bigstar, page-3

Hi (Michael27),

Following are my observations in re. to SDL's Feasibility Studies:

Release of SDL FS for Mbalam (6 April 2011)
Summary:
- Estimated NPV @ 12.5% = US$4b (Mbalam Stage 1 & 2, nominal, post-tax, ungeared)
- Estimated IRR = 27% (nominal, post-tax, ungeared)
- LT Fe price (real, applied 2020 and beyond) = US105c/dmtu

SDL assumptions:
- 2.5% Royalty
- Governments to receive 10% equity free carried in line with Mining Codes
- Concessional tax treatment in Cameroon and Congo; and Exemption of import duties for the life of the Project

DFS for stage 1:
- 35Mtpa of DSO @ +63% Fe
- Capex1 = US$4,686m
- Capital payback approx. 3 years
- Cash costs = US$21.20/t
- Initial JORC reserve = 252million tonnes @ +63% Fe
- First ore shipped = last quarter 2014
- Production DSO = 10 years

PFS stage 2 (DFS commencing 2012):
- 35 Mtpa of Itabirite concentrate @ 66% Fe
- Production Itabirite concentrate = 15 years
- current resource estimate = 2.32 billion tonnes @ 38% Fe
- Self-funded Capex2 = US$3.1b
- Cash costs = US$40/t

Points to note:
- IRR could be much less in real term and also because estimated of NPV appeared too high (when comparing to my SDL valuation in June 2010).
- Estimated NPV appeared too high, even given at a higher discount rate, when comparing to my SDL valuation in June 2010:
* an increase of Capex1 from US$3,360m to US$4,686m
* an increase of Capex2 from US$2.8b to US$3.1b
* an increase of cash cost for DSO hematite from US$19.65/t to US$21.20/t
* an increase of cash cost for Itabirite concentrate from US$37/t to US$40/t

For reference, the FOB prices I used in my valuation June 2010 are:
- FOB price Itabirite Concentrate = US$66.30/t
- FOB price DSO = US$63.12/t

From my notes (http://www.hotcopper.com.au/post_threadview.asp?fid=1&tid=1186486&msgno=5425964#5425964):

1. CAPEX2 for phase 2 Itabirite that I used in my first modeling is correct and it should be US$2,800m but not US$4,200m, which is given in nominal form from the last SDL IP (June 2010).

2. OPEX for Itabirite should be the one indicated in the Cashflow slides (re. SDL Nov 2009 AGM), which is US$37/t (expressed in real term), a value above my estimates of $US32/t.

3. Don also indicated that the selling price assumption I used for concentrate is consistent with what SDL have published: recall the FOB price I used for Itabirite Concentrate = US$66.30/t. This is based on Sinter Fines FOB Price Forecast (SDL Investor Pesentation June 2010, P12),of US 102 cts per dmtu, and considering the Ore Feed concentrate of +65%Fe, the price per tonne can be determined as following: 102 * 65 = US$66.30"

Important point:
As SDL mentioned that "LT Fe price (real, applied 2020 and beyond) = US105c/dmtu", It would be interesting to know how SDL applied the FOB price for both DSO and Itabirite Concentrate in medium term (i.e pre 2020) and that could change the estimated NPV considerably.

The positive aspect I see here is SDL financing will be in near term, and I do believe that SDL will lock into a good deal for the off-take agrement, meaning having a guaranteed FOB price well above US105c/dmtu in medium term, i.e pre-2020

I haven't got time to simulate all things but IMO all looking good for SDL.

Again those are only my interpretations and are not to be used as advice for investments, so always DYOR.

Cheers,