-11.24 11.16 0.13 0.13 Glencore Buy 3.20 GBP 21.2 0.16 0.38 0.18 … and Services/Static files... · Anglo and Rio. Figure 3: SBGS vs. SPOT, explicit period FY15-17E (Reuters, 25

IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS ARE IN THE DISCLOSURE APPENDIX. U.S. Disclosure: SBG Securities (Pty) Limited does and seeks to do business with companies

covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that co uld affect the objectivity of this report. Investors should consider this

report as only a single factor in making their investment decision. Customers in the United States can receive independent, thi rd party research on the company or companies covered in this

report, at no cost to them, where such research is available. Custome rs can call +27 (11) 415 4272 or email [email protected] to request a copy of this research.

Eq

uit

y R

esea

rch

| B

asic

Res

ou

rces

Qu

arte

rly

www.standardbank.com/research

Research Analysts Research Analysts

Tim Clark Adrian Hammond

[email protected] [email protected]

+27 11 415 4295 +27 11 415 4616

Heidi Sternberg

[email protected]

+27 11 415 4259

Thabang Thlaku

[email protected]

+27 11 425 4015

03 July 2015

Diversified mining strategy

Goat stew

PGM and Nickel outlook cut in ST, bulks LT prices trimmed: Our commodities

and forex teams have marked to market for 2Q15 and changed commodity

price forecasts; we incorporate the view into our valuations. In this the Chinese

year of the sheep/goat 1H15 has disappointed; China was weak, spot

valuations remain extended but global diversifieds yields are attractive and we

think commodity prices are near trough levels. We think that this mix is

somewhat like a goat stew; to some, but not everyone’s, taste. We have reduced

our price forecasts for nickel and palladium most materially in the short term

and trimmed long term prices for iron ore ($60/t real), HCC ($115/t real)

aluminium ($2k/t real) and nickel ($20k/t real). We are neutral to underweight

on the sector overall, as downside to earnings assuming spot and our lower

expected iron ore prices ($53/t avg for 2H15) offsets our medium and long

term positive price view. We prefer global diversifieds over SA diversifieds as we

believe that global diversifieds dividends can be defended. Given this defensive

stance, we prefer BHP in the short term (three months) and Anglo, Glencore

and Merafe over our one year PT horizon.

Base metals now our top commodity pick, bulks and energy the laggards:

Overall, we are supportive of base over precious metals, though both have 3%

CAGR (7% from spot) over the next four years (2014 – 2018E). Energy and

bulks are the laggards, with a CAGR -2% (5% from spot) for energy and -4%

for bulks (3% from spot).

Neutral to underweight equity sector view: At the equity level we are neutral to

underweight the sector with our base case of rising prices in the medium term

offset by lower earnings in the short term assuming spot prices and our

expectation of lower iron ore prices in 2H15 ($53/t avg). We prefer more

defensive stocks (BHP) over the next three months. Over our one year price

target horizon, we prefer the companies with leveraged exposure to our

preferred commodity mix (Anglo, Glencore, and Merafe). We have downgraded

ARM to Hold and upgraded Exxaro to Hold in this review. We have also changed

price targets and earnings as outlined in Figure 1 below.

Figure 1: Valuation, EPS and DPS forecasts and changes (25 June 2015)

Source: Reuters; SBG Securities estimates

Target TP TR EPS EPS DPS DPS

Rec price CCY % CY15E CY16E CY15E CY16E

BHP Hold 14.00 GBP 10.8 1.40 0.89 1.25 1.26

% change in forecasts 1.44 -16.84 0.81 1.61

Rio Tinto Hold 29.60 GBP 13.5 2.05 2.36 2.24 2.25

% change in forecasts -11.24 11.16 0.13 0.13

Glencore Buy 3.20 GBP 21.2 0.16 0.38 0.18 0.18

% change in forecasts -18.27 -2.33 -9.50 -17.73

Anglo Buy 12.20 GBP 28.1 0.92 1.49 0.85 0.85

% change in forecasts -11.70 -10.90 0.00 0.00

South32 Sell 17.70 ZAR 0.7 0.10 0.06 - 0.02

% change in forecasts -3.36 -0.99 nm -0.84

Kumba Sell 161 ZAR 3.2 13.64 15.43 4.09 4.63

% change in forecasts 4.54 21.28 -27.07 -9.04

Exxaro Hold 100 ZAR 14.3 7.05 9.74 2.33 3.21

% change in forecasts S to H -5.30 13.95 -8.80 9.23

ARM Hold 98 ZAR 14.8 8.08 5.99 2.55 1.89

% change in forecasts B to H 14.98 -21.17 14.98 -21.17

Assore Sell 113 ZAR 9.3 16.22 7.54 5.07 3.37

% change in forecasts 1.92 -13.92 1.92 23.10

AMSA Sell 14.00 ZAR 3.7 -0.04 0.09 - -

% change in forecasts <-100 -65.59 nm nm

Merafe Buy 1.70 ZAR 118.0 0.14 0.16 0.02 0.03

% change in forecasts 13.11 9.58 -0.00 -

https://research.standardbank.com/

03 July 2015

2

Equity Research

Contents Summary of changes to forecasts ......................................................................................................................................................................... 3

Recommendation, TP, EPS and DPS ................................................................................................................................................................. 3

Our revised EPS, DPS and TP estimates compared to spot ................................................................................................................................ 4

Our revised EPS, DPS and TP estimates compared to consensus ...................................................................................................................... 4

Commodity price outlook and preference ......................................................................................................................................................... 5

Macro forecasts and overview ............................................................................................................................................................................... 6

Commodity price deck .......................................................................................................................................................................................... 7

Commodity prices and changes ......................................................................................................................................................................... 8

Our estimates vs Bloomberg consensus ............................................................................................................................................................ 9

Commodity summary views ................................................................................................................................................................................ 10

Iron ore –a bottom is beginning to emerge .................................................................................................................................................... 10

Coking coal –preferred bulk ........................................................................................................................................................................... 10

Thermal coal –stabilising market .................................................................................................................................................................... 11

Brent –A deteriorating picture ....................................................................................................................................................................... 11

Copper –long term fundamentals still positive ............................................................................................................................................... 12

Nickel –bull story waiting to get out .............................................................................................................................................................. 12

Lead –balanced but poor market fundamentals ............................................................................................................................................. 13

Aluminium –outlook swings from deficits to surpluses ................................................................................................................................... 13

Platinum –“Dirty diesels” is white noise ......................................................................................................................................................... 14

Palladium –Fuels cells and lithium ion in the limelight ................................................................................................................................... 14

Rhodium –Substitution fundamentals undermined … ................................................................................................................................... 15

Gold–Chinese demand is the tipping factor .................................................................................................................................................... 15

Company valuation overview ............................................................................................................................................................................. 16

Revenue ......................................................................................................................................................................................................... 17

Prices ............................................................................................................................................................................................................. 17

Production ..................................................................................................................................................................................................... 18

EBITDA margins ............................................................................................................................................................................................. 18

PEs (Base case) .............................................................................................................................................................................................. 19

PEs (Spot) ..................................................................................................................................................................................................... 19

Dividend yields .............................................................................................................................................................................................. 20

Net debt/equity (Base case) .......................................................................................................................................................................... 21

Net Debt/Equity (Spot) ................................................................................................................................................................................. 21

Rio Tinto Ltd: Iron ore risks remain .................................................................................................................................................................... 22

Glencore plc: Buy for leverage ........................................................................................................................................................................... 25

BHP Billiton plc: Yield remains attractive ........................................................................................................................................................... 28

Anglo American plc: Levered to our preferred .................................................................................................................................................... 31

South32 Ltd: Tough commodity mix ................................................................................................................................................................. 34

Kumba Iron Ore: Debt or dividends: Something’s got to give ............................................................................................................................ 37

Exxaro Resources Ltd: Wait for clarity ................................................................................................................................................................ 40

African Rainbow Minerals: Low Mn being priced in – downgrade to hold .......................................................................................................... 43

Assore Ltd: Commodity mix not in ASR’s favour ................................................................................................................................................ 46

ArcelorMittal South Africa: Outlook’s not improving.......................................................................................................................................... 49

Merafe Resources: A point to prove .................................................................................................................................................................. 52

SBG Securities Coverage and Contacts ........................................................................................................................................................... 59

03 July 2015

3

Equity Research

Summary of changes to forecasts

Recommendation, TP, EPS and DPS

Post the incorporation of the marked to market update of commodity and forex prices

as well as taking into account our updated commodity and forex price forecasts, we

prefer base metals over precious and over bulk material and energy (base metals now

more preferred than precious).

At the equity level we are neutral to underweight the sector with our base case of rising

prices in the medium term offset by lower earnings in the short term and assuming spot

prices. We think that prices should, and need to, rise for the companies to realise their

long term potential value, but that there is a supply glut in the short term and iron ore

in particular is vulnerable. We prefer more defensive stocks (BHP and ARM) over the

next three months but over our one year price target horizon we prefer companies with

leverage to a recovery (Anglo, Glencore, Merafe).

We present detailed reasons for the changes to these views in the later sections of this

report.

The impact of the changes is mixed for earnings with a higher realised iron ore and oil

price supporting short term earnings. Recommendation changes include Exxaro where

we have upgraded from Sell to Hold on valuation grounds and after recent price action

and ARM where we downgrade from Buy to Hold on lower prices, manganese in

particular. Our top picks are Anglo, Glencore and Merafe, and our bottom picks are

South32, AMSA, Assore and Kumba.

Figure 2: Summary of recommendation, valuation, earnings and dividends changes, FY15-17E – BASE CASE (25 June 2015)

Source: SBG Securities estimates

EPS EPS EPS DPS DPS DPS

Report CCY Rec DCF TP TP CCY FY15E FY16E FY17E FY15E FY16E FY17E

BHP USc Hold 22.2 1 400 GBp 1.40 0.89 1.56 1.25 1.26 1.27

% change -6.55 -12.50 1.44 -16.84 1.26 0.81 1.61 1.60

Rio Tinto USc Hold 45.8 2 960 GBp 2.05 2.36 3.44 2.24 2.25 2.27

% change -0.94 -4.21 -11.24 11.16 15.74 0.13 0.13 0.08

Glencore USc Buy 4.98 320 GBp 0.16 0.38 0.50 0.18 0.18 0.18

% change -5.60 -8.57 -18.27 -2.33 0.48 -9.50 -17.73 -24.58

Anglo USc Buy 18.9 1 220 GBp 0.92 1.49 2.33 0.85 0.85 0.86

% change -15.57 -14.69 -11.70 -10.90 -5.02 0.00 0.00 0.00

South32 USc Sell 1.48 17.70 ZAR 0.10 0.06 0.15 - 0.02 0.06

% change -15.56 -15.71 -3.36 -0.99 17.36 nm -0.84 17.28

Kumba SAc Sell 166 161 ZAR 13.64 15.43 16.82 4.09 4.63 6.31

% change -13.75 3.87 4.54 21.28 26.75 -27.07 -9.04 -5.00

Exxaro SAc Hold 108 100 ZAR 7.05 9.74 10.87 2.33 3.21 3.59

% change S to H -10.08 -8.26 -5.30 13.95 5.06 -8.80 9.23 0.33

ARM SAc Hold 114 98 ZAR 8.08 5.99 10.93 2.55 1.89 3.45

% change B to H 4.13 -20.33 14.98 -21.17 1.20 14.98 -21.17 1.20

Assore SAc Sell 123 113 ZAR 16.22 7.54 12.42 5.07 3.37 3.88

% change -16.10 -13.25 1.92 -13.92 21.84 1.92 23.10 21.86

AMSA SAc Sell 20.5 14.0 ZAR -0.04 0.09 0.95 - - -

% change -6.82 nm <-100 -65.59 -24.57 nm nm nm

Merafe SAc Buy 1.66 1.70 ZAR 0.14 0.16 0.14 0.02 0.03 0.03

% change -6.56 -99.06 13.11 9.58 4.76 -0.00 0.00 -0.00

03 July 2015

4

Equity Research

Our revised EPS, DPS and TP estimates compared to spot

In the table below we summarise earnings and DCF valuations assuming spot (leaving LT

prices unchanged) compared to SBGS’s current estimates. Overall the impact of

assuming spot is positive for marginal iron ore producers and companies with ZARUSD

exposure (Kumba, ARM, Merafe), assuming spot is negative for the base metals

producers (where our price forecasts have a rising price profile) South32, Glencore,

Anglo and Rio.

Figure 3: SBGS vs. SPOT, explicit period FY15-17E (Reuters, 25 June 2015)


Our revised EPS, DPS and TP estimates compared to consensus

Below we summarise our forecasts compared to Reuters’ consensus forecasts

(25/6/2015). Overall, we are below consensus for FY15E – FY17E largely due to our

flat US$55/t iron ore forecast which is materially lower, given our view of rising base

metals and PGM prices we are above consensus medium term for Glencore and Anglo.

Figure 4: SBGS vs consensus FY15-17E (Reuters, 25 June 2015)



FY15E FY16E FY17E FY15E FY16E FY17E

BHP USc 1.43 1.08 1.09 1.25 1.26 1.27

% change 1.86 21.80 -29.91 0.00 0.00 0.00

Rio Tinto USc 2.28 1.87 2.00 2.24 2.25 2.27

% change 11.45 -20.69 -41.96 0.00 0.00 0.00

Glencore USc 0.12 0.09 0.09 0.18 0.18 0.18

% change -23.89 -75.48 -83.04 0.00 0.00 0.00

Anglo USc 0.86 0.65 0.89 0.85 0.85 0.86

% change -6.77 -56.48 -61.93 0.00 0.00 0.00

South32 SAc 0.10 -0.00 -0.00 - - -

% change 1.70 <-100 <-100 nm <-100 <-100

Kumba SAc 17.17 19.15 20.68 4.09 4.63 6.31

% change 25.86 24.08 22.95 0.00 0.00 0.00

Exxaro SAc 7.45 9.73 9.75 2.34 3.06 2.93

% change 5.71 -0.07 -10.29 0.50 -4.75 -18.45

ARM SAc 8.43 5.74 6.01 2.66 1.81 1.90

% change 4.41 2.43 -45.01 4.41 2.43 -45.01

Assore SAc 16.20 8.22 9.13 5.07 3.75 2.85

% change -0.13 9.13 -26.49 -0.13 11.23 -26.49

AMSA SAc 1.11 1.15 1.76 - - -

% change <-100 >100 84.89 nm nm nm

Merafe SAc 0.14 0.17 0.20 0.02 0.03 0.03

% change 2.97 5.63 36.73 0.00 0.00 0.00


FY15E FY16E FY17E FY15E FY16E FY17E

BHP USc 1.40 0.89 1.56 1.25 1.26 1.27

vs consensus % -2.38 -16.06 8.67 -0.48 0.32 1.52

Rio Tinto USc 2.05 2.36 3.44 2.24 2.25 2.27

vs consensus % -19.78 -21.50 -5.51 0.04 -2.98 -6.28

Glencore USc 0.16 0.38 0.50 0.18 0.18 0.18

vs consensus % -31.32 9.15 8.28 2.26 -4.74 -12.56

Anglo USc 0.92 1.49 2.33 0.85 0.85 0.86

vs consensus % -9.08 17.16 24.98 0.24 0.35 -4.23

South32 USc 0.10 0.06 0.15 - 0.02 0.06

vs consensus % -29.75 -60.86 -14.62 <-100 -55.00 -14.10

Kumba SAc 13.64 15.43 16.82 4.09 4.63 6.31

vs consensus % 0.22 13.18 -12.59 -49.27 -37.53 -37.18

Exxaro SAc 7.05 9.74 10.87 2.33 3.21 3.59

vs consensus % -17.67 5.32 4.83 -17.46 12.65 10.65

ARM SAc 8.08 5.99 10.93 2.55 1.89 3.45

vs consensus % 5.50 -13.06 14.37 -17.89 -27.26 -17.86

Assore SAc 16.22 7.54 12.42 5.07 3.37 3.88

vs consensus % 2.07 9.71 45.38 -8.59 75.52 >100

AMSA SAc -0.04 0.09 0.95 - - -

vs consensus % <-100 -95.40 -50.27 nm <-100 <-100

Merafe SAc 0.14 0.16 0.14 0.02 0.03 0.03

vs consensus % 22.81 -2.32 11.58 nm nm nm

03 July 2015

5

Equity Research

Commodity price outlook and preference

The charts below illustrate the changes made during this quarterly report.

Figure 5: Changes to precious metal outlook


Figure 6: Changes to base metal outlook


Figure 7: Changes to bulks outlook


Figure 8: Changes to energy outlook


Figure 9: Major contributing commodity price forecasts, rebased to spot, sorted by upside to LT nominal, indicating preference

Source: Bloomberg, SBG Securities estimates

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

Gold ($/oz) Platinum ($/oz) Palladium ($/oz)

Rhodium ($/oz) Silver ($/oz)

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

Aluminium (c/lb) Copper (c/lb) Lead (c/lb) Nickel (c/lb) Zinc (c/lb)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Iron ore 62% CIF ($/mt) Premium HCC FOB ($/t)

Manganese ore ($/dmtu) Ferrochrome (US$/lb)

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

WTI ($/bbl) Brent ($/bbl) API2 ($/mt) API4 ($/mt)

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

Spot 2015E 2016E 2017E 2018E LT Nom

Rh

Ni

Pd

Mn

Pt

Gold

Brent

HCC

Al

Cu

Th Coal

FeCr

Zn

Fe

03 July 2015

6

Equity Research

Macro forecasts and overview

Whilst the global growth forecast for 2015, remains unchanged, the CY16 outlook of

3.7% has been revised down to 3.3% by the IMF, indicating a change in sentiment

especially for advanced economies such as the USA and the UK.

Standard Bank’s Asia economist, Jeremy Stevens expects Chinese GDP growth to slip

below 7% for 2015e. In the first half of this year, we saw momentum loss across China.

Imports, exports and investments and most macroeconomic indicators have come out

consistently lower period on period. Apart from the month of February, exports

contracted every month in 2015 signalling weak demand outside of China, while weak

imports point to commodity demand slowdown within the Chinese economy.

We expect the lower growth in China in the medium to be consistent with the country’s

changing growth model from manufacturing, investment and exports to services,

consumption and domestic spending.

Figure 10: Macro forecasts, 2009-2016E

Source: IMF; Standard Bank research estimates

Real GDP (y/y) 2009 2010 2011 2012 2013 2014 2015E 2016E

Global -0.6 5.1 3.8 3.3 3.3 3.3 3.5 3.8

BPS change from prev. 0 10

USA -3.0 2.4 1.8 2.2 2.2 2.4 2.4 2.7

BPS change from prev. -60 0

Eurozone -4.4 2.0 1.5 -0.6 -0.5 0.8 1.6 1.2


United Kingdom -3.9 1.8 0.9 0.2 1.7 2.6 2.1 2.3

BPS change from prev. -40 0

Canada -2.8 3.2 2.6 1.8 2.0 2.4 2.0 2.2


Brazil -0.3 7.6 2.8 0.9 2.5 0.1 -1.0 1.0

BPS change from prev. -130 -50

China 8.5 10.4 9.3 7.8 7.8 7.4 6.9 6.5


India 5.1 11.4 7.8 4.0 5.0 5.8 7.5 7.5


Japan -5.5 4.7 -0.6 2.1 1.6 0.1 1.5 1.5


Australia 1.4 2.6 2.4 3.6 2.5 2.5 2.2 2.8


Key macroeconomic forecasts

03 July 2015

7

Equity Research

Commodity price deck

Overall, we are supportive of base over precious metals, though both have 3% CAGR

(7% from spot) over the next four years (2014 – 2018E). Energy (Brent, WTI and

Thermal Coal) and bulks lag precious and base metals, with a CAGR -2% (+5% from

spot) for energy and CAGR of -4% for bulks (+3% from spot).

On the precious side, rhodium is somewhat of an outlier, however, we believe that due

to market volatility, this estimate in 2018 could still potentially be on the conservative

side of the spectrum. Gold is forecast to move in line with platinum and palladium.

For base metals, we forecast nickel to be the best performing base metal over the next

four years, with the metal increasing by 6% CAGR (+11% from spot) over the forecast

period, and we believe that nickel looks to be ready to stage a price rally, although we

remain cautious in the near term. Copper, while coming under heavy pressure in the

early part of 2015 and again in the second quarter, seems fundamentally much stronger

than consensus expectations in our view, with scope for tighter than expected refined

balances, tighter spreads and stronger prices.

Figure 11: Precious metal forecasts, rebased to 2014

Source: SBG Securities estimates, Bloomberg

Figure 12: Base metal forecasts, rebased to 2014


Figure 13: Energy forecasts, rebased to 2014


Figure 14: Bulks forecasts, rebased to 2014


0.50

1.00

1.50

2.00

2.50

2014 2015E 2016E 2017E 2018E LT Nom

Rh Gold Pd Pt

0.50

0.70

0.90

1.10

1.30

1.50

2014 2015E 2016E 2017E 2018E LT Nom

Ni Al Zn Cu

0.50

0.70

0.90

1.10

1.30

2014 2015E 2016E 2017E 2018E LT Nom

Th Coal Brent

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

2014 2015E 2016E 2017E 2018E LT Nom

HCC Mn Fe

03 July 2015

8

Equity Research

Commodity prices and changes

Based on China’s expected weak performance for 2015 relative to 2014, we revise

down our LT real nickel and aluminium prices by 9% to US$ 20 000/t and US$ 2 000

respectively.

We reduce our iron ore and hard coking coal LT prices. Iron ore is reduced by 8% from

US$65/t to US$60/t in anticipation of additional supply expected in 2H15. Our coking

coal LT price is reduced by 8% to US$115/t based on weak Chinese demand.

Figure 15: SBGS commodity price forecasts (Spot 25 June 2015)

Source: Bloomberg; MBR; Standard Bank research; SBG Securities estimates

Ju n -15 No m No m No m No m No m Real Sp o t Ac t u al No m No m No m No m

PRECIOUS METALS ($/o z ) 2013 2014 2015F 2016F 2017F LT REAL 25 Ju n 15 Q2:15 Q3:15F Q4:15F Q1:16F Q2:16F

Go ld ($/o z ) 1 411 1 265 1 203 1 275 1 375 1 625 1 173 1 172 1 190 1 210 1 220 1 245

(y/y %), (q/q %) -10 -5 6 8 2 2 1 2 (% chg from previous forecast) 1 -2 -5 -1 -1 -1 3 3 P lat in u m ($/o z ) 1 487 1 385 1 149 1 250 1 425 1 500 1 077 1 086 1 130 1 130 1 200 1 200

(y/y %) -7 -17 9 14 4 - 6 - (% chg from previous forecast) -5 -6 -3 - -5 -8 -11 -6 Pallad iu m ($/o z ) 720 803 752 775 875 1 000 681 693 730 730 750 750

(y/y %) 12 -6 3 13 5 - 3 - (% chg from previous forecast) -6 -10 -9 - -10 -11 -12 -11 Rh o d iu m ($/o z ) 1 066 1 172 1 067 1 400 2 000 2 250 1 155 850 1 000 1 000 1 300 1 300

(y/y %) 10 -9 31 43 18 - 30 -

(% chg from previous forecast) -12 -11 - - -28 -17 -23 -7

Silver ($/o z ) 23.9 24.0 17.0 18.0 19.5 20.0 15.8 15.6 18.0 17.0 18.0 18.0

(y/y %) 1 -29 6 8 15 -6 6 -

(% chg from previous forecast) - - - - -5 - -1 1

BASE METALS ($/mt )

Alu min iu m ($/mt ) 1 846 1 869 1 794 1 930 2 150 2 000 1 676 1 791 1 760 1 840 1 870 1 810

(y/y %) 1 -4 8 11 -2 5 2 -3

(% chg from previous forecast) -1 - - -9 -1 -4 0 -

Co p p er ($/mt ) 7 327 6 866 6 106 7 200 7 750 6 800 5 723 6 122 5 970 6 550 6 800 7 000

(y/y %) -6 -11 18 8 -2 10 4 3 (% chg from previous forecast) -5 - - - -2 -8 -7 -3 Lead ($/t ) 2 138 2 069 1 878 2 350 2 480 2 000 1 770 1 978 1 840 1 910 1 950 2 050

(y/y %) -3 -9 25 6 -7 4 2 5 (% chg from previous forecast) -7 -5 -2 - 3 -12 -16 -11 Nickel ($/mt ) 15 012 17 144 13 995 16 350 18 500 20 000 12 726 13 166 13 800 14 700 14 500 15 800

(y/y %) 14 -18 17 13 5 7 -1 9 (% chg from previous forecast) -12 -24 -26 -9 -11 -18 -15 -20 T in ($/t ) 22 624 21 875 16 450 18 000 22 500 24 000 15 150 15 735 15 700 16 100 16 800 17 900

(y/y %) -3 -25 9 25 -0 3 4 7 (% chg from previous forecast) -13 -13 - - -13 -19 -18 -15 Zin c ($/t ) 1 908 2 164 2 161 2 450 2 510 2 200 2 034 2 223 2 145 2 220 2 250 2 380

(y/y %) 13 -0 13 2 -4 3 1 6 (% chg from previous forecast) -3 - - - 2 -6 -6 1 ENERGY

WTI ($/b b l) 95 93 53 60 70 77 59.77 58.73 50 55 55 60

(y/y %) -2 -43 13 17 -15 10 - 9 (% chg from previous forecast) 6 - - - 31 - - - Bren t ($/b b l) 107 99 58 65 75 82 63.18 63.14 55 60 60 65

(y/y %) -7 -42 12 15 -13 9 - 8 (% chg from previous forecast) 5 - - - 26 - - - API2 ($/mt ) 78 75 60 63 71 70 58.10 58.17 60 60 60 60

(y/y %) -4 -20 5 13 3 - - - (% chg from previous forecast) 3 5 13 - 4 3 - - API4 ($/mt ) 81 72 61 63 71 70 61.10 60.16 60 60 60 60

(y/y %) -11 -16 3 13 -0 - - - (% chg from previous forecast) 5 5 13 - 9 5 - - Newcast le ($/mt ) 84 70 60 63 69 68 61.80 62.10 60 60 60 60

(y/y %) -16 -14 5 10 -3 - - - (% chg from previous forecast) 5 9 15 0 17 9 3 3 BULKS

IO F e 62% Ch in a CF R f in es ($/t ) 135 97 57 58 61 60 62.2 55.7 53 50 55 55

(y/y %) -29 -41 2 5 -5 -6 10 - (% chg from previous forecast) 2 9 11 -8 1 - - - Au st r h ard co kin g co al f o b ($/t ) 151 117 96 97 104 115 91.0 90.2 90 95 95 95

(y/y %) -23 -18 1 7 -0 6 - - (% chg from previous forecast) -8 -8 -5 -8 -10 -10 -10

03 July 2015

9

Equity Research

Our estimates vs Bloomberg consensus

SBGS in line or above consensus: Our energy, precious and base metal forecasts are all

generally in line with Bloomberg consensus, although we on the bullish side in terms of

our longer term gold, palladium, copper, lead and nickel outlook.

SBGS below consensus: our bulks forecasts are generally below consensus median, with

iron ore, coking coal furthest below.

Figure 16: Gold vs. BB consensus

Source: Bloomberg, SBG Securities estimates and analysis

Figure 17: Platinum vs. BB consensus


Figure 18: Palladium vs. BB consensus


Figure 19: Copper vs. BB consensus


Figure 20: Nickel vs. BB consensus


Figure 21: Aluminium vs. BB consensus


Figure 22: Iron ore vs. BB consensus


Figure 23: Coking coal vs BB consensus


Figure 24: Lead vs. BB consensus


Figure 25: Brent vs BB consensus


Figure 26: WTI vs BB consensus


Figure 27: Thermal coal vs BB Consensus


700

800

900

1 000

1 100

1 200

1 300

1 400

1 500

1 600

1 700

SB BBG median BBG low BBG high

1 000

1 100

1 200

1 300

1 400

1 500

1 600

1 700

1 800

1 900


600

650

700

750

800

850

900

950

1 000

1 050

1 100


4 500

5 000

5 500

6 000

6 500

7 000

7 500

8 000

8 500

9 000


10 000

12 000

14 000

16 000

18 000

20 000

22 000

24 000

26 000

28 000

30 000


1 000

1 200

1 400

1 600

1 800

2 000

2 200

2 400


30

40

50

60

70

80

90

100


80

90

100

110

120

130

140

150

160

170


1 500

1 700

1 900

2 100

2 300

2 500

2 700

2 900


40

50

60

70

80

90

100

110

120


40

50

60

70

80

90

100

110

120


50

52

54

56

58

60

62

64

66

68

70


03 July 2015

10

Equity Research

Commodity summary views

We present below a summary of the key commodities impacting the diversified miners.

We act in collaboration with ICBC Standard Plc’s Leon Westgate (Base Metals) and

Melinda Moore (Bulks) as well as SBGS’s Seten Naidoo (PGMs) and Adrian Hammond

(Gold) analysts in presenting the following forecasts.

Iron ore –a bottom is beginning to emerge

We expect iron ore prices to remain range bound around current levels, and believe that

a bottom range is currently being established between USD50/t and USD60/t (62% Fe

fines delivered to China benchmark price). We have increased our nominal iron ore

prices marginally over the next three years, to move in line with our Brent price

trajectory. We expect the price will decline into 2H15 as Vale’s volumes reach the

seaborne market, and we forecast FY15e prices to average USD57/t, FY16e USD58/t

and FY17e USD61/t.

Coking coal –preferred bulk

The outlook remains bearish in the near-term and we have decreased our pricing profile

by an average of 7% over the next three years to USD96/t, USD97/t and USD104/t

over the next three years respectively. Our LT real price is USD115/t. Imports into

China have been declining this year and are at levels last seen in 2012.

HCC however remains the preferred bulk in the long term.

Figure 28: Iron ore Fe 62% prices seasonality

Source: Bloomberg, Metal Bulletin

Figure 29: Chinese iron ore & steel inventories

Source: Bloomberg, Antaike

Figure 30: HCC price vs Iron ore price (USD/t)

Source: Bloomberg, Metal Bulletin

Figure 31: China Coking Coal Imports

Source: Bloomberg, Antaike

40

60

80

100

120

140

160

180

200

2010 2011 2012 2013 2014 2015

40

50

60

70

80

90

100

110

120

130

140

40

60

80

100

120

140

160

180

200

Fe price (USD/t) Brent (USD/bbl)

0

50

100

150

200

250

300

350

400

450

HCC FOB QLD (USD/t) Iron ore (USD/t)

-

1

2

3

4

5

6

7

8

-

1

2

3

4

5

6

7

8

9

China total met coal imports China Mongolia imports China AUS imports

03 July 2015

11

Equity Research

Thermal coal –stabilising market

We believe that the market is stabilising, however the outlook for the market is relatively

flat. Looking at the long term trend of API4 (Richards Bay thermal coal export price) vs

the Brent price, it would appear that the two energy commodities were closely

correlated in 2008 – 2011, but from 2012 – 2015 Brent held up far better than

thermal coal. After Brent’s correction at the beginning of 2014, the prices appear to be

once again moving in tandem.

Total coal imports increased significantly from 2009 to 2014, but since January 2014

have declined significantly from 28mtpm to 11mtpm currently.

Brent –A deteriorating picture

Continuously high oil production levels from Saudi Arabia and the US as well as a

strengthening US$ are responsible for a fall in Brent prices from a peak of close to

$70/bbl in early May to the current $62/bbl level. Saudi Arabia did not cut production

in April 2015 and that level remained unchanged in May 2015. At its scheduled

meeting on 05.06.15 in Vienna OPEC decided to keep their output ceiling of

30MMbbl/d unchanged.

Lionel Therond believes Brent prices have remained in a USD60-70/BBL range due to

robust global oil demand. However based on current supply/demand levels, we forecast

increasing global crude inventories in 2015e, which would be negative for oil prices if it

were to be realised, as highlighted in his report Oil Market Watch: Stuck in the attic? 8 June 2015. Our forecasts for Brent are as follows: USD58/bbl (CY15E), USD65/bbl

(CY16E) and USD75/bbl. The LT normalised price is unchanged at USD90/bbl

(USD82/bbl Real) highlighting our conviction that the deflation in the oil industry is

cyclical and not structural. The LT price we believe is the level where the worlds demand

growth is met, on a sustainable basis, by the oil industry’s ability to reinvest in new

developments.

Figure 32: Atlantic thermal coal (API2) & brent crude oil

Source Bloomberg, McCloskey, ICE

Figure 33: China total coal imports

Source: Bloomberg, China customs

Figure 34: Brent futures curve (2 May 2015)

Source: Bloomberg, SBG Securities estimates

Figure 35: OPEC h-o-h and y-o-y production change (May 2015)

Source: Bloomberg, SBG Securities analysis

50

70

90

110

130

150

170

API4 (USD/t) FOB Brent (USD/bbl)

-

5

10

15

20

25

30

35

50

70

90

110

130

150

170

190

210

230

250

API4 (USD/t) FOB Total China coal imports (mt) LHS

95

88

76

60.0

90.0

120.0

Oct-10 Oct-12 Oct-14 Oct-16 Oct-18 Oct-20 Oct-22

Jun-10 Jun-14 Dec-14 Jun-15

-75

0

75

150

kbbl/d

-6m -12m

03 July 2015

12

Equity Research

Copper –long term fundamentals still positive

Our forecast for Chinese demand still looks good, on course to grow 5% for 2015and

our forecasts for apparent consumption still have not changed from the previous

quarter. We lower our global demand forecast from 3.6% to 2.6%.

We lower our forecast for refined supply from African North America and Latin America

which reduces the global supply growth to 4.5% from our previous estimation of 5.1%,

mainly driven by mine disruptions. The result is a tighter market with a surplus of 12kt

from 102kt. We forecast a balanced market in 2016e and 2017e possibly slipping

towards meaningful deficits for 2018e to 2020e.We leave our long term copper price

unchanged at US$6 800/t and forecast the copper price to grow at a 4 year CAGR of

5% (CY14-18e)

Nickel –bull story waiting to get out

We revise our Chinese refined nickel consumption down from 11% in 2015 to 7%.

Assuming that the high Chinese refined nickel imports do not end up in SHFE

inventories, apparent consumption should improve.

We reduce our Chinese annul NPI production by 25% to 360kt for 2015e and forecast

a 20kt production from Indonesia. We also reduce our production forecasts for the

Americas and Australasia due to unplanned disruptions lowering our total global mine

production. This changes our nickel market balance from a deficit of 7kt (in the

previous quarter) to a 20kt surplus which is still a balanced and forecast deficit for

2016 and 2017.

We reduce our LT nickel price by 9% from US$22 000 to US$ 20 000/t and we

forecast the price to grow at a 4 year CAGR of 6% (CY14-18e).

Figure 36: Chinese copper net imports momentum

Source: DataStream, LME, SBG Securities analysis

Figure 37: Copper spot price and 3 month average

Sources: DataStream, SBG Securities analysis

Figure 38: Nickel stock to price

Source: Datastream, LME, SBGS analysis

Figure 39: Nickel spot price and 3 month average

Sources: SBG Securities analysis; INSG; WBMS; LME

0

10

20

30

40

Mt

2010 2011 2012 2013 2014 2 015

5.0

6.0

7.0

8.0

9.0

10.0

11.0

K U

S$

/t

Nominal Cu Price 3 MMA

0.0

10.0

20.0

30.0

40.0

50.0

60.0

K U

S$

/t

Ni Stocks (Kt)

1993-1999 2000-2008 2009-Current Current

10

15

20

25

30

35

K U

S$/

t

Nominal Ni Price 3 MMA

03 July 2015

13

Equity Research

Lead –balanced but poor market fundamentals

Demand fundamentals for the lead market seem poor but the supply is just as weak

which is keeping the market balanced. We actually believe that if lead prices remain

depressed supply will suffer more than demand which could improve fundamentals.

We have made some adjustments to our supply and demand balance primarily to

Chinese figures. We reduce our annual forecasts for both Chinese production and

consumption by 3 to 3.5% however growth will still be positive for both. The long term

outlook is deteriorating unless we start to see demand from lead-acid batteries in the

auto and e-bike sectors start to pick up. We currently forecast an annual refined lead

market deficit of 11kt for 2015e increasing to 26kt and 70kt in 2017e.

We leave our LT price unchanged at US$2 000/t and forecast a 4 year CAGR of 4%

(CY14-18e)

Aluminium –outlook swings from deficits to surpluses

We forecast an increase in demand of c.6% for 2015e, we downgrade demand growth

for other regions upgrade of our forecast for China. Aluminium has the most robust

demand profile out of all the base metals but excessive supply will undermine prices yet

again

We revise upward our production forecasts for Asia, the Middle East and China which

swings our previously forecasted deficit of 211kt to a surplus of 146Kt (2015e) and

surpluses of 589Kt (2016e) and 842Kt (201). We revise down our LT aluminium price

by 9% from US$2 200/t to US$2 000/and we forecasts the aluminium price to grow

at a 4 year CAGR of 5% (CY14-18e).

Figure 40: Lead stock to price

Source: Datastream, LME

Figure 41: Lead spot price and 3 month average

Source: SBG Securities analysis; ILZSG; WBMS; LME

Figure 42: Chinese aluminium net imports momentum

Source: Datastream, LME

Figure 43: Aluminium spot price and 3 month average

Sources: SBG Securities analysis; IAI; WBMS; LME

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

K U

S$/

t

Pb Stocks (Kt)

1993-1999 2000-2008 2009-Current Current

1.5

1.8

2.1

2.4

2.7

3.0

K U

S$/

t

Nominal Pb Price 3 MMA

0

1

2

3

4

5

6

Mt

2010 2011 2012 2013 2014 2 015

1.5

1.8

2.1

2.4

2.7

3.0

K U

S$/t

Nominal Al Price 3 MMA

03 July 2015

14

Equity Research

Platinum –“Dirty diesels” is white noise

Despite the negative news about “dirty diesels” in Europe, we believe the newer diesel

models satisfy the current emission’s standards and we are unlikely to see a significant

sell-out of diesels based on the near term sentiment. European diesel penetration has

fallen from peaks of 55% in 2011 to 53% currently, however is unlikely to fall

materially in the medium term. Tensions during the upcoming wage negotiation process

naturally increase the supply risk which may prompt auto makers to increase inventory

levels off the current low levels. We expect global auto assembly to reach 109m units by

2020, (GAGR 4.1%) equating to a total auto catalyst demand of 4.4Moz by that time.

Investment demand should improve in the medium term as the platinum price gains

positive momentum. We expect the platinum price to average c.US$1 149/oz. for FY

(15). Although bearish near term, we believe long term fundamentals for a price

recovery remain intact.

Palladium –Fuels cells and lithium ion in the limelight

Contrary the market’s traditional view of higher PGM loadings required in China to curb

emissions, officials resorted to policies which ban certain vehicles on the road. With an

emissions legislature underpin, medium and long term fundamentals remain positive for

palladium as the developing world catch up to first world standards. We believe

palladium will be the largest beneficiary to loadings growth ahead. We forecast auto

catalyst demand to grow to 10.4 Moz. by 2020.In the event that recycling does not

increase to 4.4Moz by 2020, the palladium market will move into a deficit in excess of

2Moz.becoming the ideal catalyst for the palladium price in the long term. We forecast

the palladium price to grow at a 4 year CAGR of 5% from 2014 to 2018F

Figure 44: European diesel penetration

Source: Bloomberg; SBG Securities analysis

Figure 45: PGM Basket prices in ZAR and USD

Source: Bloomberg; SBG Securities estimates for 2015

Figure 46: Total vehicle production by country

Source: PWC Autofacts (historical data and estimates)

Figure 47: Palladium price forecast profile

Source: PWC Autofacts (historical data and estimates)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

WEST. EUROPE FRANCE GERMANYITALY UNITED KINGDOM

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

5

7

9

11

13

15

17

19

Thou

sand

s

Thou

sand

s

ZARPGM basket (4E) USDPGM basket (4E) (LHS)

0

10

20

30

40

50

60

70

Mill

ion

China USA Japan Germany India South Korea

0

200

400

600

800

1 000

1 200

-3 000

-2 500

-2 000

-1 500

-1 000

-500

0

500

1 000

1 500

2 000

2 500

US$

Koz.

Surplus / Deficit (koz) Pall Price (US $ / oz) (rhs)

03 July 2015

15

Equity Research

Rhodium –Substitution fundamentals undermined …

The current prices of platinum and palladium make the substitution of rhodium for

either metal economically viable. However, the security of supply for rhodium keeps

automakers from committing fully to its long term reintroduction to the auto catalyst

mix. As such our near term rhodium outlook remains subdued, with our forecast for

prices to average US$1 067/oz in CY15e, although likely to gain traction in future as

the security of supply improves post wage negotiations in 2016e.

Gold–Chinese demand is the tipping factor

We believe gold will remain in a bear market going into 2H15e mainly due to the

continuing lacklustre economic environment. We expect Chinese demand to continue to

grow by way of investment, jewellery and PBOC demand. The lower oil price is likely to

improve Chinese and Indian disposable incomes underpinning demand. Chinese demand

will be the tipping factor in the supply demand equation.

In the medium to long term, we expect global demand for gold to start outpacing global

supply, with a rising deficit over 500 tonnes within the next 4 years to be supportive of

a steady rise in the in the gold price. The forecasted deficit market could be countered

by a fall in central bank rates, a continuing liquidation of ETFs and an increase n scrap

supply in the medium to long term.

We reduce our mid-term (CY16e) and long term (CY17e to CY19e) gold price outlook

on average by c.2% and 5% respectively.

Figure 48: Rhodium supply demand balances

Source: Autofacts; SBG Securities estimates

Figure 49: Rhodium total supply

Source: Autofacts; SBG Securities estimates

Figure 50: ETF Change


Figure 51: Gold Spot price (YoY%) vs. Real fed funds rate(%)


0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

-300

-200

-100

0

100

200

300

US$

Ko

z.

Surplus / (Deficit) (koz) Rhodium price (US$/oz) (rhs)

0

200

400

600

800

1 000

1 200

Ko

z.

South Africa Russia North America Zimbabwe Others Recycling

-1000

-800

-600

-400

-200

0

200

400

Ton

nes

2010 2011 2012 2013 2014 2015

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Gold, us$/oz y/y%, lhs real fed funds rate,%, rhs, inverted

03 July 2015

16

Equity Research

Company valuation overview

In this section we compared the companies to one another with the intention of

identifying various features of the companies that different investors may find

interesting and helpful in making investment choices. Our preference in the sector is

based on total shareholder returns. The table below does not necessarily reflect that

view but illustrates our preference for Merafe, Anglo, and Glencore over South32,

Kumba, AMSA and Assore.

Figure 52: Heat map summary comparison of the companies under coverage

Source: Datastream; Reuters; SBG Securities estimates, pricing at 25 June 2015 (close)

The table below summarises our valuations of the sector. Merafe has the highest total

return (+118%), followed by Anglo (+28%) and Glencore (+21%). We see less than

10% total return from South32 (0.7%), Kumba (3.2%), AMSA (3.7%) and Assore

(9.3%). On the basis of PEs, and assuming that the market will move towards our FY2

forecast, we find that Merafe, Anglo, South32 and ARM are least attractive with PEs

from 5.5-8.0x, below the long term sector average of 12x. In terms of dividends, BHP

Billiton has the highest yield of 6.1%, but all of the majors (excl Glencore) are above 5%

yield in FY2E. We think that the SA diversifieds will be under dividend pressure (Kumba

and Exxaro in particular) at 1H15 results. The global miners are likely to retain their

progressive policy unless prices remaining subdued for longer and risks of a structural

decline emerges – but this is not currently the situation.

Figure 53: Valuation summary and sector average (ordered by TR%) based on financial years

Source: Datastream; Reuters; SBG Securities estimates, pricing at 25 June 2015 (close)

Relative to peers Merafe Anglo Glencore Exxaro Rio Tinto BHP Billiton Assore ARM AMSA Kumba South32 Sector avg

TSR% 118.0 28.1 21.2 14.3 13.5 10.8 9.3 14.8 3.7 3.2 0.7

Earnings growth, 3-year avg 23.7 23.9 38.4 0.4 0.6 11.0 -14.1 7.5 193.2 -12.7 140.3 17.7

Revenue growth, 3-year avg 11.1 4.5 0.5 11.3 -1.2 -7.0 -1.6 -2.9 0.9 -5.7 28.1 -1.8

PE multiples, CY16E SBGSe 5.0 10.5 11.3 9.2 18.2 16.0 9.6 9.5 >100 10.4 14.5 15.3

PE multiples, CY16E spot 4.7 24.2 46.1 9.2 23.0 18.2 10.5 15.2 11.8 8.4 - 24.5

Dividend y ield, CY16E 3.2 5.4 4.2 3.6 5.2 6.0 3.3 2.2 - 2.9 2.8 5.2

Gearing , CY16E SBGSe 9.2 33.1 49.0 27.5 33.3 30.8 -10.0 -0.1 10.1 32.1 -3.2 34.0

Gearing , CY16E spot 6.3 40.4 62.2 27.9 34.0 31.0 -10.2 1.0 7.4 23.5 -0.9 37.2

Volume growth, 3-year avg 6.5 4.2 1.6 1.9 4.7 -4.0 3.6 2.5 7.3 1.9 -0.6 0.4

Margin change 3-year avg -10.3 24.8 36.1 32.2 13.0 26.9 0.3 29.5 35.4 4.2 54.3 24.4

Leverage (Net margin to sector average, 3yr avg) 1.5 2.0 1.6 0.7 1.1 0.8 1.3 1.2 -18.0 0.9 2.9 1.0

Rec Price Price Target

Price Up/

(Downside) DY TR PE PE PE DY DY DY

Company % % % CY15E CY16E CY17E CY15E CY16E CY17E

Merafe Buy 0.79 1.70 115.2 2.8 118 5.7 5.0 5.5 2.8 3.2 3.9

Anglo Buy 9.95 12.20 22.6 5.4 28.1 17.0 10.5 6.7 5.4 5.4 5.5

Glencore Buy 2.74 3.20 17.0 4.2 21.2 26.3 11.3 8.6 4.2 4.2 4.2

ARM Hold 88 98 11.9 2.9 14.8 15.2 9.5 8.0 2.9 2.2 3.9

Exxaro Hold 90 100 11.7 2.6 14.3 12.7 9.2 8.2 2.6 3.6 4.0

Rio Tinto Hold 27.33 29.60 8.3 5.2 13.5 21.0 18.2 12.5 5.2 5.2 5.3

BHP Hold 13.36 14.00 4.8 6.0 10.8 27.6 16.0 12.9 6.0 6.0 6.1

Assore Sell 107 113 5.4 3.9 9.3 10.7 9.6 8.8 3.9 3.3 3.6

AMSA Sell 13.50 14.00 3.7 - 3.7 nm >100 14.2 - - -

Kumba Sell 160 161 0.6 2.6 3.2 11.7 10.4 9.5 2.6 2.9 3.9

South32 Sell 17.68 17.70 0.1 0.5 0.7 75.8 14.5 8.2 0.5 2.8 4.9

Average (mkt cap weight, calendar year) 24.9 15.3 11.2 5.1 5.2 5.3

03 July 2015

17

Equity Research

Revenue

On average we see CY15e revenues moving 23% lower, but with our forecasts of a base

metals recovery we see revenue growth of 8.1% from CY16-18E. At the company level

we see the highest average revenue growth of 11.3% from Exxaro followed by 11.1%

growth on average from Merafe (CY15-17E).

Prices

As illustrated in the table below we generally forecast higher commodity prices,

compared to spot, and prefer the precious metals over base metals over energy over

bulks.

Figure 56: Major contributing commodity price forecasts, rebased to 2014, sorted by upside to LT Nom indicating preference

Source: Datastream; SBG Securities estimates

0.50

0.70

0.90

1.10

1.30

1.50

1.70

2014 2015E 2016E 2017E 2018E LT Nom

Rh

Gold

Pd

Ni

Pt

Al

Zn

FeCr

Cu

HCC

Th Coal

Mn

Brent

Fe

Figure 54: Revenue growth, CY15E-17E incl sector average, %


Figure 55: Revenue growth, 3-year average (CY15E-17E), %


CY15E CY16E CY17E

BHP -31.5 1.8 8.6

Rio Tinto -24.3 8.6 12.2

Assore -23.7 9.8 9.2

Avg -23.1 7.4 10.2

Glencore -22.2 13.2 10.7

Kumba -23.7 2.0 4.7

ARM -21.2 -5.9 18.7

AMSA -12.7 -2.5 18.0

Anglo -12.5 15.9 10.2

Exxaro 3.0 27.6 3.1

Merafe 25.5 4.9 3.1

South32 65.6 8.2 10.4

-7.0

-5.7

-2.8

-1.8

-1.6

1.3

0.5

0.9

4.5

11.1

11.3

-8 -3 2 7 12

03 July 2015

18

Equity Research

Production

Production is the other contributor to top-line growth for the sector. We find that, on

average, in copper equivalent terms, the sector is growing at 0.4% (CY15-18E) with

Exxaro (Medupi – though profits have been pre-paid in essence), Merafe (Lion II) and

Rio Tinto (iron ore) having the strongest growth profiles.

EBITDA margins

EBITDA margins are a reflection of the interaction of prices, volumes and costs. We find

that, on average, the sector margins are rising from CY15E averages of 31% to 39% in

CY18E, given our positive price outlook. The reason for this is partially the production

growth on average of 24%, but more importantly our supportive price forecasts.

Figure 57: Production growth (%), CY15-17E incl sector average


Figure 58: Production growth (%), 3-year average (CY15-17E)


Figure 59: EBITDA margins (%), CY15-17E incl. sector average


Figure 60: EBITDA margins, 3-year average, change (%)


CY15E CY16E CY17E

Merafe 21.4 -1.9 -

AMSA 15.8 -6.0 12.2

Exxaro 9.6 -3.0 -1.0

Kumba 2.1 1.4 2.2

Anglo 2.0 8.7 1.9

Glencore 1.2 1.8 1.9

Rio Tinto -0.1 9.3 4.9

Average (mkt cap WA, CY) -2.3 1.2 2.5

South32 -4.0 1.0 1.2

BHP -6.7 -6.2 1.1

ARM -7.9 6.1 9.4

Assore -12.3 6.7 16.4

-4.0

-0.6

0.4

1.9

1.9

2.5

3.6

4.2

4.7

6.5

7.3

-5 0 5 10

CY15E CY16E CY17E

BHP 39 48 50

Kumba 31 34 33

Average (mkt cap WA, CY) 31 36 39

Rio Tinto 31 32 35

Anglo 23 25 28

Glencore 21 27 29

Exxaro 20 23 26

ARM 18 23 23

Merafe 17 18 16

South32 17 21 26

Assore 15 15 15

AMSA 5 5 7

15.3

16.9

21.1

21.3

22.9

25.4

34.4

32.5

32.7

35.3

5.6

45.8

0.3

-10.3

54.3

33.6

32.2

24.8

36.1

13.0

4.2

24.4

35.4

26.9

-20 0 20 40 60

Change CY15-17E 3yr average (CY15E-CY17E)

03 July 2015

19

Equity Research

PEs (Base case)

At the valuation level, we find that the sector is trading on a CY15E PE of 24.9x and we

see this multiple de-gearing to 15.3x in CY16E and 11.2x in CY17E. South32, Anglo,

Glencore, BHP and ARM have the greatest level of PE compression and we see multiples

remaining relatively flat for Merafe.

PEs (Spot)

Based on spot prices and currencies (and assuming no inflation in costs) we find that

the sector is trading on PEs of 22.4x CY15E, 24.5x CY16E and 25.6x CY17E, these are

elevated levels and we find that South32 is loss making, while BHP and Glencore in

particular have higher PEs on this basis. We also note that AMSA and Kumba are more

attractive on spot in terms of forward PE multiples than our base case.

Figure 61: PE (x), CY15E-17E incl sector average

Source: SBG Securities estimates, pricing at 25 June 2015

Figure 62: PE (x), 3-year average, change (%)


Figure 63: PE (x), CY15E-17E incl sector average, SPOT


Figure 64: PE (x), 3-year average, change (%), SPOT


CY15E CY16E CY17E

Merafe 5.7 5.0 5.5

Assore 10.7 9.6 8.8

Kumba 11.7 10.4 9.5

Exxaro 12.7 9.2 8.2

ARM 16.2 9.5 8.0

Anglo 17.0 10.5 6.7

Rio Tinto 21.0 18.2 12.5

Average (mkt cap WA, CY) 24.9 15.3 11.2

Glencore 26.3 11.3 8.6

BHP 27.6 16.0 12.9

South32 75.8 14.5 8.2

AMSA nm >100 14.2

5.4

9.7

10.0

10.5

11.3

11.4

15.4

17.1

17.2

18.8

32.8

0 5 10 15 20 25 30 35

CY15E CY16E CY17E

Merafe 5.6 4.7 4.0

Kumba 9.3 8.4 7.7

Assore 11.3 10.5 10.7

Exxaro 12.0 9.2 9.2

AMSA 12.1 11.8 7.7

ARM 13.3 15.2 12.8

Anglo 18.3 24.2 17.7

Rio Tinto 18.8 23.0 21.5

BHP 22.1 18.2 21.0


Glencore 34.6 46.1 50.5

4.8

8.5

10.1

10.5

10.8

13.7

20.0

20.4

21.1

24.2

43.7

0 10 20 30 40 50

03 July 2015

20

Equity Research

Dividend yields

The global diversifieds dividend policy is progressive while the South African (and

South32) general miners are, in general, on a payout ratio basis (free cash/earnings).

We find that the sector yield is currently at 5.1% for CY15E, attractive but rising further

with earnings to 5.7% in CY18E. We find that Merafe, Kumba and Exxaro have the

greatest upside potential from dividends while there is downside risk to Assore’s

dividend.

Figure 65: Dividend yield (%), CY15E-17E incl sector average


Figure 66: Dividend yield, 3-year average, change (%)


CY15E CY16E CY17E

BHP 6.0 6.0 6.1

Anglo 5.4 5.4 5.5

Rio Tinto 5.2 5.2 5.3


Glencore 4.2 4.2 4.2

Assore 3.9 3.3 3.6

ARM 2.9 2.0 3.9

Merafe 2.8 3.2 3.9

Exxaro 2.6 3.6 4.0

Kumba 2.6 2.9 3.9

South32 0.5 2.8 4.9

2.7

3.0

3.1

3.3

3.4

3.6

4.2

5.2

5.2

5.5

6.0

0 2 4 6 8

03 July 2015

21

Equity Research

Net debt/equity (Base case)

Given the progressive policy of the global majors, it is interesting to consider balance

sheet de-gearing as well, as in this lower price environment balance sheets will

potentially be stressed when paying the progressive dividend. We find that on average

D/E levels are falling from 35% in CY15E to 27% in CY17E. Merafe, Glencore and

ARM are expected to generate the most cash over this time and de-gear most, based on

our forecasts; while Exxaro and Kumba have rising debt levels.

Net Debt/Equity (Spot)

Performing the same analysis as above, but based on spot prices we find that debt levels

will increase assuming spot from ND/E of 34% in CY15E to 37% in CY18E. In this

analysis we have taken account of the oil price benefits in costs as well as the relatively

weak currency presently and that is why debt levels are not increasing for ARM, Merafe

and Assore. We see rising debt levels at Anglo, Exxaro, Rio and BHP under spot. We

note that the result of this analysis is that if spot prices persist that we will see deep

capex cuts as well as cost cutting in order to defend the dividend payment.

Figure 67: Net debt/equity (%), CY15E-17E incl sector average

Source: : SBG Securities estimates

Figure 68: Net debt/equity, 3-year average


Figure 69: Net debt/equity (%), CY15E-17E incl. sector average, spot


Figure 70: Net debt/equity, 3-year average, spot prices


CY15E CY16E CY17E

Assore -10 -10 -12

South32 -0 -3 -8

AMSA 1 10 13

ARM 5 0 -6

Merafe 17 9 3

Exxaro 23 28 41

BHP 29 31 26

Rio Tinto 30 33 27


Anglo 35 33 28

Kumba 37 32 26

Glencore 61 49 33

-10.6

-3.6

-0.3

8.2

9.5

28.6

30.4

30.5

31.7

31.9

32.1

47.4

-25 -5 15 35 55 75

CY15E CY16E CY17E

Assore -10 -10 -11

South32 0 -1 -2

AMSA 2 7 9

ARM 4 1 -3

Merafe 16 6 -3

Exxaro 23 28 43

BHP 28 31 31

Rio Tinto 29 34 34

Kumba 30 23 15


Anglo 37 40 44

Glencore 62 62 61

-10.4

-0.9

0.5

6.3

6.3

22.8

30.0

31.1

32.6

36.4

40.5

61.9

-22 -2 18 38 58 78

03 July 2015

22

Equity Research

03 July 2015

Rio Tinto plc

Iron ore risks remain

Changes and investment thesis: Our quarterly review of prices and currencies

are mixed for Rio Tinto with lower net aluminium prices (lower premia) forecast

as well as lower KUC production in 2015E. From FY16E KUC’s recovery drove

the upgrades. We have reduced our FY15E earnings by 11% (lower copper from

KUC), increased our FY16E by 11% (as KUC recovers) and FY17E by 16%. We

have reduced our valuation and price target to 2960p (from 3090p) and retain

our Hold recommendation. We think that Rio Tinto will be able to generate cash

from iron ore as prices decline below US$50/t potentially but given the capex

burden committed we see debt levels increasing post the US$2bn buyback to

around US$17.5bn at 2H16E. We think that Rio Tinto can afford to pay the

dividends and will reduce capex further but that for now further buybacks are

less likely.

Catalysts:

o Iron ore downside risks – Spot iron ore prices are trading in the low

US$60s/t. We forecast an average price of US$53 for 2H15E and think

that some periods of sell off given seasonal demand as well as incremental

supply are likely.

o Debt levels increasing slowly – At the FY14 results Rio Tinto reported far

stronger cash flow than we had forecast, declared higher dividend levels and

announced a US$2bn buyback. We think that after the buyback that Rio

Tinto debt levels are fairly flat to rising modestly assuming spot prices and

SBGSe, hence our Hold recommendation.

o Growth moving to copper – We think that the recent announcement by Rio

Tinto of agreement with the Mongolian government will now lead to a focus

on delivering growth from OT. The result is that the La Granja project has

been delayed, and Resolution is now more likely to be developed before La

Granja. These are long term growth options, we have included OT

underground (lift 1&2) for now in our estimates and valuation.

o Dividend yield most attractive – Rio Tinto is trading on PEs of 21x FY15E,

18x FY16E and 13x FY17E based on SBGSe. Based on spot Rio Tinto is

trading on PEs of 19x FY15E, 23x FY16E and 22x FY17E, fair at best.

Valuation: We value Rio Tinto using a DCF over the LOM and assuming a USD

WACC of 9.5%. Risks to our view include iron ore overshooting to the downside

and continued pressure on aluminium premia.

Price relative to FTSE 100

2 600

2 800

3 000

3 200

3 400

3 600

7/14 10/14 1/15 4/15

Price FTSE 100 (rebased)

Share data

RIC RIO.L

Sub industry ICB General Mining

Price (25 Jun 2015) 2733 p

Market cap. (GBP m) 50,487

Enterprise value (GBP m) 63,907

Market cap. (USD m) 79,395

Enterprise value (USD m) 100,500

Avg. daily trade value (USD m) 220

Free float (%) 87

Historical performance relative to FTSE 100 (%)

Performance over 1M 3M 12M

Absolute (%) -3.6 -1.0 -14.7

Relative (%) 1.4 2.0 -11.8

Source: FTSE 100, SBG Securities Research

The price relative chart measures performance against the United

Kingdom FTSE 100 which closed at 6609 on 01 Jul 2015

Key forecasts Dec 12A Dec 13A Dec 14A Dec 15E Dec 16E Dec 17E

Net sales (US$ m) 50,967 51,171 47,664 37,935 41,205 46,221

EBITDA (US$ m) 3,233 12,518 16,678 11,717 13,044 16,129

EBITDA margin (%) 6 24 35 31 32 35

Net Income (US$ m) (2,997) 1,079 6,499 3,771 4,422 6,507

Basic (EPS) (US¢) (161) 198 353 206 236 345

Underlying (EPS) (US¢) 484 551 502 205 236 344

DPS - ordinary (US¢) 167 192 215 224 225 227

P/E (x) 11.4 9.7 9.4 20.9 18.2 12.5

EV/EBITDA (x) 42.8 10.4 6.4 8.8 8.0 6.3

Dividend yield (%) 3.0 3.6 4.6 5.2 5.2 5.3

Source: Company financials, SBG Securities estimates

*Stock ratings are relative to the relevant country benchmark.¹Target price is for 12 months

Recommendation:

HOLD Maintained Target Price: 2960 p

Eq

uit

y R

esea

rch

| C

EE

ME

A/

Un

ited

Kin

gd

om |

Min

ing

03 July 2015

23

Equity Research

Figure 71: Rio Tinto plc - Financial statements and ratios

Source: Company Data, SBG Securities estimates

Income statement FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E

Revenue $m 50 967 51 171 47 664 37 935 41 205 46 221 49 105 24 337 23 327 19 205 18 730 19 753

Operating Costs $m -33 150 -38 653 -30 986 -26 217 -28 161 -30 092 -31 195 -16 261 -14 725 -13 010 -13 207 -13 888

One offs in operating income $m -14 584 -7 637 -2 408 - - - - -1 861 -547 - - -

EBITDA $m 3 233 4 881 14 270 11 717 13 044 16 129 17 909 6 215 8 055 6 195 5 523 5 865

Depreciation and Amortisation $m -4 386 -5 088 -5 332 -5 566 -5 810 -5 824 -5 712 -2 493 -2 839 -2 670 -2 896 -2 896

EBIT $m -1 153 -207 8 938 6 152 7 234 10 305 12 197 3 722 5 216 3 525 2 627 2 969

Associates income $m -1 423 482 625 - - - - 306 319 - - -

Total F rom operations $m -2 576 275 9 563 6 152 7 234 10 305 12 197 4 028 5 535 3 525 2 627 2 969

Other derivative/funding $m 168 -3 613 -1 834 - - - - 538 -2 372 - - -

Net interest $m -160 -794 -585 -607 -746 -774 -631 -335 -250 -288 -319 -357

PBT $m -2 568 -4 132 7 144 5 545 6 488 9 531 11 566 4 231 2 913 3 237 2 308 2 612

Tax $m -429 -2 426 -3 053 -1 774 -2 066 -3 023 -3 653 -1 807 -1 246 -1 023 -751 -833

A ttributab le profit fo r the period $m -2 997 -6 558 4 091 3 771 4 422 6 507 7 914 2 424 1 667 2 214 1 557 1 779

Minority share & discontinued ops $m 7 2 586 28 -14 -128 -243 -348 117 -89 -22 9 -34

A ttributab le to Shareho lders $m -2 990 -3 972 4 119 3 757 4 294 6 264 7 566 2 541 1 578 2 192 1 565 1 745

Underly ing attributab le profits $m 9 030 10 217 9 305 3 757 4 294 6 264 7 566 5 116 4 189 2 192 1 565 1 745

Underlying EPS $ 4.84 5.51 5.02 2.05 2.36 3.44 4.15 2.76 2.26 1.19 0.86 0.96

DPS $ 1.67 1.92 2.15 2.24 2.25 2.27 2.29 0.96 1.19 1.05 1.19 1.05

Shares outstanding m 1 855 1 851 1 848 1 826 1 816 1 816 1 816 1 847 1 849 1 837 1 816 1 816

Tax rate % -17% -59% 43% 32% 32% 32% 32% 43% 43% 32% 33% 32%EBITDA Margin % 6% 10% 30% 31% 32% 35% 36% 26% 35% 32% 29% 30%EBIT Margin % -2% 0% 19% 16% 18% 22% 25% 15% 22% 18% 14% 15%Net Margin % 18% 20% 20% 10% 10% 14% 15% 21% 18% 11% 8% 9%Dividend Cover x 2.90 2.87 2.34 0.91 1.05 1.51 1.81 2.88 1.90 1.13 0.72 0.91 PE x 8.87 7.81 8.56 20.97 18.24 12.51 10.35 7.79 9.51 18.07 25.02 22.45 EV/EBITDA x 6.04 4.84 5.00 8.55 7.84 6.17 5.30 4.84 5.40 7.98 9.04 8.69 Dividend Yield % 3.9% 4.5% 5.0% 5.2% 5.2% 5.3% 5.3% 2.2% 2.8% 2.4% 2.8% 2.4%

Balance Sheet FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E

PPE $m 75 131 70 827 68 693 70 122 71 824 71 608 70 480 73 326 68 693 69 666 70 122 71 140

Intangibles $m 14 714 10 727 11 976 11 976 11 976 11 976 11 976 12 060 11 976 11 976 11 976 11 976

Deferred tax assets $m 3 358 3 555 3 540 3 540 3 540 3 540 3 540 3 987 3 540 3 540 3 540 3 540

Other non current assets $m 4 177 3 634 2 493 2 209 2 391 2 522 2 626 3 115 2 493 2 230 2 209 2 285

Total Non Current Assets $m 97 380 88 743 86 702 87 847 89 730 89 646 88 622 92 488 86 702 87 411 87 847 88 941

Cash and cash equivalents $m 7 082 10 216 12 423 9 358 7 698 10 147 14 886 9 600 12 423 11 042 9 358 7 913

Trade and Receivables $m 5 319 4 667 3 623 2 909 3 332 3 625 3 863 4 303 3 623 2 983 2 909 3 068

Inventories $m 6 136 5 737 4 350 4 052 4 379 4 663 4 861 5 636 4 350 3 992 4 052 4 261

Other liquid resources $m 7 082 10 216 12 423 9 358 7 698 10 147 14 886 9 600 12 423 11 042 9 358 7 913

Other $m -6 396 -9 506 -12 006 -8 941 -7 281 -9 730 -14 469 -9 100 -12 006 -10 625 -8 941 -7 496

Total Current Assets $m 19 223 21 330 20 813 16 736 15 826 18 851 24 026 20 039 20 813 18 434 16 736 15 659

Trade and other payables $m 9 244 8 400 7 437 6 928 7 487 7 971 8 311 7 077 7 437 6 825 6 928 7 285

Interest bearing liabilities $m 2 228 3 926 2 684 2 684 2 684 2 684 2 684 2 492 2 684 2 684 2 684 2 684

Current tax liabilities $m 827 1 126 800 800 800 800 800 718 800 800 800 800

Provisions $m 1 522 1 738 1 299 1 299 1 299 1 299 1 299 1 869 1 299 1 299 1 299 1 299

Other Current Liabilities $m - - - - - - - - - - - -

Total Current Liab i l i ties $m 13 821 15 190 12 220 11 711 12 270 12 754 13 094 12 156 12 220 11 608 11 711 12 068

Interest bearings liabilities $m 24 591 24 625 22 535 22 535 22 535 22 535 22 535 23 612 22 535 22 535 22 535 22 535

Provisions $m 15 069 12 343 13 303 13 303 13 303 13 303 13 303 13 483 13 303 13 303 13 303 13 303

Other Non Current Liabilities $m 5 658 5 184 4 815 4 755 4 821 4 878 4 917 5 456 4 815 4 743 4 755 4 797

Total Non Current Liab i l i ties $m 45 318 42 152 40 653 40 593 40 659 40 716 40 755 42 551 40 653 40 581 40 593 40 635

Net Assets $m 57 464 52 731 54 642 52 279 52 627 55 027 58 799 57 820 54 642 53 656 52 279 51 897

Share capital and reserves $m 25 038 22 281 20 175 20 175 20 175 20 175 20 175 23 251 20 175 20 175 20 175 20 175

Retained Income $m 21 827 23 605 26 110 23 733 23 954 26 110 29 534 25 730 26 110 25 102 23 733 23 316

Minority interests $m 11 156 7 616 8 309 8 323 8 451 8 694 9 042 8 798 8 309 8 331 8 323 8 357

Total Equ ity $m 58 021 53 502 54 594 52 231 52 579 54 979 58 751 57 779 54 594 53 608 52 231 51 849

Net debt / (cash) 19 737 18 335 12 796 15 861 17 521 15 072 10 333 16 504 12 796 14 177 15 861 17 306 Total debt 26 819 28 551 25 219 25 219 25 219 25 219 25 219 26 104 25 219 25 219 25 219 25 219 Debt/Equity % 34% 34% 23% 30% 33% 27% 18% 29% 23% 26% 30% 33%EBITDA Interest cover x 20.2 6.1 24.4 19.3 17.5 20.8 28.4 18.6 32.2 21.5 17.3 16.4 ROE % 19% 22% 20% 9% 10% 14% 15% 21% 18% 10% 7% 8%ROI % -2% -1% 9% 8% 9% 13% 14% 7% 11% 9% 7% 8%

Cash F low Statement FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E

Operating cash flows $m 15 928 19 531 18 896 12 444 12 737 15 962 17 748 8 618 10 278 6 772 5 672 5 820

Less tax paid $m -5 823 -3 698 -3 618 -1 774 -2 066 -3 023 -3 653 -2 505 -1 113 -1 023 -751 -833

Interest received $m - - 64 - - - - 32 32 - - -

Other operating cash flow $m 100

Used fo r:

Interest paid $m -837 -1 164 -1 045 -607 -746 -774 -631 -570 -475 -288 -319 -357

Dividends $m -3 038 -3 322 -3 710 -4 134 -4 073 -4 108 -4 142 -2 006 -1 704 -2 200 -1 934 -2 161

Capex to sustain $m -5 962 -4 278 -3 839 -3 292 -3 377 -3 473 -3 554 -1 880 -1 959 -1 641 -1 651 -1 676

Capex to expand $m -11 496 -8 723 -4 323 -3 853 -4 134 -2 135 -1 030 -1 965 -2 358 -2 051 -1 801 -2 237

Other investing cash flows $m -717 2 055 1 659 150 - - - 1 129 530 50 100 -

Net cash generated / uti l ised $m -11 845 401 4 084 -1 065 -1 660 2 449 4 739 853 3 231 -381 -684 -1 444

F inanced th rough:

Sales of shares $m -1 471 - - -2 000 - - - - - -1 000 -1 000 -

Net Debt changes $m 7 888 2 122 -3 476 - - - - -2 660 -816 - - -

Other financing cash flows $m 2 946 675 1 739 - 0 0 0 1 180 559 - - -

Change in net cash fo r the period -2 482 3 198 2 347 -3 065 -1 660 2 449 4 739 -627 2 974 -1 381 -1 684 -1 444

Capex / Revenue x 34% 25% 17% 19% 18% 12% 9% 16% 19% 19% 18% 20%Capex / Net operating cash flow x 171% 82% 53% 67% 70% 43% 33% 63% 47% 64% 70% 78%Net operating cash flow / Net profit x 113% 155% 165% 284% 249% 207% 186% 120% 220% 262% 314% 286%

03 July 2015

24

Equity Research

Figure 72: Rio Tinto plc Divisional data sheet


FY12 FY13 FY14 FY15E FY16E FY17E FY18E NPV US$bn US$/sh % of EV

USD/AUD 8.19 9.64 10.82 12.03 12.11 11.65 11.59 Iron Ore 63.4 34.9 56.4%

ZAR/USD 1.04 0.98 0.90 0.76 0.71 0.68 0.68 Aluminium 18.4 10.2 16.4%

Iron Ore (62% CIF China) $/t 128.47 135.35 97.31 57.07 57.50 60.75 64.50 Copper 22.8 12.6 20.3%

Aluminium USc/lb 92 84 85 81 88 98 102 Energy 2.5 1.4 2.2%

Spot alumina :aluminium % 14% 14% 14% 14% 14% 14% 14% Diamonds & Spec 5.1 2.8 4.6%

Copper USc/lb 361 333 312 277 327 352 374 Other assets - 0.0 0.0%

Met Coal $/t 193 151 117 96 97 104 112 Growth - 0.0 0.0%

Thermal coal (Newcastle) $/t 96 85 76 60 63 69 73 Less: Debt 17.3- (9.5)

Uranium US$/lb 48.74 38.50 33.24 37.28 37.05 40.00 43.08 Less: Corporate 7.0- (3.9)

Diamonds price changes % #DIV/0! 2% 2% -1% 2% 2% 2% Less: Minorities 4.6- (2.5)

Brent US$/bbl 112 109 100 58 65 75 80 Total 83.3 45.9

Production PT (pence / sh) 29.60

Iron Ore kt 253 462 258 430 295 365 334 608 351 361 368 029 368 029 PT (AUD / sh) 60.00

Aluminium kt 3 457 3 554 3 359 3 368 3 738 3 738 3 738 Premium / d iscount % 0%

Copper kt 728 864 900 695 856 921 967 WACC 9.5% Shares (m) 1 816

Gold koz 250 365 850 480 558 567 502 Revenue sp l it (2014F)

Silver koz - - - - - - -

Hard Coking Coal kt 8 605 9 217 7 172 7 800 8 000 10 900 11 200

SS Coking Coal kt 2 166 2 631 2 570 2 800 2 720 2 720 2 720

Thermal Coal kt 17 968 19 916 18 541 15 800 16 600 16 812 17 512

Uranium t 5 965 9 509 5 970 3 800 5 300 5 800 5 800

Diamonds k cts 16 263 19 101 16 863 18 636 22 536 24 536 24 536

Titanium kt 2 339 1 622 1 443 1 300 1 430 1 573 1 573

Copper Equ ivalent production

Iron Ore kt 1 904 1 941 2 218 2 513 2 639 2 764 2 764

Aluminium, Alumina and Bauxite kt 1 632 1 650 1 545 1 534 1 650 1 650 1 656

Copper kt 728 864 900 695 856 921 967

Hard Coking Coal kt 146 156 121 132 135 184 189

SS Coking Coal kt 32 39 38 41 40 40 40

Thermal Coal kt 185 205 191 163 171 173 180

Uranium kt 35 56 35 22 31 34 34

Diamonds kt 311 365 322 356 431 469 469

Titanium kt 307 213 190 171 188 207 207 EBIT sp l it (2014F)

Other kt 303 306 483 364 375 382 366

Total kt 5 583 5 795 6 044 5 992 6 516 6 824 6 872

Revenue

Iron ore US$m 24 279 25 994 23 281 14 982 15 762 17 403 18 529

Aluminium US$m 10 105 12 463 12 123 11 696 12 278 13 504 14 079

Copper US$m 6 661 5 916 6 282 4 181 5 498 6 440 7 077

Coal US$m 5 783 4 806 3 743 2 845 3 005 3 710 4 078

Uranium US$m 949 648 607 340 423 548 591

Diamonds US$m 4 056 4 193 4 150 3 891 4 239 4 617 4 750

Group and unallocated US$m 4 682 1 761 (103) - - - -

Total US$m 56 515 55 781 50 083 37 935 41 205 46 221 49 105

EBITDA

Iron ore US$m 15 675 17 442 14 244 7 640 8 136 9 290 10 215

Aluminium US$m 1 085 1 894 2 930 3 044 2 866 3 784 4 053

Copper US$m 1 736 1 750 2 336 1 145 1 955 2 606 2 892

Coal US$m 1 193 795 338 (148) (3) 276 445

Uranium US$m 190 111 (45) 62 76 129 161 Valuation by commodity

Diamonds US$m 658 1 085 1 144 975 1 040 1 095 1 221

Group and unallocated US$m (3 270) (1 564) (1 240) (1 000) (1 025) (1 051) (1 077)

Total US$m 17 267 21 513 19 706 11 717 13 044 16 129 17 909

EBIT

Iron ore US$m 14 187 15 815 12 291 5 629 5 993 7 211 8 239

Aluminium US$m -8 743 1 750 1 746 1 514 2 384 2 645

Copper US$m 1 102 836 1 285 32 794 1 381 1 656

Coal US$m 424 281 -75 -547 -373 -69 122

Uranium US$m -118 -141 -180 -193 -218 -166 -134

Diamonds US$m 214 578 660 571 636 701 833

Group and unallocated US$m -3 784 -1 687 -1 356 -1 086 -1 111 -1 137 -1 163

Total US$m 12 017 16 425 14 374 6 152 7 234 10 305 12 197

EBITDA marg ins

Iron ore % 65% 67% 61% 51% 52% 53% 55%

Aluminium % 11% 15% 24% 26% 23% 28% 29%

Copper % 26% 30% 37% 27% 36% 40% 41%

Coal % 21% 17% 9% -5% 0% 7% 11% EBIT by commodity over time

Uranium % 20% 17% -7% 18% 18% 23% 27%

Diamonds % 16% 26% 28% 25% 25% 24% 26%

Group and unallocated % -70% -89% 1204%

Total % 31% 39% 39% 31% 32% 35% 36%

Capex , US$M

Iron ore US$m 7 149 6 814 4 211 2 703 2 239 1 629 1 361

Aluminium US$m 2 550 2 226 2 021 2 105 2 113 1 817 1 089

Copper US$m 4 544 2 828 1 958 1 718 2 527 1 564 1 573

Coal US$m 1 819 579 146 130 133 138 141

Uranium US$m 183 130 54 47 48 50 51

Diamonds US$m 1 785 1 005 508 442 451 411 370

Group and unallocated US$m 796 574 -56 - - - -

Total Capex US$m 18 826 14 156 8 842 7 145 7 511 5 608 4 584

Sustain ing Capex US$m 5 962 4 278 3 839 3 292 3 377 3 473 3 554

Growth Capex US$m 12 864 9 878 5 004 3 853 4 134 2 135 1 030

Iron Ore 56.4%

Aluminium 16.4%

Copper 20.3%

Energy 2.2%

Diamonds & Spec 4.6%

Growth 0.0%

Iron ore 46.3%

Aluminium 24.1%

Copper 12.5%

Coal 7.4%

Uranium 1.2%

Iron ore 69.8%

Aluminium 9.9%

Copper 7.3%

Coal -0.4%

Uranium -1.0%

-5 000

0

5 000

10 000

15 000

20 000

Iron ore Aluminium Copper Coal Uranium Diamonds

03 July 2015

25

Equity Research

03 July 2015

Glencore plc

Buy for leverage

Changes and investment thesis: Our quarterly review of prices and currencies is

generally negative for Glencore with lower nickel and HCC coal prices the main

driver of the change. We have reduced our FY15E earnings 18%, our FY16E

3% and FY17E is unchanged. We have reduced our valuation and price target

9% to 320p (from 350p) as a result of these changes and lower long term

nickel and HCC coal prices. We think that Glencore has re-rated from lows

encountered early in 1Q15 as balance sheet (debt) concerns of a downgrade

have waned and after the stronger than expected results reported for FY14 and

lower capex. From here we think that the leverage to higher base metals prices

(as we are forecasting) is the key to a further re-rating. We think that investors

will also take cover from lower iron ore prices through Glencore exposure.

Catalysts:

o Leveraged to our preferred basket– relative to the global mining peers

Glencore has higher cost assets on average, though the marketing division

offers more stable cash flows. Glencore is exposed to a basket of

commodities that we prefer at present, including nickel, copper and

aluminium. We think that as these commodities perform that Glencore

offers the best exposure in the sector.

o Balance sheet not at risk – earlier in FY15E we were concerned that given

lower commodity prices that Glencore could be downgraded by ratings

agencies to below investment grade. We think that this concern has passed

for now as costs were better than expected at the FY14 results and the

marketing and agriculture divisions performed well and no downgrades were

realised. We think that Glencore will continue to generate strong FCF post

capex and as a result will be able to continue returning capital to

shareholders if prices follow our forecast path.

o M&A off the cards for now – we think that the announced approach to Rio

Tinto has waned after the underperformance of Glencore relative to Rio, as

well as the strong results and buyback announced by Rio Tinto. We think

that Glencore will continue to look for opportunities but that given lower

prices and cash flows that material deals are unlikely at present.

Valuation: We value Glencore using a DCF over the LOM and assuming a USD

WACC of 9.5%. The key risk to our view is a structurally lower level of Chinese

demand if the slowdown continues.


220

270

320

370

420

7/14 10/14 1/15 4/15


Share data

RIC GLEN.L


Price (25 Jun 2015) 274 p






Free float (%) 83



Absolute (%) -2.9 -3.2 -17.5

Relative (%) 2.1 -0.2 -14.6


The price relative chart measures performance against the

Switzerland FTSE 100 which closed at 6609 on 01 Jul 2015

Key forecasts Dec 12A Dec 13A Dec 14A Dec 15E Dec 16E Jan 17E

Net sales (US$ m) 233,445 232,694 221,073 172,123 194,301 215,144

EBITDA (US$ m) 14,948 9,665 11,051 9,777 13,876 16,025

EBITDA margin (%) 6 4 5 6 7 7

Net Income (US$ m) 7,399 (6,092) 2,474 2,409 5,614 7,405

Basic (EPS) (US¢) 87 (55) 18 16 38 50


DPS - ordinary (US¢) 5 17 18 18 18 18

P/E (x) 6.7 11.3 14.3 26.3 11.3 8.6

EV/EBITDA (x) 7.1 12.9 10.3 10.8 7.5 6.2

Dividend yield (%) 1.0 3.4 3.9 4.2 4.2 4.2



Recommendation:

BUY Maintained Target Price: 320 p

Eq

uit

y R

esea

rch

| C

EE

ME

A/

Swit

zerl

and

| M

inin

g

03 July 2015

26

Equity Research

Figure 73: Glencore plc - Financial statements and ratios


Income statement FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E

Revenue $m 233 445 232 694 221 073 172 123 194 301 215 144 230 771 114 064 107 009 85 038 87 084 93 286


EBITDA $m 14 948 9 665 11 051 9 777 13 876 16 025 18 245 5 571 5 480 4 596 5 181 6 280


EBIT $m 10 556 5 549 5 425 3 599 7 278 9 471 11 698 3 010 2 415 1 604 1 996 3 009

Profits on disposals $m -128 -40 715 - - - - - 715 - - -

Associates income $m -96 846 638 450 797 963 1 080 369 269 201 249 355

Total F rom operations $m 8 519 -4 489 5 735 4 049 8 075 10 434 12 778 3 262 2 443 1 805 2 245 3 364

Investment income $m 600 432 272 212 212 212 212 165 107 106 106 106

Interest Paid $m -1 774 -1 781 -1 724 -1 416 -1 348 -1 257 -1 078 -929 -795 -728 -688 -675

PBT $m 7 345 -5 838 4 283 2 845 6 940 9 389 11 912 2 498 1 755 1 183 1 662 2 795

Tax $m 54 -254 -1 809 -436 -1 325 -1 984 -2 498 -717 -1 092 -168 -267 -513

A ttributab le profit fo r the period $m 7 399 -6 092 2 474 2 409 5 614 7 405 9 414 1 781 663 1 014 1 395 2 282

Minority Interests $m -340 -104 -136 -273 -635 -838 -1 065 -61 -75 -115 -158 -258

A ttributab le to Shareho lders $m 7 059 -6 196 2 338 2 137 4 979 6 567 8 349 1 720 588 900 1 237 2 024

Underly ing attributab le profits $m 6 612 4 872 4 315 2 137 4 979 6 567 8 349 2 010 2 275 900 1 237 2 024

Underlying EPS $ 0.82 0.44 0.33 0.16 0.38 0.50 0.64 0.15 0.17 0.07 0.09 0.15

DPS $ 0.05 0.17 0.18 0.18 0.18 0.18 0.18 0.06 0.12 0.06 0.12 0.06


Tax rate % -1% -4% 42% 15% 19% 21% 21% 29% 62% 14% 16% 18%EBITDA Margin % 6% 4% 5% 6% 7% 7% 8% 5% 5% 5% 6% 7%EBIT Margin % 5% 2% 2% 2% 4% 4% 5% 3% 2% 2% 2% 3%Net Margin % 3% 2% 2% 1% 3% 3% 4% 2% 2% 1% 1% 2%Dividend Cover x 15.16 2.64 1.82 0.90 2.10 2.78 3.53 2.55 1.43 1.15 0.78 2.58 PE x 5.26 9.86 13.07 26.32 11.30 8.56 6.74 14.06 12.44 31.26 22.73 13.89 EV/EBITDA x 5.10 6.81 6.66 7.82 5.22 4.14 3.21 7.27 6.61 8.40 7.37 5.96 Dividend Yield % 1.3% 3.8% 4.2% 4.2% 4.2% 4.2% 4.2% 1.4% 2.8% 1.4% 2.8% 1.4%

Balance Sheet FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E



Inventories $m 26 404 22 753 24 436 19 147 22 142 24 218 25 627 23 181 24 436 19 145 19 147 20 577

Current Tax $m 163 - - - - - - - - - - -

Other $m 3 269 3 518 4 503 4 503 4 503 4 503 4 503 3 800 4 503 4 503 4 503 4 503


PPE $m 73 097 67 507 70 110 70 254 68 764 66 534 64 092 68 374 70 110 70 600 70 254 69 535

Intangibles $m 8 279 9 053 8 866 8 866 8 866 8 866 8 866 9 100 8 866 8 866 8 866 8 866

Deferred tax assets $m 1 468 2 105 1 667 1 667 1 667 1 667 1 667 2 351 1 667 1 667 1 667 1 667



Trade and other payables $m -27 638 -26 041 -26 881 -21 655 -24 721 -26 825 -28 264 -26 501 -26 881 -21 266 -21 655 -23 014

Interest bearing liabilities $m -17 142 -16 461 -12 005 -12 005 -12 005 -12 005 -12 005 -16 964 -12 005 -12 005 -12 005 -12 005

Current tax liabilities $m -655 -489 -376 -376 -376 -376 -376 -513 -376 -376 -376 -376

Provisions $m -753 -264 -576 -576 -576 -576 -576 -417 -576 -576 -576 -576

Other Current Liabilities $m -6 158 -2 511 -4 109 -4 109 -4 109 -4 109 -4 109 -2 611 -4 109 -4 109 -4 109 -4 109

Total Current Liab i l i ties $m -69 488 -62 227 -55 952 -38 721 -41 787 -43 891 -45 330 -47 006 -43 947 -38 332 -38 721 -40 080

Interest bearings liabilities $m -35 331 -38 724 -40 688 -40 688 -40 688 -40 688 -40 688 -40 727 -40 688 -40 688 -40 688 -40 688

Provisions $m -6 803 -8 083 -7 555 -7 555 -7 555 -7 555 -7 555 -7 966 -7 555 -7 555 -7 555 -7 555

Other Non Current Liabilities $m -7 591 -7 890 -7 555 -7 555 -7 555 -7 555 -7 555 -8 310 -7 555 -7 555 -7 555 -7 555

Total Non Current Liab i l i ties $m -50 980 -55 741 -56 778 -56 778 -56 778 -56 778 -56 778 -58 074 -56 778 -56 778 -56 778 -56 778

Net Assets $m 47 817 36 688 39 475 51 223 54 481 59 529 66 587 53 156 51 480 50 609 51 223 51 930

Share capital and reserves $m - 133 133 133 133 133 133 133 133 133 133 133



Total Equ ity $m 64 959 53 149 51 480 51 223 54 481 59 529 66 587 53 156 51 480 50 609 51 223 51 930

Net debt / (cash) $m 47 962 52 336 49 869 46 212 44 186 38 537 30 326 54 454 49 869 47 149 46 212 46 101 Net debt / (cash)excl mrktg inv $m 30 435 35 691 30 371 31 084 26 705 19 361 10 045 37 459 30 371 31 927 31 084 29 828 Total debt $m 52 473 55 185 52 693 52 693 52 693 52 693 52 693 57 691 52 693 52 693 52 693 52 693 Debt/Equity total % 74% 98% 97% 90% 81% 65% 46% 102% 97% 93% 90% 89%Debt/Equity excl mrktg inv % 47% 67% 59% 61% 49% 33% 15% 70% 59% 63% 61% 57%EBITDA Interest cover x 8.4 5.4 6.4 6.9 10.3 12.7 16.9 6.0 6.9 6.3 7.5 9.3 ROE % 11% 10% 9% 4% 10% 12% 14% 4% 5% 2% 3% 4%ROI % 22% 16% 8% 6% 11% 13% 14% 4% 2% 3% 3% 5%

Cash F low Statement FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E


Less tax paid $m -1 076 -593 -928 -436 -1 325 -1 984 -2 498 -584 -344 -168 -267 -513

Interest received $m 308 91 49 212 212 212 212 24 25 106 106 106

Used fo r:

Interest paid $m -1 361 -1 589 -1 260 -1 416 -1 348 -1 257 -1 078 -826 -434 -728 -688 -675

Dividends $m -1 937 -2 246 -2 489 -2 366 -2 356 -2 356 -2 356 -1 601 -888 -1 585 -781 -1 575


Capex to expand $m -8 647 -5 944 -3 782 -2 067 -845 -96 -97 -1 939 -1 843 -1 353 -714 -422

Other investing cash flows $m -6 632 2 864 4 784 - - - - -1 132 5 916 - - -

Net cash generated / uti l ised $m -12 886 243 2 495 4 234 2 264 5 885 8 446 -2 099 4 595 3 128 1 106 230

F inanced th rough:

Sales of shares $m 141 10 -767 -300 - - - -30 -737 -300 - -

Net Debt changes $m 15 302 558 -559 - - - - 2 158 -2 717 - - -

Other financing cash flows $m -1 002 -744 -315 - - - - 343 -658 - - -

Change in net cash fo r the period 1 555 67 854 3 934 2 264 5 885 8 446 372 483 2 828 1 106 230

Capex / Revenue x 5% 4% 4% 4% 3% 2% 2%Capex / Net operating cash flow x 130% 89% 84% 43% 45% 30% 25%Net operating cash flow / Net profit x 148% 221% 218% 658% 218% 207% 189%

03 July 2015

27

Equity Research

Figure 74: Glencore plc - Divisional Data Sheet


Assumptions FY12 FY13 FY14 FY15E FY16E FY17E FY18E NPV US$bn US$/sh % of EV

USD/AUD 1.04 0.98 0.90 0.76 0.71 0.68 0.68 Coal 11.0 0.84 3.8%

ZAR/USD 8.19 9.64 10.82 12.03 12.11 11.65 11.59 Oil 0.5 0.04 0.2%

Iron Ore $/t 128 135 97 57 58 61 65 Energy Marketing 5.2 0.40 1.8%

Met Coal $/t 193 151 117 96 97 104 112 Total Energy 16.6 1.28 5.7%

Thermal coal (API4) $/t 94 81 72 61 63 71 75 Copper 26.3 2.02 9.0%

Copper USc/lb 361 333 312 277 327 352 374 Zinc 9.0 0.69 3.1%

WTI $/bbl 94 98 93 53 60 70 75 Nickel 10.6 0.82 3.6%

Natural Gas US$/Mcf 2.7 3.7 4.4 2.6 2.8 3.2 3.4 Aluminium 0.6 0.05 0.2%

Aluminium USc/lb 92 84 85 81 88 98 102 Ferroalloys & PGM 3.6 0.28 1.2%

Zinc USc/lb 88 87 98 98 111 114 112 Iron Ore - - 0.0%Nickel USc/lb 795 682 768 635 742 839 975 Metals Marketing 23.1 1.78 7.9%

Production Total Metals & Minerals 73.3 5.63 25.0%

Copper kt 1 309 1 186 1 466 1 467 1 510 1 704 1 714 Agriculture 0.4 0.03 0.1%

Zinc kt 1 564 1 435 1 458 1 551 1 665 1 709 1 670 Agriculture Marketing 6.0 0.46 2.0%

Nickel kt 109 101 101 100 112 123 147 Total Agricu ltu re 6.4 0.49 2.2%

Cobalt kt 12 17 17 16 16 16 16 Other assets 2.0 0.15 0.7%

Aluminium kt 1 379 1 606 1 382 1 212 1 212 1 212 1 212 Growth - - 0.0%

PGMs koz 4E 139 156 158 164 164 164 164 EV / Operations 98.3 7.55 33.6%

Silver oz 33 35 37 35 33 35 35 o f wh ich : -

Thermal Coal mt 123 127 137 128 128 129 130 Industria l 64.1 4.92

Met Coal mt 11 12 10 10 10 10 10 Marketing 34.3 2.63

Liquids Oil Mbbl 1 5 5 5 5 4 3 Listed Assets 1.2 0.09 0.4%

Iron Ore mt - - - - - - - Less: Debt -31.1 -2.39

Copper Equ ivalent production Less: Corporate -3.7 -0.28

Coal kt 1 317 1 387 1 458 1 388 1 400 1 419 1 436 Less: Minorities - -

Oil kt 64 60 61 56 51 41 18 Total 357.8 4.97

Copper kt 1 186 1 466 1 467 1 510 1 704 1 714 1 808 Fair Value (pence/sh) 3.20

Zinc kt 506 464 472 502 539 553 540 Fair Value (R/share) 60.00

Nickel kt 321 298 297 293 328 361 431 Price Target (pence/sh) 3.20

Aluminium kt 406 472 406 356 356 356 356 Price Target (R/share) 60.00

Ferro alloys and PGMs kt 398 539 566 615 625 625 625 Premium / d iscount % 0%

Agri, Other kt 839 974 1 032 958 1 063 1 079 1 043 WACC 0.09 Shares (m) 13 019

Total Industria l kt 5 037 5 661 5 759 5 677 6 067 6 148 6 258 Revenue sp l it (2014F)

Marketing kt 24 315 25 248 25 216 25 508 25 976 26 462 26 967

Total kt 29 352 30 909 30 974 31 186 32 042 32 610 33 225

Revenue

Copper US$m 17 823 18 623 17 766 19 027 24 191 26 103 28 543

Zinc US$m 7 443 7 667 7 711 7 898 9 175 9 610 9 539

Nickel US$m 3 789 2 477 3 284 2 840 3 598 4 262 5 454

Coal US$m 12 369 11 597 11 191 7 799 8 202 9 072 9 644

Oil US$m 1 286 672 680 539 555 567 447

Agri, Other US$m 4 884 5 613 5 562 4 699 5 267 5 519 5 500

Marketing US$m 189 713 192 819 178 411 131 986 146 789 163 739 175 562

Total US$m 237 309 239 468 224 605 174 789 197 777 218 873 234 689

EBITDA

Copper US$m 4 912 4 661 4 306 5 685 8 597 9 514 10 744

Zinc US$m 2 062 1 573 1 397 974 1 995 2 255 2 209

Nickel US$m 1 203 601 1 031 431 827 1 200 1 894

Coal US$m 3 409 3 233 2 677 1 064 1 232 1 757 2 078 EBIT sp l it (2014F)

Oil US$m 472 439 425 189 228 272 217

Agri, Other US$m 225 429 554 634 754 735 784

Marketing US$m 2 267 2 692 3 106 2 535 2 586 2 827 3 035

Total US$m 14 550 13 628 13 496 11 511 16 220 18 560 20 961

EBIT

Copper US$m 3 661 1 912 1 764 2 666 4 762 5 550 6 476

Zinc US$m 1 053 601 363 -110 899 1 163 1 160

Nickel US$m 493 73 500 -187 -46 339 1 033

Coal US$m 1 934 948 395 -975 -788 -266 14

Oil US$m 391 296 148 -176 -82 -58 17

Agri, Other US$m 14 211 316 402 499 477 531

Marketing US$m 2 169 2 449 2 862 2 358 2 402 2 634 2 834

Total US$m 9 715 6 490 6 348 3 979 7 646 9 839 12 066

EBIT marg ins

Copper % 21% 10% 10% 14% 20% 21% 23%

Zinc % 14% 8% 5% -1% 10% 12% 12%

Nickel % 13% 3% 15% -7% -1% 8% 19% Valuation by commodity

Coal % 16% 8% 4% -13% -10% -3% 0%

Oil % 30% 44% 22% -33% -15% -10% 4%

Agri, Other % 0% 4% 6% 9% 9% 9% 10%

Marketing % 1% 1% 2% 2% 2% 2% 2%

Total % 4% 3% 3% 2% 4% 4% 5%

Capex , US$M

Copper US$m 4 506 3 521 2 795 2 193 2 087 1 694 1 698

Zinc US$m 2 032 2 015 1 235 1 322 1 218 1 068 868

Nickel US$m 685 1 497 1 172 806 536 286 286

Coal US$m 3 642 2 357 1 446 1 148 740 745 751

Oil US$m 311 1 120 972 427 143 147 118

Agri, Other US$m 617 648 316 148 146 148 150

Marketing US$m - - - - - - -

Total Capex US$m 11 793 11 158 7 936 6 045 4 870 4 087 3 871

Sustain ing Capex US$m 3 807 4 219 4 154 3 978 4 026 3 991 3 774

Growth Capex US$m 7 986 6 939 3 782 2 067 845 96 97

Copper38.5%

Zinc 16.7%

Nickel7.1%

Coal24.2%

Oil 1.5%

Agri, Other12.0%

Copper27.8%

Zinc 5.7%

Nickel7.9%

Coal6.2%

Oil 2.3%

Agri, Other5.0%

Marketing

45.1%

Coal11.4%

Oil0.5%

Energy Marketing

5.4%

Copper27.3%

Zinc9.3%Nickel

11.0%

Aluminium0.6%

Ferroalloys & PGM3.8%

Iron Ore0.0%

Metals Marketing

24.0%

Agriculture0.4%

Agriculture Marketing

6.2%

03 July 2015

28

Equity Research

03 July 2015

BHP Billiton plc

Yield remains attractive

Changes and investment thesis: Our quarterly review of prices and currencies

are generally negative for BHP Billiton with lower nickel prices in the short term

as well as lower long term prices for iron ore, nickel and natural gas the main

reasons for the change with some offset by weaker producer currencies. We

have increased our FY15E earnings 1%, decreased our FY16E by 17% and

FY17E is 2% higher. Our valuation is also lower and we reduce our price target

to 1400p (from 1600p) and we retain our Hold recommendation given upside

below our 20% Buy threshold. We think that investors should remain in BHP

given its defensive nature and 6.0% yield (FY16E and FY17E) as uncertainties

in China prevail.

Catalysts:

o Few surprises ahead – after our recent engagement with BHP investor

relations it was clear that the business continues to deliver productivity and

cost benefits but major change events are unlikely. Growth is focussed now

on copper and conventional oil (Mad Dog 2) projects but there is little

chance of approvals this year. We expect the BHP story will continue being

a conservative one, a strong balance sheet and focus on productivity and

cost savings, while paying the dividend, currently a 6% yield. This defensive

nature is attractive in our view and in the short term would be our preferred

exposure among global peers.

o Stable balance sheet – After taking our lower price forecasts into account

we find that BHP’s debt level is reasonably constant in the mid-20 US$bns.

At FY16E we see debt levels of US$26.6bn, marginally up but not a

distressed level. We think that we will continue to see capex constraint from

BHP (from shale in particular) as a result and don’t see good potential for

buybacks or rising dividends unless prices (oil&gas in particular) recover.

o Trading fair – BHP is trading on PEs of 15x FY15E, 24x FY16E assuming

SBGSe, and PEs of 15 x FY15E and 19x FY16E earnings on the basis of

spot prices. We think that this is a fair level at present. We think that there

remains risk to iron ore earnings as prices will fall in our view towards

US$50/t in 4Q15.

Valuation: We value BHP Billiton using a DCF over the LOM and assuming a

USD WACC of 9.5%. The key risk to our view is a rebound in oil & gas prices

beyond our forecasts on the positive side or a structurally lower level of Chinese

demand on the negative side.


1 100

1 300

1 500

1 700

1 900

2 100

7/14 10/14 1/15 4/15


Share data

RIC BLT.L


Price (25 Jun 2015) 1336 p






Free float (%) 100



Absolute (%) -1.7 -2.5 -26.3

Relative (%) 3.3 0.5 -23.4




Key forecasts Jun 12A Jun 13A Jun 14A Jun 15E Jun 16E Jun 17E

Net sales (US$ m) 72,224 65,968 68,730 55,063 40,755 47,467

EBITDA (US$ m) 30,258 26,216 32,793 22,413 18,339 23,828

EBITDA margin (%) 42 40 48 41 45 50

Net Income (US$ m) 15,534 11,075 15,609 7,380 5,767 9,815

Basic (EPS) (US¢) 288 204 267 120 89 156


DPS - ordinary (US¢) 112 116 121 125 126 127

P/E (x) 9.2 12.1 11.8 15.0 23.5 13.4

EV/EBITDA (x) 5.4 6.1 6.1 6.4 7.9 6.1

Dividend yield (%) 4.2 4.7 4.1 5.9 6.0 6.0



Recommendation:

HOLD Maintained Target Price: 1400 p

Eq

uit

y R

esea

rch

| C

EE

ME

A/

Un

ited

Kin

gd

om |

Min

ing

03 July 2015

29

Equity Research

Figure 75: BHP Billiton plc and Ltd - Financial Statements and Ratios


Income statement FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H15 2H15E 1H16E 2H16E 1H17E

Revenue $m 72 224 65 968 68 730 55 063 40 755 47 467 51 058 30 341 24 722 19 529 21 226 23 671


EBITDA $m 30 258 26 216 32 793 22 413 18 339 23 828 26 334 13 463 8 950 8 493 9 846 11 898


EBIT $m 23 754 19 225 22 768 12 578 9 746 15 145 17 666 8 479 4 099 4 179 5 567 7 604

Profits on disposals $m - - - - - - - - - - - -

Associates income $m - - 1 195 644 461 750 833 338 306 211 250 367

Total From operations $m 23 754 19 225 23 963 13 221 10 207 15 895 18 499 8 817 4 404 4 390 5 817 7 971


Interest Paid $m -955 -1 522 -1 273 -903 -1 206 -1 312 -1 201 -292 -611 -592 -615 -653

PBT $m 23 024 17 872 22 787 12 438 9 121 14 703 17 418 8 585 3 853 3 859 5 262 7 378

Tax $m -7 490 -6 797 -7 178 -5 059 -3 354 -4 887 -5 671 -3 792 -1 267 -1 449 -1 906 -2 456

Attributable profit for the period $m 15 534 11 075 15 609 7 380 5 767 9 815 11 746 4 793 2 587 2 410 3 357 4 922

Minority Interests $m -115 -199 -1 392 -1 000 -1 020 -1 497 -1 821 -528 -472 -465 -556 -732

Attributable to Shareholders $m 15 419 10 876 14 217 6 380 4 746 8 318 9 925 4 265 2 115 1 945 2 801 4 190

Underlying attributable profits $m 15 419 10 876 13 447 7 467 4 746 8 318 9 925 5 352 2 115 1 945 2 801 4 190

Underlying EPS $ 2.88 2.04 2.52 1.40 0.89 1.56 1.86 1.00 0.40 0.36 0.53 0.79

DPS $ 1.12 1.16 1.21 1.25 1.26 1.27 1.29 0.62 0.63 0.63 0.63 0.63


Tax rate % 33% 38% 32% 41% 37% 33% 33% 46% 36% 40% 38% 35%

EBITDA Margin % 42% 40% 48% 41% 45% 50% 52% 44% 36% 43% 46% 50%

EBIT Margin % 33% 29% 33% 23% 24% 32% 35% 28% 17% 21% 26% 32%

Net Margin % 21% 16% 20% 14% 12% 18% 19% 18% 9% 10% 13% 18%

Dividend Cover x 2.58 1.76 2.08 1.12 0.71 1.23 1.44 1.62 0.63 0.58 0.83 1.25

PE x 7.29 10.32 8.34 15.01 23.62 13.48 11.29 10.47 26.50 28.81 20.01 13.38

EV/EBITDA x 4.07 4.83 4.86 6.71 9.48 7.27 6.46 5.32 9.16 10.09 8.85 7.30

Dividend Yield % 5.3% 5.5% 5.8% 5.9% 6.0% 6.0% 6.1% 5.9% 6.0% 6.0% 6.0% 6.0%

Balance Sheet FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H15 2H15E 1H16E 2H16E 1H17E



Inventories $m 6 233 5 822 6 013 5 746 4 146 4 323 4 526 6 149 5 746 4 020 4 146 4 289

Current Tax $m - 327 318 630 630 630 630 630 630 630 630 630

Other $m 1 733 849 421 408 408 408 408 408 408 408 408 408


PPE $m 95 247 102 927 108 787 109 531 111 136 111 715 109 736 108 771 109 531 110 014 111 136 112 253

Intangibles $m 5 112 5 226 5 439 5 289 5 289 5 289 5 289 5 289 5 289 5 289 5 289 5 289

Deferred tax assets $m - 6 136 6 396 3 550 3 550 3 550 3 550 3 550 3 550 3 550 3 550 3 550



Trade and other payables $m 12 024 10 881 10 145 7 791 5 622 5 862 6 138 8 338 7 791 5 452 5 622 5 816

Interest bearing liabilities $m 3 531 5 303 4 262 1 759 1 759 1 759 1 759 2 459 1 759 1 759 1 759 1 759

Current tax liabilities $m 2 811 1 148 919 1 267 1 906 2 431 3 010 407 1 267 1 449 1 906 2 456

Provisions $m 2 784 2 395 2 504 1 943 1 943 1 943 1 943 1 943 1 943 1 943 1 943 1 943

Other Current Liabilities $m 884 425 234 203 203 203 203 203 203 203 203 203

Total Current Liabilities $m 22 034 20 152 18 064 12 963 11 433 12 198 13 052 13 350 12 963 10 805 11 433 12 177

Interest bearings liabilities $m 24 799 29 862 30 327 28 610 28 610 28 610 28 610 28 610 28 610 28 610 28 610 28 610

Provisions $m 8 914 8 237 9 891 7 967 7 967 7 967 7 967 9 467 7 967 7 967 7 967 7 967

Other Non Current Liabilities $m 6 441 7 823 7 749 8 399 8 379 8 381 8 384 8 404 8 399 8 377 8 379 8 381

Total Non Current Liabilities $m 40 154 45 922 47 967 44 976 44 956 44 958 44 961 46 481 44 976 44 954 44 956 44 958

Net Assets $m 67 085 72 035 85 382 87 507 86 070 88 444 92 480 86 250 87 507 86 338 86 070 87 280

Share capital and reserves $m 3 634 3 685 4 595 4 858 4 864 4 870 4 876 4 855 4 858 4 861 4 864 4 867



Total Equity $m 67 085 72 035 85 382 87 507 86 070 88 444 92 480 86 250 87 507 86 338 86 070 87 280

Net debt / (cash) $m 23 549 29 105 25 786 24 153 26 642 25 639 20 378 24 939 24 153 25 087 26 642 26 913

Total debt $m 28 330 35 165 34 589 30 369 30 369 30 369 30 369 31 069 30 369 30 369 30 369 30 369

Debt/Equity % 35% 40% 30% 28% 31% 29% 22% 29% 28% 29% 31% 31%

EBITDA Interest cover x 31.7 17.2 25.8 24.8 15.2 18.2 21.9 46.1 14.6 14.4 16.0 18.2

ROE % 23% 15% 17% 9% 6% 10% 12% 13% 5% 5% 7% 11%

ROI % 24% 17% 18% 9% 7% 11% 13% 11% 6% 6% 8% 11%

Cash Flow Statement FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H15 2H15E 1H16E 2H16E 1H17E


Less tax paid $m -8 327 -8 526 -6 465 -3 086 -2 715 -4 362 -5 093 -12 988 -9 551 -7 937 -5 801 -1 674

Interest received $m 127 79 136 122 120 120 120 62 60 60 60 60

Used for:

Interest paid $m -715 -963 -975 -998 -1 206 -1 312 -1 201 -387 -611 -592 -615 -653

Dividends $m -5 933 -6 222 -6 639 -7 153 -7 210 -7 448 -7 716 -3 621 -3 532 -3 582 -3 628 -3 716


Capex to expand $m -16 217 -19 020 -12 719 -9 431 -7 718 -6 589 -2 966 -5 262 -4 169 -3 613 -4 105 -4 105

Other investing cash flows $m -15 253 3 702 159 455 - - - 455 - - - -

Net cash generated / utilised $m -14 144 -5 854 1 607 84 -2 495 997 5 255 -10 308 -9 061 -7 607 -5 910 -42

Financed through:

Sales of shares $m -486 -424 -354 -332 6 6 6 -335 3 3 3 3

Net Debt changes $m 8 928 7 395 -910 -2 849 - - - -2 849 - - - -

Other financing cash flows $m 25 86 2 719 530 - - -0 10 839 9 144 6 670 4 353 -232

Change in net cash for the period -5 677 1 203 3 062 -2 567 -2 489 1 003 5 261 -2 653 86 -934 -1 555 -271

Capex / Revenue x 25% 33% 23% 22% 25% 20% 13% 22% 23% 25% 25% 23%

Capex / Net operating cash flow x 70% 112% 64% 61% 63% 49% 32% 39835% 809% 352% 145% 56%

Net operating cash flow / Net profit x 170% 177% 186% 270% 340% 229% 210% 0% 33% 70% 133% 232%

03 July 2015

30

Equity Research

Figure 76: BHP Billiton plc and Ltd - Divisional Data Sheet



USD/AUD 8.19 9.64 10.82 12.03 12.11 11.65 11.59 Iron Ore 59.6 11.2 34.9%

ZAR/USD 1.04 0.98 0.90 0.76 0.71 0.68 0.68 Coal 8.0 1.5 4.7%

Iron Ore $/t 149.48 126.66 122.67 72.32 53.75 60.00 62.50 Copper 77.5 14.6 45.4%

Met Coal $/t 240 166 132 106 94 100 108 Petroleum and Potash 22.6 4.2 13.2%

Thermal coal (API4) $/t 107 85 77 65 60 68 73 Al, Ni and Mn - 0.0 0.0%

Copper Usc/lb 371 348 318 290 298 346 363 Other assets - 0.0 0.0%

WTI $/bbl 95.00 92.24 101.26 69.23 55.00 65.00 73.25 Growth 3.0 0.6 1.8%

Natural Gas $/bcf 3.0 3.4 4.3 3.3 2.6 3.0 3.4 Less: Debt 26.6- (5.0)

Aluminium Usc/lb 98 88 80 85 84 94 99 Less: Corporate 2.3- (0.4)

Manganese ore $/dmtu 5.1 5.3 4.8 4.0 3.3 3.8 3.9 Less: Minorities 26.6- (5.0)

Nickel Usc/lb 875 744 692 704 667 818 907 Total 115.0 21.6

Production PT (pence / sh) 14.00

Iron Ore mt 159 478 169 857 203 564 232 509 249 288 253 974 253 974 PT (Rand / sh) 267.00

Met Coal mt 33 230 37 650 45 078 51 124 41 662 42 462 43 962 Premium / discount % 0%

Thermal Coal mt 71 111 72 426 73 492 72 918 39 868 41 124 41 124 WACC 9.5% Shares (m) 5 317

Copper kt 1091 1200 1726 1659 1736 1798 1927 Revenue split (2015F)

Liquids Oil Mbbl 80 368 72 458 84 061 99 485 100 324 98 855 96 898

Natural gas bcf 801 863 839 782 740 730 700

Total Oil production Mboe 227 811 233 812 246 013 255 088 248 201 245 799 239 131

Nickel kt 158 154 143 140 97 97 97

Aluminium kt 4 152 4 880 5 178 5 266 - - -

Manganese ore kt 7 931 8 496 8 543 8 969 - - -

Manganese alloy kt 602 611 676 693 - - -

Copper Equivalent production

Iron Ore kt 1 198 1 276 1 529 1 746 1 872 1 908 1 908

Met Coal kt 1 049 1 182 1 411 1 609 1 289 1 316 1 367

Thermal coal kt 711 724 735 729 399 411 411

Copper kt 1 091 1 200 1 726 1 659 1 736 1 798 1 927

Oil and gas kt 2 345 2 407 2 532 2 626 2 555 2 530 2 462

Nickel kt 464 453 421 411 286 286 286

Silver, Gold, Zinc & Lead kt 268 235 240 246 90 99 103

Aluminium kt 514 552 563 526 - - -

Manganese kt 315 333 343 358 - - - EBIT split (2015F)

Other assets kt 35 18 - - - - -

Total kt 7 991 8 380 9 501 9 910 8 228 8 348 8 463

Revenue

Iron ore US$m 22 601 20 454 22 990 16 557 13 066 14 634 14 950

Coal US$m 13 598 10 726 9 845 8 716 5 967 6 665 7 303

Copper US$m 11 596 12 182 15 129 13 328 13 243 16 334 18 139

Petroleum & Potash US$m 12 935 13 775 14 847 11 710 9 868 11 436 12 264

Non core US$m - - 8 074 7 270 1 254 1 537 1 706

Other assets US$m 1 326 224 - - - - -

Group and unallocated US$m 257 291 103 27 - - -

Total US$m 62 313 57 652 70 988 57 608 43 398 50 607 54 361

EBITDA

Iron ore US$m 15 027 12 364 13 777 8 982 6 358 7 609 7 751

Coal US$m 3 592 1 444 1 864 1 487 448 873 1 207

Copper US$m 4 687 4 950 6 930 5 919 6 483 8 952 10 218


Non core US$m 809 737 1 071 1 537 23 278 349 Valuation by commodity

Other assets US$m - - - - - - -

Group and unallocated US$m (138) (70) (198) (1 077) (238) (251) (263)

Total US$m 33 391 29 210 33 062 24 534 19 330 25 212 27 833

EBIT

Iron ore US$m 14 201 11 478 12 292 7 257 4 571 5 786 5 913

Coal US$m 2 797 547 468 92 -550 -87 279

Copper US$m 3 965 4 099 5 338 4 137 4 592 6 883 8 129


Non core US$m -24 -194 350 836 -101 158 230


Group and unallocated US$m -248 -194 -198 -1 077 -238 -251 -263

Total US$m 27 037 22 450 23 537 14 179 10 434 16 233 18 876

EBIT margins

Iron ore % 62.8 56.1 53.5 43.8 35.0 39.5 39.6

Coal % 20.6 5.1 4.8 1.1 -9.2 -1.3 3.8

Copper % 34.2 33.7 35.3 31.0 34.7 42.1 44.8

Petroleum & Potash % 49.1 48.7 35.6 25.1 21.9 32.7 37.4 EBIT by commodity over time

Non core % 4.3 11.5 -8.0 10.3 13.5

Other assets %

Group and unallocated %

Total % 43.4 38.9 33.2 24.6 24.0 32.1 34.7

Capex, US$M

Iron ore US$m 5 634 7 238 2 947 2 209 2 238 2 238 1 195

Coal US$m 3 701 3 665 2 527 1 492 568 585 600

Copper US$m 2 657 2 446 4 024 4 034 4 010 2 643 1 085


Non core US$m 1 679 835 490 383 108 112 115


Group and unallocated US$m 27 -37 17 3 - - -

Total Capex US$m 19 938 20 814 16 428 12 840 10 198 9 262 6 689

Sustaining Capex US$m 2 168 2 553 3 274 2 953 2 480 2 674 3 724

Group US$m 2 168 2 553 3 274 2 953 2 480 2 674 3 724

Iron ore 28.8%

Coal 15.1%

Copper 23.1%

Petroleum & Potash

20.3%

Non core 12.6%

Iron Ore 35.6%

Coal 4.8%

Copper 46.2%

Petroleum and Potash

13.5%

Al, Ni and Mn

0.0%

Iron ore 47.6%

Coal 0.6%

Copper 27.1%

Petroleum & Potash

19.2%

Non core 5.5%

-5 000

0

5 000

10 000

15 000

20 000

25 000

FY13 FY14 FY15E FY16E FY17E FY18E

Iron ore Coal Copper Petroleum & Potash Non core

03 July 2015

31

Equity Research

03 July 2015

Anglo American plc

Levered to our preferred


generally negative for Anglo American with lower nickel, diamond and PGM

price forecasts the main reason for the difference. We have reduced our FY15E

earnings 12%, our FY16E by 11% and FY17E is 5% lower. We reduce our

valuation and price target from 1430p to 1220p as a result of this review and

retain our Buy recommendation. We think that Anglo has the potential to

transform into a lower cost, longer life and more cash generative company

through its asset sale process and we think that this will gain traction around

the third quarter, though completion will take longer than the market

anticipated previously in our view. There is considerable uncertainty on Anglo’s

ability to execute and this is where the opportunity emerges.

Catalysts:

o Lower cost, less risky producer – through the sales of Rustenburg & Union,

as well as high cost copper and coal assets we see Anglo transforming into a

lower cost, longer life producer with better FCF conversion and generation.

We think that this ‘new 2020’ Anglo (see our note “Seeing Anglo with

20:20 vision” 23/3/15) is likely to be attractive to shareholders that have

previously steered clear from the labour intensive SA mining risk as well as a

relatively higher cost position than peers and stretched debt level.

o Sales to gain traction in mid-2015 – We expect the completion of the

Tarmac and Mantos Blancos sales in 3Q15, with the Quellaveco syndication

to follow in 4Q15. These will be positive developments. We also expect the

timing for the IPO of Rustenburg & Union to be announced at 1H15

results.

o Cheaper than peers – Anglo is trading on PEs of 16.2x FY15E, 10.5x

FY16E and 6.7x FY17E, an attractive level, though requiring a PGM and

base metals recovery as forecast by SBGS. Based on spot Anglo is trading on

PEs of 18.3x FY15E and 24.2x FY16E. Anglo has a rising debt profile on

spot price forecasts and this is the most material risk for the company. We

think that the completion of asset sales timeously is thus absolutely key for

Anglo to re-rate.

Valuation: We value Anglo American using a DCF over the LOM and assuming a

USD WACC of 9.5%. Risks to our view include a structural shift in Chinese

demand to lower levels than current demand.


900

1 100

1 300

1 500

1 700

7/14 10/14 1/15 4/15


Share data

RIC AAL.L


Price (25 Jun 2015) 995 p






Free float (%) 92



Absolute (%) -0.8 -2.1 -33.1

Relative (%) 4.2 0.9 -30.2





Net sales (US$ m) 28,761 29,342 27,073 23,485 27,158 30,088

EBITDA (US$ m) 819 5,038 2,772 5,491 7,126 8,770

EBITDA margin (%) 3 17 10 23 26 29

Net Income (US$ m) 1,211 3,942 3,589 1,823 2,785 4,014

Basic (EPS) (US¢) (120) (75) (196) 92 149 233


DPS - ordinary (US¢) 85 85 85 85 85 86

P/E (x) 13.5 10.0 11.0 17.0 10.5 6.7

EV/EBITDA (x) 66.2 8.8 14.9 6.9 5.3 4.3

Dividend yield (%) 2.9 4.1 4.5 5.4 5.4 5.5



Recommendation:

BUY Maintained Target Price: 1220 p

Eq

uit

y R

esea

rch

| C

EE

ME

A/

Un

ited

Kin

gd

om |

Min

ing

03 July 2015

32

Equity Research

Figure 77: Anglo American plc - Financial Statements and Ratios


Income statement FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Revenue $m 30 580 28 761 29 342 27 073 23 485 27 158 30 088 14 221 12 852 11 230 12 254 13 369


EBITDA $m 11 406 819 5 038 2 772 5 491 7 126 8 770 4 071 -1 299 2 580 2 911 3 261


EBIT $m 9 439 -1 688 2 407 138 2 839 4 071 5 710 2 822 -2 684 1 260 1 579 1 740

Profits on disposals $m 183 1 394 -469 -385 - - - 19 -404 - - -

Associates income $m 977 432 168 208 210 326 423 132 76 109 101 140

Total F rom operations $m 10 599 138 2 106 -39 3 049 4 396 6 133 2 973 -3 012 1 369 1 680 1 879


Interest Paid $m -485 -974 -677 -562 -593 -574 -540 -274 -288 -289 -304 -282

PBT $m 10 782 -239 1 700 -259 2 600 3 967 5 736 2 945 -3 204 1 152 1 448 1 669

Tax $m -2 860 -375 -1 274 -1 265 -777 -1 182 -1 722 -830 -435 -346 -431 -503

A ttributab le profit fo r the period $m 7 922 -614 426 -1 524 1 823 2 785 4 014 2 115 -3 639 806 1 017 1 166

Minority Interests $m -1 753 -879 -1 387 -989 -644 -875 -1 026 -651 -338 -299 -345 -399

A ttributab le to Shareho lders $m 6 169 -1 493 -961 -2 513 1 179 1 911 2 988 1 464 -3 977 508 672 767

Underly ing attributab le profits $m 5 274 -2 550 -2 050 -3 604 88 819 1 884 1 053 -4 658 97 -9 357

Underlying EPS $ 4.78 2.21 2.08 1.72 0.92 1.49 2.33 1.00 0.73 0.40 0.52 0.60

DPS $ 0.74 0.85 0.85 0.85 0.85 0.85 0.86 0.32 0.53 0.32 0.53 0.32


Tax rate % 27% -157% 75% -488% 30% 30% 30% 30% -13% 33% 32% 33%EBITDA Margin % 37% 3% 17% 10% 23% 26% 29% 29% -10% 23% 24% 24%EBIT Margin % 31% -6% 8% 1% 12% 15% 19% 20% -21% 11% 13% 13%Net Margin % 17% -9% -7% -13% 0% 3% 6% 7% -36% 1% 0% 3%Dividend Cover x 6.45 2.60 2.45 2.03 1.08 1.75 2.71 3.12 1.37 1.24 0.99 1.87 PE x 3.28 7.07 7.51 9.08 17.04 10.52 6.72 7.85 10.77 19.79 14.96 13.09 EV/EBITDA x 1.88 4.34 4.49 5.44 6.74 5.08 3.89 5.01 5.87 7.32 6.39 5.71 Dividend Yield % 4.2% 4.8% 5.4% 5.4% 5.4% 5.4% 5.5% 4.1% 6.8% 4.1% 6.8% 4.1%

Balance Sheet FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E



Inventories $m 3 517 5 005 4 789 4 720 3 117 3 310 3 537 4 633 4 720 2 885 3 117 3 372

Current Tax $m 207 470 226 125 125 125 125 118 125 125 125 125

Other $m 172 3 353 89 147 161 175 189 135 147 154 161 168


PPE $m 40 549 45 089 41 505 38 475 39 304 40 186 41 205 43 127 38 475 39 885 39 304 39 787

Intangibles $m 2 322 4 571 4 083 3 912 3 912 3 912 3 912 4 066 3 912 3 912 3 912 3 912

Investment in associates $m 5 240 3 063 4 612 4 376 4 232 4 297 4 552 4 719 4 376 4 270 4 232 4 237



Trade and other payables $m -5 098 -4 536 -4 369 -3 515 -2 321 -2 465 -2 634 -3 781 -3 515 -2 149 -2 321 -2 511

Interest bearing liabilities $m -1 018 -2 604 -2 108 -1 618 -1 618 -1 618 -1 618 -2 196 -1 618 -1 618 -1 618 -1 618

Current tax liabilities $m -1 528 -819 -734 -375 -375 -375 -375 -545 -375 -375 -375 -375

Other Current Liabilities $m -534 -1 763 -1 140 -1 219 -1 219 -1 219 -1 219 -1 001 -1 219 -1 219 -1 219 -1 219

Total Current Liab i l i ties $m -8 178 -9 722 -8 351 -6 727 -5 533 -5 677 -5 846 -7 523 -6 727 -5 361 -5 533 -5 723

Interest bearings liabilities $m -11 855 -15 150 -15 740 -16 917 -16 917 -16 917 -16 917 -17 686 -16 917 -16 917 -16 917 -16 917

Deferred tax liabilities $m -5 730 -6 069 -4 657 -4 498 -4 488 -4 735 -4 909 -4 779 -4 498 -4 403 -4 488 -4 560

Provisions $m -2 343 -2 384 -2 710 -2 808 -2 808 -2 808 -2 808 -2 772 -2 808 -2 808 -2 808 -2 808

Other Non Current Liabilities $m -1 147 -2 257 -2 343 -2 883 -2 883 -2 883 -2 883 -1 882 -2 883 -2 883 -2 883 -2 883

Total Non Current Liab i l i ties $m -21 075 -25 860 -25 450 -27 106 -27 096 -27 343 -27 517 -27 119 -27 106 -27 011 -27 096 -27 168

Net Assets $m 43 189 43 787 37 364 32 177 32 632 33 958 36 456 38 430 32 177 32 170 32 632 32 951

Share capital and reserves $m 3 735 -2 731 -6 705 -8 434 -8 428 -8 422 -8 416 -6 597 -8 434 -8 431 -8 428 -8 425



Total Equ ity $m 43 189 43 787 37 364 32 177 32 632 33 958 36 456 38 430 32 177 32 170 32 632 32 951

Net debt / (cash) 1 141 8 660 10 144 11 787 11 513 11 256 10 157 11 430 11 787 12 409 11 513 11 904 Total debt 12 873 17 754 17 848 18 535 18 535 18 535 18 535 19 882 18 535 18 535 18 535 18 535 Debt/Equity % 3% 20% 27% 37% 35% 33% 28% 30% 37% 39% 35% 36%EBITDA Interest cover x 23.5 0.8 7.4 4.9 9.3 12.4 16.2 14.9 -4.5 8.9 9.6 11.6 ROE % 13% -7% -6% -14% 0% 3% 6% 3% -18% 0% 0% 1%ROI % 16% -10% 2% 3% 6% 8% 11% 10% -19% 5% 7% 7%

Cash F low Statement FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E


Less tax paid $m -2 539 -1 799 -1 201 -1 298 -787 -934 -1 548 -741 -557 -441 -346 -431

Interest received $m - - 181 - 144 144 144 - - 72 72 72

Used fo r:

Interest paid $m -807 -775 -907 -833 -593 -574 -540 -503 -330 -289 -304 -282

Dividends $m -2 222 -2 237 -2 237 -1 922 -1 374 -1 465 -1 522 -1 198 -724 -816 -558 -850


Capex to expand $m -3 740 -3 294 -3 488 -3 011 -2 143 -913 -900 -1 388 -1 623 -1 322 -821 -491

Other investing cash flows $m 1 000 -4 493 176 52 1 500 - - 2 50 - 1 500 -

Net cash generated / uti l ised $m 1 130 -7 550 -2 120 -2 566 268 251 1 092 -856 -1 710 -625 892 -394

F inanced th rough:

Sales of shares $m -347 24 -78 -97 6 6 6 -92 -5 3 3 3

Net Debt changes $m 4 667 6 106 972 1 825 - - - 1 669 156 - - -

Other financing cash flows $m 183 -1 119 -9 -3 - - - -3 - - - -

Change in net cash fo r the period 5 633 -2 539 -1 235 -841 274 257 1 098 718 -1 559 -622 895 -391

Capex / Revenue x 20% 19% 21% 22% 21% 14% 14%Capex / Net operating cash flow x 66% 101% 88% 98% 87% 63% 56%Net ops cash flow / Underlying profit x 178% -218% -340% -170% 6517% 760% 384%

03 July 2015

33

Equity Research

Figure 78: Anglo American plc - Divisional Data Sheet


FY11 FY12 FY13 FY14 FY15E FY16E FY17E NPV (100%) US$bn US$/sh % of EV

ZAR/USD 7.26 8.19 9.64 10.82 12.03 12.11 11.65 Iron ore & Manganese 9.9 7.7 20.1%

USD/AUD 1.03 1.04 0.98 0.90 0.76 0.71 0.68 Met Coal 1.0 0.8 2.0%

Iron Ore (FOB) $/t 157.33 121.08 127.17 89.31 49.07 49.50 52.75 Thermal Coal 2.6 2.0 5.2%

Manganese ore $/dmtu 6.10 4.92 5.19 4.62 3.29 3.61 3.82 Copper 18.0 14.1 36.5%

Met Coal $/t 294 193 151 117 96 97 104 Nickel 1.8 1.4 3.7%

Thermal coal (API4) $/t 117 94 81 72 61 63 71 Platinum 6.9 5.4 14.0%

Copper USc/lb 400 361 333 312 277 327 352 Diamonds 7.5 5.8 15.2%

Nickel USc/lb 1 037 795 682 768 635 742 839 OMIG 1.6 1.3 3.3%

Platinum $/oz 1 721 1 553 1 487 1 388 1 146 1 250 1 425 Other assets - 0.0 0.0%

Palladium $/oz 733 645 726 804 752 775 875 Less: Debt - 0.0Diamonds increase/(decrease) % 6.0 (2.3) 1.6 1.9 (1.3) 1.8 1.5 Less: Corporate - 0.0

Production (100%) Less: Minorities 13.0- (10.1)

Iron Ore mt 43.3 44.4 42.3 48.4 61.6 76.5 77.6 Total 36.4 28.4

Manganese Ore kt 3 212 3 262 3 382 3 100 4 960 4 960 4 960 NAV (pence / sh) 12.20

Aus Met Coal - Thermal mt 13.3 12.9 12.5 12.6 12.4 13.4 13.6 NAV (Rand / sh) 227.00

Aus Met Coal - Export mt 14.3 17.8 19.0 20.6 20.0 22.2 24.0 WACC 9.5% Shares (bn) 1.281

SA Thermal Coal - Eskom & Dom mt 41.5 40.7 39.3 39.1 38.9 39.5 41.9 Revenue sp l it (2014F)

SA Thermal Coal - Export mt 13.5 13.0 17.3 17.7 17.9 18.7 18.7

Colombia Thermal Coal - Export mt 10.8 11.5 11.2 11.2 12.0 12.0 12.0

Copper kt 613 673 775 773 731 742 711

Nickel kt 36 45 36 36 27 38 42

PGM 4E koz 4 404 4 191 4 157 3 460 4 044 4 094 4 135

Diamonds mCt 31 327 27 875 31 159 32 189 32 172 33 068 34 747

Copper Equ ivalent production (attributab le)

Iron Ore kt 169.2 173.4 165.4 190.0 285.0 394.3 398.6

Manganese Ore and alloy kt 117.5 126.4 129.7 139.3 107.8 162.9 162.9

Met Coal kt 242.5 300.3 322.1 347.7 337.5 374.8 405.2

Thermal Coal kt 507.2 505.7 532.6 542.5 550.0 571.1 580.3

Copper kt 602.3 535.0 541.3 546.1 509.2 525.5 487.6

Nickel kt 105.3 133.2 106.5 104.4 77.9 111.8 123.5

PGM 4E kt 691.4 657.9 652.5 543.1 634.9 642.7 649.2

Diamonds kt 921.4 819.9 916.4 946.7 946.2 972.6 1 022.0

Total kt 3 461 3 378 3 471 3 459 3 530 3 837 3 911

Revenue EBIT sp l it (2014F)

Iron ore & Manganese $m 8 124 6 403 6 517 5 176 3 507 4 817 5 218

Met Coal $m 4 347 3 899 3 396 2 970 2 245 2 544 2 933

Thermal Coal $m 3 722 3 447 3 004 2 838 2 333 2 499 2 972

Copper $m 5 144 5 122 5 392 4 827 4 299 5 321 5 536

Nickel $m 488 336 136 142 371 621 777

Platinum $m 7 359 5 489 5 688 5 396 4 819 5 334 6 198

Diamonds $m 3 320 4 028 6 404 7 114 6 530 6 897 7 498

OMIG, Expl, Group $m 4 045 4 071 2 526 2 525 3 002 3 379 3 497

Total $m 36 549 32 795 33 063 30 988 27 107 31 413 34 629

EBIT

Iron ore & Manganese $m 4 520 2 949 3 119 1 957 838 607 1 106

Met Coal $m 1 189 405 46 (27) (125) 3 226

Thermal Coal $m 1 232 785 541 485 134 211 518

Copper $m 2 461 1 687 1 739 1 193 961 1 971 2 332

Nickel $m 57 26 (44) 21 (33) 75 164

Platinum $m 890 (142) 464 32 326 461 686

Diamonds $m 659 496 1 003 1 363 1 158 1 245 1 294 Valuation by commodity

OMIG, Expl, Group $m 89 (72) (248) (91) (104) (17) 25

Total $m 11 097 6 134 6 620 4 933 3 154 4 558 6 351

Underly ing Earn ings

Iron ore & Manganese $m 1 527 1 037 1 125 691 416 199 516

Met Coal $m 844 293 60 (77) (118) (30) 121

Thermal Coal $m 902 523 397 373 57 94 257

Copper $m 1 610 918 803 493 436 942 1 119

Nickel $m 23 18 (54) 6 (26) 75 120

Platinum $m 410 (204) 287 25 98 156 281

Diamonds $m 443 313 532 923 732 792 812

OMIG, Expl, Group $m 364 (5) (477) (243) (415) (376) (415)

Total $m 6 123 2 893 2 673 2 191 1 180 1 851 2 810

EBITDA marg ins

Iron ore & Manganese % 58% 50% 52% 44% 33% 27% 34%

Met Coal % 36% 27% 18% 15% 14% 17% 23%

Thermal Coal % 38% 29% 24% 27% 16% 18% 25%

Copper % 53% 43% 45% 39% 39% 50% 55% EBIT by commodity over time

Nickel % 17% 15% -27% 20% 15% 27% 33%

Platinum % 23% 9% 18% 10% 17% 19% 21%

Diamonds % 24% 18% 23% 26% 25% 25% 24%

OMIG, Expl, Group % 10% 11% 10% 12% 15% 16% 16%

Total % 37% 27% 29% 25% 23% 25% 28%

Growth Capex , US$M

Iron ore & Manganese $m 1 732 2 077 2 517 2 685 1 676 982 811

Met Coal $m 695 1 028 1 050 749 698 608 419

Thermal Coal $m 190 266 217 296 172 176 186

Copper $m 1 570 996 1 011 727 665 583 764

Nickel $m 398 100 -28 229 307 110 113

Platinum $m 970 822 608 610 520 607 850

Diamonds $m 106 94 551 689 835 760 825

OMIG, Expl, Group $m 209 295 344 266 108 110 112

Total Capex $m 5 870 5 678 6 270 6 252 4 982 3 937 4 079

Fe & Mn16.7%

Met Coal 9.6%

Thermal9.2%

Copper 15.6%Nickel

0.5%

Platinum 17.4%

Diamonds

23.0%

Other8.1%

Fe & Mn22.8%

Met Coal -3.4%

Thermal3.6%

Copper 26.1%

Nickel -0.9%

Platinum 8.9%

Diamonds 31.5%

Other-2.8%

Fe & Mn20.1%

Met Coal 2.0%

Thermal Coal 5.2%

Copper 36.5%

Nickel 3.7%

Platinum 14.0%

Diamonds 15.2%

Other3.3%

-1 000

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

Fe & Mn Met Coal Thermal Copper Nickel Platinum Diamonds

03 July 2015

34

Equity Research

03 July 2015

South32 Ltd

Tough commodity mix


generally negative for South32 with lower coking coal and nickel prices the

main driver of the changes in the short term and lower long term prices in

aluminium and nickel in the longer term. We have also assumed the

reversal/impairment of the manganese write-up taken at Dec 2014 by BHP

Billiton. We have reduced our FY15E earnings 3% and FY16E by 1%, while

FY17E is 17% higher. We have reduced our valuation and price target to 1770

SAc (from 2100 SAc). We think that South32 faces lower earnings (we are well

below consensus) and hence dividends and that only once the market it

factoring this in will stability be achieved.

Catalysts:

o Earnings downgrades – We are now 57% and 16% below FY16E and

FY17E earnings. Incorporated in this is a write back (hence lower

depreciation) of the Manganese/Samancor write-up. We think that the

market needs to account for the lower aluminium premiums and lower

manganese prices. These lower earnings will lead to lower dividends (payout

of 40% of underlying earnings).

o …leads to lower dividends – Our earnings profile implies a dividend yield of

1.6% for FY16E and 4.2% for FY17E. This is well below BHP Billiton’s 6%

yield in FY16E. We think that the result of this is that there will be

switching from South32 to BHP Billiton from BHP’s traditional investor

base.

o M&A remains a risk – since our initiation of coverage in May South32 has

fallen from around US$9bn market cap to current levels of US$7.9bn. This

is a valuation where the optionality on higher prices as well as the

optionality of developing South32’s world class and long life resource base

becomes attractive potentially.

Valuation: We value South32 using a DCF over the LOM and assuming a USD

WACC of 9.5%. Risks to our view include lower than assumed demand and

hence production levels.


16

17

18

19

20

21

22

23

5/15


Share data

RIC S32J.J


Price (25 Jun 2015) R 17.68

Market cap. (R m) 94,005

Enterprise value (R m) 94,091




Free float (%) 100



Absolute (%) -11.6 n/a n/a

Relative (%) -6.6 n/a n/a





Net sales (US$ m) 11,716 10,062 8,613 7,494 6,923 7,789

EBITDA (US$ m) 2,739 (626) 1,098 1,550 1,319 1,895

EBITDA margin (%) 23 (6) 13 21 19 24

Net Income (US$ m) 1,270 (1,564) 103 535 311 811

Basic (EPS) (US¢) 10 6 15

Underlying (EPS) (US¢) 10 6 15

DPS - ordinary (US¢) 0 2 6

P/E (x) 14.5 24.7 9.5

EV/EBITDA (x) 5.1 5.7 3.7

Dividend yield (%) 0.0 1.6 4.2



Recommendation:

SELL Maintained Target Price: R 17.70

Eq

uit

y R

esea

rch

| C

EE

ME

A/

Sou

th A

fric

a | M

inin

g

03 July 2015

35

Equity Research

Figure 79: South32 Ltd - Financial Statements and Ratios (FY12-14 from BHP)


Income statement FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H15 2H15E 1H16E 2H16E 1H17E

Revenue $m 11 716 10 062 8 613 7 494 6 923 7 789 8 270 4 088 3 406 3 364 3 559 3 765


EBITDA $m 2 739 -626 1 098 1 550 1 319 1 895 2 142 1 036 514 609 710 846

Depreciation and Amortisation $m -806 -848 -823 -847 -833 -818 -807 -417 -430 -420 -414 -410

EBIT $m 1 933 -1 474 275 702 486 1 077 1 335 619 83 189 297 436

Profits on disposals $m - - - - - - - - - - - -

Associates income $m -88 88 62 -12 -21 46 73 36 -48 -21 1 24

Total From operations $m 1 845 -1 386 337 690 465 1 123 1 408 655 36 168 297 460

Investment income $m - - - - - - - - - - - -

Interest Paid $m -70 -122 -187 -16 -7 16 45 - -16 -7 0 5

PBT $m 1 775 -1 508 150 674 458 1 139 1 453 655 20 161 297 465

Tax $m -505 -56 -47 -139 -147 -328 -413 -118 -21 -56 -91 -133

Attributable profit for the period $m 1 270 -1 564 103 535 311 811 1 041 537 -2 105 207 332

Minority Interests $m - - - -7 - - - -7 - - - -

Attributable to Shareholders $m 1 270 -1 564 103 528 311 811 1 041 530 -2 105 207 332

Underlying attributable profits $m 1 131 518 446 528 311 811 1 041 530 -2 105 207 332

Underlying EPS $ 0.21 0.10 0.08 0.10 0.06 0.15 0.20 0.10 -0.00 0.02 0.04 0.06

DPS $ - - - - 0.02 0.06 0.08 - - 0.01 0.02 0.02


Tax rate % 27% -4% 53% 20% 31% 30% 30% 19% 32% 31% 31% 30%

EBITDA Margin % 23% -6% 13% 21% 19% 24% 26% 25% 15% 18% 20% 22%

EBIT Margin % 16% -15% 3% 9% 7% 14% 16% 15% 2% 6% 8% 12%

Net Margin % 10% 5% 5% 7% 4% 10% 13% 13% 0% 3% 6% 9%

Dividend Cover x 2.49 2.49 2.49 2.49 2.49 2.49

PE x 14.75 25.05 9.61 7.49 7.35 -2 211.96 37.28 18.86 11.73

EV/EBITDA x 5.19 5.73 3.70 2.94 4.07 7.83 6.38 5.32 4.33

Dividend Yield % 0.0% 1.6% 4.2% 5.4% 0.0% 0.0% 1.1% 2.1% 3.4%

Balance Sheet FY15E FY16E FY17E FY18E 1H15 2H15E 1H16E 2H16E 1H17E

Cash and cash equivalents $m 744 1 234 1 783 2 491 364 744 1 024 1 234 1 454

Trade and Receivables $m 799 835 944 987 959 799 789 835 883

Inventories $m 970 956 998 1 035 1 024 970 924 956 979

Current Tax $m 107 107 107 107 107 107 107 107 107

Other $m 101 101 101 101 101 101 101 101 101

Total Current Assets $m 2 721 3 233 3 933 4 721 2 555 2 721 2 946 3 233 3 524

PPE $m 13 234 13 052 12 998 12 840 13 393 13 234 13 131 13 052 13 030

Intangibles $m 306 306 306 306 306 306 306 306 306

Deferred tax assets $m 584 584 584 584 584 584 584 584 584

Other non current assets $m 726 720 817 911 847 726 698 720 766

Total Non Current Assets $m 14 850 14 662 14 705 14 641 15 130 14 850 14 719 14 662 14 687

Trade and other payables $m 951 937 979 1 015 1 004 951 906 937 960

Interest bearing liabilities $m 282 282 282 282 282 282 282 282 282

Current tax liabilities $m 21 91 195 223 79 21 56 91 133

Provisions $m 361 361 361 361 361 361 361 361 361

Other Current Liabilities $m 9 9 9 9 9 9 9 9 9

Total Current Liabilities $m 1 625 1 680 1 826 1 890 1 735 1 625 1 615 1 680 1 745

Interest bearings liabilities $m 742 742 742 742 742 742 742 742 742

Provisions $m 1 532 1 532 1 532 1 532 1 532 1 532 1 532 1 532 1 532

Other Non Current Liabilities $m 724 724 725 726 726 724 723 724 725

Total Non Current Liabilities $m 2 998 2 998 2 999 3 000 3 000 2 998 2 997 2 998 2 999

Net Assets $m 12 948 13 217 13 813 14 472 12 950 12 948 13 053 13 217 13 467

Share capital and reserves $m - - - - - - - - -

Retained Income $m 12 948 13 217 13 813 14 472 12 950 12 948 13 053 13 217 13 467

Minority interests $m - - - - - - - - -

Total Equity $m 12 948 13 217 13 813 14 472 12 950 12 948 13 053 13 217 13 467

Net debt / (cash) $m 280 -210 -759 -1 467 660 280 -0 -210 -430

Total debt $m 1 024 1 024 1 024 1 024 1 024 1 024 1 024 1 024 1 024

Debt/Equity % 2% -2% -5% -10% 5% 2% 0% -2% -3%

EBITDA Interest cover x 95.8 192.2 -121.0 -47.7 31.8 88.7 -417 099.3 -164.5

ROE % 4% 2% 6% 7% 8% 0% 2% 3% 5%

ROI % 4% 3% 5% 6% 8% 1% 2% 3% 5%

Cash Flow Statement FY15E FY16E FY17E FY18E 1H15 2H15E 1H16E 2H16E 1H17E

Operating cash flows $m 1 675 1 268 1 737 2 078 929 746 625 643 776

Less tax paid $m -79 -78 -224 -385 - -79 -100 -157 -100

Interest received $m - - - - - - - - -

Used for:

Interest paid $m -16 -7 16 45 - -16 -7 0 5

Dividends $m - -42 -215 -382 - - - -42 -83

Capex to sustain $m -489 -586 -574 -469 -242 -246 -292 -295 -288

Capex to expand $m -100 -65 -190 -180 -75 -25 -25 -40 -100

Other investing cash flows $m - - - - - - - - -

Net cash generated / utilised $m 992 490 549 708 612 380 201 110 210

Financed through:

Sales of shares $m - - - - - - - - -

Net Debt changes $m - - - - - - - - -

Other financing cash flows $m 131 - - 0 131 - 79 100 10

Change in net cash for the period 1 123 490 549 708 743 380 280 210 220

Capex / Revenue x 8% 9% 10% 8% 8% 8% 9% 9% 10%

Capex / Net operating cash flow x 37% 55% 51% 38% 34% 41% 60% 69% 57%

Net operating cash flow / Net profit x 302% 383% 187% 163% 175% -37893% 502% 235% 203%

03 July 2015

36

Equity Research

Figure 80: South32 Ltd - Divisional Data Sheet



USD/AUD 8.19 9.64 10.82 12.03 12.11 11.65 11.59 Worsley Alumina 1.3 0.3 24.3%

ZAR/USD 1.04 0.98 0.90 0.76 0.71 0.68 0.68 SA Aluminium 0.8 0.1 14.1%

Iron Ore US$/t 149.48 126.66 122.67 72.32 53.75 60.00 62.50 Mozal Aluminium 0.7 0.1 13.5%

Met Coal US$/t 240 166 132 106 94 100 108 Brazil Aluminium 1.1 0.2 20.0%

Thermal coal (API4) US$/t 107 85 77 65 60 68 73 SA Energy Coal 0.6 0.1 11.7%

Copper USc/lb 371 348 318 290 298 346 363 Illawarra Met Coal 0.1 0.0 2.6%

WTI US$/bbl 95.00 92.24 101.26 69.23 55.00 65.00 73.25 Australian Manganese 0.7 0.1 13.7%

Natural Gas US$/bcf 3.0 3.4 4.3 3.3 2.6 3.0 3.4 SA Manganese 0.6 0.1

Aluminium USc/lb 98 88 80 85 84 94 99 Cerro Matoso 1.0 0.2

Manganese ore US$/dmtu 5.1 5.3 4.8 4.0 3.3 3.8 3.9 Cannington 1.3 0.2

Nickel USc/lb 875 744 692 704 667 818 907 Less debt and corporate -0.5 (0.1)

Production Total 7.9 1.48

Zinc kt 55 56 58 71 67 67 66 PT ZAR/sh 17.70

Lead kt 237 153 187 183 166 164 162 PT AUD/Sh 1.90

Silver koz 34 208 31 060 25 156 23 666 22 622 22 307 21 996 PT GBp/sh 0.95

Met Coal kt 5923 7032 5921 6775 6738 6819 6819 Premium / discount % 0%

Energy Coal kt 15 451 15 467 14 921 17 517 17 588 19 007 19 007 WACC 9.5% Shares (m) 5 317

Local Utility Coal kt 19 172 18 008 16 330 17 767 17 250 16 750 16 500

Nickel kt 49 51 44 42 42 42 42 Revenue split (2016F)

Alumina kt 4 152 4 880 5 178 5 213 5 310 5 410 5 460

Aluminium kt 1 153 1 180 1 174 1 013 1 002 1 012 1 022

Manganese ore kt 6 209 6 499 4 545 4 513 4 363 4 363 4 563

Manganese alloy kt 421 433 406 384 205 245 265

Revenue

Worsley US$m 1 229 1 194 1 165 1 337 1 427

SA Aluminium US$m 1 614 1 516 1 363 1 494 1 599

Mozal Aluminium US$m 574 605 547 613 646

Brazil Aluminium US$m 650 506 447 500 527

Total Alumina and Aluminium US$m 4 067 3 822 3 522 3 944 4 199

SA Energy Coal US$m 1 247 1 289 1 209 1 390 1 458

Illawarra Met Coal US$m 878 802 726 787 848

Total Coal US$m 2 125 2 092 1 934 2 177 2 306

Australian Manganese US$m 1 226 569 460 562 637

SA Manganese US$m 724 432 269 307 320

Total Manganese US$m 1 950 1 000 729 869 957 EBITDA split (2016F)

Cerro Matoso US$m 595 602 561 686 759

Cannington US$m 1 079 907 906 982 1 006

Group and unallocated US$m - 72 - - -

Total US$m 9 816 8 494 7 652 8 658 9 227

EBITDA

Worsley US$m 162 231 210 336 386

SA Aluminium US$m 190 342 221 292 330

Mozal Aluminium US$m 52 154 132 171 188

Brazil Aluminium US$m 127 209 99 138 151

Total Alumina and Aluminium US$m 531 936 663 937 1 055

SA Energy Coal US$m 197 182 177 283 326

Illawarra Met Coal US$m 135 161 45 82 122

Total Coal US$m 332 343 222 365 447

Australian Manganese US$m 505 186 92 148 173

SA Manganese US$m 120 60 47 79 86

Total Manganese US$m 625 246 138 227 259 Valuation by commodity

Cerro Matoso US$m 87 165 117 209 244

Cannington US$m 460 338 377 445 456

Group and unallocated US$m - (232) (60) (60) (60)

Total US$m 2 035 1 796 1 457 2 122 2 401

EBITDA Margins

Worsley US$m 13% 19% 18% 25% 27%

SA Aluminium US$m 12% 23% 16% 20% 21%

Mozal Aluminium US$m 9% 26% 24% 28% 29%

Brazil Aluminium US$m 20% 41% 22% 28% 29%

Total Alumina and Aluminium US$m 13% 24% 19% 24% 25%

SA Energy Coal US$m 16% 14% 15% 20% 22%

Illawarra Met Coal US$m 15% 20% 6% 10% 14%

Total Coal US$m 16% 16% 11% 17% 19%

Australian Manganese US$m 41% 33% 20% 26% 27%

SA Manganese US$m 17% 14% 17% 26% 27%

Total Manganese US$m 32% 25% 19% 26% 27%

Cerro Matoso US$m 15% 27% 21% 30% 32% EBITDA margins by commodity over time, FY14-18E

Cannington US$m 43% 37% 42% 45% 45%

Total US$m 21% 21% 19% 25% 26%

Underlying earnings

Total Alumina and Aluminium US$m 141.1 409.3 226.4 426.0 513.9

Total Coal US$m -21.7 -35.3 -121.6 -13.9 52.3

Total Manganese US$m 323 -12 -21 46 73

Cerro Matoso US$m -1 78 45 110 135

Cannington US$m 289 199 232 276 280

Group US$m - -177 -50 -34 -13

Total US$m 731 463 311 811 1 041

Growth capex US$m 434 181 289 156 65 190 180

Sustaining Capex US$m 502 475 409 489 586 574 469

Group US$m 937 656 698 644 651 764 649

Capex/depreciation 116% 77% 85% 76% 78% 93% 80%

Total Alumina and

Aluminium 46.0%

Total Coal 25.3%

Total Manganese

9.5%

Cerro Matoso

7.3%

Cannington 11.8%

Aluminium & alumina

47.5%

Coal9.4%

Manganese16.1%

Nickel11.7%

Silver, zinc, lead

15.3%

Total Alumina and

Aluminium 43.7%

Total Coal 14.6%

Total Manganese

9.1%

Cerro Matoso

7.7%

Cannington 24.9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Aluminium & alumina Coal Manganese

Nickel Silver, zinc and lead Total

03 July 2015

37

Equity Research

03 July 2015

Kumba Iron Ore

Debt or dividends: Something had to give

Commodity and FX forecasts updated: We have increased our Iron ore prices

marginally over the next three years (2%, 9% and 11% respectively to

USD57/t in FY15e, USD58/t in FY16e and USD61/t in FY17e) as although

we believe the iron ore price will remain relatively muted in the near term as the

market absorbs new volumes, the cost curve should creep upwards on our

expectation of Brent increasing. We maintain our Sell recommendation on

Kumba as we believe the company has significant operational challenges in the

short to medium term, which will place upward pressure on costs, but increase

our TP marginally to R161 (from R155 previously) on marginally higher

earnings.

Earnings forecast to bottom in FY15e, dividends cut further, capex outlook

uncertain: We expect earnings to decrease by 60% YoY in FY15e for a CAGR of

-21% (FY14-FY17e). Thereafter earnings are expected to increase YoY by 13%

in FY16e and 9% in FY17e. We have also once again trimmed out dividend

outlook for the company as we believe that at the iron ore price levels forecast,

Kumba will need to increase debt to cover dividends and capex as guided.

Key catalysts for Kumba include:

o An increase in the Chinese growth outlook: although we now factor in 2015

as the low point in the iron ore price cycle, we expect that an increase in the

Chines growth outlook would be even more positive for the outlook for iron

ore.

o A significantly more profitable mining plan: Sishen’s mine plan could not

have been more badly timed as the mine moves towards peak stripping and

peak capex at this low point in the commodity cycle. If management were to

present a significantly different and more economic mine plan to see the

company through the next 2-3 years, this may be a positive catalyst.

o Lump premiums return: As Kumba produces an 80:20 lump/fines product,

a rebound in lump premiums would be positive for the counter although

currently we have seen this premium decrease.

Sell recommendation unchanged, TP increased to R161: We maintain our Sell

recommendation on Kumba, but increase our TP (based on a 1 year forward exit

PE multiple of 13.3x) marginally to R161 (from R155 previously), on the back

of higher commodity prices and therefore earnings over the next three years.

Kumba trades at 0.98x our DCF derived TP of R163/share.

Price relative to FTSE/JSE All Share

100

150

200

250

300

350

400

7/14 10/14 1/15 4/15

Price FTSE/JSE All Share (rebased)

Share data

RIC KIOJ.J

Sub industry ICB Iron & Steel

Price (25 Jun 2015) R 159.98






Free float (%) 17

Historical performance relative to FTSE/JSE All Share

(%) Performance over 1M 3M 12M

Absolute (%) 0.6 7.6 -53.1

Relative (%) 1.0 8.4 -53.9

Source: FTSE/JSE All Share, SBG Securities Research

The price relative chart measures performance against the South

Africa FTSE/JSE All Share which closed at 51888 on 01 Jul

2015


Gross revenue (R m) 45,446 54,461 47,597 36,318 37,037 38,762

EBITDA (R m) 26,892 31,892 21,828 11,418 12,514 12,696

EBIT (R m) 25,385 29,875 19,192 8,388 9,596 10,384

Headline earnings (R m) 12,472 15,443 11,006 4,374 4,948 5,393

Headline earnings per share

(R)

39.97 48.08 34.32 13.64 15.43 16.82

DPS (R) 31.70 40.04 23.34 4.09 4.63 6.31

P/E 14.2 9.2 7.0 11.7 10.4 9.5

Dividend yield (%) 5.6 9.0 9.7 2.6 2.9 3.9



Recommendation:


Eq

uit

y R

esea

rch

| C

EE

ME

A/

Sou

th A

fric

a | I

nd

ust

rial

Met

als

& M

inin

g

03 July 2015

38

Equity Research

Figure 81: Kumba - Financial Statements and Ratios


Kumba Iron Ore - Financial Statements and Ratios

INCOME STATEMENT FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E

Revenue Rm 45 446 54 461 47 597 36 318 37 037 38 762 41 176 26 429 21 168 18 925 17 393 17 725

Operating Costs Rm -18 554 -22 569 -25 769 -24 900 -24 523 -26 065 -27 325 -12 990 -12 779 -12 414 -12 486 -12 080

EBITDA Rm 26 892 31 892 21 828 11 418 12 514 12 696 13 851 13 439 8 389 6 511 4 907 5 645

Depreciation and Amortisation Rm -1 507 -2 017 -2 636 -3 029 -2 918 -2 313 -2 079 -1 134 -1 502 -1 527 -1 502 -1 458

EBIT Rm 25 385 29 875 19 192 8 388 9 596 10 384 11 772 12 305 6 887 4 984 3 405 4 187

Associates income Rm

Other Rm -1 739 -1 536 -5 -6 -6 - - -2 -3 -3 -3 -3

Total From operations Rm 23 646 28 339 19 187 8 382 9 590 10 384 11 772 12 303 6 884 4 981 3 402 4 184

Investment income Rm 102 117 84 98 98 98 98 35 49 49 49 49

Interest Paid Rm -405 -396 -519 -659 -839 -837 -795 -181 -338 -314 -345 -413

PBT Rm 23 343 28 060 18 752 7 822 8 849 9 645 11 075 12 157 6 595 4 716 3 106 3 820

Tax Rm -6 888 -7 760 -4 604 -2 034 -2 301 -2 508 -2 879 -3 584 -1 020 -1 226 -808 -993

Attributable profit for the period Rm 16 455 20 300 14 148 5 788 6 548 7 137 8 195 8 573 5 575 3 490 2 298 2 827

Minority Interests Rm -3 969 -4 854 -3 424 -1 414 -1 600 -1 744 -2 002 -2 062 -1 362 -853 -562 -691

Attributable to Shareholders Rm 12 486 15 446 10 724 4 374 4 948 5 393 6 193 6 511 4 213 2 637 1 737 2 136

Headline earnings Rm 12 472 15 443 11 006 4 374 4 948 5 393 6 193 6 505 4 501 2 637 1 737 2 136

HEPS R 38.83 48.08 34.32 13.64 15.43 16.82 19.31 20.28 14.04 8.22 5.42 6.66

DPS R 31.70 40.04 23.34 4.09 4.63 6.31 9.66 15.61 7.73 2.47 1.62 2.00

Shares outstanding m 322 322 322 322 322 322 322 322 322 322 322 322

Tax rate % 30% 28% 25% 26% 26% 26% 26% 29% 15% 26% 26% 26%

EBITDA Margin % 59% 59% 46% 31% 34% 33% 34% 51% 40% 34% 28% 32%

EBIT Margin % 56% 55% 40% 23% 26% 27% 29% 47% 33% 26% 20% 24%

Net Margin % 27% 28% 23% 12% 13% 14% 15% 25% 21% 14% 10% 12%

Dividend Cover x 1.22 1.20 1.47 3.33 3.33 2.67 2.00 1.30 1.82 3.33 3.33 3.33

PE x 14.7 9.2 7.0 11.7 10.4 9.5 8.3 9.88 10.78 11.73 13.24 10.37

EV/EBITDA x 10.0 6.5 5.6 7.8 7.1 6.9 6.2 11.68 14.51 13.22 18.04 15.76

Dividend Yield % 5.6% 9.0% 9.7% 2.6% 2.9% 3.9% 6.0% 10.5% 9.7% 6.4% 2.6% 2.3%

BALANCE SHEET FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E

Cash and cash equivalents Rm 1 527 1 053 1 664 500 518 1 227 2 738 3 039 1 664 882 500 500

Trade and Receivables Rm 4 332 6 124 4 476 3 678 4 083 4 115 4 463 3 375 4 476 4 002 3 678 3 748

Inventories Rm 4 136 5 171 7 366 7 197 7 172 7 589 7 985 5 128 7 366 7 156 7 197 6 963

Other Rm 76 - - - - - - - - -0 - 0

Total Current Assets Rm 10 071 12 348 13 506 11 375 11 774 12 931 15 186 11 542 13 506 12 039 11 375 11 211

PPE Rm 25 258 29 922 35 170 40 928 46 373 50 114 53 190 32 038 35 170 38 085 40 928 43 651

Deferred tax assets Rm 842 920 871 871 871 871 871 850 871 871 871 871

Other non current assets Rm 858 1 348 1 352 1 352 1 352 1 352 1 352 1 415 1 352 1 352 1 352 1 352

Total Non Current Assets Rm 26 958 32 190 37 393 43 151 48 596 52 337 55 413 34 303 37 393 40 308 43 151 45 874

Trade and other payables Rm 3 012 3 888 3 493 3 413 3 401 3 599 3 787 2 826 3 493 3 393 3 413 3 302

Interest bearing liabilities Rm 2 669 615 5 593 6 921 7 268 7 268 7 268 1 726 5 593 5 593 6 921 7 268

Current tax liabilities Rm 203 565 555 808 1 307 1 247 1 535 801 555 1 226 808 993

Provisions Rm

Other Current Liabilities Rm 26 355 92 92 92 92 92 296 92 92 92 92

Total Current Liabilities Rm 5 910 5 423 9 733 11 233 12 069 12 206 12 682 5 649 9 733 10 304 11 233 11 655

Interest bearings liabilities Rm 3 200 2 234 4 000 4 000 4 000 4 000 4 000 2 000 4 000 4 000 4 000 4 000

Provisions Rm 1 420 1 809 1 964 1 964 1 964 1 964 1 964 1 861 1 964 1 964 1 964 1 964

Other Non Current Liabilities Rm 6 835 7 888 8 201 8 201 8 201 8 201 8 201

Total Non Current Liabilities Rm 11 455 11 931 14 165 14 165 14 165 14 165 14 165 12 629 14 165 14 165 14 165 14 165

Net Assets Rm 19 664 27 184 27 001 29 128 34 136 38 896 43 752 27 567 27 001 27 878 29 128 31 264

Share capital and reserves Rm 1 248 1 957 4 342 5 407 5 786 6 370 7 190 2 269 4 342 5 150 5 407 5 577

Retained Income Rm 13 990 18 874 16 422 16 461 19 869 22 886 25 740 18 875 16 422 15 773 16 461 17 906

Minority interests Rm 4 426 6 353 6 237 6 586 7 807 8 967 10 148 6 421 6 237 6 282 6 586 7 107

Total Equity Rm 19 664 27 184 27 001 28 454 33 462 38 222 43 078 27 565 27 001 27 204 28 454 30 590

Net debt / (cash) Rm 4 342 1 796 7 929 10 421 10 750 10 041 8 530 687 7 929 8 711 10 421 10 768

Total debt Rm 5 869 2 849 9 593 10 921 11 268 11 268 11 268 3 726 9 593 9 593 10 921 11 268

Debt/Equity % 22% 7% 29% 37% 32% 26% 20% 2% 29% 32% 37% 35%

EBITDA Interest cover x 66 81 42 17 15 15 17 74 25 21 14 14

ROE % 82% 74% 53% 20% 19% 18% 19% 31% 22% 13% 8% 9%

ROI % 91% 80% 54% 21% 21% 20% 20% 31% 22% 13% 9% 10%

CASH FLOW STATEMENT FY12 FY13 FY14 FY15E FY16E FY17E FY18E 1H14 2H14 1H15E 2H15E 1H16E

Cash flows from operations Rm 24 688 29 354 21 769 12 298 12 115 12 446 13 295 15 340 6 429 7 093 5 206 5 695

Tax paid Rm -5 215 -6 171 -4 165 -1 781 -1 801 -2 568 -2 592 -2 382 -1 783 -555 -1 226 -808

Other Rm 227 161 285 561 741 739 697 70 215 265 296 364

Operating cash flows Rm 19 246 23 022 17 319 9 956 9 573 9 139 10 006 12 888 4 431 6 273 3 684 4 524

Capex Rm -5 903 5 950 8 477 8 787 8 363 6 054 5 155 3 281 5 196 4 443 4 345 4 181

Investments Rm -59 -17 -5 - - - - -2 -3 - - -

Proceeds from disposals Rm 40 42 78 - - - - 30 48 - - -

Investing cash flows Rm -5 936 -6 428 -8 404 -8 787 -8 363 -6 054 -5 155 -3 253 -5 151 -4 443 -4 345 -4 181

Dividends paid Rm -18 006 -13 707 -15 178 -4 335 -1 541 -2 376 -3 339 -8 512 -6 666 -3 286 -1 049 -691

Net intest bearing borrowings raised (paid) Rm 2 678 -3 332 6 744 - - - - 877 5 867 - - -

Other Rm 1 224 263 107 - - - - - 107 - - -

Financing cash flows Rm -16 552 -17 302 -8 541 -4 335 -1 541 -2 376 -3 339 -7 635 -906 -3 286 -1 049 -691

Net increase/dec in cash Rm -3 242 -708 374 -3 166 -330 709 1 511 2 000 -1 626 -1 456 -1 709 -348

Capex / Revenue % 13% -11% -18% -24% -23% -16% -13% -12% -25% -23% -25% -24%

Capex / Net operating cash flow % 31% -26% -49% -88% -87% -66% -52% -25% -117% -71% -118% -92%

Net operating cash flow / Net profit x 1.5 1.5 1.6 2.3 1.9 1.7 1.6 2.0 1.1 2.4 2.1 2.1

Source: Copmany Data, SBG Securities estimates

03 July 2015

39

Equity Research

Figure 82: Kumba - Divisional Data Sheet


Kumba Iron Ore - Divisional Data Sheet

FY12 FY13 FY14 FY15E FY16E FY17E FY18E Revenue split (2015F)

USD/ZAR 8.19 9.64 10.82 12.03 12.11 11.65 11.59

Iron Ore $/t 128 135 97 57 58 61 65

inc/dec % -23% 5% -28% -41% 1% 6% 6%

Iron Ore ZAR/t 1 052 1 305 1 053 687 696 708 747

inc/dec % -15% 24% -19% -35% 1% 2% 6%

Production FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Sishen mt 33.7 30.9 35.5 36.1 38.0 38.0 38.0

Kolomela mt 8.5 10.8 11.6 11.9 11.9 13.0 13.0

Thabazimbi mt 0.8 0.6 1.1 1.3 - - -

Kumba total production mt 43.1 42.3 48.2 49.2 49.9 51.0 51.0

inc/dec -2% 14% 2% 1% 2% 0%

Export sales mt 39.7 39.1 40.5 43.0 43.9 45.0 45.0

Domestic sales mt 4.7 4.6 4.8 6.4 6.0 6.0 6.0

Kumba total sales mt 44.3 43.7 45.3 49.3 49.9 51.0 51.0

inc/dec -1% 4% 9% 1% 2% 0%

Copper Equivalent production FY12 FY13 FY14 FY15E FY16E FY17E FY18E EBIT split (2015F)

Sishen kt 494 454 521 529 557 557 557

Kolomela kt 125 159 170 174 175 191 191

Thabazimbi kt 12 9 16 19 - - -

Kumba total production kt 632 621 707 722 732 748 748

inc/dec

Revenue FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Sishen Rm 33 001 36 685 33 094 23 757 25 442 25 924 27 418

Kolomela Rm 8 239 13 022 9 437 7 630 7 772 8 623 9 111

Thabazimbi Rm 1 014 1 079 1 172 1 379 - - -

Shipping Rm 3 192 3 675 3 894 3 552 3 823 4 215 4 647

Logistics Rm 0 0 0 0 0 0 0

Total Rm 45 446 54 461 47 597 36 318 37 037 38 762 41 176

EBITDA FY12 FY13 FY14 FY15E FY16E FY17E FY18E Valuation by operation

Sishen Rm 24 592 26 329 22 281 13 984 14 350 14 010 14 701

Kolomela Rm 6 416 9 866 6 549 4 775 4 693 5 013 5 258

Thabazimbi Rm (21) 302 (670) (467) - - -

Shipping Rm (30) (72) (309) (410) (139) 253 586

Logistics Rm (4 065) (4 533) (4 542) (4 918) (5 034) (5 197) (5 284)

Total Rm 26 892 31 892 23 309 12 964 13 869 14 079 15 261

EBIT FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Sishen Rm 23 559 24 888 20 423 11 872 12 320 12 428 13 293

Kolomela Rm 5 945 9 296 5 906 4 025 3 972 4 454 4 762

Thabazimbi Rm -24 301 -706 -470 - - -

Shipping Rm -30 -72 -309 -410 -139 253 586

Logistics Rm -4 065 -4 538 -4 548 -4 918 -5 034 -5 197 -5 284

Total Rm 25 385 29 875 20 766 10 099 11 119 11 937 13 356

EBIT margins FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Sishen % 71% 68% 62% 50% 48% 48% 48%

Kolomela % 72% 71% 63% 53% 51% 52% 52% EBIT by Operation over time

Thabazimbi % -2% 28% -60% -34% #DIV/0! #DIV/0! #DIV/0!

Shipping % -1% -2% -8% -12% -4% 6% 13%

Logistics % - - - - - - -

Total % 56% 55% 44% 28% 30% 31% 32%

Capex FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Sishen Rm 4 057 5 054 6 132 6 650 7 000 5 237 4 322

Kolomela Rm 1 822 1 035 1 636 1 825 1 350 804 820

Thabazimbi Rm - 9 462 300 - - -

Shipping Rm

Logistics Rm

Total Rm 5 879 6 098 8 230 8 775 8 350 6 041 5 143


Sishen65%

Kolomela21%

Thabazimbi4% Shipping

10%

Sishen75%

Kolomela25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Sishen Kolomela Thabazimbi Shipping

Sishen61%

Kolomela34%

Thabazimbi-1%

Shipping4%

03 July 2015

40

Equity Research

03 July 2015

Exxaro Resources Ltd

Still wait for clarity

We incorporate slightly higher coal and iron ore prices, and relook at capital

allocation and incorporating TCSA: We have tweaked our thermal coal prices

higher to average USD61, 63 and 71 USD/t over the next three years, as well

as increasing our iron ore price outlook by an average of 7% over the next three

years (USD57/58/61/t). We have also taken this opportunity to incorporate

the earnings impact of the TCSA assets in as well as looking at other capital

allocation aspects of the company, including lower dividends from Kumba. We

upgrade our recommendation on Exxaro on price action; however decrease our

TP to R100/share on a lower one year forward earnings outlook.

Key catalysts for Exxaro include:-

o Clarity on near term export allocation strategy: We hope to better

understand how the purchase of the TCSA export allocation will be utilised

and incorporated into the company’s long term strategy – despite seeing

the long term benefits, the short term seems uncertain. The drop dead date

for the deal is January 2016. We have modelled payment of TCSA in 2H15e

and incorporated mining of the assets from 2H16e.

o Clarity on the TCSA deal: Timing of this deal is still not certain. We believe

the impact on earnings is negative and therefore has a drag on our valuation

and TP of the company. We eagerly await clarity on this acquisition.

o Clarity on Tronox: We don’t believe that this will be forthcoming in the near

term however. Although now that that the stand still period is over, Exxaro

is free to increase or decrease its stake in the investment, or do nothing.

Valuation decreased on earnings outlook, upgrade to Hold on price action:- As

we value the SA diversified miners on a one year forward exit PE basis, the lower

earnings outlook has decreased our TP by 8% to R100/share (from R109

previously). We however upgrade Exxaro to a Hold on price action. Exxaro

trades at 0.83x our 12 month DCF derived price of R108/share. Key risks for

Exxaro remain the fact that company only managers the coal side of the

business, with only minority interests in the TiO2 and iron ore holdings. From a

coal perspective, the key risk would be the company looing its 51% BEE holding

position, in terms of future contracts with Eskom.


80

100

120

140

160

7/14 10/14 1/15 4/15


Share data

RIC EXXJ.J


Price (25 Jun 2015) R 89.50





Avg. daily trade value (USD m) 5.32

Free float (%) 31



Absolute (%) 10.5 -7.7 -35.5

Relative (%) 10.9 -6.9 -36.3




2015

Key forecasts Dec 12A Dec 13A Dec 14A Dec 15E Dec 16E Jun 17E

Gross revenue (R m) 12,229 13,568 16,401 16,901 21,570 22,241

EBITDA (R m) 3,955 3,532 3,763 2,698 4,021 4,432

EBIT (R m) 3,254 2,676 2,865 1,741 2,632 3,026



(R)

11.30 14.70 13.72 6.85 9.75 10.59

DPS (R) 5.00 5.50 4.70 2.36 3.22 3.50

P/E 15.0 10.0 7.5 12.7 9.2 8.2

EV/EBITDA 14.3 14.3 10.0 14.4 10.2 10.5

Dividend yield (%) 3.0 3.8 4.5 2.6 3.6 4.0



Recommendation:

HOLD From: SELL Target Price: R 100.00

Eq

uit

y R

esea

rch

| C

EE

ME

A/

Sou

th A

fric

a | M

inin

g

03 July 2015

41

Equity Research

Figure 83: Exxaro - Financial Statements and Ratios


EXXARO - Financial Statements and Ratios

INCOME STATEMENT FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Revenue Rm 12 229 13 568 16 401 18 254 21 570 22 526 7 412 8 989 8 745 9 509 10 465

Operating Costs Rm -8 274 -10 036 -12 638 -15 496 -17 549 -18 219 -5 229 -7 409 -7 210 -8 287 -8 589

EBITDA Rm 3 955 3 532 3 763 2 758 4 021 4 307 2 183 1 580 1 535 1 222 1 876

Depreciation and Amortisation Rm -701 -856 -898 -1 115 -1 389 -1 426 -701 -197 -501 -614 -679

EBIT Rm 3 254 2 676 2 865 1 643 2 632 2 881 1 482 1 383 1 034 609 1 197

Associates income/other Rm -1 516 -233 -6 157 - - - -5 562 -595 - - -

Operating income Rm 1 738 2 443 -3 292 1 643 2 632 2 881 -4 080 788 1 034 609 1 197

Investment income Rm 3 605 3 643 2 524 1 399 1 941 2 225 1 522 1 002 692 708 891

Net interest Paid Rm -187 -286 -103 -208 -518 -747 -43 -60 -3 -205 -239

PBT Rm 5 156 5 800 -871 2 835 4 055 4 359 -2 601 1 730 1 723 1 111 1 850

Tax Rm 537 645 13 403 593 599 -159 172 289 114 269

Attributable profit for the period Rm 5 693 6 445 -858 3 238 4 648 4 957 -2 760 1 902 2 013 1 225 2 119

Minority Interests Rm 10 13 1 - - - 1 - - - -

Attributable to Shareholders Rm 5 703 6 458 -857 3 238 4 648 4 957 -2 759 1 902 2 013 1 225 2 119

Headline earnings Rm 3 999 5 218 4 869 2 432 3 462 3 760 2 814 2 055 1 434 998 1 581

HEPS R 11.30 14.70 13.72 6.85 9.75 10.59 7.93 5.79 4.04 2.81 4.45

DPS R 5.00 5.50 4.70 2.26 3.22 3.50 2.60 2.10 1.33 0.93 1.47

Shares outstanding m 321 321 355 355 355 355 355 355 355 355 355

Tax rate % -35% -30% 0% -28% -28% -28% -4% -24% -28% -28% -28%

EBITDA Margin % 32% 26% 23% 15% 19% 19% 29% 18% 18% 13% 18%

EBIT Margin % 27% 20% 17% 9% 12% 13% 20% 15% 12% 6% 11%

Net Margin % 33% 38% 30% 13% 16% 17% 38% 23% 16% 10% 15%

Dividend Cover x 2.26 2.67 2.92 3.03 3.03 3.03 3.05 2.76 3.03 3.03 3.03

PE x 11.5 10.7 15.2 13.1 9.2 8.5 14.09 15.11 12.32 9.18 8.42

EV/EBITDA x 5.23 5.83 3.84 5.49 6.37 6.67 5.65 5.21 6.66 7.05 6.35

Dividend Yield % 3.0% 3.8% 4.5% 2.5% 3.6% 3.9% 4.2% 4.5% 3.8% 2.5% 2.7%

BALANCE SHEET FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Cash and cash equivalents Rm 1 364 1 029 2 006 500 500 500 1 587 2 006 500 500 500

Trade and Receivables Rm 2 642 2 434 2 611 2 762 3 226 3 259 2 875 2 611 2 540 2 762 3 040

Inventories Rm 776 938 998 1 116 1 207 1 216 1 018 998 971 1 116 1 157

Other Rm 190 82 78 78 78 78 98 78 78 78 78

Total Current Assets Rm 4 972 4 483 5 693 4 456 5 011 5 053 5 578 5 693 4 089 4 456 4 775

PPE Rm 15 881 20 342 18 344 20 612 24 202 31 048 17 057 18 344 19 501 20 612 22 422

Investments Rm 17 154 16 987 18 588 18 485 19 491 20 633 18 828 18 588 18 303 18 485 18 926

Other non current assets Rm 4 410 5 132 4 476 4 476 4 476 4 476 4 517 4 476 4 476 4 476 4 476

Total Non Current Assets Rm 37 445 42 461 41 408 43 573 48 169 56 157 40 402 41 408 42 280 43 573 45 824

Trade and other payables Rm 4 099 2 867 3 208 3 588 3 880 3 909 2 888 3 208 3 122 3 588 3 719

Interest bearing liabilities Rm -9 31 34 4 483 6 519 12 034 197 34 3 638 4 483 5 515

Current tax liabilities Rm 172 131 27 114 324 297 57 27 289 114 269

Provisions Rm 121 17 254 254 254 254 29 254 254 254 254

Other Current Liabilities Rm 932 823 321 321 321 321 667 321 321 321 321

Total Current Liabilities Rm 5 194 3 852 3 590 8 506 11 044 16 561 3 809 3 590 7 370 8 506 9 823

Interest bearings liabilities Rm 2 761 3 569 2 976 2 976 2 976 2 976 3 405 2 976 2 976 2 976 2 976

Provisions Rm 2 842 1 863 2 219 2 219 2 219 2 219 1 950 2 219 2 219 2 219 2 219

Other Non Current Liabilities Rm 2 814 3 725 3 987 3 987 3 987 3 987 3 831 3 987 3 987 3 987 3 987

Total Non Current Liabilities Rm 8 417 9 157 9 182 9 182 9 182 9 182 9 186 9 182 9 182 9 182 9 182

Net Assets Rm 28 806 34 052 34 425 30 438 33 049 35 563 33 060 34 425 29 913 30 438 31 689

Share capital and reserves Rm 6 788 8 034 8 440 8 440 8 440 8 440 7 736 8 440 8 440 8 440 8 440

Retained Income Rm 22 006 26 044 25 985 21 998 24 609 27 123 25 328 25 985 21 473 21 998 23 249

Minority interests Rm 12 -26 - - - - -4 - - - -

Total Equity Rm 28 794 34 078 34 425 30 438 33 049 35 563 33 064 34 425 29 913 30 438 31 689

Net debt / (cash) Rm 2 199 3 377 1 071 7 026 9 062 2 653 1 004 6 114 6 959 7 991

Total debt Rm 2 752 3 600 3 010 7 459 9 495 15 010 3 602 3 010 6 614 7 459 8 491

Debt/Equity % 8% 10% 3% 23% 27% 0% 8% 3% 20% 23% 25%

EBITDA Interest cover x 21 12 37 13 8 6 51 26 557 6 8

ROE % 14% 15% 14% 8% 10% 11% 9% 6% 5% 3% 5%

ROI % 15% 10% 8% 7% 10% 10% 5% 5% 4% 3% 5%

CASH FLOW STATEMENT FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Cash flows from operations Rm 3 969 2 157 4 083 2 872 3 763 4 297 1 555 2 528 1 549 1 324 1 691

Tax paid Rm -277 -158 -120 -316 -383 -626 -31 -89 -27 -289 -114

Other Rm 3 149 1 577 2 303 1 427 1 369 1 993 1 262 1 041 748 678 568

Operating cash flows Rm 543 422 1 660 1 129 2 011 1 679 262 1 398 773 356 1 009

Capex Rm -5 333 -4 764 -3 197 -3 383 -4 979 -8 272 -1 578 -1 619 -1 658 -1 725 -2 490

Investments Rm 3 571 3 168 3 800 1 498 932 1 079 2 010 1 790 974 524 449

Proceeds from disposals Rm 1 292 104 8 - - - 51 -43 - - -

Investing cash flows Rm -2 940 -1 480 620 -7 085 -4 047 -7 193 485 135 -5 883 -1 201 -2 041

Dividends paid Rm -1 181 -96 - - - - - - - - -

Net intest bearing borrowings raised (paid) Rm 5 800 800 - - - - 1 000 -1 000 - - -

Other Rm 5 910 -11 604 - - - 1 000 -396 - - -

Financing cash flows Rm -1 291 715 -604 - - - - -604 - - -

Net increase/dec in cash Rm -3 688 -343 1 676 -5 955 -2 036 -5 515 747 929 -5 110 -845 -1 031

Capex / Revenue % 44% 35% 19% 19% 23% 37% 21% 18% 19% 18% 24%

Capex / Net operating cash flow % 982% 1129% 193% 299% 248% 493% 602% 116% 214% 484% 247%

Net operating cash flow / Net profit x 0.1 0.1 -1.9 0.3 0.4 0.3 -0.1 0.7 0.4 0.3 0.5


03 July 2015

42

Equity Research

Figure 84: Exxaro – Divisional sheet


EXXARO - Divisional Data Sheet

FY12 FY13 FY14 FY15E FY16E FY17E Revenue split (2015F)

USD/ZAR 8.19 9.64 10.82 12.03 12.11 11.65

Thermal coal (API4) $/t 92 81 72 61 63 71

inc/dec % -20% -13% -11% -16% 4% 11%

Thermal coal (API4) ZAR/t 756 777 780 730 766 821

inc/dec % -9% 3% 0% -6% 5% 7%

Iron ore (benchmark CIF) $/t 130 136 98 57 58 61

inc/dec % -23% 5% -28% -41% 1% 6%

Iron ore (benchmark CIF) ZAR/t 1 063 1 310 1 055 687 696 708

inc/dec % -13% 23% -19% -35% 1% 2%

Production (ex buy ins) FY12 FY13 FY14 FY15E FY16E FY17E

Coking Coal mt 2.4 2.3 2.3 2.9 3.6 3.6

Thermal coal mt 40.0 38.8 39.1 43.3 41.6 42.5

Exxaro total production mt 42.4 41.1 41.4 46.2 45.2 46.1

inc/dec -3% 1% 11% -2% 2%

Coking coal mt 2.3 2.2 2.5 2.9 3.6 3.6

Domestic thermal mt 34.7 34.0 34.6 39.8 37.9 38.8

Export thermal mt 3.8 4.5 5.3 4.5 4.7 4.7

Exxaro total sales mt 37.0 36.2 37.0 42.7 41.5 42.4

inc/dec -2% 2% 15% -3% 2%

EBIT split (2015F)

Copper Equivalent production FY12 FY13 FY14 FY15E FY16E FY17E

Coking Coal kt 59 56 57 73 90 90

Thermal coal kt 533 517 522 577 555 567

Exxaro total production kt 621 602 608 677 663 677

inc/dec -3% 1% 11% -2% 2%

Revenue FY12 FY13 FY14 FY15E FY16E FY17E

Coal - Tied Rm 3 449 3 917 4 577 5 249 5 515 5 794

Coal - Commerial Rm 8 615 9 445 11 599 11 578 12 658 13 011

Ferrous Rm 107 120 159 - - -

Other Rm 59 86 66 74 74 74

Total Rm 12 230 13 568 16 401 16 901 18 247 18 879

YoY inc / (dec) 11% 21% 3% 8% 3%

EBITDA FY12 FY13 FY14 FY15E FY16E FY17E

Coal - Tied Rm 324 255 362 433 455 478

Coal - Commerial Rm 2 243 1 737 2 268 2 327 3 316 3 489 Valuation by operation

Ferrous Rm (26) (124) (405) (100) (50) -

Other Rm (309) 70 72 38 56 39

Total Rm 2 232 1 938 2 297 2 698 3 777 4 006

YoY inc / (dec) -13% 19% 17% 40% 6%

EBIT FY12 FY13 FY14 FY15E FY16E FY17E

Coal - Tied Rm 285 214 319 387 406 427

Coal - Commerial Rm 1 671 1 113 1 534 1 513 2 426 2 575

Ferrous Rm -20 -108 -421 -100 -50 -

Other Rm -392 -105 -24 -58 -40 -57

Total Rm 1 544 1 114 1 408 1 741 2 742 2 944

YoY inc / (dec) -28% 26% 24% 57% 7%

EBIT margins FY12 FY13 FY14 FY15E FY16E FY17E

Coal - Tied % 8% 5% 7% 7% 7% 7%

Coal - Commerial % 19% 12% 13% 13% 19% 20%

Ferrous % Na Na Na #DIV/0! #DIV/0! #DIV/0!

Other % Na Na Na Na Na Na EBIT by Operation over time

Total % 13% 8% 9% 10% 15% 16%

Capex FY12 FY13 FY14 FY15E FY16E FY17E

Coal Rm 4 225 2 996 2 142 3 209 4 690 8 020

Ferrous (incl Mayoko) Rm 165 1 629 456 - - -

Other Rm 210 139 166 106 154 117

Total Rm 4 600 4 764 2 764 3 315 4 844 8 137

YoY inc / (dec) 4% -42% 20% 46% 68%


Coal - Tied31%

Coal -Commerial

69%

Ferrous0%

Other0%

Coal - Tied20%

Coal -Commerial

80%

Ferrous0%

Other0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY12 FY13 FY14 FY15E FY16E FY17E

Coal - Tied Coal - Commerial Ferrous Other

Coal51%

Ferrous/Other0%

Kumba holding29%

Tronox holding20%

03 July 2015

43

Equity Research

03 July 2015

African Rainbow Minerals

Low Mn being priced in – downgrade to hold

Manganese downgrades have significant impact on earnings, downgrade to

hold: We have decreased our manganese pricing to reflect the low spot prices

(current spot levels are cUSD3.00/dmtu). The impact of lower manganese

prices on earnings are only partially offset by slightly higher iron ore prices. On

the back of lower earnings expectations over the next 12-24 months, we have

downgraded our TP to R98/share (from R123 previously) and downgraded our

recommendation on ARM to a Hold.

Key catalysts for ARM include:

o A recovery in the iron ore and manganese pricing: Although we have prices

recovering in manganese from spot and the iron ore price remaining

relatively flat over the next two years, a rally in either or both of these

would have a significantly positive impact on our outlook for ARM. Iron ore

now makes up 30% and manganese 15% of our DCF value. We have been

concerned about South Africa’s increasing manganese production and its

impact on global prices, and it would appear that the increase in SA

production in 2014 (+>50% YoY) has indeed placed downwards pressure

on the spot price. We believe that at such low pricing levels the market

should rebalance (high cost producers fall out), but as is always the case

with mining, this might take some time to materialise. At such low

manganese prices, we would expect to see cutback to Assmang’s

manganese expansionary capex.

o Copper division recovery: We estimate the loss from the copper division

negatively impacted 1H15 HEPS by c.20%. A recovery in this division, even

to a break even position, would therefore be significantly positive. We only

anticipate this in 2H17E.

o Coal division recovery: We forecast that the interest payment in the coal

division will outweigh the earnings generation at PCB for at least another

two years, improving into 2017E.

Downgrade to Hold, TP decreased to R98/share: Our TP is based on a one year

forward exit PE of 16x. We have decreased FY16e HEPS by 20% which feeds

through to our lower TP (R98 from R123 previously). ARM currently trades at

0.77x our 12 month DCF derived value of R144. We still believe that ARM’s

diversification will hold the company in good stead at this point in the

commodity cycle but also think that ARM’s lagging divisions (coal and copper)

need serious consideration.


80

100

120

140

160

180

200

220

7/14 10/14 1/15 4/15


Share data

RIC ARIJ.J


Price (25 Jun 2015) R 87.58






Free float (%) 31



Absolute (%) -8.8 -13.5 -53.4

Relative (%) -8.4 -12.7 -54.2




2015


Gross revenue (R m) 17,530 7,342 10,004 9,374 9,723 11,673

EBITDA (R m) 6,532 1,926 2,620 2,095 2,469 3,549

EBIT (R m) 5,217 1,118 1,671 972 1,152 2,060



(R)

16.16 17.35 19.00 8.08 5.99 10.93

DPS (R) 4.75 5.10 6.00 2.55 1.89 3.45

P/E 10.3 8.6 9.8 10.2 14.6 8.0

Dividend yield (%) 2.9 3.4 3.2 3.1 2.2 3.9



Recommendation:

HOLD From: BUY Target Price: R 98.00

Eq

uit

y R

esea

rch

| C

EE

ME

A/

Sou

th A

fric

a | M

inin

g

03 July 2015

44

Equity Research

Figure 85: ARM Financial statements and ratios

Source: Company data; SBGS estimates

African Rainbow Minerals- Financial Statements and RatiosINCOME STATEMENT FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15 2H15E 1H16E

Revenue Rm 14 893 17 530 7 342 10 004 9 374 9 723 11 673 4 606 5 398 4 829 4 545 4 639


EBITDA Rm 6 517 6 532 1 926 2 620 2 095 2 469 3 549 1 264 1 356 1 130 965 1 072

Depreciation and Amortisation Rm -1 118 -1 315 -808 -949 -1 122 -1 317 -1 489 -484 -465 -521 -601 -636

EBIT Rm 5 399 5 217 1 118 1 671 972 1 152 2 060 780 891 609 363 436

Exeptional items Rm -11 -70 -2 457 -616 -273 - - -631 15 -273 - -

Associate/JV income Rm -135 11 3 049 3 175 1 329 656 1 197 1 913 1 262 762 567 292

Total From operations Rm 5 253 5 158 1 710 4 230 2 028 1 808 3 257 2 062 2 168 1 098 930 728

Investment income Rm 216 279 131 119 152 152 152 52 67 76 76 76

Interest Paid Rm -216 -232 -199 -259 -148 -148 -148 -120 -139 -74 -74 -74

PBT Rm 5 253 5 205 1 642 4 090 2 032 1 812 3 261 1 994 2 096 1 100 932 730

Tax Rm -1 693 -1 633 84 -546 -331 -365 -619 -164 -382 -208 -123 -143

Attributable profit for the period Rm 3 560 3 572 1 726 3 544 1 701 1 447 2 641 1 830 1 714 892 809 587

Minority Interests Rm -194 -133 -148 -255 -174 -148 -269 -116 -139 -91 -83 -60

Attributable to Shareholders Rm 3 366 3 439 1 634 3 289 1 528 1 300 2 372 1 714 1 575 801 727 527

Headline Earnings Rm 3 374 3 452 3 737 4 108 1 753 1 300 2 372 2 341 1 767 1 026 727 527

HEPS R/share 15.85 16.16 17.35 19.00 8.08 5.99 10.93 10.84 8.16 4.73 3.35 2.43

DPS R/share 4.50 4.75 5.10 6.00 2.55 1.89 3.45 - 6.00 - 2.55 -


Tax rate % 32% 31% -5% 13% 16% 20% 19% 23% 47% 34% 34% 33%

EBITDA Margin % 44% 37% 26% 26% 22% 25% 30% 27% 25% 23% 21% 23%

EBIT Margin % 36% 30% 15% 17% 10% 12% 18% 17% 17% 13% 8% 9%

Net Margin % 23% 20% 51% 41% 19% 13% 20% 51% 33% 21% 16% 11%

Dividend Cover x 3.5 3.4 3.4 3.2 3.2 3.2 3.2 3.2 3.2

PE x 5.5 5.4 5.0 4.6 10.8 14.6 8.0 14.7 23.2 20.6 14.6 9.5

EV/EBITDA x 6.1 5.4 4.0 4.3 1.9 2.6 2.2 4.4 4.1 2.6 2.2 2.7

Dividend Yield % 2.4% 2.9% 3.4% 3.2% 2.9% 2.2% 3.9% 3.2% 2.9%

BALANCE SHEET FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15 2H15E 1H16E

Cash and cash equivalents Rm 3 668 3 564 1 965 2 150 2 764 3 268 5 166 1 524 2 150 1 976 2 764 2 663

Trade and Receivables Rm 3 113 3 606 2 290 3 291 2 864 3 203 3 755 2 863 3 291 3 043 2 864 2 923

Inventories Rm 2 162 2 458 1 096 934 864 890 999 1 101 934 893 864 861

Current Tax Rm 75 26 22 5 1 1 1 3 5 1 1 1

Other Rm - - 39 1 0 0 -0 1 1 - 0 -0


PPE Rm 15 500 18 707 11 309 11 752 12 938 13 041 12 802 11 647 11 752 12 733 12 938 13 001

Intangibles Rm 202 191 178 166 156 156 156 171 166 156 156 156

Investment in associates Rm 1 331 1 354 13 926 15 572 15 626 15 704 15 956 15 120 15 572 15 584 15 626 15 655

Other non current assets Rm 6 258 5 410 2 823 2 587 2 049 2 049 2 049 2 295 2 587 2 049 2 049 2 049


Trade and other payables Rm 2 448 2 318 1 599 1 741 1 914 1 970 2 213 1 817 1 741 1 977 1 914 1 907

Interest bearing liabilities Rm 732 1 021 699 1 082 1 557 1 557 1 557 706 1 082 1 557 1 557 1 557

Current tax liabilities Rm 270 224 51 68 123 222 320 75 68 41 123 143


Total Current Liabilities Rm 3 737 4 026 2 843 3 370 3 904 4 059 4 399 2 876 3 370 3 885 3 904 3 917

Interest bearings liabilities Rm 2 337 2 216 3 293 2 420 2 370 2 370 2 370 3 148 2 420 2 370 2 370 2 370

Deferred tax liabilities Rm 3 571 3 777 1 680 1 911 1 936 1 936 1 936 1 829 1 911 1 936 1 936 1 936

Provisions Rm 549 892 560 558 630 630 630 608 558 630 630 630

Other Non Current Liabilities Rm

Total Non Current Liabilities Rm 6 457 6 885 5 533 4 889 4 936 4 936 4 936 5 585 4 889 4 936 4 936 4 936

Net Assets Rm 42 503 46 227 42 024 44 717 46 102 47 307 50 219 43 186 44 717 45 256 46 102 46 163



Minority interests Rm 958 1 205 1 393 1 511 1 611 1 758 2 028 1 563 1 511 1 528 1 611 1 670

Total Equity Rm 22 115 24 405 25 463 28 199 28 435 29 329 31 560 26 264 28 199 27 626 28 435 28 469

Net debt / (cash) -6 737 -6 801 -5 957 -5 652 -6 691 -7 195 -9 093 -5 378 -5 652 -5 903 -6 691 -6 590

Total debt 3 069 3 237 3 992 3 502 3 927 3 927 3 927 3 854 3 502 3 927 3 927 3 927

Debt/Equity % -30% -28% -23% -20% -24% -25% -29% -20% -20% -21% -24% -23%

EBITDA Interest cover x 30.2 28.2 9.7 10.1 14.2 16.7 24.0 10.5 9.8 15.3 13.0 14.5

ROE % 16% 15% 16% 15% 7% 5% 8% 9% 7% 4% 3% 2%

ROI % 9% 8% 3% 3% 2% 2% 3% 3% 2% 2% 1% 1%

CASH FLOW STATEMENT FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15 2H15E 1H16E

Cash inflows from operations 5 898 5 969 1 245 2 073 2 594 2 161 3 131 861 1 212 1 485 1 109 1 009

Net interest 64 108 -53 -14 11 4 -148 -23 9 9 2 2

Tax paid -1 240 -1 294 -286 -395 -239 -266 -521 -72 -323 -198 -41 -123

Net Dividends -393 -895 543 413 -101 25 -410 -397 810 -626 525 -290

Net cash inflows from operations 4 329 3 888 1 769 2 077 2 265 1 923 3 148 369

Capex -2 948 -4 046 -1 607 -1 133 -1 513 -1 420 -1 250 -679 -454 -707 -806 -699

Investments -241 -40 -138 -225 -446 - - -30 -195 -446 - -

Proceeds 3 1 1 119 2 - - 184 -65 2 - -

Loans -106 8 24 17 21 - - 15 2 21 - -

Net cash for investing -3 292 -4 077 -1 720 -1 222 -1 936 -1 420 -1 250 -510 -712 -1 130 -806 -699

Net cash used in financing activities -569 179 474 -759 -134 - - -319 -440 -134 - -

Net increase in cash and cash equivalents 468 204 585 195 258 503 1 898 -418 613 -530 788 -101

Cash and cash equivalents at the end of the period 5 246 6 010 7 651 7 963 6 522 5 931 9 115 3 675 4 288 3 758 2 764 2 663

Capex / Revenue x 20% 23% 22% 11% 16% 15% 11% 15% 8% 15% 18% 15%

Capex / Net operating cash flow x 68% 104% 111% 55% 67% 74% 61% 184% 27% 106% 51% 117%

Net ops cash flow / Underlying profit x 128% 113% 39% 51% 129% 148% 86% 16% 97% 65% 219% 113%

03 July 2015

45

Equity Research

Figure 86: ARM Divisional Data Sheet


African Rainbow Minerals - Divisional Data Sheet

FX/COMMODITY ASSUMPTIONS FY11 FY12 FY13 FY14 FY15F FY16F FY17F Revenue split (2015F)

SA Rand Avg 7.0 7.8 8.8 10.4 11.4 12.1 12.0

Manganese ore US$/dmtu 7.3 5.1 5.3 4.8 4.0 3.3 3.8

Iron Ore US$/t 163 151 127 123 72 55 58

Chrome Ore ZAR/t 252 211 203 156 157 158 164

Nickel USc/lb 10.9 8.9 7.4 6.9 7.0 6.7 8.2

Pt US$/oz 1 708 1 609 1 552 1 432 1 250 1 165 1 350

Pd US$/oz 682 675 681 752 801 740 825

Copper USc/lb 3.9 3.8 3.5 3.2 2.9 3.0 3.5

Export Thermal Coal US$/t 103 106 84 77 65 60 68

PRODUCTION FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron Ore kt 9 685 13 658 16 103 16 054 15 767 16 000 16 000

Manganese Ore kt 3 048 3 296 3 199 2 708 2 987 3 250 3 450

Manganese Alloys kt 291 373 332 279 189 112 180

Ferrochrome kt 237 186 23 22 - - -

Nickel kt 10 14 23 23 21 20 21

Cobalt kt 0.6 0.7 1.1 1.1 1.1 1.1 1.1

Pt koz 273 271 294 288 283 286 283

Pd koz 204 203 219 210 207 211 209

Rh koz 49 49 53 52 51 52 51 EBIT split (2015F)

Copper kt - - 16 23 27 36 45

Thermal coal export kt 2.6 2.7 2.9 2.8 3.9 4.0 3.4

Domestic coal kt 1.5 1.8 1.6 1.3 1.2 1.1 1.3

REVENUE, Rm FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron Ore 5 171 7 648 7 845 8 834 5 522 4 797 5 167

Manganese 3 233 3 176 3 719 4 143 3 502 3 243 4 098

Chrome 1 134 1 020 938 804 354 - -

Nickel 1 495 1 554 2 244 3 032 2 632 2 701 3 332

PGM 3 355 3 360 4 100 4 954 4 784 4 726 5 321

Copper 1 2 3 4 5 6 7

Coal 505 772 929 961 1 044 964 1 008

Total 14 894 17 532 19 778 22 732 17 844 16 437 18 933

EBIT, Rm FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron Ore 3 243 4 185 3 733 4 166 1 503 967 1 222

Manganese 1 145 640 778 737 411 42 375 Valuation Split, %

Nickel 225 (166) 320 626 268 592 806

PGM 802 497 715 1 097 685 470 1 006

Copper (10) (27) (246) (397) (274) 15

Coal 122 214 308 258 299 326 279

Other (137) (143)

Total 5 536 5 360 5 827 6 638 2 769 2 123 3 703

EBIT margins, % FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron Ore 63% 55% 48% 47% 27% 20% 24%

Manganese 35% 20% 21% 18% 12% 1% 9%

Nickel 15% -11% 14% 21% 10% 22% 24%

PGM 24% 15% 17% 22% 14% 10% 19%

Copper

Coal 24% 28% 33% 27% 29% 34% 28%

EBIT Margin 37% 31% 29% 29% 16% 13% 20%

Headline Profit, Rm FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Platinum - - 295 439 274 197 415

Nickel - - 232 444 194 414 519

Ferrous - - 3 194 3 736 1 521 798 1 241

Coal - - 148 (120) (62) (56) 101 EBIT by division

Copper - - (135) (309) (483) (427) (185)

Corp & Other - - 3 (82) 159 - -

Total - - 3 737 4 108 1 604 927 2 090

CAPEX, Rm FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Platinum 429 686 641 602 728 748 638

Nickel 494 242 94 129 241 240 200

Ferrous 1 613 1 670 1 355 1 029 812 808 808

Coal (GGV) 85 151 41 129 354 140 120

Coal (PCB) 440 302 311 321 330 340 351

Corp & Other 44 6 9 6 1 - -

Copper - 1 065 1 239 299 292 292 292

Total CAPEX 3 540 4 711 4 367 3 307 3 699 3 518 3 168


Iron Ore31%

Manganese19%

Chrome2%

Nickel 15%

PGM27%

Copper0%

Coal6%

Iron Ore48%

Manganese13%

Nickel 8%

PGM22%

Copper0%

Coal9%

Iron Ore

Manganese

Nickel

PGM

Coal

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron ore, 32%

Manganese, 12%

Nickel, 13%

Platinum, 22%

Copper, 8%

Coal, 6%

Gold, 5%

03 July 2015

46

Equity Research

03 July 2015

Assore Ltd

Commodity mix not in ASR’s favour

Manganese downgrades have biggest impact on earnings and valuation. : We

have decreased our manganese pricing to reflect current spot prices. This has

the largest impact on our earnings, and FY16e earnings have been decreased by

14% from R8.75 to R7.54, which has in turn decreased out TP (based on an

exit PE) from R130 to R113.

Key catalysts for Assore include

o A rerating in the iron ore/manganese prices: We estimate that the iron ore

and manganese price will remain subdued for the next two years, due to the

oversupply in the market, specifically from an iron ore perspective.

However, if Chinese growth were to surprise on the upside, this would have

a significant positive impact on earnings.

o Significant cost savings on completion of manganese optimisation:

Significant work is currently being undertaken to lower costs on the aging

manganese assets. We are unsure of when and how significant these will be

but this should support the earnings if it comes though.

o Capex cuts could be positive: We await the results of the capex review. We

would anticipate a potential extension to the manganese capex, but will

only be certain after the FY15 results.

Recommendation unchanged, TP decreased on lower earnings: We have

decreased our FY16e earnings by 14% which has a negative impact on our TP

(decreased our TP by 13% to R113). Assore currently trades at 0.87x our 12

month DCF derived TP of R123. Key risks for the company include a significant

improvement in the outlook for key commodity exposure, namely iron ore and

manganese, as well as changes to our exchange rate forecasts.


100

150

200

250

300

350

400

450

7/14 10/14 1/15 4/15


Share data

RIC ASRJ.J


Price (25 Jun 2015) R 107.00






Free float (%) 48



Absolute (%) -1.9 -15.5 -70.1

Relative (%) -1.5 -14.7 -70.9




2015


Gross revenue (R m) 12,948 1,464 1,769 2,151 1,758 1,949

EBITDA (R m) 7,060 115 153 181 148 164

EBIT (R m) 5,708 65 119 132 108 119

Headline earnings (R m) 3,708 3,534 4,230 1,674 778 1,281


(R)

35.14 34.24 40.98 16.22 7.54 12.42

DPS (R) 5.50 6.00 10.00 5.07 3.37 3.88

P/E 8.5 9.3 8.7 6.6 14.2 8.6

Dividend yield (%) 1.8 1.9 2.8 4.7 3.1 3.6



Recommendation:


Eq

uit

y R

esea

rch

| C

EE

ME

A/

Sou

th A

fric

a | M

inin

g

03 July 2015

47

Equity Research

Figure 87: Assore Financial statements and ratios


ASSORE - Financial statements and RatiosINCOME STATEMENT FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15 2H15E 1H16E

Revenue Rm 10 548 12 948 1 464 1 769 2 151 1 758 1 949 736 1 032 1 296 855 867

Operating Costs Rm -4 840 -5 888 -1 349 -1 615 -1 969 -1 610 -1 784 -670 -945 -1 186 -783 -794

EBITDA Rm 5 708 7 060 115 153 181 148 164 66 87 109 72 73

Depreciation and Amortisation Rm -948 -1 352 -50 -34 -50 -41 -45 -17 -17 -30 -20 -20

EBIT Rm 4 761 5 708 65 119 132 108 119 49 70 79 52 53

Exeptional items Rm -391 -192 28 0 - - - 0 - - - -

Associate/JV income Rm - - 3 961 4 498 2 040 1 201 1 785 2 709 1 789 1 124 917 555

Total From operations Rm 4 370 5 516 4 054 4 617 2 172 1 309 1 904 2 758 1 859 1 203 969 608

Investment income Rm 391 192 -362 -286 -456 -537 -596 -188 -98 -195 -261 -265

Interest Paid Rm 56 -123 -91 -61 -29 -29 -29 -29 -32 -15 -15 -15

PBT Rm 4 816 5 585 3 601 4 270 1 687 742 1 280 2 541 1 730 993 693 329

Tax Rm -1 567 -1 538 -171 -240 -47 45 18 -108 -132 -46 -1 25

Attributable profit for the period Rm 3 250 4 047 3 430 4 030 1 640 787 1 297 2 432 1 597 947 692 354

Minority Interests Rm -30 -14 -3 -25 -20 -10 -16 -5 -20 -12 -9 -4

Attributable to Shareholders Rm 3 220 4 033 3 427 4 005 1 619 778 1 281 2 427 1 578 935 684 349

Headline Earnings Rm 3 219 3 708 3 534 4 230 1 674 778 1 281 2 427 1 803 990 684 349

HEPS R/share 26.90 35.14 34.24 40.98 16.22 7.54 12.42 23.52 17.46 9.59 6.63 3.39

DPS R/share 4.50 5.50 6.00 10.00 5.07 3.37 3.88 4.50 5.50 3.00 2.07 2.07


Tax rate % 30% 27% -44% -105% -13% 10% 4% -64% -222% -36% 0% 11%

EBITDA Margin % 54% 55% 8% 9% 8% 8% 8% 9% 8% 8% 8% 8%

EBIT Margin % 45% 44% 4% 7% 6% 6% 6% 7% 7% 6% 6% 6%

Net Margin % 31% 29% 241% 239% 78% 44% 66% 330% 175% 76% 80% 40%

Dividend Cover x 5.98 6.39 5.71 4.10 3.20 2.24 3.20 5.23 3.18 3.20 3.20 1.63

PE x 8.2 8.5 9.8 8.7 6.6 14.2 8.6 12.6 22.0 14.7 14.2 9.6

EV/EBITDA x 8.1 9.2 13.4 3.5 1.3 1.6 1.3 14.1 17.9 11.5 9.1 13.1

Dividend Yield % 2.0% 1.8% 1.8% 2.8% 4.7% 3.1% 3.6% 1.3% 1.5% 2.0% 1.9% 1.9%

BALANCE SHEET FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15 2H15E 1H16E

Cash and cash equivalents Rm 2 335 3 324 1 704 2 145 2 901 2 933 3 482 2 087 2 145 2 137 2 901 2 549

Trade and Receivables Rm 1 632 2 050 251 384 278 289 316 224 384 421 278 282

Inventories Rm 2 006 2 177 426 627 508 529 578 484 627 770 508 515

Current Tax Rm

Other Rm 887 239 178 378 287 287 287 392 378 287 287 287


PPE Rm 8 027 9 529 511 526 629 702 771 544 526 591 629 666

Intangibles Rm - - - 26 - - - - 26 - - -

Investment in associates Rm 31 35 12 988 14 815 14 215 14 415 14 664 14 399 14 815 14 864 14 215 14 633

Other non current assets Rm 114 118 12 57 237 237 237 12 57 100 237 237


Trade and other payables Rm - - - 447 - - - - 447 - - -

Interest bearing liabilities Rm 1 392 1 838 995 - 436 436 436 941 - 936 436 436

Current tax liabilities Rm 192 11 -0 29 1 -20 -15 -0 29 - 1 -25

Other Current Liabilities Rm 110 - 0 592 0 -0 0 0 592 - 0 -

Total Current Liabilities Rm 1 695 1 849 995 1 068 437 416 421 941 1 068 936 437 412

Interest bearings liabilities Rm 223 1 939 871 346 346 346 346 876 346 346 346 346

Deferred tax liabilities Rm 2 235 2 357 44 63 48 48 48 55 63 48 48 48

Provisions Rm - - - 27 27 27 27 - 27 27 27 27

Other Non Current Liabilities Rm - - -0 - - - - -0 - - - -

Total Non Current Liabilities Rm 2 457 4 296 914 437 421 421 421 931 437 421 421 421

Net Assets Rm 19 184 23 618 17 980 20 462 19 913 20 230 21 177 20 016 20 462 20 528 19 913 20 001


Retained Income Rm

Minority interests Rm

Total Equity Rm 10 880 11 327 14 160 17 453 18 196 18 556 19 493 16 271 17 453 17 814 18 196 18 336

Net debt / (cash) -3 950 -7 102 -3 570 -2 491 -3 683 -3 715 -4 264 -3 905 -2 491 -3 420 -3 683 -3 331

Total debt 1 615 3 777 1 866 346 783 783 783 1 817 346 1 283 783 783

Debt/Equity % -36% -63% -25% -14% -20% -20% -22% -24% -14% -19% -20% -18%

EBITDA Interest cover x -102.7 57.5 1.3 2.5 6.2 5.1 5.7 2.2 2.7 7.5 5.0 5.0

ROE % 30% 33% 25% 24% 9% 4% 7% 15% 10% 6% 4% 2%

ROI % 17% 18% 1% 1% 1% 0% 1% 1% 2% 1% 1% 0%

CASH FLOW STATEMENT FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15 2H15E 1H16E

Operating cash flows Rm 5 159 5 652 522 292 97 -125 -65 - 292 -347 443 -66

Less tax paid Rm -1 202 -1 432 -157 -252 - 24 23 - -252 - - -1

Interest received Rm 133 209 56 113 - - - - 113 - - -

Used for:

Interest paid Rm -65 -148 -77 -47 -15 -29 -29 - -47 - -15 -15

Dividends Rm -540 -524 -574 -831 -877 -428 -360 - -831 -568 -310 -214

Capex to sustain Rm -760 -788 -77 -94 -114 -114 -114 -199 -94 -57 -57 -57

Capex to expand Rm -1 442 -1 496 - - - - - - - - - -

Other investing cash flows Rm -76 -2 798 1 547 1 569 1 451 704 1 094 750 819 250 1 201 -

Net cash generated / utilised Rm 1 208 -1 325 1 240 750 542 32 549 551 0 -721 1 263 -352

Financed through:

Sales of shares Rm

Net Debt changes Rm - - - - -750 - -500 - - - - -

Other financing cash flows Rm 1 322 -124 1 311 537 1 524 1 134 191 1 263 -352 384 -235 784

Change in net cash for the period 1 322 -124 1 311 537 774 1 134 -309 1 263 -352 384 -235 784

Capex / Revenue x 21% 18% 5% 5% 5% 6% 6% 27% 9% 4% 7% 7%

Capex / Net operating cash flow x 54% 52% 18% 61% 118% -113% -272% #DIV/0! 61% -16% 13% -86%

Net ops cash flow / Underlying profit x 127% 119% 12% 4% 6% -13% -3% 0% 8% -35% 65% -19%


03 July 2015

48

Equity Research

Figure 88: Assore Divisional data


Assore - Divisional Data Sheet

FX/COMMODITY ASSUMPTIONS FY11 FY12 FY13 FY14 FY15F FY16F FY17F Revenue split (2015F)

SA Rand Avg 7.0 7.8 8.8 10.4 11.4 12.1 12.0

Manganese ore US$/dmtu 7.3 5.1 5.3 4.8 4.0 3.3 3.8

Iron Ore US$/t 163 151 127 123 72 55 58

Chrome Alloys USc/lb 1.23 1.04 1.01 0.99 0.96 0.93 0.96

Chrome Ore ZAR/t 252 211 203 156 157 158 164

PRODUCTION FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron Ore kt 9 685 13 658 16 103 16 054 15 767 16 000 16 000

Manganese Ore kt 3 048 3 296 3 199 2 708 2 987 3 250 3 450

Manganese Alloys kt 291 373 332 279 189 112 180

Ferrochrome kt 237 186 23 22 - - -

Chrome Ore kt 866 1 004 1 033 1 014 510 - -

REVENUE, Rm FY11 FY12 FY13 FY14 FY15F FY16F FY17F EBIT split (2015F)

Iron Ore 5 171 7 648 7 845 8 834 5 522 4 797 5 167

Manganese 3 233 3 176 3 719 4 143 3 502 3 243 4 098

Chrome 1 134 1 020 938 804 354 - -

Other 1 010 1 104 1 464 1 769 2 151 1 758 1 949

Total 10 548 12 948 13 966 15 549 11 529 9 797 11 213

EBIT, Rm FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron Ore 3 243 4 185 3 733 4 166 1 503 967 1 222

Manganese 1 145 640 778 737 411 42 375

Chrome (158) (129) (90) 92 42 - -

Other 531 1 012 65 119 132 108 119

Total 4 761 5 708 4 486 5 114 2 088 1 116 1 717

EBIT margins, % FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron Ore 63% 55% 48% 47% 27% 20% 24%

Manganese 35% 20% 21% 18% 12% 1% 9%

Chrome -14% -13% -10% 11% 12% #DIV/0! #DIV/0!

Other 53% 92% 4% 7% 6% 6% 6%

EBIT Margin 45% 44% 32% 33% 18% 11% 15%

Headline Profit, Rm FY11 FY12 FY13 FY14 FY15F FY16F FY17F Headline profit (2015F)

Iron Ore 2 325 2 918 2 759 3 179 1 194 768 970

Manganese 689 611 470 529 296 30 270

Chrome (117) (86) 1 64 28 - -

Other 373 267 340 494 155 201 154

Total 3 219 3 708 3 534 4 230 1 674 778 1 281

CAPEX, Rm FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Iron Ore 1 613 1 670 1 355 1 029 855 850 850

Manganese 328 443 611.5 670 924.5 1000 800

Chrome 108 146.5 66 122 65 0 0

Other 194 113 98 292 187 187 114

Total CAPEX 2 243 2 372 2 130 2 113 2 032 2 037 1 764


Iron Ore48%

Manganese30%

Chrome3%

Other19%

Iron Ore72%

Manganese20%

Chrome2%

Other6%

Iron Ore72%

Manganese20%

Chrome2%

Other6%

03 July 2015

49

Equity Research

03 July 2015

ArcelorMittal South Africa

Outlook’s not improving

Commodity and FX forecasts updated: We have decreased our benchmark steel

price forecasts for the next three FY’s by an average of 10% which has

negatively impacted our earnings outlook and TP (based on a 3 year forward

exit PE). We have not made any significant changes to our Rand Dollar

exchange rate forecast. Our TP is decreased to R14.00 from R18.00 previously.

Sell recommendation maintained.

Key catalysts for AMSA include:

o Implementation of import tariffs on steel products: If South Africa were

to follow the lead of a large number of other steel producing countries

and implement tariffs on steel products entering the country, mainly

from the east, we believe it could be significantly positive for AMSA.

o Weaker than expected USDZAR: We forecast the USDZAR to average

12.03, 12.11 and 11.65 over the next three years, however we

recognise that a weaker rand could significantly bolster the company’s

earnings, especially in the short term.

o An iron ore price rally: Due to the company’s cost plus agreement on

iron ore, if the iron ore price had to increase significantly, AMSA would

be in a beneficial position compared to competitors purchasing iron ore

at spot prices.

Recommendation unchanged, TP decreased to R14.00: Although AMSA’s share price has declined significantly (>25%) since we initiated coverage of AMSA on 12 May 2015 (Steely resolve required), we believe the company still has significant headwinds to face over the next three two years. We have decreased our target price significantly on the back of lower earnings over the next three years, with FY17e earnings decreased by 25%. The counter currently trades at 0.66x our DCF-derived valuation (R21.00), which assumes long-term normalised margins from 2019 and mid-cycle prices.


10

15

20

25

30

35

40

45

7/14 10/14 1/15 4/15


Share data

RIC ACLJ.J

Sub industry ICB Iron & Steel

Price (25 Jun 2015) R 13.50



Market cap. (USD m) 442

Enterprise value (USD m) 508


Free float (%) 39



Absolute (%) -14.6 -31.5 -56.6

Relative (%) -14.2 -30.7 -57.4




2015


Gross revenue (R m) 32,291 32,421 34,852 30,427 29,666 35,014

EBITDA (R m) 1,121 1,768 1,258 1,502 1,571 2,340

EBIT (R m) (477) 31 (152) (111) (33) 712

Headline earnings (R m) (518) (224) (227) (15) 35 381


(R)

(1.29) (0.56) (0.57) (0.04) 0.09 0.95

DPS (R) 0.00 0.00 0.00 0.00 0.00 0.00

P/E n/a n/a n/a n/a 156.9 14.2

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0



Recommendation:


Eq

uit

y R

esea

rch

| C

EE

ME

A/

Sou

th A

fric

a | I

nd

ust

rial

Met

als

& M

inin

g

03 July 2015

50

Equity Research

Figure 89: AMSA financial statements and ratios


Arcelor Mittal SA - Financial Statements and Ratios

INCOME STATEMENT FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Revenue Rm 32 291 32 421 34 852 30 427 29 666 35 014 17 927 16 925 16 119 14 308 14 555

Operating Costs Rm -31 170 -30 653 -33 594 -28 925 -28 095 -32 674 -17 117 -16 477 -15 203 -13 722 -13 876

EBITDA Rm 1 121 1 768 1 258 1 502 1 571 2 340 810 448 916 586 679

Depreciation and Amortisation Rm -1 598 -1 737 -1 410 -1 613 -1 604 -1 629 -651 -759 -810 -803 -800

EBIT Rm -477 31 -152 -111 -33 712 159 -311 106 -217 -121

Other Rm - -16 149 - - - - 149 - - -

Total from operations Rm -477 47 -301 -111 -33 712 159 -460 106 -217 -121

Net interest paid Rm -274 -260 -588 -88 -97 -360 -207 -381 -64 -24 -19

Other Rm 59 -1 405 305 178 178 178 102 89 89 89 89

PBT Rm -692 -1 618 -584 -21 48 530 54 -752 132 -152 -51

Tax Rm 184 51 460 6 -13 -148 -69 529 -37 43 14

Attributable profit for the period Rm -508 -1 567 -124 -15 35 381 19 -143 95 -110 -37

Minority Interests Rm - -580 -34 - - - -34 - - - -

Attributable to Shareholders Rm -508 -2 147 -158 -15 35 381 -15 -143 95 -110 -37

Headline earnings Rm -518 -224 -227 -15 35 381 -6 -221 95 -110 -37

HEPS R -1.29 -0.56 -0.57 -0.04 0.09 0.95 -0.01 -0.55 0.24 -0.27 -0.09

DPS R - - - - - - - - - - -

Shares outstanding m 401 401 401 401 401 401 401 401 401 401 401

Tax rate % 39% -165% 303% 28% 28% 28% 128% 70% 28% 28% 28%

EBITDA Margin % 3% 5% 4% 5% 5% 7% 5% 3% 6% 4% 5%

EBIT Margin % -1% 0% 0% 0% 0% 2% 1% -2% 1% -2% -1%

Net Margin % -2% -1% -1% 0% 0% 1% 0% -1% 1% -1% 0%

Dividend Cover x N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

PE x N/A N/A N/A N/A 156.9 14.2 N/A N/A 28.6 N/A N/A

EV/EBITDA x 12.3 8.4 9.1 3.8 4.8 3.5 17.3 25.5 6.2 9.7 9.4

Dividend Yield % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

BALANCE SHEET FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Cash and cash equivalents Rm 884 1 298 454 1 017 -842 -1 568 406 454 960 1 017 281

Trade and Receivables Rm 1 669 2 194 1 562 1 320 1 395 1 645 2 791 1 562 1 488 1 320 1 343

Inventories Rm 8 761 10 553 10 684 8 898 9 220 10 833 10 396 10 684 9 858 8 898 8 998

Other Rm 165 68 101 64 64 64 75 101 64 64 64

Total Current Assets Rm 11 479 14 113 12 801 11 299 9 837 10 973 13 668 12 801 12 370 11 299 10 686

PPE Rm 16 068 14 702 16 001 16 287 18 070 18 425 14 936 16 001 16 049 16 287 16 958

Deferred tax assets Rm - - - - - - - - - - -

Other non current assets Rm 3 351 3 900 4 224 4 166 4 166 4 166 3 987 4 224 4 166 4 166 4 166

Total Non Current Assets Rm 19 419 18 602 20 225 20 453 22 236 22 591 18 923 20 225 20 215 20 453 21 124

Trade and other payables Rm 3 420 6 400 7 169 5 970 6 186 7 269 5 589 7 169 6 615 5 970 6 037

Interest bearing liabilities Rm 10 906 1 000 1 000 1 000 1 000 1 732 1 000 1 000 1 000 1 000

Current tax liabilities Rm 97 6 18 -43 28 55 59 18 37 -43 -14

Provisions Rm - - 573 573 573 573 355 573 573 573 573


Total Current Liabilities Rm 4 565 7 922 8 863 7 604 7 890 9 000 7 832 8 863 8 327 7 604 7 699

Interest bearings liabilities Rm 270 267 261 261 261 261 258 261 261 261 261

Provisions Rm 1 364 1 328 1 720 1 720 1 720 1 720 1 735 1 720 1 720 1 720 1 720

Other Non Current Liabilities Rm 2 457 2 504 1 460 1 460 1 460 1 460

Total Non Current Liabilities Rm 4 091 4 099 3 441 3 441 3 441 3 441 4 036 3 441 3 441 3 441 3 441

Net Assets Rm 22 242 20 694 20 722 20 707 20 742 21 123 20 723 20 722 20 817 20 707 20 670

Share capital and reserves Rm -2 141 -1 577 -1 257 -1 257 -1 257 -1 257 -1 484 -1 257 -1 257 -1 257 -1 257

Retained Income Rm 24 383 22 271 21 979 21 964 21 999 22 380 22 207 21 979 22 074 21 964 21 927

Minority interests Rm - - - - - - - - - - -

Total Equity Rm 22 242 20 694 20 722 20 707 20 742 21 123 20 723 20 722 20 817 20 707 20 670

Net debt / (cash) Rm -604 -125 807 244 2 103 2 829 1 584 807 301 244 980

Total debt Rm 280 1 173 1 261 1 261 1 261 1 261 1 990 1 261 1 261 1 261 1 261

Gearing (ND/ND+E) % -3% -1% 4% 1% 9% 12% 7% 4% 1% 1% 5%

EBITDA Interest cover x 4 7 2 17 16 7 4 1 14 25 35

ROE % -2% -1% -1% 0% 0% 2% 0% -1% 0% -1% 0%

ROI % -1% 0% 1% 0% 0% 2% 0% 0% 0% -1% 0%

CASH FLOW STATEMENT FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Cash flows from operations Rm 2 039 1 594 2 205 2 509 1 569 1 738 109 2 096 1 351 1 158 712

Tax paid Rm -52 -221 -84 -55 57 -121 -31 -53 -18 -37 43

Other Rm -195 -289 -377 -88 -97 -360 -179 -198 -64 -24 -19

Operating cash flows Rm 1 792 1 084 1 744 2 366 1 529 1 257 -101 1 845 1 269 1 097 736

Capex Rm -875 -1 569 -2 725 -1 899 -3 388 -1 983 -866 -1 859 -858 -1 041 -1 471

Investments Rm -366 -53 37 - - - -5 42 - - -

Other Rm 95 77 68 - - - 56 12 - - -

Investing cash flows Rm -1 146 -1 545 -2 620 -1 899 -3 388 -1 983 -815 -1 805 -858 -1 041 -1 471

Dividends paid Rm - - - - - - - - - - -

Net intest bearing borrowings raised (paid) Rm -226 674 -30 - - - -16 -14 - - -

Other Rm - - - - - - - - - - -

Financing cash flows Rm -226 674 -30 - - - -16 -14 - - -

Net increase/dec in cash Rm 420 213 -906 468 -1 858 -726 -932 26 411 56 -735

Capex / Revenue % 3% 5% 8% 6% 11% 6% 5% 11% 5% 7% 10%

Capex / Net operating cash flow % 49% 145% 156% 80% 222% 158% -857% 101% 68% 95% 200%

Net operating cash flow / Net profit x -3.5 -0.5 -11.0 -158.8 44.3 3.3 6.7 -12.9 13.4 -10.0 -20.0


03 July 2015

51

Equity Research

Figure 90: AMSA Divisional data


Arcelor Mittal SA - Divisional Data Sheet

Inputs FY12 FY13 FY14 FY15E FY16E FY17E FY18E Production split (2017F)

USD/ZAR 8.19 9.64 10.82 12.03 12.11 11.65 11.59

Iron Ore $/t 128 135 97 57 58 61 65

inc/dec % -23% 5% -28% -41% 1% 6% 6%

Iron Ore R/t 1 052 1 305 1 053 687 696 708 747

inc/dec % -15% 24% -19% -35% 1% 2% 6%

HRC price ($/t) R/t 736 767 669 521 534 574 614

inc/dec % 196% 4% -13% -22% 2% 8% 7%

Coking coal (USD/t) $/t 193 151 117 96 97 104 112

inc/dec % -35% -22% -23% -18% 1% 8% 8%

Production FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Flat steel production kt 3 554 3 229 3 586 3 592 2 994 3 594 3 594

Long steel produciton kt 1 537 1 867 932 1 640 1 925 1 925 1 925

Tonnes produced (kt) kt 5 091 5 096 4 518 5 232 4 920 5 520 5 520

Capacity utilisation (act) (%) % 66% 76% 69% 80% 76% 85% 85%

Local sales (kt) kt 3 336 3 126 3 002 3 302 2 888 3 239 3 239

Export sales (kt) kt 1 286 1 104 1 238 1 002 1 094 1 334 1 298

TOTAL sales (kt) kt 4 622 4 230 4 240 4 251 3 982 4 581 4 527

Coke sales (kt) kt 459 546 466 457 556 564 564

Revenue (external) FY12 FY13 FY14 FY15E FY16E FY17E FY18E Revenue split (2017F)

Flat products Rm 20 192 19 922 22 957 19 308 16 887 21 103 22 063

Long products Rm 10 289 10 616 9 911 9 678 11 001 12 041 12 819

Coke & Chemicals Rm 1 810 1 883 1 984 1 441 1 778 1 870 2 004

Corp/Other Rm - - - - - - -

Total Rm 32 291 32 421 34 852 30 427 29 666 35 014 36 886

inc/dec % 0% 7% -13% -2% 18% 5%

EBITDA FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Flat products Rm -266 135 535 615 364 1 364 2 023

Long products Rm 770 1 198 16 561 802 598 1 297

Coke & Chemicals Rm 503 514 428 326 406 379 411

Corp/Other Rm 114 -79 279 - - - -

Total Rm 1 121 1 768 1 258 1 502 1 571 2 340 3 730

inc/dec % 58% -29% 19% 5% 49% 59%

EBIT FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Flat products Rm (1 560) (1 120) (529) (456) (728) 221 871

Long products Rm 470 897 -326 62 330 151 874

Coke & Chemicals Rm 472 479 393 283 365 340 373 EBITDA split (2017F)

Corp/Other Rm 141 (209) 161 - - - -

Total Rm -477 47 -301 -111 -33 712 2 119

inc/dec % -110% -740% -63% -70% -2250% 198%

EBIT margins FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Flat products % -8% -6% -2% -2% -4% 1% 4%

Long products % 5% 8% -3% 1% 3% 1% 7%

Coke & Chemicals % 26% 25% 20% 20% 21% 18% 19%

Corp/Other % N/A N/A N/A N/A N/A N/A N/A

Total % -1% 0% -1% 0% 0% 2% 6%

Capex FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Growth Capex Rm 66 69 75 132 142 152 163

Environmental Capex Rm 133 350 63 316 347 331 343

Maintenance Capex Rm 676 1 150 2 633 1 450 2 899 1 501 1 553

Total Capital Expenditure - Contracted Rm 875 1 570 2 795 1 899 3 388 1 983 2 059 EBITDA by Operation over time


Flat steel production

65%

Long steel produciton

35%

Flat products

60%

Long products

35%

Coke & Chemicals

5%

Flat products

58%

Long products

26%

Coke & Chemicals

16%

Flat products

Long products

Corp/Other

Corp/Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

03 July 2015

52

Equity Research

03 July 2015

Merafe Resources

A point to prove


generally positive for Merafe with a weaker ZARUSD and higher sales levels

(post strong 1Q and Chinese imports from SA). We have increased our FY15E

earnings by 13% and FY16E by 10%, while FY17E is 5% higher. We have

reduced our valuation and price target to 170 SAc (from 180 SAc), now at a

10% discount given uncertainty on costs after a weak 2H14. We think that

Merafe will increase cash payments to shareholders as the 10 year investment

cycle culminating in the Lion II project has ended.

Catalysts:

o Lion II hump – the 2H14 results were weak from Merafe as unit costs

increased and cash flow declined materially from 1H14 levels. This

was attributed to restructuring costs and so the standing costs from

the Lydenburg rebuild as well as the Lion II start-up costs where the

operation is in ramp up and depreciation was reported. Most of these

one offs should not recur. We would hope to see a better cash flow

result in the 1H15 results. We anticipate strong sales levels given

reported Chinese ferrochrome imports, but the costs will be in focus.

o Cash is coming – we believe that after the end of the 10 year

investment cycle under Merafe and Xstrata (now Glencore) that the

current management team of Merafe and Glencore are incentivised to

slow investment and to return cash to shareholders. The emergence of

FCF above capex is a key driver of our thesis, not rising margins or

prices. We think that as debt declines that investors will concur with

our view that dividends are set to increase (specials most likely or

buybacks) and that this will result in a re-rating of Merafe.

o Glencore buyout of RBH – the recently announced buyout by

Glencore of the RBH stake has removed the BEE characteristic from

Merafe. Glencore and Merafe are talking of a warehousing of the

stake pending the requested declaratory from the courts on ‘once

empowered always empowered’. We think that this is wrong as

Glencore would be able to empower at the asset level and would not

need Merafe as its BEE vehicle.

Valuation: We value Merafe using a DCF over the LOM and assuming a ZAR

WACC of 12.5%. Risks to our view include lower than assumed demand and

hence production levels.


0.7

0.9

1.1

1.3

1.5

1.7

7/14 10/14 1/15 4/15


Share data

RIC MRFJ.J


Price (25 Jun 2015) R 0.790



Market cap. (USD m) 161

Enterprise value (USD m) 209


Free float (%) 44



Absolute (%) -1.3 -3.7 -33.1

Relative (%) -0.9 -2.9 -33.9




2015


Net sales (R m) 2,542 3,497 3,609 4,528 4,749 4,896

EBITDA (R m) 320 558 589 785 841 761

EBITDA margin (%) 13 16 16 17 18 16

Net Income (R m) 126 285 214 346 398 362

Basic (EPS) (c) 2 8 9 14 16 14

Underlying (EPS) (c) 5 11 8 14 16 14

DPS - ordinary (c) 0 0 2 2 3 3

P/E (x) 13.6 7.6 11.3 5.7 5.0 5.5

EV/EBITDA (x) 6.8 4.8 5.0 3.2 2.8 2.7

Dividend yield (%) 0.0 0.0 2.0 2.8 3.2 3.9



Recommendation:

BUY Maintained Target Price: R 1.70

Eq

uit

y R

esea

rch

| C

EE

ME

A/

Sou

th A

fric

a | M

inin

g

03 July 2015

53

Equity Research

Figure 91: Merafe Ltd - Financial Statements and ratios


Income statement FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Revenue Rm 2 425 2 542 3 497 3 609 4 528 4 749 4 896 1 991 1 618 2 265 2 263 2 319


EBITDA Rm 379 320 558 589 785 841 761 423 166 372 413 388

Depreciation and Amortisation Rm -153 -140 -179 -237 -238 -242 -233 -85 -153 -117 -121 -121

EBIT Rm 226 180 379 352 547 599 528 338 14 255 292 268

Other / disposals Rm - -78 -74 - - - - - - - - -

Associates income Rm - - - - - - - - - - - -

Total From operations Rm 226 102 305 352 547 599 528 338 14 255 292 268

Investment income Rm - - - - - - - - - - - -

Interest Paid Rm -22 -26 -17 -51 -67 -46 -25 -18 -33 -35 -32 -25

PBT Rm 204 76 287 301 481 553 503 320 -19 220 260 242

Tax Rm -88 -27 -77 -87 -135 -155 -141 -95 9 -62 -73 -68

Attributable profit for the period Rm 116 49 211 214 346 398 362 225 -11 159 187 175

Minority Interests Rm - - - -48 -55 -62 -77 -28 -20 -25 -30 -25

Attributable to Shareholders Rm 116 49 211 166 291 336 285 197 -31 134 157 150

Underlying attributable profits Rm 157 126 269 210 346 398 362 221 -12 159 187 175

Underlying EPS R 6.28 5.06 10.75 8.33 13.75 15.82 14.39 8.80 -0.47 6.31 7.44 6.94

DPS R - - - 1.92 2.20 2.50 3.10 1.12 0.80 1.00 1.20 1.00


Tax rate % 43% 18% 21% 29% 28% 28% 28% 30% 29% 28% 28% 28%

EBITDA Margin % 16% 13% 16% 16% 17% 18% 16% 21% 10% 16% 18% 17%

EBIT Margin % 9% 7% 11% 10% 12% 13% 11% 17% 1% 11% 13% 12%

Net Margin % 6% 5% 8% 6% 8% 8% 7% 11% -1% 7% 8% 8%

Dividend Cover x na na na 4.34 6.25 6.33 4.64 7.85 -0.58 6.31 6.20 6.94

PE x 17.03 40.41 9.40 9.28 5.74 4.99 5.49

EV/EBITDA x 5.41 7.54 4.62 4.34 3.24 2.76 2.73

Balance Sheet FY11 FY12 FY13 FY14 FY15E FY16E FY17E 1H14 2H14 1H15E 2H15E 1H16E

Cash and cash equivalents Rm 220 83 86 65 163 290 433 65 45 52 163 206

Trade and Receivables Rm 263 443 685 619 934 1 003 1 008 619 668 935 934 957

Inventories Rm 1 066 1 089 1 133 1 207 1 369 1 462 1 546 1 207 1 436 1 400 1 369 1 429

Current Tax Rm

Other Rm


PPE Rm 2 373 2 677 3 100 3 249 3 293 3 302 3 316 3 249 3 239 3 278 3 293 3 297

Intangibles Rm

Deferred tax assets Rm

Other non current assets Rm


Trade and other payables Rm 382 449 648 532 795 849 897 532 624 813 795 830

Interest bearing liabilities Rm 1 1 116 76 288 288 288 76 288 288 288 288

Current tax liabilities Rm 14 - - - - - - - - - - -

Provisions Rm

Other Current Liabilities Rm

Total Current Liabilities Rm 396 450 764 608 1 083 1 137 1 185 608 911 1 101 1 083 1 117

Interest bearings liabilities Rm 313 524 576 575 450 350 250 575 550 500 450 400

Deferred Tax Rm 506 551 626 685 687 687 687 685 687 687 687 687

Other Non Current Liabilities Rm 48 58 111 118 129 129 129 118 129 129 129 129

Total Non Current Liabilities Rm 867 1 133 1 314 1 379 1 266 1 166 1 066 1 379 1 366 1 316 1 266 1 216

Net Assets Rm 2 659 2 710 2 926 3 153 3 411 3 754 4 051 3 153 3 110 3 249 3 411 3 556



Minority interests Rm - - - - - - - - - - - -

Total Equity Rm 2 659 2 710 2 926 3 153 3 425 3 768 4 065 3 153 3 124 3 262 3 425 3 569

Net debt / (cash) 93 442 607 587 574 348 105

Total debt 313 525 692 651 738 638 538

Debt/Equity % 3% 16% 21% 19% 17% 9% 3%

EBITDA Interest cover x 17.6 12.4 32.3 11.5 11.7 18.2 30.4

ROE % 6% 5% 9% 7% 10% 11% 9%

ROI % 5% 5% 10% 8% 12% 11% 9%

Cash Flow Statement 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Operating cash flows Rm 344 245 502 396 757 733 721 311 85 331 427 340

Less tax paid Rm -30 -7 2 -47 -135 -155 -141 -30 -17 -62 -73 -68

Interest received Rm

Used for:

Interest paid Rm -19 20 -17 -43 -67 -46 -25 -15 -27 -35 -32 -25

Dividends Rm -54 - - -28 -45 -55 -65 - -28 -20 -25 -30

Capex to sustain Rm -174 -180 -208 -247 -243 -251 -247 -95 -153 -120 -124 -124

Capex to expand Rm -231 -424 -397 -196 -49 - - -153 -43 -37 -12 -

Other investing cash flows Rm - - 113 6 - - - 5 2 - - -

Net cash generated / utilised Rm -163 -346 -6 -159 219 226 243 23 -182 58 161 93

Financed through:

Sales of shares Rm 9 - -1 0 - - - -1 1 - - -

Net Debt changes Rm -0 211 71 35 -100 -100 -100 10 25 -50 -50 -50

Other financing cash flows Rm - - - - - - - - - - - -

Change in net cash for the period -154 -136 65 -124 119 126 143 32 -156 8 111 43

Capex / Revenue x 17% 24% 17% 12% 6% 5% 5%

Capex / Net operating cash flow x 129% 254% 120% 127% 47% 43% 43%

Net operating cash flow / Net profit x 200% 188% 187% 167% 180% 145% 160%

03 July 2015

54

Equity Research

Figure 92: Merafe Ltd - Divisional Data Sheet


FY12 FY13 FY14 FY15E FY16E FY17E FY18E NPV Rm R/sh % of EV

Input Assumptions Chrome 4 836.7 1.93 116.1%

ZAR/USD 8.2 9.6 10.8 12.0 12.1 11.6 11.6 Other Assets - 0.00 0.0%

Growth - 0.00 0.0%

Benchmark Ferrochrome price USc/lb 121.3 113.9 118.5 108.3 111.5 115.5 119.5 Less: Debt 671.8- (0.27) -16.1%

Discount received % 83% 81% 74% 75% 77% 80% 84% Less: Corporate - 0.00 0.0%

Chrome content % 50% 50% 50% 50% 50% 50% 50% Less: Minorities 0.00 0.0%

Net Charge Chrome price USc/lb 93.3 92.2 87.3 80.8 85.9 92.4 100.4 Total 4 164.9 1.66

PT (Rand / sh) 1.70

Chrome ore $/t 190.1 162.2 159.1 155.9 161.1 166.8 172.6 Premium / discount % -10%

WACC 12.5% Shares (m) 2 504

Hard Coking Coal (reductants) $/t 193.5 150.9 116.9 95.9 96.5 104.0 112.0

Production

Capacity kt 1 979 1 979 2 049 2 289 2 329 2 329 2 329

Capacity utilisation % 63% 77% 75% 81% 78% 78% 78%

Ferrochrome production kt 1 242 1 529 1 538 1 853 1 817 1 817 1 817

kt

Chrome ore- implied kt 1 000.0 1 140.0 844.0 1 200.0 1 200.0 1 200.0 1 200.0

Copper Equivalent production

Ferrochrome kt 76.9 94.7 95.2 114.7 112.5 112.5 112.5

Chrome Ore kt 4.8 5.4 4.0 5.7 5.7 5.7 5.7

Total kt 81.7 100.1 99.2 120.4 118.2 118.2 118.2

Revenue

Ferrochrome $m 1 273.4 1 554.6 1 482.1 1 649.2 1 719.4 1 850.3 2 010.1

Chrome Ore, other $m 188.9 203.1 146.5 187.0 193.3 200.2 207.1

Total $m 1 462.3 1 757.7 1 628.6 1 836.2 1 912.7 2 050.5 2 217.2

Operating Costs

Ferrochrome $m 1 149.2 1 413.6 1 159.4 1 285.1 1 332.6 1 478.0 1 570.3

Unit Costs USc/lb 84.0 84.0 68.8 62.9 66.5 73.8 78.4

Chrome Ore $m 123.6 168.3 105.2 140.3 145.0 150.2 155.4

Unit Costs US$/t 123.6 168.3 105.2 140.3 145.0 150.2 155.4

Glencore Marketing Fee % 4.3 4.3 4.3 4.3 4.3 4.3 4.3

Glencore Marketing Fee $m 54.1 66.1 69.2 78.0 81.3 87.1 94.2

Head Office and other central costs Rm 33.6 25.9 61.6 35.5 37.4 39.4 41.6

FeCr unit costs post H/O and Marketing USc/lb 83.1 93.7 95.4 97.8 100.3 102.8 105.4

EBITDA

Ferrochrome $m 124.2 141.0 322.7 364.0 386.8 372.3 439.8

Chrome Ore, other $m 65.3 34.8 41.3 46.8 48.3 50.1 51.8

Total $m 189.5 175.8 364.0 410.8 435.1 422.3 491.6

EBITDA margins

Ferrochrome % 10% 9% 22% 22% 22% 20% 22%

Chrome Ore % 35% 17% 28% 25% 25% 25% 25%

Total % 13% 10% 22% 22% 23% 21% 22%

Capex, US$M

Growth $m 511 522 233 49 - - -

Sustaining $m 191 198 245 243 251 247 252

Total $m 703 720 478 292 251 247 252

Ferrochrome Capacity, utilisation and projects

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500

1 000

1 500

2 000

2 500

Boshoek Rustenberg Wonderkop Lydenburg Lion 1

Lion 2 Lion 3 Effective capacity (lhs) Utilisation (rhs)

03 July 2015

Equity Research

55

Companies Mentioned (Price as of 25 Jun 2015)

Kumba Iron Ore (KIOJ.J, R159.98, SELL, TP R161.00)

African Rainbow Minerals (ARIJ.J, R87.58, HOLD, TP R98.00)

Anglo American plc (AAL.L, p994.80, BUY, TP p1,220)

ArcelorMittal South Africa (ACLJ.J, R13.50, SELL, TP R14.00)

Assore Ltd (ASRJ.J, R107.00, SELL, TP R113.00)

BHP Billiton plc (BLT.L, p1,336, HOLD, TP p1,400)

Exxaro Resources Ltd (EXXJ.J, R89.50, HOLD, TP R100.00)

Glencore plc (GLEN.L, p273.55, BUY, TP p320.00)

Merafe Resources (MRFJ.J, R0.790, BUY, TP R1.70)

Rio Tinto plc (RIO.L, p2,733, HOLD, TP p2,960)

Royal Bafokeng Platinum Ltd (RBPJ.J, R50.60, BUY, TP R62.00)

South32 Ltd (S32J.J, R17.68, SELL, TP R17.70)

Tronox Inc/New (TROX.PK, US$14.45, Not Covered)

Value Group (VLEJ.J, R3.50, Not Covered)

Vale PNA (VALE5.SA, R$15.46, Not Covered)

Disclosure Appendix

Important Global Disclosures

SBG Securities (Pty) Limited is the name provided to the Institutional Stock broking entity of The Standard Bank of South Africa Limited. The following analyst/s: Heidi Sternberg, Tim

Clark, Thabang Thlaku certify, with respect to the companies or securities under analysis, that (1) the views expressed in this report accurately reflect their personal views about all of

the subject companies and securities and (2) no part of their compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this

report.

SBG Securities (Pty) Limited Research Analyst receive compensation that is based, in part, on the overall firm revenues, which include investment banking revenues.

See the Companies Mentioned section for full company names.

Analysts’ stock ratings are defined as follows*:

Buy (B): The stock’s total return* is expected to be more than 20% (or more, depending on perceived risk) over the next 12 months.

Hold (H): The stock’s total return is expected to be in the range of 10-20% over the next 12 months.

Sell (S): The stock’s total return is expected to be less than 10% over the next 12 months.

Restricted (R): In certain circumstances, SBGS policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of SBGS’ and/or Standard Banks Group’s engagement in an investment banking transaction and in certain other circumstances.

Speculative Buy: SBG Securities may issue a “Speculative Buy” when the Research Analyst covering the Company is of the view that the risk/reward tradeoff is somewhat less compelling than that of a BUY rating. These companies tend to have very high upside potential, but also a great degree of risk or uncertainty with regard to future financial results.

Relative Three Month Ratings: SBG Securities may also assign a three-month relative call (or rating) to a stock to highlight expected out-performance (most preferred) or under-performance (least preferred) versus the geographic and industry sector over a three (3) month period. The relative call may highlight a specific near-term catalyst or event impacting the Company or the market that is anticipated to have a short term price impact on the equity securities of the Company. Absent any specific catalyst the analyst(s) will indicate the most and least preferred stocks in the universe of stocks under coverage, explaining the basis for this short term view. This three month view may be different from and does not affect a stocks` fundamental equity rating, which reflects a longer-term total absolute return expectation.

As of 15 June 2011, SBG Securities (Pty) Limited ratings are based on (1) a stock’s absolute/total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Buys representing the most attractive, Holds the less attractive, and Sells the least attractive investment opportunities. In frontier markets like Kenya and Nigeria ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors, for these countries a 25% and 15% threshold replace the 20 and 10% level in the Buy and Sell stock rating definitions, respectively, subject to analysts’ perceived risk. The 25% and 15% thresholds replace the +10-20% and -10-20% levels in the Hold stock rating definition, respectively, subject to analysts’ perceived risk.

Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected

performance of an analyst’s coverage universe* versus the relevant broad market benchmark**:

Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.

Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months .

Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.

Not Covered: SBG Securities (Pty) Ltd Equities Research does not cover the issuer or offer an investment view on the issuer or any securities related to it. Any communication from Research on securities or companies that SBG Securities (Pty) Ltd does not cover is factual or a reasonable, non-material deduction based on an analysis of publicly available information or consensus forecasts

*Total return is calculated as the sum of the stock’s expected Capital Appreciation and expected Dividend Yield.

*SBG Securities Small and Mid-Cap Advisor stocks: Stock ratings are relative to the JSE All-Share (ALSI) index, and SBG Securities. Small, Mid-Cap Advisor investment universe.

**An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector.

03 July 2015

Equity Research

56

SBG Securities’ distribution of stock ratings is:

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of BUY, HOLD, and SELL most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

SBG Securities’ policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

SBG Securities’ policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please contact the Legal and Compliance Division of SBG Securities’ and request their Policies for Managing Conflicts of Interest in connection with Investment Research.

SBG Securities does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Company Specific Disclosures: Important Disclosures, including price charts are available for compendium reports and all SBG Securities (Pty) Ltd and Standard Bank Group covered companies by emailing [email protected] or calling +2711 415 4272 with your request. Standard Bank Group’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by Standard Bank Group. For important disclosures for these companies, please call +2711 415 4272 or e-mail [email protected]

Important Regional Disclosures

This report covers Metals and Mining. All other companies were used for illustrative purposes only. We are not commenting on the investment merit of the securities of these companies

Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company () within the past 12 months.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;

SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is n ot affiliated with SBG Securities (Proprietary) Limited ( “ SBG Securities”) should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk.

Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of SBG Securities. Reports

written by Taiwan-based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under

Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors:

The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of SNYS and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Heidi Sternberg, Tim Clark, Thabang Thlaku, Non-U.S. Analyst(s) is a (are) research analyst(s) employed by SBG Securities.(Proprietary) Limited (“SBG Securities”).

03 July 2015

Equity Research

57

Important Standard Bank Disclosures

Company Disclosure

African Rainbow Minerals D

Anglo American plc D J

ArcelorMittal South Africa

Assore Ltd D F G

BHP Billiton plc D F G J

Exxaro Resources Ltd D

Glencore plc D

Kumba Iron Ore D J

Merafe Resources C D F

Rio Tinto plc D

Royal Bafokeng Platinum Ltd C D

South32 Ltd

A: The analyst, a team member, a member of the analyst's household or a team member's household serves as an officer, director or advisory board member of the subject company

B: The company beneficially owns 5% or more of the equity shares of Standard Bank Group as at Jul 2015

C: Standard Bank Group beneficially owns 1% or more of the equity shares of the company

D: The Company is a client of Standard Bank Group

E: Standard Bank Group has lead managed or co-lead managed a public offering of securities in the Company or any related derivatives in the last 12 months

F: Standard Bank Group has received compensation for investment banking services from the company within the last 12 months

G: Standard Bank Group expects to receive, or intends to seek, compensation for investment banking services from the company during the next 3 months

H: SBG Securities (Pty) Ltd has sent extracts of this research report to the subject company prior to publication for the purpose of verifying factual accuracy. Based on information provided by the subject company, factual changes have been made as a result.

I: Analyst or a member of their household holds long or short personal positions in a class of common equity securities of this company

J: Standard Bank Group is a market maker or liquidity provider in the financial instruments of the relevant issuer or any related derivatives

K: SBG Securities provided non-investment banking services, which include Sales and Trading services, to the subject company within the past 12 months

L: SBG securities has received compensation for products and services other than investment banking services from the subject company within the past 12 months

M: Standard Bank Group beneficially owns 5% or more of the equity shares of the Company

* Disclosures are correct as of 3 July 2015.

For purposes of the NYSE and NASD, in connection to the distribution of SBG Securities research, Standard Bank Group must disclose certain material conflicts of interest. Standard

Bank Group expects to receive or intends to seek investment banking related compensation from the subject company Metals and Mining within the next 3 months.

This report may include references to Standard Bank Group Limited’s research recommendations. For further information and for published Standard Bank reports in their entirety, please visit the website at http://research.standardbank.com/

For SBG Securities disclosure information on other companies mentioned in this report, please visit the website at www.sbgsecurities.com.

Disclaimers continue on next page.

http://research.standardbank.com/

http://www.sbgsecurities.com/

03 July 2015

Equity Research

58

Disclaimer and Confidentiality Note

SBG Securities (Proprietary) Limited (“SBG Sec”) is the name of the Equities Trading Division of the Standard Bank Group (“SB”) operating under its Corporate and Investment banking Division (“CIB”). This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject SBG Sec to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to SBG Sec. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of SBG Sec. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of SBG Sec or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. SBG Sec may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. SBG Sec will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. SBG Sec does not offer advice on the tax consequences of investment and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. SBG Sec believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or derived from sources SBG Sec believes are reliable, but SBG Sec makes no representations as to their accuracy or completeness. Additional information is available upon request. SBG Sec accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to SBG Sec. This report is not to be relied upon in substitution for the exercise of independent judgment. SBG Sec may have issued, and may in the future issue, a trading call regarding this security. In addition, SBG Sec may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and SBG Sec is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. SBG Sec is involved in many businesses that relate to companies mentioned in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by SBG Sec and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. SBG Sec maintains information barriers between its Research Analysts and the rest of its and its shareholders business divisions, more specifically the Investment Banking business. SBG Sec’ analysts’, strategists’ and economists’ compensation is not linked to Investment Banking or Capital Markets transactions performed by SBG Sec or its shareholders. Facts and views presented in SBG Sec’ research have not been reviewed by, and may not reflect information known to, professionals in other SBG Sec or Standard Bank business areas, including investment banking personnel. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of SBG Sec and SB, SBG Sec has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to SBG Sec or SB’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report shall be at your own risk. This report is issued and distributed in Europe by Standard Advisory London Limited, 20 Gresham Street, London EC2V 7JE which is authorised by the Financial Conduct Authority (“FCA”). This report is being distributed in Kenya by CfC Stanbic Bank Limited; in Nigeria by Stanbic IBTC; in Angola by Standard Bank de Angola S.A.; in China by Standard Resources (China) Limited; in Botswana by Stanbic Bank Botswana Limited; in Democratic Republic of Congo by Stanbic Bank Congo s.a.r.l.; in Ghana by Stanbic Bank Ghana Limited; in Hong Kong by Standard Advisory Asia Limited , Hong Kong Branch; in Isle of Man by Standard Bank Isle of Man Limited; in Jersey by Standard Bank Jersey Limited; in Madagascar by Union Commercial Bank S.A.; in Mozambique by Standard Bank s.a.r.l.; in Malawi by Standard Bank Limited; in Namibia by Standard Bank Namibia Limited; in Mauritius by Standard Bank (Mauritius) Limited; in Tanzania by Stanbic Bank Tanzania Limited; in Singapore by Standard Merchant Bank (Asia) Limited, Singapore Branch; in Swaziland by Standard Bank Swaziland Limited; in Zambia by Stanbic Bank Zambia Limited; in Zimbabwe by Stanbic Bank Zimbabwe Limited; in UAE by The Standard Bank of South Africa Limited, Dubai branch In respect of the United States, this report is solely intended for distribution to US institutional investors that qualify as Major US Institutional Investors under Securities Exchange of 1934 Rule 15a-6.In jurisdictions where SBG Sec is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. All rights reserved. Any unauthorized use, duplication, redistribution or disclosure of this report (the “Product”), including, but not limited to, redistribution of the Product by electronic mail, posting of the Product on a website or page, and/or providing to a third party a link to the Product, is prohibited by law and will result in prosecution. The information contained in the Product is intended solely for the recipient and may not be further distributed by the recipient to any third party. Where included in this report, MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. SBG Securities Proprietary Limited (“SBG Sec”) accepts no liability whatsoever for the actions of third parties. The document may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the document refers to website material of SBG Sec, SBG Sec has not reviewed the linked site. Equally, except to the extent to which the document refers to website material of SBG Sec, SBG Sec takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of SBG Sec) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through the document or the website of SBG Sec shall be at your own risk and SBG Sec shall have no liability arising out of, or in connection with, any such referenced website. Please note that this report was originally prepared by SBG Sec for distribution to SBG Sec and SB market professionals and institutional investor customers. Recipients who are not market professionals or institutional investor customers of these firms should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the PRA or in respect of which the protections of the PRA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. In jurisdictions where Standard Bank Group is not already registered or licensed to trade in securities, transactions will only be effected in accordance with the applicable securities legislation,

which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements”.

SBG Sec is a member of the JSE Limited. Copyright 2015 SBG Sec. All rights reserved.

03 July 2015

Equity Research

59

SBG Securities Coverage and Contacts Heads of Equity Research Global Sector Strategy

Marc Ter Mors (Head of Equity Research) (27 11) 415 4265 Tim Clark (Head Metals and Mining) (27 11) 415 4295 Deanne Gordon (Head SA Strategy) (27 21) 712 0875

Adenrele Adesina (West Africa) (234 1) 422 8666 Lionel Therond (Head Oil and Gas) (44 203) 167 5146 Adele Fermoyle (SA Strategy) (27 11) 415 4429

Gregory Waweru (East Africa) (254 20) 363 8948 Dr. David Davis (Mining Thematic) (27 11) 415 4247

Macro Commodities

Kim Silberman (SA Economics) (27 11) 415 4430 Leon Westgate (Commodities)* (44 203) 145 6822

Phumelele Mbiyo (East Africa) (254 20) 363 8988 Melinda Moore (Commodities)* (44 203) 145 6887

Jibran Qureishi (East Africa) (254 20) 363 8138

Ayomide Mejabi (West Africa) (234 1) 270 0667

Sector and Company Research

South Africa South Africa (continued) Africa

Financials Construction and Materials Financials

Risto Ketola (Insurance, Team Head) (27 11) 415 4257 Marc Ter Mors (Team Head) (27 11) 415 4265 Adenrele Adesina (West Africa) (234 1) 422 8666

[email protected] [email protected] [email protected]

Vincent Anthonyrajah (Banks) (27 11) 415 4246 Luresha Mudaliar (27 11) 415 4263 Muyiwa Oni (West Africa) (234 1) 422 8667


Magdel Neale (27 11) 415 4271 Ola Warikoru (West Africa) (234 1) 422 8575

[email protected] Industrials [email protected]

Marc Ter Mors (Team Head) (27 11) 415 4265 James Starke (East Africa) (27 11) 415 4649

Real Estate [email protected] [email protected]

Bandi Zondo (27 11) 415 4622 Eckhard Goedeke (27 11) 415 4260 Anne Kahure (East Africa) (254 20) 363 8947


TMT Consumer: Food, Beverages, Tobacco Consumer

Jonathan Kennedy-Good (Team Head) (27 11) 415 4253 Sumil Seeraj (27 11) 415 4256 Adenrele Adesina (West Africa) (234 1) 422 8666


Andiswa Mjuleka (27 11) 415 4434 Evelyn Gachuchu (East Africa) (254 20) 326 8897

[email protected] Metals and Mining [email protected]

Tim Clark (Metals & Mining, Team Head) (27 11) 415 4295

Retail [email protected] Oil and Gas

Kaeleen Brown (27 83) 302 6269 Heidi Sternberg (Diversified Mining) (27 11) 415 4259 Gbenga Sholotan (West Africa) (234 1) 422 8281


Adrian Hammond (Gold) (27 11) 415 4616

[email protected] Construction and Materials

Seten Naidoo (Platinum) (27 11) 415 4266 Gregory Waweru (East Africa) (254 20) 363 8948


Thabang Thlaku (27 11) 415 4015 Gbenga Sholotan (West Africa) (234 1) 422 8281


TMT

Gregory Waweru (East Africa) (254 20) 363 8948

[email protected]

Airlines

Gregory Waweru (East Africa) (254 20) 363 8948

[email protected]

Equity Sales

South Africa UK / Europe Sub Saharan Africa

Ross Elliot (27 11) 415 7020 Christian Simpson* (44 203) 145 6636 Matthew Pearson* (44 203) 145 6799

Nick Higham (27 11) 415 7018 Jasper Crone* (44 203) 145 6711 Marcel Mballa-Ekobena (East Africa) (254 20) 326 8878

Graham York (27 11) 415 7019

USA

Nolan Menachemson* (1 212) 407 5130

Marco Casas* (1 212) 407 5183

Luca Del Conte* (1 212) 407 5143

Sales Trading

South Africa UK / Europe West Africa

Luke Middlewick (CEO) (27 11) 415 7021 Dylan Pooley* (44 203) 145 6635 Titi Ogungbesan (Head Sales) (234 803) 706 9361

Tom Gale (27 11) 415 7023 Sedayshum Naidu* (44 203) 145 6634 Deji Oladuntoye (Head Sales Trading) (234 803) 601 3925

Warren de Wet (27 11) 415 7016 Andrew O'Brien* (44 203) 145 6794 Bunmi Olarinoye (Head Dealing) (234 706) 417 1832

Tristyn Naidoo (27 11) 415 7022 Duncan McCallum* (44 203) 145 6637 Idris Toriola (234 802) 316 3113

Tokelo Khambule (27 11) 415 7017

Alexander Ferrer (27 11) 415 7024 East Africa

Nkoregamba Mwebesa (CE) (254 20) 363 8969

Elidah Mugunda (Head Institutional Sales) (254 20) 363 8913

Fredrick Gatuma (254 20) 363 8943

*ICBC Standard Bank, an affiliate of Standard Bank Group Dennis Mwangi (254 20) 363 8938

Documents

-11.24 11.16 0.13 0.13 Glencore Buy 3.20 GBP 21.2 0.16 0.38 0.18 … and Services/Static files... · Anglo and Rio. Figure 3: SBGS vs. SPOT, explicit period FY15-17E (Reuters, 25