First Quantum Stock

Disclaimer Note: In accordance with NASD Rule 2711 and IDA Policy No. 11, Salman Partners Inc. refers the reader to the end of our research report for our firm’s specific disclosures, policies and procedures in respect of research analysts and research reports. This report is distributed in the U.S. by Salman Partners (USA) Inc. and was prepared by its Canadian Broker Dealer affiliate, Salman Partners Inc. Please refer to the end of this report for the disclosure statements, including the Analyst’s Certification. Analysts employed by non-U.S. affiliates are not registered pursuant to NASD rules.

Raymond Goldie, Ph.D. Geology Ike Kaja, CPA, MBA Senior Mining Analyst Research Associate [email protected] [email protected] 416-214-2749 416-360-5890

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FIRST QUANTUM MINERALS LTD. LSE: FQM TSX: FM CDN$88.66

DATE OF ISSUE MARCH 18, 2010RECOMMENDATION BUY TARGET CDN$98.00

Year EPS (Adjusted) (US$)

P/E FCFPS (US$)

P/FCFPS Payable Copper Sales* (M lbs)

2009A $5.92 15.0x $7.55 11.7x 684 2010F $13.22 6.7x $15.36 5.8x 724 2011F $13.32 6.7x $17.05 5.2x 757 2012F $11.97 7.4x $15.45 5.7x 743

Note: Multiples calculated using a Cdn$1.01/US$ exchange rate *Payable copper production shown is company’s share, not consolidated Financial Highlights

52-Week Range $32.50 - $100.32 Shares O/S1 80.6 M Shares F/D1 89.9 M Market Cap $7,146.0 M Dividend Yield 0.2% Cash2 $959.5 M Debt2 $630.0 M Enterprise Value $6,816.5 M Working Capital2 $1,111.8 M 2009A Copper Price (US$/lb) $2.36 2010F Copper Price (US$/lb) $2.92 2009A Copper Sales (Mil lbs) 683.92 Long-Term Copper Price $2.05 Five-Year Share Price History 1As of March 16, 2010 2 As of December 31, 2009

TRANSITION OF COVERAGE First Quantum Minerals is a Canadian-based, integrated

mining and metals company, focused on copper in Africa. Its Kansanshi mine in Zambia, its Guelb Moghrein copper/gold mine in Mauretania and its Frontier mine and Kolwezi copper/cobalt tailings project, located in the Democratic Republic of Congo. The company is also assessing the potential to develop the Kevitsa nickel-copper- PGE project in northern Finland and the Ravensthorpe nickel project, Western Australia.

Salman Partners is undergoing a transition of analyst coverage of First Quantum Minerals. Until now, Haytham Hodaly has ably covered the company. Henceforth, Raymond Goldie is to provide coverage.

First Quantum delivered Q4 2009 results that beat consensus expectations. However, most of the surprise is probably explained by accounting rules whose impact is difficult for analysts to ascertain.

First Quantum is, and is perceived by the market, as a pure play on copper. However, the market’s perception may change as First Quantum develops two nickel projects. And we worry that diversified companies tend to trade at discounts relative to the pricing of “pure plays”.

Our 12-month target price of Cdn$98.00 per share, based on Discounted Cash Flow analysis, underlines our BUY recommendation on the shares of First Quantum.

First Quantum Minerals Ltd. Mining Research

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A TRANSITION OF COVERAGE AMIDST DIRTY DEALINGS IN THE DRC AND A GUTSY EXPEDITION INTO THE AUSTRALIAN OUTBACK Background: First Quantum produces copper and gold in Zambia, the Democratic Republic of Congo (DRC) and Mauretania, and is bringing into production a nickel-copper-cobalt-precious metal mine in Finland.

Events: First Quantum has announced that, in Q4 2009, it earned US$2.91 per share. For comparison, consensus expectations had been for earnings of US$2.29 per share. (We suspect that the difference between these two figures is largely the result of the accounting requirements for prior-period price adjustments, assisted by the company’s ability to reduce its costs of production more than expected.) Also on March 16, First Quantum held a conference call to discuss its results.

Reflecting First Quantum’s increased presence in Toronto, as well as its increasing exposure to other base metals (e.g. nickel and cobalt) which are covered by analysts in Toronto, we have taken this opportunity for a Transition of Analyst Coverage of First Quantum Minerals Ltd. from Haytham Hodaly in Vancouver to Raymond Goldie in Toronto.

As well as incorporating into our model the figures disclosed by First Quantum, we have updated our model for the economic and commodity price outlook that we announced on February 9, 2010.

Analysis: Here are our current forecasts of First Quantum’s Earnings and Free Cash Flows per share:

2010 2011 2012 2013 2014

US$/share, fully diluted (F) (F) (F) (F) (F)Earnings, current $13.22 $13.32 $11.97 $8.19 $5.08Earnings, previous $12.74 $14.24Free Cash Flow, current $15.36 $17.05 $15.45 $11.08 $8.17Free Cash Flow, previous $13.31 $14.14 Here are more details:

First Quantum’s Q4 2009 EPS came in at US$2.91, exceeding consensus expectations of US$2.29.

Mining Research First Quantum Minerals Ltd.

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Corporate Philosophy: First Quantum has been perceived by the market as a well-managed, liquid and relatively pure play on copper mining in Africa. During its conference call, however, the company reiterated that its intention was to diversify the company both in its geography and in the commodities that it produces.

Kansanshi: First Quantum owns 80% of the Kansanshi copper-gold mine and metallurgical plant in Zambia. This project produces copper in the form of both metal and a sulphide concentrate. Kansanshi produced 245 thousand tonnes of copper in 2009, which we expect to rise to around 250 thousand tonnes per annum by 2013 as a 10% expansion of sulphide ore milling offsets declines elsewhere.

Zambia is placing constraints on the export of copper concentrates from Zambia, but First Quantum expects that the current situation, whereby there is enough smelting capacity in Zambia to treat all domestically-produced concentrates (including that from First Quantum), to continue.

Frontier: First Quantum owns 95% of this copper mine in the DRC. It produced 92 thousand tonnes of copper contained in copper concentrate in 2009, which we expect to rise to about 100 thousand tonnes per annum by 2013.

Lonshi/Bwana: First Quantum owns 100% of the Lonshi mine, DRC, and 100% of the Bwana Mkubwa metallurgical plant in Zambia. The latter produces copper metal, but it produced none last year because a dispute shut the border between the DRC and Zambia, cutting off Lonshi, which had supplied its feedstock. However,

Years ending Dec. 31: 2007 2008 2009 2010 2011 2012 2013 2014(A) (A) (A) (E) (E) (E) (E) (E)

FIRST QUANTUM'S SHARE OF COPPER MARKETSWestern copper supply (M tonnes) 12.349 12.407 12.551 12.928 13.315 13.715 14.126 14.550First Quantum's share of copper sold (Mtonnes) 0.182 0.273 0.310 0.329 0.343 0.337 0.335 0.346Market share 1.5% 2.2% 2.5% 2.5% 2.6% 2.5% 2.4% 2.4%

INCOME STATEMENT (US $ Mln) Contributions to First Quantum's after-tax consolidated earnings: Kansanshi 425.2 346.9 254.5 743.4 682.0 661.8 490.6 330.4 Bwana-Lonshi 3.7 -122.9 -26.6 -15.9 0.0 0.0 0.0 0.0 Frontier 5.5 43.3 170.7 246.2 213.1 189.0 113.7 39.4 Guelb Moghrein 112.1 69.3 74.7 150.5 165.8 125.5 60.5 13.1 Kevitsa -12.0 -2.5 40.3 Corporate income (expenses) -26.2 -290.7 -9.9 13.4 12.3 0.2 -2.4 -14.0Earnings after taxes and minority interests 520.3 45.9 463.4 1137.6 1073.2 964.4 659.9 409.2

CONTRIBUTIONS, %, TO FIRST QUANTUM'S EQUITY-ACCOUNTED MINING REVENUES copper mining 95.8% 96.1% 90.7% 92.2% 90.2% 91.2% 91.5% 90.1% nickel mining 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.8% gold mining 4.2% 3.9% 9.3% 7.8% 9.8% 8.8% 8.3% 9.1%-TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

PER DILUTED SHARE FIGURES (US $) Earnings per share $7.62 $0.67 $5.92 $13.22 $13.32 $11.97 $8.19 $5.08Cash flow per share $11.80 $10.20 $10.40 $17.78 $18.14 $16.56 $12.22 $9.35Free cash flow per share $7.69 $4.97 $7.55 $15.36 $17.05 $15.45 $11.08 $8.17Dividends per share (Cdn$) with respect to that year $0.770 $0.260 $0.592 $1.315 $1.325 $1.191 $0.815 $0.505Average shares outstanding, Mln 68.2 68.9 81.0 86.0 80.6 80.6 80.6 80.6

UNIT PRICES AND COSTS (US$)Price of copper, /lb. (LME) $3.22 $3.16 $2.36 $2.92 $2.85 $2.83 $2.43 $2.05Price of nickel, /lb. (LME) $16.85 $9.59 $6.65 $7.88 $7.79 $7.75 $7.44 $7.15Price of gold/oz. $697 $872 $973 $1,100 $1,050 $950 $800 $800

First Quantum wants to become a more diversified company


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the border reopened in November 2009, and First Quantum is shipping stockpiled ore from Lonshi to Bwana, where it expects to produce 800 tonnes of copper per month. First Quantum is now pondering what to do after the stockpile runs out, around the end of this year. (We assume that operations cease, but we note that one option being considered by the company, and the object of a current exploration program, is mining sulphide ore underground at Lonshi, feeding this ore to a dedicated mill.)

Kolwezi: First Quantum owns 65% of this copper-cobalt project in the DRC. It was closed in September 2009 by the provincial government. Although First Quantum “believes there is no legal basis for” the actions of the government and has recorded no impairment of the value of the property, whose carrying cost is US$786.8 million [US$9.77 per share], it concedes that the current arbitration process “may result in the impairment or loss of all or part of the Company’s investment”.

According to Mineweb, First Quantum’s comments on Kolwezi were “an eye-popping account of how its apparent foes, in the Democratic Republic of the Congo, have asked a court there for ‘an unsupported request for up to USD 12 billion in damages’.”

During its conference call on Tuesday, First Quantum said of these claims that it had not received any written notification, and that the situation is “all terribly vague at the moment”.

On 11 January 2010, a First Quantum subsidiary “received a letter from [government corporation] Gécamines advising they were cancelling the Contract of Association”.

As Mineweb puts it, “First Quantum apparently lost its sense of humour at this stage; ‘In the company's view, the Local Court's decision constituted a flagrant denial of justice and this, along with the actions taken by Gécamines to wrongfully cancel the Contract of Association, demonstrated the need for the company to file international arbitration seeking orders obliging the DRC and Gécamines to respect their undertakings and obligations under the Contract of Association’.

… It is no secret, though this is not mentioned by First Quantum, that certain ‘entrepreneurs’ were jetting around above the jungles, offering to solve the impasse, using a method known politely as ‘briefcase diplomacy’.”

We assume no future production at Kolwezi.

Guelb Moghrein: In 2009, First Quantum owned 80% of this copper-gold mine in Mauretania, northwest Africa. In February 2010, it acquired the remaining 20% for US$63 million. (Using a DCF model, we value 100% of Guelb Moghrein at US$629 million, so we consider this to have been a good deal!)

Guelb Moghrein produced 37 thousand tonnes of copper contained in concentrate in 2009, and 93 thousand ounces of gold. By 2013, we expect annual production of about 95 thousand tonnes of copper and about 100 thousand ounces of gold, with the increase in gold production reflecting new equipment currently being installed in the mill. Ravensthorpe: On February 10, 2010, First Quantum announced that it had completed its acquisition of the Ravensthorpe Nickel Operation in Western Australia. The cost was US$340 million. According to Forbes on January 21, 2009, Ravensthorpe, “the giant Australian nickel mine that BHP Billiton opened less than a year ago is effectively worthless in the current market, the mining giant said Wednesday. The [US] $3.7 billion failed

Kolwezi is the subject of “eye popping” legal actions

First Quantum bought an Australian nickel plant for tess than ten cents on the dollar


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investment marks a major defeat forMarius Kloppers, who took the reins of BHP Billiton in 2007. The company said that the global demand slump doomed the Ravensthorpe mine, but observers have pointed to mishandling of the project as well. … … Asked if Ravensthorpe was the ‘worst investment decision’ BHP Billiton had ever made, Chief Financial Officer Alex Vanselow said in a media conference call, ‘It’s disappointing what happened at Ravensthorpe. We are not proud of that.’…

The project's costs spiraled out of control, more than doubling from its original budget to $2.3 billion. Opening nine months behind schedule, the mine still had another two years to go to reach its full production capacity of 50,000 tons a year.”

Ravensthorpe used novel technology to treat Australian dry nickel laterites, a challenging form of nickel-cobalt ore. It was the most recent of four attempts to extract nickel from Australian laterites. None of the previous attempts had lived up to pre-production expectations1. We initially thought that, in buying Ravensthorpe, First Quantum had made a canny acquisition of spare parts: an assemblage of high-end technology at a price of ten cents on the dollar. However, First Quantum has said that it seriously intends to bring Ravensthorpe back into production, at a capital cost it estimates at US$150 million, mostly at the front end of the plant, with production beginning in some 18 months.

Considering the history of Australian nickel laterites, we believe that there is a good chance that the revamped plant would take longer and would cost more to reach full production than First Quantum estimates. Accordingly, we do not project any production from Ravensthorpe in our outlook for the company, and we value the project at its acquisition cost.

Kevitsa: Kevitsa is a rare beast: an undeveloped, hard rock nickel sulphide deposit in a stable political environment. On November 30, 2009, First Quantum announced that “its Board of Directors has approved the development of the Kevitsa nickel-copper-PGE project in northern Finland: - Estimated mine life of over 20 years with robust economics - Life of mine C1 cash operating cost estimated at approximately [US] $2.50 per pound nickel, net of by-product credits

- Capital cost estimate of approximately $400 million … - Significantly enhanced mineral reserves estimate of 107 million tonnes grading 0.296% nickel …

1 As well as Ravensthorpe, these projects were Bulong (which was supposed to produce 9,000 tonnes of nickel per year), Cawse (which was supposed to produce 6,400 tonnes of nickel per year) and Murrin Murrin (which was supposed to initially produce, beginning in 2000, 45,000 tonnes of nickel per year). Bulong and Cawse have shut down. Murrin Murrin is currently in production and in 2009, its best year, it turned out 33,000 tonnes of nickel.

So far in Australia, four out of four nickel laterite projects have failed to live up to expectations


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- commercial production targeted for mid 2012 [we assume 2013] … - Financing expected to be a combination of equity and loan, including Nordic institutions The Kevitsa mineral reserve has been evaluated in terms of the development of an open pit mine and the construction of an ore treatment plant with a permitted capacity of 5 million tonnes per annum with built in expansion capabilities.”

Our modelling assigns a DCF valuation to Kevitsa of US$102 million.

Exploration: First Quantum is currently exploring some high-potential base metal properties in Zambia, the DRC, Mauretania and Finland. Given the Roscoe principle2 , we approximate the value of First Quantum’s exploration projects by the last three years’ of the company’s consolidated exploration expenditures, or US$74.7 million.

Dividends: First Quantum has stated that, for the foreseeable future, its Board intends to maintain a policy of paying out as dividends about 10% of each year’s net earnings. Thus, as indicated by the above tabulation of our expectations for First Quantum’s earnings, we expect a dividend to be paid out with respect to 2010’s earnings of Cdn$1.315 per share, implying a yield of 1.5%.

Valuation and Recommendation: We have valued First Quantum’s operating assets based on the discounted sum of future free cash flows, with the results presented on the following page:

2 The Roscoe principle, or “appraised value method” is “based on the premise that the real value of an exploration property or a marginal development property … is worth the meaningful past exploration expenditures plus warranted future costs”. (Valuation of mineral exploration properties using the cost approach, W.E. Roscoe, CIM Bulletin, March 2002, pp. 105 – 109).

A 1.5% dividend yield


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Net Asset ValuationFirst Quantum Minerals Ltd.based on First Quantum's December 31, 2009 balance sheet

US$million US/shareASSETSCurrent assets net of cash to acquire Ravensthorpe, Kalumbila and 20% of Guelb Moghrein 1,431.97 $17.78Investments 460.40 $5.72Other assets 102.30 $1.27Ravensthorpe Ni, at cost 340.00 $4.22Kalumbila, at cost 10.80 $0.13Exploration properties @ 3 years' exploration expenditures

74.70 $0.93Net Present Value of equity-accounted Free Cash-Flows from - Kansanshi: 5,793.19 $71.92 - Bwana-Lonshi: -43.28 -$0.54 - Frontier: 773.60 $9.60 - Guelb Moghrein: 628.53 $7.80 - Kevitsa: 103.15 $1.28 - Corporate cash-flows: -476.21 -$5.91 - total assets 9,199.15 $114.20

LIABILITIESCurrent liabilities 732.20 $9.09Long-term liabilities 107.10 $1.33Minority interest in Kansanshi debt -7.35 -$0.09Debt component of cv bonds 431.10 $5.35Other liabilities 36.10 $0.45 - total liabilities 1,299.15 $16.13

SHAREHOLDERS' EQUITY IMPLIED BY THE ABOVE7,900.01 $97.55

in Canadian $/share: $97.82

discount rate used in calculating NPV of Free Cash Flows of operations:7.74%

discount rate used in calculating NPV of Free Cash Flows from Kevitsa:16.99%

US$/Cdn$ exchange rate in Q1 2011: $0.9973number of shares outstanding, million: 80.55 Note that our estimate of First Quantum’s Net Asset Value is, on this basis, Cdn$97.82 per share (which, we note, represents a multiple of 5.4 times 2011’s cash flows and 5.7 times 2011’s free cash flows)


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As a relatively pure play on copper, we consider First Quantum’s shares should most appropriately trade at 100% of their Net Asset Value, or, rounding up, Cdn$98.00 per share. Accordingly, our 12-month target price is Cdn$98.00. (Because this represents a capital gain of 10.5% and we infer a 1.5% dividend yield, this implies a return of just over our 10% hurdle rate, we – barely! – retain our BUY recommendation on the shares of First Quantum.

Note that our previous target price on First Quantum was Cdn$93.00 per share. We therefore attribute our change in our mood with respect to First Quantum (from “BUY!” to “barely a BUY!”), not to a more jaundiced view of the stock, but to appreciation of the price of the stock. (Great call, Mr. Hodaly!)

Uncertainties: Events, specific to First Quantum, that particularly concern us and could have significant effects on our valuation of the company and on the performance of First Quantum’s shares include:

• Arbitration and political maneuvering at Kolwezi: in the worst case, First Quantum could lose all, and make a prudent exit from the DRC, leaving behind its Frontier mine, which we value at US$9.60 per share. However, in the best case, First Quantum could gain full access to and use of Kolwezi, which is probably worth more than its carrying value of US$9.77 per share.

• Technical difficulties at Ravensthorpe (Australia): could result in First Quantum writing off its sunk cost of US$340 million and costs, that are now still in the future, of some US$150 million (a total of US$490 million, or US$6.08 per share). Or, Ravensthorpe could be a notable success. Success would result in Ravensthorpe’s being worth significantly more than First Quantum’s current and planned investments.

• Changing perceptions and the winner’s curse: Were First Quantum to be successful at its Kevitsa mine in Finland (as we fully expect) and at Ravensthorpe (about which we are dubious), investors’ perceptions could change. Rather than seeing First Quantum as a successful, growing copper company, it could become viewed as a successful, growing diversified producer of base and precious metals.

Would this be a bad thing?

Well, perhaps. We have observed that “pure plays” tend to trade at or at a premium to their Net Asset Value whereas stocks perceived as diversified companies tend to trade at about 2/3 of their Net Asset Value.

Three company-specific areas of uncertainty: Kolwezi and the law, Ravensthorpe and technology, and market perceptions.


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FIRST QUANTUM MINERALS LTD. First Quantum Minerals is a Canadian-based, integrated mining and metals company, focused on copper in Africa. The company’s principal assets are its Kansanshi mine in Zambia, its Guelb Moghrein copper/gold mine in Mauretania and its Frontier mine and Kolwezi copper/cobalt tailings project, located in the Democratic Republic of Congo. The company is also assessing the potential to develop the Kevitsa nickel-copper-PGE project in northern Finland and the Ravensthorpe nickel project, Western Australia.

Share Price and Salman Partners’ Investment Recommendation History (Cdn$)

Date Target Rec. Analyst

May 16, 2008 $98.00 BUY Haytham Hodaly

August 14, 2008 $76.50 BUY Haytham Hodaly

September 29, 2008 $76.00 TOP PICK Haytham Hodaly

October 24, 2008 $76.00 TOP PICK Haytham Hodaly

November 14, 2009 $44.50 TOP PICK Haytham Hodaly

February 10, 2009 $36.50 TOP PICK Haytham Hodaly

March 16, 2009 $35.75 HOLD Haytham Hodaly

May 19, 2009 $37.00 SELL Haytham Hodaly

July 30, 2009 $69.50 HOLD Haytham Hodaly

August 12, 2009 $69.75 HOLD Haytham Hodaly

November 11, 2009 $69.00 HOLD Haytham Hodaly

December 4, 2009 $93.00 BUY Haytham Hodaly

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Summary: First Quantum Minerals Ltd. Unless otherwise stated, all amounts are in Canadian dollars.

Share Price $88.66 Recommendation BUY Major Holders (% of shares O/S):Shares O/S (M) 80.6 Target Price $98.00 6.1%Shares Diluted (M) 89.9 Potential Return 10.5% 4.7%Market Cap, O/S (M) $7,141.6 Dividend Rate (Cdn$/share) $0.16 4.2%Cash & Equivalents (M) $959.5 Dividend Yield 0.2% 2.9%Working Capital (M) $1,111.8 One-Year Avg. Daily Volume 278,826 2.6%Long-Term Debt (M) $630.0 Dec 31. EPS (US$) Y/YEnterprise Value (M) $6,812.1 Y-E Q1 Q2 Q3 Q4 FY ChangeNAVPS (M) $97.82 2009A $0.16 $1.30 $1.50 $2.91 $5.92Cash & Equivalents per share $10.68 2009F - - - - $13.22 123%Net Cash per share $3.67 2010F - - - - $13.32 1%Valuation Methodology: 1.0X Discounted (7.7%) Cash Flow Analysis

Operating Forecasts - December 31 year-end 2009A 2010F 2011F 2012F 2013F 2014FMetal Prices

Copper (LME, US$/lb) $2.36 $2.92 $2.85 $2.83 $2.43 $2.05Nickel (LME, US$/lb) $6.65 $7.88 $7.79 $7.75 $7.44 $7.15Zinc (LME, US$/lb) $0.75 $0.95 $0.95 $0.95 $0.91 $0.87Gold (US$/oz) $973 $1,100 $1,050 $950 $800 $800

Foreign Exchange (Cdn$/US$)Sales

Copper Sales (M lbs) 683.92 724.32 756.86 742.99 737.86 763.37Nickel Sales (M lbs) 0.00 0.00 0.00 0.00 2.98 13.96Zinc Sales (M lbs) 0.00 3.12 1.99 3.64 3.65 3.65Gold Sales (M ozs) 0.15 0.16 0.22 0.21 0.20 0.19Copper equivalent* (M, lbs) 806.85 921.32 936.42 907.64 881.93 906.02

Financial Forecasts (millions) - December 31 year-end 2009A 2010F 2011F 2012F 2013F 2014FNet Revenue $1,902.9 $2,687.9 $2,672.2 $2,566.3 $2,146.5 $1,857.4Cost of Sales $800.4 $760.7 $762.3 $778.1 $807.7 $873.2 EBITDA $909.5 $1,915.8 $1,882.2 $1,745.9 $1,265.0 $843.1 Total DDA $161.7 $169.2 $192.2 $195.8 $209.3 $245.8EBIT $747.8 $1,746.6 $1,690.0 $1,550.1 $1,055.7 $597.2 Long-term Interest Expense $60.4 $38.9 $48.8 $79.1 $98.2 $108.3 Income Tax Expense $200.3 $398.1 $435.1 $394.0 $263.8 $157.8Net Earnings $463.4 $1,137.6 $1,073.2 $964.4 $659.9 $409.2Shares O/S, F.D., M 81.0 86.0 80.6 80.6 80.6 80.6EPS, fully diluted $5.92 $13.22 $13.32 $11.97 $8.19 $5.08Cash Flow from Operations (before changes in working capital) $1,102.5 $1,927.2 $1,909.9 $1,788.2 $1,338.8 $984.2CFPS (CF from Operations before changes in working capital), fully diluted $13.61 $22.40 $23.71 $22.20 $16.62 $12.22Capex $230.8 $208.4 $87.7 $89.6 $91.9 $94.5Free Cash Flow (before changes in working capital), fully diluted $611.5 $1,321.2 $1,373.3 $1,244.3 $892.3 $658.4FCFPS, fully diluted $7.55 $15.36 $17.05 $15.45 $11.08 $8.17

Valuation Multiples 2009A 2010F 2011F 2012F 2013F 2014FP/EPS 15.0x 6.7x 6.7x 7.4x 10.8x 17.5x P/CFPS 6.5x 4.0x 3.7x 4.0x 5.3x 7.3x P/FCFPS 11.7x 5.8x 5.2x 5.7x 8.0x 10.8x EV/EBITDA 7.5x 3.6x 3.6x 3.9x 5.4x 8.1x EV/Copper equivalent sales* (US$/lb) 8.44 7.39 7.27 7.51 7.72 7.52P/NAVSource: Company reports and Salman Partners Inc. estimates.

Sensitivities (US$) 2010F 2011F 2012F 2013F 2014FFor each US$1.00 per pound increase in our copper price, EPS $7.15 $7.67 $7.56 $7.54 $7.82For each US$1.00 per pound increase in our copper price, FCFPS $8.82 $9.52 $9.41 $9.44 $10.00For each US$1.00 per pound change in our copper price, NAVPSFor each US$100 per ounce change in our gold price, EPS $0.09 $0.12 $0.11 $0.11 $0.10For each US$100 per ounce change in our gold price, FCFPS $0.10 $0.12 $0.12 $0.11 $0.10For each US$100 per ounce change in our gold price, NAVPSFor each US$0.10 increase in the value of the Cdn$, EPS $0.00 $0.00 $0.00 $0.00 $0.00For each US$0.10 increase in the value of the Cdn$, FCFPS $0.00 $0.00 $0.00 $0.00 $0.00For each US$0.10 increase in the value of the Cdn$, NAVPS in Cdn$*Copper equivalents equal the company's net revenues, on a equity accounted basis, divided by the average spot LME copper price in each year

Blackrock Group Ltd.

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Capital ResearchCapital World Invest

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Source: Company reports and Salman Partners Inc. estimates

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(v) Salman Partners Inc. does not make a market in the company’s/companies’ securities within the appropriate security laws; (vi) no officer, director, employee or research analyst of the firm or a member of the research analyst’s household is an officer,

director or employee of the company/companies, nor does any officer, director, employee or research analyst of the firm or a member of the research analyst’s household serve in any advisory capacity to the company/companies; and

(vii) other than what is disclosed above, Salman Partners Inc. is not aware of any actual, material conflicts of interest for the research analyst, of which the research analyst knows or has reason to know in the preparation of this report.

(viii) an analyst/associate has not visited some or all of the issuers’ material operations. Payment or reimbursement has not been received, in part or in whole, from the issuer(s) for travel costs in the past 12 months.

(ix) Analyst Certification: The views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect the personal views of the analyst(s) covering the subject securities. No part of the analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations.

--------------------------------------------------------------------------------------------------------------------------------------------------------- For purposes of our research report, our rating system is defined as follows:

Top Pick A recommendation to purchase a stock which represents the best risk/reward ratio within an analyst's coverage list. The analyst expects to realize a minimum 12-month return of 10%, and also has positive near-term catalysts.

Buy A recommendation to purchase the stock at the current price. Hold A recommendation to maintain one’s current position in the company, given the current share price and the

outlook for the company, sector or underlying commodity. Sell A recommendation to reduce one’s share position, either in part or in whole. Speculative Buy A recommendation to purchase shares in a company which is considered speculative because of the risk

associated with owning shares. This added risk can be attributed to the company’s size, financial stability, liquidity, the outlook for a commodity or commodities or other factors beyond Salman Partners’ control. Suitable for risk-tolerant investors only.

Under Review Salman Partners is in the process of an update based on recently released information. The analyst’s recommendation and target price may or may not change upon completion of analysis.

------------------------------------------------------------------------------------------------------------------------------------------------ Distribution of Ratings

12%3%

13%

10%

54%

9%

0% 10% 20% 30% 40% 50% 60%Salman Partners Inc.

Top Pick

Buy

Speculative Buy

Hold

Sell

Under Review

Distribution of Recommendations (%)

Within the last 12 months, Salman Partners has provided investment banking services for: Top Pick 44% of the companies falling into the 'Top Pick' categoryBuy 18% of the companies falling into the 'Buy' categorySpeculative Buy 20% of the companies falling into the 'Speculative Buy' categoryHold 15% of the companies falling into the 'Hold' categorySell 0% of the companies falling into the 'Sell' category

RESEARCH Terry Salman, B.A., MBA, D. Tech., h.c. Co-Director of Research 604-685-2450 Haytham Hodaly, B.A.Sc., M.Eng. Co-Director of Research 604-622-5279

Coal & Alternative Energy Mike Plaster, CFA Investment Analyst 604-622-5295

Forest Products

Mike Richmond, CFA Investment Analyst 604-622-5563 Simon Dyakowski, BMOS Research Associate 604-622-5289

Industrials Jayson Moss, CFA Investment Analyst 604-622-5298 Simon Dyakowski, BMOS Research Associate 604-622-5289

Mining, Fertilizers & Chemicals

Haytham Hodaly, B.A.Sc., M.Eng. Senior Analyst 604-622-5279 Raymond Goldie, Ph.D., Geology Senior Analyst 416-214-2749 Patrick Donnelly, B.Sc., MBA Investment Analyst 416-360-4384 David West, CFA Investment Analyst 604-622-5569 Jaret Anderson, CFA Investment Analyst 416-861-9387 Ash Guglani, B.BA. Research Associate 604-622-5293 Ike Kaja, CPA, MBA Research Associate 416-360-5890 Jason Billan, MBA Research Associate 604-622-5583

Oil & Gas

Gordon Currie, CFA, ICD.D Senior Analyst 403-232-5747

Special Situations David Brill, MBA, CFA Investment Analyst 416-861-1851 Ike Kaja, CPA, MBA Research Associate 416-360-5890

Technology

Naser Iqbal, MBA, CFA Investment Analyst 416-861-1610

INSTITUTIONAL SALES & TRADING 1-800-877-7044 Garry Rubacha, B.Com, CFA Co-Head Institutional Equity Sales 416-861-1639 Tom English, B.A. Econ Co-Head Institutional Equity Sales 416-861-1507 Andrea Clark, MBA Institutional Equity Sales 604-622-5277 Ritu Gupte, B.Com., MBE Institutional Equity Sales 416-360-5539 John McBride, B.A. Institutional Equity Sales 416-861-1994 Bill Burk Head of Institutional Equity Trading 604-685-9964 Lana Bisset Institutional Equity Sales & Trading 604-685-9964 Colin Fraser Institutional Equity Trading 416-861-8783 Liza Oulton, B.Com. Institutional Equity Trading 416-861-1735 Patrick Bellmore, B.A. Institutional Equity Sales & Trading 604-622-5299

17th Floor 1095 West Pender Street

Vancouver, B.C. V6E 2M6 Tel: (604) 685-2450 • Fax (604) 685-2471

Suite 1800 100 Yonge Street

Toronto, Ontario M5C 2W1 Tel: (416) 861-1270 • Fax: (416) 861-1935

Suite 835 401 9th Avenue S.W.

Calgary, Alberta T2P 3C5 Tel: (403) 261-6065 • Fax: (403) 261-6069

www.salmanpartners.com

The opinions, estimates and projections contained herein are those of Salman Partners Inc. as of the date hereof and are subject to change without notice. Salman Partners makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions which are accurate and complete. However, Salman Partners makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to Salman Partners which is not reflected herein. This report is not to be construed as, an offer to sell or solicitation for or an offer to buy, any securities. Salman Partners, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. Salman Partners may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same.

Upon approval by the research department and once published in final form, Salman Partners Inc. disseminates its research to all institutional clients simultaneously in electronic form. The firm subsequently disseminates this research in hard copy to those clients who have requested to be on the firm’s distribution list. In addition, Salman Partners Inc. posts its research on the Salman Partners Inc. website and on certain paid research services with which a contract of dissemination has been arranged. Access to these websites is provided using a password provided by the administrator and is limited to Salman Partners Inc.’s institutional clients. Reproduction of this report in part or in whole without permission is prohibited. All rights reserved. Salman Partners Inc.

TO U.S. RESIDENTS:

Salman Partners (USA) Inc., an affiliate of Salman Partners Inc., is furnishing this report to U.S. residents and accepts responsibility for the contents herein. Any U.S. person wishing to effect transactions in any security discussed herein should do so through Salman Partners (USA) Inc.

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