Taylor Collison Limited 24 November 2005 Key Investment Points •...

Taylor Collison Limited 24 November 2005







Key Investment Points
• AZC is Australia’s highest leveraged Zircon opportunity. Zircon production
will generate 70% of forecast revenue.
• Major re-rating of AZC’s share price is anticipated as 100% funding of the
Mindarie Mineral Sands project (100% owned) is imminent.
• Significant further upside is expected as production rates rise in the third
year of operation.
• Revised feasibility study forecasts major improvements to shareholder
returns, as engineering aspects of the Project have been streamlined,
significantly simplifying operational procedures and reducing costs.
• Recent infill and extensional drilling has increased Measured Resources by
292% at Mindarie.
• Production is sustainable for a minimum of 14 years at initial production
rates. Extensions to mine life are probable with additional strandlines
coming on stream. In addition, significant exploration potential exists as
85% of AZC’s ground remains unexplored which is expected to result in a
20 years plus mine life.
• In addition to its near-term Mindarie project, AZC is earning an 80% interest
in the zircon rich 750 million tonne indicated resource, WIM I5O, in Western
Victoria. Roche (MT) has recently developed a multistage wet processing
gravity flowsheet which has delivered an encouraging 87% recovery of raw
feed zircon into an 86% Heavy Mineral concentrate.
• Demand for AZC’s high quality zircon product continues to be strong and
zircon prices are forecast to continue their impressive upward trend as
supply is tight, primarily driven by growing Chinese usage. Stronger Indian
demands are likely to emerge in the near future.
• A major sales off-take agreement for 100% of AZC’s production has been
concluded with major European metals trading house and AZC
Shareholder, DCM Decometal, who will contribute supporting finance.
• Board and management have strength and experience in technical,
financial, legal and marketing areas of the business and collectively the
directors shareholdings are significant in of the Company.
• The company has secured a significant proportion of the required materials
handling and minerals processing equipment from other operations, at a
considerable saving in cost.














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Taylor Collison Limited 24 November 2005
Valuation
Using our model in conjunction with the revised feasibility study forecasts completed
by AZC, we have assigned a valuation of $115m or $0.50 per share, fully diluted.
This comprises an ungeared NPV of the Mindarie Project, a heavily discounted
value of potential additional reserves on the Company’s remaining 20,000 square
kilometres of unexplored leases and net debt to cash position. Current cash balance
is negligible although AZC’s debt financier is providing short term finance through to
financial close. This valuation has been fully diluted for the exercise of the options.

Our valuation of the Mindarie Project is based on current stated reserves and
resources and an initial mine life of 14 years at an initial production rate of 500
tonnes per hour.

We are confident that AZC has the potential to significantly extend mine life through
exploration on their remaining 85% ground not represented by Mindarie and the
addition of further strandlines in one of the best regions in Australia for mineral
sands development thereby leveraging planned operations to increase value for
shareholders.


Profit Summary

MINDARIE 2007 2008 2009 2010 2011
Total Production 106,665 t 91,080 t 138,350 t 189,490 t 209,560 t
Revenue $47.8m $40.9m $65.8m $93.4m $96.0m
Total Oper. Cost $19.0m $17.5m $27.4m $36.0m $44.4m
Amortisation $6.0m $5.1m $7.8m $10.7m $11.8m
Profit after tax $21.7m $12.8m $21.4m $32.7m $27.8m
Cash Flows $27.7m $17.9m $29.2m $43.4m $39.6m


Cash Flows

AZC is forecast to generate strong cash flows commencing in 2007 at $27.7m
increasing to $43.4m in 2010. The cash flows will be used to reduce debt
($47m)and repay the preference shares ($18m) within 5 years.


Reserves and Resources

LOCATION MEASURED
RESOURCE
Mt
INDICATED
RESOURCE
Mt
INFERRED
RESOURCE
Mt
% HEAVY
MINERALS ZIRCON /TiO2 Ratio
Mindarie 44.7 127.5 5.3 3.6% 0.59
WIM 150 752.9 4.0% 0.5
Other areas 84.5 0.59
TOTAL 44.7 964.9 5.3



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Taylor Collison Limited 24 November 2005
As demonstrated in the above table, AZC has great potential to extend production
beyond the current 14 years. In addition there is an strong likelihood that other
Mindarie style deposits will be located within AZC’s unexplored tenements.

Reserves and resources have been taken from the Company’s recently completed
revised feasibility study at Mindarie (Snowden Mining Industry Consultants) and a
revised estimate (March 1990) of WIM 150 (Measured status in accordance with
Australasian Code for Reporting of Identified Mineral Resources and Ore
Reserves,1989).

Mindarie is made up of at least 30 separate strandlines, typically these are many
kilometres in length, some 50 to more than 500 metres in width, 2 to 5 metres in
thickness and found at shallow depths in the region of 20 metres below the surface.
No disturbance to strandlines is expected from interference with the water table as
characteristically the water table is located at least 30 metres below the base of
mineralization throughout the field.

Mindarie, being located in the youngest (western) sector of the Murray Basin,
is now believed by mineral sands industry authorities to contain one of the
higher zircon to titanium ratios of any mineral sands deposit in the world.

WIM 150 is an extremely large resource of zircon and titanium minerals. Mineral
grainsize is unusually fine, but AZC’s consultants, Roche (MT) have recently
completed test work that has successfully recovered 87% of raw feed zircon into an
acceptable grade heavy mineral concentrate.

Zircon and Titanium Uses and Forecasts

Zircon Uses – 70% of Mindarie Revenue

• Standard grade zircon is mainly used for its refactory properties in refactory
brick manufacture.
• Premium grade zircon is predominately used in the ceramics industry as an
opacifier, surface (hardening) coating for tiles and bathroom ware, ie. toilets
and hand basins. Also used in the manufacture of zirconium chemicals and
zirconia used in specialist glass manufacture, ie. television screens
Forecast
As Zircon cannot currently be recycled economically, the world is extremely
dependent on primary production. Chinese demand is at least 5 times their
production and the emergence of India only underpins the continuing price growth
that TZMI (global specialists to the zirconium and titanium industry) have forecast
well into the future. Zircon is a commodity that is characterised by under-supply and
over-demand.

Titanium Oxide (Rutile, Ilmenite and Leucoxene) Uses – 30% of
Mindarie Revenue
All three minerals are sources of titanium dioxide although they have differing
properties. Manufacturers utilize these minerals primarily as opacifiers and pigments
in paints (57%), plastics (20%), paper (13%) and inks (10%), as a total of 93% of
titanium oxide minerals are devoted to the above mentioned industries. These three
minerals are also essential components in the production of welding electrode
fluxes.

Rutile and synthetic rutile are used in the manufacture of titanium metal, which is
used across a broad range of industries, the most readily recognized being the
aerospace and golf club manufacturing industries.

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Forecast
Australia and South Africa collectively dominate the supply of titanium oxides to the
world. It is estimated that 65% of global titanium oxide supply is consumed by the
five major pigment producers, Dupont, Kerr-McGee, Millenium, Huntsman and
Kronos. Demand for pigments, and in turn, titanium oxide, is in a sustainable and
steady upward trend and therefore price forecasts are widely expected to follow that
same trend. Stable growth is forecast as new pigment markets are developed
around the world in emerging markets.