of Operations (incl. by-products)                                                  Eq u it y Raisin g / (Bu y Back)                     -28        -40         0          0
Lih ir Islan d                          419      652                  534         463             Deb t Raised / (Ret ir ed )                         427        964        470          0
CVO                                     302      432                  525         283             Div id en d Paid                                   -231       -391       -635      -742
Telf er                                 682      860                  915         849             Ot h er                                              -38          -2        0          0
Go so w o n g                           329      474                  405         411             FINANCING CASHFLOW                                  131        531       -165      -742
Hid d en v alley                      1,003      851                  714         666             FX Ad ju st m en t s                                 -24          -3        0          0
Bo n ikr o                            1,236      896                  577         554             Increase in cash deposits                          -458       -164        441     1214
Mt Raw d o n                            694      958                   -           -
Cr aco w                                658      808                   -           -              SUMMARY BALANCE SHEET ($M)                        FY11       FY12e      FY13e     FY14e
Waf i Go lp u                            -        -                    -           -              Cash & sh o r t t er m d ep o sit s                185           21       462     1,676
Wgt Average, A$/oz                      494      646                  595         491             Receiv ab les                                      443         348        591       682
Wgt Average, US$/oz                     486      671                  588         450             In v en t o r ies                                1,401       1,183      1,223     1,234
                                                                                                  Pr o p er t y, Plan t an d eq u ip m en t        3,310       3,271      2,791     2,248
EARNINGS RATIOS                               FY11      FY12e       FY13e       FY14e             Exploration, Evaluation & Development            7,675       9,725     11,561    13,364
Net Profit (A$m)                             1,058       1,028       2,096       3,201            In v est m en t s                                    0         106          70         0
Issu ed Sh ar es (M)                           765        765         765         765             Ot h er asset s                                  4,268       4,642      4,842     5,365
Mo d elw ar e EPS (A$)                        1.38        1.34        2.65        4.07            Total assets                                    17,282      19,296     21,540    24,569
EPS Gr o w t h (% )                          -12%         -3%        97%         54%              Cr ed it o r s                                     432         308        340       351
CFPS (c) *                                     226        237         361         539             Bo r r o w in g s                                  800       1,601      1,601     1,601
P/E (x)                                        25.1       21.8        11.1         7.2            Ot h er cu r r en t liab ilit ies                  269         136        168       177
P/CF (x)                                      13.0        12.4         8.1         5.4            Ot h er liab ilit ies                            1,906       1,953      1,953     1,953
FCF Yield (%)                                  -1%         -3%         3%          9%             Total liabilities                                3,407        3,999      4,061     4,082
Div id en d (c)                               50.0        82.0        96.0      110.0             Net assets                                      13,875      15,297     17,479    20,488
Dividend Yield (%)                            1.4%       2.8%        3.3%        3.7%             Sh ar eh o ld er eq u it y                      13,776      15,104     16,535    18,571
Fr an kin g (% )                                0%         0%        50%         50%              Min o r it ies                                      99         193        944     1,916
En t er p r ise Valu e (A$M)                27,273     24,225      24,534      24,293             Total Shareholder equity                        13,875      15,297     17,479    20,488
EV/EBITDA (x)                                 13.2        11.6         6.0         4.2            S/holder equity+Tot. liabilities                17,282      19,296     21,540    24,569

FINANCIAL RATIOS                              FY11      FY12e       FY13e       FY14e             SUM OF THE PARTS                              Risk Wgt.   A$m           A$/sh        %
Net debt/(net debt + equity)                    4%        9%          6%          0%              CVO                                                      6,047            7.91    20%
Cu r r en t r at io                            1.9        1.5         2.5         4.3             Lih ir Islan d                                          11,669          15.25     40%
Deb t co ver - EBIT/in t er est               34.3       15.8        20.5        25.3             Telf er                                                  3,731            4.88    13%
EBITDA Mar g in                               50%        47%         61%         68%              Go so w o n g                                            3,484            4.55    12%
Bo o k valu e p er sh ar e (A$/sh ar e)       18.1       20.0        22.8        26.8             Hid d en Valley (50% )                                     644            0.84      2%
Pr ice t o b o o k (x)                         1.9        1.5         1.3         1.1             Bo n ikr o                                                 908            1.19      3%
ROA (NPAT/Asset s) %                           5%         5%         10%         13%              Waf i-Go lp u (50% ) - FY16                       60%    2,179            2.85      7%
ROE (NPAT/Eq u it y ) %                        8%         7%         12%         16%              O'Callag h an s - FY14                            60%      292            0.64      2%
ROIC                                           6%         6%         11%         14%              Nam o si (69.94% ) - FY17                         20%       99            0.13      0%
                                                                                                  Exp lo r at io n                                         1,604            2.10      5%
            Share count                   Beta        COE        CoD          WACC                Cash r ein v est m en t                                    428            0.56      1%
              765.0                          0.8       9.1%        7.0%        7.9%               Cat alp a h o ld in g                                      400            0.52      1%
                                                                                                  Co r p o r at e                                       -   382            -0.50     -1%
Source: Company data, Morgan Stanley Research                                                     Net Deb t (Dec 12)                                    - 1,576            -2.06     -5%
NB: Some calculations may vary from Modelware due to definitional differences                     Total Valuation                                         29,528          38.60     100%




                                                                                                                                                                                      38
                                                                                                                         MORGAN                            STANLEY           RESEARCH

                                                                                                                         March 27, 2012
                                                                                                                         Australia Metals & Mining




Risk-Reward Snapshot: Newcrest Mining (NCM, A$29.35, OW, PT A$39.25)
                                                                                                                                                                          Investment Thesis
Risk-Reward View: Current Macro Environment Bias to Bull Case
                                                                                                                                                                          • We have a positive view on the gold
     A$70                                                                                                                                                                   price and copper price to which
                                                                                                                                 A$62.00 (+111%)
                                                                                                                                                                            Newcrest is fully exposed.
                                                                                                                                                                          • Production weakness in FY12
      60



      50
                                                                                                                                                                            contributes +20% production growth
                                                                                                                                                                            in FY13; combined with our strong
      40                                                                                                                         A$39.25 (+34%)
                                                                                                                                                                            gold price outlook, this generates EPS
                                                                                            A$ 29.35
                                                                                                                                                                            growth of ~63%.
      30                                                                                                                                                                  • Costs should ease in FY13 as Cadia
                                                                                                                                                                            Valley East starts and Lihir Island
      20
                                                                                                                                  A$18.20 (-38%)                            expands. EBITDA margins should lift
      10
                                                                                                                                                                            +50%.
                                                                                                                                                                          • Newcrest is in a fundamentally strong
       0                                                                                                                                                                    position being able to self-fund
       Mar-10                       Sep-10           Mar-11                  Sep-11          Mar-12                     Sep-12                        Mar-13
            Price Target (Mar-13)                 Historical Stock Performance             Current Stock Price                                                              several major projects while
                                                                                                                                        WARNINGDONOTEDIT_RRS4RL~NCM.AX~



                                                                                                                                                                            increasing dividends.
 Price Target A$39.25                           Our target price is set at 1.0x NPV. The previous application of a                                                        Key Value Drivers
                                                gold premium has been negated by the increased L/T gold price
                                                forecast. Our bull and bear-case valuations equate to weightings of                                                       • NCM is a gold producer with copper
                                                20%, 60% and 20% for our bull-, base- and bear-case scenarios..                                                             by-product credits. A +/-10% change
                                                                                                                                                                            to our base case gold price
 Bull                  23.4x FY13e Incorporates higher commodity assumptions. Growth projects
                                                                                                                                                                            assumptions alone affects our price
 Case                  PER on Bull Wafi-Golpu and Namosi are successfully developed; therefore, risk
                                                                                                                                                                            target by approximately +/-20%.
 A$62.00               case        weightings are eliminated.
                                                                                                                                                                          • A +/-10% change in forecast
 Base                  14.6x FY13e Assuming our base-case commodity price assumptions,                                                                                      production volumes moves our
 Case                  PER on Base Wafi-Golpu to start production in FY15 (risk weighting 50%) and                                                                          forecast price target by +/-14%.
 A$38.60               case        Namosi in FY17 (risk weighting 20%). Gold premium 1.0x NAV.
                                                                                                                                                                          Potential Catalysts
 Bear                  6.9x FY13e  Assuming our lower bear-case commodity price assumptions.
 Case                  PER on Bear Growth projects Wafi-Golpu and Namosi are unsuccessful in being                                                                        • By mid-2012, the Wafi-Golpu PFS will
 A$18.20               case        developed.                                                                                                                               be out – we are looking for
                                                                                                                                                                            confirmation of a high-grade core and
Bear to Bull: Production and Pricing the Largest Drivers to Our                                                                                                             positive project fundamentals.
Bull/Bear                                                                                                                                                                 • Ramp up of the Cadia East Panel
                                                                                                                                                                            cave through 2H CY12.
                                    Commodity &                                                          Project delivery
                                      Currency      Production         Opex & Capex     Exploration           risk                                                        • Completion of the Lihir Island MOPU
                                                                                                                                                                            expansion and commissioning.

     Bull 62.00                                                                  2.30      1.00
                                                                                                                 2.70                                                     Risks to Our Price Target
                                                        6.60

                                        10.80                                                                                                                             • CVE Panel Cave (FY13 ramp up) is
                                                                                                                                                                            critical given production plans and
   Base 38.60
  Target 39.25                                                                                                                                                              growth aspirations.
                                                                                                                                             Current                      • The positive commodity price view is
                                       -10.60                                                                                                 29.35
                                                        -3.30                                                                                                               inherent to the positive company view.
    Bear 18.20                                                               -3.60        -0.40
                                                                                                                 -2.50

                                                                                                             All values are in AUD
Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                                              39
                                                                                                 MORGAN            STANLEY              RESEARCH

                                                                                                 March 27, 2012
                                                                                                 Australia Metals & Mining




Financial Summary: Alacer Gold
Alacer Gold                                    Last Price:    $8.10     ########                                            Price Target:   $10.85           Up/(Down):          34%

ASSUMPTIONS (Yr to Dec)                 2011       2012e     2013e       2014e          LT    PROFIT AND LOSS ($M)                          2011       2012e       2013e      2014e
Go ld US$/o z                            1,546      1,825     2,175       1,900         1,189 To t al Sales Reven u e                          557         713         996        915
Silver US$/o z                            32.9       35.1      41.8        36.5          22.9 Co st o f Op er at io n s                        278         310         373        375
FX Avg Sp o t A$/US$                      1.04        1.01      0.97        0.88         0.85 EBITDA                                           279         403         623        539
                                                                                              Dep r eciat io n                                  -92       -120        -123       -122
Profit Sensitivities (%)                2011       2012e     2013e       2014e                EBIT                                             188         283         500        417
Cu r r en cy A$/US$ + 10%                  0%         1%        0%          1%                Net In t er est b en ef it /(exp en se)           -13          10         21         23
Go ld US$/o z + 10%                        0%        24%       19%         22%                Pre-tax profit                                   175         293         521        440
Silver US$/lb + 10%                        0%         0%        0%          0%                Tax                                               -45         -88       -150       -125
                                                                                              Profit attributable                              130         206         370        315
PRODUCTION (100% basis)                 2011       2012e     2013e       2014e                Ot h er Ab n o r m als Net o f Tax                -46           0          0          0
Hig g in sville                           146         150       156         156               Min o r it ies                                      9           0          0          0
Fr o g s Leg                                58          57        57         55               Hed g e Rest r u ct u r e Net o f Tax               0           0          0          0
So u t h Kalg o o r lie                     32          35        96         96               Profit after Non Recurring Items                   75        206         370        315
Çö p ler - o xid e                        185         185       185         185
Çö p ler - su lp h id e                    -           -         -           32                 CASHFLOW ($M)                               2011       2012e       2013e      2014e
Gold Production (koz)                      421         427       495         524                EBITDA                                         279         403         623        539
3yr CAGR                                                                     8%                 + Div & Ot h er Reven u e Received              -11           0           0         0
                                                                                                - In t er est Paid /(Received )                   -3         10          21        23
Operating cash cost, US$/oz             2011       2012e     2013e       2014e                  -Tax p aid                                        -2        -88       -150       -125
Hig g in sville                           587         797       805         893                 -Wkg cap in cr ease, o t h er                     -5         29          20         3
Fr o g s Leg                              565         640       643         603                 OPERATIONS CASH FLOW                           258         355         514        440
So u t h Kalg o o r lie                 1,016         880       654         614                  - Cap ex                                     -122        -294        -226       -225
Çö p ler                                  343         380       435         376                 FREE CASH FLOW                                 136           61        288        216
Average, US$/oz                           505         599       616         595                  - Acq u isit io n s                               0          0           0         0
Margin, US$oz                              1,041     1,226      1,559      1,305                 + Ot h er                                        -6          0           0         0
                                                                                                INVESTING CASHFLOW                            -128        -294        -226       -225
Total cash cost, US$/oz                 2011       2012e     2013e       2014e                  Eq u it y Raisin g / (Bu y Back)                 13           0           0         0
Hig g in sville                           740         989     1,052       1,111                 Deb t Raised / (Ret ir ed )                       -1          0           0         0
Fr o g s Leg                              606         686       697         651                 Divid en d Paid                                    0          0         -87      -169
So u t h Kalg o o r lie                 1,071         934       720         671                 Ot h er                                            0          0           0         0
Çö p ler                                  380         423       486         420                 FINANCING CASHFLOW                               11           0         -87      -169
Average, US$/oz                           603         700       735         699                 FX Ad ju st m en t s                               4          0           0         0
Margin, US$oz                               943      1,125      1,440      1,201                Increase in cash deposits                      145           61        201         47

EARNINGS RATIOS                         2011       2012e     2013e       2014e                  SUMMARY BALANCE SHEET ($M)                  2011       2012e       2013e      2014e
Net Profit (A$m)                           130         206       370         315                Cash & sh o r t t er m d ep o sit s            250         311         511        558
Issu ed Sh ar es (M)                       280        293       293          293                Receivab les                                    21          22          30         28
Mo d elw ar e EPS (US$)                   0.43        0.70      1.26        1.07                In ven t o r ies                                74          83          99        100
EPS Gr o w t h (% )                                  62%       80%         -15%                 Pr o p er t y, Plan t an d eq u ip m en t      143          80          18         18
CFPS (c) *                                 0.92       1.21      1.75        1.50                Exploration, Evaluation & Development        1,288       1,515       1,669      1,763
P/E (x)                                    23.8       12.1       6.7          7.9               In vest m en t s                                 0           0           0          0
P/CF (x)                                    8.8        6.7       4.6          5.4               Ot h er asset s                                 26          38          43         50
FCF Yield (% )                              6%         3%      12%           9%                 Total assets                                 1,803       2,048       2,370      2,516
Divid en d (US$)                           0.00       0.00      0.63        0.54                Cr ed it o r s                                 155         172         206        207
Divid en d Yield (% )                     0.0%       0.0%      7.8%        6.6%                 Bo r r o w in g s                              200          75          75         75
Fr an kin g (% )                            0%         0%        0%          0%                 Ot h er cu r r en t liab ilit ies                2           3           2          2
En t er p r ise Valu e (A$M)                        2,155                                       Ot h er liab ilit ies                           53         208         223        230
EV/EBITDA (x)                              10.2        5.3        3.1        3.5                Total liabilities                              410         458         505        514
                                                                                                Net assets                                   1,393       1,590       1,865      2,002
FINANCIAL RATIOS                        2011       2012e     2013e       2014e                  Sh ar eh o ld er eq u it y                   1,375       1,572       1,847      1,984
Net debt/Equity                            -4%       -15%      -23%        -24%                 Min o r it ies                                  18          18          18         18
Deb t co ver - EBIT/in t er est           10.5        37.6      66.3        46.1                Total Shareholder equity                     1,393       1,590       1,865      2,002
EBITDA Mar g in                           50%        57%       63%         59%                  S/holder equity+Tot. liabilities             1,803       2,048       2,370      2,516
ROA (NPAT/Asset s) %                       4%        10%       16%         13%
ROE (NPAT/Eq u it y) %                     9%        13%       20%         16%                  SUM OF THE PARTS                                         A$m         A$/sh      %
ROIC                                       5%        12%       19%         15%                  Hig g in sville                                           238     $ 0.81       8%
                                                                                                Fr o g s Leg                                              276     $ 0.94       9%
WACC Assumptions                                                                                So u t h Kalg o o r lie                                   290     $ 0.99       9%
Beta                                                           1.20x                            Çö p ler                                                2,045     $ 6.98      64%
Cost of Equity (Ke)                                           11.6%                             Exp lo r at io n                                          388     $ 1.33      12%
Cost of Debt (Kd)                                              6.0%                             Co r p o r at e                                          -299     $ (1.02)    -9%
WACC                                                           9.4%                             Net Cash (Dec 12)                                         239     $ 0.82       8%
                                                                                                Total Valuation                                         3,177      A$10.85
Source: Company Data, Thomson Reuters & Morgan Stanley Research Estimates
NB. Some ratio calculations may vary from ModelWare due to definitional differences
Source: Company data, Morgan Stanley Research. e = Morgan Stanley Research estimates.




                                                                                                                                                                                 40
                                                                                                        MORGAN                            STANLEY          RESEARCH

                                                                                                        March 27, 2012
                                                                                                        Australia Metals & Mining




Risk-Reward Snapshot: Alacer Gold Corp. (AQG.AX, A$8.10, OW, PT A$10.85)
Risk-Reward View: The range reflects multiple assets with many drivers
                                                                                                                                                       Investment Overview
   A$18

                                                                                                         A$16.20 (+100%)
                                                                                                                                                       • AQG provides exposure to rising
     16
                                                                                                                                                         production in future years, falling cash
     14                                                                                                                                                  costs and increasing resources.
     12
                                                                                                                                                       • It trades at a discount to valuation,
                                                                                                            A$10.85 (+34% )                              and at reasonable operational metrics
     10
                                                                                     A$ 8.10
                                                                                                                                                         and earnings multiples, in our view.
      8                                                                                                                                                • The management team has
                                                                                                                                                         demonstrated an ability to identify and
      6
                                                                                                              A$5.60 (-31%)
                                                                                                                                                         deliver assets into production.
      4
                                                                                                                                                       Key Value Drivers
      2
                                                                                                                                                       • The primary company goal is to take
      0
      Mar-10             Sep-10               Mar-11             Sep-11              Mar-12         Sep-12                         Mar-13                production from 421kozpa in 2011 to
           Price Target (Mar-13)                    Historical Stock Performance               Current Stock Price   WARNINGDONOTEDIT_RRS4RL~AQG.AX~     800kozpa in 2015 (100%), a CAGR of
                                                                                                                                                         +15% over four years.
 Price Target A$10.85                      Price target is the result of weightings applied to the Base, Bull                                          • The other key is longevity. This is
                                           and Bear cases; these are 60%, 20%, 20%, respectively.                                                        predicated on the view that group
 Bull              16.0x PER               Çöpler mine-life extensions the largest driver: Also, bull-case                                               resources can rise ~50% to +15Moz.
 Case              CY12e Bull              commodity pricing and potential operating cost saving measures
                                                                                                                                                       Potential Catalysts
 A$16.20           EPS                     could improve margins.
                                                                                                                                                       • Positive quarterly operational data,
 Base              15.1x PER               Base case commodity forecasts: This applies gold prices of
 Case              CY12e Base              US$1,845/oz in 2012 and US$1,189/oz long-term. It assumes
                                                                                                                                                         showing the ability to meet and
 A$10.85           EPS                     434koz in 2012 vs company goal of 420-440koz.                                                                 possibly exceed 2012 guidance.
                                                                                                                                                       • Çöpler Oxide resource optimisation in
 Bear              18.0x PER               Operational issues constrain production and/or expansion:                                                     1H CY12.
 Case              CY12e Bear              Potential for lower volumes and development issues pushing back
                                                                                                                                                       • SKO expansion decision in 1H 2012
 A$5.60            EPS                     timelines on expansion in addition to lower commodity prices.
                                                                                                                                                         to build a new processing plant.
                                                                                                                                                       • Çöpler Sulphide project Feasibility
Bear to Bull: Price assumptions and asset life key value drivers                                                                                         Study is due in 2H 2012.
                                                                Commodity          Schedule       Mine                                                 Key Risks to Our Price Target
                                   Costs        Production        prices           changes     extensions
                                                                                                                                                       • The production risks are that Trident
                                                                                                 1.60
                                                                                                                                                         doesn’t keep the Higginsville plant
      Bull 16.20
                                                                                                                                                         filled and that the Çöpler Oxides
                                                                                    0.47
                                                                    1.53                                                                                 ramp-up doesn’t continue on plan.
                                                  0.43                                                                                                 • The Feasibility Study on the Çöpler
                                   1.31
                                                                                                                                                         Sulphides may deliver less robust
     Base 10.85                                                                                                                                          outcomes than anticipated.
    Target 10.85
                                                                                                                                                       • Exploration work may fail to extend
                                   -2.03                                                                                      Current                    the known orebodies as expected.
                                                                                                                                                       • Our gold price forecast of
                                                                                                                               8.10
                                                  -1.32
                                                                   -1.07                                                                                 US$2,175/oz in 2013 contributes to
       Bear 5.60
                                                                                    -0.80
                                                                                                                                                         the earnings projection and
                                                                                                All values are in AUD                                    favourable near-term multiples. There
                                                                                                                                                         is earnings risk if it isn’t reached.
Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                             41
                                                                                                        MORGAN             STANLEY            RESEARCH

                                                                                                        March 27, 2012
                                                                                                        Australia Metals & Mining




Financial Summary: Medusa Mining
Medusa Mining Ltd                           $5.60       A$5.27                                   Price Target:                                A$8.65              Up/(Down):       64%

ASSUMPTIONS (Yr to June)                        2011      2012e    2013e     2014e          LT   PROFIT AND LOSS (US$M)                           2011      2012e        2013e    2014e
Go ld US$/o z                                  1,373      1,684    2,025     2,063       1,189   To t al Sales Rev en u e                          149        109          215      335
Silv er US$/o z                                 28.9       31.9     38.9      39.7        22.9   Co st o f Op er at io n s                          29         28           36       50
FX Avg Sp o t A$/US$                            0.98       1.04     0.99      0.92        0.85   EBITDA                                            120         81          179      285
                                                                                                 Dep r eciat io n                                   10          8           10       15
Profit Sensitivities (%)                        2011      2012e    2013e     2014e               EBIT                                              110         73          170      270
Cu r r en cy A$/US$ + 10%                                   0%       0%        0%                Net In t er est b en ef it /(exp en se)              1         2            3        4
Go ld US$/o z + 10%                                         9%      13%       13%                Pre-tax profit                                    110         75          172      274
Silv er US$/lb + 10%                                        0%       0%        0%                Tax                                                  0         0            0        0
                                                                                                 Min o r it ies                                       0         0            0        0
PRODUCTION & CASH COSTS                                                                          Profit attributable                               110         75          172      274
                                                                                                 Ot h er Ab n o r m als Net o f Tax                   0         0            0        0
                                            231                                                  Hed g e Rest r u ct u r e Net o f Tax               -1         0            1        2
                                                                               220
                                                             210                                 Profit after Non Recurring Items                  110         75          172      274
         184                188
                                            181                                                  CASHFLOW (US$M)                                  2011      2012e        2013e    2014e
                                                                               158               EBITDA                                            120         81          179      285
         151                147                              149                                 + Div & Ot h er Rev en u e Received                  0          1            0        0
                                                                                                 - In t er est Paid /(Received )                      1          2            3        4
                                                                                                 -Tax p aid                                           0          0            0        0
          90                105                                                                  -Wkg cap in cr ease, o t h er                      -25          0          -38      -62
                                                             106               165
                                                                                                 OPERATIONS CASH FLOW                                97        84          144      227
                                               65                                                 - Cap ex                                          -52       -92         -107     -154
                                                                                                 FREE CASH FLOW                                      44         -8           37       73
                                                                                                  - Acq u isit io n s                                 0          0            0        0
         FY10               FY11            FY12e            FY13e            FY14e               + Ot h er                                           0          0            0        0
                                                                                                 INVESTING CASHFLOW                                 -52       -92         -107     -154
      Gold production koz          C1 Cash Costs US$/oz           C2 Cash Costs US$/oz           Eq u it y Raisin g / (Bu y Back)                     1          1            0        0
                                                                                                 Deb t Raised / (Ret ir ed )                          0          0            0        0
                                                                                                 Divid en d Paid                                    -19       -19           -19      -19
                                                                                                 Ot h er                                              0          0            0        0
EARNINGS RATIOS                                 2011      2012e 2013e        2014e               FINANCING CASHFLOW                                 -18       -18           -19      -19
Net Profit (US$m)                                110          75  172          274               FX Ad ju st m en t s                                 4          0            0        0
Issu ed Sh ar es (M)                             188        189   189          189               Increase in cash deposits                           30       -26            18       54
Mo d elw ar e EPS (US$)                         0.59       0.40  0.91         1.45
EPS Gr o w t h (% )                                       -32% 130%           59%                SUMMARY BALANCE SHEET (US$M)                     2011      2012e        2013e    2014e
CFPS (c) *                                      0.51       0.44  0.76         1.20               Cash & sh o r t t er m d ep o sit s                62         37           54      108
Modelware P/E (x)                               12.0        14.1   6.1          3.9              Receiv ab les                                      57         57           95      160
P/CF (x)                                        10.9       12.6    7.4          4.7              In ven t o r ies                                    8          7            9       19
FCF Yield (%)                                     4%        -1%    4%           7%               Pr o p er t y , Plan t an d eq u ip m en t         40         80          147      256
Divid en d (c)                                  10.0       10.0  10.0         10.0               Exploration, Evaluation & Development             116        158          188      218
Dividend Yield (%)                              1.9%       1.9%  1.9%         1.9%               In vest m en t s                                    0          0            0        0
Fr an kin g (% )                                 0%          0%   0%           0%                Ot h er asset s                                     1          2            2        0
En t er p r ise Valu e (A$M)                     930                                             Total assets                                      285        340          496      762
EV/EBITDA (x)                                     7.8      11.8       5.3       3.1              Cr ed it o r s                                      8          7            9       19
                                                                                                 Bo r r o w in g s                                   0          0            0        0
FINANCIAL RATIOS                                2011      2012e    2013e     2014e               Ot h er cu r r en t liab ilit ies                   1          0            0        0
Net debt/(net debt + equity)                    -29%       -12%     -13%      -17%               Ot h er liab ilit ies                               0          2            3        5
Cu r r en t r at io                             15.5       14.5      16.9     15.5               Total liabilities                                   9          9           12       24
Deb t co v er - EBIT/in t er est                  NA         NA       NA        NA               Net assets                                        276        331          484      738
EBITDA Mar g in                                 81%        75%      83%       85%                Sh ar eh o ld er eq u it y                        276        331          484      738
ROA (NPAT/Asset s) %                            39%        22%      35%       36%                Min o r it ies                                      0          0            0        0
ROE (NPAT/Eq u it y) %                          40%        23%      36%       37%                Total Shareholder equity                          276        331          484      738
ROIC                                            40%        23%      36%       37%                S/holder equity+Tot. liabilities                  285        340          496      762

RESERVES AND RESOURCES                                            as at 30 June 2011             SUM OF THE PARTS                              US$m       US$/sh           A$m    A$/sh
                                                           Mt      g/t Au Moz Au                 Co -O                                           1400         7.41        1602     8.48
Co -O - Pr o b ab le Reser v es                           1.5       10.1     0.5                 Ban an g h ilig (r isked @ 70% )                   71        0.38           87    0.32
Co -O - In d icat ed r eso u r ce                         1.6       12.0     0.6                 Ot h er exp lo r at io n                           70        0.37           73    0.39
Co -O - In f er r ed r eso u r ce                         4.7       8.8      1.3                 Co r p o r at e                                   -62       -0.33          -65   -0.34
Ban an g h ilig In f er r ed r eso u r ce                 15.0      1.3      0.7                 Cash & g o ld h eld                                37        0.19           38    0.20
Total Resources                                           21.3      3.8      2.6                 Total Valuation                                                          1,735    9.05
                                                                                                 Bet a                                                                     1.20
Metrics                                                           US$/oz                         Co st o f Eq u it y (Ke)                                                11.6%
En t er p r ise valu e p er r eser v e o z                        1,852                          Co st o f Deb t (Kd )                                                    7.0%
En t er p r ise valu e p er r eso u r ce o z                       474                           WACC (No m in al)                                                        9.6%

NB So m e r at io calcu lat io n s m ay v ar y f r o m Mo d elw ar e d u e t o d ef in it io n al d if f er en ces      e = Mo r g an St an ley Resear ch est im at es
Source: Company data, Morgan Stanley Research. e = Morgan Stanley Research estimates.




                                                                                                                                                                                    42
                                                                                                                 MORGAN                          STANLEY           RESEARCH

                                                                                                                 March 27, 2012
                                                                                                                 Australia Metals & Mining




Risk-Reward Snapshot: Medusa Mining Ltd (MML.AX, A$5.27, OW, PT A$8.65)
Risk-Reward View: Risks heavily skewed to the upside
                                                                                                                                                               Why Overweight
   A$14
                                                                                                                                                               • We expect Medusa to double
     12                                                                                                           A$11.95 (+127%)
                                                                                                                                                                 production at its high-margin Co-O
                                                                                                                                                                 Mine, to 200Moz (in FY14), followed
     10
                                                                                                                                                                 by the regional development of the
                                                                                                                                                                 Bananghilig Deposit.
                                                                                                                                                               • We view the company as capable of
                                                                                                                    A$8.65 (+64% )
      8
                                                                                                                                                                 self-funding its expansion ambitions,
      6                                                                                 A$ 5.27                                                                  and this minimizes the risk of dilutive
                                                                                                                                                                 equity placements.
                                                                                                                     A$4.28 (-19%)
      4
                                                                                                                                                               Key Value Drivers
      2                                                                                                                                                        • Return to stable production from Co-O
                                                                                                                                                                 and consistent delivery of low-cash
      0                                                                                                                                                          costs.
      Mar-10               Sep-10                Mar-11            Sep-11               Mar-12              Sep-12                         Mar-13              • Ongoing development drilling at Co-O
             Price Target (Mar-13)                    Historical Stock Performance                     Current Stock Price   WARNINGDONOTEDIT_RRS4RL~MML.AX~
                                                                                                                                                                 maintains the resource base at stable
                                                                                                                                                                 levels.
 Price Target A$8.65                       We calculate our DCF-based price target of A$8.65/sh as the
                                           weighted average of outcomes from our bull, base and bear case                                                      Potential Catalysts
                                           scenarios, using weightings of 20%, 60% and 20%, respectively.
                                                                                                                                                               • Surpassing the revised down FY12
 Bull               11.2x PER              Co-O mine life extends five years beyond our base case. Bull                                                          production guidance of 75Koz.
 Case               FY13e Bull             case commodity forecasts, reduced operating costs and increased                                                     • Positive results from resource
 A$11.95            EPS                    production rates are all sources of additional upside.                                                                confirmation and expansion drilling at
 Base               9.9x PER               Strong demand boosts gold price to US$2,025/oz avg. in 2013.                                                          Bananghilig expected in early 2012.
 Case               FY13e Base             Combined with our long-term gold price assumption of                                                                • Positive results from regional drilling
 A$9.05             EPS                    US$1,189/oz, this creates robust earnings and valuation.                                                              targeting gold and copper prospects
                                                                                                                                                                 during 2012.
 Bear               7.0x PER               Single asset risk: Two months’ lost production due to operational
 Case               FY13e Bear             difficulties at Co-O mine; cost pressures drive operating costs 10%                                                 Risks to Our Price Target
 A$4.28             EPS                    higher than in base case.
                                                                                                                                                               • Resource risk: Medusa is unlikely to
                                                                                                                                                                 ever have more than 10 years of mine
Bear to Bull: Gold Price Is the Most Significant Driver                                                                                                          life in its resource base, particularly at
                                     Co-O minelife    Commod price &         Production                                                                          future production rates. We expect
                                       +5/-5yrs           FX                  inc/dec            Costs inc/dec
                                                                                                                                                                 Co-O mine life to be ~25 years, but
                                                                                                                                                                 there is a long-term risk this may not
                                                                                0.87                 0.33                                                        be realized.
          Bull 11.95
                                                            0.98                                                                                               • Gold price: Despite being shielded
                                         0.73
                                                                                                                                                                 from rapid deterioration in the gold
          Base 9.05
          Target 8.65                                                                                                                                            price through its low-cost operations,
                                         -0.99
                                                                                                                                                                 Medusa would suffer from reduced
                                                           -1.44
                                                                                                                                  Current
                                                                                                                                                                 cash flows and downbeat market
                                                                                                                                   5.27
          Bear 4.28                                                             -1.75
                                                                                                    -0.59
                                                                                                                                                                 sentiment.


                                                                                                        All values are in AUD

Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                                       43
                                                                                                   MORGAN             STANLEY             RESEARCH

                                                                                                   March 27, 2012
                                                                                                   Australia Metals & Mining




Financial Summary: Resolute Mining Ltd
Resolute Mining Ltd                                Last Price: $ 1.90                                                         Price Target:   $2.35       24% : Up/Downside

ASSUMPTIONS (Yr to Jun)                         FY11     FY12e      FY13e    FY14e         LT   PROFIT AND LOSS (A$M)                          FY11     FY12e     FY13e    FY14e
Go ld US$/o z                                  1,373     1,684      2,025    2,063      1,189   To t al Sales Rev en u e                        445       637       853      852
FX Av g Sp o t A$/US$                           0.98      1.04       0.99     0.92       0.85   Co st o f Op er at io n s                       304       400       392      315
                                                                                                EBITDA                                          142       237       460      536
Profit Sensitivities (%)                       FY11      FY12e      FY13e    FY14e              Dep r eciat io n                                 -62       -55       -42      -38
Cu r r en cy A$/US$ + 10%                       0%         -7%       -14%                       EBIT                                              79      182       419      498
Go ld US$/o z + 10%                             0%        20%         21%                       Net In t er est b en ef it /(exp en se)          -20         -9        3       18
                                                                                                Pre-tax profit                                    60      173       422      517
Production, koz (100% basis)                   FY11      FY12e      FY13e    FY14e              Tax                                              -15       -64     -152     -173
Sy am a                                          85       160        198      198               Min o r it ies                                      0         0        0        0
Mt Wr ig h t - Sar sf ield                     123        115        140      181               Profit attributable                               45      109       270      344
Go ld en Pr id e                               123        114         79       -                Ot h er Ab n o r m als Net o f Tax                  0         0        0        0
Total                                           331        390       416       379              Hed g e Rest r u ct u r e Net o f Tax              -1         0        1        2
                                                                                                Profit after Non Recurring Items                  45      109       270      344
Operating Cash costs, A$/oz                    FY11      FY12e      FY13e    FY14e
Sy am a                                       1,216       669        563      554               CASHFLOW (A$M)                                 FY11     FY12e     FY13e    FY14e
Mt Wr ig h t - Sar sf ield                      893       966        988      762               EBITDA                                          142       237       460      536
Go ld en Pr id e                                721       655        767       -                + Div & Ot h er Reven u e Received               -52          5        0        0
Weighted avg.                                   912        753       744       653              - In t er est Paid /(Receiv ed )                   -4        -6        3       18
                                                                                                -Tax p aid                                       -16       -68     -152     -173
Total cash costs, A$/oz                        FY11      FY12e      FY13e    FY14e              -Wkg cap in cr ease, o t h er                    -11       -30       -29      -17
Sy am a                                       1,299        767        686     689               OPERATIONS CASH FLOW                              59      139       283       365
Mt Wr ig h t - Sar sf ield                      935      1,014      1,051     829                - Cap ex                                        -34     -134        -55      -33
Go ld en Pr id e                                763        703        827      -                FREE CASH FLOW                                    25          5     228       332
Weighted avg.                                   965        821        835      756               - Acq u isit io n s                                0         0        0        0
                                                                                                 + Ot h er                                         -1         0        0        0
EARNINGS RATIOS                                FY11      FY12e      FY13e    FY14e              INVESTING CASHFLOW                               -34     -134        -55      -33
Net Profit (A$m)                                  45        109        270      344             Eq u it y Raisin g / (Bu y Back)                  39      111          0        0
Issu ed Sh ar es (M)                            468        654        654      654              Deb t Raised / (Ret ir ed )                      -37       -41         0        0
Mo d elw ar e EPS (A$)                         0.10       0.17       0.41     0.53              Div id en d Paid                                    0         0      -54    -171
EPS Gr o w t h (% )                          -166%        75%       147%      27%               Ot h er                                          -33       -12         0        0
CFPS (A$)                                      0.13       0.21       0.43     0.56              FINANCING CASHFLOW                               -32        58       -54     -171
P/E (x)                                         19.9       11.4        4.6      3.6             FX Ad ju st m en t s                                0         0        0        0
P/CF (x)                                       15.1         8.9        4.4      3.4             Increase in cash deposits                          -7       63      174       161
FCF Yield (%)                                    3%         0%        18%      27%
Payo u t r at io                                 0%         0%       50%      50%               SUMMARY BALANCE SHEET (A$M)                    FY11     FY12e     FY13e    FY14e
Div id en d (c)                                  0.0        0.0      20.7     26.3              Cash & sh o r t t er m d ep o sit s               11        74      249      409
Div id en d Yield (% )                           0%         0%       11%      14%               Receiv ab les                                     22        31        40       36
Fr an kin g (% )                                 0%         0%         0%       0%              In v en t o r ies                                 96        56        63       52
En t er p r ise Valu e (A$M)                    665                                             Pr o p er t y , Plan t an d eq u ip m en t      191       518       614      685
EV/EBITDA (x)                                    4.7         2.8       1.4      1.2             Exploration, Evaluation & Development              9        19        29       39
                                                                                                In v est m en t s                                  0         0         0        0
FINANCIAL RATIOS                               FY11      FY12e      FY13e    FY14e              Ot h er asset s                                 249         27        27       27
Net debt/(net debt + equity)                    20%         -9%      -32%      -49%             Total assets                                    579       725      1021     1249
Deb t co ver - EBIT/in t er est                 -4.0      -16.3      -91.2   -217.1             Cr ed it o r s                                    47        28        31       26
EBITDA Margin                                   32%         37%        54%      63%             Bo r r o w in g s                               102         23        23       23
ROA (NPAT/Asset s) %                             8%       15%         26%      28%              Ot h er cu r r en t liab ilit ies                 34         0         0        0
ROE (NPAT/Eq u it y ) %                        13%         17%        29%      29%              Ot h er liab ilit ies                             39        30        33       28
ROIC                                           10%        16%         28%      29%              Total liabilities                               223         80        87       76
                                                                                                Net assets                                      356       645       935     1173
RESERVES AND RESOURCES                                             as at 30 June 2011           Sh ar eh o ld er eq u it y                      389       679       968     1207
Reserves                                     Stake        Mt        g/t Au Moz Au               Min o r it ies                                   -33       -34       -34      -34
Au st r alia                                 100%        42.1        1.1      1.6               Total Shareholder equity                        356       645       935     1173
Mali                                         80%         38.3        2.8      3.5               S/holder equity+Tot. liabilities                579       725      1021     1249
Tan zan ia                                   100%         4.3        1.6      0.2
TOTAL                                         87%        84.7        1.9      5.2               SUM OF THE PARTS                                         A$m      A$/sh    %
Resources                                                                                       Sy am a                                                   687      1.05    42%
Au st r alia                                 100%         8.2        0.9      0.2               Qu een slan d                                             821      1.26    51%
Mali                                         80%         23.2        2.4      1.8               Go ld en Pr id e                                            97     0.15      6%
Tan zan ia                                   100%        20.6        1.8      1.2               Co r p o r at e                                          -101     -0.16     -6%
TOTAL                                         89%        52.0        1.9      3.2               Rein v est m en t Valu e o f cash                           63     0.10      4%
                                                                                                Net cash (FY12)                                             51     0.08      3%
Metrics                                                                      US$/oz             Total Valuation                                          1618      2.47    100%
En t er p r ise v alu e p er r eser v e o z                                   155               Bet a                                                     1.30
En t er p r ise v alu e p er r eso u r ce o z, (in c r eser v e)               95               Co st o f Eq u it y (Ke)                                12.2%
                                                                                                Co st o f Deb t (Kd )                                    7.0%
Diluted Share count, Mn                                 653.8                                   WACC (No m in al)                                       10.0%
Source: Company data, Morgan Stanley Research. e = Morgan Stanley Research estimates.
NB: Some ratios may vary from Modelware due to definitional differences




                                                                                                                                                                              44
                                                                                                           MORGAN                            STANLEY           RESEARCH

                                                                                                           March 27, 2012
                                                                                                           Australia Metals & Mining




Risk-Reward Snapshot: Resolute Mining (RSG.AX, A$1.90, EW, PT A$2.35)

Risk-Reward View: Wide range reflects leverage in operations                                                                                               Why Overweight
   A$4.50                                                                                                                                                  • We expect Resolute’s Syama Mine to
                                                                                                                                                             achieve its design throughput and
     4.00
                                                                                                              A$3.90 (+105%)
                                                                                                                                                             recoveries.
     3.50                                                                                                                                                  • On a visit to the Syama Mine, we saw
                                                                                                                                                             that the processing methodology
     3.00
                                                                                                                                                             works, and believe are just
     2.50                                                                                                                                                    mechanical issues to be addressed.
                                                                                                                                                           • While we see the return to stable
                                                                                                               A$2.35 (+24% )
                                                                                    A$ 1.90
     2.00
                                                                                                                                                             operations as a positive, the risk
     1.50
                                                                                                                                                             reward appears balanced at present.

     1.00
                                                                                                                                                           Key Value Drivers
                                                                                                                                                           • Higher-grade ore zones are accessed
     0.50                                                                                                          A$.50 (-74%)
                                                                                                                                                             at Syama in 2012; this should lift FY13
     0.00                                                                                                                                                    output to +200koz and group output to
        Mar-10               Sep-10            Mar-11            Sep-11             Mar-12                Sep-12                       Mar-13                +400koz.
             Price Target (Mar-13)                 Historical Stock Performance                    Current Stock Price   WARNINGDONOTEDIT_RRS4RL~RSG.AX~
                                                                                                                                                           • Re-starting the Sarsfield Pit in
                                                                                                                                                             Queensland to augment the Mt Wright
 Price Target A$2.35                  We set our target price using Base-Bull-Bear weightings of
                                                                                                                                                             underground mine can lower costs.
                                      60%-20%-20%; the implied FY12 PER of 13.8x is a cross-check.
                                                                                                                                                           Potential Catalysts
 Bull            6.4x                 Gold price soars to ‘DM’ recession level of US$2,436/oz in 2013.
 case            FY13e Bull           Mine life extensions have less impact, given +10-year horizon, and                                                   • Sarsfield Pit re-start study in 1H FY12.
 A$3.90          case EPS             modest margins on our long-term US$1,189/oz gold price.                                                              • Oxide leach circuit study could
 Base            6.0x                 Strong demand boosts gold price to US$2,025/oz avg. in 2013.                                                           eventually add ~70kozpa to Syama’s
 Case            FY13e Base           This creates robust earnings and attractive multiples. We forecast                                                     output.
 A$2.47          case EPS             group production of 390koz in FY12, with 160koz from Syama.
                                                                                                                                                           Risks to Our Price Target
 Bear            3.6x                 Return to operational underperformance: Syama continues to
                                                                                                                                                           Upside Risks to Our Price Target
 Case            FY13e Bear           experience production difficulties (volumes -15% vs. base case);
                                                                                                                                                           • Rising gold prices due to increasing
 A$0.50          case EPS             operating costs are 10% higher.
                                                                                                                                                             global economic concerns.
                                                                                                                                                           • Better-than-expected mill reliability
Bear to Bull: Production is the single largest driver                                                                                                        and performance at Syama.
                                     Operating
                                                                                                                                                           • A positive scoping-study result for the
                                      Costs &                         Commodity &                                                                            Nyakafuru, indicating a high likelihood
                                      Capex         Production          Currency              Mine life                                                      of development.
                                                                                                                                                           Downside Risks to Our Price Target
                                                                                                                                                           • If real interest rates turn positive and
                                                                                                0.20
            Bull 3.90                                                        0.46

                                                        0.47                                                                                                  central banks stop buying gold, the
                                       0.25                                                                                                                   gold price could weaken.
        Base 2.47                                                                                                                                          • Throughputs, grades and recoveries
       Target 2.35                                                                                                                                            underperform at Syama due to plant
                                       -0.39                                                                                Current
                                                                                                                             1.90                             availability, reserve over-estimation
                                                        -0.71                                                                                                 or roasting issues.
                                                                                                                                                           • Potential country risk in African
                                                                            -0.60
         Bear 0.50                                                                                                                                            operations.
                                                                                                -0.25
                                                                                                             All values are in AUD

Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                                 45
                                                                                          MORGAN            STANLEY             RESEARCH

                                                                                          March 27, 2012
                                                                                          Australia Metals & Mining




Financial Summary
Gryphon Minerals Ltd                                    Last price: A$1.13                                              Price Target: A$2.30            Up/(Down):

ASSUMPTIONS (Yr to Jun)                     FY11    FY12e      FY13e     FY14e       LT   PROFIT AND LOSS (A$M)                           FY11     FY12e     FY13e
Go ld US$/o z                              1,373    1,684      2,025     2,063    1,189   To t al Sales Rev en u e                            0        0         0
Silv er US$/o z                             28.9     31.9       38.9      39.7     22.9   Co st o f Op er at io n s                        -16        -6        -7
FX Av g Sp o t A$/US$                       0.98     1.04       0.99      0.92     0.85   EBITDA                                           -16        -6        -7
                                                                                          Dep r eciat io n                                    0        0         0
Profit Sensitivities (%)                                                 FY14e            EBIT                                              -16       -6        -7
Cu r r en cy A$/US$ + 10%                                                 -11%            Net In t er est b en ef it /(exp en se)             3       -6        -7
Go ld US$/o z + 10%                                                        16%            Pre-tax profit                                    -14      -12       -13
Silv er US$/lb + 10%                                                        0%            Tax                                                 0        0         0
                                                                                          Min o r it ies                                      0        0         0
PRODUCTION                                 FY11     FY12e      FY13e     FY14e FY17e      Profit attributable                               -14      -12       -13
Or e m in ed , kt                             0         0          0     2,250 3,500      Ot h er Ab n o r m als Net o f Tax                  5        0         0
Or e t r eat ed , kt                          0         0          0     2,250 3,500      Profit after Non Recurring Items                   -9      -12       -13
Feed g r ad e, g /t                         0.0       0.0        0.0        2.6    1.9
Reco v er y , %                             0%        0%         0%       93%    90%      CASHFLOW (A$M)                                  FY11     FY12e     FY13e
Pr o d u ct io n , ko z                       0         0          0       175    208     EBITDA                                           -16          -6       -7
                                                                                          + Div & Ot h er Reven u e Receiv ed                11          0        0
Costs                                      FY11     FY12e      FY13e     FY14e FY17e      - In t er est Paid /(Receiv ed )                     1        -6       -7
Op . Cash    co st s,   US$m n                0         0          0        68   105      -Tax p aid                                           0         0        0
Op . Cash    co st s,   US$/t                 0         0          0        30    30      -Wkg cap in cr ease, o t h er                        1         6        2
Op . Cash    co st s,   US$/o z               0         0          0       386   506      OPERATIONS CASH FLOW                                -4        -7      -11
Op . Cash    co st s,   A$/o z                0         0          0       425   592       - Cap ex                                        -19        -92     -150
                                                                                          FREE CASH FLOW                                    -23       -99      -161
Ro y alt ies, A$/o z                           0           0        0      112      75     - Acq u isit io n s                                 4         0        0
To t al Cash co st s, A$/o z                   0           0        0      537     667     + Ot h er                                          -2        -2        0
                                                                                          INVESTING CASHFLOW                                -17       -94      -150
D&A, A$o z.                                    0           0        0      126     150    Eq u it y Raisin g / (Bu y Back)                   52        63         0
To t al co st , A$/o z                         0           0        0      663     817    Deb t Raised / (Ret ir ed )                          0     160          0
                                                                                          Div id en d Paid                                     0         0        0
EARNINGS RATIOS                            FY11     FY12e      FY13e     FY14e            Ot h er                                              0        -3        0
Net Profit (A$m)                             -14        -12        -13      251           FINANCING CASHFLOW                                 52      219          0
Issu ed Sh ar es (M)                        300        348        348      348            FX Ad ju st m en t s                                 0         0        0
Mo d elw ar e EPS (A$)                     -0.05     -0.04      -0.04     0.72            Increase in cash deposits                          31      119       -161
EPS Gr o w t h (% )                                  -33%         6%        NM
CFPS (c)                                   -0.02     -0.02      -0.03     0.74            SUMMARY BALANCE SHEET (A$M)                     FY11     FY12e     FY13e
P/E (x)                                    -21.2      -31.5     -29.8       1.6           Cash & sh o r t t er m d ep o sit s               50       169         8
P/CF (x)                                   -75.1     -59.6      -35.1       1.5           Receiv ab les                                      1         0         0
FCF Yield (%)                                -7%      -25%      -41%       59%            In v en t o r ies                                  0         0         0
Divid en d (c)                                0.0       0.0        0.0      0.0           Pr o p er t y , Plan t an d eq u ip m en t         1        51       181
Dividend Yield (%)                          0.0%      0.0%       0.0%     0.0%            Exploration, Evaluation & Development             73       114       134
Fr an kin g (% )                             0%         0%        0%        0%            In v est m en t s                                  0         0         0
En t er p r ise Valu e (A$M)                 414       457        619      385            Ot h er asset s                                    7         9        11
EV/EBITDA (x)                              -25.7     -77.8      -93.2       1.3           Total assets                                     133       343       334
                                                                                          Cr ed it o r s                                     4         8        10
FINANCIAL RATIOS                           FY11     FY12e      FY13e     FY14e            Bo r r o w in g s                                  0       160       160
Net debt/(net debt + equity)                -64%       -6%       48%      -24%            Ot h er cu r r en t liab ilit ies                  0         0         0
Cu r r en t r at io                         12.4     21.4         1.2      20.3           Ot h er liab ilit ies                              0         0         0
EBITDA Mar g in                               NA        NA        NA      74%             Total liabilities                                  4       168       170
Bo o k v alu e p er sh ar e (A$/sh ar e)      0.4       0.5       0.5       1.2           Net assets                                       129       175       164
Pr ice t o b o o k (x)                        3.1       2.7       2.9       1.1           Sh ar eh o ld er eq u it y                       129       175       164
ROA (NPAT/Asset s) %                         -7%      -4%        -4%      42%             Min o r it ies                                     0         0         0
ROE (NPAT/Eq u it y ) %                    -11%       -7%        -8%      60%             Total Shareholder equity                         129       175       164
ROIC                                         -7%      -4%        -4%      44%             S/holder equity+Tot. liabilities                 133       343       334

RESERVES AND RESOURCES                               Mt        g/t Au Moz Au              SUM OF THE PARTS                             Risk wgt     A$m      A$/sh
Ban f o r a as at 31 Mar ch 2011                    29.0        2.1    2.0                Ban f o r a                                    75%        616       1.77
EV p er r eser v e o z, US$/o z                                        NA                 Exp lo r at io n                                            60      0.17
EV p er r eso u r ce o z, US$/o z                                      309                Eq u it y In v est m en t s                                 23      0.07
                                                                                          Co r p o r at e                                            -63     -0.18
Discount rate                       Beta CoE          CoD      WACC                       Rein v est m en t Valu e o f cash                         202       0.58
                                   1.30    12.2%      7.0%     10.0%                      Total Valuation                                            838      2.41
NB: Some ratios may vary from Modelware due to definitional differences
Source: Company data, Morgan Stanley Research (e) Estimates




                                                                                                                                                                      46
                                                                                                           MORGAN                           STANLEY           RESEARCH

                                                                                                           March 27, 2012
                                                                                                           Australia Metals & Mining




Risk-Reward Snapshot: Gryphon (GRY.AX, A$1.13, OW, PT A$2.30)
Risk-Reward View: GRY offers high-risk/high-return investment profile
                                                                                                                                                          Why Overweight
   A$4.00
                                                                                                                                                          • Our positive view is based on a
                                                                                                              A$3.57 (+217%)
     3.50                                                                                                                                                   combination of a positive macro
     3.00
                                                                                                                                                            outlook for gold and the high leverage
                                                                                                                                                            a developer such as Gryphon offers.
     2.50
                                                                                                             A$2.30 (+104% )
                                                                                                                                                          • Although a high-risk/high-reward
     2.00                                                                                                                                                   investment, Gryphon has an existing,
                                                                                                                                                            albeit inferred, resource base in a
     1.50
                                                                                        A$ 1.13                                                             significant gold-producing region.
                                                                                                                   A$1.10 (-2%)
     1.00
                                                                                                                                                          Key Value Drivers
     0.50
                                                                                                                                                          • Resource extensions.
     0.00                                                                                                                                                 • Gold price and FX movements.
        Mar-10              Sep-10              Mar-11             Sep-11               Mar-12            Sep-12                      Mar-13
                                                                                                                                                          • Changes in project scope.
            Price Target (Mar-13)                    Historical Stock Performance                 Current Stock Price
                                                                                                                                                          • Costs.
                                                                                                                        WARNINGDONOTEDIT_RRS4RL~GRY.AX~




 Price Target A$2.30                        Our DCF-based price target of A$2.30/sh is calculated as the                                                  Potential Catalysts
                                            weighted average of outcomes from our bull, base and bear-case
                                                                                                                                                          • Gryphon’s ongoing drilling program
                                            scenarios using weightings of 10%, 70% and 20%, respectively.
                                                                                                                                                            may provide resource additions,
 Bull              Metrics not              Mine life extensions through resource upgrades: With                                                            extending mine life assumptions. We
 Case              meaningful               comprehensive resource drilling underway in the Banfora regional                                                expect resource updates in 2QCY12.
 A$3.57            until FY14               area, we see scope for additions. We also see substantial                                                     • We expect positive results from the
                                            production increases beyond our base-case projections.                                                          definitive feasibility study (DFS) in
 Base              Metrics not              Base-case commodity price assumptions: Our gold price view                                                      2HCY12. Confirmation of an
 Case              meaningful               for Gryphon’s first year of production, FY14, is US$2,063/oz,                                                   improvement in current Banfora
 A$2.41            until FY14               reflecting our positive outlook on gold. Combined with our LT                                                   assumptions would be positive.
                                            base-case gold price of US$1,189/oz, this creates robust earnings                                             • Securing funding for Banfora
                                            based on our forecast production model.                                                                         development during FY12.
 Bear              Metrics not              Risk-weighted project outcome: We apply a 30% risk weighting                                                  Risks to Our Price Target
 Case              meaningful               to our Banfora Project valuation. Production falls 10% short of
                                                                                                                                                          As a developer, Gryphon has a number
 A$1.10            until FY14               target during start-up, and costs increase 10% versus our base
                                                                                                                                                          of risks associated with greenfield
                                            case. Downside leverage to lower gold prices affects the total
                                            valuation less.                                                                                               projects, including:
                                                                                                                                                          • Funding risk: Any issues with raising
                                                                                                                                                            financing could be a negative.
Bear to Bull: Project risk, commodity and production all key drivers                                                                                      • Project timelines: Our model is
                                                Commodity                                                                                                   based on the Banfora project starting
                               Resource         and FX (+/-   Production (+/-       Costs (+/-    Banfora
                               extensions         10%)            10%)               10%)         unrisked                                                  up in FY14. Slippage would reduce
                                                                                                                                                            our valuation due to longer dated first
                                                                                                   0.59                                                     cash flows.
       Bull 3.57
                                                                                                                                                          • Capex increases: Our model
                                                                    0.12              0.08
                                                   0.24                                                                                                     includes a capex component of
                                    0.13
      Base 2.41                                                                                                                                             A$180mn for the Banfora
     Target 2.30
                                    -0.21
                                                  -0.10                                                                                                     development. Significant increases
                                                                                                                                                            beyond this would be negative.
                                                                    -0.51

       Bear 1.10                                                                                                              Current                     • Potential country risk.
                                                                                      -0.48                                    1.13


                                                                                                                    0.0%

Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                               47
                                                                                              MORGAN              STANLEY                  RESEARCH

                                                                                              March 27, 2012
                                                                                              Australia Metals & Mining




Financial Summary: Western Areas
WESTERN AREAS                               A$5.47                                                                           Target price:     A$6.65       22%      up/downside
                                            C$6.00                                                                                             C$7.07       18%      up/downside
ASSUMPTIONS (Yr to June)                      2011     2012e     2013e     2014e         LT    PROFIT AND LOSS (A$m)                              2011     2012e      2013e      2014e
Nickel (US$/lb)                              10.90      9.11      9.43     10.31      11.89    To t al Rev en u e                              468.7      339.4      423.2      488.9
Copper (US$/lb)                               3.93      3.77      3.93      3.95       2.77    Co st o f Pr o d u ct io n                      -161.9     -129.6     -167.3     -171.4
$A/$US Spot                                   0.98      1.04      0.99      0.92       0.85    EBITDA                                           306.7      209.7      255.9      317.5
                                                                                               Dep r eciat io n                                  -80.0      -76.5      -75.7      -72.9
Earnings Sensitivities (%)                    2011     2012e     2013e     2014e               EBIT                                             226.7      133.2      180.3      244.7
Cu r r en cy (A$/US$ + 10% )                   0%      -16%      -24%      -19%                Net In t er est Ben ef it (Exp en se)             -31.5      -25.8      -20.3      -11.4
Nickel (US$/lb + 10% )                         0%       20%       30%       24%                Tax Ben ef it s (Exp en ses)                      -60.3      -31.7      -48.0      -67.7
                                                                                               Min o r it ies                                      0.0        0.0        0.0        0.0
PRODUCTION                                    2011     2012e     2013e     2014e               Profit attributable                              135.0       75.7      111.9      165.6
Nickel Mined (kt)                                                                              Ab n o r m al It em s                               0.0        0.0        0.0        0.0
Flyin g Fo x (in cl. Lo u n g e Lizar d )     16.2      16.3      17.0      18.6               Net Profit (Reported)                             135.0       75.7      111.9      165.6
Sp o t t ed Qu o ll                           16.0      13.3      13.8      11.0
Ot h er                                        0.0       0.0       0.0       0.0               CASHFLOW (A$m)                                     2011     2012e      2013e     2014e
Total Nickel Mined (kt)                       32.2      29.5      30.8      29.6               EBITDA                                           306.7      209.7      255.9     317.5
Nickel in Concentrate - Production (kt)       25.7      25.4      28.6      27.5               - In t er est (Paid )/Received                    -19.0      -19.5      -20.3     -11.4
Nickel in Concentrate - Sales (kt)            27.5      25.3      28.6      27.5               -Tax p aid                                           0.0     -21.1      -48.0     -67.7
                                                                                               -Wkg cap in cr ease, o t h er                     -11.6      -25.2        0.4       -6.5
Unit Analysis (US$/lb of Ni Produced)         2011     2012e     2013e     2014e               OPERATIONS CASH FLOW                             276.2      143.9       188.1    232.0
Ach ieved Ni Pr ice                           8.28       6.06      6.71      8.05               - Cap ex                                       -104.1     -104.0       -38.0     -28.0
Co st o f Pr o d u ct io n (C1)              -2.09      -2.21     -2.17     -2.11              FREE CASH FLOW                                   172.1        39.9      150.1    204.0
Ot h er Reven u e/(Co st s)                  -0.77      -0.11     -0.49     -0.71               - Acq u isit io n s                                -2.0     -70.0        0.0        0.0
EBITDA                                        5.42       3.74      4.06      5.23               + Disp o sals                                       0.0        0.0       0.0        0.0
Dep r eciat io n                             -1.41      -1.37     -1.20     -1.20               + Ot h er                                           0.0        0.0       0.0        0.0
EBIT                                          4.01       2.38      2.86      4.03              INVESTING CASHFLOW (ex capex)                       -2.0     -70.0        0.0        0.0
Net In t er est Ben ef it (Exp en se)        -0.56      -0.46     -0.32     -0.19              Eq u it y Raisin g / (Bu y Back)                     0.4        0.0       0.0        0.0
Tax Ben ef it s (Exp en ses)                 -1.07      -0.57     -0.76     -1.11              Deb t Raised / (Ret ir ed )                          0.0        0.0   -100.5         0.0
Min o r it ies                                0.00       0.00      0.00      0.00              Divid en d Paid                                   -23.4      -35.9      -20.4     -14.6
Profit attributable                           2.39       1.35      1.78      2.73              Ot h er                                             -3.5       -0.3       0.0        0.0
Ab n o r m al It em s                         0.00       0.00      0.00      0.00              FINANCING CASHFLOW                                -26.5      -36.3     -120.9     -14.6
Net Profit                                    2.39       1.35      1.78      2.73              FX Ad ju st m en t s                                 0.0        0.0       0.0        0.0
                                                                                               Increase in cash deposits                        143.6       -66.4       29.2    189.4

Earnings Ratios                               2011     2012e     2013e     2014e               BALANCE SHEET (A$m)                               2011     2012e       2013e     2014e
Net Profit (A$m)                             135.0      75.7     111.9     165.6               Cash & short term deposits                         209       143         172       361
Issu ed Sh ar es (M)                           180       180       180       180               Receiv ab les                                       28        32          36        43
Mo d elw ar e EPS (A$)                        0.75      0.42      0.62      0.92               In ven t o r ies                                    31        22          27        27
EPS Gr o w t h (% )                                    -44%       48%       48%                Pr o p er t y, Plan t an d eq u ip m en t          112       178         141        96
CFPS (c) *                                   153.7      80.1     104.6     129.1               In t an g ib le Asset s                              1         0           0         0
P/E - ASX (x)                                   7.9      13.0       8.8       5.9              Ot h er asset s                                    313       354         354       354
P/E - TSX (x)                                   8.5      15.1      10.2       6.9              Total assets                                       692       729         730       881
P/CF - ASX (x)                                  3.6       6.8       5.2       4.2              Cr ed it o r s                                      56        32          39        39
P/CF - TSX (x)                                  3.7       7.1       5.4       4.4              Bo r r o w in g s                                  302       302         201       201
FCF Yield - ASX (%)                            18%        4%       15%        0%               Ot h er cu r r en t liab ilit ies                    4        11          12        12
FCF Yield - TSX (%)                            17%        4%       15%        0%               Ot h er liab ilit ies                               42        56          58        70
Divid en d (c)                                25.0      10.7      12.5      18.4               Total liabilities                                  404       400         310       321
Dividend Yield - ASX (%)                      4.6%      2.0%      2.3%      3.4%               Net assets                                         288       329         420       559
Dividend Yield - TSX (%)                      4.4%      1.9%      2.2%      3.3%               Min o r it ies                                       0         0           0         0
Fr an kin g (% )                                0%        0%        0%       0%                Total Shareholder equity                           289       329         420       559
En t er p r ise Valu e (US$M)                1,076     1,142     1,013       823               S/holder equity+Tot. liabilities                   693       729         730       880
EV/EBITDA* * (x)                                3.8       5.3       4.0       2.6
                                                                                               DCF Valuation                                      A$m     A$/sh US$/sh           C$/sh
                                                                                               Flyin g Fo x                                     721.0       4.03       3.43        4.28
FINANCIAL RATIOS                              2011     2012e     2013e     2014e               Sp o t t ed Qu o ll                              705.0       3.94       3.35        4.19
Net debt/(net debt + equity)                   24%       33%        7%      -40%               Dig g er s So u t h                                82.7      0.46       0.39        0.49
Cu r r en t r at io                             4.6       4.6       4.6       8.5              Co sm ic Bo y                                      26.7      0.15       0.13        0.16
Debt cover - EBIT/interest                      6.2       4.0       7.2      12.1              New Mo r n in g                                    29.7      0.17       0.14        0.18
EBITDA/Sales                                  65%       62%       60%       65%                Ot h er Ten em en t s                               5.0      0.03       0.02        0.03
Bo o k v alu e p er sh ar e (A$/sh ar e)      1.60      1.83      2.34      3.11               Co r p o r at e                                   -61.8     -0.35      -0.29       -0.37
Price to book (X)                               3.4       3.0       2.3       1.8              Net (Deb t )/Cash (Dec 11)                      -146.9     -0.82       -0.70      -0.87
ROA (NPAT/Asset s) %                          19%       10%       15%       19%                Total Valuation                                 1,361.4      7.60       6.47        8.08
ROE (NPAT/Eq u it y) %                        47%       23%       27%       30%                Beta                                                1.3         Cost of debt       7.0%
ROIC                                           38%       21%       29%       32%               WACC (No m in al af t er t ax)                    9.5%     Co st o f eq u it y   11.5%
NB: Some ratios may differ from Modelware due to definitional differences
e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research




                                                                                                                                                                                   48
                                                                                                         MORGAN                          STANLEY           RESEARCH

                                                                                                         March 27, 2012
                                                                                                         Australia Metals & Mining




Risk-Reward Snapshot: Western Areas (WSA.AX, A$5.57, OW, PT A$6.65)

Risk-Reward View: Bull-case nickel prices drive the upside                                                                                             Investment Thesis
   A$12
                                                                                                                                                       • WSA is a pure-play nickel miner
                                                                                                           A$10.30 (+85%)
                                                                                                                                                         offering leverage to high-grade,
     10
                                                                                                                                                         high-growth asset potential.
                                                                                                                                                       • WSA’s active exploration program
      8
                                                                                                                                                         has identified the potential for multiple
                                                                                    A$ 5.57
                                                                                                            A$6.65 (+19% )                               mines in the Forrestania region,
      6
                                                                                                              A$5.20 (-7%)
                                                                                                                                                         potentially extending nickel
                                                                                                                                                         production beyond the current ~10
      4
                                                                                                                                                         year mine life.
                                                                                                                                                       • The company is operating the Flying
      2
                                                                                                                                                         Fox and Spotted Quoll mines. Both
                                                                                                                                                         mines remain open in multiple
      0
      Mar-10             Sep-10               Mar-11            Sep-11               Mar-12         Sep-12                         Mar-13                directions.
           Price Target (Mar-13)                   Historical Stock Performance                Current Stock Price   WARNINGDONOTEDIT_RRS4RL~WSA.AX~
                                                                                                                                                       • WSA’s operations are positioned low
                                                                                                                                                         in the first quartile of the cash cost
                                           To derive our price target, we apply weightings to our DCF
                                                                                                                                                         curve providing margin protection
                                           valuations for our Base-Bull-Bear cases; these are 50-05-45
 Price Target A$6.65                                                                                                                                     against a falling commodity price.
                                           reflecting the Morgan Stanley Commodity Team risk weighting for
                                           nickel metal.                                                                                               Key Value Drivers
 Bull Case         16.5x PER               Bull-case commodity prices and operational improvements:                                                    • Nickel grades improving.
 A$10.30           FY13e EPS               We assume higher commodity prices relative to our base case,                                                • Nickel prices strengthening.
                                           plus increases in total output and an improved cost profile with
                                                                                                                                                       • Asset growth (production profile).
                                           better payability terms.
                                                                                                                                                       • Payability terms become more
 Base Case 12.2x PER                       Utilising Base-case commodity inputs: Nickel at US$9.43/lb in                                                 favourable.
 A$7.60    FY13e EPS                       FY13e and US$10.31/lb in FY14e and averaging US$11.89/lb long
                                           term.                                                                                                       Potential Catalysts

 Bear Case         8.3x PER                Bear-case commodity pricing & operations underperform: We                                                   • Re-bounding nickel price on the LME.
 A$5.20            FY13e EPS               assume lower commodity prices compared to our base case and                                                 • Exploration success at existing
                                           declines in nickel grades and payability terms.                                                               operations and/or new high-grade
                                                                                                                                                         nickel discoveries.
Bear to Bull: Key variables are nickel price and production profile                                                                                    • Announcement of the result of the
                             Nickel Grades     Commodity &     Produciton         Payability   Cost base
                                 (±5%)          FX (±10%)       (±10%)             (±5%)        (±10%)                                                   Life-of-Mine review and possible
                                                                                                                                                         expansion of the Cosmic Boy
      Bull 10.30
                                                                                                 0.31                                                    concentrator.
                                                                                    0.59
                                                                   0.36
                                                  0.81                                                                                                 Key Risks to Our Price Target
                                   0.62
                                                                                                                                                       • Weaker-then-expected nickel prices.
                                                                                                                                                       • Stronger-than-expected A$ vs. US$,
      Base 7.60

     Target 6.65                   -0.62
                                                                                                                                                         reducing margins.
                                                  -0.61
                                                                  -0.31
                                                                                                                              Current                  • Mining volumes or grades not
       Bear 5.20                                                                    -0.59                                      5.47
                                                                                                 -0.31                                                   maintained.
                                                                                                All values are in AUD

Source: Morgan Stanley Research, Thomson Reuters




                                                                                                                                                                                              49
                                                                                                               MORGAN                STANLEY                RESEARCH

                                                                                                               March 27, 2012
                                                                                                               Australia Metals & Mining




Financial Summary
PANORAMIC RESOURCES                                             A$ 1.21                                                                            Price Target   A$ 1.40      16% u p sid e/(d o w n sid e)
ASSUMPTIONS (Yr to June)                               2011       2012e       2013e        2014e          LT         PROFIT AND LOSS (A$m)                           2011     2012e      2013e       2014e
Nickel (US$/lb)                                       10.90        9.11        9.43        10.31       11.89         To t al Rev en u e                            243.4      259.4      303.0       343.0
Copper (US$/lb)                                        3.93        3.77        3.93         3.95        2.77         Co st o f Pr o d u ct io n                   -166.0     -190.1     -208.6      -213.6
Cobalt (US$/lb)                                       18.31       15.82       16.75        18.25       17.46         EBITDA                                          77.4       69.3       94.4      129.4
$A/$US Spot                                            0.98        1.04        0.99         0.92        0.85         Dep r eciat io n                               -45.8      -47.5      -48.3       -34.0
                                                                                                                     EBIT                                            31.6       21.8       46.2        95.4
PRODUCTION                                             2011       2012e       2013e        2014e                     Net In t er est Ben ef it /(Exp en se)            4.7        3.5       1.7         2.5
Nickel Produced (kt)                                                                                                 Tax Ben ef it s/(Exp en se)                    -10.2        -8.2     -14.3       -29.4
Sav an n ah                                            6.92        7.83         8.86        8.20                     Min o r it ies                                    0.0        0.0       0.0         0.0
Lan f r an ch i                                       10.12       11.03        10.78       10.78                     Profit attributable                            26.2       17.2       33.5        68.5
Ot h er                                                0.00        0.00         0.00        1.00                     Ab n o r m al It em s                            -3.9       -2.9       0.0         0.0
Nickel Produced (kt)                                  17.04       18.86        19.64       19.98                     Net Pr o f it                                   22.3       14.4       33.5        68.5
Nickel Sold (kt)                                      16.94       18.86        19.64       18.98
% Hedged of Payable Nickel                             25%         22%           5%          0%                      CASHFLOW (A$m)                                  2011    2012e      2013e       2014e
                                                                                                                     EBITDA                                          77.4      69.3       94.4      129.4
Earnings Ratios                                        2011       2012e       2013e       2014e                      - In t er est (Paid )/Received                    3.7       3.5       1.7          2.5
Issu ed Sh ar es (M)                                    207          207        207         207                      -Tax p aid                                     -19.1     -10.8      -14.3       -29.4
Mo d elw ar e EPS (A$)                                 0.13         0.08       0.16        0.33                      -Wkg cap in cr ease, o t h er                    -9.9      -4.5       0.1         -4.2
EPS Gr o w t h (% )                                   -49%         -34%        95%        105%                       OPERATIONS CASH FLOW                            52.1      57.4       81.8        98.3
CFPS (c) *                                             25.2         27.8       39.6        47.6                       - Cap ex                                      -65.7     -69.5      -54.0       -34.0
P/E (x)                                                  9.5         14.5        7.5         3.6                     FREE CASH FLOW                                 -13.7     -12.0       27.8        64.3
P/CF (x)                                                 4.8          4.4        3.1         2.5                      - Acq u isit io n s                           -10.7        0.0       0.0          0.0
FCF Yield (%)                                           -5%          -5%        11%          0%                       + Disp o sals                                  87.7        0.0       0.0          0.0
Divid en d (c)                                           6.0          6.0        7.3       14.9                       + Ot h er                                        0.0       0.0       0.0          0.0
Dividend Yield (%)                                     5.0%         4.9%       6.0%       12.3%                      INVESTING CASHFLOW                              77.0        0.0       0.0          0.0
Fr an kin g (% )                                     100%         100%        100%        100%                       Eq u it y Raisin g / (Bu y Back)                  2.7       0.0       0.0          0.0
En t er p r ise Valu e (US$M)                           160          187        174         131                      Deb t Raised / (Ret ir ed )                      -3.3      -1.4       0.0          0.0
EV/EBITDA* * (x)                                         2.1          2.7        1.8         1.0                     Divid en d Paid                                -21.6       -8.3     -15.0       -21.2
                                                                                                                     Ot h er                                           0.0       0.0       0.0          0.0
Unit Analysis (US$/lb of Ni Produced)                   2011      2012e       2013e        2014e                     FINANCING CASHFLOW                             -22.2       -9.7     -15.0       -21.2
Ach ieved Ni Pr ice                                     7.36        6.31        6.22         6.57                    FX Ad ju st m en t s                              0.0       0.0       0.0          0.0
Co st o f Pr o d u ct io n (C1)                         3.83        3.62        3.42         3.34                    Increase in cash deposits                       41.1     -21.7       12.8        43.1
Ot h er Rev en u e/(Co st s)                           -1.51       -0.96       -0.64        -0.54
EBITDA                                                  2.03        1.73        2.16         2.69                    BALANCE SHEET (A$m)                           2011      2012e      2013e       2014e
Dep r eciat io n                                       -1.20       -1.19       -1.10        -0.71                    Cash & short term deposits                    90.9       69.1       82.0       125.1
EBIT                                                    0.83        0.55        1.05         1.98                    Receiv ab les                                 34.5       23.9       25.7        29.3
Net In t er est Ben ef it (Exp en se)                   0.12        0.09        0.04         0.05                    In ven t o r ies                              12.3       32.2       34.3        33.6
Tax Ben ef it s (Exp en ses)                           -0.27       -0.20       -0.33        -0.61                    Pr o p er t y , Plan t an d eq u ip m en t    66.0       90.2       95.9        95.9
Min o r it ies                                          0.00        0.00        0.00         0.00                    In t an g ib le Asset s                       96.8       96.5       96.5        96.5
Profit attributable                                     0.68        0.43        0.76         1.42                    Ot h er asset s                              107.2      113.8      113.8       113.8
                                                                                                                     Total assets                                 407.7      425.7        448         494
DCF Valuation                                             Risk Weight           A$m        A$/sh                     Cr ed it o r s                                24.0       32.2       34.3        33.6
Sav an n ah                                                                      137        0.66                     Bo r r o w in g s                              1.4        5.9        5.9         5.9
Lan f r an ch i                                                                  260        1.26                     Ot h er cu r r en t liab ilit ies              6.8        8.7        9.2         9.0
Gid g ee Go ld Pr o ject                                         50%               15       0.07                     Ot h er liab ilit ies                         73.4       65.0       66.3        65.9
Eq u it y In v est m en t s                                                         8       0.04                     Total liabilities                            105.6      111.8      115.7       114.4
Exp lo r at io n                                                                   20       0.10                     Net assets                                   302.2      313.9        332         380
Co r p o r at e                                                                 -105       -0.51                     Min o r it ies                                 0.0        0.0        0.0         0.0
Hed g e Bo o k                                                                      6       0.03                     Total Shareholder equity                     303.1      313.8        332         380
Net (Deb t )/Cash (Dec 11)                                                         60       0.29                     S/holder equity+Tot. liabilities             408.7      425.5        448         494
Total Valuation                                                                  401        1.95
Po t en t ial GHG DCF Im p act Au st r alia                                       -34      -0.16                     FINANCIAL RATIOS                               2011     2012e      2013e       2014e
DCF Af t er GHG                                                                  367        1.78                     Net d eb t /(n et d eb t + eq u it y )        -42%      -25%       -30%        -46%
                                                                                                                     Cu r r en t r at io                             4.7       3.3        3.4         4.5
GHG Emissions                                          2011       2012e       2013e       2014e                      Deb t co v er - EBIT/in t er est               22.2      17.5       38.8        80.2
Au st r alia Kt                                         125         141         159         148                      EBITDA/Sales                                   32%       27%        31%         38%
Fo r ecast GHG Co st s A$/t                                0          23          24          25                     Bo o k v alu e p er sh ar e (A$/sh ar e)       1.47      1.52       1.61        1.84
GHG In t en sit y To n n e/A$m Sales                    911        1170        1094         928                      Pr ice t o b o o k (X)                          0.8       0.8        0.7         0.7
Potential P&L Impact GHG (A$m)                         2011       2012e       2013e       2014e                      ROA (NPAT/Asset s) %                            6%        4%         7%         14%
GHG Co st                                                  0            1          1           4                     ROE (NPAT/Eq u it y ) %                         9%        5%        10%         18%
EBIT with GHG                                             32          21          45          92                     ROIC                                           10%        7%        14%         25%
EBIT % Ch an g e                                        0%          -5%         -3%         -4%
Tax af t er GHG                                          -10           -8        -15         -30                     Earnings Sensitivities (%)                     2011     2012e      2013e       2014e
NPAT After GHG                                            26          16          33          66                     Cu r r en cy (A$/US$ + 5% )                     0%      -49%       -55%        -32%
NPAT % Ch an g e                                      0.0%        -4.5%       -2.8%       -3.8%                      Nickel (US$/lb + 5% )                           0%       56%        64%         37%

So u r ce: Mo r g an St an ley Resear ch (e) est im at es
NB: So m e r at io calcu lat io n s m ay var y f r o m Mo d elw ar e d u e t o d ef in it io n al d if f er en ces




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                                                                                                       March 27, 2012
                                                                                                       Australia Metals & Mining




Risk-Reward Snapshot: Panoramic Resources (PAN.AX, A$1.21, OW, PT A$1.40)

Risk-Reward View: Large upside skew highlights PAN’s leverage to                                                                                       Investment Thesis
rising nickel prices and improving operating margins
                                                                                                                                                       • A nickel sulphide miner and explorer
   A$4.00
                                                                                                                                                         with growth potential through
                                                                                                           A$3.60 (+198%)
     3.50                                                                                                                                                exploration success or asset
                                                                                                                                                         acquisitions.
     3.00
                                                                                                                                                       • The company is targeting organic
     2.50                                                                                                                                                growth to achieve its target nickel
                                                                                                                                                         annual production of 25ktpa for at
     2.00
                                                                                                                                                         least 10 more years.
     1.50                                                                          A$ 1.21                 A$1.40 (+16% )
                                                                                                                                                       • PAN is also targeting accretive
                                                                                                                                                         acquisitions to achieve its target of
     1.00
                                                                                                                                                         becoming a “significant diversified
                                                                                                              A$.60 (-50%)
     0.50                                                                                                                                                mining company”.
                                                                                                                                                       • PAN has a strong balance sheet and
     0.00
        Mar-10              Sep-10           Mar-11            Sep-11              Mar-12            Sep-12                        Mar-13                an experienced management team
            Price Target (Mar-13)                Historical Stock Performance                  Current Stock Price   WARNINGDONOTEDIT_RRS4RL~PAN.AX~     that provides the capacity to achieve
                                                                                                                                                         its stated targets.
 Price Target A$1.40                    For our price target, we apply a probability weighting to our DCF                                              • PAN management are committed to
                                        valuations for our bull (5%), base (50%), and bear (45%) scenarios                                               returning to investors 40-50% of
                                        to reflect our level of conviction in each scenario. We assume                                                   earnings. This makes PAN a high
                                        WACC of 9.5%, cost of equity of 11.5% and cost of debt of 7.0%.                                                  dividend yield miner.
 Bull Case          22.2x FY13e         Bull-case commodity prices and operational improvements:
 A$3.60             EPS                 We assume higher commodity prices relative to our base case,                                                   Key Value Drivers
                                        plus operational efficiencies improve margins.
                                                                                                                                                       • Nickel prices strengthening.
 Base Case 12.0x FY13e                  Base case commodity assumptions: Nickel at US$9.43/lb in                                                       • Mine life extensions through
 A$1.95    EPS                          2013e and US$10.31/lb in 2014e and averaging US$11.89/lb long                                                    near-mine exploration.
                                        term.                                                                                                          • Operating costs reduction through
 Bear Case          3.7x FY13e          Bear-case commodity prices and cost pressures mount: We                                                          efficiencies or improved by-product
 A$0.60             EPS                 assume lower commodity prices compared to our base case, no                                                      prices.
                                        additional mine-life extensions and a 10% increase in operating                                                • Exploration drilling outside existing
                                        costs.                                                                                                           project areas, i.e., Gidgee.


Bear to Bull: Leverage nickel miner, downside risk on price weakness                                                                                   Potential Catalysts
                               Commodity & FX
                                  (±10%)      Produciton (±10%)      Payability (±5%)   Cost base (±10%)                                               • Exploration success at existing
                                                                                                                                                         operations and/or new high-grade
        Bull 3.60
                                                      0.20
                                                                            0.20              0.05
                                                                                                                                                         nickel discoveries.
                                     1.20
                                                                                                                                                       • Accretive acquisitions.
                                                                                                                                                       • Higher dividend payout ratio in the
      Base 1.95
                                                                                                                                                         absence of material acquisitions.
     Target 1.40
                                     -0.60
                                                      -0.25
                                                                                                                             Current
                                                                                                                              1.21
                                                                                                                                                       Downside Risks to Our Price Target
       Bear 0.60                                                           -0.40
                                                                                             -0.10
                                                                                                                                                       • Nickel prices decline on global
                                                                                                All values are in AUD
                                                                                                                                                         macro-economic concerns.
Source: Morgan Stanley Research, Thomson Reuters                                                                                                       • Payability reductions on lower mined
                                                                                                                                                         grades.




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                                                                                                        March 27, 2012
                                                                                                        Australia Metals & Mining




Financial Summary: Gloucester Coal
Gloucester Coal                                                                               $8.17

ASSUMPTIONS (YE June)                                 FY11     FY12e      FY13e      FY14e         LT     PROFIT AND LOSS (A$M)                        FY11     FY12e    FY13e    FY14e
Pr em iu m Har d Co kin g Co al                        247       260        203        221       141      To t al Sales Rev en u e                      312       642      866    1,363
St an d ar d Har d Co kin g Co al                      223       234        182        199       127      Co st o f Op er at io n s                     231       587      780    1,039
PCI Co al                                              190       190        148        164       112      EBITDA                                         81        55       86      324
Sem i So f t Co kin g Co al                            183       180        136        154       107      Dep r eciat io n                                9        38       23       28
Th er m al Co al                                       106       126        116        121         93     EBIT                                            72       17       63      296
Hig h Ash Th er m al Co al                             101       120        110        115         89     Net In t er est b en ef it /(exp en se)         14      -25      -28      -26
AUDUSD                                                0.98      1.04       0.99       0.92       0.85     Pr e-t ax p r o f it                            86        -8      35      269
                                                                                                          Tax                                             22        -5      10       78
SENSITIVITIES to 10% forecast change                  FY11      FY12e      FY13e     FY14e                Profit attributable                             64        -3      25      191
Co kin g co als                                                -265%        70%        46%                Ot h er Ab n o r m als Net o f Tax               0      -39        0        0
Th er m al co als                                              -453%       110%        44%                Profit after Non Recurring Items                64       -42      25      191
AUDUSD                                                          845%      -210%       -82%
                                                                                                          CASHFLOW (A$M)                               FY11     FY12e    FY13e    FY14e
COAL SALES, '000t (GCL share)                         FY11     FY12e      FY13e      FY14e                EBITDA                                         81        55       86      324
By Operation                                                                                               + Div & Ot h er Reven u e Receiv ed             5         2       5         3
Du r alie-St r at f o r d                             2,137     2,095        2,508   3,488                 - In t er est Paid /(Receiv ed )               -3      -28      -33       -30
Mid d lem o u n t                                         0       832        1,280   1,840                 -Tax p aid                                   -18         -5     -11       -78
Do n ald so n                                             0     1,740        2,600   2,970                 -Wkg cap in cr ease, o t h er                  -1       13        6      121
Total                                                 2,137     4,667        6,388   8,298                OPERATIONS CASH FLOW                            65       37       53      340
                                                                                                            - Cap ex                                    -126     -152     -141     -142
By Coal type                                                                                              FREE CASH FLOW                                  -61    -115       -87     198
St an d ar d Har d co kin g                               0       582          960   1,380                  - Acq u isit io n s                         -390      -32         0       0
Sem i so f t co kin g                                   787       976        1,523   2,635                  + Disp o sals
PCI                                                       0       250          320     460                  + Ot h er                                    -79        -3       0        0
Th er m al                                                0     1,392        2,080   2,079                INVESTING CASHFLOW                            -469       -34       0        0
Hig h Ash Th er m al                                  1,350     1,467        1,505   1,744                Eq u it y Raisin g / (Bu y Back)              655          0       0        0
Total                                                 2,137     4,667        6,388   8,298                Deb t Raised / (Ret ir ed )                     31      114        0      -60
                                                                                                          Div id en d Paid                                 0         0       0        0
OPERATING COST, FOB A$/t                              FY11     FY12e      FY13e      FY14e                Ot h er                                          0         0       0        0
Du r alie                                               99       110         94         99                FINANCING CASHFLOW                             686      114        0       -60
Mid d lem o u n t                                        0       130        130        127                FX Ad ju st m en t s                             0        0        0         0
Do n ald so n                                            0       107        110        110                Increase in cash deposits                      157       -35      -87     138
Total                                                     99      112          108     109
                                                                                                          BALANCE SHEET (A$M)                          FY11     FY12e    FY13e    FY14e
EARNINGS RATIOS                                       FY11      FY12e      FY13e     FY14e                Cash & short term deposits                     184       149       62      200
Net Profit (A$m)                                         64          -3        25      191                Receivab les                                    29        45       50       88
Issu ed Sh ar es (M)                                   170        203        203       203                In v en t o r ies                                9        84       87     128
Mo d elw ar e EPS (A$)                                0.38       -0.01      0.12      0.94                Pr o p er t y , Plan t an d eq u ip m en t    807     1,749    1,865    1,978
EPS Gr o w t h (% )                                   34%      -155%      -159%      666%                 Exploration, Evaluation & Development           57      219      221      222
Rep o r t ed EPS (A$)                                 0.38       -0.21      0.12      0.94                In v est m en t s                                0         0        0        0
CFPS (c) *                                            38.2        18.1      26.2     167.5                Ot h er asset s                               256       372      373      373
P/E (x)                                                21.6     -598.8       66.3       8.7               Total assets                                 1,343     2,618    2,657    2,987
P/CF (x)                                              21.4        45.2      31.1        4.9               Cr ed it o r s                                  57      146      151      221
FCF Yield (%)                                           -4%       -7%          0%      0%                 Bo r r o w in g s                               99      411      411      351
Div id en d (c)                                          0.0       0.0         0.0     0.0                Ot h er cu r r en t liab ilit ies                5        88       88       88
Dividend Yield (%)                                      0%        0%            0%      0%                Ot h er liab ilit ies                         168       684      693      821
Fr an kin g (% )                                     100%      100%          100%    100%                 Total liabilities                              329    1,328    1,342    1,481
En t er p r ise Valu e (A$M)                            -85    1,919         2,007   1,809                Net assets                                   1,015    1,290    1,315    1,506
EV/EBITDA (x)                                          -1.1     35.0          23.3      5.6               Sh ar eh o ld er eq u it y                   1,015    1,290    1,315    1,506
                                                                                                          Min o r it ies                                   0        0        0        0
RATIOS                                                FY11     FY12e      FY13e      FY14e                Total Shareholder equity                     1,015    1,290    1,315    1,506
Gearing (ND/E)                                         -8%       20%        27%        10%                S/holder equity+Tot. liabilities             1,343    2,618    2,657    2,987
Cu r r en t r at io                                     2.1       1.6        1.2        1.7
Deb t co ver - EBIT/in t er est                       18.4        0.6        1.9      10.0                DCF Valuation                                          A$m     A$/sh       %
EBITDA/Sales                                          26%         9%       10%        24%                 Du r alie & St r at f o r d                             820     4.04     47%
EBIT/Sales                                            23%         3%         7%       22%                 Mid d lem o u n t                                       871     4.29     50%
Bo o k valu e p er sh ar e (A$/sh ar e)               5.97      6.36       6.48       7.42                Do n ald so n                                           396     1.95     23%
Pr ice t o b o o k (X)                                  1.4       1.3        1.3        1.1               Exp lo r at io n Asset s                                100     0.49      6%
ROA (NPAT/Asset s) %                                   5%        -2%         1%         6%                Co r p o r at e                                        -185    -0.91    -11%
ROE (NPAT/Eq u it y ) %                                6%         0%         2%       13%                 Net Deb t (Ju n 12)                                    -262    -1.29    -15%
ROIC                                                   5%         1%         3%       11%                 Total Valuation                                       1,740      8.60   100%

Source: Morgan Stanley Research

Note: Some ratios may differ from Modelware due to calculation differences




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                                                                                                        Australia Metals & Mining




Risk-Reward Snapshot: Gloucester Coal (GCL.AX, A$8.17, EW, PT A$8.00)
Risk-Reward: Price Target 2% Discount to Current Prices
   A$16
                                                                                                                                                      Investment Thesis
                                                                                                                                                      • GCL represents a simple, low-risk
     14                                                                                                                                                 operation with a reasonable growth
                                                                                                                                                        profile but relatively high cost
     12
                                                                                                                                                        production.
                                                                                                          A$10.60 (+30%)
     10                                                                                                                                               • There is currently an offer in place for
                                                                                  A$ 8.17
                                                                                                                                                        GCL that has a headline price of
      8                                                                                                       A$8.00 (-2% )
                                                                                                                                                        $10.11 ($3.15 in capital returns and a
                                                                                                              A$6.80 (-17%)
      6                                                                                                                                                 $6.96/sh equity price guarantee).
                                                                                                                                                      • However an independent expert’s
      4
                                                                                                                                                        reports and Board recommendation
      2                                                                                                                                                 are still pending. Along with a lack of
                                                                                                                                                        data on the assets of the potential
      0
      Mar-10             Sep-10            Mar-11                Sep-11           Mar-12             Sep-12                       Mar-13
                                                                                                                                                        acquirer, Yancoal, this is creating
           Price Target (Mar-13)                Historical Stock Performance                  Current Stock Price   WARNINGDONOTEDIT_RRS4RL~GCL.AX~
                                                                                                                                                        market uncertainty around the
Source: Company Data, Morgan Stanley Research                                                                                                           transaction hence the discount to the
                                                                                                                                                        headline offer price.
Price Target A$8.00                   Our Price Target of A$8.00/sh is based on our sum-of-the-parts
                                                                                                                                                      Key Value Drivers
                                      DCF valuation under our base, bull and bear case assumptions
                                                                                                                                                      • Bringing the Middlemount mine up to
                                      weighted 55%, 5% and 40%, respectively. We assume WACC of
                                      10.5%, cost of equity of 12.7% and cost of debt of 8.0%.                                                          full production and delivering the
                                                                                                                                                        subsequent expansion.
Bull              86.1x FY13e Bull Case Pricing: Assume bull case coal pricing assumptions,
                              increased output, lower operating costs and mine life extensions.                                                       • Increasing output from the Duralie
Case DCF          EPS
A$10.60
                                                                                                                                                        and Donaldson operations.
Base              69.8x FY13e Base Case Pricing: Based on base case coal pricing assumptions                                                          • Reversing the switch from met coal to
Case DCF          EPS         that include FY12 thermal US$126/t and long term US$93/t                                                                  thermal coal output and re-capturing
A$8.60                        (nominal).                                                                                                                better realised coal prices.
Bear              55.2x FY13e Bear Case Pricing: Assume bear case pricing assumption, in
                                                                                                                                                      Potential Catalysts
Case DCF          EPS         addition to higher operating costs and lower production volumes
                                                                                                                                                      • Confirmation of the Yancoal
A$6.80                        and reduced mine lives.
                                                                                                                                                        transaction proceeding.
Bear to Bull: Risks Skewed to the Downside                                                                                                            • Extension to mine life.
                              Commodity and
                                Currency            Production        Opex and Capex        Mine life                                                 Upside Risks to Our View
                                                                                                                                                      • Exploration success extends mine
     Bull 10.60
                                                                                              0.75                                                      life.
                                                                           0.30                                                                       • Stronger-than-forecast coal prices.
                                                      0.70
                                                                                                                                                      • Infrastructure constraints decline and
                                   0.20                                                                                                                 export volumes increase.
     Base 8.60
                                                                                                                               Current
    Target 8.00                    -0.50                                                                                        8.17                  Downside Risks to Our View
                                                      -0.50                                                                                           • Coal sales volumes remains
                                                                          -0.30
      Bear 6.80                                                                                                                                         dependent on reduced met coal
                                                                                             -0.55
                                                                                                                                                        volumes and increased thermal coal
                                                                                                All values are in AUD                                   volumes.
Source: Company Data, Morgan Stanley Research                                                                                                         • Continued strength in the A$ vs US$
                                                                                                                                                      • Rising operating costs.




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                                                                                              March 27, 2012
                                                                                              Australia Metals & Mining




                              Coverage Universe    Investment Banking Clients (IBC)
                                             % of                   % of % of Rating
Stock Rating Category            Count       Total     Count Total IBC Category
Overweight/Buy                   1120           38%           461          44%           41%
Equal-weight/Hold                1229           42%           449          42%           37%
Not-Rated/Hold                    105            4%            24           2%           23%
Underweight/Sell                  464           16%           124          12%           27%
Total                           2,918                        1058
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual
circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan
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                                                                                            March 27, 2012
                                                                                            Australia Metals & Mining




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                                                                                      MORGAN    STANLEY            RESEARCH




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Industry Coverage:Australia Metals & Mining

Company (Ticker)                              Rating (as of) Price* (03/26/2012)


Brendan Fitzpatrick
Alumina Limited (AWC.AX)                     E (01/17/2012)                  A$1.18
BHP Billiton Limited (BHP.AX)                O (10/27/2010)                 A$34.19
Equatorial Resources Ltd (EQX.AX)            O (01/11/2012)                  A$2.62
Fortescue Metals (FMG.AX)                    E (02/15/2012)                  A$5.92
Gindalbie Metals Ltd (GBG.AX)                O (01/11/2012)                   A$.62
Iluka Resources Ltd (ILU.AX)                 E (02/23/2012)                 A$17.09
Ivanhoe Australia (IVA.AX)                   O (09/09/2010)                   A$1.8
OZ Minerals (OZL.AX)                         O (12/06/2010)                  A$9.53
PanAust Limited (PNA.AX)                     O (12/06/2010)                    A$3
Panoramic Resources (PAN.AX)                 O (04/01/2011)                   A$1.2
Rio Tinto Ltd (RIO.AX)                       O (10/27/2010)                 A$63.75
Western Areas NL (WSA.AX)                    O (02/14/2011)                  A$5.48

Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.




© 2012 Morgan Stanley

				
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