Has anyone read the report . Have a look at page 9 2nd...

Has anyone read the report . Have a look at page 9 2nd paragraph. Mitsubishi was mentioned as part of the consortium to carryout feasibility studies back in april.Interesting!.
Anyway here is the report .If you read it carefully you will keep MMx till it hits the $13 next year.


Initiate on Murchison – BUY – 140% potential upside
Murchison’s main production asset is targeted for production in 2011. Both the
price and demand volume upgrades in Merrill Lynch’s commodity view are key
drivers of our buy recommendation on this stock.
Our price objective of A$5.00/sh is in line with our NPV of A$4.90/sh on conservative
assumptions, representing more than 140% total return upside potential.
There are additional sources of upside
To arrive at our NPV, we have made a number of conservative assumptions, and
used a 15.8% discount rate. If we were to remove all the conservative
assumptions, the NPV rises to A$13.20/sh on a discount rate of 10.8%. We are
not arguing that A$13.20 is an ultimate price target. Rather, we see plenty of
insurance that our A$5/share target is well supported.
Buy a portfolio of emerging iron ore stocks
We are also commencing coverage on Murchison Metals Ltd. The combined market
capitalisation of Mount Gibson and Murchison Metals is under A$1,300m. For
liquidity and risk diversification, we recommend buying positions in both companies.
Exploration effort intensified
The current Jack Hills resource estimate is many years old, and the potential
mineral of 380mt quoted by the company is an internal estimate by another
company from 2000. Murchison expects to complete a 60,000m 2yr drilling
program by Dec 2007, designed to deliver enough ore of export quality to supply
the railway with 25mt for 15yrs. It is essential that the company delivers on this.
�� Estimates (Jun)
(A$) 2005 2006A 2007E 2008E 2009E
Net Profit b/f Abnormals NA (5) (14) 19 28
EPS NA (0.020) (0.046) 0.061 0.090
EPS Change (YoY) NA NA 129.7% -234.5% 47.0%
Dividend / Share NA 0 0 0 0
Free Cash Flow / Share NA (0.166) (0.132) 0.080 (0.032)
Valuation (Jun)
2005 2006A 2007E 2008E 2009E
P/E NA NM NM 33.43x 22.74x
Dividend Yield NA 0% 0% 0% 0%
EV / EBITDA* NA -73.84x -49.39x 16.64x 13.21x
Free Cash Flow Yield* NA -6.09% -6.42% 3.88% -1.58%
* For full definitions of iQmethod SM measures, see page 17.
Initial Opinion BUY
Equity | Australia | Non-Ferrous-Mining
27 April 2007
Mike Harrowell >> +61 2 9226 5840
Research Analyst
Merrill Lynch (Australia)
[email protected]
Stuart Howe >> +612 9226 5728
Research Analyst
Merrill Lynch (Australia)
[email protected]
�� Stock Data
Price A$2.05
Price Objective A$5.00
Date Established 27-Apr-2007
Investment Opinion C-1-9
Volatility Risk HIGH
52-Week Range A$0.520-A$2.43
Mrkt Val / Shares Out (mn) US$526 / 307.8
Average Daily Volume 1,277,356
ML Symbol / Exchange MUMTF / ASX
Bloomberg / Reuters MMX AU / MMX.AX
ROE (2007E) -23.4%
Net Dbt to Eqty (Jun-2006A) -12.2%
Est. 5-Yr EPS / DPS Growth NA / NA
F ree Float NA

iQprofile SM Murchison Metals Ltd.
Key Income Statement Data (Jun) 2005 2006A 2007E 2008E 2009E
(A$ Millions)
Sales NA 0 34 159 174
Operating Expenses NA (6) (46) (120) (125)
EBITDA NA (6) (13) 38 49
Depreciation & Amortization NA 0 (4) (11) (11)
EBIT NA (6) (17) 28 39
Net Interest & Other income NA 1 (1) (1) 1
Associates NA 0 0 0 0
Pretax Income NA (6) (18) 27 40
Tax (expense) / Benefit NA 1 4 (8) (12)
Net Profit b/f Abnormals NA (5) (14) 19 28
Non-Recurring Items NA 0 0 0 0
Net Income (Reported) NA (5) (14) 19 28
Avg F Diluted Shares Outstanding NA 232 308 308 308
Key Cash Flow Statement Data
EBITDA NA (6) (13) 38 49
Change in Working Capital NA 1 3 0 0
Deferred Taxation Charge NA (1) 0 5 2
Other Adjustments, Net NA 3 3 0 0
Cash Flow from Operations NA (2) (4) 34 40
Capital Expenditure NA (37) (36) (10) (50)
(Acquisition) / Disposal of Investments NA 0 0 0 0
Other Cash Inflow / (Outflow) NA 2 0 0 0
Cash Flow from Investing NA (35) (36) (10) (50)
Shares Issue / (Repurchase) NA 45 15 0 0
Cost of Dividends Paid NA 0 0 0 0
Cash Flow from Financing NA 43 39 0 50
Free Cash Flow NA (38) (40) 24 (10)
Net Debt NA (7) 19 (5) 5
Change in Net Debt NA (7) 26 (24) 10
Key Balance Sheet Data
Property, Plant & Equipment NA 42 59 48 88
Other Non-Current Assets NA 3 5 5 5
Trade Receivables NA 3 4 4 4
Cash & Equivalents NA 7 5 29 70
Other Current Assets NA 0 0 3 6
Total Assets NA 62 99 127 208
Long-Term Debt NA 0 24 24 74
Other Non-Current Liabilities NA 0 0 0 0
Short-Term Debt NA 0 0 0 0
Other Current Liabilities NA 0 4 0 0
Total Liabilities NA 7 41 50 104
Total Equity NA 55 58 77 105
Total Equity & Liabilities NA 62 99 127 208
iQmethod SM - Bus Performance*
Return on Capital Employed NA NA -19.0% 20.2% 19.0%
Return on Equity NA NA -23.4% 28.0% 30.6%
Operating Margin NA NA -51.2% 17.5% 22.3%
EBITDA Margin NA NA -39.1% 24.2% 28.4%
iQmethod SM - Quality of Earnings*
Cash Realization Ratio NA 0.4x 0.3x 1.8x 1.4x
Asset Replacement Ratio NA 372.6x 8.8x 0.9x 4.7x
Tax Rate (Reported) NA 21.1% 21.5% 30.0% 30.0%
Net Debt-to-Equity Ratio NA -12.2% 33.3% -6.7% 4.6%
Interest Cover NA NA -14.0x 19.0x 17.5x
Key Metrics
Franking NA 0% 50% 100% 100%
* For full definitions of iQmethod SM measures, see page 17.
Company Description
Murchison has 100% an export quality direct shipping iron
ore resource 420km by rail from the WA coast, but with
no existing rail at present. It is currently trucking 1mtpa by
road to generate cash flow, and is promoting a rail and
port infrastructure project to a consortium of infrastructure
companies and customers. The critical issue will be
whether enough ore resources can ge delineated by
M urchison and others to underwrite the infrastructure.
Stock Data
P rice to Book Value
Murchison – Investment Case
Buy supported by outlook for ore demand and prices
Murchison’s main production asset is targeted for production in 2011. Both the
price and demand volume upgrades in Merrill Lynch’s commodity view are key
drivers of our Buy recommendation on this stock.
Jack Hills Stage 1 generates cash, and information
Murchison is mining 2mtpa from Jack Hills for the next 4yrs and road hauling this
ore 600km to port at Geraldton. This is a high cost operation, but profitable and
cash generative at current prices. It has the added advantage that it is a large trial
mining exercise, testing reserve reconciliation, mining conditions, and customer
acceptance and marketability of the ore.
Preliminary feasibility study data announced March 2006
From an investor perspective, there is value in having preliminary capital cost
estimates available. While we are assuming much higher costs than those
announced, we have a yardstick against which to measure our estimates. Murchison
is targeting the release of new complete resource and reserve estimates, and the
bankable feasibility study by the Q1 2008. There appears to be a high degree of
confidence in the company that 380mt of resources will be delineated.
Infrastructure: An attractive asset
We assume that the infrastructure (rail and port) required to crystalise the value of
Murchison’s Jack Hills orebody is built by an infrastructure group, and funded by
an access charge in addition to the port and rail operating costs. We believe that
there are a number of interested syndicates, potentially including customers.
Access fees are therefore likely to be competitive.
Infrastructure off balance sheet reduces risk
Murchison appears to be strongly favouring the development of the infrastructure
by using third parties, which reduces the risk that Murchison shareholders will be
asked to face the funding risks of that element of the project. We believe that this
funding route reduces the risk to Murchison shareholders of potential loss of
value to the suppliers of debt. The downside is less direct control of the project.
POSCO is all over the project
POSCO is a major shareholder, has an option to buy 10mtpa from the 25mtpa
project, and is a member of the infrastructure group that is considering building
the railway. They may well end up taking a direct interest in the project as well.
POSCO is a high quality partner.
Murchison Metals Ltd.
27 April 2007
4
Murchison – Key Drivers
NPV of $4.90/sh with conservative assumptions
Murchison has to prove up enough export quality ore to support a large rail and
port infrastructure spend. If it can deliver the ore, and build the infrastructure, we
believe that company share price will appreciate by over 100%. Our initial 12mth
price target is $5.00/share, supported by our NPV.
Our NPV could be $13.20/sh
Relative to the company’s last announcements, we have attempted to be very
conservative, so as to be upgrading as more information is released. Removing
all these assumptions, the NPV is $13.20/sh or 6.4x the current share price.
�� We are using a discount rate 5% higher than if this were in production. If we
used the lower discount, we would add $2.75/sh to our valuation.
�� We start production in late 2011 vs early the company target of 2010. If the
company delivers its target, the NPV rises by $1.98/sh
�� We assume operating costs before infrastructure charge and royalties of
A$18.36/t in 2011 vs the company’s 2006 estimate of A$13.66/tonne. Each
A$1/t fall in costs adds $0.42 to the NPV.
�� We use a infrastructure charge of A$9.26/t in 2011 vs the company’s
indication of A$7/t, and lower charge have the same impact as costs.
�� We assume no production from Weld Range tenements of Murchison, and
no life past 15yrs. Adding indefinite life raises the NPV by $1.37/sh.
�� We also assume $450m of capex to Murchison outside the infrastructure spend,
vs the company estimate of $305m in March 2006, a difference of $0.50/sh.
Risks
The major risks are the iron ore market, which must provide both volume offtake
and a high enough price for Murchison’s ore, the currency, the risk of delay and
construction overruns, financing risk for the infrastructure, and exploration risk (ie
the need to prove the existence of enough ore).
Table 2: Sensitivity
Sensitivity in cps NPV 08 EPS 09 EPS 12 EPS
A$/US$ increase of 0.05 -93.7 -2.2 -2.6 -15.8
Fines Iron ore Increase 5c/dltu or
US$3/t 94.3 1.8 2.0 14.0
Source: Merill Lynch Estimates
Table 1: NPV
As at June 2008E
WACC 15.8%
Jack Hills Stage 1 106
Jack Hills Stage 2 1443
Total Operations 1549
Administration -56
Other 9
Total 1502
Cash 29
Debt -24
NPV A$m 1508
NPV A$/sh 4.90
Source: Merrill Lynch Estimates
Murchison Metals Ltd.
27 April 2007
5
Table 3: Murchison Metals Key Statistics
Jack Hills
Stage1
Jack Hills
Stage 2 Weld Range Combine
Reserves and Resources
Proven and Probable Ore Reserves mt 8.5 0 NA 8.5
Measured, indicated and Inferred Resources
mt
0 67 NA 67
Estimated Mineralisation 0 380 NA 380
Operations Data
Annual production mtpa 2 25 10
Expected minimum mine life yrs 5 15 NA
Lump: Fines ratio 65%:35% 65%:35% 50%:50%
Truck km 683 0 0
Rail km 0 420 340
Strip ratio 3:1 NA NA
Port Geraldton Oakajee Oakajee
Source: Murchison Metals
Murchison – Business Overview
Description of operations
The company has two iron ore projects, Jack Hills and Weld Range.
1. In production - Jack Hills stage 1
A 2mtpa operation at Jack Hills until Stage 2 starts, based on 8.5 Mt of direct
shipping hematite ore reserves.
2. Feasibility study – Jack Hills stage 2
The expansion of Jack Hills to a 25 Mtpa hematite ore mine drawing on 380 Mt of
“potential mineralisation”.
3. Pre initial exploration – Weld Range
Murchison has prospective iron ore holdings in the Weld Range. Initial exploration
is planned for 2007.
Weld Range project is located 65 km south west of Meekatharra and 50
kilometres northwest of Cue, Western Australia.
Jack Hills Project
Jack Hills is located 420 kms by rail (yet to be built) north east of Geraldton.
Description of operations
Jack Hills will use contact mining, crushing and screening. The ore will then be
hauled to Murchison’s ore storage and transfer facility at the Port of Geraldton
prior to shipment to customers. The project is in two parts. A 2mtpa Stage 1,
trucking ore 650km to Geraldton, and Stage 2 needing a new rail & port spend.
Stage 1: Early cash flow, trial mining
Capex
The total development cost for Jack Hills Stage 1 is $44.4 million.
Figure 1: Operational plan for Jack Hills
Source: Murchison
Chart 1: Murchison Metals Project Areas
Source: Murchison
Table 4: Stage 1 major capex components
$m
Mine infrastructure and development 5
Road upgrade 8
Port storage facility 12
Haulage trailers 10
Total 35
Working capital 5
Source: Murchison
Stage 1 – current
Stage 1 is a five-year plan to mine the reserve base of 8.5 Mt. First year
production is forecast to be 1.5 Mt of ore, followed by 2 Mt of ore thereafter for
four years.
Stage 1 mining operations commenced in September 2006 and road haulage to
Geraldton commenced in November 2006. Table XX provides a production
summary for the six months to December 2006.
On 1 February 2007 the first shipment of Jack Hills stage 1 ore left the Port
of Geraldton.
The cash operating costs for Stage 1 are around $51/tonne. Murchison expect
this cost to increase marginally over the five year life of Stage 1.
Stage 1 total ore consists of around 65% lump ore. Lump ore beneficiating is to
64-65% Fe. Fine ore grade is 61-62% Fe.
Figure 2: Jack Hills rail infrastructure alternatives
Jack Hills Stage 2: All about infrastructure
Stage 2 involves expanding the Jack Hills mine to output of 25 Mtpa of hematite
ore over 15 years from 2011. This stage will utilise new rail and port
infrastructure. Ore will be railed to the new Oakajee Port for shipment.
The resource drilling and feasibility study for stage 2 is expected to be completed
in the 1st quarter of 2008 and cost $20 million. If accepted by the board,
construction will commence in mid 2008 with first ore shipments expected in late
2010 or early 2011.
Posco has an off-take agreement of up to 10 Mtpa from Jack Hills Stage 2.
Murchison expect to provide a Resource/Reserves update before the end of the
June 2007 quarter. However, this update will be an interim step, and will not be a
conversion into JORC standard resources of the 380 Mt potential mineralisation
estimate provided by Murchison.
Table 8: Jack Hills Hematite at 14 March 2007 (no change from 29/12/2004)
Mt % Fe % S % P %LOI % SiO3 % Al2O3
Resource
Measured 8 62 <0.05 <0.05 1-2 <3 <2
Inferred 59 62 <0.05 <0.05 1-2 <3 <2
Grand total 67 62 <0.05 <0.05 1-2 <3 <2
Potential mineralisation 380 62 <0.05 <0.05 1-2 <3 <2
Reserve
Probable 8.5 63 0.01 0.06 2.7 4.7 0.5
Total 8.5 63 0.01 0.06 2.7 4.7 0.5
Source: Murchison
Murchison expect an engineering plan and Resource/Reserve delineation
comparable to the 380 Mt internal estimate will be completed by the end of the
March 2007 quarter.
380 Mt is an internal estimate by Anglo American when it controlled Jack Hill in
2000. Despite Murchison spending around $16.7m since September 2005 on
exploration, there has been no change to the resource estimate.
The reason the resource estimate has not changed is that drilling work
undertaken by Murchison in 2005 was to better define the 8.5 Mt of reserve and
mining plan required for Stage 1.
More recent drilling has been to provide an update on the resource required for
Stage 2. Murchison expect an upgrade to
Stage 2 rail & port infrastructure
Stage 2 is dependent of the development of rail and port infrastructure. Murchison
is working together with Midwest Corporation Ltd (MIS) in assessing the
development of this infrastructure.
A feasibility study on the rail infrastructure was completed in March December
2006. The final infrastructure proposal will be for a northern rail route from Jack
Hills to Oakajee (alternative 1 in Figure 2).
The feasibility study for Jack Hills Stage 2 will cost $20 million.
Table 7: Schedule - Jack Hills Stage 2
Infrastructure Policy Apr-07
Project Definition Documents Apr-07
Multi User Feasibility Study Dec-07
Environmental Approval Port Jun-07
Port Construction* Sep-10
Environmental Approval Rail Sep-08
Rail Construction* Sep-10
Environmental Approval Mine Sep-08
Mine Construction* Mar-10
Commence Mining 4 Quarter 2010
* Finish date
Source: Murchison
Infrastructure and Capex
Murchison’s View (March 2006 data)
According to the company, the total cost of the rail and port infrastructure to
support Stage 2 is expected be around $1.5 billion (Table 11). However, it is
expected this cost will also be carried by other iron ore miners in the Midwest
region. We assume $2.6 billion, but this includes $1.9 billion that is equivalent to
Murchison’s $1.5 bn, and an additional $700m for the additional infrastructure that
will be required by Mid west, which owns deposits that would also use the assets.
An infrastructure consortium consisting of Posco Engineering and Construction
Company Ltd, Toll Holdings Ltd and Mitsubishi Corporation has been formed to
carry out a feasibility study for the new rail and port infrastructure.
Murchison is completing its feasibility study on stage 2 on the basis that it is the
sole owner/user of the rail and port infrastructure. If an infrastructure special
purpose vehicle (SPV) is formed, it substantially reduces Murchison’s cost per
tonne (see table below).
Table 9: Jack Hills Stage 2 project economics - supplied by Murchison
Stage 2 - MMX sole fund Stage 2 - Infrastructure SPV
Forecast Capital Cost A$m 1,760 220
Production (Mtpa) 25 25
Price Forecast (US$/t)1 37 37
Exchange Rate (US$:A$) 0.70 0.70
Price Forecast (A$/t) 53 53
Royalty (A$/t) 4 4
Unit Operating Cost (A$/t)2 14 21
EBITDA per tonne 35 28
EBITDA A$m 881 700
EBITDA per share3 1.27 1.75
Notes:
1. Based on lump price of US$40/t and fines US$30/t.
2. Stage 2 capital and operating costs from pre-feasibility study and 2006 dollars.
3. Based on 30% equity for Stage 2 on balance sheet finance – 695m ordinary shares Stage 2 SPV off balance
sheet finance – 400m ordinary shares.
Source: MMX
We assume 30% higher capex
Table 10: Capex Schedule (March 2006)
Mine A$m Port & Rail A$m
Murchison Capex
Mine 182 Port 463
Indirect/Capitalised 66 Rail 691
EPCM 28 EPCM 150
Contingency 29 Contingency 160
Total 2006$ 305 Total 2006$ 1464
Add 30% 397 Add 30% 1903
Midwest Capex
Mine 200 Expand port 460
Indirect/Capitalised 66
Train Sets 300
EPCM 30 50
Contingency 30 69
Total 2006$ 626 579
Add 30% 814 753
S ource: Murchison, Merrill Lynch Estimates
The Murchison data was published by the company in March 2006. We have
used this data as the basis of estimating the additional infrastructure required to
service Midwest, the other potential user of the infrastructure. Murchison
excluded the leased train sets, mining equipment, and power station adding to
$540m. The lease changes of that capital are included in Murchison’s estimate of
operation costs.
From this table, we have adopted a 25mtpa (single mine) case with port and rail
capex of $1900m, and 45-60mtpa case with an expanded port and rail capex of
$2600m (ie the Murchison $1900m plus the Midwest additional $579m – 2 mine).
Table 12: Infrastructure Service Cost
Railing rate 25mtpa 45mtpa 65mtpa
Reserve base mt ore 375 675 975
Reserve base in years prodn 15 15 15
Debt (equal to capex) A$m 1900 2600 2600
Capex A$m 1900 2600 2600
Debt service A$m 236 323 323
Project Borrowing Rate 9% 9% 9%
Charge A$/tonne 9.43 7.17 4.96
Source: Merrill Lynch Estimates
The table above calculates the debt service annual payment required to pay both
the interest costs, and amortise the principal over the reserve life, assuming
100% of the capex is debt funded. Each option has a 15yr life, but a different
production rate. The port expansion required for a 45mtpa case and a 65mtpa
case are the same in our view. The 25mtpa case in the single mine option.
Increased volumes result is a substantial reduction in the charge in A$/t from
$9.43/t to $4.96/t. This charge is also sensitive to interest rates and reserve life,
which we examine in the margin table. For our modelling, we adopted $8/t in
2006$, and we inflated that number to $9.26/t by 2011, even though it would only
inflate if our capex estimates blew out.
We would point out that this is not an analytical approach that the infrastructure
trusts would necessarily adopt, but until there are fewer variables, this is a guide.
Table 11: Service Charge at 45mtpa/$2600m
Capex
Life yrs 15 20 30
Interest Rate
7% 6.34 5.45 4.66
8% 6.75 5.88 5.13
9% 7.17 6.33 5.62
10% 7.60 6.79 6.13
11% 8.03 7.26 6.65
Source: Merrill Lynch Estimates

Company Background
Murchison completed the purchase of the Jack Hills project in March 2005.
The company’s initial focus has been to develop Stage 1 of the Jack Hills project.
Much of the exploration effort in 2005 and the capital expenditure to date has
been for the development of Stage 1.
Murchison is now moving toward the development of Stage 2. In 2006, Murchison
drilled around 40,000m. In 2007 the company expects a further 20,000m of
drilling to upgrade the current Resource/Reserve estimates to a figure more
comparable with the 380 Mt potential mineralisation.
In June 2006, Murchison signed a memorandum of understanding (MOU) with
POSCO Engineering & Construction Company, Toll Holdings Ltd, and Mitsubishi
Corporation of Japan. The MOU was to form a consortium to consider the
development of rail and port infrastructure for the Mid West region of Western Australia.
This infrastructure is a prerequisite for the development of Jack Hills Stage 2.
Management
Paul Kopejtka (Executive Chairman) – Previously Murchison Technical
Director, with 18yrs experience in green and brownfields project development
with Minproc and Bateman, and as a consultant.
Trevor Matthews (Managing Director) – 20 years experience in the mining
industry and has held executive positions at North Ltd and WMC Resources Ltd.
John Westdorp (CFO/Company Secretary) – Has experience at Newmont
Australia, North Ltd and Robe River Iron Associates (11 years).
Bernhard Neehoff (Chief Geologist) – Has over 20 years experience around
the world including previous experience in the mid-west region with the
Kingstream Steel exploration program.
Tom Albracht (General Manager Marketing) – Has held international sales and
business development roles in the mining industry for over 25 years.
Terry Quaife (Engineering Manger) – Has 28 years developing minerals
projects in Australia and internationally.
Board of directors
Executive Chairman: Paul Kopejtka,
Managing Director: Trevor Matthews
Executive Director: Robert Vagnoni.
From a governance point of view, the small board lacks the oversight that the
governance legislation is seeking to achieve. However, the compact size has probably
been important in allowing the company to develop at the speed it has, and at this
stage, we believe that shareholders are not at risk on governance issues.
Table 13: Stage 1 - Prospectus schedule vs
actual progress for Jack Hills Stage 1
Prospectus estimate
(Nov-04)
Actual
progress
Mining license
approval Aug-05 Sep-06
Commencement of
mining Sep-05 Sep-06
Commencement of ore
haulage Nov-05 Nov-06
First shipment Dec-05 Feb-07
Source: Murchison
Shareholders
Posco exercised options in January 2007 to lift its interest in Murchison to 12%.
The below table outlines shareholdings as of 18 September 2006. Since then,
POSCO has exercised $5m additional options in January 2007.
Table 14: Twenty largest share holders at 18 September 2006
Number of
shares
Percent of ord
shares
ANZ Nominees Limited 37,494,163 11.58
POSCO Australia Pty Ltd 30,000,000 9.26
J P Morgan Nominees Australia Limited 22,316,697 6.89
National Nominees Limited 20,752,767 6.41
HSBC Custody Nominees (Australia) Limited-GSCO ECSA 17,507,955 5.41
Westpac Custodian Nominees Limited 16,664,395 5.15
Resource Capital Fund 111 L P 10,000,000 3.09
Taswa Pty Ltd 8,360,000 2.58
Hebei Qianjin Steel Group (Australia) Pty Ltd 7,142,857 2.21
Eriditus Pty Ltd 6,830,000 2.11
Mr Paul John Kopejtka & Mrs Karen Louise Kopejtka 6,240,000 1.93
Resource Capital Fund III L P 6,000,000 1.85
IOS Management Ltd 4,600,000 1.42
Citicorp Nominees Pty Limited 3,461,811 1.07
Yilgarn Infrastructure Limited 3,300,000 1.02
HSBC Custody Nominees (Australia) Limited-GSI ECSA 3,296,232 1.02
Mr Cecil Hoffman & Mrs Norma Hoffman 3,100,000 0.96
Dr Charles Frater 3,000,000 0.93
Russlan Zuks 2,910,855 0.9
Bscale Pty Ltd 2,847,200 0.88
215,824,932 66.65
Source: Murchison
Financials
Table 15: Profit & Loss
2006 2007E 2008E 2009E 2010E 2011E 2012
Revenues from Operations 0.00 33.72 158.53 173.99 184.31 183.42 1039.46
Assoc Net Profits 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Rev Other Excl Int Inc 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Costs -6.35 -46.90 -120.16 -124.64 -128.63 -132.33 -473.49
EBITDA Incl Assoc -6.35 -13.18 38.37 49.35 55.68 51.09 565.98
D&A -0.10 -4.09 -10.62 -10.62 -10.62 -5.31 -27.00
EBIT -6.45 -17.26 27.75 38.73 45.06 45.78 538.98
Interest Income 0.61 0.63 0.68 3.12 6.32 9.36 19.06
Interest Expense 0.00 -1.24 -1.46 -2.21 -10.46 -22.46 -28.46
PBT -5.84 -17.87 26.96 39.64 40.92 32.68 529.57
Tax Expense 1.23 3.84 -8.09 -11.89 -12.28 -9.80 -158.87
NPAT before Minorities -4.61 -14.03 18.87 27.75 28.64 22.88 370.70
Minorities 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Earned for Equity -4.61 -14.03 18.87 27.75 28.64 22.88 370.70
EBITDA
Jack Hills Stage 1 0.00 7.31 48.59 59.88 66.52 62.26 0.00
Jack Hills Stage 2 0.00 0.00 0.00 0.00 0.00 0.00 577.48
Weld Range 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Op 4 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total EBITDA from Ops 0.00 7.31 48.59 59.88 66.52 62.26 577.48
Hedging Gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Profits on Asset Sales 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Assoc Cos Net Profit 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Administration -2.94 -12.43 -10.22 -10.53 -10.85 -11.17 -11.51
Other Expenses -0.11 -0.83 0.00 0.00 0.00 0.00 0.00
Other -3.30 -7.22 0.00 0.00 0.00 0.00 0.00
EBITDA Incl Assoc -6.35 -13.18 38.37 49.35 55.68 51.09 565.98
Source: MMX, Merrill Lynch Estimates
Table 16: Assumptions
2006 2007E 2008E 2009E 2010E 2011E 2012
A$/US$ 0.753 0.772 0.750 0.730 0.705 0.690 0.690
Hamersley Fines US c/dmtu 64.65 75.18 82.02 87.50 89.46 87.22 77.49
Hamersley Lump US c/dmtu 82.51 95.96 104.69 111.68 114.18 111.32 98.91
Average Selling Price A$/t 0.00 68.12 79.26 87.00 92.16 91.71 74.25
Cost Inflation 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Sales Volumes (kt)
100% of Prodn
Jack Hills Stage 1 0 625 2000 2000 2000 2000 0
Jack Hills Stage 2 0 0 0 0 0 0 14000
Total 0 625 2000 2000 2000 2000 14000
By Ore Type kt
Jack Hills Stage 1 -"Fines 0 173 700 700 700 700 0
Jack Hills Stage 1 -"Lumps 0 322 1300 1300 1300 1300 0
Jack Hills Stage 1 -"other 0 0 0 0 0 0 0
Jack Hills Stage 2 -"Fines 0 0 0 0 0 0 9800
Jack Hills Stage 2 -"Lumps 0 0 0 0 0 0 4200
Total 0 495 2000 2000 2000 2000 14000
Summary of Ore Types kt
Fines 0 173 700 700 700 700 9800
Lump 0 322 1300 1300 1300 1300 4200
Total 0 495 2000 2000 2000 2000 14000
Source: MMX, Merrill Lynch Estimates

Table 17: CASH FLOW
YE June A$m 2006 2007E 2008E 2009E 2010E 2011E 2012
EBITDA -6.35 -13.18 38.37 49.35 55.68 51.09 565.98
Interest Income 0.61 0.63 0.68 3.12 6.32 9.36 19.06
Interest Expense 0.00 -1.24 -1.46 -2.21 -10.46 -22.46 -28.46
Tax Paid 0.37 4.43 -3.11 -10.23 -12.38 -11.52 -63.69
Working Capital 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other 3.49 4.99 0.00 0.00 0.00 0.00 0.00
Cash Flow From Operations -1.88 -4.36 34.47 40.03 39.16 26.47 492.88
Purchase of PP&E -32.05 -30.71 -10.00 -50.00 -200.00 -200.00 0.00
Sale of PP&E 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Purch of Equity Investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Sale of Equity Investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Exploration -4.47 -5.41 0.00 0.00 0.00 0.00 0.00
Loans to others 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Loans paid by others 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other 1.50 0.00 0.00 0.00 0.00 0.00 0.00
Cash Flow from Investing -35.22 -36.42 -10.00 -50.00 -200.00 -200.00 0.00
Free Cash Flow -37.10 -40.78 24.47 -9.97 -160.84 -173.53 492.88
Issues 44.65 15.20 0.00 0.00 0.00 0.00 0.00
Buy Backs 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Proceeds of Borrowings 0.00 24.73 0.00 50.00 200.00 200.00 0.00
Payments of Borrowings 0.00 -0.42 0.00 0.00 0.00 0.00 0.00
Dividends Paid for Equity 0.00 0.00 0.00 0.00 0.00 0.00 -73.87
Dividends Paid to Outside Equities 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other -2.08 -0.40 0.00 0.00 0.00 0.00 0.00
Cash Flows from Financing 42.57 39.10 0.00 50.00 200.00 200.00 -73.87
Net Increase in Cash 5.47 -1.68 24.47 40.03 39.16 26.47 419.00
Source: MMX, Merrill Lynch Estimates
Table 18: Balance Sheet
YE June A$m 2006 2007E 2008E 2009E 2010E 2011E 2012
Cash 6.69 5.02 29.49 69.52 108.68 135.15 554.16
Receivables 2.76 3.51 3.51 3.51 3.51 3.51 3.51
Inventories 0.00 3.63 3.63 3.63 3.63 3.63 3.63
Investments 0.22 0.00 0.00 0.00 0.00 0.00 0.00
Property, Plant & Equipment 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other current assets 0.03 0.00 3.49 5.64 6.12 5.37 0.00
Total Current Assets 9.70 12.16 40.12 82.30 121.95 147.66 561.30
LT Receivables 0.00 0.00 0.00 0.00 0.00 0.00 0.00
LT Investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Property, Plant & Equipment 42.40 59.01 48.39 87.77 277.15 471.84 444.84
Intangibles 7.25 22.66 32.66 32.66 32.66 32.66 32.66
Other non-current assets 2.79 5.48 5.48 5.48 5.48 5.48 5.48
Total assets 62.13 99.31 126.65 208.21 437.23 657.64 1044.27
Accounts Payable 7.47 12.86 12.86 12.86 12.86 12.86 12.86
ST Borrowings 0.00 0.00 0.00 0.00 0.00 0.00 100.00
Provisions 0.01 0.11 0.11 0.11 0.11 0.11 0.11
Other current liabilities 0.00 3.45 0.00 0.00 0.00 0.00 66.94
Total Current Liabilities 7.48 16.42 12.96 12.96 12.96 12.96 179.90
NC Accounts Payable 0.00 0.00 0.00 0.00 0.00 0.00 0.00
LT Borrowings 0.00 24.31 24.31 74.31 274.31 474.31 374.31
Provisions 0.00 0.59 12.51 16.32 16.70 14.23 163.30
Other non-current liabilities 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total liabilities 7.48 41.32 49.79 103.59 303.97 501.50 717.51
Net assets 54.66 57.99 76.87 104.62 133.26 156.14 326.76
Ordinary Shareholders' Equity 54.66 57.99 76.87 104.62 133.26 156.14 326.76
Preference shares 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Convertible/Conv Notes 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Minorities 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 54.66 57.99 76.87 104.62 133.26 156.14 326.76
Balance Sheet Ratios
Gross Debt 0.00 24.31 24.31 74.31 274.31 474.31 474.31
Net Debt -6.69 19.29 -5.18 4.79 165.63 339.16 -79.85
Debt/Equity 0.0% 41.9% 31.6% 71.0% 205.8% 303.8% 145.2%
Net Debt/Equity -12.2% 33.3% -6.7% 4.6% 124.3% 217.2% -24.4%
Debt / Debt + Equity 0.0% 29.5% 24.0% 41.5% 67.3% 75.2% 59.2%
Net Debt / N'Debt + Equity -14.0% 25.0% -7.2% 4.4% 55.4% 68.5% -32.3%
Interest Cover (EBITDA basis) 0.00 -10.65 26.30 22.35 5.32 2.27 19.89
Return On Shareholders Equity -8.4% -24.2% 24.6% 26.5% 21.5% 14.7% 113.4%
Return on Capital Employed -8.4% -15.8% 17.5% 15.0% 8.5% 6.0% 40.5%
Return On Total Assets -10.4% -17.4% 21.9% 18.6% 10.3% 7.0% 51.6%
NTA (Est) 0.18 0.18 0.25 0.34 0.43

Price Objective Basis & Risk
Murchison Metals Ltd
We have a 12-month price target of A$5.00/share, representing more than 140%
upside potential to investors from current prices. Our price target is supported by
an NPV of A$4.90/share, which was calculated using conservative assumptions
including a discount rate of 15.8%.
Our positive view on this stock is supported by the current strong market for iron
ore and our forecast strength in the iron ore market to post 2010.
Risks
Risks are the iron ore price, and project delivery, which includes the successful
completion of exploration, the capex costs of the project, successful funding of
the infrastructure, and delivery of the project on time and budget.
We are assuming that some $2,600m of port and rail infrastructure is spent to
bring Murchison’s as yet unproven Jack Hills orebody to the export market.
Murchison and others need to prove up enough ore to economically justify such a
large investment. Murchison believe that an infrastructure group comprising rail
operator, customers, and traders/resource investors, will fund the rail & port.
Mount Gibson Iron Ltd
We have an A$1.40/share price target, which offers around 90% upside potential
to investors from current prices. Our price target is supported by an NPV of
$1.37/share, which was calculated using a discount rate of 9.5%.
Our price target’s premium to NPV is supported by the lower risk in Mount
Gibson. Mount Gibson is currently in iron ore production. On earnings multiples, a
price target of above $1.50 per share can be justified.
Our positive view on this stock is supported by the current strong market for iron
ore and our forecast strength in the iron ore market to post 2010.
Risks
Risks are 1) iron ore prices. Mt Gibson is a high cost iron ore producer on its
current ore bodies; 2) reserves. Mount Gibson’s ore bodies are also short life (i.e.
to 2013/2014). There is potential for life extension at existing project assets, but
there is pressure on management to acquire longer life assets; and 3) currency.
However, as long as the iron ore market is tight, there is a strong likelihood that
any A$ strength will pass through to the iron ore price.
Analyst Certification
I, Mike Harrowell, hereby certify that the views expressed in this research report
about securities and issuers accurately reflect the research model applied in such
analysis. I also certify that no part of my compensation was, is, or will be, directly
or indirectly, related to the specific recommendations or view expressed in this
research report.
iQmethod SM Measures Definitions
Business Performance Numerator Denominator
Return On Capital Employed NOPAT = (EBIT + Interest Income) * (1 - Tax Rate) + Goodwill
Amortization
Total Assets – Current Liabilities + ST Debt + Accumulated Goodwill
Amortization
Return On Equity Net Income Shareholders’ Equity
Operating Margin Operating Profit Sales
Earnings Growth Expected 5-Year CAGR From Latest Actual N/A
Free Cash Flow Cash Flow From Operations – Total Capex N/A
Quality of Earnings
Cash Realization Ratio Cash Flow From Operations Net Income
Asset Replacement Ratio Capex Depreciation
Tax Rate Tax Charge Pre-Tax Income
Net Debt-To-Equity Ratio Net Debt = Total Debt, Less Cash & Equivalents Total Equity
Interest Cover EBIT Interest Expense
Valuation Toolkit
Price / Earnings Ratio Current Share Price Diluted Earnings Per Share (Basis As Specified)
Price / Book Value Current Share Price Shareholders’ Equity / Current Basic Shares
Dividend Yield Annualised Declared Cash Dividend Current Share Price
Free Cash Flow Yield Cash Flow From Operations – Total Capex Market Cap. = Current Share Price * Current Basic Shares
Enterprise Value / Sales EV = Current Share Price * Current Shares + Minority Equity + Net Debt +
Other LT Liabilities
Sales
E V / EBITDA Enterprise Value Basic EBIT + Depreciation + Amortization
iQmethod SM is the set of Merrill Lynch standard measures that serve to maintain global consistency under three broad headings: Business Performance, Quality of Earnings, and validations. The key features of iQmethod are: A consistently
structured, detailed, and transparent methodology. Guidelines to maximize the effectiveness of the comparative valuation process, and to identify some common pitfalls.
iQdatabase ® is our real-time global research database that is sourced directly from our equity analysts’ earnings models and includes forecasted as well as historical data for income statements, balance sheets, and cash flow statements for
companies covered by Merrill Lynch.
iQprofile SM, iQmethod SM are service marks of Merrill Lynch & Co., Inc.iQdatabase ® is a registered service mark of Merrill Lynch & Co., Inc.
Important Disclosures
Investment Rating Distribution: Non-Ferrous Metals/Mining & Minerals Group (as of 31 Mar 2007)
Coverage Universe Count Percent Inv. Banking Relationships* Count Percent
Buy 51 47.22% Buy 15 36.59%
Neutral 44 40.74% Neutral 9 25.71%
Sell 13 12.04% Sell 1 9.09%
Investment Rating Distribution: Global Group (as of 31 Mar 2007)
Coverage Universe Count Percent Inv. Banking Relationships* Count Percent
Buy 1562 45.16% Buy 415 30.09%
Neutral 1615 46.69% Neutral 446 30.65%
Sell 282 8.15% Sell 49 19.76%
* Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months.
FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK
RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium, and C - High. INVESTMENT RATINGS, indicators of expected total return
(price appreciation plus yield) within the 12-month period from the date of the initial rating, are: 1 - Buy (10% or more for Low and Medium Volatility Risk
Securities - 20% or more for High Volatility Risk securities); 2 - Neutral (0-10% for Low and Medium Volatility Risk securities - 0-20% for High Volatility
Risk securities); 3 - Sell (negative return); and 6 - No Rating. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend
considered to be secure); 8 - same/lower (dividend not considered to be secure); and 9 - pays no cash dividend.
In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for
sale: Mount Gibson Iro, Murchison Metals.
MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 10th day
of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 10th day of a month reflect the ownership position at
the end of the second month preceding the date of the report: Murchison Metals.
The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Merrill
Lynch, including profits derived from investment banking revenues.
Other Important Disclosures
UK readers: MLPF&S or an affiliate is a liquidity provider for the securities discussed in this report.
Information relating to Non-U.S. affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S):
MLPF&S distributes research reports of the following non-US affiliates in the US (short name: legal name): Merrill Lynch (France): Merrill Lynch Capital Markets
(France) SAS; Merrill Lynch (Frankfurt): Merrill Lynch International Bank Ltd, Frankfurt Branch; Merrill Lynch (South Africa): Merrill Lynch South Africa (Pty) Ltd;
Merrill Lynch (Milan): Merrill Lynch International Bank Limited; MLPF&S (UK): Merrill Lynch, Pierce, Fenner & Smith Limited; Merrill Lynch (Australia): Merrill Lynch
Equities (Australia) Limited; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited; Merrill Lynch (Singapore): Merrill Lynch (Singapore) Pte Ltd; Merrill
Lynch (Canada): Merrill Lynch Canada Inc; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de Bolsa; Merrill Lynch (Argentina): Merrill Lynch
Argentina SA; Merrill Lynch (Japan): Merrill Lynch Japan Securities Co, Ltd; Merrill Lynch (Seoul): Merrill Lynch International Incorporated (Seoul Branch); Merrill
Lynch (Taiwan): Merrill Lynch Global (Taiwan) Limited; DSP Merrill Lynch (India): DSP Merrill Lynch Limited; PT Merrill Lynch (Indonesia): PT Merrill Lynch
Indonesia; Merrill Lynch (KL) Sdn. Bhd.: Merrill Lynch (Malaysia); Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill Lynch (Russia): Merrill Lynch CIS Limited,
Moscow.
This research report has been prepared and issued by MLPF&S and/or one or more of its non-U.S. affiliates. MLPF&S is the distributor of this research report in
the U.S. and accepts full responsibility for research reports of its non-U.S. affiliates distributed in the U.S. Any U.S. person receiving this research report and wishing
to effect any transaction in any security discussed in the report should do so through MLPF&S and not such foreign affiliates.
This research report has been approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is authorized and
regulated by the Financial Services Authority; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co, Ltd, a registered securities dealer
under the Securities and Exchange Law in Japan; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Limited, which is regulated by the Hong Kong SFC; is
issued and distributed in Taiwan by Merrill Lynch Global (Taiwan) Ltd or Merrill Lynch, Pierce, Fenner & Smith Limited (Taiwan Branch); is issued and distributed in
Malaysia by Merrill Lynch (KL) Sdn. Bhd., a licensed investment adviser regulated by the Malaysian Securities Commission; and is issued and distributed in
Singapore by Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd (Company Registration No.’s F 06872E and
198602883D respectively). Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. are regulated by the Monetary Authority
of Singapore. Merrill Lynch Equities (Australia) Limited, (ABN 65 006 276 795), AFS License 235132, provides this report in Australia. No approval is required for
publication or distribution of this report in Brazil.
Merrill Lynch (Frankfurt) distributes this report in Germany. Merrill Lynch (Frankfurt) is regulated by BaFin.
Copyright, User Agreement and other general information related to this report:
Copyright 2007 Merrill Lynch, Pierce, Fenner & Smith Incorporated. All rights reserved. This research report is prepared for the use of Merrill Lynch clients and
may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Merrill Lynch. Merrill Lynch
research reports are distributed simultaneously to internal and client websites eligible to receive such research prior to any public dissemination by Merrill Lynch of
the research report or information or opinion contained therein. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report
constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including
any investment recommendations, estimates or price targets) prior to Merrill Lynch's public disclosure of such information. The information herein (other than
disclosure information relating to Merrill Lynch and its affiliates) was obtained from various sources and we do not guarantee its accuracy. Merrill Lynch makes no
representations or warranties whatsoever as to the data and information provided in any third party referenced website and shall have no liability or responsibility
arising out of or in connection with any such referenced website.
This research report provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer,
to buy or sell any securities or other investment or any options, futures or derivatives related to such securities or investments. It is not intended to provide personal
investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may
receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment or investment strategies
discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income
from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may
receive back less than originally invested. Past performance is not necessarily a guide to future performance. Any information relating to the tax status of financial
instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on
their particular circumstances from an independent tax professional.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition,
investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.
Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related
investments.
Merrill Lynch Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf.
Fundamental equity reports are produced on a regular basis as necessary to keep the investment recommendation current.
iQmethod, iQmethod 2.0, iQprofile, iQtoolkit, iQworks are service marks of Merrill Lynch & Co., Inc. iQanalytics®, iQcustom®, iQdatabase® are registered
service marks of Merrill Lynch & Co., Inc.

i hope this will help MMX holders good luck