Credit Suisse valuation, page-3

Altona Mining (AOH.AX / AOH AU) INCREASE TARGET PRICE SRIG JV fully funds Little Eva to production

■ Altona's Cloncurry project which surrounds MMG’s Dugald River project is subject to a Framework Agreement to establish a JV with the Chinese group SRIG for US$214mn cash receipt for which SRIG will hold a 60% interest. The transaction values the project at US$105mn.
■ Altona will hold 40% and will contribute US$38mn cash to the project. AOH has cash of A$47mn.
■ Available JV cash of US$252mn (A$328mn) materially exceeds the last estimated development cost of A$294mn which was estimated at a time of materially higher capital, development and fuel costs than now prevailing.
■ The Framework Agreement allows for due diligence to be completed on the project to confirm physical and financial parameters including: project value of not less than US$105mn and IRR of not less than 19% based on consensus commodity assumptions. FIRB approval is required.
■ The DFS demonstrated an NPV of A$346mn (7.5%) and all-in cash costs of US$1.96/lb. Since the feasibility study update from which we originally established an NPV of A$151mn for the project, value has likely increased by the material reduction in establishment costs from mining sector cost deflation. The lower oil price should reduce the cost of the significant prestrip (A$52mn) to access Little Eva, and reduce the cost of mining.
■ Our valuation and target price increases to $0.26/sh reflecting the revised commodity price assumptions and some minor operational adjustments, but no inclusion of the (uncompleted) transaction with SRIG. Maintain OUTPERFORM.

■ Our valuation excludes any future ore feed from the exciting Turkey Creek discovery or from future treatment of resource from other defined deposits or from future toll treatment of, or acquisition of, other stranded deposits in the region. The JV has ~1Mt of copper across eight deposits that are not included in the DFS and offer life extension.
■ We would expect engineering to commence near term and early earthworks to commence in early 2016 with potential for first production approximately 20 months later.
■ Altona’s US$38mn contribution to the project gives them a 40% share of annual production of 39ktpa copper and 17koz gold or 15-16ktpa of copper and 7koz of gold.
■ The JV will be net cash and debt free.
■ This deal appears excellent for Altona. The capital required to develop the Cloncurry project was well beyond Altona’s capacity but an optimum JV arrangement has been structured that would see AOH retain a 40% equity interest in the project and for the project to be comfortably funded to production. In our assessment, AOH sole funding of the project would require excessive debt, hedging and equity dilution on a single asset company for a modest quality project but within a world class region.
■ Our revised $0.26/sh target price assumed only a 50% weighting of our raw DCF of the project to reflect our view that it would not be possible for AOH to fund it so there was very little chance of near term production. Our revised valuation reflects revised CS commodity price assumptions, some minor updates to the project's operational assumptions, an assumed CY18 production start, and current 100% ownership.
■ A scenario un-risked valuation based on assumed production from CY18 and the proposed JV ownership is $0.37cps.
■ MMG is due to make a decision on its Dugald River underground zinc mine imminently, defining whether it proceeds with the $1bn development after US$550mn exploration and trial mining. The economics of Dugald River could be improved by parallel mining of Little Eva copper, leveraging a single infrastructure base and lower unit costs from scale advantage. Both parties stand to benefit.
■ If appears that MMG had lost the opportunity to do an operational JV with AOH but could still seek an exploration JV for zinc on AOH's extensive ground position

Indicative timetable

■ June 2015 – $2mn deposit paid, exclusivity period commences. Agreed exploration and development expenditure up to US$2.6mn during this period will be credited as a JV contribution.
■ October 2015 – Completion of confirmatory due diligence including drilling.
■ November 2015 – Execution of formal documents.
■ December 2015 – Receipt of all regulatory approvals and agreements become effective.
■ February 2016 – All conditions precedent satisfied and closing. Essentially, SRIG has a low cost ($2mn) eight-month exclusive call option on an agreed price for a 60% interest in the Cloncurry project and Altona has indicative funding which values the project well above what the share price has reflected to date. 26 June 2015 Altona Mining (AOH.AX / AOH AU) 4
■ Our un-risked valuation for 100% of the unfunded Cloncurry project and cash is $234mn.
■ SRIG is paying US$214mn (A$279mn) for a 60% interest in the fully funded JV.
■ Post the transaction, AOH has a 40% interest in the fully funded JV

We note the apparent Chinese enthusiasm for the region where Altona are the dominant land owner:
■ Chinalco has and existing exploration JV over the Southern half of Altona's Cloncurry tenements
■ SRIG is seeking a JV over the northern half of Altona's tenement including mine development of Little Eva
■ MinMetals are progressing their Dugald River zinc mine, a fly spec excision in the centre of Altona's Cloncurry tenements
■ Focus Sun Holdings, a Chinese investment group, is progressing a 2 party equity investment in Cudeco via a capital raising to increase its shareholding to 18%. FIRB approval was received on June 12 2015.