Metro Mining : Tamesis Partners - Metro Emerging Low Cost Bauxite Producer - Target Price $0.42

MMI AU

2 August 2017

Last price: A$0.17 Target price: A$0.42

The investment case for Metro is simple, ultra-low risk and potentially high returning. The company is fully financed and has begun construction of the 6Mtpa bauxite mine, Bauxite Hills. Located in the world class Weipa bauxite region in Cape York, Australia, the mine is due to come on stream in Q2/2018. At the bottom of the second quartile of the cost curve, Metro will export a DSO product over a 17 year life of mine. Our NAV of the fully funded company is A$0.42; equivalent to 147% upside from the current share price. Key points:

Substantially de-risked project

Following the recent capital raises of approximately A$40 million debt and A$38 million equity, the construction of the mine is fully funded through to first production of 2Mtpa (A$35.8 million capex) and subsequent A$36.7 million expansion to 6Mtpa. Metro will mine DSO which will be transported onto a barge using a new barge loading facility which is currently being constructed. It is then transhipped to ocean going vessels and loaded using cranes and grabs. There are few operations in mining that could be easier to ramp up.

Simple low cost mining

First production is due in Q2 2018 after the next rainy season. Mining of the 92.2Mt reserve is as simple as it gets; firstly removing the 0.5m overburden and then mining the 1.75m bauxite horizon. The product is then screened and loaded on a barge. Life of mine cash costs are A$23/t, including total royalties, which at current bauxite pricing delivers a c.38%

Summary

Last price (A$): 0.17

Target price (A$): 0.42

Projected return (%) 147%

Project Details

Project name Bauxite Hills

Commodity Bauxite

Production (Mtpa) 2.0 -> 6.0 Tamesis NPV10% (A$m) 525

Share Data

Shares o/s (mm) 1,286* 52 week high/low (A$) 0.185/0.096 3-mth avg. daily vol (mm) 0.78

3-mth avg. daily vol (A$) 0.12

Market cap (A$m) 205

Net cash/(debt)* (A$m) 33

Enterprise value (A$m) 172

*post tranche 2 equity raise June Year End

which Rio Tinto has recently allocated capital. Clearly, they recognise that China is running out of decent quality bauxite and Australia is literally the first port of call. Metro has secured a 7Mt over four years' foundation off-take agreement with Xinfa, China's second largest private bauxite importer.

Proven "fit for purpose" management team

Metro's management team is highly experienced including Simon Finnis (CEO), 30yrs experience, having recently overseen construction of the US$650 million Grand Côte mineral sands operation in Senegal. GM of operations, Charles Easton, had five years at Weipa. Norman Ting was the former marketing manager for Comalco (Rio Tinto Alcan) Bauxite and has 30 years' experience in the bauxite industry.

A Cash Cow in Queensland

We would expect Metro, like all high margin single mine companies, to become a cash dispensing machine fairly early on in its profile. Estimated project free cashflow of c.A$18 million for June YE 2019 will be used in part to fund the expansion to 6Mtpa. EBITDA is forecast to grow from A$1.6 million in the 2018 financial year to A$65.9 million in 2021 delivering a steady state free cashflow of A$50 million plus.

Private Equity Style Returns

We believe the current NAV is A$0.42/share rising to A$0.56/share in 2020. Our forward looking EV/EBITDA profile moves from 108.2x in the 2018 financial year (capturing just the start of production) to 3.8x two years later. The market normally attributes high single digit multiples to stable cash flows so we believe a near term price target of A$0.42 is justifiable.

Share Price Performance

0.20

0.18

0.16

0.14

0.12

0.10

0.08

07-16

10.0

8.0

6.0

4.0

2.0

0.0

10-16 01-17 04-17 07-17

Contact Details David Butler

dbutler@tamesispartners.com

David Baker

dbaker@tamesispartners.com

Charlie Bendon

cbendon@tamesispartners.com

Richard Greenfield

rgreenfield@tamesispartners.com

Mitch Limb

mlimb@tamesispartners.com

Charles Vaughan

cvaughan@tamesispartners.com

Table of Contents

Price Target: A$0.42/share 1

Company Summary 3

Valuation 8

Financials 13

Bauxite Market 16

Overview

The Bauxite Hills project is c.95km north of Weipa in Northern Queensland, on the west side of Cape York and consists of a number of bauxite plateaus located next to the Skardon River. The region is renowned for its export-grade bauxite, an aluminium ore.

Metro acquired the Bauxite Hills project in 2014 through a merger with Cape Alumina, and completed a pre-feasibility study in February 2015. After completing the acquisition of neighbouring deposits owned by Gulf Alumina in early 2017, a bankable feasibility study was completed by MEC Mining in March 2017. Pre-construction work has already commenced on site and first production is expected in Q2/2018.

Project Highlights

Bauxite Hills' reserves support an initial 17 year mine life producing export-quality DSO bauxite. Production is expected to commence in Q2/2018 at an initial run rate of 2Mtpa which will ramp up to 6Mtpa over the first four years. The operation itself is fairly straightforward: free-dig bauxite is mined by front end loaders and hauled by truck to port infrastructure.

At the port, the bauxite ore will be screened to a maximum size of 100mm and loaded onto barges. Tugs will tow the barges down the Skardon River and the ore will be transhipped to freighters at a point beyond the river month. One quirk of the location is the seasonality of the weather. During the wet season (January to March), all mining ceases with operations resuming in April.

Geology and Mineralisation

The deposit is a lateritic bauxite forming part of the Weipa plateau. The deposit typically consists of a single layer of bauxite, 0.5m

- 3m thick, underlain by a kaolin clay and ironstone. Bauxite occurs naturally over the majority of the plateau areas, is pisolithic in form and is generally only covered by a small layer of soil overburden. Most of the bauxite is loose and free flowing, suitable for free digging and DSO operation. It is expected that any cemented bauxite will break up as it is handled by the mining fleet or through screening. Any oversized material will be collected at the port and will be campaign crushed if economic to do so. Otherwise the oversize will be back-loaded to the mining areas.

Reserves and Resources

Aspart of the BFS, MEC calculated a Proven and Probable reserve of 92.2Mt at 49.4% total Al2O3 and13.2% silica. The reserves are reported on a 10% moisture basis to reflect the run of mine marketable product tonnes. Bauxite Hills also reports a resource of 144.8Mtat 49.2% Al2O3 and13.9% silica.

g

Regional Consolidation: Gulf Alumina Acquisition

Metro acquired the neighbouring tenements at Bauxite Hills through a A$50 million takeover of privately held Gulf Alumina in February 2017. Having previously acquired 39% of Gulf Alumina in a previous takeover attempt, the acquisition process was disrupted by Moly Mines (MOL:ASX) - which at the time was suspended from the ASX. The bid by Chinese-controlled Moly was controversial as its major shareholder, Hanlong Mining, had a former managing director jailed in Australia for insider trading in connection with Hanlong's failed bid for Sundance Resources.

This was resolved in November 2016 when the ASX ruled that it would not allow Moly to resume trading. The Gulf acquisition effectively doubled the resource base of the company: