Shagang Offtake

Just read through the Notice of Meeting and very disappointed with the disclosure on the Shagang LoM.

There are key terms here which are not disclosed, leaving it impossible for shareholders to make an informed decision on how to vote.

1. Premium / discount to index

Except for iron ore products that set an index (e.g. Pilbara Fines sold on the Platts 62 index) almost every iron ore sales contract includes a premium or discount to the index used for pricing. This reflects both the value of the physical security of supply as well as the reality that iron ore has a diversity of product qualities and so product specifications (e.g. Fe grade, alumina, silica, physical characteristics) will result in a Value In Use for mills different to that of the underlying index. Given what has been disclosed either 1) the contract is at flat price (a steel mill's dream), or 2) the premium discount is being kept confidential (because disclosing it would give the game away as to the value being transferred to Shagang here). There is no need to keep this confidential as in the physical iron ore trading community and amongst chinese mills these terms are usually widely known unless the contract is a "sweetheart deal" that needs to be kept secret.

To make an educated decision on the value of linking pricing to the specific indices quoted Grange needs to disclose the detailed product specs in the contract (including target, max and min levels for chemical and physical properties) compared to those for the underlying index and any price adjustment clauses for above / below spec material. They should also disclose how historical spot market sales (e.g. where an arms length price has been negotiated on a cargo by cargo basis) have performed vis-a-vis these indices. To put this in perspective, in a premium part of the market such as pellets the potential premium to index could be USD 5-10/dmt or USD 5-10 million a year in revenue for Grange shareholders.

2 Quotational Period

Agreeing the underlying index is one thing, but there is massive value that can be extracted from the quotational period. Iron ore is a heavily backwardated forward curve. Rio and BHP normally sell on M QP (the month of shipment) whereas FMG sells on M+1 QP (the month after shipment). But nothing has been disclosed here so for all we know the QP is month of arrival in China (likely similar to M+1 given shipping time from Port Latta) or even something worse like Month after Arrival. Worse yet would be if the term allows Shagang to "choose" their QP (something Glencore likes to do when they can) which ensures that they will always pick the lowest of whatever QPs. Again, the failure to disclose this material information leaves shareholders unable to make an informed decision.

With backwardation of $4.5 a month at the moment this is potentially another $5-10 million of value that could be lost here if Grange has not done a good deal. The lack of meaningful disclosure can only feed shareholder fears about what is happening in the dark.

What can Shareholders do?

1. Vote against this offtake and force Grange management and Shagang to disclose the material terms of the offtake so shareholders can make an informed decision.

2. I'm not an expert on the corporate law side of things, but is it possible to ask the Takeovers Panel or ASIC to investigate this offtake deal further in the interests of minority shareholders?