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Global Mining Research

January 20, 2014 Copper Industry Strategy The Math of Quantity vs. Quality Trade-off

Copper remains BMO Research’s preferred metal in the base metals complex – determined not by the price outlook, as BMO Research expects copper prices to decline, albeit modestly, but the superior returns on capital in the copper industry compared to most other metals.

1: Supply elasticity has been diminishing despite rapid demand increases. Miners and investors are increasingly shy to commit build capital in times of commodity price uncertainty as project grades trend down and scale goes up. Will quantity make up for lack of quality? BMO Research chose to do the math rather than engaging the rhetoric, and that becomes a $350B question.

2: Industry challenges are related to political risks and capital availability, plus grade profiles. Supply-side issues helps to explain why copper prices appreciated 15.1% per annum in nominal terms over the last 10 years, with just 3% increase in demand.

3: Selective investment rather than sector-wide buying is recommended. BMO Research prefers companies that can deliver on their growth commitments in any commodity price regime without excessive dilution. Preferred stocks include CS, LUN, III and KGH.

Fig 1: Relative Capital Intensity of Growth Plans

KAZ

ANTO

KGH

FM

FCX

III

CSSCCO

LUN

0%

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iv C

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(%)

Source: BMO Capital Markets

Sasha Bukacheva BMO Nesbitt Burns Inc. +1 416 359 8456

Jessica Fung BMO Nesbitt Burns Inc. +1 416 359 8455

John Hayes BMO Nesbitt Burns Inc. +1 416 359 6189

Tony Robson BMO Capital Markets Ltd. +44 (0)20 7246 5436

Edward Sterck BMO Capital Markets Ltd. +44 (0)20 7246 5421

Milovan Pejic BMO Nesbitt Burns Inc.

Luigi di Pede BMO Nesbitt Burns Inc.

Alexander Pearce BMO Capital Markets Ltd.

Kodees Waran BMO Capital Markets Ltd.

This report was prepared in part by an analyst(s) employed by a Canadian affiliate, BMO Nesbitt Burns Inc., and a UK affiliate, BMO Capital Markets Ltd., authorised and regulated by the Financial Conduct Authority in the UK, and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 45 to 47.


Copper Industry Strategy January 20, 2014

Contents

Summary .................................................................................................................... 3 Red is the New Black - Preferred Metal with Supply-side Upside Risks 3

Supply Risks ............................................................................................................... 6 Two Steps Forward, One Step Back 6 Will Quantity Compensate for Lack of Quality? That’s a US$350B Question 10

Chile – the Saudi Arabia of Copper Facing a Dark Future .......................................... 15 30% of the Global Copper Production and Reserves 15 Has Copper, Will Grow? 16 Lacking in Water and Power 18 Mining-Friendly Jurisdiction 19

Supply’s Loss is Copper Price’s Gain ......................................................................... 20

Appendix A: Porphyry Projects ................................................................................. 22

Appendix B: Company Summaries ............................................................................ 23

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1. Summary

Red Is the New Black – Preferred Metal With Supply-Side Upside Risks

Copper remains BMO Research’s preferred metal.

Copper remains BMO Research’s preferred metal in the base metals complex. This is not determined by the price outlook, as BMO Research expects copper prices to decline, albeit modestly, but the superior returns on capital in the copper industry compared to most other metals.

BMO Research’s scorecard highlights the copper sector as delivering some of the best returns on capital in the mining sector, second only to iron ore.

Fig 2: BMO Research Sector Rank for Valuation Metrics (1=Best)

Rank Score

Rank P/NPV P/E P/CF EV/EBITDA ROIC Net Debt/MC

3-Yr FCF/MC Overall

1 Iron Ore Coal Diamonds Diamonds Iron Ore Diamonds Steel Iron Ore2 Steel Iron Ore Diversified Iron Ore Copper Silver Iron Ore Diversified3 Diversified Diversified Iron Ore Diversified Steel PGM Diversified Steel4 Diamonds Steel Steel Steel Diversified Uranium Aluminum Diamonds5 Copper Diamonds Coal Uranium Diamonds Diversified Uranium Coal6 Silver Copper Gold Gold Gold Gold PGM Copper7 Gold Silver Aluminum Copper PGM Steel Coal Gold8 Uranium Aluminum Copper Coal Coal Iron Ore Silver Uranium9 PGM Uranium Uranium Aluminum Silver Copper Diamonds Silver10 Coal Gold Silver Silver Aluminum Aluminum Gold PGM11 Aluminum PGM PGM PGM Uranium Coal Copper Aluminum


Copper supply elasticity has been diminishing.

Numerous deferrals and cancellations have already taken place.

Scale is crucial in offsetting declining grades – but comes at a high price.

Supply constraints support higher copper prices.

Miner’s cost curve positioning is key to capturing gains from higher prices.

BMO Research also highlights that copper supply elasticity has been diminishing despite rapid demand increases.

Miners and investors are increasingly reluctant to commit higher levels of capital in times of commodity price uncertainty.

Numerous projects deferrals, cancellations and divestments over the last 18 months, including the deferrals of Olympic Dam (BHP) and Las Bambas (GLEN - Restricted), sale of Pinto Valley (BHP) and Eagle (RIO) are just some of the examples of more conservative capital allocation decisions.

Key theme with most of planned expansions and new copper projects is that the project scale has to be increased to compensate for declining grades in maintaining or expanding copper output, which drives capital requirements to new highs. Whether or not quantity will compensate for loss of quality is a US$350B question, as per BMO Research’s analysis in section 2 “Supply Risks”. Furthermore, increasing mine scale invites greater set of funding, construction and operating challenges.

Finally, capacity expansion should not be taken for granted owing to constraints imposed by dwindling water and power availability in Chile, which is the leading copper-mining nation.

Supply-side pressures could support higher copper prices – which helps to explain why copper price appreciated 15.1% per annum in nominal terms over the last 10 years, with just 3% increase in demand.

How the spoils of higher copper prices will be distributed across the industry will in part be determined by the cost curve of the existing operations, and in part by the capital allocation decisions and quality of growth projects.

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SCCO, LUN and FM are all lower-cost producers.

Fig 3: Copper Miners Cash Cost Comparison (US$/lb)

ANTOKGH

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III

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BMO Research prefers “safer” names including CS, LUN, III and KGH.

BMO Research continues to prefer copper miners that, in its view, can deliver their growth projects in any commodity price regime without excessive dilution. These companies include CS, LUN, III and KGH.

CS

Outperform; C$3.50 Target

Capstone Mining: Expected re-rating in H1/14 following increased visibility of earnings and balance sheet recharge with cash flow contributions from recently acquired Pinto Valley copper mine and PV feasibility study (Q1/14).

III


Imperial Metals: One of the few low-political-risk copper plays with a large shareholder key to mitigating financing risk. Expect re-rating in H2/14 following commissioning of Red Chris.

KGHM

Outperform; PLN140 Target

KGHM: Under-priced versus larger cap copper peers. Significant copper production of ~575ktpa from its mid-cost but stable operation in Poland with reserve life 35+ years. Future growth to ~770ktpa from international operations, in particular Sierra Gorda in Chile and Victoria in Sudbury.

LUN


Lundin Mining: One of the best capitalized copper stocks with a disciplined and low-risk growth strategy. Expect re-rating in Q4/14 following commissioning of the Eagle copper-nickel mine in the bottom cost quartile.

Copper producers with largest volumes in BMO Research’s universe include ANTO, FCX, FM and SCCO

The names that may outperform in a rising market include KAZ, CUM, FCX and FM.

Companies with largest volumes of copper production in BMO Research’s universe from copper-focussed names include ANTO, FCX, FM and SCCO, all rated Market Perform.

ANTO and FCX are rated Market Perform largely on valuation. Separately, some timing-of-delivery uncertainty is a consideration in ANTO’s case, although the risks are moderate.

FM is similarly rated Market Perform on account of elevated execution and project costs uncertainty as it relates to Cobre Panama, which could be lifted with the project update expected in Q1/14.

SCCO is rated Market Perform due to policy risk, which could become less relevant towards the end of Q1/14

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The names that may outperform in a rising market include KAZ, CUM, FCX and FM.

Copper producers with greatest leverage – which may outperform in a rising market – in BMO Research’s universe include KAZ, CUM, FCX and FM, all rated Market Perform, with the exception of CUM, rated Underperform(S).

On the other hand, BMO Research takes a view that better-quality names could still outperform ‘leverage’ ones in a rising market due to accelerated multiple expansion – at least initially.

Fig 4: BMO Research Copper Stocks Comparables

Copper MinersCompany Rating Share Target Total Shares Market EV Net Share 2013E 2013E 2014E 2014E 2014E 2013E

Price Price Return O/S Cap Present Price/ P/E EV/ EV/ CF P/CF DivValue NPV EBITDA EBITDA Yield

% M US$M US$ US$ % x x x US$ps x %

Antofagasta Mkt £8.47 £8.00 -4% 986 13,504 12,426 $10.73 128% 15.0 6.2 6.6 0.98 13.9 2.0%Capstone Mining OP C$3.19 C$3.50 10% 379 1,153 1,394 $3.07 99% 23.7 8.2 3.4 0.65 4.7 0.0%Copper Mountain Und(S) C$1.58 na na 116 168 416 $2.72 53% 22.3 8.3 5.3 0.38 4.2 0.0%First Quantum Mkt C$20.21 C$20.00 0% 588 11,318 13,572 $17.78 108% 23.7 9.9 9.8 1.81 11.2 0.9%Freeport McMoRan Mkt $36.19 $35.00 3% 1,038 37,565 55,720 $24.94 145% 13.7 7.7 6.0 6.71 5.4 6.2%Hudbay Minerals R C$9.79 R R 172 R R R R R R R R R RImperial Metals OP C$16.50 C$18.50 12% 74 1,171 1,611 $20.59 76% 28.1 19.8 35.5 0.45 34.8 0.0%Kazakhmys Mkt £1.95 £2.00 2% 447 1,662 3,604 $3.47 91% 25.7 5.4 4.9 0.78 4.0 0.0%KGHM OP PLN114 PLN140 32% 200 7,239 7,957 $48.23 75% 7.6 4.3 5.7 5.74 6.4 8.6%Lundin Mining OP C$5.04 C$5.75 14% 584 2,806 2,766 $5.71 84% 22.1 9.4 9.3 0.29 16.5 0.0%Southern Copper Mkt $29.34 $30.00 5% 842 24,701 26,211 $29.19 101% 15.4 8.8 8.0 2.62 11.2 2.8%Turquoise Hill OP C$4.07 C$4.50 11% 2,012 7,803 6,119 $5.82 67% 50 na 12.4 0.16 25.1 0.0%

Average 93% 14.6 7.3 7.7 10.4 3.7%

Source: BMO Capital Markets; Pricing date: January 17, 2014

Fig 5: BMO Research Copper Stocks NPV Leverage Comparison to 10% copper price movement

14% 15% 15% 20% 21% 22% 24% 27% 30% 30%

135%

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2. Supply Risks

Two Steps Forward, One Step Back Despite growing copper supply anticipated over the near term, BMO

Research’s Base Case forecasts declining production, following a peak in 2020.

Despite an anticipated near-term production increase, output is expected to decline following peak production in 2020 – and lead to a growing deficit.

Fig 6: BMO Research Base Case Mine Supply Forecast (Mt)

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Source: BMO Capital Markets, Wood Mackenzie

The mined copper grades have been decreasing over time.

The Size Trap – When Bigger Isn’t Better

Additional supply expected from new mines in the near term disguises the fact that the mined copper grades have been decreasing over time.

Over the last thirty years the mined copper grades have declined by ~30% (from ~1.60% Cu to ~1.10% Cu), which is forecast to continue.

Fig 7: Declining Copper Mined Ore Grades (% Cu)

Source: Brook Hunt, Freeport McMoRan

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The mined copper grades have been decreasing over time and reflect a long-term structural change in the industry.

Annual production at Escondida peaked at 1.5Mt in 2007 and has since declined to 1–1.1Mt per annum (briefly more in 2014 and 2015).

Production from existing operations in Chile is forecast to decline from 5.5Mtpa to just under 4Mtpa over the next decade.

Indonesia is now producing at 40% of its peak output in 2010 (down from 1Mt to ~400kt in 2012).

Net net, over the last thirty years, the mined copper grades have declined by ~30% (from ~1.60% Cu to ~1.10% Cu).

Porphyries Are the Low Hanging Fruit of Volume, But Not Grade

Grade decline is a result of volume quest driven by incremental demand from China, which increased industry reliance on low-grade porphyry deposits.

Grade decline is a result of copper industry increasing its reliance on lower-grade bulk tonnage copper porphyry deposits to achieve required production volumes in order to meet the incremental demand from China.

Copper porphyries are the types of deposits that tend to form in copper’s preferred geological regime, which are subduction environments. These environments are most prevalent around circumference of Pacific Rim, arising from the collision of the pacific oceanic plate with the continents of North and South America as well as Southeast Asia.

Given the vast span of continental plate margins, porphyry deposits are the ‘low hanging’ fruit of the quest for copper volume – and unsurprisingly, porphyry deposits contain 50% of the global known copper reserves.

The grade attrition is a structural change in the industry. As the largest mines in the world are open-pit operations, miners’ ability to respond to lower price environments by “high-grading” the deposits is limited by the amount of additional waste material that would have to be removed, potentially partially or fully negating the benefit of higher grade to the margin.

Most of the known undeveloped porphyry deposits have copper grades <0.6%, averaging ~0.4% Cu.

Most undeveloped copper porphyries have resource base grades <0.6%, averaging 0.41% Cu

* 87 projects reviewed

* 472Mt total copper contained

Fig 8: Copper and other metal content in undeveloped copper porphyries

31

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rade

Average = 0.41%

Source: BMO Capital Markets, MEG (for a full project list index, refer to Appendix A)

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The grade decline lifts marginal cost of copper production and provides price support.

The grade decline means that over time more ore has to be processed to maintain production levels, which naturally translates into higher production costs and consequently a rising floor at which copper can economically be produced.

Majority of the largest development projects, which are key to the near-term incremental supply have copper grades below 1%, averaging 0.51% Cu (excluding Kamoa at 2.50% Cu).

Most of major greenfield copper projects have copper grades <1%, averaging 0.51%.

Fig 9: Major greenfield/expanding copper projects

Mine Company CountryMaximum Capacity Cu Grade Commissioning

ktpa %Oyu Tolgoi Turqoise Hill Mongolia 600 0.87% 2013Las Bambas Glencore Xstrata Peru 325 0.66% 2016Cobre Panama (Petaquilla) First Quantum Panama 300 0.38% 2016Kamoa Ivanhoe Mines Congo DR 300 2.50% 2017La Granja SxEw Rio Tinto Peru 300 0.53% 2015Sentinel First Quantum Zambia 215 0.54% 2015El Pachon Glencore Xstrata Argentina 200 0.47% 2016Quellaveco Anglo American Peru 200 0.62% 2018Relincho Teck Chile 180 0.50% 2019Agua Rica Goldcorp/Yamana/Glencor Argentina 136 0.49% 2018Red Chris Imperial Canada 130 0.33% 2015El Morro Goldcorp Chile 129 0.49% 2018Constancia Hudbay Peru 110 0.36% 2015Rosemont Augusta United States 105 0.44% 2015

Average 0.51%

Source: Wood Mackenzie, BMO Capital Markets

Bigger mines = bigger problems

Lower grades, higher capex, tougher locations and longer timelines are just some of the issues restricting potential new mine supply.

Aside of lower grades, future copper supply is vulnerable to numerous challenges, which are exacerbated by increasing project scale. The salient issues in BMO Research’s view are:

• Fewer geopolitical options and increasing political risk (projects with better grades are in riskier locations, such as Africa’s copper belt)

• Increasingly challenging access (remote locations)

• Leading copper producer – Chile – facing power shortages

• Longer lead times for new project – up to 7–8 years from 4–5 years on account of increasing scale, complexity, capital intensity and increasing infrastructure requirements

• Increased disruption rate (up to 8% from 2%)

• Increasing absolute ($) and relative ($/t) capital intensity

• More stringent project approval (miners shifting strategy from capital-intensive growth to focus on cost savings, resulting in project cancellations and deferrals)

Embracing the New Frontiers

Greenfield supply could be shifting to riskier locations.

Most of the key copper countries today are likely to remain on the map for the foreseeable future. However, in many instances that involves assuming projects with resources identified in those countries actually get built, as the production from existing mines is forecast to decline.

Should any of the “possible” supply from North America and Chile become “impossible” due to funding, development, permitting or any other considerations, new mines would have to be built in higher geopolitical risk locations, such as the Africa copper belt, rest of South America, and possibly Southeast Asia.

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BMO Research base case highlighting decline in incremental supply from Chile and North America, and potentially increasing production from Africa, South America ex-Chile and Peru and Southeast Asia.

Fig 10: BMO Base Case and Possible Incremental Copper Supply Forecast

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2013E 2015E 2017E 2019E 2021E 2023E 2025E

ROW - PossibleOceania - PossibleAfrica - PossibleNA-PossibleChina-PossiblePeru - PossibleChile - PossibleRest of WorldOceaniaAfricaNorth AmericaChinaPeruChile


Delays, Deferrals, Divestments

Commissioning dates for numerous projects have been pushed out by anywhere from six months to four years, averaging ~1.5 years, owing to lack of funding and/or permitting challenges.

It should come as no surprise given capital allocation dilemmas outlined, that through 2012 and 2013, the commissioning dates for a number of expansions and new mines have been pushed out by anywhere from six months to four years, averaging ~1.5 years.

Most of these projects are potentially significant supply contributors, with envisaged production volumes of 100–200ktpa copper or higher.

Main reasons for the delays include companies unable or unwilling to commit scarce funding to build these projects in the uncertain copper price environment, permitting process delays, or a combination of the two.

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Fig 11: Project delays

Agua RicaFrieda RiverEl Morro

PebbleUdokan - Stage 2

Cerro Casale/AldebaranQuebrada Bl. Sul.

El PachonGalore Creek

TampakanJusta-MarconaEl GalenoPumpkin Hollow

Udokan - Stage 1Las BambasSicomines

Rosemont (Concs)Salobo II

Leita (Sulphide) ExpXietongmen

Buenavista SXEW IIIKonkola Deep

Jabal Sayid

2012 2014 2016 2018 2020 2022 2024

Source: CRU, BMO Capital Markets

Will Quantity Compensate for Lack of Quality? That’s a US$350B Question

Annual capital investment has quadrupled in the last 10 years.

Absolute annual capital investment has quadrupled in the last 10 years – to US$8B from US$2B with similar dramatic increases in capital intensity.

As the industry looks to quantity through scale to compensate for loss of quality in declining grades, the average capital costs associated with the new mine build are increasing accordingly due to increases in both scale and complexity of new operations. BMO Research reviewed capital expenditures associated with both new mines and mines expansions completed since 2000. Notable takeaways include (as illustrated below):

• Absolute volumes of capital investment in new mines and expansions have been rising dramatically – from ~US$1.1B/year in 2000–2002 to ~US$3.4B/year in 2010–2012 for greenfields (using 2012 dollars), and from US$860M/year to US$4.6B/year in the same time period for brownfields;

• Relative capital intensity ($/t of new or incremental capacity) has

been increasing as well (from ~US$5,700/t in 2000–2002 to $13,422/t in 2010–2012 for greenfield and from US$3,282 to US$7,470 for brownfield)

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Fig 12: Greenfield projects absolute and relative capital intensity (historical cost, left and 2012$, right)

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Fig 13: Brownfield projects absolute and relative capital intensity (historical cost, left and 2012$, right)

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Consequently, the average cost per project (new mine or expansion of an existing operation) has gone up as well (from US$193M to US$337M for brownfield and US$595M to US$669M for greenfield, as measured in $2012.

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The average cost per project (new mine or expansion of an existing operation) has increased from US$193M to US$337M for brownfield and from US$595M to US$669M for greenfield in the last 12 years.

Fig 14: Average cost per expansion (B) or new mine construction (G)

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Furthermore, BMO Research cautions that as high as the capital budgets already are, these are not necessarily reliable, as evidenced by annual capital escalation resulting from budget revisions, ranging from 13% to 33%.

Fig 15: Capex Escalation (%)

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2004 (5)Ave. 13%

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(55)

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(19)

Source: Wood Mackenzie

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Increasing project scale reduces copper supply elasticity.

In BMO Research’s view, all these structural shifts in the industry mean that supply elasticity to rapid demand increases has been reduced.

Miners and investors are increasingly reluctant to commit higher levels of capital in times of commodity price uncertainty. Numerous projects deferrals cancellations and divestments over the last 18 months – as illustrated above - are just some of the examples of more conservative capital allocation decisions.

It would take $350B to make the possible happen.

Capex intensity shows no signs of slowing down – BMO Research estimates that base case copper supply hinges on US$94B investment

Building all probable projects would require US$43B, all possible projects – US$180B.

BMO Research estimates that over the next seven years, the industry (copper miners and copper divisions of the diversified miners) will have to invest US$94B to achieve an expansion to 21.6 Mt of annual copper production (+4Mt from 2013 levels of ~17 Mtpa), which works out to average capital intensity of US$21,605/t of annual capacity installed.

From Wood Mackenzie data, BMO Research estimates that building all probable projects, which could add ~1.6Mtpa capacity by 2020 and ~2Mtpa capacity by 2025, would require an investment of $43 billion, with an average capital intensity of ~US$22,000/t.

Furthermore, building all possible projects, which could add ~5Mtpa in new capacity by 2020 and ~9Mtpa in new capacity by 2025, would require an investment of US$180B, with an average capital intensity of ~US$20,000/t.

So will all these mines get built? That’s a US$350B question.

All this new supply is very expensive – which means confidence in copper prices would be key in capital allocation decisions.

Base Case Capex, $/t 21,605$ Base Case Capex, $/lb 9.80$ "Probable" Capex, $/t 22,344$ "Probable" Capex, $/lb 10.14$ "Possible" Capex, $/t 19,269$ "Possible" Capex, $/lb 8.74$

Fig 16: Mine supply forecast and greenfield project capex

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equirements, U

S$B

"Capex - BMO Base Case - Cumulative" BMO Base Case Sust - CumulativeCapex - Probable - Cumulative Capex - Possible - CumulativeBMO/Base Case Existing BMO/Base Case GreenfieldProbable Supply Possible Supply


Better-quality discoveries could displace some of the “possible” greenfield projects in the supply pipeline.

Is there any other way to achieve supply increase at lower cost? The upside risk to a supply forecast is in the discovery of “world class” copper deposits with superior grades, location and overall more compelling economics compared to the known low-quality undeveloped deposits.

However, any major new discovery made in the near term is unlikely to be added to the supply pipeline any time this decade, as evidenced by the timelines from discovery to production of some of the key mines.

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Some of the largest mines took anywhere from 10 to 25 years from discovery to production.

Fig 17: Discovery and production years at key copper mines

Antamina

El Abra

Olympic Dam

Escondita

Grasberg

Los Pelambres

AlumbreraBatu Hijau

Collahuasi

Spence

Oyu Tolgoi

1980

1985

1990

1995

2000

2005

2010

2015

1970 1975 1980 1985 1990 1995 2000 2005

Source: Wood Mackenzie

Many of the brownfield expansions are really just capacity replacement, with challenges beyond funding.

Finally, as existing mines capacity expansion has an important role to play in maintaining or expanding production rates, one needs to be mindful of constraints imposed by dwindling water and power availability in Chile, which is the leading copper mining nation.

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3. Chile – the Saudi Arabia of Copper Facing a Dark Future

30% of the Global Copper Production and Reserves

Chile contributes ~one-third of global mined copper supply

Chile is the world’s leading copper mining and exporting nation, contributing ~5.5 Mt (~30%) to the global mine supply annually.

Chile has the largest copper reserves of 190Mt copper, or about 30% of the global reserve base. Most of these reserves are in the porphyry deposits – as Chile’s unique geography alongside large portion of South America west coast places most of the country right into copper’s preferred geological regime.

Chile has some of the largest copper mines – its top 10 copper mines account for 25% (4Mt) of global copper supply.

Top 10 Chilean Mines account for ~25% of global copper supply (~4 Mt)

Fig 18: Top 10 Chilean mines

Mine Operator 2013E Output (kt)Escondida BHP Billiton 1,190El Teniente Codelco 437Los Pelambres Antofagasta 405Chuquicamata Codelco 464Collahuasi Anglo American/Glencore 392Los Bronces Anglo American 402Radomiro Tomic SxEw Codelco 290Andina Codelco 236Esperanza Antofagasta 195Candelaria Freeport McMoRan 185

Source: BMO Capital Markets, Brook Hunt

Chilean brownfield and greenfield projects dominate global supply outlook – assuming they get built.

Chilean brownfield and greenfield projects dominate global supply outlook – assuming they get built.

Fig 19: Top 10 Chilean development stage projects

Project Operator Capacity (kt)Escondida PhVI Mill Exp BHP Billiton 400Andina Exp Codelco 370Chuquicamata Underground Codelco 370Los Pelambres Exp Antofagasta 350Radomiro Tomic PhII Mill and SxEw Codelco 315Collahuasi Grinding Line 4 Anglo American/Glencore 300Sierra Gorda - Quadra KGHM 253Quebrada Blanca Teck 222Mina Ministro Hales Codelco 215Collahuasi Grinding Line 5 Anglo American/Glencore 200

Source: BMO Capital Markets, Brook Hunt

Mining represents ~12% of the Chilean GDP and ~60% of its exports.

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Fig 20: Chilean GDP and exports (%)

Source: Central Bank of Chile, 2013

Has Copper, Will Grow?

Copper mining investment is a significant portion of foreign investment.

Cochilco expects an additional US$87B investment in the copper industry over the next decade.

Foreign investment in mining represented 40% of the foreign funds flow into Chile, with a total of US$30B invested from the mid-seventies, led by Canada (34%), Japan (21%), USA (18%), U.K. (16%) and Australia (9%).

This figure does not include multi-billion dollar investments made by Codelco over the same period.

Chile’s Mining Ministry forecasts additional investment in copper mining of ~US$87B between 2013 and 2021, with Codelco providing ~one-third and foreign entities providing the rest.

Most of the forecast copper mining investment relates to new production capacity, as the capacity at existing mines is expected to decline (see below).

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Cochilco expects supply from new mines to offset production loss at the existing operations in the next decade.

Fig 21: Cochilco forecast copper production (‘000t)

Source: Cochilco

Grade attrition has been driving copper production lower.

If the copper production was to grow by 80% this decade, plant throughput would have to be expanded at twice that rate.

The expected decline in production from existing operations is largely due to depletion and grade attrition over time.

Grade attrition also increases capital requirements for both existing operations and new mines as maintaining production rates with lower grades or building lower-grade mines requires higher plant throughput, all else equal.

So while Chile anticipates its copper concentrate production to rise by ~80% over the next decade (from 3.7Mt in 2012 to 6.7Mt in 2021), the plant capacity required to support that output would have to increase at a rate nearly double that (+170%, from 440Mtpa to 1,189Mtpa).

Fig 22: Decline in copper grades and excessive incremental plant capacity required

Source: Cochilco

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In BMO Research’s view, copper industry in Chile is unlikely to grow at the declared rates.

In BMO Research’s view, Cochilco’s copper investment and production increase expectations, which require total investment of ~US$90B and construction of multiple new large-scale mines, are unlikely to materialize, given (a) the budget strain of the mining industry, which has already caused numerous capital-intensive projects to be shelved; and (b) infrastructure constraints, discussed below.

Lacking in Water and Power Key challenges in Chilean copper mining: * Power * Water Pumping and desalinating sea water increases process power requirements by ~40%. Copper miners in Atacama use ~90% of available power.

Beyond deteriorating resource base, the copper mining industry in Chile faces significant external constraints to further growth: water and power availability (and affordability).

About two-thirds of Chilean copper mines are located in the Atacama desert in northern Chile. The Atacama desert is the driest hot desert in the world.

Given extremely limited supplies of ground water and rainfall, the mining industry in Atacama has to increasingly rely on desalinated sea water, which increases processing power requirements by ~40% (pumping and desalination).

Beyond that, any expansions of existing plants and building new plants also increase power requirements of the mining industry.

The copper industry in Atacama already consumes ~90% of available power – 12,700GWh out of 14,200GWh delivered by SING (northern extension of the main grid with the total capacity of 3.7GW).

Existing power capacity can only support copper output increase until 2018.

Increasing generation capacity has been challenging due to lack of energy resources and regulatory resistance.

Chilean power authorities forecast that existing generation and LNG import capacities are only sufficient to support copper output increase until 2018.

Connecting SING to the grid servicing central part of the country is possible, but additional generating capacity would still be required.

Increasing generation capacity in-country might be challenging as Chile does not have any significant energy resources to create additional power generation, except for limited coal mining in the south and some hydro potential.

In addition, building new power capacity in Chile suffered a few setbacks due to environmental regulations (government rejecting 2.1GW Castilla power plant and development delays with 2.75GW HidroAysen dam).

Chile power industry mainly relies on LNG imports.

Average power cost in 2010 was US$0.12/kWh, 50% above global average of US$0.08/kWh

Higher electricity prices had little impact on Chilean operations to date.

Historically, Chile has relied on Argentinean gas exports, and when those were reduced in 2006, its main source of power has been LNG (although volumes of supplies from Peru and Bolivia can be volatile as well).

Average power costs paid by copper mines in Chile during 2010 were US$0.12/kWh, top of the range for copper producing countries, and 50% above global average of US$0.08/kWh.

Electricity represented 16% of minesite costs at Chilean mines compared to 12% globally.

As Chile’s miners average operating cash cost in H1/13 (US$1.76/lb) was just marginally above the global average (US$1.68/lb), arguably higher electricity prices have not yet had a material impact on the margins.

Nonetheless, as the power cost escalation inevitably continues, it is likely to result in additional pressure on the operating margins.

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Mining-Friendly Jurisdiction

Chile is the top-ranked mining jurisdiction in South America.

Chile is the top-ranked mining jurisdiction in South America, although as the operating environment has been becoming more challenging, its ratings have decreased over the last few years.

Fig 23: Fraser Institute policy Potential Index (South America) and Chile Ranking Over Time

11.8

13.8

13.8

17.9

19.0

31.0

32.9

34.4

35.8

38.2

39.7

42.0

57.3

64.6

67.7

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

Venezuela

Bolivia

Guatemala

Honduras

Ecuador

Suriname

Guyana

Colombia

Panama

Brazil

Dominican Republic

Peru

Mexico

French Guiana

Chile

Policy Potential Index Score (%)0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

2012/20132011/20122010/20112009/20102008/2009

Polic

y Po

tent

ial I

ndex

Sco

re (%

)

Source: Fraser Institute 2012/2013 Mining Survey

Potential for corporate tax increase to 25% from 20.

Policy outlook is somewhat cautious at the moment as there is a concern that Michelle Bachelet would gradually hike corporate taxes to 25 percent from their current 20 percent, chiefly to fund an education overhaul.

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4. Supply’s Loss Is Copper Price’s Gain

Copper price appreciation has outpaced demand and supply growth.

Over the last 10 years, copper prices have increased by 12–15% per annum, while demand has only increased by 3% y/y.

Historically, copper price appreciation has outpaced demand and supply growth. This trend has accelerated since 2000, on the back of increasing marginal demand from China.

Copper consumption has been steadily increasing from the 1960s at a rate ranging anywhere from 1.8% to 4.7% per annum. Over the last 10 years, demand growth averaged ~3% per annum.

At the same time, copper price increase averaged 4.6% per annum in nominal terms or 0.6% in real terms since 1960 - and 15.1% per annum in nominal or 12.3% in real terms over the last decade.

Since 2000, copper prices outpaced demand increases at an accelerated rate owing to increasing costs of production.

Fig 24: Copper Supply, Demand, Prices and Costs (US$/lb, ‘000t)

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Inde

x, 2

000

= 10

0

Copper Price, nominal $ Copper Price Real 2013$ Marginal costDemand - ROW China demand Mine Supply

Source: Wood Mackenzie, LME

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The rise in the copper price is particularly noticeable after 2005.

Fig 25: Copper Supply, Demand, Prices and Costs (US$/lb, ‘000t)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

20002001200220032004200520062007200820092010201120122013

Cop

per P

rice,

nom

inal

and

real

$

-

5,000

10,000

15,000

20,000

25,000

Copper dem

and, '000t

Mine Supply Demand - ROW China demandCopper Price, nominal $ Copper Price Real 2013$ Marginal cost


Copper price appreciation largely a function of rising costs. which increased by 13% y/y in the same time frame

In BMO Research’s view, this acceleration of copper price appreciation rate over demand growth rate in the last 10 years owes to structural changes in the cost structure of the industry as lower-quality deposits had to be developed to meet rapid marginal increases in demand, driven by China.

This is confirmed by looking at the evolution of the marginal cost of production (90th percentile), which increased by 13% y/y over the last 10 years – more in line with copper price appreciation than supply/demand increase.

Challenges to investability are also key to windows of superior investment returns.

In conclusion, arguably all the same issues that challenge industry investability, such as high geopolitical risk and diminishing returns on capital, also act as a tailwind for commodity price, which is likely to create windows of superior investment returns – very likely beyond 2020 and possibly before that.

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5. Appendix A: Porphyry Projects Fig 26: Porphyry Project List

BMO Covered Projects Other Projects1 Resolution a Taca Taca af Mocha2 Reko Diq b Frieda River ag Miheevskoye3 Cobre Panama c Toromocho ah Taysan4 Los Sulfatos d Qulong ai Duobuza5 El Pachon e Junin aj Inca de Oro6 Tampakan f Los Azules ak Koksai7 Quellaveco g Rio Blanco al Teghout8 Sierra Gorda h Los Calatos amPulang9 Lookout Hill i Yulong an Tominskoye

10 Namosi j Aidarly ao Cuatro Hermanos11 Red Chris k Galore Creek ap Tsagaan Suvarga12 Agua Rica l Altar aq Hinoba-an13 San Enrique Monolito m Tuwu-Yandong ar Zhunuo14 El Morro n Western Copper as Mocha15 Bougainville o Galeno at Tomichi16 Haquira p Santo Tomas au Kwanika17 Schaft Creek q Vizcachitas av Comarca de San Blas18 Michiquillay r Caserones aw Paramillos19 Conchi s Josemaria ax Moonlight20 Antucoya-Buey Muerto t Escalones ay Morrison21 Rosemont u Pumpkin Hollow az Malasongduo22 Los Chancas v Mirador ba Kuru Tegerek23 Constancia w Ak-Sug bb Hushamu24 Tintaya x Duboashan bc Nanmu25 Garfield y Xietongmen bd Pebble26 Coronado z Kingking27 Haib aa Florence28 Catface ab Boyongan-Silangan29 Southwest Tintic ac Bahuerachi30 Mankayan ad Cotabambas31 Cevizlidere ae Yandera

Source: MEG, BMO Capital Markets

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6. Appendix B: Company Summaries Fig 27: ANTO

Antofagasta ANTO CASH FLOW ANALYSIS - US$MLSE (Dec Year End) 2012A 2013E 2014E 2015E 2016E

As at 17-Jan-14 Analyst:Recommendation Market Perform Edward Sterck Cash Flows From Operating Activities

Receipts From Customers 5813.5 4937.3 4930.1 4771.0 4660.1Payments To Suppliers (2566.3) (2752.9) (2917.9) (2946.8) (3011.9)Net Interest (87.0) (55.8) (31.4) (30.4) (24.7)

Share Price (US$) $13.70 Share Price (£) £8.47 Tax and Other (317.4) (561.6) (491.8) (444.2) (393.9)

Model Derived Model Derived Cash Flows From Investing Activities Target Value (US$) $12.94 Target Value (£) £8.00 Acq.of Property, Plant and Equip. (873.5) (1323.6) (1125.3) (531.1) (571.1) NPV (US$) $10.73 NPV (£) £6.63 Exploration Expenditure 0.0 (290.0) (210.0) (210.0) (210.0)

Other 69.5 0.0 0.0 0.0 2.0Ordinary Shares (M) 985.9Options + Notes (M) 0.0 Cash Flows From Financing Activities

Net Change in Borrowings (260.3) (100.0) (100.0) (100.0) (100.0)Market Cap (US$M) $13,504 Market Cap (£M) £8,345 Dividends Paid (438.7) (975.0) (325.3) (285.9) (266.2)

Other incl Share Issue or Buy Back (336.8) (308.4) (280.0) (240.6) (211.7)

Net Increase In Cash Held 1003.0 (1430.0) (551.6) (18.0) (127.2)PRICE ASSUMPTIONS Cash At End of Year 4246.1 2816.1 2264.6 2246.5 2119.3(Dec Year End) 2012A 2013E 2014E 2015E 2016E

Exchange Rate USD/GBP 0.63 0.63 0.62 0.61 0.59Exchange Rate AUD/USD 1.04 0.97 0.87 0.90 0.88 BALANCE SHEET ANALYSIS - US$MCopper UScents/lb 361 333 325 310 290 (Dec Year End) 2012A 2013E 2014E 2015E 2016EGold US$/oz 1671 1413 1250 1200 1200 Current AssetsMolybdenum UScents/lb 1259 1021 1000 1000 1000 Cash and Liquids 4296.5 2866.5 2314.9 2296.9 2169.7

Other 0.0 0.0 0.0 0.0 0.0

Non-Current AssetsInvestments 111.1 111.1 111.1 111.1 111.1Fixed Assets 6513.2 7349.4 7929.2 7914.3 7944.1

FINANCIAL SUMMARY Other 584.7 584.7 584.7 584.7 584.7(Dec Year End) 2012A 2013E 2014E 2015E 2016E

Current LiabilitiesEPS (¢ps) 140.7 91.1 88.1 80.0 72.3 Borrowings 447.0 447.0 447.0 447.0 447.0PER (x) 9.7 15.0 15.5 17.1 18.9 Creditors 710.2 710.2 710.2 710.2 710.2CFPS (¢ps) 130 94 98 91 87 Other 143.6 143.6 143.6 143.6 143.6P/CFPS (x) 10.6 14.6 13.9 15.1 15.8Attributable EBITDA (US$M) 2817 2013 1948 1819 1685 Non-Current LiabilitiesEBITDA per Share (¢ps) 285.7 204.2 197.6 184.5 170.9 Borrowings 1442.2 1342.2 1242.2 1142.2 1042.2EV/EBITDA (x) 3.9 6.2 6.6 7.0 7.6 Other 0.0 0.0 0.0 0.0 0.0Dividend (¢ps) 98.5 26.9 30.0 28.0 26.0 Minority Interest 1694.2 1925.1 2105.9 2277.8 2423.7Yield (%) 7.2 2.0 2.2 2.0 1.9 SHAREHOLDERS FUNDS 8804.8 8827.2 8955.4 9022.5 9024.2P/FCF (x) 6.9 NM 87.9 22.2 30.1 Net Cash/( Debt) 2407.3 1077.3 625.7 707.7 680.5FCF Yield (%) 14.6 NM 1.1 4.5 3.3 Net Debt(Cash)/Equity % -22.9% -10.0% -5.7% -6.3% -5.9%

PROFIT AND LOSS STATEMENT - US$M DIVISIONAL EARNINGS (EBIT) - US$M(Dec Year End) 2012A 2013E 2014E 2015E 2016E (Dec Year End) 2012A 2013E 2014E 2015E 2016E

Sales Revenue 5813.5 4937.3 4930.1 4771.0 4660.1 El Tesoro 100% 424.2 338.5 280.2 202.7 98.8Other Revenue 323.8 333.9 336.2 344.7 356.2 Michilla 100% 30.2 -38.2 -61.2 -51.0 0.0Operating Costs 2566.3 2752.9 2917.9 2946.8 3011.9 Los Pelambres 100% 2167.4 1519.4 1340.6 1210.6 1000.9Gross Operating Profit 3571.0 2518.3 2348.4 2168.9 2004.5 Esperenza 100% 1704.2 1438.5 1564.8 758.3 783.1Depreciation 494.2 497.4 555.4 556.0 551.2 Railway and Water 100% 129.8 125.4 126.2 129.4 133.4Exploration and Royalties 461.0 413.4 374.9 366.6 351.2 Antucoya 100% 0.0 0.0 0.0 90.9 204.4Corporate and Other 43.5 26.3 20.0 20.0 20.0EBIT 2572.3 1581.1 1398.1 1226.4 1082.0Less Net Interest Expense 90.9 55.8 31.4 30.4 24.7 EBIT (before minorities) 4455.8 3383.5 3250.6 2340.7 2220.6Pre-Tax Profits 2481.4 1525.3 1366.7 1195.9 1057.3Less Tax 844.6 561.6 491.8 444.2 395.9 FINANCIAL MULTIPLESLess Minorities 852.4 539.3 460.8 412.4 357.6 ROA (%) 22.4 14.5 12.8 11.2 10.0Less Pref Dividends 0.0 0.0 0.0 0.0 0.0 ROE (%) 16.9 4.8 4.6 3.8 3.4NPAT (pre-Abs) 1134.4 424.4 414.1 339.3 304.8 ROIC (%) 24.1 14.9 13.1 11.6 10.3Net Abnormals -350.0 0.0 0.0 0.0 0.0Reported Profit 1484.4 424.4 414.1 339.3 304.8

DIVISIONAL VALUATION RESERVES & RESOURCES PROJECT/DIVISIONNPV US$M Attributable Contained Mine Copper Production (100%) 2012A 2013E 2014E 2015E 2016E

Los Pelambres 5,231 Metal Life El Tesoro kt 105 101 99 81 70Esperenza 2684 (Mt) (Years) Michilla kt 38 37 39 27 0El Tesoro 201 Copper Reserves 39 38 Los Pelambres kt 404 395 384 384 384Michilla -64 Copper Resources 16 16 Esperenza kt 163 172 185 188 206Antucoya 273 Cu Guesstimate 0 0 Antucoya kt 0 0 0 40 85Railway and Water 643 Total Copper Produced kt 710 705 707 720 745Corporate and Other -1717Exploration 1417 Molybdenum Production (100%)Net Cash 1,907 Los Pelambres t 12200 8396 7186 7186 7186TOTAL NPV (US$M) 10,576 Esperenza t 0 0 0 0 2000NPV per Share (US$) 10.73 Total Molybdenum Produ t 12200 8396 7186 7186 9186

Cu Cash Cost US$/lb 1.43 1.59 1.73 1.72 1.68*Co-Product Basis


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Fig 28: ANTO Charts

0

700

1,400

2,100

2,800

3,500

4,200

4,900

5,600

6,300

7,000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Met

al R

even

ue (U

S$M

)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cop

per

in R

even

ue M

ix (

%)

Copper Other % Copper

Los Pelambres

Esperanza

El Tesoro

0

100

200

300

400

500

600

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cop

per P

rodu

ctio

n (k

t)

Los Pelambres Esperanza El Tesoro Michilla Antucoya

0

120

240

360

480

600

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cop

per E

q. P

rodu

ctio

n (k

t)

0.00

0.50

1.00

1.50

2.00

2.50

Cas

h C

osts

(US

$/lb

)

Copper Copper Eq. Co-P Cost By-P Cost

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cas

h / (

Deb

t) (U

S$M

)

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

Net

Cas

h (U

S$M

)

Cash Debt Net Cash

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

US

$/lb

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

US

$/lb

Los Pelambres Esperanza El Tesoro

Michilla Antucoya Copper Price

7.0

7.2

7.4

7.6

7.8

8.0

8.2

8.4

Dec

-13

Sha

re P

rice

(GB

P)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

P/N

PV

at 1

0%

P/NPV at 10% Share Price (GBP)

Chile

0

1000

2000

3000

4000

5000

6000

7000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Rev

enue

(US

$M)

Chile

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cap

ital E

xpen

ditu

re (U

S$M

)

-2,000

-1,000

0

1,000

2,000

3,000

Cas

h Fl

ow (U

S$M

)

Dev Capex Sust Capex CFOFCF after Sustaining FCF after Capex

$5,231

$2,684 $201 $64 $273$643

$1,907 $300 $10,576

0

2,000

4,000

6,000

8,000

10,000

12,000

Los Pelambres

Esperenza

El TesoroMichilla

Antucoya

Railway and Water

Net Cash

Corp & OtherTotal

NP

V, U

S$M


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Fig 29: CS

Capstone Mining CS CASH FLOW ANALYSIS - US$MTSX (Dec Year End) 2012A 2013E 2014E 2015E 2016E

As at 17-Jan-14 Analyst:Recommendation Outperform Aleksandra (Sasha) Bukacheva Receipts From Customers 305.5 383.4 777.3 787.1 704.6

Payments To Suppliers (161.7) (217.5) (435.9) (408.2) (485.1)Net Interest 2.1 (2.9) (14.7) (8.5) (0.6)Tax and Other (29.3) (30.9) (65.3) (72.6) (30.7)

Share Price (US$) $3.04 Share Price (C$) $3.19 Operating Cash Flow 116.6 132.2 261.4 297.7 188.1

Model Derived Model Derived Acq.of Property, Plant and Equip. (80.2) (841.6) (71.5) (41.1) (67.3) Target Value (US$) $3.34 Target Value (C$) $3.50 Exploration Expenditure 0.0 0.0 0.0 0.0 0.0 NPV (US$) $3.07 NPV (C$) $3.22 Other 0.0 0.0 0.0 0.0 0.0

Investing Cash Flow (80.2) (841.6) (71.5) (41.1) (67.3)Ordinary Shares (M) 379.4Options + Notes (M) 20.6 Net Change in Borrowings 0.0 300.0 0.0 (100.0) (100.0)

Dividends Paid 0.0 0.0 0.0 0.0 0.0Market Cap (US$M) $1,153 Market Cap (C$M) $1,210 Other 0.0 0.0 0.0 0.0 0.0

Financing Cash Flow 0.0 300.0 0.0 (100.0) (100.0)

Net Increase In Cash Held 36.4 (409.4) 189.9 156.6 20.8PRICE ASSUMPTIONS Free Cash Flow 36.4 (709.4) 189.9 256.6 120.8(Dec Year End) 2012A 2013E 2014E 2015E 2016E

Copper US$/lb 3.61 3.33 3.25 3.10 2.90Zinc US$/lb 0.88 0.86 0.90 0.90 1.00 BALANCE SHEET ANALYSIS - US$MLead US$/lb 0.93 0.97 1.00 1.00 1.10 (Dec Year End) 2012A 2013E 2014E 2015E 2016EMolybdenum US$/lb 12.59 10.21 10.00 10.00 10.00 Current AssetsGold US$/oz 1,671 1,413 1,250 1,200 1,200 Cash and Liquids 499.9 90.5 280.4 437.0 457.8Silver US$/oz 31.24 23.85 20.50 20.50 20.00 Other 92.9 92.9 92.9 92.9 92.9


FINANCIAL SUMMARY Other 56.5 0.0 0.0 0.0 0.0(Dec Year End) 2012A 2013E 2014E 2015E 2016EEPS (US$ps) 0.15 0.13 0.38 0.42 0.18 Current LiabilitiesP/E (x) 20.61 23.73 7.98 7.18 16.98 Borrowings 0.0 0.0 0.0 0.0 0.0CFPS (US$ps) 0.29 0.33 0.65 0.74 0.47 Creditors 30.2 30.2 30.2 30.2 30.2P/CFPS (x) 10.5 9.2 4.7 4.1 6.5 Other 0.5 0.0 0.0 0.0 0.0EBITDA (US$M) 143.8 166.0 341.4 378.8 218.5EBITDA per Share (US$ps) 0.36 0.42 0.85 0.95 0.55 Non-Current LiabilitiesEV/EBITDA (x) 4.6 8.2 3.4 2.4 3.6 Borrowings 0.0 300.0 300.0 200.0 100.0Diluted Shares M 402.9 398.1 400.0 400.0 400.0 Other 120.3 120.3 120.3 120.3 120.3Dividend (US$ps) 0.00 0.00 0.00 0.0 0.0 Minority Interest 230.4 229.1 252.8 281.5 293.6Yield (%) 0.0 0.0 0.0 0.0 0.0 SHAREHOLDERS FUNDS 1358.4 1347.9 1487.1 1655.6 1727.3P/FCF (x) 31.7 NM 6.1 4.5 9.5 Net Cash/(Net Debt) 499.9 (209.5) (19.6) 237.0 357.8FCF Yield (%) 3.2 NM 16.5 22 10 Net Debt/Equity % -36.8% 15.5% 1.3% -14.3% -20.7%

PROFIT AND LOSS STATEMENT - US$M DIVISIONAL PRODUCTION and EARNINGS (EBIT) - US$M(Dec Year End) 2012A 2013E 2014E 2015E 2016E (Dec Year End) 2012A 2013E 2014E 2015E 2016E

Attributable Copper ProductionSales Revenue 314.0 391.1 777.3 787.1 703.6 Minto 100% kt 16 17 19 28 22Other Revenue -8.5 -7.6 0.0 0.0 0.0 Cozamin 100% kt 21 21 20 17 17Operating Costs 126.8 186.1 394.5 384.8 462.4 Pinto Valley 100% kt 0 19 66 66 66Gross Operating Profit 178.7 197.4 382.8 402.3 241.2 Total Copper kt 38 57 104 110 104Depreciation 57.1 81.2 109.0 128.3 115.5 Cu Eq Production kt 40 59 110 116 111Exploration and Royalties 8.6 12.2 25.4 11.4 10.7 Attributable Gold ProductionCorporate and Other 26.3 19.2 16.0 12.0 12.0 Minto 100% koz 19 18 18 31 20EBIT (not incl associates) 86.7 84.8 232.4 250.6 102.9Less Net Interest Expense -2.1 2.9 14.7 8.5 0.6 DIVISIONAL EARNINGS (EBIT) - US$MPre-Tax Profits 88.7 81.8 217.7 242.1 102.3 Minto 100% 65.0 57.9 44.9 105.5 50.5Less Tax 29.7 30.3 65.3 72.6 30.7 Cozamin 100% 95.9 73.3 69.1 55.5 51.2Less Minorities -1.1 -0.8 0.0 0.0 0.0 Pinto Valley 100% 0.0 39.5 188.3 166.8 64.9Plus Associates 0.0 0.0 0.0 0.0 0.0 Capital spending 80.2 841.6 71.5 41.1 67.3Net Income to Equity 60.7 55.0 152.4 169.4 72.6 Corporate and Other Costs 26.3 19.2 16.0 12.0 12.0Net Abnormals -1.2 -4.0 0.0 0.0 0.0 Total EBIT 86.7 84.8 232.4 250.6 102.9Adjusted Net Income to Equity 59.4 51.0 152.4 169.4 72.6 Cu Cash Cost (Co-product) US$/lb 1.68 1.80 1.91 1.78 2.17

DIVISIONAL VALUATION RESERVES & RESOURCES COMPARABLES 2014E 2014E 2014ENPV US$M Attributable Contained Mine Company Name SP MC EV CF P/CF EV/CF

Metal Life US$M US$M US$/sh x xCozamin 211.5 (Mt) (Years)Santo Domingo 235.9 Cu Reserves 1.47 12.4 Copper Mountain C$1.58 168 416 0.38 4.2 9.2Pinto Valley 138.1 Cu Resources 6.96 58.9 First Quantum C$20.21 11,318 13,572 1.81 11.2 12.7Minto 178.3 Cu Guesstimate 5.06 42.9 Freeport McMoRan $36.19 38 56 6.71 5.4 0.0Kutcho 52.7 HudBay C$9.79 1,605 R R R RNet Cash & Other 457.0 (Moz) Imperial Metals C$16.50 1,171 1,611 0.45 34.8 46.2Exploration 50.0 Au Reserves 0.75 Lundin Mining C$5.04 2,806 2,766 0.29 16.5 16.2Corporate & Other -95.8 Au Resources 2.04 Southern Copper $29.34 24,701 26,211 2.62 11.2 11.9

Au Guesstimate 1.12 Turquoise Hill Resources C$4.07 7,803 6,119 0.16 25.1 18.8TOTAL NPV (US$M) 1227.5 Average 13.6 14.0NPV per Share (US$) 3.07 Capstone C$3.19 1,153 1,394 0.65 4.7 5.3


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Fig 30: CS Charts

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Cop

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Minto

Cozamin

Pinto Valley

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A

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A

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Cop

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Minto Cozamin Pinto Valley

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30

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90

120

150

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A

2011

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-200

0

200

400

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1,000

1,200

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2010

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Cash Debt Net Cash

0.00

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1.00

1.50

2.00

2.50

3.00

3.50

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2010

A

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Minto C1 Cozamin C1 PV C1Minto BP Cozamin BP PV BPCopper Price

$1,228$96$457

$50$53

$178

$138

$236

$211

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PintoValley

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P/NPV at 10% Share Price (US$)

Canada

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United States

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Rev

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(US

$M)

Canada Mexico United States

-900

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100

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2010

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Fig 31: FCX

Freeport McMoRan FCX CASH FLOW ANALYSIS - US$MNYSE (Dec Year End) 2010A 2011A 2012A 2013E 2014E 2015E

As at 17-Jan-14Recommendation Market Perform Analysts: Cash Flows From Operating Activities

Tony Robson Receipts From Customers 18982 20893 17967 20962 24422 25348BMO Capital Markets Payments To Suppliers (8331) (9994) (10334) (12021) (13116) (12928)

Share Price (US$) $36.19 Net Interest (556) (312) (186) (364) (727) (747)JV Div,Tax and Other (3822) (3967) (3673) (2310) (2511) (2833)

Model Derived Target Value (US$) $35.00 Cash Flows From Investing Activities NPV (US$) $24.94 Acq.of Property, Plant and Equip. (1912) (2481) (3301) (25786) (6591) (5765)

Exploration Expenditure 0 0 (285) (230) (152) (152)Ordinary Shares (M) 1,038.0 Other 43 (54) 123 (100) 0 0Options + Notes (M) 7.0

Cash Flows From Financing ActivitiesMarket Cap (US$M) $37,565 Net Change in Borrowings (1654) (1265) (157) 17600 0 (500)

Dividends Paid (980) (1814) (1242) (2236) (1298) (1298)Other incl Share Issue or Buy Back (688) 78 (29) 2739 (242) (265)

PRICE ASSUMPTIONS Net Increase In Cash Held 1082 1084 (1117) (1746) (214) 860(Dec Year End) 2010A 2011A 2012A 2013E 2014E 2015E Cash At End of Year 3738 4822 3705 1959 1745 2605

Copper UScents/lb 342.2 400.2 360.9 332.6 325.0 310.0Cobalt UScents/lb 2058 1759 1315 1229 1225 1200Molybdenum US$/lb 15.9 15.5 12.6 10.2 10.0 10.0 BALANCE SHEET ANALYSIS - US$MGold US$/oz 1224 1569 1671 1413 1250 1200 (Dec Year End) 2010A 2011A 2012A 2013E 2014E 2015ESilver US$/oz 20.16 35.23 31.24 23.85 20.50 20.50 Current Assets

Cash and Liquids 3738 4822 3705 1959 1745 2605Other 6113 5225 6592 6592 6592 6592

Non-Current AssetsInvestments 0 0 0 0 0 0Fixed Assets 16785 18449 20999 44509 47618 49601

FINANCIAL SUMMARY Other 2750 3574 4144 2189 2189 2189(Dec Year End) 2010A 2011A 2012A 2013E 2014E 2015E

Current LiabilitiesNPAT (pre-Abs) (US$M) 4350 4676 3015 2692 3227 3545 Borrowings 95 4 2 0 0 0EPS (¢ps) 457 489 316 264 309 339 Creditors 2441 2252 2324 2711 3159 3279PER (x) 7.9 7.4 11.5 13.7 11.7 10.7 Other 1227 684 1017 1017 1018 1018EPS Growth (%) 56 7 -35 -16 17 10Attributable EBITDA (US$M) 9026 9069 5887 7281 9553 10587 Non-Current LiabilitiesEBITDA per Share (¢ps) 952 950 616 721 914 1013 Borrowings 4660 3533 3525 21127 21127 20627EV/EBITDA (x) 4.4 4.8 5.8 7.7 6.0 5.3 Other 6403 7044 7261 7261 7261 7262Dividend (¢ps) 113 150 119 225 125 125 Minority Interest 2056 2911 3768 3768 3768 3768Yield (%) 3.1 4.1 3.3 6.2 3.5 3.5 SHAREHOLDERS FUNDS 12504 15642 17543 19364 21811 25034P/FCF (x) 8.6 9.1 199.8 NM 28 13 Net Cash(Debt) (1017) 1285 178 (19168) (19382) (18022)FCF Yield (%) 11.6 11.0 0.5 NM 3.5 7.8 Net Debt/Equity % 8% -8% -1% 99% 89% 72%

PROFIT AND LOSS STATEMENT - US$M DIVISIONAL EARNINGS (EBIT) - US$M(Dec Year End) 2010A 2011A 2012A 2013E 2014E 2015E (Dec Year End) 2010A 2011A 2012A 2013E 2014E 2015E

Sales Revenue 18982 20893 17967 20962 24422 25348 Grasberg 4099 2805 1239 1149 2089 2808Other Revenue 0 -8 0 0 0 0 Bagdad/Sierrita 1149 1723 1272 836 748 666Operating Costs 8331 9994 10334 12021 13116 12928 Morenci 699 1002 801 628 754 689Gross Operating Profit 10651 10891 7633 8941 11306 12420 Cerro Verde 1557 1566 1200 840 1064 1210Depreciation 1036 1022 1179 2506 3633 3933 Candelaria 949 1055 796 744 678 574Exploration 143 271 285 230 152 152 El Abra 557 467 325 184 187 143Corporate/Royalties/Other 327 364 522 762 807 813 Tenke Fungurume 490 550 562 663 691 738EBIT 9145 9234 5647 5443 6713 7521 Primary and by-product molybdenum 357 310 141 91 -69 -91Less Net Interest Expense 556 312 186 364 727 747 Rod & Refining 19 13 14 22 15 14Pre-Tax Profits 8589 8922 5461 5079 5985 6774 Atlantic Copper Refinery (100%) -37 -69 8 126 139 240Less Tax 2983 3087 1510 1727 1975 2371 PXP 0 0 0 Year Year YearLess Minorities and Smelter Losses 1193 1159 936 661 784 858 MMR 420 0 0 2218 1860 2070Plus Associates less Divs -63 0 0 0 0 0 FINANCIAL MULTIPLESNPAT (pre-Abs) 4350 4676 3015 2692 3227 3545 ROA 31.1 28.8 15.9 9.9 11.5 12.3Net Abnormals -77 -116 26 173 0 0 ROE 34.2 29.2 17.3 14.8 14.8 14.2Reported Profit 4273 4560 3041 2865 3227 3545 ROIC 53.0 48.1 26.8 13.4 15.6 16.5

DIVISIONAL VALUATION RESERVES & RESOURCES PROJECT/DIVISIONNPV US$M Attributable Contained Mine 2010A 2011A 2012A 2013E 2014E 2015E

Metal Life NORTH AMERICA DIVISIONGrasberg (90.6% of PT-FI) 15,182 (Mt) (Years) Copper (000t) 501 567 613 651 723 770Bagdad/Sierrita 4,703 Copper Reserves 71.6 24 Molybdenum (t) 29309 33113 34927 37857 38837 39261Morenci 4,853 Copper Resources 133.1 44 Gold (000oz) 9 10 13 6 11 11Candelaria 2,458 Cu Guesstimate 97.7 32 SOUTH AMERICA DIVISIONCerro Verde 3,118 Copper (000t) 596 585 565 580 618 667El Abra 586 Moly Reserves 2.1 18 Molybdenum (t) 3629 4536 3629 4491 3630 4703Tenke Fungurume 5,308 Moly Resources 4.1 35 Gold (000oz) 94 101 82 105 75 80Molybdenum -659 Mo Guesstimate 3.0 26 INDONESIA DIVISIONRod & Refining 90 Copper (000t) 547 384 325 404 499 595Atlantic Copper Refinery (100%) 1,354 Cobalt Reserves 0.5 10 Gold (000oz) 1765 1388 915 1000 1616 1591PXP Exploration and Production 8,582 Cobalt Resources 1.9 40 SOUTHERN AFRICA DIVISIONMcMoRan Exploration 2056 Co Guesstimate 0.9 20 Copper (000t) 118 129 152 203 187 204Corporate & Other -2,644 (Moz) (Years) Cobalt (000t) 8 11 11 11 18 18Net Cash (Incl JV debt) -18,921 Gold Reserves 66.3 30 Copper Total (Bln lb) 3.9 3.7 3.6 4.1 4.5 4.9TOTAL NPV (US$M) 26,067 Gold Resources 111.3 50 Molybdenum Total (Bln lb) 73 83 85 93 94 97NPV per Share (US$) 24.94 Au Guesstimate 87.4 39 Gold Total (000oz) 1867 1499 1010 1111 1701 1682

Petroleum Total (MillBoe) 0 0 0 37 63 67Co- Product Cash Cost US$/lb 1.28 1.60 1.91 1.87 1.78 1.62


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Fig 32: FCX Charts

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15,182

8,897

6,163

5,308

10,638 1,444

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26,067

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Fig 33: FM

First Quantum FM CASH FLOW ANALYSIS - US$MTSX (Dec Year End) 2012A 2013E 2014E 2015E 2016E

As at 17-Jan-14 Analyst:Recommendation Market Perform Aleksandra (Sasha) Bukacheva Receipts From Customers 2,931 3,595 3,874 5,835 6,966

Payments To Suppliers (569) (2,226) (2,229) (2,667) (3,723) Net Interest 8 (7) (2) (6) (15) Tax and Other (2,027) (456) (575) (1,242) (1,051)

Share Price (US$) $19.26 Share Price (C$) $20.21 Operating Cash Flow 343 907 1,069 1,920 2,177

Model Derived Model Derived Acq.of Property, Plant and Equip. (1,317) (2,814) (3,516) (2,854) (2,121) Target Value (US$) $19.06 Target Value (C$) $20.00 Exploration Expenditure - (48) (33) (39) (40) NPV (US$) $17.78 NPV (C$) $18.66 Other 639 (747) 292 816 -

Investing Cash Flow (678) (3,608) (3,257) (2,076) (2,161) Ordinary Shares (M) 587.6 Return to Target 4%Options + Notes (M) 3.2 Net Change in Borrowings 334 4,500 700 200 -

Dividends Paid (130) (89) (150) (173) 111 Market Cap (US$M) $11,318 Market Cap (C$M) $11,876 Other (12) 101 351 380 -

Financing Cash Flow 192 4,511 901 406 111

Net Increase In Cash Held (143) 1,810 (1,286) 250 126 PRICE ASSUMPTIONS Free Cash Flow (477) (2,690) (1,986) 50 126 (Dec Year End) 2012A 2013E 2014E 2015E 2016E

Copper US$/lb 3.61 3.33 3.25 3.10 2.90Nickel US$/lb 7.94 6.82 6.60 7.00 7.50 BALANCE SHEET ANALYSIS - US$MZinc US$/lb 0.88 0.86 0.90 0.90 1.00 (Dec Year End) 2012A 2013E 2014E 2015E 2016EMolybdenum US$/lb 12.59 10.21 10.00 10.00 10.00 Current AssetsCobalt US$/lb 13.15 12.29 12.25 12.00 12.00 Cash and Liquids 309 2,119 833 1,083 1,209 Gold US$/oz 1,671 1,413 1,250 1,200 1,200 Other - - - - - Silver US$/oz 31.24 23.85 20.50 20.50 20.00

Non-Current AssetsInvestments 694 694 694 194 194 Fixed Assets 4,954 7,318 10,374 12,632 14,073

FINANCIAL SUMMARY Other 56 802 510 (306) (306) (Dec Year End) 2012A 2013E 2014E 2015E 2016EEPS (US$ps) 1.17 0.81 1.03 2.24 2.53 Current LiabilitiesP/E (x) 16.5 23.7 18.7 8.6 7.6 Borrowings 56 56 56 56 56 CFPS (US$ps) 1.53 1.61 1.81 3.25 3.68 Creditors 356 356 356 356 356 P/CF (x) 12.6 12.0 10.6 5.9 5.2 Other 33 130 100 102 102 EBITDA (US$M) 2,361 1,370 1,646 3,167 3,243 EBITDA per Share (US$ps) 5.0 2.4 2.8 5.4 5.5 Non-Current LiabilitiesEV/EBITDA (x) 3.9 9.9 9.8 5.1 4.9 Borrowings 348 4,848 5,548 5,748 5,748 Diluted Shares M 476.3 563.0 590.8 590.8 590.8 Other - - - - - Dividend (US$ps) 0.18 0.17 0.17 0.17 0.17 Minority Interest 550 550 550 550 550 Yield (%) 1.0 0.9 0.9 0.9 0.9 SHAREHOLDERS FUNDS 5,331 5,655 6,463 7,452 9,019 P/FCF (x) NM NM NM NM 710.9 Net Cash/ (Net Debt) (94) (2,784) (4,770) (4,721) (4,594) FCF Yield (%) NM NM NM NM 0.1 Net Debt/Equity % 1.8% 49.2% 73.8% 63.4% 50.9%

DIVISIONAL PRODUCTION and EARNINGS (EBIT) - US$MPROFIT AND LOSS STATEMENT - US$M (Dec Year End) 2012A 2013E 2014E 2015E 2016E(Dec Year End) 2012A 2013E 2014E 2015E 2016E Attributable Copper Production

Kansanshi 80% kt 209 212 207 301 332 Sales Revenue 2,931 3,595 3,874 5,835 6,966 Sentinel 100% kt - - - 106 293 Operating Costs 1,446 1,885 1,998 2,890 3,365 Cobre Panama 80% kt - - - - 0 Gross Operating Profit 1,485 1,710 1,876 2,945 3,600 Haquira 100% kt - - - - - Depreciation 172 449 459 596 680 Las Cruces 100% kt 68 69 73 78 71 Exploration and Royalties (1,164) 105 120 190 233 Guelb Moghrein 100% kt 38 39 46 46 46 Corporate and Other 287 236 110 (413) 124 Kevitsa 100% kt 5 15 18 23 30 EBIT 2,189 920 1,186 2,571 2,562 Pyhäsalmi 100% kt 13 15 13 13 13 Less Net Interest Expense (8) 7 2 6 15 Cayeli 100% kt 31 32 34 34 34 Pre-Tax Profits 2,197 914 1,184 2,565 2,548 Total Copper kt 364 382 390 602 820 Less Tax 328 377 482 651 961 Cu Eq Production kt 427 458 475 712 961 Less Minorities 97 79 93 90 90 DIVISIONAL EARNINGS (EBIT) - US$MNet Income to Equity 1,773 458 610 1,823 1,497 Kansanshi 80% 740 675 652 635 632 Net Abnormals (1,218) - - (500) - Guelb Moghrein 100% 108 131 112 94 74 Adjusted Net Income to Equity 555 458 610 1,323 1,497 Ravensthorpe 100% 37 87 (66) 71 95

Kevitsa 100% 6 (47) 63 72 115 Sentinel 100% - - - 273 798 Smelter 100% - - 63 395 392 Enterprise 100% - - - - - Cayeli 100% 269 150 161 150 142

DIVISIONAL VALUATION RESERVES & RESOURCES Las Cruces 100% 289 178 168 160 102 NPV US$M Attributable Contained Mine Pyhäsalmi 100% 110 53 67 70 62

Cobre Panama 2,505.8 Metal Life Cobre Panama 80% - - - - 0 Las Cruces 1,848.1 (Mt) (Years) Total EBIT 1,558 1,228 1,221 1,919 2,412 Kansanshi 1,507.9 Copper Reserves 19.8 25 Cu Cash Cost US$/lb 1.52 1.60 1.63 1.80 1.71Sentinel 1,797.5 Copper Resources 46.3 59Smelter 1,451.1 Cu Guesstimate 28.3 36 COMPARABLES 2014E 2014E 2014EEnterprise 724.4 Company Name SP MC EV CF P/CF EV/CFKevitsa 621.6 Attributable Contained Mine US$M US$M US$/sh x xRavensthorpe 475.5 Metal Life Capstone C$3.19 1,153 1,394 0.65 4.65 5.33Cayeli 495.6 (Moz) (Years) Copper Mountain C$1.58 168 416 0.38 4.16 9.20Guelb Moghrein 450.6 Gold Reserves 3.4 15 Freeport McMoRan $36.19 38 56 6.71 5.39 0.01Pyhäsalmi 294.1 Gold Resources 7.3 31 HudBay C$9.79 1,605 R R R RHaquira 214.6 Au Guesstimate 4.5 15 Imperial Metals C$16.50 1,171 1,611 0.45 34.84 46.23Corporate & Other 797.2 Lundin Mining C$5.04 2,806 2,766 0.29 16.49 16.24Net Cash -2,678.9 Southern Copper $29.34 24,701 26,211 2.62 11.22 11.91

Turquoise Hill Resources C$4.07 7,803 6,119 0.16 25.10 18.76TOTAL NPV (US$M) 10,505.3 Average 13.6 14.0NPV per Share (US$) 17.78 First Quantum C$20.21 11,318 13,572 1.81 11.17 12.69


of 47



Fig 34: FM Charts

0

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E

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E

Met

al R

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ue (U

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Cop

per

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even

ue M

ix (

%)

Copper Nickel Gold Other % Copper

Kansanshi

Sentinel

Cobre Panama

0

200

400

600

800

1000

1200

2010

A

2011

A

2012

A

2013

E

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E

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2020

E

2021

E

Cop

per P

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ctio

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t)

Kansanshi Sentinel Cobre Panama Las CrucesGuelb Moghrein Kevitsa Pyhasalmi Cayeli

0

300

600

900

1,200

1,500

2010

A

2011

A

2012

A

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E

2021

E

Cop

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q. P

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1.20

1.60

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)


-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2010

A

2011

A

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A

2013

E

2014

E

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E

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E

Cas

h / (

Deb

t) (U

S$M

)

-8000

-6000

-4000

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0

2000

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12000

Net

Cas

h (U

S$M

)

Cash Debt Net Cash

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

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E

2021

E

US

$/lb

0.00

2.00

4.00

6.00

8.00

10.00

12.00

US

$/lb

Copper C1 Nickel C1 Copper BP

Nickel BP Copper Price Nickel Price

15.0

16.0

17.0

18.0

19.0

20.0

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Sha

re P

rice

(US

$)

0.6

0.7

0.8

0.9

1.0

1.1

P/N

PV

at 1

0%


Zambia

Finland

Panama

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2010

A

2011

A

2012

A

2013

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2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Rev

enue

(US

$M)

Zambia Mauritania Finland Australia Spain Turkey Panama

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cap

ital E

xpen

ditu

re (U

S$M

)

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

Cas

h Fl

ow (U

S$M

)


$2,506

$1,848

$1,508

$1,797

$1,451

$724$622

$476$496

$451 $294 $215 $2,679

$797$10,505

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Cobre Panama

Las Cruces

Kansanshi

SentinelSmelter

EnterpriseKevitsa

RavensthorpeCayeli

Guelb Moghrein

PyhäsalmiHaquira

Net Cash

Corporate & OtherTotal

NP

V, U

S$M


of 47



Fig 35: III

Imperial Metals III CASH FLOW ANALYSIS - C$MTSX (Dec Year End) 2012A 2013E 2014E 2015E 2016E


Payments To Suppliers (167.1) (114.7) (141.5) (245.0) (234.8)Net Interest (7.6) (1.1) 0.3 0.4 (30.8)Tax and Other (40.7) (29.9) (16.8) (90.5) (61.7)


Model Derived Model Derived Acq.of Property, Plant and Equip. (182.0) (333.9) (118.4) (24.5) (24.5) Target Value (US$) $17.63 Target Value (C$) $18.50 Exploration Expenditure 0.0 0.0 0.0 0.0 0.0 NPV (US$) $20.59 NPV (C$) $21.60 Other 26.9 0.0 0.0 0.0 0.0

Investing Cash Flow (155.2) (333.9) (118.4) (24.5) (24.5)Ordinary Shares (M) 74.5 Return to Target 18%Options + Notes (M) 2.7 Net Change in Borrowings 89.5 350.0 0.0 0.0 0.0

Dividends Paid 0.0 (0.0) (0.0) (0.0) 0.0Market Cap (US$M) $1,171 Market Cap (C$M) $1,229 Other 1.5 0.0 0.0 0.0 0.0

Financing Cash Flow 90.9 350.0 (0.0) (0.0) 0.0

Net Increase In Cash Held (22.1) 70.6 (83.5) 196.2 129.3PRICE ASSUMPTIONS Free Cash Flow (112.8) (279.4) (83.5) 196.2 129.3(Dec Year End) 2012A 2013E 2014E 2015E 2016E

Exchange Rate CAD/USD 1.00 0.97 0.92 0.94 0.94Copper US$/lb 3.61 3.33 3.25 3.10 2.90 BALANCE SHEET ANALYSIS - C$MMolybdenum US$/lb 12.59 10.21 10.00 10.00 10.00 (Dec Year End) 2012A 2013E 2014E 2015E 2016EGold US$/oz 1671 1413 1250 1200 1200 Current AssetsSilver US$/oz 31.24 23.85 20.50 20.50 20.00 Cash and Liquids 38.9 109.5 25.9 222.2 351.5

Other 105.1 105.1 105.1 105.1 105.1

Non-Current AssetsInvestments 0.9 0.9 0.9 0.9 0.9

FINANCIAL SUMMARY Fixed Assets 498.5 814.5 916.1 903.4 890.5(Dec Year End) 2012A 2013E 2014E 2015E 2016E Other 16.3 16.3 16.3 16.3 16.3

EPS (C$ps) 0.48 0.56 0.36 2.58 1.74 Current LiabilitiesP/E (x) 33.0 28.1 43.5 6.1 9.0 Borrowings 118.1 118.1 0.0 0.0 0.0CFPS (C$ps) 0.75 0.71 0.45 2.86 1.99 Creditors 46.3 36.0 34.6 99.8 86.4P/CFPS (x) 20.9 22.3 34.8 5.5 7.9 Other 8.5 8.5 8.5 8.5 8.5EBITDA (C$M) 83.5 77.7 42.3 299.0 234.5EBITDA per Share (C$ps) 1.08 1.01 0.55 3.87 3.04 Non-Current LiabilitiesEV/EBITDA (x) 15.0 19.8 35.5 4.4 5.0 Borrowings 6.4 356.4 356.4 356.4 356.4Diluted Shares M 77.3 77.2 77.2 77.2 77.2 Other 109.4 109.4 109.4 109.4 109.4Dividend (C$ps) 0.00 0.00 0.00 0.00 0.00 Minority Interest 0.0 (0.0) 0.0 (0.0) 0.0Yield (%) 0.0 0.0 0.0 0.0 0.0 SHAREHOLDERS FUNDS 371.0 417.9 555.4 673.7 803.6P/FCF (x) na na na 6.0 9.1 Net Cash/(Net Debt) (85.6) (365.1) (330.5) (134.3) (5.0)FCF Yield (%) na na na 16.8 11.0 Net Debt/Equity % 23.1% 87.4% 59.5% 19.9% 0.6%

PROFIT AND LOSS STATEMENT - C$M DIVISIONAL PRODUCTION and EARNINGS (EBIT) - C$M(Dec Year End) 2012A 2013E 2014E 2015E 2016E (Dec Year End) 2012A 2013E 2014E 2015E 2016E

Attributable Copper ProductionSales Revenue 260.1 199.6 192.9 555.9 481.1 Mount Polley 100% kt 15.3 18.5 16.1 16.1 16.1Other Revenue -2.3 0.6 0.0 0.0 0.0 Huckleberry 50% kt 8.0 9.3 9.2 9.2 10.3Operating Costs 167.1 114.7 141.5 245.0 234.8 Red Chris 100% kt 0.0 0.0 0.0 42.2 37.8Gross Operating Profit 90.7 85.5 51.4 310.9 246.3 Total Copper kt 23.3 27.8 25.4 67.6 64.3Depreciation 21.4 17.9 16.8 37.2 37.4 Cu Eq Production kt 35.4 38.2 34.7 90.8 86.0Exploration and Royalties 0.0 0.3 0.9 2.9 2.8 Attributable Gold ProductionCorporate and Other 8.3 7.5 8.2 9.0 9.0 Mount Polley 100% koz 52.2 48.6 48.6 60.7 60.7EBIT 61.0 59.8 25.5 261.8 197.2 Huckleberry 50% koz 1.3 1.6 1.9 1.9 2.0Less Net Interest Expense 7.6 1.1 -0.3 -0.4 30.8 Red Chris 100% koz 0.0 0.0 0.0 66.4 49.2EBT 53.3 58.7 25.8 262.2 166.3 Sterling 100% kozLess Tax 20.7 22.1 7.7 78.6 49.9 DIVISIONAL EARNINGS (EBIT) - C$MNet Income 32.6 36.6 18.1 183.5 116.4 Mount Polley 100% 48.1 66.7 27.7 30.0 30.6Less Minorities 0.0 0.0 0.0 0.0 0.0 Huckleberry 50% -27.0 24.0 13.2 21.2 24.3Plus Associates 0.0 6.6 9.9 15.9 18.2 Red Chris 100% 0.0 0.0 0.0 256.4 190.4Net Income to Equity 32.6 43.2 27.9 199.4 134.7 Sterling 100% 0.0 0.6 5.8 5.0 5.0Net Abnormals 4.2 0.0 0.0 0.0 0.0 Capital spending 182.0 333.9 118.4 24.5 24.5Adjusted Net Income to Equity 36.8 43.2 27.9 199.4 134.7 Corporate and Other Costs 8.3 7.5 8.2 9.0 9.0

Total EBIT 61.0 59.8 25.5 261.8 197.2Cu Cash Cost (Co-product) US$/lb 2.40 2.10 2.47 1.26 1.35

DIVISIONAL VALUATION RESERVES & RESOURCESNPV US$M Attributable Contained Mine

Metal Life COMPARABLES 2014E 2014E 2014ERed Chris 793.7 (Mt) (Years) Company Name SP MC EV CF P/CF EV/CFRed Chris Resource 700.3 Cu Reserves 1.44 30.0 US$M US$M US$/sh x xMount Polley 239.1 Cu Resources 5.78 64.4 Capstone C$3.19 1,153 1,394 0.65 4.65 5.33Huckleberry 63.9 Cu Guesstimate 1.44 30.0 Copper Mountain C$1.58 168 416 0.38 4.16 9.20Sterling 10.0 First Quantum C$20.21 11,318 13,572 1.81 11.17 12.69Net Cash -260.9 (Moz) Freeport McMoRan $36.19 38 56 6.71 5.39 0.01Corporate & Other 43.7 Au Reserves 3.55 HudBay C$9.79 1,605 R R R R

Au Resources 17.59 Lundin Mining C$5.04 2,806 2,766 0.29 16.49 16.24TOTAL NPV (US$M) 1589.9 Au Guesstimate 3.55 Southern Copper $29.34 24,701 26,211 2.62 11.22 11.91NPV per Share (US$) 20.59 Turquoise Hill Resources C$4.07 7,803 6,119 0.16 25.10 18.76

Average 13.6 14.0Imperial Metals C$16.50 1,171 1,611 0.45 34.84 46.23


of 47



Fig 36: III Charts

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Copper Gold Other % Copper

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Huckleberry

Red Chris

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Cas

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)


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400

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A

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A

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Cas

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)

Cash Debt Net Cash

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

US

$/lb

0.00

0.50

1.00

1.50

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Mount Polley C1 Huckleberry C1 Red Chris C1Mount Polley BP Huckleberry BP Red Chris BPCopper Price

0.0

2.0

4.0

6.0

8.0

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12.0

14.0

16.0

Sep

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-13

Nov

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Sha

re P

rice

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$)

0.0

0.1

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0.7

0.8

0.9

1.0

P/N

PV

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Canada

0

100

200

300

400

500

600

700

2010

A

2011

A

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A

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E

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2017

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Rev

enue

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Canada United States

-400

-300

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-100

0

100

200

300

2010

A

2011

A

2012

A

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E

2014

E

2015

E

2016

E

2017

E

2018

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2019

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2020

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2021

E

Cap

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xpen

ditu

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Cas

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$261$64$239

$700

$794

$10

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hris R

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Huckle

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g

Net Cas

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Corpora

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Fig 37: IVN

Ivanhoe Mines IVN CASH FLOW ANALYSIS - US$MTSX (Dec Year End) 2012A 2013E 2014E 2015E 2016E

As at 17-Jan-14 Analyst:Recommendation Outperform(S) Aleksandra (Sasha) Bukacheva Receipts From Customers 0.0 0.0 0.0 0.0 0.0

Payments To Suppliers (153.9) (205.1) (120.0) (105.0) (25.0)Net Interest (25.2) 1.6 (0.3) (1.4) (8.1)Tax and Other 36.8 (0.1) 0.0 0.0 0.0

Share Price (US$) $1.76 Share Price (C$) $1.85 Operating Cash Flow (142.2) (203.6) (120.3) (106.4) (33.1)

Model Derived Model Derived Acq.of Property, Plant and Equip. (9.4) (3.9) (101.4) (517.9) (1193.8) Target Value (US$) na Target Value (C$) na Exploration Expenditure 0.0 0.0 0.0 0.0 0.0 NPV (US$) $4.97 NPV (C$) $5.21 Other (125.6) 0.0 0.0 0.0 0.0

Investing Cash Flow (135.0) (3.9) (101.4) (517.9) (1193.8)Ordinary Shares (M) 583.5Options + Notes (M) 39.5 Net Change in Borrowings 0.0 0.0 0.0 0.0 0.0


Financing Cash Flow 351.2 102.9 0.0 0.0 0.0

Net Increase In Cash Held 73.6 (104.5) (221.7) (624.3) (1226.9)PRICE ASSUMPTIONS Free Cash Flow (277) (207) (222) (624) (1,227) (Dec Year End) 2012A 2013E 2014E 2015E 2016E

Copper US$/lb 3.61 3.33 3.25 3.10 2.90Zinc US$/lb 0.88 0.86 0.90 0.90 1.00 BALANCE SHEET ANALYSIS - US$MNickel US$/lb 7.94 6.82 6.60 7.00 7.50 (Dec Year End) 2012A 2013E 2014E 2015E 2016EPlatinum US$/oz 1,554 1,490 1,400 1,500 1,600 Current AssetsPalladium US$/oz 642 727 750 750 800 Cash and Liquids 259.8 155.3 (66.4) (690.6) (1917.5)Gold US$/oz 1,671 1,413 1,250 1,200 1,200 Other 93.2 93.2 93.2 93.2 93.2


FINANCIAL SUMMARY Other 90.9 90.4 90.4 90.4 90.4(Dec Year End) 2012A 2013E 2014E 2015E 2016EEPS (US$ps) -0.36 -0.31 -0.18 -0.16 -0.05 Current LiabilitiesP/E (x) -4.9 -5.7 -9.9 -11.2 -36.1 Borrowings 8.6 8.6 8.6 8.6 8.6CFPS (US$ps) -0.36 -0.31 -0.18 -0.16 -0.05 Creditors 20.0 20.0 20.0 20.0 20.0P/CFPS (x) -4.9 -5.7 -9.9 -11.2 -36.1 Other 0.2 0.2 0.2 0.2 0.2EBITDA (US$M) -153.9 -205.1 -120.0 -105.0 -25.0EBITDA per Share (US$ps) -0.33 -0.35 -0.19 -0.17 -0.04 Non-Current LiabilitiesEV/EBITDA (x) -3.5 -4.0 -9.3 -16.5 -118.5 Borrowings 6.6 6.6 6.6 6.6 6.6Diluted Shares M 463.3 581.8 623.0 623.0 623.0 Other 77.8 77.8 77.8 77.8 77.8Dividend (US$ps) 0.0 0.0 0.0 0.0 0.0 Minority Interest 47.5 34.9 13.4 0.0 0.0Yield (%) 0.0 0.0 0.0 0.0 0.0 SHAREHOLDERS FUNDS 613.6 349.2 133.9 (52.5) (85.6)P/FCF (x) NM NM NM NM NM Net Cash/(Net Debt) 244.7 140.2 (81.5) (705.8) (1932.6)FCF Yield (%) NM NM NM NM NM Net Debt/Equity % -39.9% -40.2% 60.8% -1344.9% -2258.3%


Attributable Copper ProductionSales Revenue 0.0 0.0 0.0 0.0 0.0 Kipushi 68% kt 0 0 0 0 0Other Revenue 0.0 0.0 0.0 0.0 0.0 Kamoa 80% kt 0 0 0 0 0Operating Costs 0.0 0.0 0.0 0.0 0.0 Platreef 77% kt 0 0 0 0 0Gross Operating Profit 0.0 0.0 0.0 0.0 0.0 Total copper kt 0 0 0 0 0Depreciation 0.1 0.0 0.0 0.0 0.0 Zinc ProductionExploration and Royalties 128.4 163.2 95.0 80.0 0.0 Kipushi 68% kt 0 0 0 0 0Corporate and Other 25.5 41.9 25.0 25.0 25.0 Nickel ProductionEBIT (not incl associates) -154.0 -205.1 -120.0 -105.0 -25.0 Platreef 77% kt 0 0 0 0 0Less Net Interest Expense 128.4 163.2 95.0 80.0 0.0 Platinum ProductionPre-Tax Profits -282.4 -368.3 -215.0 -185.0 -25.0 Platreef 77% koz 0 0 0 0 0Less Tax 0.0 0.1 0.0 0.0 0.0 DIVISIONAL EARNINGS (EBIT) - US$MLess Minorities -13.1 -22.3 -9.6 -8.5 -2.6 Kipushi 68% 0 0 0 0 0Plus Associates 0.0 0.0 0.0 0.0 0.0 Kamoa 80% 0 0 0 0 0Net Income to Equity -166.0 -181.3 -110.7 -97.9 -30.5 Platreef 77% 0 0 0 0 0Net Abnormals 0.0 0.0 0.0 0.0 0.0 Total EBIT -154 -205 -120 -105 -25Adjusted Net Income to Equity -166.0 -181.3 -110.7 -97.9 -30.5 Cu Cash Cost US$/lb 0.00 0.00 0.00 0.00 0.00

DIVISIONAL VALUATION RESERVES & RESOURCES COMPARABLES 2014E 2014E 2014ENPV US$M Attributable Contained Company Name SP MC EV CF P/CF EV/CF

Metal US$M US$M US$/sh x xKipushi 354.0 (Mt) Capstone C$3.19 1,153 1,394 0.65 4.65 5.33Kamoa 1130.7 Cu Resources 16.33 Copper Mountain C$1.58 168 416 0.38 4.16 9.20Platreef 1751.5 Zn Resources 1.93 First Quantum C$20.21 11,318 13,572 1.81 11.17 12.69Corporate -316.6 Ni Resources 0.56 Freeport McMoRan $36.19 38 56 6.71 5.39 0.01Other 0 HudBay C$9.79 1,605 R R R RNet Cash 175.6 (Moz) Imperial Metals C$16.50 1,171 1,611 0.45 34.84 46.23

Pt Resources 9.68 Lundin Mining C$5.04 2,806 2,766 0.29 16.49 16.24TOTAL NPV (US$M) 3095.2 Pd Resources 9.98 Southern Copper $29.34 24,701 26,211 2.62 11.22 11.91NPV per Share (US$) 4.97 Au Resources 1.53 Turquoise Hill Resources C$4.07 7,803 6,119 0.16 25.10 18.76

Average 13.6 14.0Ivanhoe C$1.85 1,080 817 -0.18 nm nm


of 47



Fig 38: IVN Charts

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Met

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Cop

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Copper Zinc PlatinumNickel Other % Copper

Kipushi

Kamoa

Platreef

0

20

40

60

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2012

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Cop

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t)

Kipushi Kamoa Platreef

0

50

100

150

200

250

300

2010

A

2011

A

2012

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2013

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2015

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2021

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Cop

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-2,500

-2,000

-1,500

-1,000

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t) (U

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0.00

0.50

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1.50

2.00

2.50

3.00

3.50

4.00

4.50

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A

2011

A

2012

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2021

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US

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Cu C1 Zn C1 Cu BP

Zn BP Copper Price Zinc Price

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PV

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DRC

South Africa

0

500

1,000

1,500

2,000

2,500

2010

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2011

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2020

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2021

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Rev

enue

(US

$M)

DRC South Africa

-1,300

-800

-300

200

700

1,200

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

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2020

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2021

E

Cap

ital E

xpen

ditu

re (U

S$M

)

-1,300

-800

-300

200

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1,200

Cas

h Fl

ow (U

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$3,095

$317$176$1,752

$1,131

$354

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of 47



Fig 39: KAZ

Kazakhmys KAZ CASH FLOW ANALYSIS - US$MLSE (Dec Year End) 2012A 2013E 2014E 2015E 2016E

As at 17-Jan-14Recommendation Market Perform Analysts: Cash Flows From Operating Activities

Edward Sterck Receipts From Customers 3353.0 2986.3 2752.8 2647.6 3482.6Payments To Suppliers (2163.9) (2263.1) (1930.5) (2021.8) (2657.2)Net Interest (85.0) (126.0) (134.3) (158.5) (192.0)

Share Price (US$) $3.16 Share Price (£) £1.95 Tax and Other (412.1) (381.3) (338.0) (294.6) (359.2)

Model Derived Model Derived Cash Flows From Investing Activities Target Value (US$) $3.24 Target Value (£) £2.00 Acq.of Property, Plant and Equip. (1177.0) (1923.0) (1750.0) (1285.0) (690.0) NPV (US$) $3.47 NPV (£) £2.15 Exploration Expenditure 0.0 0.0 0.0 0.0 0.0

Other 265.0 0.0 0.0 0.0 0.0Ordinary Shares (M) 490.3Options + Notes (M) 0.0 Cash Flows From Financing Activities

Net Change in Borrowings 569.0 893.0 (107.0) 470.0 374.0Market Cap (US$M) $1,662 Market Cap (£$M) £1,027 Dividends Paid (209.0) 0.0 0.0 0.0 0.0

Other incl Share Issue or Buy Back 0.0 887.0 1249.0 0.0 0.0

Net Increase In Cash Held 140.0 72.9 (258.0) (642.3) (41.7)PRICE ASSUMPTIONS Cash At End of Year 1246.0 1318.9 1060.9 418.6 376.9(Dec Year End) 2012A 2013E 2014E 2015E 2016E

Exchange Rate USD/GBP 0.63 0.63 0.62 0.61 0.59Exchange Rate Tenge/US$ 149 152 151 151 151 BALANCE SHEET ANALYSIS - US$MCopper UScents/lb 361 333 325 310 290 (Dec Year End) 2012A 2013E 2014E 2015E 2016EGold US$/oz 1671 1413 1250 1200 1200 Current AssetsZinc UScents/lb 88 86 90 90 100 Cash and Liquids 1246.0 1318.9 1060.9 418.6 376.9Silver US$/oz 31 24 21 21 20 Other 2048.0 2238.3 2269.1 2115.5 2151.9

Non-Current AssetsInvestments 2954.0 2954.0 2954.0 2954.0 2954.0

FINANCIAL SUMMARY Fixed Assets 3062.0 4730.0 6248.1 7294.5 7635.7(Dec Year End) 2012A 2013E 2014E 2015E 2016E Other 683.0 683.0 683.0 683.0 684.0

NPAT (pre-Abs) (US$M) 190.1 64.3 118.1 -65.9 -74.6 Current LiabilitiesEPS (¢ps) 36 12 26 -15 -17 Borrowings 29.0 0.0 0.0 0.0 0.0PER (x) 8.7 25.7 11.9 50.0 50.0 Creditors 622.0 785.7 821.7 701.0 734.1EPS Growth (%) -79.3 -66.1 +>100.0 ->100.0 -13.2 Other 207.0 207.0 207.0 207.0 207.0EBITDA* (US$M) 878.1 680.3 792.3 595.8 795.4EBITDA per Share (US$ps) 1.67 1.30 1.77 1.33 1.78 Non-Current LiabilitiesEV/EBITDA (x) 3.3 5.4 4.9 7.9 6.5 Borrowings 2439.0 3361.0 3254.0 3724.0 4098.0Dividend (¢ps) 12 0 0 0 0 Other 431.0 431.0 431.0 431.0 431.0Yield (%) 3.7 0.0 0.0 0.0 0.0 Minority Interest 6.0 7.0 7.0 7.0 7.0P/FCF (x) NM NM NM NM NM SHAREHOLDERS FUNDS 6265.0 7139.4 8501.4 8402.6 8332.3FCF Yield (%) NM NM NM NM NM Net Cash/( Debt) (1222.0) (2042.1) (2193.1) (3305.4) (3721.1)

Net Debt(Cash)/Equity % 19.5% 28.6% 25.8% 39.3% 44.6%

PROFIT AND LOSS STATEMENT - US$M DIVISIONAL EARNINGS (EBIT) - US$M(Dec Year End) 2012A 2013E 2014E 2015E 2016E (Dec Year End) 2012A 2013E 2014E 2015E 2016E

Sales Revenue 3353.0 2986.3 2752.8 2647.6 3482.6 Kazakhmys Copper 300.0 -135.3 303.3 111.0 134.2Other Revenue 0.0 0.0 0.0 0.0 0.0 Kazakhmys Power 152.0 147.7 0.0 0.0 0.0Operating Costs 2163.9 2263.1 1930.5 2021.8 2657.2Gross Operating Profit 1189.1 723.3 822.3 625.8 825.4Depreciation 276.0 255.0 231.9 238.6 348.9 Corporate/ Other -210.0 83.3 -30.0 -30.0 -30.0Exploration and Royalties 360.0 329.6 287.1 276.2 342.3 Reported EBIT 242.1 95.6 273.3 81.0 104.2Corporate and Other 311.0 43.0 30.0 30.0 30.0EBIT 242.1 95.6 273.3 81.0 104.2 FINANCIAL RATIOSLess Net Interest Expense 91.0 126.0 134.3 158.5 192.0 ROA 2.4 0.8 2.1 0.6 0.8Pre-Tax Profits 151.1 -30.4 139.0 -77.5 -87.7 ROE -36.2 -13.1 1.4 -0.8 -0.9Less Tax 86.0 8.7 20.8 -11.6 -13.2 ROIC 2.8 0.9 2.3 0.7 0.8Less Minorities Plus Associates 125.0 103.4 0.0 0.0 0.0Less Pref Dividends 0.0 0.0 0.0 0.0 0.0NPAT (pre-Abs) 190.1 64.3 118.1 -65.9 -74.6Net Abnormals -2461.0 -998.0 0.0 0.0 0.0 Kazakhmys Copper 2012A 2013E 2014E 2015E 2016EReported Profit -2270.9 -933.7 118.1 -65.9 -74.6

Copper Production (100%)Zhezkazgan, Central and East 292 291 279 268 279Bozshakol 0 0 0 5 40

DIVISIONAL VALUATION RESERVES & RESOURCES Aktogay 0 0 0 8 105NPV US$M Contained Mine Total Copper Production 292 291 279 280 423

Metal LifeKazakhmys Copper -263 (Mt) (Years)Aktogay 403 Copper Reserves 722 18 Zinc Payable 129 115 118 110 83Bozshakol 1057 Copper Resources 841 25 Gold Produced 193000 105673 137790 143683 236293

BMO Estimate 841 21 Silver Produced 13.2 12.8 14.0 13.8 14.1Cash Costs - Co-Product 2.53 2.68 2.40 2.49 2.31Cash Costs - By-Product 2.23 2.57 2.21 2.37 2.19

Net Cash & Other 355TOTAL NPV (US$M) 1,552NPV per Share (US$) 3.47

Electricity Produced 9282 8725 0 0 0


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Fig 40: KAZ Charts

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Kazakhstan

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-2,500

-2,000

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-1,000

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Aktogay

Net Debt

Existing Copper Ops

Corp & OtherTotal

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Fig 41: KGH

KGHM Polska Miedź KGH CASH FLOW ANALYSIS - PLNMWSE (Dec Year End) 2012A 2013E 2014E 2015E 2016E

As at 17-Jan-14 Analyst:Recommendation Outperform Edward Sterck Cash Flows From Operating Activities

Receipts From Customers 26837 23204 19969 20403 20334Payments To Suppliers (18629) (17303) (15377) (15830) (15406)Net Interest (145) (221) (247) (282) (274)

Share Price (US$) $36.20 Share Price (PLN) 114 Tax and Other (2542) (1179) (787) (762) (844)

Model Derived Model Derived Cash Flows From Investing Activities Target Value (US$) $44.61 Target Value (PLN) 140 Acq.of Property, Plant and Equip. (9496) (4732) (2803) (1743) (2040) NPV (US$) $48.23 NPV (PLN) 151 Exploration Expenditure 0 0 0 0 0

Other (1266) 0 0 0 0Ordinary Shares (M) 200.0Options + Notes (M) 0.0 Cash Flows From Financing Activities

Net Change in Borrowings 1342 1000 500 500 0Market Cap (US$M) $7,239 Market Cap (PLNM) 22720 Dividends Paid (5668) (1960) (1791) (1417) (802)

Other incl Share Issue or Buy Back (103) 0 0 0 0

Net Increase In Cash Held (10501) (1191) (536) 869 969PRICE ASSUMPTIONS Cash At End of Year 2629 1438 902 1770 2740(Dec Year End) 2012A 2013E 2014E 2015E 2016E

Exchange Rate USD/PLN 3.25 3.16 3.10 3.11 3.17Exchange Rate USD/EUR 0.78 0.75 0.74 0.74 0.75 BALANCE SHEET ANALYSIS - PLNMCopper US$/lb 3.61 3.33 3.25 3.10 2.90 (Dec Year End) 2012A 2013E 2014E 2015E 2016ESilver US$/oz 31.24 23.85 20.50 20.50 20.00 Current AssetsGold US$/oz 1671 1413 1250 1200 1200 Cash and Liquids 2629 1438 902 1770 2740Molybdenum US$/lb 12.59 10.21 10.00 10.00 10.00 Other 7225 7225 7225 7225 7225

Non-Current AssetsInvestments 3137 3137 3137 3137 3137Fixed Assets 14116 17323 18930 19430 20181

FINANCIAL SUMMARY Other 6509 6509 6509 6509 6509(Dec Year End) 2012A 2013E 2014E 2015E 2016E

Current LiabilitiesEPS (PLNps) 24.0 14.9 11.8 13.4 13.2 Borrowings 1075 1075 1075 1075 1075PER (x) 4.7 7.6 9.6 8.5 8.6 Creditors 3025 3025 3025 3025 3025CFPS (PLNps) 32 23 18 18 19 Other 686 686 686 686 686P/CFPS (x) 3.5 5.0 6.4 6.4 6.0Attributable EBITDA (PLNM) 8210 5910 4592 5373 5418 Non-Current LiabilitiesEBITDA per Share (PLNps) 41.1 29.6 23.0 26.9 0.3 Borrowings 1783 2783 3283 3783 3783EV/EBITDA (x) 2.8 4.3 5.7 4.8 4.6 Other 5337 5337 5337 5337 5337Dividend (PLNps) 28.34 9.80 8.95 7.09 4.01 Minority Interest 232 223 223 223 223Yield (%) 24.9 8.6 7.9 6.2 3.5 SHAREHOLDERS FUNDS 21478 22503 23074 23942 25663P/FCF (x) 6.7 50.0 30.1 12.7 12.8 Net Cash/( Debt) (229) (2420) (3456) (3088) (2118)FCF Yield (%) 14.8 2.0 3.3 7.9 7.8 Net Debt(Cash)/Equity % 1.1% 10.6% 14.8% 12.8% 8.2%

PROFIT AND LOSS STATEMENT - PLNM DIVISIONAL EARNINGS (EBIT) - PLNM(Dec Year End) 2012A 2013E 2014E 2015E 2016E (Dec Year End) 2012A 2013E 2014E 2015E 2016E

Sales Revenue 24237 20975 17969 18403 18334 Polish Copper Ops. 100% 6426 4373 3158 2898 2612Other Revenue 2600 2229 2000 2000 2000 KGHM International Ops. 100% 463 119 38 231 782Operating Costs 16218 15266 13547 14104 13770 Sierra Gorda 100% 0 1004 277Gross Operating Profit 10620 7938 6422 6299 6564Depreciation 1664 1525 1196 1244 1278Exploration and Royalties 1648 1906 1630 1526 1436Corporate and Other 764 130 200 200 200EBIT 6544 4377 3396 3329 3651Less Net Interest Expense 145 221 247 282 274 EBIT (before eliminations) 6889 4492 3196 4133 3671Pre-Tax Profits 6399 4155 3149 3047 3377Less Tax 1601 1179 787 762 844 FINANCIAL MULTIPLESLess Minorities plus Associates -2 -9 0 -386 -107 ROA (%) 19.5 12.3 9.3 8.7 9.2Less Pref Dividends 0 0 0 0 0 ROE (%) 22.3 13.3 10.2 11.2 10.3NPAT (pre-Abs) 4798 2976 2362 2285 2533 ROIC (%) 26.9 16.6 12.4 11.6 12.0Net Abnormals 0 0 0 0 0Reported Profit 4800 2985 2362 2672 2639

DIVISIONAL VALUATION RESERVES & RESOURCES PROJECT/DIVISIONNPV US$M Contained Mine Copper Production (100%) 2012A 2013E 2014E 2015E 2016E

NPV US$M Metal Life Polish Mines kt 410 410 405 405 405Polish Copper Ops. 7,462 Polish Ops (Mt) (Years) KGHM Int Ops. kt 112 100 91 111 124KGHM International Ops. 1,453 Copper Reserves 19 39 Sierra Gorda kt 0 0 0 111 116Sierra Gorda 1,055 Copper Resources 29 62

Cu Guesstimate 19 39 Total Copper Production kt 522 510 496 626 645Corporate and Other -31Exploration 55 Silver Production (100%)Net Cash -349 Polish Mines Moz 36 37 33 34 36TOTAL NPV (US$M) 9,646NPV per Share (US$) 48.23 Costs

Co-Product Cash Costs US$/lb 1.76 1.81 1.96 1.90 1.87By-Product Cash Costs US$/lb 1.12 1.33 1.62 1.53 1.54


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Fig 42: KGH Charts

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Polish Ops

KGHM IntSierra Gorda

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of 47



Fig 43: LUN

Lundin Mining LUN CASH FLOW ANALYSIS - US$MTSX (Dec Year End) 2012A 2013E 2014E 2015E 2016E


Payments To Suppliers (546.2) (512.7) (511.2) (555.0) (597.1)Net Interest (7.5) (11.1) (26.7) (34.3) (31.0)Tax and Other 26.6 (10.0) (9.0) (36.0) (60.0)


Model Derived Model Derived Acq.of Property, Plant and Equip. (159.4) (566.9) (457.5) (90.8) (91.4) Target Value (US$) $5.48 Target Value (C$) $5.75 Investments/Distributions from Associates 0.0 163.9 (36.4) 27.1 (3.7) NPV (US$) $5.71 NPV (C$) $6.00 Other (27.7) 0.0 0.0 0.0 0.0

Investing Cash Flow (187.1) (403.1) (493.9) (63.7) (95.0)Ordinary Shares (M) 584.3Options + Notes (M) 0.6 Net Change in Borrowings (21.6) 146.0 400.0 (70.0) (70.0)


Financing Cash Flow 2.7 146.0 400.0 (70.0) (70.0)

Net Increase In Cash Held 9.7 (81.5) 76.4 178.3 202.8PRICE ASSUMPTIONS Free Cash Flow 7.0 (227.5) (323.6) 248.3 272.8(Dec Year End) 2012A 2013E 2014E 2015E 2016E

Copper US$/lb 3.61 3.33 3.25 3.10 2.90Nickel US$/lb 7.94 6.82 6.60 7.00 7.50 BALANCE SHEET ANALYSIS - US$MZinc US$/lb 0.88 0.86 0.90 0.90 1.00 (Dec Year End) 2012A 2013E 2014E 2015E 2016ELead US$/lb 0.93 0.97 1.00 1.00 1.10 Current AssetsCobalt US$/lb 13.15 12.29 12.25 12.00 12.00 Cash and Liquids 275.1 193.6 270.1 448.4 651.1Gold US$/oz 1,671 1,413 1,250 1,200 1,200 Other 166.5 166.5 166.5 166.5 166.5Silver US$/oz 31.24 23.85 20.50 20.50 20.00


FINANCIAL SUMMARY Other 275.4 275.4 275.4 275.4 275.4(Dec Year End) 2012A 2013E 2014E 2015E 2016EEPS (US$ps) 0.30 0.22 0.25 0.37 0.41 Current LiabilitiesP/E (x) 15.9 22.1 19.3 13.0 11.6 Borrowings 3.0 0.0 0.0 0.0 0.0CFPS (US$ps) 0.34 0.30 0.29 0.53 0.63 Creditors 119.7 119.7 119.7 119.7 119.7P/CFPS (x) 14.2 16.0 16.5 9.0 7.6 Other 12.2 12.2 12.2 12.2 12.2EBITDA (US$M) 276.5 294.0 331.6 514.4 560.0EBITDA per Share (US$ps) 0.47 0.50 0.57 0.88 0.96 Non-Current LiabilitiesEV/EBITDA (x) 9.2 9.4 9.3 5.5 4.6 Borrowings 4.0 153.0 553.0 483.0 413.0Diluted Shares M 587.5 584.9 584.9 584.9 584.9 Other 357.7 357.7 357.7 357.7 357.7Dividend (US$ps) 0.00 0.00 0.00 0.00 0.00 Minority Interest 0.0 0.0 0.0 0.0 0.0Yield (%) 0.0 0.0 0.0 0.0 0.0 SHAREHOLDERS FUNDS 3494.2 3806.7 4005.5 4318.9 4626.5P/FCF (x) 80.9 na na 11.3 10.3 Net Cash/(Net Debt) 268.1 40.6 (283.0) (34.7) 238.1FCF Yield (%) 1 na na 9 10 Net Debt/Equity % -7.7% -1.1% 7.1% 0.8% -5.1%


Attributable Copper ProductionSales Revenue 718.4 696.8 717.2 937.2 1055.8 Neves-Corvo 100% kt 59 53 54 54 50Other Revenue 2.7 12.6 0.0 0.0 0.0 Zinkgruvan 100% kt 3 4 3 3 3Operating Costs 385.0 457.3 443.2 513.1 555.2 Aguablanca 100% kt 2 6 6 0 0Gross Operating Profit 336.1 252.1 274.0 424.1 500.7 Tenke Fungurume 24% kt 38 50 45 49 49Depreciation 122.4 145.8 150.3 228.0 227.9 Eagle 100% kt 0 0 0 14 20Exploration and Royalties 66.1 37.3 40.0 13.9 13.9 Total Copper kt 102 113 108 119 121Corporate and Other 95.1 18.2 28.0 28.0 28.0 Cu Eq Production kt 161 184 191 238 272EBIT (not incl associates) 52.6 50.8 55.8 154.2 230.8 DIVISIONAL EARNINGS (EBIT) - US$MLess Net Interest Expense 7.5 11.1 26.7 34.3 31.0 Neves-Corvo 100% 99 20 24 2 -27Pre-Tax Profits 45.1 39.8 29.1 120.0 199.9 Zinkgruvan 100% 76 52 58 84 99Less Tax 17.8 9.3 9.0 36.0 60.0 Aguablanca 100% -20 1 9 19 25Less Minorities 0.0 0.0 0.0 0.0 0.0 Tenke Fungurume 24% 176 172 193 203 156Plus Associates 101.5 97.4 125.6 132.1 101.3 Eagle 100% 0 0 0 78 162Net Income to Equity 123.2 129.4 145.6 216.1 241.2 Capital spending 159.4 566.9 457.5 90.8 91.4Net Abnormals 54.6 -2.3 0.0 0.0 0.0 Corporate and Other Costs 95.1 18.2 28.0 28.0 28.0Adjusted Net Income to Equity 177.8 127.1 145.6 216.1 241.2 Total EBIT 53 51 56 154 231

Cu Cash Cost US$/lb 1.56 1.59 1.56 1.46 1.46

DIVISIONAL VALUATION RESERVES & RESOURCES COMPARABLES 2014E 2014E 2014ENPV US$M Attributable Contained Mine Company Name SP MC EV CF P/CF EV/CF

Metal Life US$M US$M US$/sh x xTenke Fungurume 1884.9 (Mt) (Years)Zinkgruvan 676.7 Cu Reserves 1.93 13.5 Capstone C$3.19 1,153 1,394 0.65 4.65 5.33Neves-Corvo 643.1 Cu Resources 3.49 24.4 Copper Mountain C$1.58 168 416 0.38 4.16 9.20Aguablanca 50.7 Cu Guesstimate 3.42 23.9 First Quantum C$20.21 11,318 13,572 1.81 11.17 12.69Eagle 6.3 Zn Reserves 2.66 15.6 Freeport McMoRan $36.19 38 56 6.71 5.39 0.01Net Cash -71.2 Zn Resources 6.71 39.5 HudBay C$9.79 1,605 R R R RCorporate & Other 151.8 Zn Guesstimate 7.05 41.5 Imperial Metals C$16.50 1,171 1,611 0.45 34.84 46.23

Ni Reserves 0.19 7.8 Southern Copper $29.34 24,701 26,211 2.62 11.22 11.91TOTAL NPV (US$M) 3342.2 Ni Resources 0.21 8.5 Turquoise Hill Resources C$4.07 7,803 6,119 0.16 25.10 18.76NPV per Share (US$) 5.71 Ni Guesstimate 0.12 4.9 Average 13.6 14.0

Lundin Mining C$5.04 2,806 2,766 0.29 16.49 16.24


of 47



Fig 44: LUN Charts

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of 47



Fig 45: SCCO

Southern Copper SCCO CASH FLOW ANALYSIS - US$MNYSE (Dec Year End) 2012A 2013E 2014E 2015E 2016E

As at 17-Jan-14 Analyst:Recommendation Market Perform Aleksandra (Sasha) Bukacheva

Receipts From Customers 6,669 5,944 6,946 8,407 9,322Payments To Suppliers -3,165 -2,947 -3,551 -4,352 -4,978

Share Price (US$) $29.34 Net Interest -157 -194 -226 -232 -243Tax and Other -1,343 -797 -932 -1,123 -1,190

Model Derived Operating Cash Flow 2,004 2,006 2,238 2,699 2,910 Target Value (US$) $30.00 NPV (US$) $29.19 Acq.of Property, Plant and Equip. -1,037 -1,078 -1,909 -2,612 -1,869

Exploration Expenditure 0 0 0 0 0Ordinary Shares (M) 841.9 Other 368 0 0 0 0Options + Notes (M) 0.0 Investing Cash Flow -669 -1,078 -1,909 -2,612 -1,869

Market Cap (US$M) $24,701 Net Change in Borrowings 1,467 0 0 0 0Dividends Paid -3,140 -683 -985 -1,195 -1,271Other incl Share Issue or Buy Back 1,951 0 0 0 0Financing Cash Flow 278 -683 -985 -1,195 -1,271

PRICE ASSUMPTIONS(Dec Year End) 2012A 2013E 2014E 2015E 2016E Net Increase In Cash Held 1,611 245 -656 -1,108 -230

Free Cash Flow -1,805 245 -656 -1,108 -230Copper US$/lb 3.61 3.33 3.25 3.10 2.90Zinc US$/lb 0.88 0.86 0.90 0.90 1.00Molybdenum US$/lb 12.59 10.21 10.00 10.00 10.00 BALANCE SHEET ANALYSIS - US$MGold US$/oz 1,671 1,413 1,250 1,200 1,200 (Dec Year End) 2012A 2013E 2014E 2015E 2016ESilver US$/oz 31.24 23.85 20.50 20.50 20.00 Current Assets

Cash and Liquids 2,459 2,704 2,048 939 709Other 1,828 1,435 1,435 1,435 1,435

Non-Current AssetsInvestments 0 -15 -15 -15 -15Fixed Assets 5,420 6,081 7,561 9,655 10,923

FINANCIAL SUMMARY Other 676 109 109 109 109(Dec Year End) 2012A 2013E 2014E 2015E 2016EEPS (US$ps) 2.28 1.90 2.14 2.58 2.73 Current LiabilitiesP/E (x) 12.9 15.4 13.7 11.4 10.7 Borrowings 10 0 0 0 0CFPS (US$ps) 2.61 2.33 2.62 3.16 3.41 Creditors 476 476 476 476 476P/CFPS (x) 11.2 12.6 11.2 9.3 8.6 Other 372 3,245 788 1,090 1,300EBITDA (US$M) 3,498 2,963 3,352 4,010 4,299EBITDA per Share (US$ps) 4.12 3.52 3.98 4.76 5.11 Non-Current LiabilitiesEV/EBITDA (x) 7.6 8.8 8.0 7.0 6.6 Borrowings 4,204 4,214 4,214 4,214 4,214Diluted Shares M 848.4 841.9 841.9 841.9 841.9 Other 534 534 534 534 534Dividend (US$ps) 4.06 0.81 1.17 1.42 1.51 Minority Interest 24 0 0 0 0Yield (%) 13.8 2.8 4.0 4.8 5.1 SHAREHOLDERS FUNDS 4,789 1,846 5,126 5,810 6,637P/FCF (x) 25.5 26.6 75.2 283.0 23.7 Net Cash(Debt) -1,754 -1,510 -2,166 -3,274 -3,505FCF Yield (%) 3.9 3.8 1.3 0.4 4.2 Net Debt/Equity % 37% 82% 42% 56% 53%


PERUVIAN OPEN-PITSales Revenue 6,862 6,117 6,946 8,407 9,322 Copper kt 311 312 357 471 562Other Revenue -193 -173 0 0 0 Molybdenum t 8,669 7,889 8,376 12,072 12,072Operating Costs 2,857 2,911 3,305 4,087 4,690 MEXICAN OPEN-PITGross Operating Profit 3,812 3,033 3,641 4,319 4,631 Copper kt 322 329 442 538 650Depreciation 326 373 393 482 565 Molybdenum t 9,432 9,432 9,432 12,630 14,424Exploration 48 43 36 36 36 IMMSA UNITCorporate/Royalties/Other 308 36 246 265 288 Copper kt 6 6 6 6 6EBIT 3,131 2,581 2,966 3,536 3,742 Zinc kt 111 111 111 111 111Less Net Interest Expense 157 194 226 232 243 Copper Total kt 638 646 804 1,015 1,217Pre-Tax Profits 2,974 2,386 2,741 3,304 3,499 Molybdenum Total kt 18.1 17.3 17.8 24.7 26.5Less Tax 1,081 797 932 1,123 1,190 DIVISIONAL EARNINGS (EBIT) - US$MLess Minorities Plus Associates -42 -9 7 8 8 Peruvian Open-Pit 1,426 1,066 1,296 1,763 1,835Less Pref Dividends 0 0 0 0 0 Mexican Open-Pit 1,925 1,346 1,537 1,639 1,756NPAT (pre-Abs) 1,935 1,599 1,802 2,172 2,301 IMMSA 153 119 153 154 172Net Abnormals 0 0 0 0 0 Total EBIT 3,131 2,581 2,966 3,536 3,742Reported Profit 1,935 1,599 1,802 2,172 2,301 Cu Cash Cost (Co-product) US$/lb 1.52 1.68 1.54 1.51 1.46

DIVISIONAL VALUATION RESERVES & RESOURCES COMPARABLES 2014E 2014E 2014E

NPV US$M Attributable Contained Mine Company Name SP MC EV CF P/CF EV/CFMetal Life US$M US$M US$/sh x x

Mexican Open Pit 11,212 (Mt) (Years) Capstone C$3.19 1,153 1,394 1 5 5Peru Open Pit 10,322 Copper Reserves 77.5 41 Copper Mountain C$1.58 168 416 0 4 9Other Projects 2,499 Copper Resources 77.5 41 First Quantum C$20.21 11,318 13,572 2 11 13Tia Maria 1,630 Cu Guesstimate 77.5 41 Freeport McMoRan $36.19 38 56 7 5 0IMMSA-Mexico 1,463 HudBay C$9.79 1,605 R R R R

Moly Reserves 0.4 Imperial Metals C$16.50 1,171 1,611 0 35 46Corporate & Other -139 Moly Resources 0.4 Lundin Mining C$5.04 2,806 2,766 0 16 16Net Cash -2,414 Mo Guesstimate 0.4 Turquoise Hill Resources C$4.07 7,803 6,119 0 25 19

Average 13.6 14.0Zinc Reserves 1.4 13 Southern Copper $29.34 24,701 26,211 3 11 12

TOTAL NPV (US$M) 24,573 Zinc Resources 1.4 13NPV per Share (US$) 29.19 Zn Guesstimate 1.4 13


of 47



Fig 46: SCCO Charts

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0.80

1.00

1.20

1.40

1.60

1.80

2.00

Cas

h C

osts

(US

$/lb

)


-5,000

-3,000

-1,000

1,000

3,000

5,000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cas

h / (

Deb

t) (U

S$M

)

-5,000

-3,000

-1,000

1,000

3,000

5,000

Net

Cas

h (U

S$M

)

Cash Debt Net Cash

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

US

$/lb

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

US

$/lb

Mexico Cu C1 Peru Cu C1 Mexico Cu BP

Peru Cu BP Copper Price

23.0

24.0

25.0

26.0

27.0

28.0

29.0

30.0

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Sha

re P

rice

(US

$)

0.6

0.7

0.8

0.9

1.0

P/N

PV

at 1

0%


Peru

Mexico

0

2,000

4,000

6,000

8,000

10,000

12,000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Rev

enue

(US

$M)

Peru Mexico

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cap

ital E

xpen

ditu

re (U

S$M

)

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

Cas

h Fl

ow (U

S$M

)


$24,573$139

$2,414$1,463$1,630

$2,499

$10,322

$11,212

0

5,000

10,000

15,000

20,000

25,000

30,000

MexicanOpen Pit

Peru OpenPit

OtherProjects

Tia Maria IMMSA-Mexico

Net Cash Corporate& Other

Total

NP

V, U

S$M


of 47



Fig 47: TRQ

Turquoise Hill Resources TRQ CASH FLOW ANALYSIS - US$MTSX (Dec Year End) 2012A 2013E 2014E 2015E 2016E 2017E

As at 17-Jan-14Recommendation Outperform Analysts: Cash Flows From Operating Activities

Tony Robson Receipts From Customers 144.7 810.1 2320.7 1981.3 2120.4 1599.8Payments To Suppliers (149.0) (833.1) (1313.8) (1258.7) (1227.6) (1200.9)Net Interest 4.7 (31.5) (78.0) (115.4) (123.6) (158.6)

Share Price (US$) $3.88 Share Price (C$) $4.07 Tax and Other (507.7) (506.5) (532.2) (423.8) (476.0) (301.2)

Model Derived Model Derived Cash Flows From Investing Activities Target Value (US$) $4.29 Target Value (C$) $4.50 Acq.of Property, Plant and Equip. (2561.1) (904.1) (240.0) (1069.4) (2360.6) (1810.6) NPV (US$) $5.82 NPV (C$) $6.11 Exploration Expenditure 0.0 (67.7) (58.0) (58.0) (50.0) (50.0)

Other 36.7 0.0 0.0 0.0 0.0 0.0Ordinary Shares (M) 2,011.8Options + Notes (M) 74.2 Cash Flows From Financing Activities

Net Change in Borrowings 1351.5 365.0 1600.0 0.0 0.0 1500.0Market Cap Dil'd (US$M) $7,803 Market Cap (C$M) $8,188 Dividends Paid 0.0 (0.0) (0.0) (0.0) (0.0) (0.0)

Other 1827.1 0.0 2400.0 0.0 0.0 0.0

Net Increase In Cash Held 164.8 (1082.8) 4098.7 (944.0) (2117.3) (421.6)PRICE ASSUMPTIONS Cash At End of Year 1162.9 80.1 4178.8 3234.8 1117.5 695.9(Dec Year End) 2012A 2013E 2014E 2015E 2016E 2017E

Exchange Rate C$/US$ 1.00 0.97 0.92 0.94 0.94 0.92Copper US$/lb 3.61 3.33 3.25 3.10 2.90 3.00 BALANCE SHEET ANALYSIS - US$MGold US$/oz 1671 1413 1250 1200 1200 1200 (Dec Year End) 2012A 2013E 2014E 2015E 2016E 2017EMolybdenum US$/lb 13 10 10 10 10 10 Current AssetsHard Coking Coal US$/t 210 159 146 155 160 165 Cash and Liquids 1162.9 80.1 4178.8 3234.8 1117.5 695.9

Other 447.8 447.8 447.8 447.8 447.8 447.8

Non-Current AssetsInvestments 337.5 337.5 337.5 337.5 337.5 337.5Fixed Assets 6963.8 7692.0 7789.3 8732.3 10950.5 12657.8

FINANCIAL SUMMARY Other 172.9 172.9 172.9 172.9 172.9 172.9(Dec Year End) 2012A 2013E 2014E 2015E 2016E 2017E

Current LiabilitiesNPAT (pre-Abs) (US$M) -504.8 -202.9 183.5 50.2 108.6 -99.0 Borrowings 1830.4 1830.4 1830.4 1830.4 1830.4 1830.4EPS (¢ps) -49.9 -18.8 8.8 2.4 5.2 -4.7 Creditors 941.2 941.2 941.2 941.2 941.2 941.2PER (x) 50 50 44.1 50 50 50 Other 0.0 0.0 0.0 0.0 0.0 0.0EPS Growth (%) 46.4 62.3 +>100.0 -72.6 +>100.0 ->100.0Attributable EBITDA (US$M) -385.0 -110.0 604.7 391.2 523.4 149.7 Non-Current LiabilitiesEBITDA per Share (¢ps) -40.8 -10.2 29.0 18.8 25.1 7.2 Borrowings 102.5 467.5 2067.5 2067.5 2067.5 3567.5EV/EBITDA (x) na na 12.4 21.6 20.2 50.0 Other 126.9 126.9 126.9 126.9 126.9 126.9Dividend (¢ps) 0.0 0.0 0.0 0.0 0.0 0.0 Minority InterestYield (%) 0.0 0.0 0.0 0.0 0.0 0.0 SHAREHOLDERS FUNDS 6083.8 5364.3 7960.3 7959.3 8060.2 7845.9P/FCF (x) NM NM 79.1 NM NM NM Net Cash/(Net Debt) (770.0) (2217.8) 280.9 (663.1) (2780.4) (4702.0)FCF Yield (%) NM NM 1.3 NM NM NM Net Debt/Equity % 12.7% 41.3% -3.5% 8.3% 34.5% 59.9%

PROFIT AND LOSS STATEMENT - US$M DIVISIONAL EARNINGS (EBIT) - US$M(Dec Year End) 2012A 2013E 2014E 2015E 2016E 2017E (Dec Year End) 2012A 2013E 2014E 2015E 2016E 2017E

Sales Revenue 144.7 810.1 2320.7 1981.3 2120.4 1599.8 Oyu Tolgoi -71.7 -152.8 630.7 370.2 498.7 64.7Other Revenue -10.9 -6.2 -24.3 -25.9 -26.8 -28.3 Kyzyl Gold -2.5 0.0 0.0 0.0 0.0 0.0Operating Costs 149.0 833.1 1313.8 1258.7 1227.6 1200.9 Ivanhoe Australia -6.5 -24.1 0.0 0.0 0.0 0.0Gross Operating Profit -15.3 -29.3 982.5 696.8 866.0 370.7 SouthGobi 9.9 -2.3 63.3 78.1 111.1 114.2Depreciation 56.3 90.8 142.7 126.4 142.4 103.3Exploration and Royalties 174.6 113.1 180.4 164.0 163.0 137.7Corporate and Other 375.9 165.6 94.5 94.0 98.1 95.1EBIT -622.0 -398.8 564.9 312.5 462.5 34.5Less Net Interest Expense -4.7 31.5 78.0 115.4 123.6 158.6 EBIT before eliminations -70.8 -179.2 693.9 448.3 609.7 179.0Pre-Tax Profits -617.3 -430.3 487.0 197.0 338.9 -124.1Less Tax 34.3 -64.1 170.4 69.0 118.6 -43.4Less Minorities -146.9 -163.3 133.0 77.8 111.7 18.4Less Pref Dividends 0.0 0.0 0.0 0.0 0.0 0.0NPAT (pre-Abs) -504.8 -202.9 183.5 50.2 108.6 -99.0Net Abnormals 69.8 -76.3 0.0 0.0 0.0 0.0Reported Profit -435.0 -279.3 183.5 50.2 108.6 -99.0

DIVISIONAL VALUATION RESERVES & RESOURCES PROJECT/DIVISIONNPV US$M Attributable Contained Mine Percent 2012A 2013E 2014E 2015E 2016E 2017E

Metal Life(Mt) (Years) Copper Production (100%) Owned

Oyu Tolgoi 10539 Copper Reserves 14 27 Oyu Tolgoi kt 0 76 162 160 179 165Kyzyl Gold 0 Copper Resources 46 117 Gold ProductionInova 0 BMO Guesstimate 32 59 Oyu Tolgoi Koz 0 156 744 528 593 158SouthGobi 349Investments 336 Attributable Contained MineCorporate & Other 444 Metal LifeNet Cash & Other 468 (Moz) (Years) Coal Produced (100%)TOTAL NPV (US$M) 12,137 Gold Reserves 17 27 South Gobi Mt 1.3 2.5 5.3 5.3 5.3 5.3NPV per Share (US$) 5.82 Gold Resources 62 117

Au Guesstimate 37 59 Cu Cash Cost US$/lb 0.00 3.46 1.79 1.96 1.66 2.41*Co-Product Basis, Oyu Tolgoi only


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Fig 48: TRQ Charts

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

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A

2011

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2012

A

2013

E

2014

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2015

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2017

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2018

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2019

E

2020

E

2021

E

Met

al R

even

ue (U

S$M

)

0%

10%

20%

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50%

60%

70%

80%

Cop

per

in R

even

ue M

ix (

%)


Oyu Tolgoi

0

50

100

150

200

250

300

350

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

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2017

E

2018

E

2019

E

2020

E

2021

E

Cop

per P

rodu

ctio

n (k

t)

Oyu Tolgoi

0

50

100

150

200

250

300

350

400

450

2010

A

2011

A

2012

A

2013

E

2014

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2015

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2016

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2018

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2019

E

2020

E

2021

E

Cop

per E

q. P

rodu

ctio

n (k

t)

0.00

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3.50

4.00

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Cas

h C

osts

(US

$/lb

)

Copper Copper Eq. Co-P Cost

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cas

h / (

Deb

t) (U

S$M

)

-6,000

-4,000

-2,000

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2,000

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6,000

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Cas

h (U

S$M

)

Cash Debt Net Cash

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

US

$/lb

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

US

$/lb

Oyu Tolgoi CP Oyu Tolgoi BP Copper Price

12,137468444

33634910,539

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Oyu Tolgoi SouthGobi Investments Corporate &Other

Net Cash Total NPV

NP

V, U

S$M

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Sha

re P

rice

(US

$)

0.1

0.2

0.3

0.4

0.5

0.6

0.7

P/N

PV

at 1

0%


Oyu Tolgoi

South Gobi

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

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2011

A

2012

A

2013

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2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Rev

enue

(US

$M)

Oyu Tolgoi South Gobi

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

2021

E

Cap

ital E

xpen

ditu

re (U

S$M

)

-4,000

-3,000

-2,000

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0

1,000

2,000

3,000

Cas

h Fl

ow (U

S$M

)



of 47



Disclosure Analyst’s Certification Each analyst whose name appears on the front page of this report hereby certifies that the views expressed in this report accurately reflect the analyst’s personal views about the subject securities or issuers. Each analyst also certifies that no part of his compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients. Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Ltd. are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Sector Risk Disclosure In addition to the risks involved in investing in common stocks generally, we also highlight the following risks that pertain to the mining sector.

Feasibility Study: Mine plans, mining schedules and production are based on reserve and resource estimates. These plans involve inherent uncertainties; resource estimates contain statistical computations and judgments by geologists. Reserve estimations and mine plans contain technical and commercial judgments by engineers that are optimized on the basis of estimates for mining costs, ore haulage costs, processing costs and recoveries, as well as gold price assumptions. Expected metal recoveries are based on test work carried out on representative samples of the ore and treatment processes at the laboratory, sometimes involving bench tests or pilot plant scales. It is not possible economically to obtain absolute certainty as to the representative nature of the sample or the laboratory results when applied to the full-scale operations. Mining and processing costs estimates are historically based and may change as a result of changed physical conditions, market conditions and transportation costs, or changed economic conditions in general.

Technical: Mining and processing may be affected by unexpected events, such as pit failures, dike failures or equipment breakdowns, which may result in significantly higher costs, revisions to mine plans, sterilization of reserves or ultimate closure of the mine.

Operating: Mining operations can be affected by a number of risk factors, including: unexpected geological conditions; unusual mining conditions, unexpected processing problems, unexpected metallurgical problems, shortages in skilled workforce; environmental issues and a lack of availability of support infrastructure.

Permits and Approvals: Operations and development activities are contingent on the receipt and maintenance of various permits and approvals from appropriate governmental authorities. There is no guarantee that any company will be successful in obtaining the necessary permits or acceptances for its planned development, or that it will be successful in obtaining renewals of existing permits and approvals on a timely basis or at all.

Litigation / Political risk: Mining operations are exposed to various levels of political risks and uncertainties. Changes, if any, in mining or investment policies or shifts in the political landscape may adversely affect any mining company’s operations or profitability. Operations may be affected in varying degrees by government regulations or unanticipated changes to regulations with respect to, but not limited to, restrictions on production, income taxes, royalties, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Failure to comply with applicable laws and regulations could result in financial losses, litigation, revocation of permits or other negative consequences. The occurrence of these or other various factors and uncertainties cannot be accurately predicted and could have an adverse effect on any mining company’s operations or profitability.

Metal Prices: Any reduction in the price of copper, gold, or silver could adversely affect any mining company’s share price performance. There are no guarantees that future metals prices will be sustained at levels that enable any mining company to operate its planned operations at a profit. The company’s cash flows are exposed, among other things, to fluctuations in the gold and silver prices.

Financing: Any mining company could require additional funding for future operations. Funding of operations or projects could take the form of debt and/or equity financing. There are no guarantees that debt or equity for the project will be available, arranged, or offered on terms acceptable to any mining company.

Company Specific Disclosure

For Important Disclosures on the stocks discussed in this report, please go to http://researchglobal.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx

of 47



Distribution of Ratings (December 31, 2013) Rating

Category

BMO Rating BMOCM US Universe*

BMOCM US IB Clients**

BMOCM US IB Clients***

BMOCM Universe****

BMOCM IB Clients*****

Starmine Universe

Buy Outperform 38.0% 20.4% 49.0% 38.8% 50.4% 52.5% Hold Market Perform 56.1% 13.8% 49.0% 54.0% 46.5% 41.8% Sell Underperform 5.8% 5.6% 2.0% 7.2% 3.1% 5.7%

* Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts. ** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as percentage within ratings category. *** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as percentage of Investment Banking clients. **** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts. ***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking services as percentage of Investment Banking clients.

Ratings and Sector Key We use the following ratings system definitions:

OP = Outperform - Forecast to outperform the analyst’s coverage universe on a total return basis; Mkt = Market Perform - Forecast to perform roughly in line with the analyst’s coverage universe on a total return basis; Und = Underperform - Forecast to underperform the analyst’s coverage universe on a total return basis; (S) = Speculative investment; NR = No rating at this time; and R = Restricted – Dissemination of research is currently restricted. BMO Capital Markets' seven Top 15 lists guide investors to our best ideas according to different objectives (CDN Large Cap, CDN Small Cap, US Large Cap, US Small Cap, Income, CDN Quant, and US Quant have replaced the Top Pick rating).

Prior BMO Capital Markets Rating System (January 4, 2010 – April 4, 2013) http://researchglobal.bmocapitalmarkets.com/documents/2013/prior_rating_system.pdf

Other Important Disclosures For Important Disclosures on the stocks discussed in this report, please go to http://researchglobal.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx or write to Editorial Department, BMO Capital Markets, 3 Times Square, New York, NY 10036 or Editorial Department, BMO Capital Markets, 1 First Canadian Place, Toronto, Ontario, M5X 1H3. Dissemination of Research BMO Capital Markets Equity Research is available via our website https://research-ca.bmocapitalmarkets.com/Public/Secure/Login.aspx? ReturnUrl=/Member/Home/ResearchHome.aspx. Institutional clients may also receive our research via Thomson Reuters, Bloomberg, FactSet, and Capital IQ. Research reports and other commentary are required to be simultaneously disseminated internally and externally to our clients.

General Disclaimer

“BMO Capital Markets” is a trade name used by the BMO Investment Banking Group, which includes the wholesale arm of Bank of Montreal and its subsidiaries BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. in the U.K. and BMO Capital Markets Corp. in the U.S. BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries (“BMO Financial Group”) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. This material is for information purposes only and is not an offer to sell or the solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein.

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http://researchglobal.bmocapitalmarkets.com/Public/Company_Disclosure_Public.aspx

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To Canadian Residents: BMO Nesbitt Burns Inc. furnishes this report to Canadian residents and accepts responsibility for the contents herein subject to the terms set out above. Any Canadian person wishing to effect transactions in any of the securities included in this report should do so through BMO Nesbitt Burns Inc.

The following applies if this research was prepared in whole or in part by Andrew Breichmanas, Tony Robson, or Edward Sterck: This research is not prepared subject to Canadian disclosure requirements. This research is prepared by BMO Capital Markets Limited and subject to the regulations of the Financial Conduct Authority (FCA) in the United Kingdom. FCA regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 5% or more of the equity of the issuer. Canadian regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 1% or more of the equity of the issuer that is the subject of the research. Therefore BMO Capital Markets Limited will only disclose its and its’ affiliates ownership interest in the subject issuer if such ownership exceeds 5% of the equity of the issuer.

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ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, personal and commercial banking clients are served by BMO Harris Bank N.A., Member FDIC. Investment and corporate banking services are provided in Canada and the US through BMO Capital Markets. BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A, BMO Ireland Plc, and Bank of Montreal (China) Co. Ltd. and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member SIPC), and BMO Capital Markets GKST Inc. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Canadian Investor Protection Fund) in Canada, Europe and Asia, BMO Capital Markets Limited in Europe and Australia and BMO Advisors Private Limited in India. “Nesbitt Burns” is a registered trademark of BMO Nesbitt Burns Corporation Limited, used under license. “BMO Capital Markets” is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license.

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