Ann: Anglo American Agreement, page-53

I think the escalation of costs of 4% p.a. I used might be too high.

I had a look back at Fortescue and BHP cash costs in 2013 compared to 2021, and it's come down a fair bit.
BHP - $27 in 2013 v $14 in 2021
FMG - $44 in 2013 v $13 in 2021

For both BHP and FMG there was additional tonnages which brought down the per tonne cost, but it also shows that in general costs have gone down due to improved efficiency.

MGU will also have the advantage that it's rail costs should be cheaper as there is more capacity now compared to 2013, as coal tonnages have come off.

I think it would be safe to use the 2013 costs as a good guide.

With regards to shipping, with the decrease in iron ore prices and demand, shipping costs would have come down as well.

The cost to ship to China from Brazil is $27.20/tonne and from Australia $11.60 from Australia. This is based on April prices, so they should have come off a bit. To ship from West Xoast US to China is a shorter distance than from Brazil, but to be conservative, we can use the $27/tonne cost.

https://www.spglobal.com/platts/en/market-insights/latest-news/shipping/042621-dry-bulk-capesize-rates-at-18-month-high-on-strong-china-demand

In summary, costs for MGU on a CFR price should be:

• 62% DSO FOB cost - $46
• 62% CFR cost - $73

• 65% Fines FOB cost - $56 (assuming processing costs will be $10 of the $18 required for 68%)
• 65% CFR cost - $83

• 68% Concentrate FOB cost - $64
• 68% CFR cost - $91

• HISMELT FOB cost - $180

On the revenue side, we should be using $180 as the spot price, because that's too high and we won't be receiving those prices, as spot prices are already cheaper. I also think Anglo American will probably make a $10 margin, so we will probably receive spot price less $10.

In terms of pricing, this what the following analysts are saying:

• Goldman Sachs - $150 in 2021-22, $100 in 2022-23 and beyond
• MGT PFS - $110
• Ausbil investment management - $140 in 2021-22, $110 in 2022-23, $70 long term
• Australian Government Economist - $150 in 2021-22, $106in 2023, $90 long term

Iron ore prices today are $161 for 62% and $192 for 65%. Given there will be more demand for higher grade ore to reduce carbon emissions in the future, we should be maintaining the $30 margin between 62% and 65% and between 65% and 68%.

With the $10 Anglo discount, we should be receiving the following prices:

• 62% DSO (December 2021 to June 2022) - $140 in 2021-22
• 65% Fines (July 2022 onwards) - $170 in 2021-22, $130 for 2022-23, $110 for 2023-24 onwards
• 68% Concentrate (September 2022 onwards) - $160 for 2022-23, $150 for 2023-24 onwards
• HISMELT (July 2023 onwards) - $350

Margins are as follows:

• 62% DSO - $67 in 2021-22
• 65% Fines - $87 in 2021-22, $47 for 2022-23, $27 for 2023-24 onwards
• 68% Concentrate - $69 for 2022-23, $59 for 2023-24 onwards
• HISMELT - $170

These prices are marginally lower than RK equity analysis, but the cost side is lower as well.

In the most recent MGU update, they said that we might get some more tonnages, but using the same tonnages as RK Equity, I get the following EBITDA:

• 2021-22 (250kt @ 62%, 40kt @65%) - $20.2m
• 2022-23 (960kt @ 65%, 1,140kt @68%) - $123.8m
• 2023-24 (960kt @65%, 960kt @68%, 650kt HISMELT) - $193.1
• 2024-25 (steady state) (960kt @65%, 960kt @68%, 800kt HISMELT) - $218.6m

The steady state EBITDA of $218.6m is higher than RK equity numbers of $184m.

I haven't had the time to do full analysis to include tax and with depreciation, but RK equity had NPV of $1,441m. The above analysis was higher than RK equity and would probably result in a NPV of around $1.7 billion, which means a share price of $2.50. Thats 20x upside from here with a Capex cost of $330m.

We can also avoid dilution as most of the 68% concentrate plant and HISMELT plant could be funded from revenues.

I'll eventually get this to excel, but happy that the above confirms RK Equity analysis.