Mid-West Iron Ore Book

Steeling the Limelight from the Pilbara

August 2006

Andrew Muir
Resources Analyst

Andrew Rowell
Resources Analyst

Simon Tonkin
Research Analyst
Cover Photograph
Ore Train
Photograph courtesy of Mount Gibson Iron Limited
Hartleys initiates coverage of the Mid-West iron ore sector with the 2006 Mid-West Iron Ore
Book – “Steeling the Limelight from the Pilbara”. This Iron Ore Book profiles emerging iron
ore companies that are looking to capitalise on high iron ore prices by developing multi-
stage projects in the Mid-West region of Western Australia. This edition covers a selection of
five ASX-listed iron ore companies that are all currently mining, or planning to mine, iron ore
from deposits in the Mid-West region of WA. The current producers included are Mount
Gibson Iron Limited (MGX) and Midwest Corporation Limited (MIS). Companies currently
developing or planning operations, included in the 2006 Mid-West Iron Ore Book, are
Gindalbie Metals Limited (GBG), Murchison Metals Limited (MMX) and Golden West
Resources Limited (GWR).

The price of iron ore products has increased significantly over the past three years due to
increasing demand for iron ore from China. In 2004, iron ore producers were able to secure
an 18.6% increase in the price of lump and fines products, a 71.5% increase was achieved
in 2005 and a further 19% this year. These higher iron ore prices have increased the
attractiveness of the sector to new participants. This has led to a number of junior and mid-
sized exploration companies in the Mid-West and Pilbara focussed on defining iron ore
resources.

In the Mid-West region of Western Australia, iron ore mining first commenced in 1966 at
Koolanooka. Soon after, however, the size and grade of the Pilbara deposits overshadowed
the region and mining ceased in 1972. Efforts by Kingstream Steel to recommence mining
in the Mid-West in 2002 were not successful due to the high cost of establishing
infrastructure and the downturn in the Asian economy.

The latest group of iron ore aspirants, led by first-mover MGX, are better positioned than
Kingstream to progress their projects into production due to the collaborative approach to
infrastructure management. The five companies highlighted in the Mid-West Iron Ore Book
have formed the Geraldton Iron Ore Alliance. The aim of the alliance is to determine
infrastructure requirements that are optimal for the region as a whole and implement plans
for infrastructure to be developed on a common access basis.

We believe that the current strong iron ore prices, the involvement of Chinese, Malaysian
and Korean partners and the support of the WA Government for the development of
infrastructure on a common access basis presents a number of opportunities for the
emerging Mid-West iron ore producers. We believe that there is good potential for the value
of these companies to increase by multiples of their current share prices. This is critically
dependant upon the construction of the rail and port infrastructure in a timely manner to
accommodate the larger second stage projects.

NOTE: As this book went to press, MGX announced a takeover for Aztec Resources Limited
(“AZR”), an emerging iron ore producer at Koolan Island in Western Australia. If successful,
the merged company has the potential to have a production base of 8Mtpa from three
mines.
This page is intentionally left blank
Table of Contents

Investment Highlights 1

Introduction 2
Company Summaries and Comparisons 4
Iron Ore Pricing 7
Strategic Alliances 9
Geraldton Iron Ore Alliance
Asian Steelmaker Alliances
Infrastructure Alliances
Mid-West Mining Infrastructure 11
Iron Ore Market 14
Iron Ore Types 16
Iron Ore Products 17
Iron Ore Contaminants and Parameters 18
Glossary of Terms 19

Company Reports
Gindalbie Metals Limited (GBG) 25
Golden West Resources Limited (GWR) 33
Mount Gibson Iron Limited (MGX) 37
Midwest Corporation Limited (MIS) 45
Murchison Metals Limited (MMX) 53

Disclaimers and Disclosures Inside Back Cover

This page is intentionally left blank
 Hartleys Limited

Investment Highlights

Mt Gibson Iron Limited (MGX - $0.785) BUY

Valuation: $1.04
• First mover status means that MGX is capitalising on the current strong iron ore prices.
• Sale of stake in higher risk Extension Hill Magnetite Project for $52.5m provides funding for lower risk
Extension Hill Hematite Project development.
• MGX is not reliant on Oakajee development for its expansion plans and will continue to export its product
through the Port of Geraldton.
• Relatively low capital costs, therefore MGX has capacity to fund and is able to retain 100% equity in its
projects.

Murchison Metals Limited (MMX - $0.68) SPECULATIVE BUY

Valuation: $1.54
• Stage 1 production to commence in H2 CY2006. Stage 1 provides cashflow for the development of Stage 2
in 2010.
• The bulk of the valuation is generated by the Stage 2 development at Jack Hills, where 25Mtpa is planned to
be mined over a 15 year period.
• The construction of the Oakajee deepwater port and Jack Hills railway is critical for the development of Stage
2.
• Offtake agreement and strategic alliance with POSCO provides confidence that infrastructure projects will be
constructed.

Gindalbie Metals Limited (GBG - $0.585) SPECULATIVE BUY

Valuation: $0.69
• GBG is ~15 months away from commencing production from the Karara Hematite Project. The Hematite
Project provides cashflow for the development of the larger Magnetite Project.
• GBG’s plans for the Magnetite Project include a 4Mtpa pellet plant to be constructed near Geraldton. GBG
also plans to export a further 4Mtpa of concentrates.
• Major risk for GBG is large capital requirement for Stage 2 ($1,135m), although this risk is partially mitigated
by alliance with Chinese steelmaker Ansteel.
• AnSteel Alliance includes an offtake agreement and commitment to assist in funding of Magnetite Project.

Midwest Corporation Limited (MIS - $0.50) SPECULATIVE BUY

Valuation: $0.89
• Producer status achieved in February 2006 with export of stockpiled fines material from Koolanooka. MIS
intends to export this material for two years before developing a mining operation at Koolanooka.
• Larger Weld Range Project, planned to commence in 2010 at 20Mtpa, is dependant on the construction of
Oakajee Port and associated rail infrastructure.
• Jack Hills and Koolanooka Magnetite provide growth potential, however, both are early stage projects.

Golden West Resources Limited (GWR - $1.05) SPECULATIVE BUY

• Highest risk project due to large distance from port. GWR is currently planning to export its Stage 1 material
through the Port of Esperance. For Stage 2, GWR is investigating the potential to utilise Oakajee via a rail
connection to Jack Hills.
• Despite the distance, GWR’s main attraction is its grade. With a grade of +67% Fe for the Stage 1 material,
the additional transport cost is compensated by higher revenue.

1
 Hartleys Limited

Introduction
Welcome to the first edition of the Hartleys 2006 Mid-West Iron Ore Book. We have specifically targeted the Mid-
West region of Western Australia as we believe that the proposed projects offer investors excellent leverage to
record iron ore prices. The strong demand for iron ore from China has resulted in increased iron ore prices over the
past three years. These higher prices, coupled with the oligopoly strength of Rio Tinto, BHP Billiton and CVRD, has
in turn seen Asian steelmakers attempt to diversify supply away from the big three producers by entering into
strategic alliances with smaller iron ore companies.
These large steelmakers are seeking to secure long-term supply of iron ore through commitments to provide
funding and offtake agreements for the development of new iron ore mines in the Mid-West. It is through these
alliances, and the collaborative approach to infrastructure access, that we believe there is a good potential for the
large capital infrastructure projects, such as the Oakajee port, will be developed.

Figure 1: Mid-West Iron Ore Project Locations

(GWR)

(MMX)

(MIS)

(MGX)

(MIS)

(MIS)
(GBG)

(MGX)

Source: Geraldton Iron Ore Alliance

Most of the iron ore aspirants are developing multi-stage projects based around the development of the Oakajee
port and associated infrastructure. We believe that there are excellent prospects for these companies to generate
strong early cashflow from the Stage 1 projects. Dependant on infrastructure construction, this will be followed by
large scale expansions in Stage 2 that should deliver exceptional returns.
The most significant risk for the development of the Stage 2 projects for MIS, MMX and GWR is the construction of
a deepwater port at Oakajee and a major new rail line to service the Jack Hills, Weld Range and Wiluna West
projects. If this infrastructure is not constructed or is considerably delayed, this will have a material impact on the
valuations of MIS, MMX and possibly GBG.

2
 Hartleys Limited

The 2006 Mid-West Iron Ore Book aims to give clients of Hartleys a guide to value within the Mid-West iron ore
sector through a series of peer comparisons and statistical analyses. Table 1 outlines our recommendations for
companies within the Mid-West Iron Ore Book.

Table 1: Hartleys 2006 Mid-West Iron Ore Book Recommendations

Hartleys Market Price1

Company ASX Code Recommendation
Valuation (21 July 2006)

Gindalbie Metals Limited GBG Speculative Buy $0.69 $0.585

Golden West Resources Limited GWR Speculative Buy N/A $1.05

Mount Gibson Iron Limited MGX Buy $1.04 $0.785

Midwest Corporation Limited MIS Speculative Buy $0.89 $0.50

Murchison Metals Limited MMX Speculative Buy $1.54 $0.68

Source: Iress

Note: Unless otherwise specified, all dollar values throughout this book are in A$.
As there are different levels of uncertainty and risk between the Stage 1 and Stage 2 projects, we have risk adjusted
our valuations for the Stage 2 projects. For Stage 2 projects that are currently the subject of feasibility studies, we
have modelled the projects using standard DCF methodology and then discounted the valuation by 70%. Once the
feasibility study has been completed and approvals are in place, we would look to reduce the discount to 30% and
then ultimately to zero.
Table 2 illustrates the liquidity measure of the stocks included in the Hartleys 2006 Mid-West Iron Ore Book. This
provides a measure of the turnover of shares during the last twelve months and indicates to investors the ease in
which the shares can be converted to cash without creating a substantial change in price.

Table 2: Liquidity Measure

Ordinary Fully Avg. Daily

Avg. Daily Liquidity
Company ASX Code Paid Shares * Turnover
Value Measure1 (%)
(millions) (shares)

Gindalbie Metals Limited GBG 430.8 $0.90m 2.65m 136%

Golden West Resources Limited GWR 30.7 $0.03m 0.08m 5%

Mount Gibson Iron Limited MGX 402.0 $1.30m 1.69m 110%

Midwest Corporation Limited MIS 257.9 $0.20m 0.40m 41%

Murchison Metals Limited MMX 301.7 $0.50m 1.16m 101%

1 Liquidity Measure refers to the volume of shares traded in one year in respect to the total ordinary shares on issue excluding options.
* Ordinary Fully Paid shares are not on a fully diluted basis and exclude escrowed shares
Source: Iress

3
 Hartleys Limited

Company Summaries and Comparisons

The following comparatives have been collated for the five Mid-West iron ore companies featured in this Book.
They are designed to highlight the similarities and differences between the companies, given that all are working on
different timelines and producing different products and volumes. Due to the stage of development, Golden West
Resources (GWR) has not been included in all comparatives.

Market Capitalisation
The market capitalisation of the selected iron ore companies ranges from A$53m (GWR) to A$345m (MGX)
(Figure 2). MGX has the largest market capitalisation due to the fact that it is the largest producer in the region with
an operating mine that is producing cashflow. MMX has commenced mining at Jack Hills, with first ore expected to
be shipped in Q3 CY2006. GBG’s market capitalisation has increased to >$200m in the past six months due to the
progression of the hematite project as well as the offtake and funding agreement it has struck with AnSteel. The
market capitalisation of MIS is significantly lower than GBG, MMX and MGX despite currently producing iron ore
from low-grade stockpiles at Koolanooka. GWR’s market capitalisation reflects the early stage nature of the project
and potentially reflects the additional risks associated with transporting ore over a large distance to port.

Figure 2: Market Capitalisation

400
350

300
Market Cap (A$m)

250
200
150

100
50
-
MGX MMX GBG MIS GWR

Note: Unless otherwise specified market capitalisation is fully diluted and includes in the money options throughout this document
Source: Iress

Project Timelines
The strength in iron ore prices over the past two years has accelerated the development plans of many of the Mid-
West iron ore companies. A key component of the development timelines is the construction of key infrastructure in
the region. The upgrade of Berth 5 at the Port of Geraldton is due to be completed in September 2007, whilst
many of the larger second stage projects are highly dependant on the construction of the Oakajee Port and Jack
Hills railway by mid-2010.
MGX commenced mining at Tallering Peak in 2004 and still has at least six years of mine life left. MGX is now
focussed on the development of a second hematite operation at Extension Hill after selling its equity in the
company that held the magnetite rights to the deposit and several others. Whilst the Extension Hill Hematite Project
is at the Scoping Study level, we forecast that it will be in production at an annualised rate of 3Mtpa by FY2008.
MMX has commenced mining at Jack Hills at an initial Stage 1 rate of ~2Mtpa. Ore will be transported ~600km to
the Port of Geraldton by road trains. The larger Stage 2 project, with a planned output of 25Mtpa, will require the
development of the deepwater port at Oakajee as well as a dedicated rail line to Jack Hills. Stage 2 is planned to
commence in mid-2010 to coincide with the expected completion of Oakajee.
GBG is planning to commence mining at Mt Karara from Q1 CY2008 at a rate of 1.5Mtpa. Ore will be trucked to
Morawa or Perenjori and then transported by rail to the Port of Geraldton. The larger Stage 2 Magnetite Project,
expected to commence in Q1 CY2010 as a 50:50 joint venture with AnSteel, involves the mining and beneficiation

4
 Hartleys Limited

of 20Mtpa of ore to produce 8Mtpa of concentrate. This concentrate is then to be transported as a slurry via a
pipeline to Oakajee or Geraldton where GBG intend to construct a 4Mtpa pellet plant.
MIS commenced the production of iron ore fines from stockpiles at Koolanooka in February 2006. Plans are
underway to recommence mining at Koolanooka in 2008 at a rate of 1Mtpa. The Stage 2 project involves the
development of the larger Weld Range Hematite Project, located 100km from MMX’s Jack Hills Project. It is
anticipated that a spur line will be constructed off the main Jack Hills railway and ore is to be transported to the
new Oakajee port for export. We expect Weld Range to come on-line in 2010.
GWR has joined the Geraldton Iron Ore Alliance as it believes that it may define sufficient resources at the Wiluna
West iron ore project that would justify the construction of a large rail spur from Jack Hills. Initially, however, GWR is
planning to develop a smaller scale 1Mtpa DSO operation, exporting its high grade (~65-70% Fe) via road and rail
to Esperance. GWR has indicated that it may be in a position to commence mining in FY2008.

Production Rate and Mine Life

The four companies that are planning to develop Stage 1 projects through the Port of Geraldton will not be able to
ramp up to full production levels until the upgrade of Berth 5 is complete in September 2007. Issues with the
reliability of the rail unloader and shiploader have restricted output capacity through Berth 4, which is also used for
the export of other mineral products.
Based on Hartleys’ modelling, we forecast that 2.95Mt of lump and 2.55Mt of fines product will be exported
through the Port of Geraldton in FY2007. We believe that this will increase to 4.75Mt of lump and 4.35Mt of fines
product in FY2008 and will then remain relatively constant at this level until mid-2010 when Oakajee is expected to
be operational.
With the timing of most of the Stage 2 projects dependant on significant infrastructure development, we forecast
that there will be an immediate increase in exported iron ore product from the region from mid-2010. We expect
that MGX will continue to utilise the Port of Geraldton after 2010, however we expect that MMX and MIS will move
all of their ore through the Oakajee port. GBG has announced that it will have sufficient capacity at Geraldton for
the Stage 2 project, however, it w ill keep open the option of using Oakajee.
The expected Mid-West iron ore production levels are shown in Figure 3. If all of the projects are progressed
through to production as planned, we forecast that ~65Mtpa of iron ore will be exported through Oakajee with a
further 6-8Mtpa through Geraldton.

Figure 3: Production Rates

30.00
Attrib. Production Rate (Mtpa)

25.00

20.00

15.00

10.00

5.00

-
GBG Stage 1

GBG Stage 2

MGX Stage 1

MGX Stage 2

MMX Stage 1

MMX Stage 2
GWR Stage 1

GWR Stage 2

MIS Stage 1

MIS Stage 2

Lump Fines Concentrates Pellets Unspecified

Source: Hartleys’ Estimates, Company data

5
 Hartleys Limited

Capital Costs
The cost of developing an iron ore operation is dependant on a number of factors, most notably deposit type and
location. With respect to deposit type, DSO hematite deposits have a considerably lower capital cost than magnetite
projects as there is very little processing required prior to export. Ore is simply crushed and screened into lump and
fines before being loaded for export. Location has a major impact on the capital cost due to the distances required
to transport the ore to the port. Major location related capital costs include road upgrades, provision of power and
water, slurry pipelines, railway construction, rolling stock for rail, rail passing loops, rail sidings or road train wagons.
GBG’s capital cost for Stage 2 is well in excess of the capital requirements of the other iron ore companies due to
the anticipated construction of a 4Mtpa pellet plant near Geraldton or Oakajee. The pellet plant and slurry pipeline
for the Magnetite Project is expected to cost A$550m out of the total Stage 2 capital budget of $1.14b.
At the other end of the scale, Figure 4: Capital Requirements
MGX’s capital estimate for the
Extension Hill Hematite Project 1,200
is expected to be around
Capital Requirements A$m (100% Project)

A$65m due to the utilisation of 1,000

existing infrastructure and a low
strip ratio. The capital
800
requirements for the Stage 1
and Stage 2 projects is shown in
600
Figure 4.
For the Stage 2 projects, there 400
are two very large capital items
being contemplated – the 200
$700m+ Jack Hills rail line and
the $500m+ Oakajee Port. It is 0
the preference of the WA
MGX MMX GBG MIS GWR
Government that these two
capital projects are developed as Stage 1 Stage 2
common user access projects
with no single mining company Source: Hartleys’ Estimates, Company data
having control over the assets.
The Geraldton Iron Ore Alliance
is currently investigating the feasibility of these two projects with the aim of having third party financing and
environmental approvals in place by end of CY2007.

Operating Costs
For the hematite projects, operating costs are largely a function of strip ratio, transport distance and transport
method. Large, wide orebodies tend to have lower strip ratios, therefore less waste removal is required and the
operating costs are lower. For transport distance, the further that the product is required to be transported by rail or
road to port, the higher the operating costs. Finally, the choice of transport method will have a large bearing on
operating costs. Rail is considerably cheaper than road transport, however it is only an attractive option for projects
within 100km of a rail line. Crushing ore into a slurry and transporting via a pipeline is considered even cheaper
than rail, however there is a relatively large capital cost with this option and throughput flexibility is limited.
MMX and MIS are initially planning to transport ore to the Port of Geraldton via road, whereas GBG and MGX are
planning a combination of road and rail. GWR is currently considering transporting its Stage 1 ore via road to
Leonora and then via rail to Esperance.
Hartleys’ has modelled the various mine proposals and developed operating cost estimates for each operation.
Figure 5 shows the expected average received price and expected operating margin. Note that the combined bars
on the chart reflects the average realised price. This is different from company to company depending on the iron
ore product and the iron ore grade.

6
 Hartleys Limited

Figure 5: Operating Costs and Operating Margin

80
70
60
50
A$/t

40
30
20
10
0
MGX Stage 1

MGX Stage 2

GBG Stage 1

GBG Stage 2
MMX Stage 1

MMX Stage 2

MIS Stage 1

MIS Stage 2
Ope rating C ost s Operat ing Mar gi n
Source: Hartleys’ Estimates, Company data

Figure 5 shows that the Stage 2 projects are expected to have a lower received price. Whilst most of the projects
have a similar cost structure forecast for Stage 1 and Stage 2, the operating margin for MMX increases as a result of
lower transport costs and a larger production base.

Iron Ore Pricing

Iron ore is usually sold in US currency expressed as US cents per dry tonne unit or per dry long ton unit. A 'unit' is
one percent iron. To convert price per unit to price per tonne, the unit price is multiplied by the dry percentage iron
in the ore. The ore is sold on an FOB basis (that is, loaded at the seller's wharf on a vessel supplied by the buyer),
or CIF (delivered to the buyer's wharf in a vessel supplied by the seller).
The majority of ore is sold on long term contract with annual quantities varying slightly in line with contract terms,
but with prices being re-negotiated each year. Prices are set in annual negotiations between the major Australian
producers and the Asian steel mills. Concurrent negotiations are usually conducted between major Atlantic Basin
producers and major European steel mills. Such settlements fix a ‘benchmark’ for prices that year. A small
proportion of ore is sold on a 'spot' basis.
Typically, in Asia, the price is settled for standard Australian fine ore ex-BHP Iron Ore or Hamersley Iron, with a
'lump' premium to cover the extra value recognised for lump ore. Other buyers and sellers settle quickly on the
basis of typical and pre-agreed 'quality' merits or demerits.
The major pellet buyers negotiate a blast furnace 'pellet' premium with pellet producers in Sweden, Canada, South
America and elsewhere, and later a 'direct reduction pellet' premium is also agreed. These agreements become
industry standard for the year.
Prices are negotiated on a calendar year basis for the European market and on a year commencing 1 April basis for
the Asian market. In the event of prices not being agreed before the start of the period, it is common to continue
shipping and issue provisional invoices. In the past few years, the European negotiations have been completed
before the Asian negotiations, providing a lead for the Asian markets.

7
 Hartleys Limited

Hartleys Price Assumptions

The current strength of the iron ore market, as demonstrated by the price rises over the past two years, has had a
significant impact on the economic viability of iron ore projects in WA’s Mid-West region. Increased global demand
for iron ore, particularly out of China, has seen the prices for internationally traded iron ore products increase. In
2005, benchmark prices for lump ore increased by 71.5%, whilst the 2006 price negotiations have resulted in a
19% rise (Figure 6).

Figure 6: Historic Iron Ore Prices and Hartleys Forecast

100

90

80

70
USc/dmtu

60

50

40

30

20
2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

Fines Lump Fines F'cast Lump F'cast

Source: Hartleys’ Estimates, Company data

We are believers in the ‘resources super-cycle’ and believe demand from China will remain strong in the medium
term. However, we expect some easing of iron ore prices over time as producers increase production in order to
capitalise on higher iron ore prices. Therefore, we have maintained a flat profile for 2007 and 2008, followed by a
10% drop in 2009 and a 20% drop in 2010 (Table 3).

Table 3: Financial Parameter Assumptions

FY07 FY08 FY09 FY10 FY11

A$: US$ 0.735 0.735 0.735 0.725 0.720

Iron Ore Price – Lump (USc/dmtu) 93.7 93.7 84.4 67.5 67.5

Iron Ore Price – Fines (USc/dmtu) 73.5 73.5 66.2 52.9 52.9

Iron Ore Price – Concentrate (USc/dmtu) 80.9 80.9 72.8 58.2 58.2

Iron Ore Price – Pellets (USc/dmtu) 113.2 113.2 101.9 81.5 81.5
Source: Hartleys’ Estimates
(Note: Prices are converted to US $/t by multiplying by the iro n ore grade (%))

8
 Hartleys Limited

Strategic Alliances
Geraldton Iron Ore Alliance
There are five companies in the Mid-West region that are currently producing iron ore or plan to do so within the
next two years. These companies are:

Company Code Project Product

Gindalbie Metals Limited GBG Mt Karara Hematite/Magnetite
Mount Gibson Iron Limited MGX Tallering Peak/Extension Hill Hematite
Murchison Metals Limited MMX Jack Hills Hematite
Midwest Corporation Limited MIS Koolanooka, Blue Hills, Weld Range Hematite/Magentite
Golden West Resources Ltd GWR Wiluna West Hematite

Most of these companies are planning to establish projects in two stages, with a smaller initial development plan to
generate cashflow followed by a larger second stage expansion. Stage 1 output is targeted to be exported through
the upgraded Berth 5 facility at Geraldton. The second stage projects involve significantly larger volumes, which
exceed the capacity of the Geraldton Port. To counter this obstacle, it has been proposed that a new port be
constructed 25km north of Geraldton at Oakajee, which is capable of handling Cape size (160kt-230kt) vessels.
With most of these companies planning to use components of the same infrastructure, the Geraldton Iron Ore
Alliance (“Alliance”) was formed to investigate infrastructure and other project aspects (ie environmental) that are
common between the projects. It is hoped that the Alliance will be able to more effectively plan for the
infrastructure needs of the region and reduce the cost and time required for implementation. Recently, a sixth
member, Royal Resources Limited, has joined the Alliance.
Initially, the role of the Alliance is to:

• Liaise with governments, industry groups, non-government organisations and community groups, particularly
relevant departments and agencies of the WA Government, the WA Chamber of Minerals and Energy and the
Association of Mining and Exploration Companies on key issues of infrastructure, regional development and
community relations;
• Promote the development of appropriate common user and other infrastructure and work closely with all
stakeholders in the region to optimise the utilisation of existing infrastructure;
• Work closely and cooperatively with the Geraldton Port Authority and other stakeholders to enhance the
efficiency and capacity of the port; and
• Liaise with community groups and stakeholders including Government agencies to address issues arising from
the expansion of the iron ore industry.

The major areas for consideration and assessment by the Alliance are:

• Geraldton Port Infrastructure – Optimising capacity of the shiploader and rail unloading facilities;
• Oakajee Port Construction – Determine optimal size and layout of port; prepare studies based on third party
funding and operating the development on an open access basis;
• Existing Rail Infrastructure – GBG and MGX are using or intend to use the current narrow gauge rail system
operated by WestNet for Stage 1. The main items for assessment are capacity, scheduling, unloading and
passing loops.
• Proposed Rail Infrastructure – MMX is contemplating a new rail line from Jack Hills to Oakajee, with MIS
investigating a spur line off this to its Weld Range project. Items for investigation are the proposed route, rail
gauge, funding and operatorship.
• Environmental – Each of the iron ore projects being assessed for development occurs in a BIF formation that
generally has a higher relief than the surrounding area. The alliance is pooling its environmental knowledge to
determine the prevalence of different species and the impact that mining could have on them.

9
 Hartleys Limited

Asian Steelmaker Alliances

A number of the Mid-West iron ore companies have developed strategic alliances with Asian steelmakers. These
alliances have been sought by both producers and steelmakers.
For the emerging iron ore producers, a strategic alliance with a large Asian steelmaker provides offtake assurance,
project credibility and assistance with funding. For the Asian steelmakers, the alliances provide access to long-term
alternative sources of iron ore, and a strategic foothold that can be used to influence iron ore pricing negotiations.
The following section details the various strategic alliances in place in the Mid-West iron ore sector.

Murchison Metals – POSCO Alliance

In April 2006, Murchison formed a strategic alliance with the Pohang Iron & Steel Company Limited (POSCO) as a
critical part of MMX’s Stage 2 development of Jack Hills. POSCO is a wholly owned subsidiary of one of the world’s
largest iron and steel producers, POSCO Limited of South Korea.
Under this alliance, POSCO acquired shares and options in Murchison and secured the right to purchase up to
10Mtpa of iron ore over a 25 year period from Murchison. POSCO has also indicated that it will purchase a 50kt
trial shipment of iron ore from Jack Hills Stage 1 in 2006.
POSCO is a leading steel-manufacturing company engaged in the production and selling steel products, including
hot-rolled and cold-rolled products, plates, wire rods, silicon steel sheets and stainless steel products. Established in
1968, POSCO is one of the world's largest and most profitable steel manufacturers. A Global 500 company,
POSCO has an annual crude steel production capacity of 28Mt and annual revenues of US$10.6b.

Midwest Corporation – Sinosteel Alliance

In June 2005, MIS entered into a framework agreement with Sinosteel Corporation (“Sinosteel”), one of the largest
state owned enterprises in China’s steel industry.
The framework agreement covers Midwest’s two major projects, the Weld Range Hematite project and the
Koolanooka Magnetite project. The involvement of Sinosteel in the projects provides surety over sales and provides
confidence that the larger projects can be financed.
Subject to the feasibility of the project, Sinosteel will enter into an offtake agreement to purchase the iron ore
products from the Weld Range and Koolanooka projects on commercial terms. The projects will be financed by
limited recourse project finance and Sinosteel will lead the procurement of this finance.
Sinosteel is a central enterprise under the administration of China’s State-Owned Assets Supervision and
Administration Commission. Sinosteel is engaged in developing, mining and processing of metallurgical mineral
resources; trading and logistic of metallurgical raw materials and other related products; conducting research,
application and service of metallurgical technologies etc. Sinosteel also trades in chrome ore, DRI, fluorspar, coke,
manganese ore, scrap, steel products, magnetite and rare earths.

Gindalbie Metals – AnSteel Alliance

In April 2006, GBG entered into a Joint Venture for the Karara Iron Ore Project with China’s Anshan Iron and Steel
Group Corporation (“AnSteel”). The JV Agreement has been structured in two parts and covers both the Hematite
Project and Magnetite Project. AnSteel has the right to earn 50% equity in both projects through a combination of
offtake and funding support for the projects.
AnSteel is China’s second largest steel producer and the major steel producer in the north-east region of China.
One of China’s oldest (first established in 1916) and the world’s most influential steel company, AnSteel has
recently announced a merger with Benxi Steel, also based in Liaoning Province. The completion of this merger is
expected in 2006 under the merged name of ANBEN Steel Group Company. ANBEN is expected to have total steel
production capacity of 30Mtpa by 2010.
Under current Chinese Central Government policies, AnSteel is considered to be one of the country’s key growth
companies and has strong support in securing new sources of long-term iron ore supply through international
investment. It reports that it has financial support for its investments with the China National Development Bank.

10
 Hartleys Limited

Infrastructure Alliances
Northern Infrastructure Alliance – Midwest Corporation, Murchison Metals
MMX and MIS have formed a consortium with POSCO Engineering and Construction Company Limited (POSCO
E&C), Toll Holdings (Toll) and Japan's Mitsubishi Corporation to conduct a feasibility study into the development of
new rail and port infrastructure in the Mid-West region of Western Australia.
The consortium has been established through a formal non-binding memorandum of understanding (“MOU”).
Under the MOU, the parties have agreed to contribute resources and expertise to determine the requirements for
building the rail and port infrastructure. The infrastructure will include construction of Oakajee and new rail links
from Jack Hills to Oakajee. The feasibility study is due to be completed by Q2 CY2007.

Gindalbie – Thiess Alliance

In February 2006, Gindalbie entered into a Project Alliance Agreement with integrated engineering and services
group, Thiess Pty Ltd, a subsidiary of Leighton Holdings Limited (LEI). The aim of the alliance is to facilitate the
completion of an integrated DFS for development of both the magnetite and hematite components of the Karara
Iron Ore Project. Completion is planned before the end of calendar 2006.
The Project Alliance Agreement provides for a collaborative approach to the management and completion of all
studies, covering both the Karara magnetite/pellet project and the Karara hematite DSO project. GBG anticipates
the alliance will lay the foundation for a subsequent agreement with Thiess for the design, construction,
commissioning and operation of Karara, subject to achieving acceptable cost estimates, and development
schedules and securing funding.

Mid-West Mining Infrastructure

Whilst iron ore mining first occurred in the Mid-West in the 1960’s, there was a subsequent hiatus of activity in the
region from 1972, when attention shifted to the Pilbara. This has resulted in only minor new mining related
infrastructure being developed over the past forty years. The narrow gauge railway throughout the Mid-West
essentially services the agricultural sector, whilst most mineral related products (mineral sands, Cu-Pb-Zn
concentrates and talc) are exported through Berth 4 at the Port of Geraldton.
The Stage 1 development plans being contemplated by the various iron ore companies involve a major increase in
the utilisation of the narrow gauge rail system and an upgrade to Berth 5 at Geraldton into a dedicated iron ore
facility.

Existing Narrow Gauge Railway

MGX are currently using the existing narrow gauge railway to transport Tallering Peak ore from Mullewa to
Geraldton. GBG also plans to use the rail line, connecting at either Morawa or Perenjori. The line, operated by
WestNet, has sufficient capacity to handle both companies planned output, however GBG will be required to
provide the rolling stock (rail wagons) for its ore transport. GBG estimates that it will require 90 wagons initially.
Depending on scheduling and conflicts with other users, there may be a requirement for these companies to
contribute to the cost of establishing passing loops along the line, estimated at ~$2m each.

Jack Hills Railway

The existing narrow gauge rail system essentially services the region to the east and south of Geraldton. Projects to
the north and north-east, such as MIS’ Weld Range deposit and MMX’s Jack Hills deposit, are currently isolated from
rail infrastructure. Whilst MMX is planning to develop a Stage 1 development at Jack Hills based on trucking ore
around 600km to Geraldton, the Stage 2 expansion, involving up to 25Mtpa is planned as a rail project.
MMX and MIS, through the Northern Infrastructure Alliance, are investigating the potential for the construction of a
rail link between Jack Hills and Oakajee, with a spur line connecting to Weld Range. We understand that the cost of
developing this railway will be ~A$700m. It is anticipated that the rail line would be constructed by a third party
with MMX, MIS and others entering into long-term agreements to access the line.

11
 Hartleys Limited

Geraldton Port Facilities - Berth 5 Expansion

The WA State Government Figure 7: Shiploading facilities at the Port of Geraldton
has recently committed to
a $35m upgrade of Berth 5
at Geraldton, converting it
into a dedicated iron ore
facility with a capacity of
12Mtpa (Figure 7). This is
sufficient to meet the
needs of the Stage 1
projects being
contemplated by the Mid-
West iron ore companies.
MGX has an established
shed at Berth 4 and
exclusive use of the land Source: Gindalbie Metals Limited
behind Berth 5. MMX and
MIS have established sheds at Berth 4 capable of meeting their Stage 1 needs.
GBG has an agreement with the Geraldton Port Authority whereby it has land reserved at Berth 7 for its use. Berth
7 is currently not a functional berth and consists of reclaimed land next to Berth 6. We believe it is possible that
GBG will backfill the area and use Berth 7 for its storage shed, transporting the ore to berth 5 via conveyor.
An issue that is yet to be settled is the underperformance and capacity of the rail unloader at the Port of Geraldton,
located adjacent to Berth 4. It will need to be upgraded to meet the needs of the various producers and we
understand a $12m upgrade has been proposed.

Oakajee Port
The proposed Oakajee Port is located ~25km north of Geraldton (Figure 8). It was first proposed by Kingstream
Steel and is now being investigated by the Geraldton Iron Ore Alliance as a suitable port for export of Stage 2
products. Both the junior iron ore companies and the Government are keen for the $500m port to be constructed
as a common access facility, funded and operated by a third party. There has been strong interest from Japanese
and Chinese steel producers to construct the port as well as from domestic infrastructure funds.
The full scale of the port is yet to be determined, however work has been developed on the final port structure
consisting of 3 x Cape size (180kt) berths and up to 7 x Panamax (60kt) berths, capable of ultimately exporting
120-140Mtpa of product, which is double the current forecast.
In order to meet the mid-2010 target completion date, Government and financing approvals will be required by
September 2007, with construction to commence in January 2008.

Figure 8: Digital Orthophoto of Geraldton and Proposed Oakajee Port

Source: Geraldton Iron Ore Alliance

12
 Hartleys Limited

Slurry Pipelines
As an alternative to the current narrow gauge rail system, both GBG and MGX have contemplated the use of slurry
pipelines for the transport of magnetite ore to port (noting that MGX has subsequently divested its interest in the
Extension Hill magnetite project to Chinese iron ore trader Sinom Investments Limited). A slurry pipeline was
deemed to be the most cost efficient and capable solution. The current rail system was not considered suitable and
the cost of constructing a new rail line was not economically feasible. The disadvantages of the slurry pipeline are
the requirement for large volumes of water, the need to keep it fully utilised and the lack of flexibility with regards to
expansion.
The proposed slurry pipelines involve crushing and grinding the ore down to ~25µm, forming a slurry and then
pumping it 250km to either Geraldton or Oakajee. The slurry will be dewatered and the water returned to site via a
return pipeline. The pipeline would be buried to a depth of 3m with pastoralists being able to re-use the land
above the pipeline once constructed.

13
 Hartleys Limited

Iron Ore Market

(Source: ABARE Economics: Australian Commodities, June 2006; Hartleys Research)

The world iron ore market is dominated by three producers – Figure 9: World Iron Ore Outlook
BHP Billiton, Rio Tinto and CVRD – that account for ~460Mt of
global iron ore production. These companies are the
determinants of iron ore prices through annual negotiations with
European and Asian steelmakers. The negotiated outcome is
then used by the rest of the industry as a benchmark from which
individual contracts are determined.
Iron ore benchmark prices rose by a record 71.5% in 2005 to
US61.72c/dmtu for fines and US78.76c/dmtu for lump. An
increase of a further 19% has recently been settled for 2006,
taking prices to US73.45c/dmtu and US93.73c/dmtu
respectively. This is higher than previously forecast owing to
significant disruptions to supply from some regions arising from
poor weather conditions, the need to replace damaged
equipment, and civil unrest. Iron ore prices are forecast to remain
at record highs into 2007, indicating continued strong demand
from iron and steel producers, and the inability of iron ore
producers to rapidly increase production. In the medium to
longer term, however, prices are expected to come under
downward pressure as many iron ore operations ramp up
production from next year.

Supply
ABARE forecasts that world iron ore production will grow by 9%
to 1.43bt in 2006 despite major disruptions to supply in the first
quarter of the year. Output of iron ore is forecast to increase by a
further 115Mt in 2007, sourced predominantly from Australia,
Brazil, China and India.
A severe cyclone season in the North-West of Australia caused
March quarter production from the Pilbara region to drop 11%
from the previous quarter, to 56.8Mt. This decrease occurred
despite ongoing infrastructure upgrades and mine expansions to
increase capacity.
Brazil’s CVRD also reported a drop in exports of around 1Mt in
the March quarter, caused by protests leading to damage to the
Carajas mine rail link to Ponta da Madeira in Brazil. April supply
was constrained by diminished loading capacity following an
Source: ABARE Economics
accident at Ponta da Madeira.
CVRD reported that it had lost 0.5Mt in exports but hoped to
counter the loss with increased exports in the following months.

Australia
The severe cyclone activity experienced in the Pilbara region in the first quarter of 2006 has led to a downward
revision of iron ore production and export forecasts for 2006. For the remainder of CY2006 and CY2007,
difficulties in obtaining some mining equipment (particularly haulpak tyres) and skilled labor are expected to slow
the ongoing expansion of Australia’s iron ore industry. This is likely to be the case for both the Pilbara and Mid-West
iron ore producers.
Production of iron ore in Australia is forecast to reach 282Mt in CY2006, and rise again to almost 314Mt in
CY2007. To put it into context, the full scale production level of 60Mtpa from the Mid-West region will be less than
5% of global production and less than 20% of Australian production.

14
 Hartleys Limited

Historically high iron ore prices have boosted the profits of major Western Australian iron ore producers, enabling
them to invest heavily in mine expansion and infrastructure upgrade plans in an attempt to meet international
demand for iron ore in the short to medium term.
Rio Tinto is investing in Stage 2 of the Dampier port expansion that will increase export capacity by 24Mt by the
end of CY2007. Rio Tinto is also exploring the possibility of going ahead with Stage 2 of the Cape Lambert port
upgrade. If feasible, this project will increase capacity by 19Mt, with completion likely in the first half of CY2007. Rio
Tinto is also undertaking a rail duplication project in the Pilbara to allow increased volumes of iron ore to be
transported efficiently to port.
Rio Tinto has two mine expansions currently under way in the Pilbara. Mine capacity at Yandicoogina is being
increased from 36 to 52Mt at a cost of $722m and scheduled to be completed by late CY2007. Boosting
production in the short term will be the additional 15Mt capacity from Tom Price, Nammuldi and Marandoo mines
that is due late in CY2006.
BHP Billiton has two separate rail, port and mine upgrades under construction and due to ramp up production in
late CY2006 and late CY2007 respectively. Rapid Growth projects 2 and 3 are expected to increase capacity by
8Mt late in CY2006 and by a further 20Mt late in CY2007.
Other projects commencing in Western Australia include: Stage 1 of MMX’s Jack Hills mine (1.5Mtpa from mid-
2006); MIS’ initial production from Koolanooka (1Mtpa from Feb 2006), GBG’s Karara Hematite Project (1.5Mtpa
from Q3 CY2007), MGX’s Extension Hill mine (3Mtpa from Oct 2007) and Aztec Resources Limited’s Koolan
Island mine that will progressively ramp up to 4Mt capacity from late 2006. OneSteel Limited’s Project Magnet in
South Australia’s Middleback Ranges is also expected to contribute to Australian production in the short term with
6.5Mt of capacity coming online in 2007.

Demand
Of the total 151Mt increase in crude steel production forecast for 2006 and 2007, around 108Mt is expected to be
sourced from China, 9Mt from India, and 8Mt from the Russian Federation and the Ukraine.

China
China’s steel fabrication is forecast to increase by about 59Mt to over 407Mt in 2006, and increase almost 49Mt to
over 456Mt in 2007. Blast furnaces are expected to account for about 90% of this increase in steel production,
reflecting their cost advantage in producing large quantities of crude steel. Blast furnace production is also preferred
to electric arc furnace production in China. At present, blast furnace production is less power intensive and therefore
less susceptible to constraints in China’s electricity supply.
China’s production of crude steel is, for the first time, expected to exceed its consumption in 2006. China’s net
exports are forecast to be over 8Mt in 2006 and to increase to over 11Mt in 2007 as China’s production grows
more rapidly than steel consumption growth.

15
 Hartleys Limited

Iron Ore Types

Iron ore is primarily found as the oxides or iron, notably hematite and magnetite; and hydroxides as goethite and
limonite. Small amounts are found as the carbonate siderite, the sulfides as pyrites and silicates as chamosite and
greenalite.
Broadly, iron ores may be grouped as:

• Direct shipping ore (“DSO”) generally better than 58% iron (Fe), which is mined and used in blast furnaces
requiring only simple preparation.
• Beneficiable ore which contain as little as 25% Fe though upgradable to around 60% Fe by magnetic or heavy
media separation.

In Western Australia, most iron ore deposits are hosted in banded iron formation rocks (BIFs). These black, red and
grey banded chemical sedimentary rocks were laid down about 2,500 million years ago and consist of alternating
iron-rich and silica-rich layers.
Around 2,500 million years ago, seawater was rich in dissolved silica. This precipitated on the seafloor as white or
grey chert. The iron in the black and grey/red layers was supplied by nearby volcanoes. The presence of free
oxygen determined whether iron was precipitated in the oxidised form (Fe3+) in mineral haematite, or the reduced
state (Fe2+) in magnetite.
The iron-rich layers are composed of black magnetite (Fe3O4) and dark grey/red hematite (Fe2O3), whereas the
silica-rich layers comprise fine grained quartz or chert. In the Mid-West, iron ore occurs as either hematite or
magnetite, both common ore types in iron ore mining in Australia. Other ore types, such as channel iron deposits
(“CID”) that are found in the Pilbara, are either absent in the Mid-West or not commercially attractive.
The iron content of BIF is about 30% – generally not high enough to be considered an ore. In places throughout
the Pilbara and Mid-West, secondary enrichment by removal of non-iron components has increased the iron
content to over 60%.
The presence of impurities such as sulphur, phosphorous, titanium, silica and alumina, and the friability influences
and even preclude any commercial value.

• About 75% of ore mined in WA contains more than 55% Fe and is of the Hematite type. This ore is found in
BIF where the silica in the primary BIF (of 30% Fe) has been replaced by iron oxide to contain more than 60%
Fe.
• About 20% of ore is of the limonite form which is of similar iron content to the hematite ore of around 55 to
60% iron but containing some water.
• About 5% is of the clastic hematite form is found on islands in Yampi sound and has a high average iron
content of 67% Fe (and little phosphorus).

16
 Hartleys Limited

Iron Ore Products

Iron ore is primarily used as a raw material in the production of steel. Iron ore may occur as a massive rock which
must be broken into smaller lumps to facilitate handling, thereby creating some fine ore (Figure 10); or naturally as
a fine material; or finely divided in a silica host rock from which it must be extracted by a beneficiation process. This
usually entails crushing and grinding the ore to a fine powder.
About 1.4bt of iron ore in its various forms are produced worldwide each year. Most of this ore is used in steelmills
in Europe and Asia. Some 400Mt of iron ore, however, is internationally traded. The "captive" ore business is
concentrated in the previously centrally planned economies of eastern Europe, CIS, the Peoples Republic of China,
and also the USA. The internationally traded iron ore business is highly competitive, with vigorous and growing trade
between major iron ore miners in Brazil, Australia, India, South Africa, Canada, Sweden and Venezuela, and
steelmills in Europe, Asia and the USA.
Typically, iron ore is smelted in blast furnaces using pre-heated air as a medium and coke as a reductant. Iron ore is
added to the furnace as either a lump product (>6mm) or as fines (<6mm). Unfortunately, blast furnaces do not
perform well when processing large quantities of fine material. Consequently, fine material is separated from the
raw feed before it is charged into the blast furnace, and is agglomerated into either pellets or sinter to make it
suitable as charge material. Pellets are created by balling very fine ore with a suitable binder, then burning the
resultant balls into spheres of nominally 16-20 mm diameter. Pellets may also contain fluxes to aid smelting. Sinter
is created by burning a mixture of iron ore and flux (eg. limestone, dolomite, serpentine.) and then breaking the
resultant "cake" into "fist sized" pieces.
Direct Shipping Ore (>58% Fe) is crushed and screened prior to shipping into lump and fines (Figure 11). Both
products are usually bought by the steelmakers, with lump being directly fed into the blast furnace, whilst the fines
are converted to either sinter or pellets prior to addition to the furnace.
Magnetite ore, which can have as little as 25% Fe, requires beneficiation to remove the silica before being suitable
for steelmaking. The beneficiation process involves crushing, grinding and screening to a fine product (<1mm), with
the silica removed by either heavy media or magnetic separation. This process often results in a concentrate with
an iron content of >60% Fe.
The decision to sinter or pelletise the fine ore depends primarily upon the physical characteristics of the ore. Very
fine ores are usually pelletised; coarse ore is usually sintered. Pellets usually travel and handle better (ie. yield less
fine material) than sinter and therefore attract a price premium over concentrates.

Figure 10: Lump Iron Specimen Figure 11: Lump and Fines Stockpiles

Source: Midwest Corporation Limited Source: Mount Gibson Iron Limited

17
 Hartleys Limited

Iron Ore Contaminants and Parameters

Ideally, iron ore contains only iron and oxygen. In nature, this is rarely the case. Typically, iron ore contains a host of
deleterious elements which are unwanted in modern steel. Table 4 shows the desirable levels to look for when
assessing iron ore projects.

Silica
Iron ore typically contains silicates, usually in the form of quartz. Silica is undesirable because silicon does not bond
with carbon during the smelting process and can remain in the iron after it is refined. Historically, siliceous iron ore
created wrought iron, a malleable and strong form of iron used by blacksmiths throughout history.
Modern steelmaking techniques generally use lime and other fluxes to help remove the silica from the molten iron
ore, and form a slag on the surface of the molten metal. This slag can then be removed.

Phosphorus
Phosphorus is a deleterious metal because it makes steel brittle, even at concentrations of as little as 0.5%.
Phosphorus cannot be easily removed by fluxing or smelting, and so iron ores must generally be low in phosphorus
to begin with. The iron pillar of India which does not rust, however, is protected by a phosphoric composition.
Phosphoric acid is used at a rust converter because phosphoric iron is less susceptible to oxidation.

Alumina
Alumina (Al2O3) is generally present in iron ores as clay. This is usually removed by washing the iron ore, and by
fluxing. However, again, iron oxide deposits must be relatively low in alumina in order to be considered ore.

Sulphur
Sulphur is unwanted because it produces undesirable sulphur dioxide gases in the flue emissions from a smelter
and interferes with the smelting process.

Loss on Ignition (LOI)

Whilst it is desirable to have low contaminant levels of the elements mentioned above, it is considered the opposite
for an LOI measure. Essentially, the LOI is a measure of the water content of the ore, which evaporates when the
ore is fed into a blast furnace.
A typical iron ore analysis should include an LOI determination at 1000ºC, normally undertaken by
Thermogravimetric Analyser (TGA). This allows for an addition of the oxides, generated at the ignition temperature
and the LOI, to arrive at a total (oxides plus LOI). The LOI is due to the loss of water from hydrated minerals
(goethite, gibbsite and kaolinite), decomposition of carbonates (calcite, siderite and dolomite) and the volatilisation
of organic compounds. The LOI may be offset to some extent by the weight gain due to oxidation of reduced iron
and manganese mineral phases.

Table 4: Desirable Contaminant and Grade Levels

Fe SiO2 P S Al2O3 LOI

% % % % % %

Hematite Ore > 55 <5 < 0.1 < 0.05 <2 7-10

Magnetite Ore > 30 <0 < 0.1 < 0.05 <2 7-10
Source: Hartleys’ Estimates

18
 Hartleys Limited

Glossary of Terms
Agglomerate – To bind a fine material into a form that is easier to handle. In steelmaking, the two most common
forms of agglomeration are sintering and pelletizing.

Alumina - A light, silvery-white, ductile metal with high electrical conductivity and good resistance to corrosion.
Obtained from bauxite.

Banded Iron Formation (BIF) - Iron formation that shows marked banding, generally of iron-rich minerals and
chert or fine-grained quartz. Generally abbreviated to BIF.

Beneficiation - The dressing or processing of ores for the purpose of (1) regulating the size of a desired product,
(2) removing unwanted constituents, and (3) improving the quality, purity, or assay grade of a desired product.

Blast furnace - A shaft furnace in which solid fuel is burned with an airblast to smelt ore in a continuous operation.

Cape size vessel – A ship with a capacity of greater than 180kt.

Channel iron deposit – A type of iron ore deposit that forms when iron accumulates in ancient channels as runoff
from iron rich rocks. Over time, the iron accumulation silicifies into a hard rock. This hardness often results in less
erosion over time with channel iron deposits often found as small hills.

Chert - A hard, dense, dull to semivitreous, microcrystalline or cryptocrystalline sedimentary rock, consisting
dominantly of interlocking crystals of quartz less than about 30µm in diameter; it may contain amorphous silica
(opal). It has a tough, splintery to conchoidal fracture, and may be white or variously colored. Chert occurs
principally as nodular or concretionary nodules in limestone and dolomites, and less commonly as layered deposits
(bedded chert); it may be an original organic or inorganic precipitate or a replacement product.

CIF – Cost, Insurance and Freight. The seller is responsible for export customs clearance, insurance, delivering the
goods to the named port of destination and unloading the goods from the ship, including all port charges.

Coke - Bituminous coal from which the volatile constituents have been driven off by heat, so that the fixed carbon
and the ash are fused together. Commonly artificial, but natural coke is also known

Concentrate – Produced when ore is processed and unwanted elements are removed through mechanical or
chemical processes. The resulting concentrate will have a significantly higher grade of the desire element than the
inputted ore feed.

DCF methodology – Discounted cashflow methodology is a commonly used financial modelling technique
whereby future cashflows of a project are modelled, discounted into today’s dollars and then discounted for risk. It
is often used in the determination of the value of a project and is used to guide a company as to whether it should
commit to it.

Decrepitation –Decrepitation occurs when the internal pressure within the fluid inclusion exceeds the strength of
the host mineral. This process occurs when iron ore is added to the blast furnace.

Direct Shipping Ore (DSO) – Ore that requires little processing prior to delivery to the customer. For DSO iron ore,
the ore is crushed and screened, with material <6mm classed as fines and >6mm classed as lump.

dmtu – dry metric tonne unit. Used in the determination of iron ore pricing.

Electric arc furnace - A furnace in which material is heated either directly by an electric arc between an electrode
and the work, or indirectly by an arc between two electrodes adjacent to the material.

Fines – Describes iron ore material that has been crushed and screened with the resulting product <6mm
diameter.

FOB – Free on Board. A shipping term that indicates that the customer pays for the sea freight component.

19
 Hartleys Limited

Goethite - A common weathering product of iron-bearing minerals; a major constituent of limonite and gossans,
and a source of iron and a yellow ochre pigment. A hydrous oxide mineral of iron.

Grade – A term that describes the quality of the ore. An iron grade of 55% means that for every 1t of ore there will
be 55% or 550kg of iron metal contained within it.

Haul pack – A large truck, with capacity of between 100t and 300t that is used to transport ore out of the open pit
to a stockpile.

Heavy media separation - Separation of relatively light (floats) and heavy (sinks) particles, by immersion in a bath
of intermediate density. This is the dense or heavy media, a finely ground slurry of appropriate heavy material in
water.

Hematite - The principal form of iron ore; consists of ferric oxide in crystalline form; occurs in a red earthy form.
Hematite is the most common form of iron ore in Australia.

Iron ore - A naturally occurring mineral from which iron (Fe) metal is extracted in various forms.

Iron ore price – Iron ore prices are typically negotiated between the seller and the buyer (however there also exists
a spot iron ore market). Each year, the major iron ore producers (Rio Tinto, BHP Billiton, CVRD) enter into sales
negotiations that will determine the prices for the following year. Prices are usually agreed for lump and then the
other prices are determined from this price. Smaller producers often enter into contracts with buyers based on the
negotiated price that the major producers achieve.

JORC-compliant – Term that is used to describe mineral resource reporting in Australia. The Code for Reporting of
Mineral Resources and Ore Reserves (the JORC Code) is widely accepted as a standard for professional reporting
purposes in Australia and is a minimum standard for ASX-listed companies.

Liquidity - This provides a measure of the turnover of shares during the last twelve months and indicates to
investors the ease in which the shares can be converted to cash without creating a substantial change in price.

Live Capacity – The maximum storage capacity at any point in time.

Loss On Ignition (LOI) - As applied to chemical analyses, the loss in weight that results from
heating a sample of material to a high temperature, after preliminary drying at a temperature just above the boiling
point of water. The loss in weight upon drying is called free moisture; that which occurs above the boiling point of
water, loss on ignition.

Lump - Describes iron ore material that has been crushed and screened with the resulting product >6mm
diameter.

Magnetic separation - The separation of magnetic materials from nonmagnetic materials, using a magnet. This is
an especially important process in the beneficiation of iron ores in which the magnetic mineral is separated from
nonmagnetic material.

Magnetite - A major mineral in banded iron formations and magmatic iron deposits. Magnetite ores have magnetic
properties and generally contain 30-35% Fe.

Mid-West Region – A geographical region in Western Australia that extends inland from Geraldton across to Cue.

Narrow gauge railway – Used to describe a railway with a gauge (rail separation) of <1430mm. Narrow gauge
railways can generally handle light axle loads of around 20-30t.

Ore – Term that describes material that contains elements that can be extracted economically.

Panamax size vessel – Ships that have a capacity of ~60kt

Passing loop – Term used in railways to describe a section of rail that is duplicated to allow trains to pass each
other when travelling on a single railway line.

20
 Hartleys Limited

Pellets – Pellets are created by balling very fine ore with a suitable binder, then burning the resultant balls into
spheres of nominally 16-20mm diameter. Pellets may also contain fluxes to aid smelting. Pellets are used in blast
furnaces as an alternative to lump.

Pellet plant – A processing facility that converts very fine ore into pellets. Pellets are normally produced in the form
of globules from very fine iron ore (normally –100 mesh) and mostly used for production of sponge iron in gas
based plants, though they are also used in blast furnaces in some countries in place of lump iron ore.

Phosphorous - A nonmetallic element of the nitrogen group. Symbol P. Never found free in nature, but is widely
distributed in combination with minerals.

Quartz - A very hard mineral composed of silica, SiO2, found worldwide in many different types of rocks, including
sandstone and granite. Varieties of quartz include agate, chalcedony, chert, flint, opal, and rock crystal.

Road train – A truck that contains several trailers connected one behind the other to transport material over large
distances. Road trains that carry iron ore often have 3 trailers.

Reserves – A mining term that describes material that can be economically extracted from its natural state at a
profit. There needs to be a high degree of confidence that the ore is of the size and quality expected, which is
usually based on a high density of representative sampling.

Resources – A mining term that describes the continuity, size, grade and quality of a mineral deposit. Resources
are classified based on the quality and density of data used in the estimation ranging from the high quality term of
Measured through to Indicated and then the lower confidence category of Inferred.

Rolling stock – The wagons on a railway used to carry ore.

Silica - An igneous rock composed essentially of primary quartz (60% to 100%), e.g., a quartz dyke, segregation
mass, or inclusion inside or outside its parent rock.

Sinter - Sinter is created by burning a mixture of iron ore fines and flux (eg. limestone, dolomite, serpentine.) and
then breaking the resultant "cake" into "fist sized" pieces. It is used as an alternative to lump or pellets in blast
furnaces.

Slurry – Describes an emulsion whereby ore is ground very fine and then mixed with water. The resulting slurry can
then be transported via a pipeline.

Slurry pipeline – A buried pipeline that transports ore that has been ground up and mixed with water. Slurry
pipelines are used to transport ore over significant distances where the fine grinding does not affect the ore
properties. For iron ore, the slurry is transported to the end location and then either sold as a fines product, a
concentrate or is processed further into a pellet or sinter.

Strip Ratio – A mining term that describes the ratio of waste to ore in an open pit deposit. A strip ratio of 3:1
means that over the life of the pit three times as much waste as ore will be extracted. It is desirable to have as low
a strip ratio as possible.

Sulfur - A pale yellow nonmetallic element occurring widely in nature in several free and combined allotropic forms.
It is used in black gunpowder, rubber vulcanization, the manufacture of insecticides and pharmaceuticals, and in the
preparation of sulfur compounds such as hydrogen sulfide and sulfuric acid.

$/dmtu – The measure by which iron ore prices are quoted. This measure is then multiplied by the iron ore grade
of the saleable product to arrive at the price per tonne of material.

21
This page is intentionally left blank
Company Reports

Gindalbie Metals Limited (GBG) 25

Golden West Resources Limited (GWR) 33

Mount Gibson Iron Limited (MGX) 37

Midwest Corporation Limited (MIS) 45

Murchison Metals Limited (MMX) 53

This page is intentionally left blank
 Gindalbie Metals Limited Speculative Buy
Karara Development a Company Maker

Date Over the past two years, Gindalbie Metals Limited (“Gindalbie”, “GBG”,
21 July 2006
“Company”) has transformed itself from a gold producer into an emerging
ASX Code iron ore producer, focussed on the Karara Iron Ore Project. The project is
GBG being planned as a two-stage development, with the Stage 1 Hematite
Project due to commence production in September 2007. The Hematite
Share Price
58.5cps Project is envisaged to be a 1.5-4Mtpa operation, utilising the existing Mid-
West rail and Geraldton Port infrastructure.
Valuation
The Stage 2 Magnetite Project will see a significant expansion of operations,
69cps
based on the development of the 737Mt magnetite resource. Under the
Market Cap (fully diluted) plan, ore would be crushed and milled before being transported via slurry
$252.0m ($265.5m) pipeline to the Port of Geraldton and/or the planned Oakajee Port for
pelletisation and export.
Issued Capital (fully diluted)
430.7m shares (453.9m) The staged development of the projects allows Gindalbie to extract early
cashflows, whilst working within the timeframes of the regional infrastructure
Cash (as at 30 June 2006)
$36.0m
upgrades. Based on GBG trading at a significant discount to our successful
development case valuation of $0.69 per share, we rate Gindalbie Metals
Directors Limited as a Speculative Buy.
George Jones (Executive Chairman)
David McSweeney (Managing Director) Investment Highlights
Michael O’Neill (Non-Exec Director)
Didier Murcia (Non-Exec Director) • Hematite Project to Deliver Early Cashflows – GBG expects to have the
Tunku Ya’acob BT Abdullah (Non-Exec
Director) Hematite Project in production by Q1 CY2008 at a rate of 1.5Mtpa, lifting
to 4Mtpa by 2009. We expect the project to payback the initial $75m
Top Two Shareholders capital cost in just over one year.
Melewar Steel Ventures Ltd (19.2%)
Westpac Custodian Nominees Ltd (4.4%) • Magnetite Project a Company Maker – Commencing in 2010 and
coinciding with the proposed timeframe for the development of a
deepwater port at Oakajee, the Karara Magnetite Project is envisaged as a
long-life project, producing 4Mtpa of pellets plus 4Mtpa concentrates.
• Key Management Appointed – Gindalbie have secured the services of
Peter Freund (ex-OneSteel) to head the pellet plant development, whilst
experienced Operations Manager, Andrew Munckton and mining engineer
David Morgan will head up the Stage 1 Hematite Project. All have
considerable experience in developing large scale projects.
• Infrastructure Development Crucial – Stage 1 production is expected to
be exported through the planned Berth 5 expansion at Geraldton, whilst
Stage 2 production is anticipated to be exported from Geraldton or the
proposed Oakajee Port, 25km north of Geraldton.
Share Price Performance
GINDALBIE METALS LTD (GBG)
Earnings Summary FY2007F FY2008F FY2009F FY2010F
80 30.0
70 Revenue A$m - 56.3 165.9 611.0
25.0
60 EBITDA A$m (2.5) 22.6 72.1 344.8
Shar e Pr ice (cps)

V olume (m shares)

20.0
50 NPAT A$m (2.5) 15.0 46.3 187.3
40 15.0
Free Cash Flow A$m (17.6) (140.9) (229.9) 63.2
30
10.0
20
EPS A¢ (0.5) 2.8 8.6 34.8
10
5.0 EPS Growth % chg na na 207.4 304.6
0 0.0 PER x na 20.9 6.8 1.7
Jul-05

Nov-05

Mar-06

Jul-06

DPS cents - - - -
Volume GBG Dividend Yield % - - - -
Franking % - - - -
Source: Iress
Sources: IRESS, Company Announcements, Hartleys' Estimates

25
 Hartleys Limited

Background
Gindalbie Metals Ltd (formerly Gindalbie Gold NL) listed on the Australian Stock Exchange in April 1994, rapidly
establishing itself as a successful minerals explorer and producer. It has operated the Two Boys gold operation near
Higginsville and the Minjar Gold Mine, located in the Mid-West region of Western Australia.

Principal Assets
Karara Iron Ore Project
The Karara Iron Ore Project is located in the Mid-West region of Western Australia, approximately 500km north-east
of Perth and 220km east of Geraldton (Figure 12). Iron ore was first mined in the Mid-West in the early 1960’s at
Koolanooka. Western Mining Corporation (“WMC”) made the Blue Hills discovery and mined 0.45Mt in 1972/73
from the Mungada and Mungada West hematite deposits located a few kilometres west of GBG’s hematite
deposits.
GBG has two main projects at Mt Karara, the Hematite Project and the Magnetite Project. The smaller Stage 1
Hematite Project, anticipated to commence in Q1 CY2008, plans to produce 1.5-4Mtpa of direct shipping ore
(“DSO”) of hematite for export through Geraldton. The larger Stage 2 Magnetite Project, expected to commence
production in 2010, involves the establishment of crushing and milling facilities on site as well a slurry pipeline to a
large new pellet plant located at or north of Geraldton. The Stage 2 Project envisages the export of pellets and
concentrates through a proposed open access port at Oakajee, 25km north of Geraldton.

Figure 12: Karara Project Location

Source: Gindalbie Metals Limited

Karara DSO Hematite Project

The Karara hematite mineralisation occurs as small areas of structurally controlled supergene martite-goethite
enrichment in the banded iron formations (“BIF”). GBG has tested 8km of strike length of these BIF horizons with a
further strike length of 50km still to be tested. Eight mineralised zones have been identified to date (MR1-MR6,
BH1-BH2) (Figure 13).
Gindalbie is aiming to identify an initial resource of 10-15Mt of hematite DSO in Q3 CY2006. This should be
sufficient to allow mining to occur at a rate of 1.5Mtpa of DSO from Q1 CY2008, increasing to 4Mtpa by CY2010.
GBG expects the average strip ratio for the hematite project to be ~2-3:1, with the final product consisting of 50%
lump and 50% fines.
After mining via open cut, ore is to be crushed and screened on site. Road trains are to be used to transport the ore
85km along the existing Mungada haul road to Morawa (however Perenjori is still being considered). From either
Perenjori or Morawa, ore is to be transported by rail via Mullewa to Geraldton along the existing narrow gauge
railway.
26
 Hartleys Limited

At the Port of Geraldton, Gindalbie plans Figure 13: Hematite Project Location
to utilise Berth 5, which has recently
been approved by the WA Government
for upgrade into a dedicated iron ore
facility. Gindalbie has guaranteed the
Geraldton Port Authority that it will
export a minimum of 1.5Mtpa of ore,
with a desired full scale level of 4Mtpa.
Gindalbie is currently assessing locations
for a storage shed at the Port. The Port
Authority has given GBG an option over
the vacant Berth 7 land. GBG plans to
use Panamax size ships (60kt) for the
Hematite Project.

Karara Magnetite and Pellet Project

The larger Magnetite Project is based
around the development of a 737Mt
magnetite resource at Mt Karara. The Source: Gindalbie Metals Limited
magnetite deposit is located a few
kilometres west of the hematite
mineralisation. Mineralisation occurs on the western end of the Karara BIF in a north plunging synclinal fold and has
a defined strike length of 4km (Figure 14). The distribution of mineralisation in the system is one of its best
attributes.
Mineralisation is continuous and uniform over the strike length of Figure 14: Magnetite Project Location
1.8km, width of 500m and depth to over 300m. The low
impurities in the ore (<0.05% S, <0.01% P, <1% Al2O3) are
extremely good for a magnetite deposit. GBG estimates that the
strip ratio of the Magnetite Project will be extremely low at ~0.5:1.
GBG has estimated a resource for the project down to 300m
vertical depth, however deeper drilling shows excellent continuity
for at least a further 300m. GBG is currently completing a drilling
program aimed at increasing the resource to >1bt by the end of
CY2006.
The scale of the Magnetite Project is considerably larger than the
Hematite Project and involves the mining of ~25Mtpa of ore over
a 40 year life, starting in CY2010. Ore is to be crushed and milled
down to 25µm on site utilising high pressure grinding roll
(“HGPR”) technology currently being used at Argyle and the
Boddington Expansion Project. From site, GBG intends to transport
the ore to Port via a slurry pipeline, similar to that used by
OneSteel at Whyalla in South Australia and also at Savage River in
Tasmania.
Rather than just ship magnetite concentrate, GBG intends to value
add to its magnetite product by also producing pellets. These
pellets are used in blast furnaces and attract a higher price due to
the uniformity of the product and consistent properties.
Source: Gindalbie Metals Limited
Gindalbie’s 50% Joint Venture partner, AnSteel (see below) has
agreed to take the entire 4Mtpa of pellets and 4Mtpa of
concentrate product produced for a total of 8Mtpa. GBG is planning to build a 4.0Mtpa pellet plant.
Given the volumes, the Port of Geraldton is suitable for the export of product from the Magnetite Project. If the
new port at Oakajee, located 25km north of Geraldton is approved it will become an option for Gindalbie to access
the larger Cape size ships. The port is now being assessed as a common access port by companies in the
Geraldton Iron Ore Alliance (see below). This alliance of emerging and current iron ore producers is commissioning
feasibility studies for the development of the port, to be funded by external parties. The preferred scenario for
government and industry is for an infrastructure fund or large international group to fund the development of the
port in return for a long term management lease over the facility.

27
 Hartleys Limited

Project Development Timetable

The following timetable is an indicative measure of the milestones for the Karara Iron Ore Project.

Jun quarter 2006 Phase 2 drilling complete

Sep quarter 2006 Geraldton Berth 5 Upgrade Commences
Dec quarter 2006 Hematite Resource Estimate
Mar quarter 2007 Board Approval and Financing
Jun quarter 2007 Stage 1 Environmental Approvals
Sep quarter 2007 Stage 1 Mining Commences
Mar quarter 2008 First Stage 1 Ore Delivered from Geraldton
Mar quarter 2010 Stage 2 Production Commences

Gindalbie Infrastructure Requirements

Rail
For Stage 1, GBG intends to use the existing narrow gauge railway from either Morawa or Perenjori to Geraldton.
The line, operated by WestNet, has sufficient capacity to handle GBG’s planned 4Mtpa output from the Hematite
Project, however, GBG will be required to provide the rolling stock (rail wagons) for ore transport. GBG estimates
that it will require 90 wagons initially.
Depending on scheduling and conflicts with other users, there may be a requirement for Gindalbie to contribute to
the cost of establishing passing loops along the line, estimated at ~$2m each.

Geraldton Port
The WA State Government has recently committed to a $35m upgrade of Berth 5 at Geraldton, converting it into a
dedicated iron ore facility with a capacity of 12Mtpa. This is sufficient to meet the needs of the Stage 1 projects
being contemplated by the Mid-West iron ore companies. MGX has an established shed at Berth 4 and exclusive
use of the land behind Berth 5. MMX and MIS have established sheds at Berth 4 capable of meeting their Stage 1
needs.
GBG has an agreement with the Geraldton Port Authority whereby it has land reserved at Berth 7 for its use. Berth
7 is currently not a functional berth and consists of reclaimed land next to Berth 6. We believe that GBG will backfill
the area and use Berth 7 for its storage shed, transporting the ore to berth 5 via conveyor.
An issue that is yet to be settled is the underperformance and capacity of the rail unloader at the Port of Geraldton,
located adjacent to Berth 4. It will need to be upgraded to meet the needs of the various producers and we
understand a $12m upgrade has been proposed.

Slurry Pipeline
For the Stage 2 Magnetite Project, GBG has assessed the various methods of delivering ore to port. A slurry pipeline
was deemed to be the most cost efficient and capable. The current rail system was not considered suitable and the
construction a new rail line was not economically feasible due to costs.
The proposed slurry pipeline involves crushing and grinding the ore down to 25µm, forming a slurry and then
pumping it 250km to Geraldton or Oakajee. The slurry will be dewatered and the water returned to site via a return
pipeline. The pipeline would be buried to a depth of 3m with pastoralists being able to re-use the land above the
pipeline once constructed. The main risk with the slurry pipeline is the lack of flexibility with regards to capacity.
Pellet Plant
Pellets currently attract a price premium of ~40% over concentrates due to its suitability for use in blast furnaces.
Whilst the cost of the pellet plant is substantial at A$350m, we estimate that the price premium for 4Mtpa of
product equates to an additional A$176m revenue per annum. There is also a 0.5% reduction in the royalty rate
payable to the WA State Government as an incentive to value-add.
GBG has an option over an 80ha site at the industrial park at Narngulu and intends to construct the pellet plant at
Narngulu or adjacent to the proposed Oakajee port in an industrial estate planned by the Government, should the
Oakajee development proceed. The plant would use existing technology and, although relatively large in scale, it will
be constructed as a modular operation.
28
 Hartleys Limited

Capital Development Costs

Stage 1 Hematite Project
The capital development required for the Stage 1 Hematite Project has been estimated at A$75m. This includes,
$26m for a storage shed at Geraldton, $13m for rolling stock and $10m for mine development.
We have assumed that the mining is undertaken on a contract basis, therefore no mining capital is included in the
estimate. We have also included $2m in the storage shed estimate to allow for backfilling and site preparation of
the Berth 7 site.

Stage 2 Magnetite Project

The Stage 2 Magnetite Project requires a significantly higher capital commitment, currently estimated at
~A$1,135m. The high capital cost is balanced by a long project life and significantly lower operating costs. Larger
capital items in Stage 2 include $340m for an on-site concentrator, $300m for a 4Mtpa pellet plant, $225m for a
slurry pipeline and $100m for a power plant.
We have assumed that the Oakajee Port will be constructed by a third party, with GBG paying for access on a unit
basis with a minimum take-or-pay provision. Whilst we have included $100m for the construction of a power plant
on site, we believe that, with increased competition in the WA power generation sector, there is good potential for
this component to be funded by a third party on a long term contract basis. Countering this may be the inclusion of
an owner operated mining fleet, given the scale and life of the project. Preliminary investigations indicate that the
cost of a mobile mining fleet may be ~$100m.

Strategic Alliances
In order to progress the Karara Iron Ore Project to development, GBG has forged a number of key alliances with
groups that have interests aligned to that of the Company. GBG has entered into a funding and offtake alliance with
AnSteel, an infrastructure co-ordination, promotion and lobbying alliance with other Mid-West iron ore companies
and an engineering alliance with Thiess, as managers of the Karara Feasibility Study.

AnSteel Alliance
In early April 2006, GBG announced that it had entered into a Joint Venture for the Karara Iron Ore Project with
China’s number two steel producer, Anshan Iron and Steel Group Corporation (“AnSteel”). The JV Agreement has
been structured in two parts and covers both the Hematite Project and Magnetite Project. AnSteel has the right to
earn 50% equity in both projects through a combination of offtake and funding support for the projects.

Stage 1 – Feasibility Agreement

As part of the first stage of the Agreement, AnSteel and GBG have committed to complete the ongoing Definitive
Feasibility Study (“DFS”) on a 50:50 basis. The DFS is being co-ordinated by Thiess Pty Ltd under the Karara Project
Alliance for both the magnetite and hematite phases of the project.
Gindalbie recently announced an initial JORC compliant Inferred Resource of 737Mt at 37.1% Fe for the Karara
magnetite deposit, covering approximately half the total strike length of the deposit.
Upon the successful completion of the DFS for the Karara Concentrate Pellet Project by February 2007 and a
decision to mine being made by both parties, the second stage of the Agreement will commence.

Stage 2 – Decision to Mine

The second stage of the Agreement involves the commencement and construction of the Karara Concentrate Pellet
Project. While the final funding requirements for the project will be determined by the DFS currently in progress, it is
estimated that the capital cost will be approximately A$1.14b. Funding is to be structured on a 70% debt: 30%
equity basis.
Once operating joint venture agreements, sales and marketing agreements for all the expected output and all
necessary financing arrangements are in place, the second stage of the agreement will commence. Upon all
documentation and financing being put in place, AnSteel will then earn its 50% interest in the Karara Iron Ore
Project.
The key terms of the second stage of the Agreement are that AnSteel, to secure its 50% interest in the Karara
Concentrate Pellet Project, will provide 75% of the equity funding component of this project and assist Gindalbie in
securing its 25% share of equity funding, if requested by GBG. AnSteel has also indicated its willingness to provide

29
 Hartleys Limited

all necessary debt funding for the project, if requested by the joint venture partners, providing adequate security can
be provided by the joint venture partners.

Geraldton Iron Ore Alliance

There are five companies in the Mid-West region that are currently producing iron ore or plan to do so within the
next two years. These companies are:

Company Code Project Product

Gindalbie Metals Limited GBG Mt Karara Hematite/Magnetite
Mount Gibson Iron Limited MGX Tallering Peak/Extension Hill Hematite
Murchison Metals Limited MMX Jack Hills Hematite
Midwest Corporation Limited MIS Koolanooka, Blue Hills, Weld Range Hematite/Magnetite
Golden West Resources Ltd GWR Wiluna West Hematite

Most of these companies are planning to establish projects in two stages, with a smaller initial development plan to
generate cashflow followed by a larger second stage expansion. Stage 1 output is targeted to be exported through
the upgraded Berth 5 facility at Geraldton. The second stage projects involve significantly larger volumes, which
exceed the capacity of the Geraldton Port. To counter this obstacle, it has been proposed that a new port be
constructed 25km north of Geraldton at Oakajee, which is capable of handling Cape size (160kt-230kt) vessels.
With most of these companies planning to use components of the same infrastructure, the Geraldton Iron Ore
Alliance (“Alliance”) was formed to investigate infrastructure and other project aspects (ie environmental) that are
common between the projects. It is hoped that the Alliance will be able to more effectively plan for the
infrastructure needs of the region and reduce the cost and time required for implementation. Recently, a sixth
member, Royal Resources Limited, has joined the Alliance.

Thiess Alliance
In February 2006, GBG entered into a Project Alliance Agreement with integrated engineering and services group,
Thiess Pty Ltd, a subsidiary of Leighton Holdings Limited (LEI), to facilitate the completion during calendar 2006 of
an integrated DFS for development of both the magnetite and hematite components of the Karara Iron Ore Project.
The Project Alliance Agreement provides for a collaborative approach to the management and completion of all
studies – including preliminary engineering design, planning, procurement, cost estimates, scheduling, permitting,
stakeholder management and technical and commercial risk management – covering both the Karara
Magnetite/Pellet Project and the Karara Hematite DSO Project.

Financial Analysis
In February 2006, GBG placed 90m shares at 37cps, raising $33.3m for use in completing the Karara drill-out and
Feasibility Study. In April 2006, Gindalbie agreed to sell the Minjar gold assets to Monarch Resources for staged
payments of $10m (all moneys currently outstanding). Gindalbie currently has 430.7m shares on issue and a
further 23.2m Employee Options that are in the money.
As at 30 June 2006, the Company had $36m cash.

Valuation
We have modelled Stage 1 and Stage 2 separately, assuming that both projects are delivered on time. Due to the
timing of the project and relative risks, the Stage 1 Hematite Project has been valued using an 8% discount rate,
whilst the Stage 2 Magnetite Project uses 10%. Given the risks involved with Stage 2 and the level of detail that has
been completed, we have further discounted the Magnetite Project by a factor of 30%.
For Stage 1, we have used a capital cost of $75m, with production commencing in Q1 CY2008 at an initial rate of
1.5Mtpa, increasing to 4Mtpa by 2010. We expect Stage 1 to be equity funded, with $75m raised at $0.75 per
share to fund development and working capital. We have modelled that GBG has 100% equity initially and that
AnSteel will exercise its option to take 50% equity in 2009 via the repayment of $39m in capital costs.
For Stage 2, AnSteel will have 50% equity and GBG 50%. As per the AnSteel agreement, we have modelled that
70% of the $1.14b capital cost will be funded by debt, with GBG liable for 50% of this amount. For the remaining
30%, we believe that AnSteel will contribute 75% and GBG will fund its 25% commitment out of Stage 1
cashflows.
30
 Hartleys Limited

Our modelling of the Stage 2 Magnetite Project only Table 5: Hartleys’ Valuation
extends for 20yrs, rather than the 40yrs projected by
the Company. Due to the potential for significant A$m cps
replacement capital, we are not confident of Hematite Project 112.8 20
projecting as far into the future, however note that
there is good potential for increased value with Magnetite Project 125.3 23
additional life. Exploration 50.0 9
We have currently assigned $50m exploration value Vital Metals Investment 0.4 -
to GBG, a relatively conservative amount considering
the value of the two main projects. We note that the Cash 36.0 6
projects have minimum lives of 10 years, with any Minjar Sale Proceeds 10.0 2
exploration discovery either adding incremental years
to the project or being significant enough to warrant Corporate Overheads (26.0) (5)
a standalone operation or expansion of the current Debt (0.1) -
planned capacity.
Tax Losses 1.6 -
We value GBG at $0.69 per share (Table 5). Our 12-
Options & Other Equity 74.3 13
month target price for GBG is $1.07 per share.
Total 384.3 69
Conclusions Source: Hartleys’ Estimates
(Valuation assumes the issue of 100m shares at $0.75 to fund
Over the past two years, Gindalbie Metals Limited development)
has transformed itself from a gold producer into an
emerging iron ore producer, focussed on the Karara
Iron Ore Project. The project is planned as a two-stage development, with the Stage 1 Hematite Project due to
commence production in Q1 CY2008. The Hematite Project is envisaged to be a 1.5-4Mtpa operation, utilising the
existing Mid-West rail and Geraldton Port infrastructure.
The Stage 2 Magnetite Project will see a significant expansion of operations, based on the 50:50 joint venture
development of the 737Mt magnetite resource with AnSteel. Under the plan, ore would be crushed and milled
before being transported via slurry pipeline to the Port of Geraldton and/or the planned Oakajee Port for
pelletisation and export.
The emergence of the Mid-West region as a significant iron ore province is a combination of attractive prices and a
collaborative approach to developing infrastructure for the region. As stand-alone operators, it is unlikely that it
would be feasible for any of the second stage plans to be developed. The common access proposals for both rail
and ports are likely to see new infrastructure developed and operated by third parties, thus reducing the burden on
capital for the iron ore producers.
The staged development of the projects allows Gindalbie to extract early cashflows whilst working within the
timeframes of the regional infrastructure upgrades. GBG is trading at a significant discount to our successful
development case valuation of $0.69 per share. We rate Gindalbie Metals Limited as a Speculative Buy.

31
 Hartleys Limited

Gindalbie Metals Ltd Share Price July 2006

GBG $0.585 SPECULATIVE BUY
Key Market Information Directors Company Information

Share Price $0.585 George Jones (Exec Chairman) Ground Floor, 10 Kings Park Road
Market Capitalisation $311m David McSweeney (Managing Director) West Perth, WA, 6005
52 Week High-Low $0.78-$0.575 Tunku Ya'acob BT Abdullah (Non-Exec Director) Tel: +61 8 9480 8700
Issued Capital 455.8m Michael O'Neill (Non-Exec Director) Fax: +61 8 9481 2395
Issued Capital (fully diluted inc. ITM options) 478.9m Didier Murcia (Non-Exec Director) Web: www.gindalbie.com.au
Options 23.1m@$A0.27
Hedging - Top 10 Shareholders m shares %
Yearly Turnover/Volume $249.9m/707.6m shares
Liquidity Measure (Yearly Turnover/Issued Capital) 156% 1 Melewar Steel Ventures Ltd 74.09 19.2
Valuation $0.69 2 Westpac Custodian Nominees Ltd 16.98 4.4
3 ANZ Nominees Ltd 16.45 4.3
Financial Performance Unit FY2007F FY2008F FY2009F FY2010F 4 National Nominees Ltd 15.01 3.9
5 Osson Pty Ltd 11.11 2.9
Net Revenue A$m - 56.3 165.9 611.0 6 Connemarra Investments Pty Ltd 11.11 2.9
Total Costs A$m (2.5) (33.8) (93.8) (266.2) 7 Mr J Janowski 8.05 2.1
EBITDA A$m (2.5) 22.6 72.1 344.8 8 Mr D McSweeney 7.22 1.9
Depreciation/Amort A$m - (2.4) (10.5) (23.3) 9 Merrill Lynch (Aust) Nominees Ltd 7.10 1.8
EBIT A$m (2.5) 20.1 61.6 321.4 10 Colorado Conversions Pty Ltd 3.54 0.9
Net Interest A$m - 1.9 4.5 (53.8)
Pre-Tax Profit A$m (2.5) 22.0 66.1 267.6 Reserves & Resources Mt %Fe %SiO2
Tax Expense A$m - (7.0) (19.8) (80.3)
NPAT A$m (2.5) 15.0 46.3 187.3 Karara Hematite
Abnormal Items A$m - - - - Resources (expected to be published Q3 CY2006)
Reported Profit A$m (2.5) 15.0 46.3 187.3
Karara Magnetite
Resources 737.00 37.10 41.95

Financial Position Unit FY2007F FY2008F FY2009F FY2010F

Production Summary Unit FY2007F FY2008F FY2009F FY2010F
Cash A$m 95.4 79.5 74.8 138.0 *Attributable
Other Current Assets A$m 0.4 10.0 14.2 45.2 Iron Ore - Fines Production 000t - 400 1,167 1,000
Total Current Assets A$m 95.8 89.5 89.1 183.2 Iron Ore - Lump Production 000t - 400 1,167 1,000
Property, Plant & Equip. A$m 18.8 185.3 492.5 595.9 Iron Ore - Concentrate Sales 000t - - - 500
Exploration A$m 14.9 17.8 20.0 20.4 Iron Ore - Pellet Production 000t - - - 1,100
Investments/other A$m 0.0 0.0 0.0 0.0 Cash Cost $A/t - 39.10 39.15 38.83
Tot Non-Curr. Assets A$m 33.7 203.1 512.6 616.4
Total Assets A$m 129.5 292.6 601.6 799.5 Price Assumptions Unit FY2007F FY2008F FY2009F FY2010F

Short Term Borrowings A$m (0.1) (0.1) (0.1) (0.1) AUDUSD A$/US$ 0.75 0.74 0.73 0.72
Other A$m (2.4) (18.5) (38.3) (25.6) Received Price - Fines A$/t - 61.88 60.74 53.64
Total Curr. Liabilities A$m (2.5) (18.5) (38.4) (25.6) Received Price - Lump A$/t - 78.96 77.51 68.45
Long Term Borrowings A$m - (125.0) (350.0) (350.0) Received Price - Pellets A$/t - - - 89.38
Other A$m (0.5) (7.5) (25.1) (48.4) Received Price - Conc. A$/t - - - 65.33
Total Non-Curr. Liabil. A$m (0.5) (132.5) (375.1) (398.4) Average Received Price A$/t - 70.56 69.26 61.39
Total Liabilities A$m (3.0) (151.0) (413.4) (424.0)
Sensitivity Analysis Valuation ($/s) NPAT EPS (¢) CFPS (¢)
Net Assets A$m 126.5 141.6 188.2 375.5
Base Case 0.74 15.0 6.1 7.1
Cashflow Unit FY2007F FY2008F FY2009F FY2010F Exchange Rate +10% 0.59 24.7 4.8 5.8
Exchange Rate -10% 0.91 39.6 7.7 8.7
Operating Cashflow A$m 3.3 29.1 87.7 301.1 Iron Ore Price +10% 0.89 38.8 7.6 8.6
Income Tax Paid A$m - - (2.3) (57.0) Iron Ore Price -10% 0.58 24.0 4.7 5.7
Interest & Other A$m - (6.0) (45.2) (53.8) Operating Costs +10% 0.65 27.5 5.4 6.4
Operating Activities A$m 3.3 23.1 40.2 190.3 Operating Costs -10% 0.82 35.3 6.9 7.9
*N.B. NPAT, EPS, CFPS forecasts are for FY2008
Property, Plant & Equip. A$m (16.9) (160.8) (267.1) (125.9)
Exploration and Devel. A$m (4.0) (3.3) (3.0) (1.3)
Investments A$m - - - - Share Price Valuation (NAV) Est. $m Est. $/share
Investment Activities A$m (20.9) (164.0) (270.1) (127.2)
Hematite (NPV @ 8%) 112.8 0.20
Repayment of Borrowings A$m - - - - Magnetite (NPV @ 10%) 125.3 0.23
Proceeds of Borrowings A$m - 125.0 225.0 - Exploration 50.0 0.09
Equity A$m 76.8 0.0 0.3 - Vital Metals Investment 0.4 0.00
Dividends Paid A$m - - - - Cash 36.0 0.06
Financing Activities A$m 73.1 125.0 225.3 - Forwards 0.0 0.00
Corporate Overheads (26.0) (0.05)
Net Cashflow A$m 55.5 (15.9) (4.6) 63.2 Total Debt (0.1) (0.00)
Tax Losses 1.6 0.00
Ratio Analysis Unit FY2007F FY2008F FY2009F FY2010F Options & Other Equity 74.3 0.13
Total 384.3 0.69
Cashflow Per Share A¢ (0.5) 3.3 10.6 39.2
Cashflow Multiple X (114.7) 18.0 5.5 1.5
Earnings Per Share A¢ (0.5) 2.8 8.6 34.8
Price to Earnings Ratio X (114.7) 20.9 6.8 1.7
Dividends Per Share A¢ - - - -
Dividend Yield % - - - -
Net Debt / Equity % -75% 32% 146% 56%
Interest Cover X - (10.8) (13.5) 6.0
Return on Equity % na 11% 25% 50%

Analyst: Andrew Rowell Last Updated: 21/07/2006

Phone: +61 8 9268 2837

Sources: IRESS, Company Information, Hartleys Research

32
 Golden West Resources Limited Speculative Buy
Multiple Development Options

Date Golden West Resources Limited (“GWR”, “Company”) is focussed on the

21 July 2006 development of its Wiluna West Hematite Project. It has five separate
banded iron formation (“BIF”) horizons with a cumulative strike length of
ASX Code
GWR 125km. At this stage, the project is under explored with only two of the
horizons sparsely drilled. Recent drilling and rock chip sampling has provided
Share Price encouragement regarding the potential of the project to host a large high
105cps grade iron ore resource. The project is located 700km from port and has
Market Cap (fully diluted) limited infrastructure, therefore transport costs will make up a significant
$55.3m ($83.8m) portion of the operating costs for any potential development. The Company
aims to develop the project in two stages. GWR’s strategy for Stage 1 is to
Issued Capital (fully diluted) obtain near-term cashflows in order to take advantage of strong iron ore
52.7m shares (79.8m)
prices by utilising existing infrastructure and limiting the need for upfront
Cash (as at 31 March 2006) capital. Stage 2 is a significantly larger scale project and will require the
$2.5m construction of major infrastructure. Unlike its Geraldton Iron Ore Alliance
peers, GWR is examining two export routes for Stage 2, Oakajee or
Management
John Daniels (Chairman) Esperance. Given the strength of the iron ore market and large potential of
Gary Hutchinson (Managing Director) the project, albeit at a relatively early stage, we rate Golden West Resources
Mick Wilson (Executive Director - Limited as a Speculative Buy.
Exploration Manager)

Top Two Shareholders

Investment Highlights
Lingchip Pty Ltd (38%)
Falak Holdings (13.3%)
• Stage 1 Project Utilises Existing Infrastructure – GWR plans to initially
define a JORC-compliant resource of 3 to 5Mt of +60% Fe hematite ore
located within its granted mining leases. We expect GWR to release an
initial resource/reserve estimate by the end of August 2006. It is
envisaged that the Stage 1 project would have a 5 year mine life and
would require modest infrastructure at the mine site and a $15m storage
shed at the Port of Esperance where it has an option agreement to use
the facilities to export Stage 1 ore. Production could get underway as
early as June quarter 2007.
• Large Hematite Project Provides Growth Potential - For Stage 2, GWR
is targeting a much larger scale operation, however the likely
development of such project will be entirely dependent upon significant
exploration success. Given the contemplated size of the project and its
large distance from port, the Stage 2 project will require significant rail
infrastructure to be built. In order to achieve this, GWR is examining the
viability of exporting ore through either Esperance or Oakajee.
• Infrastructure Development Critical for Stage 2 – The Port of
Esperance option would involve the construction of a 300km railway
between Wiluna and Leonora. Funding of the railway may be shared
given there are a number of mining companies along the route. With the
Share Price Performance
Oakajee Port option, GWR is reliant on connecting a 300km rail line to
G O L D E N WE S T R E S O U R C E S L I MI T E D
( G WR ) either the Murchison Metals Limited or Midwest Corporation’s proposed
13 0 1.5
rail facilities.
11 0

Recent Drill Intercepts Provide Encouragement – In early July, GWR

Share Price (cps)

•
90 1.0
Volume (m shares)

70 released some encouraging results from its ongoing exploration and

50 0.5
resource drill programme. Resource drilling at the Bowerbird prospect
30
(located within a granted mining lease) returned near surface
10 0.0
mineralisation with consistent intercepts (~10-15m) and grades above
Jul-05

Nov-05

Mar-06

Jul-06

67% Fe. Exploration drilling also provided encouragement with zones of

V o l u me GWR
up to 90m (ending in mineralisation, assays pending). Geological
Source: Iress mapping suggesting the mineralisation width is ~100m.
33
 Hartleys Limited

Background
Figure 15: Location of GWR’s assets
Golden West Resources Limited (“GWR”) listed on the
ASX in December 2004 with a focus on gold exploration
at its Wiluna West project. However, the Company soon
discovered that the project had a number of Banded Iron
Formations (“BIF”) with excellent potential for large
hematite deposits. Although the project is a significant
distance away from both the Geraldton and Esperance
ports, record iron ore prices and recent high grade drill
results have given encouragement that the small scale
Stage 1 project can be brought into production. It is
envisaged that Stage 1 will not need any major
infrastructure construction. Further upside exists in the
possible development of a large scale hematite mining
operation in Stage 2. However, this will require a
significant investment in infrastructure in the area and
considerable drilling to confirm the high grade nature of
the mineralisation.

Principal Assets
Wiluna West Project
The Wiluna West Iron Project is located 40km west of the
township of Wiluna in the North Eastern Goldfields of
Western Australia and is 450km north of Kalgoorlie
(Figure 15). The project consists of a granted mining
lease (to the west) surrounded by an exploration licence Source: Golden West Resources Limited
(440km2).
Recent rock chip sampling has confirmed the potential for Figure 16: Plan Showing Prospective Units Containing
the project to host a large high grade iron deposit within Iron Mineralisation at the Wiluna West Project
five separate BIF horizons (A-E) that have a cumulative
strike length of 125km (Figure 16). Unit B and Unit C are
the only units to be mapped and sampled in any detail.
This covers only over the northern, well exposed portions,
representing only 30% of the prospective strike. Results
of this work suggest that the project has the potential to
host a major high grade iron deposit of 200 to +250Mt.
In July 2006, GWR released some excellent results from
its ongoing exploration and resource drilling programme.
Resource drilling at the Bowerbird prospect (Unit B -
located in the mining lease) returned shallow
mineralisation with consistent intercepts (~10-15m) and
grades above 67% Fe. This material will likely be
included in the resource estimate for Stage 1. As the true
width of the high-grade intercepts are relatively modest
(estimated at 6-11m), and the BIF units are dipping
subvertically, strip ratios to recover any significant tonnage
are likely to be relatively high.
Exploration drilling at Unit C also resulted in excellent
intercepts of up to 90m (ending in mineralisation).
Previous, geological mapping suggests the mineralisation
width could be up to 100m. Should the pending assays
confirm the high grade nature of the mineralisation this
material is likely to underpin the Stage 2 development.

Source: Golden West Resources Limited

34
 Hartleys Limited

Stage 1
In Stage 1, GWR plans to initially identify a JORC-compliant resource of 3 to 5Mt of high-grade direct shipping ore. It is
envisaged that the initial operation will have a 5 year mine life, with ore mined at the rate of 500ktpa to 1Mtpa. GWR
has signed an option agreement with the Esperance Port Authority to lease an area to construct a 300kt live capacity
storage shed, which is expected to cost $15m. This is a more attractive option for GWR in comparison to the Port of
Geraldton given the distance to existing rail, spare shipping capacity, room for an additional storage sheds and
unloading facilities. The Esperance route would involve trucking the ore to Leonora (300km), and then loading onto
rail for the 500km journey to port for overseas markets. If this option is adopted, additional capital will be required to
upgrade rail loading facilities at Leonora. Given the significant road/rail transport costs associated with getting ore to
the port from Wiluna operating margins will be subject to pressure from variable costs such as fuel. Overall, we
estimate upfront capital costs for Stage 1 are likely to be in the range of $25-35m.
GWR aims to have a JORC-compliant resource defined by the end of August. This will be followed by a Feasibility
Study, which is expected to be completed by the end of CY2006. Production is possible in the June quarter 2007,
however this is dependent upon a number of variables including the construction of the shed at the Port of Esperance
(6 months to construct), negotiation to utilise the railway and the delivery of rolling stock.

Stage 2
Stage 2 will involve significant infrastructure planning, as it will be based on exporting 10 to 12Mtpa, either through the
Esperance or Oakajee Ports. GWR aims to develop a major iron ore project of at least 160Mt to 220Mt recoverable
ore. GWR has joined the Geraldton Iron Ore Alliance with four other iron ore companies that have projects in the Mid-
West region. These companies, jointly through the Alliance, are lobbying for approval from the WA Government for the
construction of common access rail facilities in the Mid-West region and a new port at Oakajee, approximately 25km
north of the existing port at Geraldton. These infrastructure projects are expected to be funded by third parties. For the
export of ore in Stage 2, GWR is investigating two export options.

Option 1: Esperance
Given that GWR recently signed an option agreement to use the facilities at the Port of Esperance, it is conceivable that
it could expand its shed capacity to cater for Stage 2. The concept is to rail the ore from Wiluna to the Esperance Port.
This will require construction of a new rail line from Wiluna to Leonora (300km) to connect the already established
railway from Leonora to Esperance. We estimate this could cost between $300m to $600m. However, with the
project in close proximity to several other mining operations such as Mt Keith, Magellan and the proposed Honeymoon
Well development, it is possible that GWR may not have to sole fund this railway. This would significantly reduce the
cost to GWR of establishing such a railway. Rail upgrades would need to be completed on the existing track, together
with additional unloading facilities and storage sheds at Esperance.

Option 2: Oakajee
The Western Australian Government has approved the site location for the Oakajee Port with port design and
connecting rail corridors under discussions. GWR would need to build a railway to connect its Wiluna Iron Project to
either Murchison Metals Limited (“Murchison”) or Midwest Corporation Limited’s (“Midwest”) proposed rail facilities.
Murchison and Midwest recently announced they had chosen to jointly participate in the Northern Infrastructure
Feasibility Study, which is investigating the optimal development of rail and port infrastructure.

Offtake Agreements
We understand there has been strong interest from Asian mills to establish alliances, enter into joint ventures or off-
take agreements. We believe it would be beneficial for GWR to form a major alliance, which could help fund both
Stages 1 and Stage 2.

Other Projects
Doherty's Gold Project (GWR 100%)
The Doherty's Gold Project is located in the Barrambie Greenstone Belt, approximately 100km south west of the
Wiluna West project and 65km north of Sandstone. The project contains an Indicated Resource of 25,700t at 23.8 g/t
Au for a contained 20,430 ounces of gold.

35
 Hartleys Limited

Resources
GWR is aiming to release a resource for the Stage 1 Hematite Project in Q3 CY2006. It is initially targeting a resource
of 3 to 5Mt of >60% Fe material, capable of supporting the development of the Stage 1 project. For Stage 2, GWR is
targeting a >60% hematite resource of at least 100Mt, which it aims to mine at the rate of 10-12Mtpa.
In addition, GWR has some minor gold resources in the area. These include Wiluna West, which has a resource of
788,000t at 3.5g/t Au containing 87,000oz Au and Doherty’s, which has a small indicated resource of 20,430oz Au.

Financial Analysis
GWR had a modest cash balance of $2.4m in the bank at the end of March. Given the high levels of exploration
activity and resource definition work currently underway, we expect the Company will need to raise equity in the next
few months or form a strategic alliance for additional funding for the Stage 1 project.
GWR currently has a relatively tight capital structure with 52.7m shares on issue, of which 21.9m shares are escrowed
until 24 December 2006. There are 22.8m tradable options under the ASX code GWRO that are exercisable at 20
cents and expire on 31 December 2007. In addition, there are a further 4.35m options at exercisable at various prices
that are escrowed until 24 December 2006.

Conclusions
Golden West Resources Limited is focussed on the development of its Wiluna West Hematite Project. It has five
separate banded iron formation (“BIF”) horizons with a cumulative strike length of 125km. At this stage, the project is
under explored with only two of the horizons sparsely drilled. Recent drilling and rock chip sampling has provided
encouragement regarding the potential of the project to host a large high grade iron ore resource. The project is
located 700km from port and has limited infrastructure, therefore transport costs will make up a significant portion of
the operating costs for any potential development. The Company aims to develop the project in two stages. GWR’s
strategy for Stage 1 is to obtain near-term cashflows in order to take advantage of strong iron ore prices by utilising
existing infrastructure and limiting the need for upfront capital. Stage 2 is a significantly larger scale project and will
require the construction of major infrastructure. Unlike its Geraldton Iron Ore Alliance peers, GWR is examining two
export routes for Stage 2, Oakajee or Esperance. Given the strength of the iron ore market and large potential of the
project, albeit at a relatively early stage, we rate Golden West Resources Limited as a Speculative Buy.

36
 Mount Gibson Iron Limited Buy
Ahead of the Pack

Date Mount Gibson Iron Limited (“MGX”, “Company”) is the Mid-West’s largest
21 July 2006
iron ore producer. The Company is focussing on sustainable production
ASX Code growth to take advantage of strong iron ore prices. MGX is the first mover in
MGX the region, having established access agreements for road, rail and port
infrastructure with sufficient capacity for the current expansion plans at
Share Price
78.5cps Tallering Peak. In addition, MGX is currently completing a Desktop Study on
the Extension Hill Hematite Project, which is expected to become its second
Valuation production centre from December 2007. The Company recently signed an
104cps agreement to sell its indirect share of the Extension Hill Magnetite Project to
Market Cap (fully diluted) Sinom Investments Limited (“Sinom”) for $52.5m. The proposed sale
$315.6m ($329.8m) removes the financial and execution risks involved with the development of
such a large project and will allow MGX to focus on the Extension Hill
Issued Capital (fully diluted) Hematite Project. MGX is currently trading 28% below our valuation of
402.1m shares (420.1m)
$1.04 per share. We see Mount Gibson Iron Limited as a lower risk
Cash (estimated as at 31 May 2006) investment option in comparison to its peers and rate it as a Buy.
$10m
Investment Highlights
Management
Luke Tonkin (Managing Director) • Excellent Leverage to Strong Iron Ore Prices – MGX is able to take
Alan Rule (Finance Director)
advantage of strong iron ore prices through its 100% ownership of the
Top Two Shareholders Tallering Peak mine. Tallering Peak hematite production is expected to
Sun Hung Kai Investments (18.7%) double from the initial 1.6Mtpa to 3Mtpa during the send half of CY2006.
Citicorp Nominees Pty Ltd (5.5%) A proposed second operation at Extension Hill will lift production to 5-
6Mtpa by December 2007.
• Operating Profit Expected to More than Double in FY2007 – With
production expected to double and a 19% increase in iron ore prices this
year, we forecast an operating profit of $55m in FY2007, up from an
expected $23m in FY2006.
• Access to Existing Infrastructure – MGX has a competitive advantage
compared to its Mid-West peers due to existing infrastructure contracts
and agreements for long term access to existing road, rail and port
facilities. MGX’s expansion plans are not dependent on the development
of the Oakajee Port. At the Port of Geraldton, MGX has an existing shed
at Berth 4 and land behind the soon to be upgraded Berth 5. This land is
earmarked for storage of ore from its second hematite mine at Extension
Hill.
• Trading at Discount to Valuation – Our valuation model assumes the
successful doubling of production at Tallering Peak and the development
of Extension Hill (discounted by 70%). MGX is trading at a significant
discount to our valuation of $1.04 per share.
Share Price Performance
M T G I B S O N I R O N L I MI T E D ( M G X )
Earnings Summary FY2006F FY2007F FY2008F FY2009F
10 0 10 Revenue A$m 100.6 222.5 316.7 406.0
90 8 EBITDA A$m 46.4 121.0 170.2 201.9
Share Price (cps)

Volume (m shares)

80 6 NPAT A$m 22.8 54.2 81.4 83.5

70 4
Free Cash Flow A$m (23.9) 18.8 74.6 169.6
EPS A¢ 5.7 13.2 19.6 19.9
60 2
EPS Growth % chg na 132.6 48.4 1.3
50 0
PER x 13.8 5.9 4.0 4.0
Jul-05

Nov-05

Mar-06

Jul-06

DPS cents - 2.0 10.0 16.0

V o l u me MGX
Dividend Yield % - 2.5 12.7 20.4
Source: Iress Franking % - - - -

Sources: IRESS, Company Announcements, Hartleys' Estimates

37
 Hartleys Limited

Background
Mount Gibson Iron Limited (“MGX”) listed on the Figure 17: Location of MGX’s assets
ASX in January 2002 as a specialist iron ore
exploration company. In 2003, MGX made an
opportunistic purchase of a number of Mid-West iron
ore tenements. As a result, MGX was able to rapidly
bring its flagship operation at Tallering Peak into
production.
Significant exploration was conducted in the Mid-
West in the 1960’s, which resulted in the
identification of a number of deposits. However, this
did not result in the establishment of significant
mining operations due to high inland freight charges,
lack of infrastructure and a shift in focus to the large
high grade resources of the Pilbara. In 2002, plans
to resurrect large scale iron ore mining in the Mid-
West by Kingstream Steel (“Kingstream”) failed due
to high capital costs and a weak Asian economy.
This presented an opportunity for MGX to purchase a
number of assets/tenements from the Kingstream
receivers. MGX was able to leverage off
Kingstream’s previous work to bring the Tallering
Peak project into production in early 2004. At the
same time, iron ore prices began to appreciate
rapidly and MGX enjoyed improved margins. In
addition, the WA Government privatised the rail
system, which made freight more economical. As
the first mover, MGX is currently focussed on
sustainable hematite production growth to take
advantage of strong prices. MGX is in the process of
increasing production at Tallering Peak from 1.6Mtpa
to 3Mtpa. A proposed second operation at
Extension Hill could lift production for MGX to 5- Source: Mount Gibson Iron Limited
6Mtpa by December 2007.
MGX has made a considerable investment towards infrastructure in the area, including the construction of storage
facilities at Geraldton, road upgrades, a rail terminal at Mullewa and mine establishment.
MGX has announced the divestment of its 73% interest in Asia Iron Holdings Limited (“Asia Iron”), which owns 100%
of the Extension Hill Magnetite Project and a number of other projects in the area apart from the Tallering Peak
Hematite project. MGX will retain the rights to mine all the hematite at Mt Gibson including the Extension Hill hematite
(Figure 17). Initially, the $52.5m cash deal for the divestment was with Shougang, China’s third largest steel maker;
however, Sinom Investments Limited (“Sinom”), a minority shareholder in Asia Iron exercised its pre-emptive rights.
Sinom is an established customer of MGX and as such they have a good working relationship. The proposed sale is a
result of incoming management’s assessment of the Extension Hill Magnetite project and the unacceptable debt and
dilutionary effects the project had on MGX’s market capitalisation. Furthermore, it negates the financial and execution
risks involved with developing a large, high up-front capital project. The funds raised from the sale will be used
towards the development of the Extension Hill Hematite Project.

Principal Assets
Tallering Peak Mine
The Tallering Peak Iron Ore mine is located 130km north east of Geraldton in the Mid-West region of Western
Australia. The Tallering Peak operation involves mining from several open pits, which have a life of mine strip ratio of
6:1 (although the current strip ratio is 14:1). From the mine, the ore is transported 65km south by road-train to
Mullewa and loaded onto rail wagons. It is then transported 107km to the Port of Geraldton, where it is stockpiled in
MGX’s 150,000t live capacity storage shed. From there, the ore is loaded onto Panamax-sized ships for transportation
to China.

38
 Hartleys Limited

MGX is well advanced in Figure 18: Aerial View of the Tallering Peak Mining Operations
the process of increasing
production from Tallering
Peak from 1.6Mtpa to
3Mtpa. This process
commenced in January
2006 and involves the
cutback of the T3 and T4
open pits that will merge
into one large pit identified
as T6 (Figure 18). During
the cutback, production has
been reduced due to the
mining of lower grade
material and limited access
to ore. MGX is currently
addressing these ramp up
issues and it is expected to
reach the 3Mtpa
throughput during the
second half of CY2006. Source: Mount Gibson Iron Limited
Further exploration upside
exists at Tallering Peak with potential at the T1 pit to add to existing reserves (Figure 19). Any additional material
would add incremental tonnes and ultimately extend mine life. T1 is expected to be drilled towards the end of
CY2006.
Tallering Peak ore is of relatively high grade Figure 19: Aerial View of the Tallering Peak Mining Operations
and low in contaminants, being hard sharp
ore with minimum degradation in handling
or decrepitation in the blast furnace. The
mine is currently producing lump and fines
at a ratio of 65:35, which is 30% higher
than the average in Western Australia.
Lump ore is sold at a higher price than
fines, which must be sintered or pelletised
before feeding to a blast furnace.
All ore produced has been contracted for
the life of the Tallering Peak mine, with
about 50% going to two trading
companies, Stemcor (S.E.A.) Pte Ltd and
Sinom (Hong Kong) Ltd, and 50% to two
end-users, Shanghai Industrial and
Prosperity Minerals (Asia) Limited. Prices
are linked to the prevailing published FOB
prices for iron ore sold by Hamersley Iron
from its Pilbara ports. These prices are
reviewed annually for adjustment on 1
April of each year.
Source: Mount Gibson Iron Limited
Extension Hill Project
The Extension Hill Project is located 270km south east of the Port of Geraldton and 220km south east of Tallering
Peak (Figure 1). Although the Extension Hill project is further from the Port of Geraldton than Tallering Peak, the lower
strip ratio (1:1) is expected to offset the extra haulage costs and lower lump to fines ratio (45:55). The project
consists of a shallow hematite cap overlaying magnetite. With the recent divestment of the magnetite project, MGX is
now focussed on the development of a hematite operation. The current hematite Resource within the Extension Hill
tenements is 12.8Mt at 61.35% Fe. Extensions to the known mineralisation are expected, which could ultimately add
to the resource base.

39
 Hartleys Limited

MGX is currently in the process of a Desktop Study into the viability of establishing a hematite operation at Extension
Hill. We believe that MGX will initially target a 3Mtpa operation for a mine life of at least 5 years. We estimate total up-
front capital expenditure for the project at $65m. It would likely involve the construction of an 85km private haul road
to a railhead at Perenjori, which we estimate to cost approximately $11m. In addition, we have allowed $20m for
mine start-up and rail wagons. We estimate capital of $22m for a second ore storage shed at Geraldton with $12m for
contingencies and the feasibility study. MGX has already made significant progress in design and engineering, licensing
and approval through the Extension Hill Magnetite Feasibility Study. We expect the results of the Desktop Study to be
released by mid-August.

Divestment of Extension Hill Magnetite

MGX recently announced that it has signed an agreement for the sale of its 73% stake in Asia Iron Holdings Limited
(“Asia Iron”) to Sinom for $52.5m (subject to Foreign Investment Review Board approval). Sinom is an established
customer of MGX and as such they have a good working relationship. The proceeds of the sale will be held in escrow
until environmental approval for Extension Hill is finalised. This is expected to occur during the December 2006
quarter.
The main reasons for the divestment are:

• Negate the risks involved with the development of such a large capital project. It is estimated that equity funding
in excess of $175m would have been required by MGX to develop the project;
• Provide funding for the Extension Hill hematite project; and
• Bring forward dividend payments to shareholders.
We understand that the agreement also outlines mining arrangements between the hematite and magnetite ore at
Extension Hill and the use of MGX’s port facilities by Sinom for the export of magnetite. However, given the size of the
magnetite project, Sinom would likely prefer to use the larger Cape size vessels and to do this would require the
proposed Oakajee port. Overall, we believe that the divestment was an astute move and negates the financial and
execution risks involved with such a large project for a Company of MGX’s market capitalisation.

Resources/Reserves
Table 6 – Tallering Peak JORC Compliant Reserves (as at 30 June 2005)

Grade
Deposit Tonnes (Mt)
Fe % SiO2% Al2O3 % P% LOI % S%

T3 5.8 64.26 3.88 2.20 0.015 1.23 0.023

T4 0.7 66.32 3.09 2.04 0.010 1.22 0.023

T5 1.0 60.90 6.76 2.59 0.070 2.36 0.210

T6 11.1 63.58 4.26 1.91 0.029 1.57 0.046

TOTAL 18.6 63.75 4.23 2.04 0.026 1.49 0.047

Source: Mount Gibson Iron Limited

Table 7 – Tallering Peak JORC Compliant Resources (as at 30 June 2005)

Grade
Deposit Tonnes (Mt)
Fe % SiO2% Al2O3 % P% LOI % S%

T3 6.2 64.17 3.90 2.23 0.015 1.25 0.027

T4 1.4 65.81 3.33 2.29 0.013 1.40 0.115

T5 1.5 60.32 7.22 2.60 0.080 2.25 0.290

T6 11.7 63.49 4.35 1.94 0.030 1.57 0.053

TOTAL 20.8 63.62 4.35 2.10 0.028 1.51 0.067

Source: Mount Gibson Iron Limited

40
 Hartleys Limited

Table 8 – Extension Hill JORC Compliant Resources (as at 30 June 2005)

Grade
Tonnes
Category
(Mt)
Fe % SiO2% Al2O3 % P% LOI % S%

Indicated
10.5 61.12 4.49 1.53 0.065 6.15 See note
(Extension Hill > 57%)
Inferred
2.7 59.84 6.27 1.78 0.049 5.66 See note
(Extension Hill >57% Fe)
Indicated
2.0 63.82 4.43 0.69 0.050 3.10
(Iron Hill > 60%)

TOTAL 15.2 61.25 4.80 1.46 0.060 5.66

Note: Sulphur grades at Extension Hill have not been estimated as less than 50% of the mineralised dataset has been analysed for sulphur. A simple
analysis of available data for >50% Fe samples indicates a maximum of 0.42% S with an average of 0.06%. Some near-surface material may exhibit
sulphur grades up to double the average due to the presence of organic material
Source: Mount Gibson Iron Limited

Further upgrades to the Extension Hill Resource estimate are likely once extensional drilling has been completed.
Further infill drilling will be required at Extension Hill to upgrade the resource to reserve.

Infrastructure Requirements
Rail
MGX currently utilises the narrow gauge rail system operated by WestNet for its Tallering Peak operation. Further
negotiations will be required to use the rail system from Perenjori to the Port of Geraldton should the Extension Hill
Hematite Project operation move into production. The main items for assessment are the ordering of rolling stock,
scheduling, unloading and passing loops.
Geraldton Port
The WA State Government has recently committed to a $35m upgrade of Berth 5 at Geraldton, converting it into a
dedicated iron ore facility with a capacity of 12Mtpa. This is sufficient to meet the needs of MGX for the development
of a second mining operation at Extension Hill. MGX has an established shed at Berth 4 which is sufficient to handle
the 3Mtpa of iron ore from Tallering Peak. It also has executed an option agreement to use the land behind Berth 5.
Other Infrastructure
Given the recent divestment of the Extension Hill Magnetite Project, MGX no longer needs to consider a slurry pipeline,
pellet plant or access to the Oakajee Port.

Capital Development Cost Estimates

We estimate that the Tallering Peak expansion including waste development currently underway will cost in the order
of $45m. In addition, the capital required for the Extension Hill development is estimated at $65m. The major items
are listed below in Table 9.

Table 9: Extension Hill Capital Requirements

Item Cost (A$m)
Feasibility Study 6
Haul Road Upgrade (85km) 11
Mine Development (access roads, pre-strip, camp upgrade, sheds, offices and services) 8
Rolling Stock (70 wagons initially) 10
Rail Siding (Perenjori) 2
Geraldton Port Storage Shed (50kt live capacity) 22
Contingency (10%) 6
TOTAL 65
Source: Hartleys’ Estimates
41
 Hartleys Limited

Geraldton Iron Ore Alliance (“Geraldton Alliance”)

There are five companies in the Mid-West region that are currently producing iron ore or plan to do so within the next
two years. These companies are:

Company Code Project Product

Gindalbie Metals Limited GBG Mt Karara Hematite/Magnetite
Mount Gibson Iron Limited MGX Tallering Peak/Extension Hill Hematite
Murchison Metals Limited MMX Jack Hills Hematite
Midwest Corporation Limited MIS Koolanooka, Blue Hills, Weld Range Hematite/Magnetite
Golden West Resources Ltd GWR Wiluna West Hematite

Most of these companies are planning to establish projects in two stages, with a smaller initial development plan to
generate cashflow followed by a larger second stage expansion. Stage 1 output is targeted to be exported through the
upgraded Berth 5 facility at Geraldton. The second stage projects involve significantly larger volumes, which exceed the
capacity of the Geraldton Port. To counter this obstacle, it has been proposed that a new port be constructed 25km
north of Geraldton at Oakajee, which is capable of handling Cape size (160kt-230kt) vessels.
With most of these companies planning to use components of the same infrastructure, the Geraldton Iron Ore Alliance
(“Alliance”) was formed to investigate infrastructure and other project aspects (ie environmental) that are common
between the projects. It is hoped that the Alliance will be able to more effectively plan for the infrastructure needs of
the region and reduce the cost and time required for implementation. Recently, a sixth member, Royal Resources
Limited, has joined the Alliance.

Financial Analysis
MGX is in a sound financial position with $10m cash in the bank at the end of May. In addition, once environmental
approvals are received for the Extension Hill Project, $52.5m in cash will be paid to MGX for the sale of its interest in
Asia Iron. This will effectively fund the capex requirements for the Extension Hill Hematite Project. We believe
consideration will be given to paying dividends in the near future.
MGX currently has 402.0m shares on issue with 7.3m tradable options under the ASX code MGXOA. In addition, there
are a further 17.8m executive options.

Valuation
In our assessment of MGX, we have modelled both the Table 10: Hartleys’ Valuation
Tallering Peak operation and the proposed Extension Hill
mine (Table 10). A$m cps

For the Tallering Peak mine, we have assumed a Tallering Peak (NPV @ 8%) 322.3 77
remaining six year mine life based upon existing
Extension Hill
reserves at the rate of 3Mtpa. We expect the (70% discount of NPV @ 10%)
32.1 8
production ramp up to 3Mtpa to be complete in
H1FY2007 with total capex spent in the order of $45m, Exploration 25.0 6
which includes waste development and the acquisition
of a crusher. During the expansion, we have modelled Cash 10.3 3
production affected by the cut back of T3 and T4. As a Extension Hill Magnetite
result revenues for FY2006 will be modest. We expect 52.5 12
Sale Proceeds
a net profit after tax of $23m for FY2006. However,
Corporate Overheads (7.0) (2)
from FY2007 we expect operating profit to more than
double as a result of the expansion.
Debt (10.6) (3)
For the Extension Hill Project, we have modelled a five
year mine life for the Hematite Project at the rate of Tax Losses - -
3Mtpa. This is based upon the assumption that further
extensional and infill drilling will convert 100% of Options & Other Equity 11.4 3
current resources to reserves. We believe that this is a
likely scenario given the low strip ratio and excellent Total 436.0 104
exploration potential in the area. MGX is currently Source: Hartleys’ Estimates
working on a Desktop Study for the project which is

42
 Hartleys Limited

expected to be complete in August 2006. The project is at an advanced stage in terms infrastructure planning for the
project. MGX expects to be able to produce from Extension Hill by December 2007. However, due to the current
stage of development and uncertainties, we have discounted the value of the Extension Hill Hematite Project by 70%.
As further work is completed and the economics become firmer, this discount factor will be reduced.
We have assigned $25m exploration value to MGX, a relatively conservative amount considering that both Tallering
Peak and Extension Hill have good exploration potential. In addition, Tallering Peak is in production with any additional
exploration discovery either adding incremental years to the project or further expansion of the current planned activity.
This has resulted in a valuation for MGX of 104cps.

Conclusions
Mount Gibson Iron Limited is the Mid-West’s largest iron ore producer. MGX is the first mover in the region, having
established access agreements for road, rail and port infrastructure with sufficient capacity for the current expansion
plans at Tallering Peak. In addition, MGX is currently completing a Desktop Study on the Extension Hill Hematite
Project, which is expected to become its second production centre from December 2007. The Company recently
signed an agreement to sell its indirect share of the Extension Hill Magnetite Project to Sinom Investments Limited for
$52.5m. The proposed sale removes the financial and execution risks involved with the development of such a large
project and will allow MGX to focus on the Extension Hill Hematite Project. MGX is currently trading 28% below our
valuation of $1.04 per share. We see Mount Gibson Iron Limited as a lower risk investment option in comparison to
its peers and rate it as a Buy.

43
 Hartleys Limited

Mount Gibson Iron Limited Share Price July 2006

MGX $0.79 BUY
Key Market Information Directors Company Information

Share Price $0.79 Mr William B Willis (Chairman) Level 1, 7 Havelock St

Market Capitalisation $318m Mr Luke Tonkin (Managing Director) West Perth, WA 6005
52 Week High-Low $0.82-$0.59 Mr Brian Johnson Tel: +61 8 9485 2355
Issued Capital 402.1m Mr Ian Macliver Fax: +61 8 9485 2305
Issued Capital (fully diluted inc. ITM options) 420.1m Mr Craig Redhead Web: www.mtgibsoniron.com.au
Options 25.1m@$A0.57 Mr Alan Rule
Hedging -
Yearly Turnover/Volume $339.9m/433.9m shares
Liquidity Measure (Yearly Turnover/Issued Capital) 108% 1 Top 10 Shareholders (as at June 2006) m shares %
Valuation $1.04 2
3 Sun Hung Kai Investment Services Limited 75.32 18.7
Financial Performance Unit FY2006F FY2007F FY2008F FY2009F 4 Citicorp Nominees Pty Ltd 22.25 5.5
5 National Nominees Limited 14.05 3.5
Net Revenue A$m 100.6 222.5 316.7 406.0 6 Westpac Custodian Nominees Limited 10.79 2.7
Total Costs A$m (54.2) (101.5) (146.5) (204.1) 7 JP Morgan Nominees (Aust) Limited 10.12 2.5
EBITDA A$m 46.4 121.0 170.2 201.9 8 Chemco Pty Ltd 6.00 1.5
Depreciation/Amort A$m (23.2) (42.0) (52.3) (81.2) 9 Dominant Holdings 6.00 1.5
EBIT A$m 23.2 79.0 117.9 120.7 10 Link Enterprises (Holdings) Pty Ltd 5.53 1.4
Net Interest A$m 0.8 (1.6) (1.5) (1.4) Marico Holdings (BV) 4.98 1.2
Pre-Tax Profit A$m 24.0 77.4 116.3 119.3 HSBC Custody Nominees (Aust) Limited 4.37 1.1
Tax Expense A$m (1.1) (23.2) (34.9) (35.8)
NPAT A$m 22.8 54.2 81.4 83.5 Reserves & Resources Mt %Fe %SiO2 %S %P
Abnormal Items A$m - 50.0 - -
Reported Profit A$m 22.8 104.2 81.4 83.5 Tallering Peak
Reserves 18.6 63.75 4.23 0.047 0.026
Resources 20.8 63.62 4.35 0.067 0.028
Extension Hill
Financial Position Unit FY2006F FY2007F FY2008F FY2009F Resources 15.2 61.25 4.80 0.060

Cash A$m 10.3 80.0 125.2 243.1 Production Summary Unit FY2006F FY2007F FY2008F FY2009F
Other Current Assets A$m 16.9 27.6 43.1 42.5 *Attributable
Total Current Assets A$m 27.2 107.7 168.2 285.6 Total Ore Mined Mt 1.72 3.00 4.39 5.80
Property, Plant & Equip. A$m 85.8 129.2 148.4 91.7 Iron Ore - Fines Production 000t 462 1,065 1,691 2,185
Exploration A$m 38.4 37.9 40.2 35.3 Iron Ore - Lump Production 000t 1,259 1,935 2,697 3,615
Investments/other A$m 2.7 2.7 2.7 2.7 Cash Cost ($A/t ore mined) $A/t 31.49 33.82 33.39 35.18
Tot Non-Curr. Assets A$m 126.9 169.8 191.3 129.7
Total Assets A$m 154.1 277.5 359.5 415.3 Price Assumptions Unit FY2006F FY2007F FY2008F FY2009F

Short Term Borrowings A$m (3.6) (3.6) (3.6) (3.6) AUDUSD A$/US$ 0.75 0.74 0.74 0.74
Other A$m (14.9) (16.7) (21.9) (20.3) Received Price - Fines A$/t 53.19 61.76 61.33 59.82
Total Curr. Liabilities A$m (18.4) (20.3) (25.5) (23.9) Received Price - Lump A$/t 70.13 80.98 78.99 76.15
Long Term Borrowings A$m (15.7) (30.5) (52.5) (78.0) Average Received Price A$/t 65.71 74.31 72.33 70.13
Other A$m (0.7) (0.7) (0.7) (0.7)
Total Non-Curr. Liabil. A$m (16.4) (31.2) (53.1) (78.7) Sensitivity Analysis Valuation ($/s) NPAT EPS (¢) CFPS (¢)
Total Liabilities A$m (34.9) (51.5) (78.6) (102.6)
Base Case 1.04 54.2 13.3 23.6
Net Assets A$m 119.3 225.9 280.9 312.8 Exchange Rate +10% 0.87 41.4 10.1 20.3
Exchange Rate -10% 1.24 70.9 17.3 27.5
Cashflow Unit FY2006F FY2007F FY2008F FY2009F Iron Ore Price +10% 1.22 69.3 16.9 27.1
Iron Ore Price -10% 0.85 40.1 9.8 20.0
Operating Cashflow A$m 40.0 112.2 160.0 200.9 Operating Costs +10% 0.95 48.7 11.9 22.1
Income Tax Paid A$m - (4.4) (10.0) (10.3) Operating Costs -10% 1.13 60.6 14.8 25.0
Interest & Other A$m 0.3 (1.6) (1.5) (1.4) *N.B. NPAT, EPS, CFPS forecasts are for FY2007
Operating Activities A$m 40.3 106.1 148.4 189.2

Property, Plant & Equip. A$m (51.0) (73.8) (60.3) (6.0) Share Price Valuation (NAV) Est. $m Est. $/share
Exploration and Devel. A$m (13.1) (13.6) (13.6) (13.6)
Investments A$m 1.0 52.5 - - Tallering Peak (NPV @ 8%) 322.3 0.77
Investment Activities A$m (63.1) (34.9) (73.9) (19.6) Extension Hill (NPV @ 10% Discounted by 70%) 32.0 0.08
Exploration 25.0 0.06
Repayment of Borrowings A$m (5.0) (4.0) (3.0) - Cash 10.3 0.02
Equity A$m 6.7 2.5 2.5 2.8 Mt Gibson Magnetite Proceeds 52.5 0.12
Dividends Paid A$m - - (29.0) (54.4) Forwards 0.0 0.00
Financing Activities A$m 0.6 (1.5) (29.5) (51.6) Corporate Overheads (7.0) (0.02)
Total Debt (10.6) (0.03)
Net Cashflow A$m (22.2) 69.8 45.1 118.0 Tax Losses 0.0 0.00
Options & Other Equity 11.4 0.03
Ratio Analysis Unit FY2006F FY2007F FY2008F FY2009F Total 435.9 1.04

Cashflow Per Share A¢ 11.4 23.5 32.2 39.2

Cashflow Multiple X 6.9 3.4 2.5 2.0
Earnings Per Share A¢ 5.7 13.2 19.6 19.9
Price to Earnings Ratio X 13.9 6.0 4.0 4.0
Dividends Per Share A¢ - 2.0 10.0 16.0
Dividend Yield % - 2.5 12.7 20.3
Net Debt / Equity % 0.0 na na na
Interest Cover X na 49.6 76.2 84.4
Return on Equity % 19% 24% 29% 27%

Analyst: Simon Tonkin Last Updated: 21/07/2006

Phone: +61 8 9268 2826

Sources: IRESS, Company Information, Hartleys Research

44
 Midwest Corporation Limited Speculative Buy
Back to Where it all Began

Date Midwest Corporation Limited (“Midwest”, “MIS”, “Company”) is the Mid-

21 July 2006 West’s newest iron ore producer, commencing production in February 2006.
ASX Code Midwest’s portfolio of assets includes the historic Koolanooka mine where
MIS WMC first produced iron ore in the 1960’s. As with the other Mid-West iron
ore companies, MIS has developed a staged development plan, starting from
Share Price 1Mtpa production in 2006 and potentially increasing to 20Mtpa from 2010.
50cps
Based on the near-term cashflow appeal and long-term growth potential, we
Valuation rate Midwest Corporation Limited as a Speculative Buy.
89cps

Market Cap (fully diluted) Investment Highlights

$79.0m ($81.6m)
• Early Cashflow from Koolanooka - MIS commenced production of iron
Issued Capital (fully diluted) ore fines from Koolanooka stockpiles in February 2006 at a rate of 1Mtpa.
157.9m shares (163.2m) We expect that this low-cost operation will deliver good early cashflows
that will be used to develop a small mining operation at Koolanooka.
Cash (as at 31 March 2006)
$14.5m
• Growth Potential at Weld Range - MIS believes that there is good
Management potential to expand the 132Mt resource to in excess of 400Mt, sufficient
Jesse Taylor (Chairman) for the development of a 20Mtpa operation from 2010. The construction
Bryan Oliver (CEO)
of a 390km railway and deepwater port at Oakajee are critical to project
Top Two Shareholders development.
Amardale Offshore Inc (15.3%)
Vital Rays Investments Ltd (9.0%) • Magnetite Potential at Koolanooka - MIS has completed a Scoping
Study on the development of the magnetite deposit at Koolanooka
(430Mt at 35% Fe). We expect that MIS will further investigate its
potential, however, it remains focussed on delivering on the direct
shipping ore (“DSO”) hematite projects.

• Infrastructure Development Crucial - Koolanooka hematite production is

expected to be exported through the planned Berth 5 expansion at
Geraldton, whilst Weld Range production is anticipated to be exported
from the proposed Oakajee Port, 25km north of Geraldton.

• Trading at Significant Discount to Valuation - Our valuation model

assumes the successful development of Koolanooka Hematite and Weld
Range. Given the strong WA Government support for development of an
iron ore industry in the Mid-West, we are confident of the projects
realising their potential. MIS is trading at a significant discount to our
valuation of $0.89 per share.
Share Price Performance
M IDWEST CO RPOR ATIO N L IM ITE D ( M IS) Earnings Summary CY2006F CY2007F CY2008F CY2009F
65 5.0

Revenue A$m 45.4 43.8 59.6 61.4

60
4.0
EBITDA A$m 14.2 8.1 21.1 14.9
55
V olume (m shares)

NPAT A$m 8.8 3.2 11.5 6.2

Shar e Pr ice (cps)

3.0
50
Free Cash Flow A$m (7.7) (11.5) 8.9 (80.1)
45
2.0
EPS A¢ 5.6 2.0 7.2 3.9
40
EPS Growth % chg na 258.6 na na
1.0
35
PER x 8.9 24.9 6.9 12.9
30 0.0 DPS cents - - - -
Jul-05

Nov-05

Mar-06

Jul-06

Dividend Yield % - - - -
Vol ume MIS
Franking % - - - -
Source: Iress
Sources: IRESS, Company Announcements, Hartleys' Estimates

45
 Hartleys Limited

Background
Midwest Corporation Limited was listed in September 2003, Figure 20: Midwest Project Locations
following the completion of a reconstruction, reconstitution
and recapitalisation for Kingstream Resources NL. Since
listing, MIS has been developing its iron ore projects in the
Mid-West Region of Western Australia.
In October 2005, the Company signed a joint venture
agreement with Sinosteel Corporation (“Sinosteel”) to jointly
undertake feasibility studies for the Weld Range Hematite
and Koolanooka Magnetite projects. Once completed, these
studies are expected to result in a $1.5b investment in the
Mid-West Region of Western Australia.
In February 2006, the Company's first shipment of 58,000t
of iron ore fines left the Port of Geraldton bound for China.

Principal Assets
Koolanooka/Blue Hills DSO Hematite Project
The Koolanooka/Blue Hills Direct Shipping Ore (“DSO”)
Hematite Project, located 160km south east of Geraldton, Source: Midwest Corporation Limited
incorporates the historic mining areas previously mined by
Western Mining Corporation from 1966-1972 (Figure 20).
MIS has identified a Reserve of 7Mt at 58% Fe, comprising 2Mt of stockpiled fines material and a further 5Mt in situ.
Production from the stockpiled Koolanooka fines material commenced in early 2006, with 2Mt of fines expected to be
produced over two years.
Ore is transported 220km to the Port of Geraldton via road train. New railway crossings, boom gates, intersection
realignments and some sealing of existing Shire roads was required to allow road train transport. The transport of ore
via road to Geraldton came into question earlier in 2006, when Alannah MacTiernan, WA Minister for Planning and
Infrastructure, indicated a preference for ore to be transported via rail if the mine is within 100km of an existing rail
line. MIS is investigating the potential to transport ore via rail from April 2007 and is negotiating a rail access agreement
and the procurement of rolling stock. MIS has constructed an 85kt storage shed adjacent to Berth 4 at Geraldton
capable of delivering 1Mtpa (Figure 21). We believe that the truck receival facility at Geraldton has now been
completed and is operational.
Whilst stockpile production is underway, Midwest Figure 21: Loader in the Geraldton Storage Shed
is also completing studies for the development of
a mining operation to extract a further 5Mt of
undeveloped reserves at Blue Hills (3.03Mt) and
Koolanooka (1.87Mt). These reserves have an
iron grade of 58%, low contaminants, low strip
ratio (1:1) and a lump/fine ratio of 50/50.
Existing haul roads are in place at Blue Hills,
which we expect will be refurbished and utilised
by both Midwest and Gindalbie Metals Limited.
MIS is targeting an additional 5Mt of resources at
Blue Hills or Koolanooka. Drilling will commence
in Q3 CY2006 to establish an expanded
resource with the aim of increasing production to
2Mtpa, once the Berth 5 upgrade has been
completed at the Port of Geraldton.
Source: Midwest Corporation Limited

46
 Hartleys Limited

Weld Range Hematite Project

MIS’ Weld Range project area is located 65km south west of Figure 22: Weld Range Field Sampling
Meekatharra and 50km north west of Cue in Western
Australia. This project is also included in the Sinosteel /
Midwest Studies Joint Venture.
The Weld Range tenements comprise of a series of hills that
rise up to 250m above the surrounding plains. The range is
up to 3km wide and extends for up to 60km long from
south west to north east. The range consists of a series of
parallel ridges with deeply incised valleys.
The iron ore potential of Weld Range has been recognised
for over 100yrs. Modern exploration commenced in 1959,
and drilling programs conducted between 1970 and 1981
together with the driving of two exploration adits identified a
number of deposits in the Madoonga and Beebyn areas.
Source: Midwest Corporation Limited
High grade iron ore mineralisation occurs within the Weld
Range area as a series of outcropping massive goethite-hematite lodes. To date, sixteen of these outcrops have been
identified within the Company's tenements. MIS acquired the W14 deposit at Madoonga and the W7 to W12 lenses at
Beebyn in 1997. The total identified JORC-compliant mineral resource for the Madoonga W14 deposit is 132.1Mt at
55.6% Fe, however, grades of up to 65% Fe have been recorded.
Weld Range is a DSO project with good potential for resource additions due to major high grade outcrops over a 60km
strike length. The current resource represents only 3km of the strike length. MIS believes that the project has potential
for 400 to 500Mt of resources and a planned shipment rate of 15-20Mtpa over 15+ years.
The successful implementation of a project of this scale will require the construction of a deepwater port at Oakajee
and the construction of a new rail line. Both of these infrastructure projects are currently being assessed by the
Geraldton Iron Ore Alliance (see below). We expect that these projects will be funded by third parties with common
access provisions. We believe the most likely scenario is a single line will be developed to Murchison Metals’ Jack Hills
Project, with a spur line connecting to Weld Range.
The timeframe for the development of the port and rail line means that capacity is available from mid-2010. MIS is
using this timeframe as a guide for the potential development of the Weld Range Hematite Project.
Key activities undertaken on the project during the past six months have included:

• Reconnaissance sampling and mapping of MIS’ tenements to determine drill sites for the planned extensive
drilling program;
• Entering into agreement with Hampton Hill Mining NL (Hampton) whereby the two companies will co-operate in
the exploration and potential development of their adjacent tenement holdings situated in the Weld Range;
• Progressed port designs and discussions with all stakeholders in the port; and
• Continued discussions with the Native Title Party and representing Land and Sea Council covering the Company's
Weld Range tenements.
• JV with Sinosteel covering feasibility studies.

Results from initial sampling confirmed multiple outcrops of high-grade material grading up to a maximum of 67.4%
Fe from the Beebyn area.
The Hampton agreements give the Company the right to explore for and gain majority ownership of any iron ore
resources that may occur on the Hampton tenement holdings while Hampton will have the opportunity to explore for
and own any non-ferrous minerals occurring within some of the Company's tenement holdings.
Heritage Surveys over several of the Company's most prospective Weld Range tenements were completed in March
2006.

47
 Hartleys Limited

Koolanooka Magnetite Project

The proposed Koolanooka Magnetite Project forms the second stage in the development of the Koolanooka resource.
This project is included in the Sinosteel / Midwest Studies Joint Venture.
The total identified JORC-compliant mineral resource is 430Mt at an average grade of 35% Fe. MIS believes that the
project potential is 4.5Mtpa of iron ore concentrate and/or pellets over 20+ years. The DSO Hematite projects have a
higher priority than the magnetite project due to the high capital cost involved and the increased level of risk. The
Koolanooka Magnetite Project is not expected to be developed until at least 2015.
Key activities undertaken on the project during the past six months have included further metallurgical testwork on the
composite samples previously taken leading into the completion of the Scoping Study for the project in March 2006,
which has been presented to the Sinosteel/Midwest Joint Venture Operating Committee for review and approval of the
forward work programme.

Resources
Table 11: Midwest Resources and Reserves (as at 31 December 2005)

Koolanooka and Blue Hills DSO Hematite Resources and Reserves

Resources Reserves
Class Tonnes Fe % Class Tonnes Fe %
Measured 1,240,000 59.0 Proved 940,000 58.4
Koolanooka Indicated 65,000 58.1 Probable 220,000 56.2
Hematite Zone Inferred 20,000 55.8
Total 1,325,000 58.9 Total 1,160,000 58.0
Measured 1,305,000 52.1 Proved 710,000 52.1
Koolanooka Indicated 1,000 52.6 Probable - -
Detrital Zone Inferred 14,000 52.0
Total 1,320,000 52.2 Total 710,000 52.1
Fines Stockpile Measured 2,140,000 57.0 Proved 2,140,000 57.0
Measured 950,000 60.6 Proved 710,000 60.3
West Mungada Indicated 141,000 60.3 Probable - -
Hematite Zone
(Blue Hills) Inferred 96,000 56.7
Total 1,187,000 60.3 Total 710,000 60.3
Measured 2,590,000 60.0 Proved 2,320,000 60.0
East Mungada Indicated 535,000 56.5 Probable - -
Hematite Zone
(Blue Hills) Inferred 125,000 56.2
Total 3,250,000 59.3 Total 2,320,000 60.0

TOTAL Measured 8,225,000 57.9 Proved 6,820,000 58.0

RESOURCE / Indicated 742,000 58.1 Probable 220,000 56.2
RESERVE Inferred 255,000 56.1
ESTIMATES Total 9,222,000 57.9 Total 7,040,000 58.0

Koolanooka Magnetite Resources

Class Tonnes Fe %
Measured - -
Indicated 427,000,000 35.0
Koolanooka
Inferred 3,000,000 29.0
Total 430,000,000 35.0

Weld Range Hematite Resources

Class Tonnes Fe %
Measured 93,000,000 55.9
Indicated 39,000,000 54.9
Madoonga W14
Inferred 100,000 55.8
Total 132,100,000 55.6
Source: Midwest Corporation Limited

48
 Hartleys Limited

Other Projects
Jack Hills Project
The Jack Hills project is located 380km north-east of Geraldton. The Company has tenements that cover approximately
35,000ha, which surround the tenements held by Murchison Metals Limited (“Murchison”). MIS’s ground contains the
north-east and south-west strike extensions of Murchison’s Jack Hills deposit. Midwest considers the tenements to be
highly prospective for iron ore. Heritage surveys have been completed for tenement E20/209 and drilling is planned
during CY2006.

Strategic Alliances
The Mid-West iron ore sector has differentiated itself from other mining regions in Australia due to the collaborative
approach that all of the major players have to infrastructure and funding. MIS has entered into two key alliances with
respect to its activities.
In June 2005, the Company announced that it had entered into a framework agreement with one of the largest state
owned enterprises in China’s steel industry, Sinosteel Corporation. In November 2005, the various iron ore companies
in the Mid-West formed the Geraldton Iron Ore Alliance to investigate and lobby for the construction of key rail and
port infrastructure in the region.

Sinosteel Agreement
The framework agreement covers Midwest’s two major projects, the Weld Range Hematite project and the Koolanooka
Magnetite project. The involvement of Sinosteel in the projects provides surety over sales as well as providing
confidence that the larger projects will be able to be financed.
The joint development comprises three stages for each project:

1. A pre-study stage preparatory to signing a ‘Co-operation Agreement’.

2. A study stage during which scoping, pre-feasibility, and bankable feasibility studies are to be completed and the
interest of each party in the projects will be agreed and the development costs of the projects will be determined.
The study stage is to commence on execution of the ‘Co-operation Agreement’ and end on the completion of the
bankable feasibility study.
3. The operational stage during which the projects are to be developed and operated.

Subject to the success of the above mentioned three stages, Sinosteel will enter into an off-take agreement to
purchase the iron ore products from the two projects on commercial terms. The Weld Range and Koolanooka projects
will be financed by limited recourse project finance and Sinosteel will lead the procurement of this finance.
Sinosteel will contribute an amount comparable with agreed Midwest contributions to date on the projects. Following
this, all contributions will be on a 50/50 basis. As at 30 June 2005, Midwest had spent $16.3m on the project, plus an
additional $0.7m to 31 January 2006. Therefore, Sinosteel will need to contribute the first $17m towards studies
before Midwest is required to contribute further.
At the completion of pre-feasibility studies (“PFS”), the two projects are to be valued and Midwest will be compensated
by Sinosteel in return for a 50% interest in the projects. This is unlikely to be in the form of a cash payment, but rather
as a contribution towards funding and/or funding guarantees.

Geraldton Iron Ore Alliance

There are five companies in the Mid-West region that are currently producing iron ore or plan to do so within the next
two years. These companies are:

Company Code Project Product

Gindalbie Metals Limited GBG Mt Karara Hematite/Magnetite
Mt Gibson Iron Limited MGX Tallering Peak/Extension Hill Hematite
Murchison Metals Limited MMX Jack Hills Hematite
Midwest Corporation Limited MIS Koolanooka, Blue Hills, Weld Range Hematite/Magnetite
Golden West Resources Ltd GWR Wiluna West Hematite

49
 Hartleys Limited

Most of these companies are planning to establish projects in two stages, with a smaller initial development plan to
generate cashflow followed by a larger second stage expansion. Stage 1 output is targeted to be exported through the
upgraded Berth 5 facility at Geraldton. The second stage projects involve significantly larger volumes, which exceed the
capacity of the Geraldton Port. To counter this obstacle, it has been proposed that a new port be constructed 25km
north of Geraldton at Oakajee, which is capable of handling Cape size (160kt-230kt) vessels.
With most of these companies planning to use components of the same infrastructure, the Geraldton Iron Ore Alliance
(“Alliance”) was formed to investigate infrastructure and other project aspects (ie environmental) that are common
between the projects. It is hoped that the Alliance will be able to more effectively plan for the infrastructure needs of
the region and reduce the cost and time required for implementation. Recently, a sixth member, Royal Resources
Limited, has joined the Alliance.

Financial Analysis
In May 2005, MIS completed a placement of 68m shares to institutions, 10.8m shares to shareholders under a
Shareholder Purchase Plan and 14.6m shares from the conversion of convertible notes. These shares, issued at 37cps,
raised $29m. Midwest currently has 157.9m shares on issue and a further 3.55m options that are currently in the
money.
As at 30 June 2006, MIS had an estimated cash position of approximately $26m cash.

Valuation
We have modelled both Koolanooka DSO Hematite Table 12: Hartleys’ Valuation
and Weld Range, assuming that both projects are
delivered on time and on budget. As Koolanooka has A$m cps
commenced production, we have valued it using a Koolanooka Hematite 63.5 22
discount rate of 8%. Weld Range has a slightly higher
discount rate of 10%, however, we have also applied a Weld Range Hematite 75.6 26
70% discount to the project recognising that the DFS Koolanooka Magnetite 25.0 9
has yet to be completed; the particulars relating to
construction of rail and port infrastructure are yet to be Exploration 25.0 9
settled; financing still has to be finalised; and the Cash 14.5 5
project is four years away from commencement. In
time, as each of these items are finalised, we will adjust Corporate Overheads (12.2) (4)
the level of discount on the project. Debt (0.1) (0)
We have modelled the production of Koolanooka Tax Losses 2.1 1
stockpiles for 2 years followed by the development of a
Options & Other Equity 65.4 22
mining operation at Koolanooka.
Total 258.7 89
At Weld Range, we assume that production will
commence in 2010 coinciding with the anticipated Source: Hartleys’ Estimates
completion of the railway and Oakajee port. The Assumes that 130m shares are issued at $0.54 per share to fund Weld
agreement with Sinosteel allows it to earn 50% equity Range development
by compensating MIS at the completion of the PFS.
From a valuation perspective, there is no difference in
modelling Midwest’s ongoing equity at 100% or at 50% with the other 50% payable at the completion of the pre-
feasibility study. However, the valuation will change if MIS is not compensated in cash or if the project parameters
change after the completion of the PFS.
We have applied a conservative valuation of $25m to the Koolanooka Magnetite Project due to the timeframe that the
company expects it to be developed in (post 2015). This project has the potential to be a large development in its
own right.

50
 Hartleys Limited

Conclusions
Midwest is Australia’s newest iron ore producer after commencing production in February 2006. Midwest’s portfolio of
assets includes the historic Koolanooka mine where WMC first produced iron ore in the 1960’s. MIS has a staged
development plan, starting from 1Mtpa production in 2006 and potentially increasing to 20Mtpa from 2010.
The offtake agreement with Sinosteel provides cashflow surety and confidence that the Weld Range Hematite Project
should be developed. The current timing of the Koolanooka Magnetite Project of 2015 indicates that it is a lower
priority project, however the planned development of other magnetite projects and processing infrastructure in the
region may lead to this project being brought forward or developed in association with one of the other groups.
Based on the near-term cashflow appeal and long-term growth potential, we find MIS to be an attractive investment
proposal. However, due to a large component of the valuation being dependant on the development of Weld Range,
the risks associated with the development of the rail and port infrastructure and the sensitivity of the valuation to
movements in the iron ore price, we rate Midwest Corporation Limited as a Speculative Buy.

51
 Hartleys Limited

Midwest Corporation Limited Share Price July 2006

MIS $0.50 SPECULATIVE BUY
Key Market Information Directors Company Information

Share Price $0.50 Jesse Taylor (Chairman) Suite 2, 1st Floor, 32 Kings Park Rd
Market Capitalisation $144m Francis Ng (Deputy Chairman) West Perth, WA, 6005
52 Week High-Low $0.65-$0.38 Stephen de Belle (non-Exec Director) Tel: +61 8 9226 2033
Issued Capital 287.5m Richard Hock (Non-Exec Director) Fax: +61 8 9226 3388
Issued Capital (fully diluted inc. ITM options) 291.1m Stephen Chong (Non-Executive Director) Web: www.midwestcorp.com.au
Options 3.6m@$A0.40 David Seng (Non-Executive Director)
Hedging - Top 10 Shareholders m shares %
Yearly Turnover/Volume $53.3m/103.8m shares
Liquidity Measure (Yearly Turnover/Issued Capital) 36% 1 Amardale Offshore Inc 24.12 15.3
Valuation $0.89 2 Vital Rays Investments Ltd 14.15 9.0
3 Westpac Custodian Nominees Limited 10.04 6.4
Financial Performance Unit CY2006F CY2007F CY2008F CY2009F 4 Dawn Star Ventures Limited 8.33 5.3
5 Bluebay Investments Group Corporation 6.66 4.2
Net Revenue A$m 45.4 43.8 59.6 61.4 6 Bryan Hughes and Vincent Smith Kingstream 5.89 3.7
Total Costs A$m (31.3) (35.7) (38.4) (46.5) 7 Steel Limited Creditors A/C 0.00 0.0
EBITDA A$m 14.2 8.1 21.1 14.9 8 Swee Pook The 3.60 2.3
Depreciation/Amort A$m (1.7) (2.9) (3.4) (4.0) 9 Citicorp Nominees Pty Limited 3.20 2.0
EBIT A$m 12.5 5.2 17.8 10.9 10 Chin An Lau 2.99 1.9
Net Interest A$m 0.1 (0.7) (1.4) (2.0) McNeil Nominees Pty Limited 2.98 1.9
Pre-Tax Profit A$m 12.6 4.5 16.4 8.9
Tax Expense A$m (3.8) (1.4) (4.9) (2.7) Reserves & Resources Mt %Fe
NPAT A$m 8.8 3.2 11.5 6.2
Abnormal Items A$m - - - - Koolanooka Hematite
Reported Profit A$m 8.8 3.2 11.5 6.2 Resources 9.22 57.9
Reserves 7.04 58.0
Koolanooka Magnetite
Resources 430.00 35.0
Financial Position Unit CY2006F CY2007F CY2008F CY2009F Weld Range Hematite
Resources 132.10 55.6
Cash A$m 17.0 5.5 15.3 5.2
Other Current Assets A$m 5.6 4.4 5.9 5.7 Production Summary Unit CY2006F CY2007F CY2008F CY2009F
Total Current Assets A$m 22.6 9.9 21.2 10.9 *Attributable
Property, Plant & Equip. A$m 22.4 38.1 41.2 139.3 Iron Ore - Fines Production 000t 815 1,000 875 500
Exploration A$m 30.3 32.3 34.8 37.2 Iron Ore - Lump Production 000t - - 125 500
Investments/other A$m 0.1 0.1 0.1 0.1 Iron Ore - Concentrate Sales 000t - - - -
Tot Non-Curr. Assets A$m 52.8 70.4 76.1 176.6 Iron Ore - Pellet Production 000t - - - -
Total Assets A$m 75.4 80.4 97.2 187.5 Cash Cost $A/t 34.44 32.49 35.22 43.30

Short Term Borrowings A$m (0.0) (0.0) (0.0) (0.0) Price Assumptions Unit CY2006F CY2007F CY2008F CY2009F
Other A$m (4.0) (4.5) (4.1) (15.3)
Total Curr. Liabilities A$m (4.1) (4.5) (4.1) (15.4) AUDUSD A$/US$ 0.74 0.73 0.74 0.73
Long Term Borrowings A$m (0.1) (0.1) (0.1) (70.1) Received Price - Fines A$/t 55.74 43.77 57.57 53.98
Other A$m (9.1) (10.5) (15.4) (18.1) Received Price - Lump A$/t - - 73.46 68.89
Total Non-Curr. Liabil. A$m (9.2) (10.6) (15.5) (88.1) Average Received Price A$/t 55.85 43.86 59.67 61.56
Total Liabilities A$m (13.3) (15.1) (19.5) (103.5)
Sensitivity Analysis Valuation ($/s) NPAT EPS (¢) CFPS (¢)
Net Assets A$m 62.1 65.3 77.7 84.0
Base Case 0.89 11.5 7.2 9.3
Cashflow Unit CY2006F CY2007F CY2008F CY2009F Exchange Rate +10% 0.62 7.9 5.0 7.1
Exchange Rate -10% 1.21 16.0 10.0 12.1
Operating Cashflow A$m 9.1 9.7 19.3 26.4 Iron Ore Price +10% 1.18 15.5 9.7 11.9
Income Tax Paid A$m - - - - Iron Ore Price -10% 0.59 7.5 4.7 6.9
Interest & Other A$m 0.1 (0.7) (1.4) (2.0) Operating Costs +10% 0.66 9.2 5.8 7.9
Operating Activities A$m 9.2 9.0 17.9 24.4 Operating Costs -10% 1.11 13.7 8.6 10.8
*N.B. NPAT, EPS, CFPS forecasts are for FY2008
Property, Plant & Equip. A$m (13.0) (17.0) (5.0) (100.5)
Exploration and Devel. A$m (3.9) (3.5) (4.0) (4.0)
Investments A$m - - - - Share Price Valuation (NAV) Est. $m Est. $/share
Investment Activities A$m (16.9) (20.5) (9.0) (104.5)
Koolanooka_Blue Hills Hematite (NPV @ 8%) 63.5 0.22
Repayment of Borrowings A$m - - - - Weld Range (NPV @ 10%) 75.6 0.26
Proceeds of Borrowings A$m - - - 70.0 Koolanooka Magnetite 25.0 0.09
Equity A$m - 0.0 0.9 0.0 Exploration 25.0 0.09
Dividends Paid A$m - - - - Cash 14.5 0.05
Financing Activities A$m - 0.0 0.9 70.0 Forwards 0.0 0.00
Corporate Overheads (12.2) (0.04)
Net Cashflow A$m (7.7) (11.5) 9.8 (10.1) Total Debt (0.1) (0.00)
Tax Losses 2.1 0.01
Ratio Analysis Unit CY2006F CY2007F CY2008F CY2009F Options & Other Equity 65.4 0.22
Total 258.7 0.89
Cashflow Per Share A¢ 6.7 3.8 9.3 6.4
Cashflow Multiple X 7.5 13.1 5.4 7.8
Earnings Per Share A¢ 5.6 2.0 7.2 3.9
Price to Earnings Ratio X 8.9 24.9 6.9 12.9
Dividends Per Share A¢ - - - -
Dividend Yield % - - - -
Net Debt / Equity % -27% -8% -20% 77%
Interest Cover X (83.5) 7.6 13.0 5.4
Return on Equity % 14% 5% 15% 7%

Analyst: Andrew Rowell Last Updated: 21/07/2006

Phone: +61 8 9268 2837

Sources: IRESS, Company Information, Hartleys Research

52
 Murchison Metals Limited Speculative Buy
Road Trains Full of Cash

Date Murchison Metals Limited (“Murchison”, “MMX”, “Company”) has made large
21 July 2006
steps towards becoming an iron ore producer at its Jack Hills Iron Ore Project
ASX Code in the Mid-West region of WA. Jack Hills is planned as a two-stage
MMX development. Stage 1 is due to commence production in Q3 CY2006 as a
1.5-2Mtpa operation, involving road transportation of the ore to the existing
Share Price
68cps Port of Geraldton. Stage 2 involves a major expansion of production to
25Mtpa, which will require the construction of a new rail system and a
Valuation deepwater port at Oakajee. By developing Jack Hills in two stages, Murchison
154cps can access early cashflows whilst working towards the major regional
Market Cap (fully diluted) infrastructure upgrades required for Stage 2. Based on MMX trading at a
$205.2m ($269.2m) significant discount to our valuation of $1.54 per share, we rate Murchison
Metals Limited as a Speculative Buy.
Issued Capital (fully diluted)
301.7m shares (395.9m)
Investment Highlights
Cash (as at 30 June 2006)
$5m
• Jack Hills Stage 1 First Ore From August 2006 - Production from Jack
Hills is due to commence in the September quarter. Stage 1 is expected
Management to generate an average cashflow of $18mpa based on cash costs of
Paul J Kopejtka (Chairman) $56/t. First year production is scheduled at 1.5Mtpa, scaling up to 2Mtpa
Trevor Matthews (Managing Director)
Robert Vagnoni (Exec. Director)
in the second year.
• Stage 2 Generates Significant Cashflow - Once production has
Top Three Shareholders
ANZ Nominees (12.4%) commenced, Stage 2 is expected to generate an average cashflow of
Westpac Custodian Nominees (6.9%) $388mpa over 15.5yrs from mid-2010. Average cash costs are forecast
National Nominees (6.7%) to be $24.30/t with capital expenditure of $250m.
• Several Key Alliances Formed - In order to progress Stage 2 of Jack Hills
and the associated infrastructure required, Murchison has formed a
number of strategic alliances:
• The Geraldton Iron Ore Alliance (“Geraldton Alliance”) with other
emerging Mid-West Iron Ore producers,
• An iron ore off-take agreement with Pohang Iron & Steel Company
Limited (POSCO),
• An infrastructure alliance with POSCO Engineering and Construction,
Toll Holdings and Mitsubishi Corporation.
• Valuation for MMX of $1.54 per share - Our valuation of $1.54 per
share includes a value of $44.3m (11cps) for Stage 1, $550.6m
(139cps) for Stage 2 and $20m (5cps) for exploration. We have applied
a 70% discount to Stage 2 due to the numerous hurdles that need to be
overcome. This discount will be reduced over time, which could lead to
significant upgrades to the valuation.
Share Price Performance
MU R C H I S ON M E T A L S L I M I T E D ( MMX ) Earnings Summary FY2007F FY2008F FY2009F FY2010F
80 14 Revenue A$m 118.4 149.1 145.3 129.2
70 12 EBITDA A$m 23.2 23.7 20.2 5.2
V olume (m shares)

60 10
NPAT A$m 6.7 3.4 0.2 (22.6)
Shar e Pr ice (cps)

50 8
Free Cash Flow A$m (18.9) 4.0 (15.3) (220.1)
40 6
EPS A¢ 2.0 1.0 0.1 (5.7)
30 4
EPS Growth % chg na na na na
20 2
PER x 33.4 71.1 1246.1 na
10 0
DPS cents - - - -
Jul-05

Nov-05

Mar-06

Jul-06

Vol ume MMX

Dividend Yield % - - - -
Franking % - - - -
Source: Iress
Sources: IRESS, Company Announcements, Hartleys' Estimates
53
 Hartleys Limited

Background
MMX is an emerging Australian iron ore producer that listed on the ASX in April 2005. It is aiming to bring into
production the Jack Hills iron ore deposit in the Mid-West region of Western Australia, enabling it to capitalise on the
current strong demand for high quality iron ore in major Asian markets. The Company is planning to commence
production from Stage 1 of Jack Hills in Q3 CY2006, with expanded production from Stage 2 scheduled for
commencement in mid-2010.

Principal Assets
Jack Hills
The Jack Hills Project is located 380km north-east of Geraldton Figure 23: Jack Hills Project Location
in the Mid-West region of Western Australia (Figure 23). The
project was previously explored in the 1970’s when the
potential for a number of deposits of high grade hematite ore
within banded iron formations (BIF) was identified. There are
two main mineralised areas at Jack Hills, the Mt Hale area and
the Noonie Hills area. Exploration to date has focussed on the
Mt Hale area, and in particular, the H3, H4 and Brindal
Horizons.

Stage 1
Production for Stage 1 of the Jack Hills project will commence
at 1.5Mtpa for the first year, increasing to 2Mtpa in subsequent
years, with a mine life of five years. The Company anticipates
that the first shipment of ore will occur in Q3 CY2006.
In Stage 1, iron ore will be mined using an open cut contract
mining fleet, with a strip ratio of approximately 4:1, producing a
lump to fines ratio of 67:33. The ore is to be crushed and
screened on site, and then transported by road haulage to the
Port of Geraldton using existing roads. The Company will store
ore at Berth 4 where it has constructed an ore storage shed.
The ore will be transferred to Berth 5 via a conveyor and Source: Murchison Metals Limited
loaded on to Panamax (60kt) size ships.
Murchison has signed four fixed-price contracts for the supply of iron ore. The contracts provide for the shipment of
1.2Mt of iron ore annually to cover the first five years of production. The first year’s production has been sold at
US$58/t for both lump and fines, which is at a premium to the market. Contracts for the remaining uncontracted
production are currently being negotiated.
The Company believes it can produce iron ore at an average cash operating cost of A$56/t over the life of Stage 1,
generating an average operating margin of A$19/t. Capital expenditure for Stage 1 is expected to be A$41m.

Stage 2
In Stage 2, Murchison plans to expand Jack Hills to 25Mtpa with a 15+ year mine life. To significantly reduce transport
costs, Stage 2 ore is to be transported by rail rather than road haulage. To facilitate this, a railway line will need to be
constructed from Jack Hills to the port. As the Port of Geraldton does not have the capacity to process these volumes,
a new deepwater port at Oakajee, located 25km north of Geraldton, is proposed.
The pre-feasibility for Jack Hills Stage 2 indicated that cash operating costs would be A$13.66/t excluding royalties,
depreciation and amortisation. Capital costs were estimated at approximately A$1.8b, which cover all mine
infrastructure (A$250m), construction of the rail line from Jack Hills to Oakajee, and the Oakajee port, all of which
would be funded by Murchison.
The WA Government and companies in the Geraldton Alliance (see below) are proposing Oakajee as a common
access port with a berthing for Cape size ships (180kt) and capacity for a throughput in the order of 140Mtpa. This
capacity would enable Oakajee to take all the ore from the various Stage 2 iron ore projects in the Mid-West region.
This alliance of emerging and current iron ore producers is commissioning studies for the development of the port, to
be funded by external parties. The preferred scenario is for an infrastructure fund or large international group to fund
the development of the port in return for a long term management lease over the facility.

54
 Hartleys Limited

If other parties build the port and rail, Figure 24: Jack Hills
the capital cost for Jack Hills Stage 2
applicable to Murchison would be
reduced to approximately A$250m,
though the cash operating costs will
increase due to higher access costs for
the port and rail.
Murchison is currently undertaking a
definitive feasibility study (DFS) for
Stage 2 using international engineering
group Maunsell AECOM. The DFS will
include extensional drilling to
significantly expand current resource
and reserve inventories. Murchison
aims to define sufficient reserves to
sustain the higher production rate over
the 15+ year mine life. The DFS is
expected to be completed by Q2
Source: Murchison Metals Limited
CY2007 and will cost approximately
$20m. Murchison anticipates that
construction will commence in early CY2008, with commissioning and first ore shipments from the new facilities
expected in mid CY2010.

Weld Range
Whilst the Jack Hills Project is the focus of Murchison’s current mine development, the Company also has prospective
iron ore holdings at Weld Range, south of Jack Hills. Murchison believes there is potential for significant lower grade
hematite iron ore mineralisation at the project, as evidenced by Midwest Corporation Limited’s resources of 132.1Mt
@ 55.6% Fe nearby. Initial exploration activities are planned to be conducted at Weld Range in the coming year.

Resources/Reserves
Previous explorers estimated a non-JORC compliant resource at Jack Hills of 380mt @ 62% Fe. The project was not
developed due to the then low iron ore prices and the ready availability of iron ore from the Pilbara region. Subsequent
work delineated a JORC compliant resource of 67mt @ 62% Fe (Table 13).
The mineralisation is characterised by a low level of contaminants and a good iron grade. The high quality of the iron
ore means that Jack Hills is amenable to a direct shipping ore (DSO) operation, requiring minimal on-site beneficiation.

Table 13 – Jack Hills JORC Compliant Resource

Grade
Tonnes
Category
(Mt) Fe % S% P% LOI % SiO2 % Al2O3 %

Measured 8 62 <0.05 <0.05 1-2 <3 <2

Inferred 59 62 <0.05 <0.05 1-2 <3 <2

TOTAL 67 62 <0.05 <0.05 1-2 <3 <2

Source: Murchison Metals Limited

After listing, MMX has concentrated on converting some of the existing Jack Hill resource into an initial JORC compliant
Reserve. Close-spaced drilling at Mt Hale generated a Reserve of 8.5mt @ 63% Fe (Table 14). Only 30% of the 67Mt
resource was targeted for reserve conversion. The current Resources and Reserves do not cover the full strike extent of
the Jack Hills mineralisation. MMX expects to increase both Resources and Reserves with in-fill and extensional drilling
during calendar 2006.

55
 Hartleys Limited

Table 14 – Jack Hill JORC Compliant Reserve

Grade
Tonnes
Category
(Mt)
Fe % S% P% LOI % SiO2 % Al2O3 %

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 Metals Limited

Strategic Alliances
In order to progress the Jack Hills Iron Ore Project, MMX has developed a number of key alliances with groups that
have interests aligned to that of the Company.

Geraldton Iron Ore Alliance

There are five companies in the Mid-West region that are currently producing iron ore or plan to do so within the next
two years. These companies are:

Company Code Project Product

Gindalbie Metals Limited GBG Mt Karara Hematite/Magnetite
Mount Gibson Iron Limited MGX Tallering Peak/Extension Hill Hematite
Murchison Metals Limited MMX Jack Hills Hematite
Midwest Corporation Limited MIS Koolanooka, Blue Hills, Weld Range Hematite/Magnetite
Golden West Resources Ltd GWR Wiluna West Hematite

Most of these companies are planning to establish projects in two stages, with a smaller initial development plan to
generate cashflow followed by a larger second stage expansion. Stage 1 output is targeted to be exported through the
upgraded Berth 5 facility at Geraldton. The second stage projects involve significantly larger volumes, which exceed the
capacity of the Geraldton Port. To counter this obstacle, it has been proposed that a new port be constructed 25km
north of Geraldton at Oakajee, which is capable of handling Cape size (160kt-230kt) vessels.
With most of these companies planning to use components of the same infrastructure, the Geraldton Iron Ore Alliance
(“Alliance”) was formed to investigate infrastructure and other project aspects (ie environmental) that are common
between the projects. It is hoped that the Alliance will be able to more effectively plan for the infrastructure needs of
the region and reduce the cost and time required for implementation. Recently, a sixth member, Royal Resources
Limited, has joined the Alliance.

POSCO Alliance
Murchison has also formed a strategic alliance with the Pohang Iron & Steel Company Limited (POSCO) as a critical
part of MMX’s Stage 2 development of Jack Hills. POSCO is a wholly owned subsidiary of one of the world’s largest
iron and steel producers, POSCO Limited of South Korea.
Under this alliance, POSCO acquired shares and options in Murchison and secured the right to purchase up to 10Mtpa
of iron ore over a 25 year period from Murchison. POSCO has indicated that it will purchase a 50kt trial shipment of
iron ore from Jack Hills Stage 1 in 2006.
As part of the alliance, POSCO has the right to nominate a representative to the MMX’s board if POSCO’s shareholding
increases to 19.9%.

Infrastructure Consortium
Murchison has formed a consortium with POSCO Engineering and Construction Company Limited (POSCO E&C), Toll
Holdings (Toll) and Japan's Mitsubishi Corporation to conduct a feasibility study into the development of new rail and
port infrastructure in the Mid-West region of Western Australia.

56
 Hartleys Limited

The consortium has been established through a formal non-binding memorandum of understanding (MOU). Under
the MOU, the parties have agreed to contribute resources and expertise to determine the requirements for building the
rail and port infrastructure. The infrastructure will include construction of Oakajee and new rail links from Jack Hills to
Oakajee. The feasibility study is due to be completed by Q2 CY2007.

Financial Analysis
In November 2005, MMX completed a placement of 10m shares and 30m options to POSCO raising $3m. This raising
was part of the strategic alliance negotiated with POSCO. In December 2005, Murchison placed 87.5m shares at
32cps raising $28m to fund a bankable feasibility study into Stage 2 and for working capital for Stage 1. Murchison
currently has 280.7m shares on issue and a further 104.3m options that are currently in the money.
As at 30 June 2006, the Company had an estimated cash position of approximately $5m cash.

Valuation
We have modelled Stage 1 and Stage 2 separately, Table 15: Hartleys’ Valuation
assuming that both projects are delivered on time and
on budget. As Stage 1 is due to go into production in A$m cps
the near future, we have valued it using a discount rate Stage 1 44.3 11
of 8%. Stage 2 has a slightly higher discount rate of
10%, but we have also applied a 70% discount to the Stage 2 550.6 139
project recognising that: it does not yet have a JORC- Exploration 20.0 5
compliant resource of sufficient size; the DFS has yet to
be completed; the particulars relating to construction of Cash 5.0 1
rail and port infrastructure are yet to be settled; Corporate Overheads (12.3) (3)
financing still has to be finalised; and the project is 4
Debt (30.0) (8)
years away from commencement. In time, as each of
these items is finalised, we will reduce the level of Tax Losses 0.9 0
discount on the project.
Options & Other Equity 30.0 8
Stage 1 Total 608.5 154
For Stage 1, most of our assumptions are similar to Source: Hartleys’ Estimates
those stated by MMX. We have production
commencing in Q3 CY2006 at an initial rate of 1.5Mtpa
for the first year, increasing to 2Mtpa for the next 4 years, with a five year mine life. We have allocated capital costs of
$41m plus $5m required for working capital, $30m of which is debt financed, with the remainder drawn from funds
already raised.
We have used a cash operating cost for Stage 1 of A$56/t before royalties and depreciation. Stage 1 is expected to
generate an average cash operating margin over the life of the project of A$19.90/t.
Based on these assumptions, we value Stage 1 at $44.3m, or 11.2cps.

Stage 2
For Stage 2, we have assumed a reserve of 380Mt of ore at 62% Fe. We have production ramping up each quarter
from Q3 CY2010 to achieve 18.25Mt in the first year, then 25Mtpa of iron ore thereafter over a 15.5 year mine life.
We have assumed that third parties will construct the port and rail infrastructure, leaving MMX with a capital
expenditure of $276m, which includes the $20m to fund the DFS currently underway. We have assumed that $220m
will be debt funded, and the rest funded from cash flows generated from Stage 1.
We have used a cash operating cost of $A24.30/t before royalties. This is higher than the $13.66 the company
forecast due to the inclusion of additional port and rail access charges levied by the third party operators. We derive an
average cash operating margin over the life of the project of around A$26/t.
Applying a 70% discount, we value Stage 2 at $550.6m, or $1.39 per share.
We have currently only assigned $20m exploration value to MMX, a relatively conservative amount considering the
value of the Stage 2. Any further exploration success at Mt Hale, Noonie Hills or Stuart Bore will add incremental years
to the project. Due to its location, exploration success at Weld Range will depend on the size of the deposit and may
be reliant on sharing infrastructure with Midwest Corporation.
We value Murchison Metals Limited at $1.54 per share (Table 15).

57
 Hartleys Limited

Conclusions
Since listing on the ASX in April 2005, Murchison Metals Limited has made large steps towards becoming an iron ore
producer from its Jack Hills Iron Ore Project. Stage 2 involves a major expansion in production to 25Mtpa, which will
require the construction of a new rail system and deep water port at Oakajee.
By forming alliances with other iron ore companies and infrastructure parties relating to the construction of the port and
rail infrastructure, the Company has increased the likelihood that these developments will go ahead, whilst significant
reducing the capital outlay required for Stage 2.
By developing Jack Hills in two stages, Murchison can access early cashflows whilst working towards the major regional
infrastructure upgrades required for Stage 2. Based on MMX trading at a significant discount to our valuation of $1.54
per share, we rate Murchison Metals Limited as a Speculative Buy.

58
 Hartleys Limited

Murchison Metals Ltd Share Price July 2006

MMX $0.68 SPECULATIVE BUY
Key Market Information Directors Company Information

Share Price $0.68 Chairman - Paul J Kopejtka Level 2, 18 Richardson St

Market Capitalisation $205m MD - Trevor Matthews West Perth, WA, 6005
52 Week High-Low $0.73-$0.29 Exec Dir. - Robert Vagnoni Tel: (08) 9483 0500
Issued Capital 301.7m Fax: (08) 9481 7966
Issued Capital (fully diluted inc. ITM options) 395.9m Web: www.mml.net.au
Options 94.3m@$A0.35
Hedging - Top 10 Shareholders m shares %
Yearly Turnover/Volume $148.6m/308.3m shares
Liquidity Measure (Yearly Turnover/Issued Capital) 102% 1 ANZ Nominees Limited 37.68 12.4%
Valuation $1.54 2 Westpac Custodian Nominees Limited 20.91 6.9%
3 National Nominees Limited 20.23 6.7%
Financial Performance Unit FY2007F FY2008F FY2009F FY2010F 4 J P Morgan Nominees Australia Limited 19.78 6.5%
5 HSBC Custody Nominees (Australia) Limited 16.68 5.5%
Net Revenue A$m 118.4 149.1 145.3 129.2 6 POSCO Australia Pty Ltd 10.00 3.3%
Total Costs A$m (95.1) (125.4) (125.1) (124.0) 7 Resource Capital Fund 10.00 3.3%
EBITDA A$m 23.2 23.7 20.2 5.2 8 Taswa Pty Ltd 8.36 2.8%
Depreciation/Amort A$m (7.5) (10.6) (11.4) (12.9) 9 Hebei Qianjin Steel Group (Australia) Pty Ltd 7.14 2.4%
EBIT A$m 15.8 13.1 8.8 (7.7) 10 Eriditus Pty Ltd 6.83 2.3%
Net Interest A$m (6.1) (8.3) (8.1) (14.9)
Pre-Tax Profit A$m 9.6 4.8 0.7 (22.6) Reserves & Resources Mt % FeO
Tax Expense A$m (2.9) (1.5) (0.5) -
NPAT A$m 6.7 3.4 0.2 (22.6) Jack Hills
Abnormal Items A$m - - - - Reserves 8.5 63.0
Reported Profit A$m 6.7 3.4 0.2 (22.6) Resources 67.0 62.0

Production Summary Unit FY2007F FY2008F FY2009F FY2010F

*Attributable
Financial Position Unit FY2007F FY2008F FY2009F FY2010F Iron Ore - Fines Production 000t 501 668 668 668
Iron Ore - Lump Production 000t 999 1,332 1,332 1,332
Cash A$m 36.6 45.2 30.0 43.0 Cash Cost $A/t 56.00 56.00 56.00 56.00
Other Current Assets A$m 11.5 13.9 13.5 11.9
Total Current Assets A$m 48.1 59.1 43.4 54.9 Price Assumptions Unit FY2007F FY2008F FY2009F FY2010F
Property, Plant & Equip. A$m 66.4 64.4 82.6 298.6
Exploration A$m 15.3 17.3 18.8 20.9 AUDUSD A$/US$ 0.74 0.74 0.74 0.73
Investments/other A$m 1.9 1.9 1.9 1.9 Received Price - Fines A$/t - 78.92 62.96 61.38
Tot Non-Curr. Assets A$m 83.6 83.6 103.2 321.4 Received Price - Lump A$/t - 78.92 80.34 78.32
Total Assets A$m 131.7 142.7 146.7 376.3 Average Received Price A$/t - 78.92 0.07 0.07

Short Term Borrowings A$m (5.0) (5.0) (5.0) (10.0)

Other A$m (9.5) (11.0) (14.3) (33.4) Sensitivity Analysis Valuation ($/s) NPAT EPS (¢) CFPS (¢)
Total Curr. Liabilities A$m (14.5) (16.0) (19.3) (43.4)
Long Term Borrowings A$m (62.9) (64.3) (64.9) (279.9) Base Case 1.54 6.7 2.4 4.1
Other A$m - - - - Exchange Rate +10% 1.16 0.5 0.1 1.9
Total Non-Curr. Liabil. A$m (62.9) (64.3) (64.9) (279.9) Exchange Rate -10% 2.00 16.4 4.9 6.7
Total Liabilities A$m (77.4) (80.4) (84.2) (323.3) Iron Ore Price +10% 1.93 7.8 2.4 4.1
Iron Ore Price -10% 1.14 7.8 2.4 4.1
Net Assets A$m 54.3 62.3 62.5 53.0 Operating Costs +10% 1.29 1.9 0.6 2.3
Operating Costs -10% 1.78 13.7 4.1 5.9
Cashflow Unit FY2007F FY2008F FY2009F FY2010F *N.B. NPAT, EPS, CFPS forecasts are for FY2007

Operating Cashflow A$m 13.2 22.8 23.9 25.8

Income Tax Paid A$m - - - - Share Price Valuation (NAV) Est. $m Est. $/share
Interest & Other A$m (6.1) (8.3) (8.1) (14.9)
Operating Activities A$m 7.1 14.5 15.8 10.9 Jack Hills Stage 1 (NPV @ 8%) 44.4 0.11
Jack Hills Stage 2 (NPV @ 10%) 550.7 1.39
Property, Plant & Equip. A$m (24.0) (6.6) (27.1) (227.1) Exploration 20.0 0.05
Exploration and Devel. A$m (2.0) (4.0) (4.0) (4.0) Cash 5.0 0.01
Investments A$m - - - - Forwards 0.0 0.00
Investment Activities A$m (26.0) (10.6) (31.1) (231.1) Corporate Overheads (12.3) (0.03)
Total Debt (30.0) (0.08)
Repayment of Borrowings A$m - - - - Tax Losses 0.9 0.00
Proceeds of Borrowings A$m 35.0 - - 220.0 Options & Other Equity 30.0 0.08
Equity A$m 15.0 4.6 - 13.1 Total 608.7 1.54
Dividends Paid A$m - - - -
Financing Activities A$m 50.0 4.6 - 233.1

Net Cashflow A$m 31.1 8.6 (15.3) 13.0

Ratio Analysis Unit FY2007F FY2008F FY2009F FY2010F

Cashflow Per Share A¢ 4.3 3.9 3.3 (2.5)

Cashflow Multiple X 15.9 17.3 20.8 (27.7)
Earnings Per Share A¢ 2.0 1.0 0.1 (5.7)
Price to Earnings Ratio X 33.4 71.1 1246.1 (11.9)
Dividends Per Share A¢ - - - -
Dividend Yield % - - - -
Net Debt / Equity % 52% 32% 56% 457%
Interest Cover X 2.6 1.6 1.1 na
Return on Equity % 12% 5% 0% na

Analyst: Andrew Muir Last Updated: 21/07/2006

Phone: +61 8 9268 3045

Sources: IRESS, Company Information, Hartleys Research

59
This page is intentionally left blank
Hartleys Corporate Directory
Research Institutional Sales
Helmut Engelhard Senior Industrial Analyst, +61 8 9268 3052 Rob Brierley +61 8 9268 2822
Research Manager Carrick Ryan +61 8 9268 2864
Kristy Grosser Research Assistant +61 8 9268 2831 Darren Reed +61 8 9268 3053
Andrew Muir Resources Analyst +61 8 9268 3045
Andrew Rowell Resources Analyst +61 8 9268 2837
Tamara Stretch Industrial Analyst +61 8 9268 3048 Wealth Management
Simon Tonkin Research Analyst +61 8 9268 2826
Stephen Anastos +61 8 9268 2871
Nicola Bond +61 8 9268 2840
Bradley Booth +61 8 9268 2873
Corporate Finance Davide Bosio +61 8 9268 3042
Richard Simpson Managing Director & +61 8 9268 2824 Nathan Bray +61 8 9268 2874
Head of Corporate Finance Sven Burrell +61 8 9268 2847
Martin Pyle Director-Corporate Finance +61 8 9268 2821 Simon Casey +61 8 9268 2875
Grey Egerton- Director-Corporate Finance +61 8 9268 2851 Tony Chien +61 8 9268 2850
Warburton Travis Clark +61 8 9268 2876
Paul Fryer Assoc Director-Corp Finance +61 8 9268 2819 David Cross +61 8 9268 2860
Dale Bryan Corporate Finance Manager +61 8 9268 2829 Nicholas Draper +61 8 9268 2883
Ben Wale Corporate Finance Executive +61 8 9268 3055 John Featherby +61 8 9268 2811
Nathan Featherby +61 8 9268 2823
Ben Fleay +61 8 9268 2844
Robin Forbes +61 8 9268 2813
Registered Office John Georgiades +61 8 9268 2887
John Goodlad +61 8 9268 2890
Level 6, 141 St Georges Tce
Brian Gow +61 8 9268 2836
Perth WA 6000
Andrew Gribble +61 8 9268 2842
Australia
Neil Inglis +61 8 9268 2894
Murray Jacob +61 8 9268 2892
Postal Address
GPO Box 2777 Gavin Lehmann +61 8 9268 2895
Perth WA 6001 Shane Lehmann +61 8 9268 2897
Australia Andrew Macnaughtan +61 8 9268 2898
Joanne Malaxos +61 8 9268 2820
Contact Details Christian Marriott +61 8 9268 2828
Telephone: +61 8 9268 2888 Scott Metcalf +61 8 9268 2807
Facsimile: +61 8 9268 2800 David Michael +61 8 9268 2835
Website: www.hartleys.com.au Nicole Morcombe +61 8 9268 2896
Email: info@hartleys.com.au Jamie Moullin +61 8 9268 2856
Chris Munro +61 8 9268 2858
Note: personal email addresses of company employees are structured in the Ian Parker +61 8 9268 2810
following manner: Margaret Radici +61 8 9268 3051
firstname_lastname@hartleys.com.au Charlie Ransom +61 8 9268 2868
James Robinson +61 8 9268 2859
Conlie Salvemini +61 8 9268 2833
Hartleys Recommendation Categories Darryl Smalley +61 8 9268 2808
David Smyth +61 8 9268 2839
Strong Buy Significant share price appreciation anticipated
Buy Share price appreciation anticipated Greg Soudure +61 8 9268 2834
Speculative Buy Share price appreciation anticipated but is considered high Sonya Soudure +61 8 9268 2865
risk Dirk Vanderstruyf +61 8 9268 2855
Accumulate Buy in periods of weakness Peta Winkless +61 8 9268 2857
Hold Take no action Marlene White +61 8 9268 2806
Reduce Sell in periods of strength
Sell Significant price depreciation anticipated

Disclaimer/Disclosure
The author of this publication, Hartleys Limited ABN 33 104 195 057 (“Hartleys”), its Directors and their Associates from time to time may hold
shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities.
Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice
mentioned in publications to clients.
Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting your
investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs. Hartleys
believes that any information or advice (including any financial product advice) contained in this document is accurate when issued. Hartleys
however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in negligence or
otherwise, for any loss or damage relating to this document to the full extent permitted by law.
 hartleys.com.au
Hartleys Limited ABN 33 104 195 057; AFSL 230052
Participant of ASX Group