Bell Potter Report - AVB

Initial reserve and Mining License for Stage 1 achieved
AVB has announced an initial reserve for the Antas North (Stage 1) copper project of
3.6Mt grading 2.53% copper and 0.55g/t gold (containing 92kt copper and 64koz gold).
A Mining License for Antas North was granted in early September 2014. AVB will now
move to financing completion and commence construction in the December 2014
quarter, for first production from mid-2015. Antas North is expected to produce at
around 12ktpa copper in concentrate at a life of mine average cash cost of US$1.10/lb.
We have increased our target price to $0.15/sh (previously $0.12/sh) as a result of
project de-risking, and increased near-term copper price estimates.

Financing completion the next step prior to development
AVB expects debt funding for Antas North to be available from October 2014, and
construction to commence in the December 2014 quarter. The Antas North reserve is
a key input for completion of the US$58m senior debt facility through Banco
Votorantim. The reserve enables US$12m of BlackRock financing to be drawn
alongside project debt.

Pedra Branca (Stage 2): Larger scale potential
AVB’s Pedra Branca project has a 46Mt resource grading 1.2% copper and 0.33g/t
gold. AVB will continue exploration and progress studies at Pedra Branca. Pedra
Branca could add significant value to AVB as it is de-risked over 2015.

Investment thesis – Buy (Speculative) TP$0.15/sh
AVB is the second largest tenement holder in the highly prospective Brazilian region of
Carajas, the largest being Vale. Major AVB shareholders include Glencore and
BlackRock, each with around 12% equity. Antas North will deliver relatively small-scale
production from mid-2015. The project will highlight the company’s in-country expertise
and fund exploration at AVB’s larger prospect, Pedra Branca. AVB is a Speculative
investment as it carries exploration and development risk.

Our $0.15/sh AVB valuation includes:
- A DCF (10%) valuation of the Antas North (Stage 1) project. We have modelled a
project consistent with AVB’s 2013 feasibility study and subsequently released project
estimates (400ktpa plant, production 11-12ktpa copper, capital cost of $60m).
- Our estimate of the value of Pedra Branca determined through a combination of
conceptual project modelling, EV/resource multiples and comparable project analysis.
- Our estimate of the value of AVB’s early stage exploration tenements and capitalised
corporate expenses.
- Bell Potter Securities’ commodity price estimates of: Copper US$3.20/lb near-term
and US$2.70/lb long-term; US$1,150/oz gold; and US$0.85/A$ currency

Antas North (Stage 1): Developing 12ktpa Cu this year
Antas North is a classical IOCG deposit with a thin oxide cap. The project was granted a
Mining License in early September 2014.
AVB envisages a 9-year open-pit project, mining and milling a high grade zone (+3%
copper, +0.7g/t gold) at rates of 400ktpa. Annual production will commence at around
12ktpa copper and 8kozpa gold for three years, before falling to around 11ktpa copper and
7kozpa gold.
Capital costs are estimated at US$70m (owner miner, including working capital and
contingency) and C1 cost estimates are around US$1.10/lb (LOM).
Along with delivering cash flow for other development projects, we see Antas North acting
as a proof of capability for the AVB management team.

Pedra Branca (Stage 2): Feasibility on +35ktpa Cu project
AVB acquired around 1,700km2 of tenements from Xstrata in February 2012, which
included the 15Mt Pedra Branca deposit grading 1.3% copper and 0.46g/t gold. AVB has
since grown the deposit to 47Mt grading 1.2% copper and 0.32g/t gold.
The Pedra Branca deposit is typical IOCG style and was discovered by
Noranda/Falconbridge (acquired by Xstrata in 2006) in 2003.
Latest work suggests that the Pedra Branca East deposit may be initially developed as a
high-grade underground operation, followed by subsequent underground or open pit
expansions into the Pedra Branca West orebody.