austock report - $1.66 price target, page-6

the previous Austock report on WPG:

Key Points

WPG Resources is highly leveraged to the current strong
iron ore price.

The Peculiar Knob iron ore deposit in South Australia is one
of the highest grade undeveloped resources in Australia.

The high quality of the ore supports the project operational
costs.

Beyond the current 5 year mine life WPG is continuing to
pursue the larger Hawks Nest deposit and also emerging
coal assets that could benefit from the infrastructure Peculiar Knob will establish.

Short, sweet and robust, with upside if Woomera is resolved
We initiate on WPG with a Buy recommendation and a target of $1.56

Investment View

WPG provides investors exposure to a high quality iron ore
project, which is well advanced in the approval process.

WPG has the largest defined hematite and magnetite
resources of all the emerging South Australian iron ore
companies. The deposit at Peculiar Knob is of a high grade
(64% Fe) with low impurities.

Advanced permitting, project definition and a recently
concluded port access deal has potential to accelerate
project development, with hematite ore from Peculiar Knob,
up to 3.5mtpa from CY2012.

Although a short mine life of ~5yrs and a relatively high
operational cost of ~A$65-A$70/t the operation makes a
healthy margin based on our conservative iron ore price
estimates.

The payback period is nominally <3 years.

Longer term the development of the Hawks Nest magnetite
resource is dependant on Defence Department approvals.

By developing the Peculiar Knob infrastructure, WPG
increases the commercial prospects of its nearby iron ore
and coal exploration leases.

At full production in FY13 EPS is estimated at 42c per share and P/E is 1.9X, from revenue of A$346m and NPAT of A$75

Given the uncertainty with access we have not included any
value for the Hawks Nest hematite and +500mt magnetite
resources, and only a nominal value for the coal assets.

Risks

With the final BFS to be completed there is a risk that the operational and capital costs could come in higher than
guidance.

At this stage WPG has not indicated the mix of debt and
equity funding to be sought and funding sources.

Although almost fully permitted delays could be experienced if the final approvals are not obtained in the time frames expected.

DSO Iron ore is the main focus

WPG are developing iron ore and coal projects located in central South Australia. First production of Direct
Shipping Ore (DSO) of ~3.5mtpa is planned to commence in the period late 2011 to early 2012.

Multiple Projects
WPG has two main projects in the region; a DSO hematite deposit at Peculiar Knob also magnetite and hematite deposits at Hawks Nest. The two projects are located approximately 60kms apart.

Construction of the Peculiar Knob DSO hematite mine (100% WPG) is expected to commence in 1QCY11, the approvals process is well advanced at present.

Resources

The resource at Peculiar Knob is: 19.2mt @ 63.7% Fe and includes a reserve of 15.4mt @ 62.7% Fe, with very low levels of impurities. The life of mine strip ratio is 3.6:1 and lump/fines ratio is 35/65.

The second project, Hawks Nest, contains a large magnetite resource of 570mt @ 36% Fe and 18.4mt of 61.6% Fe DSO material.

Access Woomera limiting but not debilitating

All of WPGs projects lie within the Woomera Prohibited Area (WPA) and therefore gaining access permits are
a risk. Within the WPA there is a central corridor that is zoned more national security sensitive and is therefore
harder to access. Other than Hawks Nest, all of WPGs projects lie outside of this sensitive zone.

We feel that the risk associated with accessing Peculiar Knob is low, as it is situated mid way between two
currently operating mines; OZ Minerals Prominent Hill Mine and IMXs recently opened Cairn Hill Mine. Also the project has received Defence Department approval.

Access to Hawks Nest is more problematic and we have not ascribed any value to this project in our valuation.

Port Infrastructure a big win

Junior iron ore projects in South Australia have long suffered from the lack of a multi user deep water port
facility. WPG will be constructing a trans ship loading facility at Port Pirie. This system will be similar to the
one currently in use by OneSteel to export ~5mtpa on the other side of the gulf.

WPG intends to construct port facilities capable of 7-8mtpa, with capacity surplus to WPGs requirements to
be made available to other parties, or potentially to ship its own coal should its Penrhyn or other deposits prove economic to supply export markets.

Rail

The main Adelaide to Darwin rail line passes within trucking distance of the Peculiar Knob mine and can be
accessed by third parties.

Capital Costs

At this stage preliminary estimates of capital costs are approximately $120m. A BFS was completed in 2007
utilising Whyalla as the port access. Now with the focus on Port Pirie, an updated BFS is currently being prepared.

Operational Costs

Given the rail distance of 650kms and the use of barges the operational cost is estimated at A$60-$70/t.

This is relatively high by industry standards but can be supported by the high grade of the ore and the forecast of strong prices for iron ore during the production period.

Offtake

Several MOUs are in place for up to 9mt of production from Peculiar Knob. At this stage no formal agreements have been struck, leaving the door open for capital to be raised from a potential off take partner.

We do not see the lack of an offtake partner at this stage as a negative. The more that WPG can advance the development of this high grade ore prior to signing an offtake will provide them greater leverage in potentially
sourcing funding.

Permitting

Permitting of Peculiar Knob has been largely completed with the final Mine and Rehabilitation Plan (MARP) expected to be received late CY10.

WPG expect the approval process to be completed during 4QCY10.

WPG has engaged independent environmental engineers to prepare the Development Application for Port Pirie.

Beyond iron ore

In addition to the iron ore projects WPG has recently entered into an agreement to explore the nearby coal
deposits.