takeover and aquisitions , page-74

asf,

We must never lose sight of the adage "Cash is King" in the mining game. Since 2008, the world has changed for miners. No longer is debt freely available, and the restrictions that banks place on lent money is quite severe (Just ask HGO holders).

If we work back from what cash OZL has and is generating, we should be able to determine whether OZL can afford to acquire IVA or an IVA project or RXM and still do C.

I have already shown that RXM value and hillside CAPEX is about $750m. I think that produces 40,000tpa of copper in stage 1 then capex for stage 2 is self funded from stage 1. OZL can pay for RXM from cash on hand and fund the mine and stage 2 OK.

OZL free cash flow is about $200m pa (includes 20cps divi, $48m sustaining capex and $100m tax). So over the next 6 years, OZL will be generating about $100m in excess cash (after capex and exploration) that can go into the bank

While Hillside will be generating free cash, it will not be enough to build C. OZL will have about $600m in free cash, and another $300m in a revolving credit loan, but that is still $1.4B short. That is a problem for OZL. OZL will need to defer C CAPEX until OZL has about $1.5B in the bank, because, by then Hillside should be producing enough free ash flow to pay for C. (I said the mining business was expensive!!!)

So, all the above is feasible, but getting the timing right will be critical. (I have assumed that P Hill ends in 2018 - best conclusion to draw from the data that is currently available.)

Lets look at IVA. Mt Elliot has 2 options. Open stoping producing 13,000tpa of copper for $478m capex or block caving producing 52,000tpa of copper for $1.2B capex.

13000tpa of Copper for $478m = $36,769 capex per tonne of copper

52,000tpa of copper for $1.2B = $23,077 capex per tonne of copper

Compare to Hillside

40,000tpa of copper for $650m = $16,250 capex per tonne of copper.

On a capital intensity front - Hillside is much better (due to grade perhaps and open pit?)

In thinking through whether OZL should pursue RXM of IVA, I have come down on the side of RXM. RXM beats IVA on so many fronts, not to mention the synergy benefits for OZL.

A long post, I know - but I hope it helps to explain why I have gone cold on IVA

HT1