Sorry about the formatting, it's the best I can do.Interesting...

Sorry about the formatting, it's the best I can do.
Interesting to note that (unlike Huntley's), GSJBW still believe that EQN represents value even if the binding tax agreement is dishonoured!


Goldman Sachs JBWere Investment Research All figures in A$ unless otherwise advised
Important disclosures and the Reg AC Certification appear at the back of this report
1

UPDATE
3 April 2008

Equinox Minerals Limited
Scenario Analysis Of Higher Tax Charges Enacted (If Applicable)
Materials | Metals & Mining | Australia
Conviction list stock
Event:
• The revisions to the Income Tax Act were passed by Parliament of
Zambia on 3rd March and are applicable from 1 April 2008. A
subsequent amendment has been passed which stipulates that mining
companies will not be subject to both the variable profit tax and the
windfall copper price participation.

Key Takeout:
• In essence if these changes were to come to fruition the key impact
would be limiting EQN's upside from increases to the copper price. (In
effect this would act as an additional layer of hedging).

Earnings and Valuation Impact:
• We have made no changes as there remains significant doubt as to
whether or not the changes are applicable to EQN, which has a legally
binding development agreement with the Republic of Zambia which sets
out the fiscal regime for the development of Lumwana.
• We have modelled the scenario of higher tax rates and price
participation and on our reading of the Tax Act it would reduce EQN's
earnings by ~25%.

Investment View:
• The key share price catalyst remains delivery of the Lumwana plant on-
time and within budget.
• EQN remains a CONVICTION BUY idea due to the following;
- Exposure to the copper with significant volume growth as Lumwana
commissions and ramps up to full scale during FY08.
- Lumwana is a world-scale copper project which is able to support
production levels of ~150kt pa for 37 years.
- The construction risk which is associated with the project reduces
as the late 2Q FY08 commissioning deadline moves closer.
- The current uranium feasibility study potentially provides a further
growth opportunity.
• Even in the event of higher tax (and royalty already allowed for), EQN
remains inexpensive on all our valuation measures.

Ian Preston | +61 3 9679 1453 | [email protected]
Stephen Gorenstein | +61 3 9679 1779 | [email protected]
Andrew Quail | +61 3 9679 1565 | [email protected]


BUY

Key Information
Stock Code EQN
Share Price $5.09
12 Month Price Target $7.80
Expected 12M Total Return 53.2%

Investment Data
Issued Capital 566.0m
Market Capitalisation $2881m
% of S&P 200 Index 0.1%
Free Float 17.5%
Turnover $102.0m/month
12 Month Price Range 705¢-232¢
Debt/Equity 11.3%

Investment Arithmetic
Dec year end 07A 08E 09E 10E
Net Profit Rep. ($m) -35.1244.0781.0863.2
NPAT Adj. ($m) -20.8244.0781.0863.2
EPS Adj. (¢) -3.9 43.0137.5152.0
EPS Growth (%) nm nm219.8 10.5
PER (x) nm11.8 3.7 3.3
Relative PER (%) nm-19.6 -69.5 -69.5
Dividend (¢) 0.0 0.0 0.0 31.0
Yield (%) 0.0 0.0 0.0 6.1
Franking (%) 0 0 0 0
FCFPS (¢) -3.9 29.0124.8130.3
P:FCFPS (x) nm 17.6 4.1 3.9
EV/EBITDA (x) na 8.1 1.7 1.1
BV (¢) 93 125 268 427
P/BV (x) 5.5 4.1 1.9 1.2
Av. Full Dil. Shares (m) 539.5567.9567.9567.9


Share Price Chart


Relative Price Performance
1m 3m 12m
vs. S&P 200: -17.1%-5.3%112.7%
vs. MSCI - World: -21.4%-7.2%118.6%


Source: Company data, IRESS, and GSJBW Research estimates.

3 April 2008

Equinox Minerals Limited

Goldman Sachs JBWere Investment Research All figures in A$ unless otherwise advised

2


RECOMMENDATION - OUR THINKING
Both EQN and the contractor are confident that the commissioning will commence as planned
by 28th June 2008.

We believe that there is upside risk to nameplate capacity and therefore to production.
However, the on-going uncertainty of the potential impact of changes to tax and royalty
regimes (if applicable to EQN) would have a negative impact on earnings.

In our view, the financial matrices are too inexpensive for a top 20 global copper mine
(~200ktpa copper production) and as the current uncertainty surrounding the proposed
changes is clarified, EQN will re-rate.

We retain our Conviction BUY recommendation.
TAX & ROYALTY PAYMENTS
Enacted Changes on 3rd March 2008
Despite the Act being passed by Parliament, we understand that there has still been limited
contact between the Government of Zambia and the Mining Companies operating in Zambia
with respect to the interpretation and applicability of the enacted changes.

In particular the applicability of the changes for companies that have legally binding
development agreements and in the case of EQN, the fact that there is already a "price
participation clause".

The changes to the Income Tax Act are applicable from 1 April 2008 are:
• An increase in the base tax rate to 30% (was 25%)
• A variable tax rate dependent upon the ratio of assessable income to gross sales revenue
which can increase the base tax rate to a maximum of 45%. Provided that where any
person has paid windfall tax on any base metal or precious metal in any charge year in
respect of that charge year, the rate applicable to income from such base metal or
precious metal shall be thirty per centum per annum. (amendment)
• An increase in royalty to 3% Gross Revenue (was 0.6%)
• Hedging profits/losses are to be treated as a separate activity from mining income
• Capital allowance (depreciation) for tax purposes to reduced to 25% per annum (100%)
but phased in over 3 years
• Withholding tax on interest, management fees and payments to affiliates 15%
• Windfall price participation - progressive incremental increase:
− Copper price − Copper price >US$2.50/lb − Copper price >US$3.00/lb < US$3.50/lb ............................... 50%
− Copper price >US$3.50/lb ................................................... 75%
Our interpretation of the wording in the act applicable to "windfall" copper price participation
(pp) is that it is based on revenue but it remains unclear in the case of companies that have
legally binding development agreements (such as EQN) when and to what extent these
proposals are applicable.
3 April 2008

Equinox Minerals Limited

Goldman Sachs JBWere Investment Research All figures in A$ unless otherwise advised

3

EQN DEVELOPMENT AGREEMENT
Current Agreement
The agreement between EQN and the Government of Zambia covers the development of the
Lumwana Copper deposit and is applicable for the 1st 10 years of operation.

The key terms are:
• Royalty of 0.6% of revenue
• Tax fixed at 25% for 1st 10 years
• Copper price participation - limited to an additional US$100m ("windfall tax")
• The Lumwana Uranium project is not covered by this development agreement and it is
unclear whether or not any expansions of the copper project would be covered by this
agreement if they are undertaken in the 1st 10 years.

GSJBW view
There is considerable uncertainty on the exact mechanics of any changes and whether or not
they are applicable to EQN.

The key negative of pp is that it limits EQN's copper price leverage.

If we assume the scenario as outlined:
• EQN earnings in FY09 decrease to US$562m (US$674m)
• EQN earnings in FY10 decrease to US$542m (US$716m)
• Implied PER 4.4x (versus current 3.7x PER)
• EV/EBITDA multiple increases to 2.4x (was 1.7x)
• The base valuation decreases to $4.62 (was $5.17)

On all these financial matricis, EQN remains inexpensive.

In our view, these financial matrices are too inexpensive for a top 20 global copper mine
(~200ktpa copper production) and as the current uncertainty surrounding the proposed
changes is clarified, EQN will re-rate.

We retain our Conviction BUY recommendation.

Scenario Impact: Tax 30% (25%); Variable Corporate Tax & Copper Price Participation
• We have already adjusted our estimates for the royalty (even though we understand that
EQN has a legally binding development agreement at the lower royalty rate).
• On our analysis, if EQN is subject to these changes, EQN would be subject to the price
participation from FY08 - FY12 and then the variable tax rate from FY13.
• Incorporating the higher base tax rate, variable tax and copper price participation we
calculate the impact on earnings as follows:

NPAT ($m)
Old New % Chg Old New % Chg Old New % Chg
F.'07a -29.4 -29.4 0.0% -5.4 -5.4 0.0% 0.0 0.0 n.a
F.'08e 219.8 150.9 -31.4% 38.7 26.6 -31.4% 0.0 0.0 n.a
F.'09e 674.0 564.4 -16.3% 118.7 99.4 -16.3% 0.0 0.0 n.a
F.'10e 716.6 542.4 -24.3% 126.2 95.5 -24.3% 31.0 24.0 -22.6%
F.'11e 635.0 471.2 -25.8% 111.8 83.0 -25.8% 22.0 17.0 -22.7%
DCF Valuation (¢/share): New New % Chg.
Base Valuation 5.17 4.52 -12.6%
Upside Valuation 7.09 5.54 -21.9%
Source: Company data, GSJBW Research estimates
EPS (¢) DPS (¢)


• Another way to look at this is if the windfall tax was treated as a cost (rather than a
negative revenue) during our period of high copper prices (2008-2012) cash costs would
go from ~US 85¢/lb (w/o royalties) to ~US$1.45/lb (incl. windfall tax and royalties).


3 April 2008

Equinox Minerals Limited

Goldman Sachs JBWere Investment Research All figures in A$ unless otherwise advised

4


Financial Summary | EQN
Equinox Minerals Recommendation:
Current Price: $5.09 Price Target:
GSJBW DCF: $5.17 Analyst:
Industry: Materials Free Float 100% Date:
Investments Statistics Profit & Loss (US$m)
Year end December 2007e 2008e 2009e2010e2011e a 2007e 2008e 2009e 2010e 2011e
Net Profit (reported) (US$m) -29 220 674 717 635 Sales Revenue 0 469 1418 1356 1165
- EPS (Reported) 1 (US¢) -5.4 38.7 118.7 126.2 111.8 Operating costs 19 140 351 365 344
- PER (Reported) 1 (X) -78.2 11.8 3.7 3.3 3.6 Operating EBITDA -19 329 1067 991 822
NET PROFIT (Adj.) 2 (US$m) -29 220 674 717 635 D&A 0 14 44 44 36
- EPS (Adj.) 2 (US¢) -5.4 38.7 118.7 126.2 111.8 Operating EBIT -19 314 1023 946 786
- EPS Growth (%) 14% -811% 207% 6% -11% JV & Assoc. 0 0 0 0 0
- PER (Adj.) 2 (X) -78.2 11.8 3.7 3.3 3.6 EBIT -19 314 1023 946 786
Dividend (US¢) 0.0 0.0 0.0 31.0 22.0 Net Interest Exp./(Rev) -2 15 -9 -9 -61
- Yield (%) 0.0% 0.0% 0.0% 6.1% 4.3%Non recuring Items Pre Tax 0 0 0 0 0
- Franking (%) 0% 0% 0% 0% 0% PreTax Profit (pre ab's) -17 300 1032 955 847
Free Cash Flow (US$m) -21 165 709 740 592 Tax Expense (pre abs) 0 80 258 239 212
- P/FCF 4 (X) -108.8 15.8 3.5 3.2 3.9 Minorities (after Tax) 0 0 0 0 0
EV(Adj.)/EBITDA 3 (X) -132.1 8.1 1.7 1.1 0.6 Reported NPAT (pre abnormals) -29 220 674 717 635
Avg. Shares (diluted) (mill) 540 568 568 568 568 NET PROFIT (Pre NRI's) 1 -29 220 674 717 635
Abnormal Items (after Tax) 0 0 0 0 0
EV Analysis / DCF Valuation Reported NPAT (post ab's) -29 220 674 717 635
DCF Valuation - Base: 5.17 Upside: 7.09 Sales Growth (%) N/A N/A 203% -4% N/A
Price / DCF: 0.98 Op. EBITDA Growth (%) N/A N/A 225% -7% -17%
Ke: 13.7% WACC: 11.5% NPAT (Adj.) Growth (%) 78% -849% 207% 6% -11%
Kd: 5.3% RF: 6.5% EPS (Adj.) Growth (%) 14% -811%207% 6% -11%
BETA: 1.20 MRP: 6.0% Op.EBITDA Margin (%) 70.1% 75.2% 73.1% 70.5%
Interest Cover - EBITDA (X) 10.6 22.3 -117.9 -109.4 -13.4
Year end December 2007e 2008e 2009e 2010e2011e Return on Equity 5 (%) -7% 34% 51% 36% 26%
EV (Adj.) 3 (US$m) 2473 2676 1848 1040 523
EV (Adj.) / EBITDA (X) -132.1 8.1 1.7 1.1 0.6 Cash Flow Analysis (US$m)
EV (Adj.) / Sales (X) N/A 5.7 1.3 0.8 0.4 a 2007e 2008e 2009e 2010e 2011e
EV (Adj.) / Gross CF (X) n.a. 10.8 1.9 1.0 0.6 Operating EBITDA -19 329 1067 991 822
change in working cap. -18 -81 -100 15 9
Balance Sheet (US$m) Gross Cashflow -37 248 967 1006 830
Year end December 2007e 2008e 2009e2010e2011e Net Interest Paid 7 15 -9 -9 -9
Cash 99 145 803 1456 1808 Tax Paid (inc. abs) 0 40 234 241 225
Property, Plant, Equip 677 816 780 745 721 Other -23 0 0 0 0
Other Assets 52 148 391 399 358 Operating Cash Flow -21 193 742 774 614
Debt 277 217 157 97 37 Maint. Capex & Exploration 0 -28 -34 -34 -22
Other Liabilities 133 254 506 489 377 FREE CASH FLOW -21 165 709 740 592
Shareholders Equity 418 638 1,312 2,014 2,473 Dividends Paid 0 0 0 15 176
Net Debt / Equity (%) 42% 11% -49%-67%-72%Expan. Capex -423 -150 0 0 0
Net Debt / (D+E) (%) 30% 10% -97%-208%-252% Acquisitions 0 0 0 0 0
Asset Sales 0 0 0 0 0
Annual Production Dividends Received 0 0 0 0 0
Year endDecember 2007e 2008e 2009e2010e2011e Share Issues/Repurchases 184 0 0 0 0
Increase in Net Cash/(Debt) -260 15 709 755 768
Copper '000tns 0.0 60.9 183.2 183.2 148.0 Gross CF / Op. EBITDA (X) 1.97 0.75 0.91 1.02 1.01
Cash Costs (without royalties)US$/lb 0.00 0.86 0.81 0.83 0.98 Maint. Capex / Sales (%) N/A 6.0% 2.4% 2.5% 1.9%
Total Capex / Sales (%) N/A 38.0% 2.4% 2.5% 1.9%
Maint. Capex / D&A (X) N/A 2.00 0.75 0.76 0.63
Total Capex / D&A (X) N/A 12.63 0.75 0.76 0.63
Maint. Capex / GCF (%) N/A 11.4% 3.5% 3.4% 2.7%
Commodity Prices
Year Average to December 2007e 2008e 2009e2010e2011e ROE Analysis
a 2007e 2008e 2009e 2010e 2011e
Currency A$/US$ 0.84 0.90 0.86 0.83 0.79
Copper US¢/lb 323 368 375 360 360 EBIT/Sales (X) N/A 0.67 0.72 0.70 0.67
Uranium US$/lb 105 100 100 120 130 Pretax Profit/EBIT (X) 0.91 0.95 1.01 1.01 1.08
NPAT/ Pretax Profit (X) 1.72 0.73 0.65 0.75 0.75
Sales/Assets (X) 0.00 0.42 0.72 0.52 0.40
Earnings Sensitivity (US$m) Assets/Equity (X) 1.98 1.74 1.51 1.29 1.17
Year Average to December 2007e 2008e 2009e2010e2011e Return on Equity (ROE) (%) -7% 34% 51% 36% 26%
Currency (+1c) (US$m) n.a. 0 0 0 0
Copper (+US10c) (US$m) n.a. 9 24 24 25 ROCE WACC Analysis
a 2007e 2008e 2009e 2010e 2011e
Adjusted NOPAT (US$m) -29 220 674 99 635
Adj Cap employed (US$m) 401 653 688 333 678
ROCE (%) -7% 34% 98.0% 29.9% 93.7%
(2) Net Profit (Adj.) is before goodwill amortisation, abnormals and after Pref. Divs. WACC (%) 11.5% 11.5% 11.5% 11.5% 11.5%
(3) EV Includes 100% of Mkt. Value of minorities and excludes Mkt. Value of Invest/Assoc. ROCE Spread (abs) -19% 22% 86% 18% 82%
(4) Includes 100% of Mkt. Value of minorities and excludes Mkt. Value of Invest/Assoc. Change in ROCE (abs) -19.3% N/A290.5% -78.7% N/A
(5) ROE excludes Preference Capital.
Source: Company data, IRESS, and GSJBW Research estimates.
(1) Net Profit - Adjusted is after share based compensation and pref divs, and before g'will
amortisation, NRI’s and other non-operating AIFRS adjustments.
BUY
03-Apr-08
Ian Preston
$7.80
Year end December
Year end December
Year end December
Year end December
$2,746m
EQN
$178m
Market Cap:
ASX Code:
Turnover:


Goldman Sachs JBWere Base/Precious Metals Team:
Analyst: Ian Preston Base/Precious Metals [email protected] +61 3 9679 1453
Analyst: Stephen Gorenstein Base/Precious Metals [email protected] +61 3 9679 1779
Assistant Analyst: Andrew Quail Base/Precious Metals [email protected] +61 3 9679 1565