Altura Mining Ltd th 27 September 2013 INVESTMENT SUMMARY ASX Code AJM Altura Mining Ltd (ASX code: AJM) has a compelling portfolio of projects materially Shares on issue (m) 454.2 undervalued and offering significant long term upside. AJM will achieve pivotal milestones over the next twelve months with an emerging production profile and Share price $0.13 resultant free cash flow, significantly enhancing the AJM proposition. Market Cap (m) $59.1 Cash(m) $3.4 Altura has well-credentialed management and board with extensive experience and Enterprise Value(m) $55.7 well demonstrated capabilities in all aspects of major project development and delivery. Minority stake in the Delta Coal Mine in Kalimantan Indonesia, current production of 1.5mtpa of mid ranking low ash thermal coal. AJM is forecasting a run rate of 2mtpa over medium term. Final investment decision reached at Mt Webber iron ore project with first shipments scheduled for Q2 2014, elevating AJM to Pilbara Iron ore exporter status via JV Atlas Iron with attributable production 900,000tpa. Pilgangoora Lithium emerging world class hard rock lithium project. Existing resource of 25 million tonnes at 1.23% Li2O, encouraging scoping study delivered. Established Exploration Services business forecasting FY2013 EBITDA earnings of $US1.875m with history of cash flow generation. Tabalong Coal High Energy Low Ash Thermal Coal, low capital intensity, awaiting final 12 month high $0.21 approvals for initial production. 12 month low $0.076 Balline Garnet project, resource/reserve at 8.4% HM assemblage predominantly Daily turnover (m) $0.534 Garnet with Titanium group metals. Recommendation Speculative Buy Valuation $0.385 Broad portfolio of highly prospective exploration assets with encouraging data to date. Management James Brown ……………………….Managing Director Paul Mantell………………………….Executive Director VALUATION Allan Buckler…………………Non-Executive Director Beng Teik Kuan ………….…Non-Executive Director We have updated our valuation on Altura maintaining a speculative buy rating and a Dan O’Neill………………...…Non-Executive Director valuation of $0.385 using applicable asset valuation methodologies for individual assets. At both Delta and at Mt Webber there is a developing visibility to earnings, for any Peter Wright development company the establishment of earnings is pivotal. We have assumed BCP Equities Pty Ltd enduring subdued pricing in thermal coal and a long term price of $USD120/t cfr for [email protected] Pilbara Fines 62% a discount to prevailing 07 3212 9218 prices along with an $AUD/$USD of $0.90. We have moderated our valuation post initiation note reflecting several factors BCP Equities Pty Ltd namely more moderate coal prices and the on-going ambiguity regarding forestry ABN 49 145 857 512 permits at Tabalong. Corporate Authorized Representative of Centec Securities Pty Ltd We see several valuation catalysts over the AFS Licence No. 240877 next twelve months. Successful Level 9, Waterfront Place,1 Eagle Street commissioning at Mt Webber is crucial BRISBANE QLD 4000 enabling Altura to be valued on GPO Box 1164 BRISBANE QLD 4001 conventional investment metrics. Email: [email protected] INVESTMENT VIEW The breadth, composition and potential for long term value creation of Altura’s portfolio are not reflected at the current market price. At $0.13 AJM is more a reflection of a challenging market for junior resource companies than Altura’s long term potential. With a market capitalisation of circa $59m Altura has several constituent assets that in a more benign broader market could plausibly support the current market cap, chief among them Mt Webber. Altura is well placed to emerge from a challenging period for junior miners and reach key milestones via the delivery of production and cash flow with the commercialisation of vital components of its portfolio. Within 12 months Altura will be generating significant free cash flow from Mt Webber (Iron Ore) and Delta (Thermal Coal) for a modest capital outlay. Contrasted against a market cap of $59m we see the potential for considerable valuation uplift, at Mt Webber in particular projected free cash flow will allow the application of conventional investment metrics. At prevailing AUD denominated iron ore prices of circa $135 Altura would trade on very modest multiples from Mt Webber alone. Adding the operating Delta project, the continued emergence of Pilgangoora and its considerable scope to attract a joint venture partner, along with Tabalong finally navigating the arduous Indonesian permitting process we see several catalysts and minimal downside to the prevailing market price. Altura will attain the status of Pilbara Iron ore exporter via the development of the Mt Webber with joint venture partner Atlas Iron (ASX Code AGO). We view the announcement of 8th July 2013 as encouraging on several fronts, the modest capital requirement from Altura to develop, reflecting the capacity of management to negotiate a sound outcome with ostensibly a modest hand. The low capital intensity of the project overall is pleasing and reflective of a rapidly moderating cost environment. The short lead time to first product and progress to date is pleasing. Acknowledging the healthy deferral of capital expenditure into Operation expense, we arrive at an all-inclusive operating cfr cost of $89.71 a tonne at cost at which we see the scope for considerable free cash flow with prevailing AUD received price of over $A150.00. Factoring in deductions for product we can see scope for the project generating free cash flow in the vicinity of $20m annually equating to 40% of the companies market cap. At Delta Coal; Altura has acquired an Indonesian production profile producing a mid-ranking thermal coal at a reasonable margin. Altura has identified the scope to optimise production for an annual run rate of 2 million tonnes with Altura having a 33% attributable share of production. Whilst Delta delivers on a long held ambition of attaining a production profile the Tabalong asset remains the driver of long term coal strategy for Altura. Progress at Tabalong has been frustrating with the majority of an involved permitting process to first coal largely completed with only the Pinjam Pakai (forestry approval remaining). Whilst hard to get visibility on successful permitting, any clarity on production timeline would serve as a major catalyst to Altura. Considering Tabalong hosts an existing resource/reserve of ICI-1 category coal, has a low capital intensity a considerable tenement footprint and the scope for growing both resource inventory and attributable production any progress would serve as a significant value catalyst. At Pilgangoora Altura has an exposure to Lithium with the third largest undeveloped hard rock lithium resource in the world. Altura has tabled a scoping study forecasting a modest capex of $96m and project NPV of $93m. We see considerable potential for Altura to create value with Pilgangoora, be it through a JV agreement with a strategic investor or asset spin off over the coming twelve months. Altura has within its structure several other valuable components; the exploration services business has consistently delivered free cash flow at reasonable margin. The Balline garnet project in West Australia has a resource and reserve of 65mt at 8.4% HM with an assemblage dominated by Garnet along with Titanium metals and a considerable exploration portfolio. Altura is a conservatively run company with management and board having a depth of experience in delivering projects and running successful companies primarily through New Hope Coal. Within the next twelve months we see the Altura proposition rapidly derisking with progress to production at Mt Webber. In summary Altura represents a sound opportunity at current prices which reflect little of the companies’ long term value potential. AJM has all the portents for significant value creation over the longer term with sound assets exposed to commodities with compelling long term fundamentals. AJM has credentialed management, near term production at Mt Webber, an expanding production base in Indonesia, an emerging lithium asset, broad exploration portfolio and profitable Mining services business. For those willing to look past the immediate market sentiment Altura represents a considerable opportunity with several visible and significant catalysts. 2 MT WEBBER IRON ORE Altura owns a 30% interest in the strategically placed Mt Webber deposit. Mt Webber hosts a 42mt resource with 34mt of this classified as reserve, the current resource to reserve conversion ratio is running above 97%. Whilst a nominally meagre ore body by Pilbara metrics the key differentiation is the identifiable pathway to market. Mt Webber needs to be viewed in this context with its relative proximity to port allowing road haul. Mt Webber is located within 220klms from the Port Hedland Port Authorities (PHPA) Utah Point common user facility where JV partner Atlas has an export allocation of 6mtpa moving to 12mtpa by 2015. TH DECISION TO MINE 8 JULY 2013 July 8th Altura and Atlas Iron (ASX code AGO) announced the decision to mine at Mt Webber. As highlighted in previous reports Mt Webber is of critical strategic importance to Atlas reaching its Horizon 1 goals via road haul and its prized inner harbour capacity at Port Hedland via Utah Point. Mt Webber will produce 3 mtpa of a fines product at a target head grade of 57.0%. The project comes with a forecast capex of $145m materially below estimates and reflective of a major slowdown in the West Australian Mining sector and an emerging competitiveness in tendering. Altura has a modest capital expenditure at Mt Webber of $5m with Atlas recouping a proportion of its capex via a management fee and an infrastructure access fee of $17/t of production. The governing parameters of the project have improved post the announcement of the deal with a previously rigidly strong AUD retreating from a $1.04 average throughout 2012 to be currently trading circa $0.93, weaker exchange rates have a material effect on project NPV.