BAILLIEU HOLST RESEARCH

02 May 2018 INTERNAL ONLY

Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 1

RECOMMENDATIONS

Rating BUY ▲ Risk Speculative

Price Target $0.59

Share Price $0.38 SNAPSHOT

Monthly Turnover $50.1mn

Market Cap $682mn

Shares Issued 1,819.8mn

52-Week High $0.51

52-Week Low $0.13

Sector Materials

BUSINESS DESCRIPTION Altura Mining is developing its Pilgangoora spodumene concentrate project in the Pilbara, Western Australia. It has contracts in place to sell the concentrate to consumers in China and the potential to expand the project.

12-MONTH PRICE & VOLUME

RESEARCH ANALYST Warren Edney

+ 613 9602 9384 wedney@baillieuholst.com.au

Disclosure The author owns no shares in AJM.

Altura Mining (AJM)

COMPANY REPORT

Sharpening the pencil on the Stage 2 expansion

Release of DFS for Stage 2 expansion: AJM’s release of the Stage 2 Definitive Feasibility Study (DFS) provided some clearer guidance on the capital and operating costs. The key changes were a decrease in our capital cost estimate from A$130m to A$118m in line with the DFS and C1 operating costs increase from A$286/t of wet spodumene concentrate to A$323/t as presented in the DFS. The biggest change was the mining costs where we had factored in greater economies of scale and stripping profile. AJM’s net present value (NPV) for the project is A$834m using a 10% weighted average cost of capital (WACC) and a US$690/wmt concentrate versus our estimate of A$1,162m using a WACC of 9.1% and long term average concentrate price of US$768/t. Based on our analysis of cash flow from Stage 1, we believe that AJM can fund the expansion internally without having to borrow more debt or issue equity.

Control discussions: The longer AJM management and Shaanxi J&R Optimum Energy Co take in negotiations, the higher the potential valuation for the company will move. As AJM moves all the way through capex spend, the move to production and sales will diminish the risk of the project and see it move into the cash generation phase.

Investment view: AJM is currently in negotiations with Shaanxi J&R Optimum Energy Co regarding a potential change in control transaction (announced 15 March 18). The completion of the DFS for Stage 2 and its release could potentially bring these discussions to a head. We feel that even without a commitment by the board to proceed with Stage 2 that the potential value will have to be included in any takeover offer or asset sale. We have therefore included our remodelling of Stage 2 after the DFS in determining our price target. Our previous price target of 48cps was based on the mid-point of previous valuations of Stage 1 alone and the combined valuation of Stages 1&2. Our revised price target of 59cps is based on the directors committing to the project and its completion as per the time line outlined in the DFS. We have maintained our BUY recommendation.

INVESTMENT SUMMARY

Year End: 30 June 2016 (A) 2017 (A) 2018 (E) 2019 (E) 2020 (E)

Revenue $mn 1 1 28 229 386 EBITDA $mn -30.6 -3.0 1.9 140.4 249.1

EBIT $mn -30.6 -6.8 1.7 128.2 229.8

Reported Profit $mn -27.6 -5.9 -2.2 75.5 148.9

Adjusted Profit $mn -31.6 -5.9 -2.2 75.5 148.9

EPS (Reported) ¢ -2.6 -0.4 -0.1 4.2 8.2

EPS (Adjusted) ¢ -2.3 -0.4 -0.1 4.2 8.2

EPS Growth % N/A N/A N/A N/A 97.3

PER (Reported) x N/A N/A N/A 10.6 5.4

PER (Adjusted) x N/A N/A N/A 10.6 5.4

Dividend ¢ 0.0 0.0 0.0 0.0 0.0

Yield % 0.0 0.0 0.0 0.0 0.0

Franking % 0 0 0 0 0

BAILLIEU HOLST RESEARCH Altura Mining Limited (AJM)

Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 2

Financial summary ALTURA MININGAnalyst: Warren Edney Rating: BuyDate: 02-May-18 Price Target: $0.59Share Price ($A): $0.44 Upside/(Downside): 34%Market Cap (A$m): $798 Valuation: $0.59EV (A$m) $898 Risk: Speculative

Year End: 30 June

KEY RATIOS FY16A FY17A FY18E FY19E FY20E VALUATION SUMMARYNPAT - Reported -31.6 -5.9 -2.2 75.5 148.9 WACC 9.1% A$m A$/Share

NPAT - Attributable -27.6 -5.9 -2.2 75.5 148.9 Pilgangoora 1,162 0.64

EPS - Adjusted -2.3 -0.4 -0.1 4.2 8.2 Other - 0.00

EPS Growth (%) n/a n/a n/a n/a 97% Projects 1,162 0.64

P/E (x) (19.5) (114.7) (360.2) 10.6 5.4 Corporate (8) 0.00

CFPS (A Cents) -0.2 -0.3 0.0 4.8 9.3 Exploration 14 0.01

P/CF (x) n/a n/a n/a 9.1 4.7 Net Cash / (Debt) (100) -0.06

DPS (A Cents) - - - - - Total Valuation 1,068 0.59

Franking (%) 0% 0% 0% 0% 0%

Dividend Yield (%) - - - - - VALUATION SENSITIVITY

FCF Yield (%) n/a n/a n/a 2% 12%

EV/EBIT (x) n/a n/a 1,116.8 14.9 8.3

EV/EBITDA (x) n/a n/a 1,030.2 13.6 7.7

ASSUMPTIONS FY16A FY17A FY18E FY19E FY20E

Australian Dollar (AUD/USD) 0.73 0.75 0.78 0.75 0.75Spodumene conc (US$/t) 627 665 865 901 820Spodumene conc (A$/t) 861 881 1,115 1,209 1,093

Li2O (US$/t) 11,400 12,087 15,731 16,376 14,905

PRODUCTION & COSTS FY16A FY17A FY18E FY19E FY20E

Pilgangoora

Spodumene (kt) 0 0 24 204 377 VALUATION OVER TIME

Spodumene - FOB Cost A$/t 0 0 868 427 358

LCE (kt) 0.0 0.0 3.5 30.2 56.0PROFIT & LOSS (A$M) FY16A FY17A FY18E FY19E FY20E

Operating Revenue - - 27.4 228.9 385.7

Other Revenue 1.5 1.3 0.4 - -Total Revenue 1.5 1.3 27.8 228.9 385.7

Operating Expenses - - (20) (87) (135)

Corporate/Other Expenses (32) (4) (6) (2) (2)

EBITDA (31) (3) 2 140 249

Depreciation & Amortisation 0 0 (0) (12) (19)

Exploration/write-offs - (4) - - -

EBIT (31) (7) 2 128 230

Net Interest / (Expense) (0) 0 (3) (20) (17) EARNINGS SENSITIVITY

NPBT (31) (6) (1) 108 213 AUD/USD FY18E FY19E FY20E

Income Tax Expense (1) 1 (1) (32) (64) Base NPAT A$m -2.2 75.5 148.9NPAT - Adjusted (32) (6) (2) 75 149 10% -1.3 -12.2 -21.8

Significant Items (4) - - - - +1c -0.2 -1.6 -2.9NPAT - Reported (28) (6) (2) 75 149

Spodumene FY18E FY19E FY20ECASH FLOW (A$M) FY16A FY17A FY18E FY19E FY20E Base NPAT A$m -2.2 75.5 148.9

Cash Flow from Ops (4) (6) (0) 88 168 10% 1.8 14.9 25.5Capex - Development & Sustaining (0) (35) (118) (69) (69) $10/t 0.2 1.7 3.1

Free Cash Flow (4) (41) (118) 19 99 PRODUCTION AND COSTSCash Flow From Investing (2) (44) (118) (71) (71)

Cash Flow From Financing 26 40 161 (37) (73)

Net Cash Flow 20 (9) 43 (21) 24

BALANCE SHEET (A$M) FY16A FY17A FY18E FY19E FY20E

Cash 22.1 13.3 56.8 36.2 60.1

PP&E/Development/Exploration 14.9 2.1 57.3 116.1 167.9

Assets 42.9 88.3 262.1 300.5 376.1

Debts 18.4 15.7 156.8 119.7 46.3

Liabilities 21.4 31.4 174.0 136.9 63.5Equity 21.5 57.0 103.2 178.7 327.6

Net Debt / (Cash) -3.7 2.4 100.1 83.4 -13.8Net Debt / (Net Debt + Equity) -21% 4% 49% 32% -4%

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Spodumene concentrate (kt) FOB cost (A$/t of conc) - RHS

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BAILLIEU HOLST RESEARCH Altura Mining Limited (AJM)

Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 3

Appendix FIG.1: LONG TERM MOMENTUM INDICATORS

Source: Iress

FIG.2: SHORT TERM MOMENTUM INDICATORS

Source: Iress

BAILLIEU HOLST RESEARCH

Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Page 4

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Baillieu Holst Ltd ABN 74 006 519 393

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Buy: The stock’s total return is expected to increase by at least 10-15 percent from the current share price over the next 12 months.

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Baillieu Holst Analysts’ stock ratings distribution as of 07 March 2018:

Buy: 69%

Hold: 28%

Sell: 3%

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