Metro Mining : GMP Securities - Metro Mining - Funded through DFS - Target Price $0.18

Equity Research

MMI-ASX

Last: A$0.08

September 9, 2015 ▼ Target: A$0.18

Rights issue closed, A$5.6m raised in total, off-take MoU signed

Metro Mining has closed a fully underwritten 1 for 7 non-renounceable entitlement offer for a total of ~44.8m common shares at an offer price of A$0.08 per share to raise ~A$3.6m originally announced on July 16th. It has also completed a placement of 25m common shares at A$0.08 per share for gross proceeds of A$2m. In addition, in August, Metro signed a MoU for 1.0-

1.2Mtpa offtake to 7.2% shareholder Xinfa Group, one of the largest integrated aluminium companies in China. A binding long-term agreement is targeted within four months.

Cash funds Metro through DFS

With ~A$8m in the bank Metro is now funded through to the decision to mine at Bauxite Hills, including the completion of the Definitive Feasibility Study expected in September 2015. The company will also use proceeds to advance permitting approvals and potentially secure pre-commitments for equipment and contractors. The company aims to commence mining operations in fiscal

3Q16, which we model as the commencement of construction at Bauxite

Hills, with first production in DQ16.

Low capex for high IRR

Bauxite Hills offers investors exposure to near-term bauxite production with low build/dilution risk given initial capex of ~A$20m. The project's cash break- even cost of ~US$50/t provides good downside protection, but still allows investors to profit from a likely bauxite supply squeeze in coming years. It is evident based on recent Malaysian exports into China that producers there need >$60/t or higher to remain economic - a potential floor price. Once in production, we would expect MMI to trade at ~1.0x NAV or ~3-5x EBITDA, implying 7-10x upside for a project with extremely low capex spend in an area with excellent infrastructure and shipping advantages to China.

Maintain BUY rating, lower PT to A$0.18 on bauxite price

We update for the rights issue and equity raise (note that we had previously modeled a raise), maintaining our 0.4x NAV multiple. In reflection of current bauxite prices, we lower our LT assumption fromUS$70/t to US$65/t CIF China, retaining our BUY rating but lowering our PT to $0.18/sh from A$0.20.

What's Changed Old New Rating BUY n.c. Target A$0.20 A$0.18

Project Details

Project Name: Bauxite Hills Production (Mtpa): 2.0 n.c. Breakeven cost ($/t CIF) 50 49

GMP Project NPV10%: 181 163

Share Data

Shares o/s (mm, b/f.d.) 358.5 / 484.0

52-week high/low 0.13 / 0.02

3M avg daily vol (m) 0.25

3M avg daily val (m) 0.05

Market cap (m) 18.6

Net cash (debt) (m) 4.7

Enterprise value (m) 11.9

Projected return 127%

Financial Data

YE Jun. 30 2014A 2015E 2016E Revenue (A$m) 0.3 0.5 - EBITDA (A$m) (1.3) (3.0) (4.0) Net income (A$m) (17.6) (2.5) (4.1) EPS (0.01) (0.01) (0.01) CFPS (0.00) (0.01) (0.01) PER - - - P/CF - - - EV/EBITDA - - -

1.0xNAV10% A$0.46

All figures in US$ unless otherwise noted

Brock Salier, PhD +44-207-016-1904 brock.salier@gmpeurope.com

Justin Chan +44-207-647-2806 justin.chan@gmpeurope.com

Prepared by GMP Securities Europe LLP. See important disclosures on the last two pages of this report

Equity Research

Ticker: MMI AU Share price

A$0.08/s h

Stock rating: BUY Implied return: 127%

Analyst: Brock Salier Market cap A$26m Target price: A$0.18/s h Market P/NAV 0.25x

Year to June Year to June

Ratio analysis FY14A FY15E FY16E FY17E FY18E Input costs FY14A FY15E FY16E FY17E FY18E

Avera ge s ha res outs ta ndi ng (m) 208.9 288.7 358.5 358.5 358.5 Ba uxi te Pri ce CIF Chi na ($/t) 65 65 65 65 65
EPS ($/s h) (0.01) (0.01) (0.01) 0.03 0.06 Ba uxi te Hi l l di s count ($/t) 15 15 15 15 15
CFPS before worki ng ca p ($/s h) (0.00) (0.01) (0.01) 0.03 0.06 Aus to Chi na s hi ppi ng ($/t) 16 16 12 12 12
FCF yi el d (%) - - - - 1.02 AUS/USD (f-x ra te) 1.15 1.23 1.42 1.42 1.42
PE (a dj .), x - - - 0.0 0.0 Other data

P/CF, x - - - 0.0 0.0 Ba s i c s ha res (m) 358.5 12M hi gh: A$0.13/s h EV/EBITDA, x - - - 1.5 0.2 Ful l y di l uted s ha res (m) 484.0 12M l ow: A$0.02/s h EBIT ma rgi n, % - - - 34% 43% Resource / Reserve Mt Al203 (%) SiO2 (%) SRx THA/SRx ROIC (EBIT), % - - - 27% 60% Res erves (P&P) 12 49.2 14.8 7.4 5

Income statement (yr to Jun) FY14A FY15E FY16E FY17E FY18E Res ource (M&I + Inf) 62 50.0 12.3 7.1 5

Revenue (A$m) 0.3 0.5 - 57.0 103.3 Production (100% basis) FY14A FY15E FY16E FY17E FY18E
COGS (A$m) 0.1 - - (25.4) (40.8) Ba uxi te DSO producti on (Mt) - - - 1.24 2.04

Gross Profit (A$m) 0.4 0.5 - 31.6 62.5 Al 2O3 content (%) - - - 38.5 39.8

Admi n expens e (A$m) (1.9) (1.2) (4.0) (5.0) (5.0) Si O2 content (%) - - - 7.2 6.1
Impa i rments (A$m) (15.4) - - - - THA/RxSi (x) - - - 5.4 6.5
Other (A$m) (1.3) (1.8) - 24.5 49.0 Ca s h cos t ($/t i nc roya l ti es ) - - - 17.7 18.1

PBIT (A$m) (18.6) (3.1) (4.0) 19.5 44.0 Al l -i n brea keven cos t (US$/t) - - - 52.2 52.5

Interes t expens e (A$m) 0.3 0.3 (0.1) (2.5) (2.4) Ta x (A$m) 0.6 - - - (10.4) PAT (A$m) (17.7) (2.8) (4.1) 17.0 31.1
F-x & mi nori ti es (A$m) 0.1 0.3 - - -

Attrib. net income (A$m) (17.6) (2.5) (4.1) 17.0 31.1

EBITDA (A$m) (1.3) (3.0) (4.0) 20.0 45.6

Cash flow statement (yr to Jun) FY14A FY15E FY16E FY17E FY18E

(Los s ) / profi t before ta x (A$m) 0.5 (3.1) (4.0) 19.5 44.0
Depreci a ti on (A$m) - 0.0 - 0.5 1.7
Cha nges i n worki ng ca pi ta l (A$m) - 0.6 - (10.3) - Other (A$m) (1.6) 0.3 (0.1) (12.3) (11.1) CFO (A$m) (1.1) (2.8) (4.1) 7.2 32.8
PP&E (A$m) (0.0) (0.0) (18.0) (17.1) (3.1)
2.5
2.0
1.5
1.0
0.5
0.0
Ba uxite Hills (M t) Cas h cos t FOB ($/t) CIF break-even cos t ($/t)
60.0
50.0
40.0
30.0
20.0
10.0
0.0
FY15E FY16E FY17E FY18E FY19E FY20E FY21E
Expl ora ti on (A$m) (2.4) (2.0) - - - SOTP valuation
Other (A$m) (0.1) 0.4 0.8 - - O/ship US$m NAVx A$m A$/sh

CFI (A$m) (2.5) (1.6) (17.2) (17.1) (3.1) Ba uxi te Hi l l s 100% 163 0.40 92 0.19

Proceeds from s ha re i s s ue (A$m) - - 5.3 9.5 - Expl ora ti on 100% 10 0.40 6 0.01
Net cha nge i n borrowi ng (A$m) - - 20.0 10.0 (30.0) Ca s h - 5 0.40 3 0.01
Other (A$m) - - - - - Equi ty ra i s e - 7 0.40 4 0.01

CFF (A$m) - - 25.3 19.5 (30.0) Ca s h from opti ons - 0 0.40 0 0.00

Net i ncrea s e i n ca s h (A$m) (3.6) (4.4) 4.0 9.6 (0.3) SG&A a nd centra l - (28) 0.40 (16) (0.03) Effect of f-x on ca s h (A$m) - - - - - Valuation (FD) 156 89 0.18

Cash at end of period (A$m) 7.5 5.5 7.1 16.7 16.4

Balance sheet (yr to Jun) FY14A FY15E FY16E FY17E FY18E 1.0xNAV evolution

PP&E (A$m) 9.5 10.2 29.2 45.8 47.3 2015 2016 2017 2018 2019
Tra de & AR (A$m) 0.1 0.4 0.1 12.0 12.0 1xNAV + cummul a ti ve ca s h 0.46 0.61 0.75 0.94 1.03
Inventory (A$m) 0.0 - - 1.0 1.0
Ca s h (A$m) 7.5 5.5 7.1 16.7 16.4 Valuation sensitivities (A$/sh) to LT Bauxite Price CIF China

Equity Research

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