GR ENGINEERING SERVICES LIMITED — Interim / Quarterly Report 2012

Feb 20, 2012

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HY12 Results Presentation February 2012

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Disclaimer

This document has been prepared by GR Engineering Services Limited ACN 121 542 738 ( GR Engineering ) to provide an overview and update of GR Engineering’s activities and HY 2012 financial performance.

Any statements, opinions, projections or other material contained in this document do not constitute any commitments, representations or warranties by GR Engineering and associated entities or its directors, agents and employees. Except as required by law, and only to the extent so required, directors, agents and employees of GR Engineering shall in no way be liable to any person or body for any loss, claim, demand, damages, costs or expenses of whatsoever nature arising in any way out of, or in connection with, the information contained in the document.

This document includes certain statements, opinions, projections and other material, which reflect various assumptions. The assumptions may or may not prove to be correct. Recipients of the document must make their own independent investigations, consideration and evaluation of the opportunity to participate in any investment. By accepting this document the recipient agrees that if it proceeds further with its investigations, consideration or evaluation of the opportunity to participate in any investment it shall make and rely solely upon its own investigations and inquiries and will not in any way rely upon the document.

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Capital Structure

Shares on issue1		m 150.0
Share price_(GNG.ASX) (20/02/12)_		$ 2.00
Market capitalisation		$m 300.0
Cash_(31 December 2011)_		$m 51.9
Debt_(31 December 2011)_		$m 0.7
Enterprise Value		$m 248.8
Directors & Management
Barry Patterson		Non-Executive Chairman
Joe Ricciardo		Managing Director
Tony Patrizi		Executive Director
Terrence Strapp		Non-Executive Director
Peter Hood		Non-Executive Director
Joe Totaro	CFO & Company Secretary
Geoff Jones		Chief Operating Officer
Dave Sala Tenna		General Manager

Corporate Summary

Share Price Performance

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$2.50 5m
$2.00 4m
$1.50 3m
$1.00 2m
$0.50 1m
$0.00 0m
Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12
Volume GNG.ASX
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Shareholder Breakdown

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27.7%
52.4%
19.9%
Directors & Senior Management Institutions Other
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1. The following options are on issue: 500,000 exercisable at $1.25 each on or before 19 April 2013 and vesting on 19 April 2012 500,000 exercisable at $1.50 each on or before 19 April 2014 and vesting on 19 April 2013 750,000 exercisable at $1.80 each on or before 19 April 2015 and vesting on 19 April 2014 750,000 exercisable at $2.10 each on or before 19 April 2016 and vesting on 19 April 2015

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HY12 Results Summary

• Sales revenue - $79.3 million

• EBITDA - $9.9 million

• NPAT - $6.7 million

Financial

• Cash flow from operations - $22.4 million

• Net Cash - $51.2 million

• EPS 4.5 cents

• DPS 4.0 cents

• Increased overheads - positioning the Company on a future growth platform

• Currently engaged on 10 contracts with project values of approximately $125 million

• Completed 9 final stage studies in 1H12 with project values of approximately $350 million

 Increased work flow and tendering activity for contract opportunities in West Africa and South East Asia

Operational

• Primary exposure to gold and base metals retained

• West African strategy is materialising – Activity in West Africa significantly increased in 1H12

 Workforce comprising +200 professional and support staff plus direct construction workforce and subcontractors

• Strong OH&S performance – zero LTIFR

• Continued conversion of studies into design and construction work

• Continued geographic expansion into West Africa and South East Asia

Strategic

• Maintained dominant position in the gold space, capitalising on greenfields and brownfields opportunities for clients ranging from junior developers to mid-tier and major miners

• Maintained focus on safety and people

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Operational Performance

 94% contribution to revenue

 Margins and profitability impacted by:

• profit recognition accounting treatment in 1H12 for current projects

Design & Construction

• delays in contracts being awarded due to uncertain financial and commodity market conditions

• increased overheads arising from being a listed public company and costs associated with positioning the Company on a future growth platform

• New contracts won with top tier mining companies

• Robust opportunity pipeline and increased tendering activity into West Africa and Asia

• Tender activity remains strong – currently tendering on 7 contracts with a value of +$200 million

• Current projects are progressing well – profitability remains strong with no loss making contracts

• 12 studies won in 1H12, many for near term projects

• Currently engaged on 21 final stage studies with project values of approximately $1.4 billion

Studies & Consulting

• Traditional study conversion rates (circa 50%) imply a GR Engineering construction project pipeline of approximately $880 million through to FY15 (based on current and completed studies)

• Studies primarily for gold projects, with many in West Africa

• Healthy exposure to base metals retained

• Studies and front end consulting engagements remain critical to establishing early and intimate project knowledge and providing a competitive advantage in winning design and construction work

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• Australian based engineering design and construction contractor servicing the mining and minerals processing industry

• Specialising in engineering, procurement and construction (EPC) contracting to provide turnkey project delivery with secure cost, time, plant performance and contract completion warranties and guarantees – hard money contracting

• Employs +200 professional and support staff plus direct construction workforce and subcontractors

• Offices in Perth, Kalgoorlie and Brisbane

• Very strong in gold, base metals and industrial mineral commodities

• GRES operates in a niche market – limited EPC competitors, high barriers to entry

About GR Engineering

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Ore Reclaim Tunnel Refurbishment
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• Over 80% of revenue is non-tendered

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GR Engineering’s Clients

 GR Engineering is engaged by a variety of clients ranging from leading global diversified mining houses, mid-tier producers, developers and junior explorers

Selected Clients

Gold Base Metals Other

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Completed Contracts – 1H12

• Several design and construction projects were completed in 1H12

• All completed projects were profitable, continuing GR Engineering’s history of having no loss making contracts

	Region	Client & Contract Commodity Description
	Australia	Integra Mining Ltd Randalls Gold Plant Upgrade Gold  GR Engineering was engaged by Integra Mining to undertake the upgrade to 1Mtpa of the Randalls gold processing plant in Western Australia
		Ramelius Resources Ltd Checker Processing Plant Gold  GR Engineering was engaged by Ramelius to provide EPC services to refurbish the 1.7Mtpa Checker processing plant at Mt Magnet, Western Australia
		Newcrest Mining Ltd Telfer Gold Mine Flotation Upgrade Gold  GR Engineering was engaged by Newcrest to provide EPC services for the installation of vendor supplied Jameson cells at the Telfer Gold Project in Western Australia
		Evolution Mining Ltd Edna May Plant Upgrade Gold  GR Engineering was engaged by Evolution Mining (formerly Catalpa Resources) to provide EPC services for upgrades to the Edna May processing plant in Western Australia
		Tanami Gold NL Western Tanami Upgrade Gold  GR Engineering was engaged by Tanami to provide EPC services for stage 1 & 2 of the 500,000tpa plant upgrade at the Western Tanami gold mine in the Northern Territory
		Xstrata Nickel Cosmos Fuel Farm Nickel  GR Engineering was engaged by Xstrata to provide EPC services for the installation of a fuel farm at the Cosmos nickel mine in Western Australia
		First Quantum Minerals Ltd Ravensthorpe Nickel Project Nickel  GR Engineering was engaged by First Quantum to provide EPC services for the installation of a nickel concentrate bagging plant at the Ravensthorpe nickel project in Western Australia

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West Africa Strategy Materialising

• GR Engineering is extremely pleased with the progress it made in 1H12 to diversify into West Africa

• West African project study activity is strong and several near term opportunities exist for EPC and EPCM contract awards

• GR Engineering is currently engaged on 4 studies and 1 engineering-procurement contract for gold projects in Ghana, Mali and the Ivory Coast

• 7 EPC / EPCM contract opportunities currently exist in West Africa for projects due to commence in FY12 and FY13

• represent total project revenue of approximately $250 million if awarded

• GR Engineering currently engaged on late stage studies for 4 of these projects

• all projects are controlled by Australian ASX listed companies

• GR Engineering is confident that its contract activity and operational presence in West Africa is going to grow materially throughout calendar year 2012

• Expectation that West African contracts will make a significant contribution to GR Engineering’s earnings from FY13

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Safety Performance

• Maintained strong HS&E performance in 1H12

• Zero lost time injury frequency rate (LTIFR)

• 610 days of zero LTIFR for all employees and sub-contractors to 1H12

• Aligned to AS4801 compliant health, safety and environment management system in HY12

• Continued focus on HS&E performance to prevent harm and injury

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HY12 Financial Results

		HY12	HY111	Comment	Comment
Revenue from operations	$m	79.3	70.7		Revenue growth remains strong buoyed by steady work flow on current
EBITDA	$m	9.9	17.3		and new projects
EBITDA Margin	%	12.5%	24.5%		Profitability adversely impacted by declining margins resulting from:
EBIT	$m	9.6	17.1		 profit recognition accounting treatment in 1H12 for current
EBIT Margin	%	12.1%	24.2%		projects  delays in contracts being awarded
					due to uncertain financial and
PBT	$m	10.6	17.4		commodity market conditions
					 increased overheads arising from
NPAT	$m	6.7	10.6		being a listed public company and
					costs associated with positioning
NPAT Margin	%	8.5%	15.0%		the Company on a future growth platform
Basic EPS	cps	4.5	8.9
Net operating cashflow	$m	22.4	23.5
Net Cash	$m	51.2	20.6		Strong operating cash flow and IPO funds have significantly enhanced net
Total Equity	$m	41.7	1.8		cash and equity positions

• Balance sheet remains in excellent shape to take on larger +$100 million projects

1. Pre IPO

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Market Conditions & Outlook

• Continued strength in gold projects (greenfields and brownfields) driven by the strong gold price across a broad spectrum of clients

• Increased market appetite for lump sum EPC contracts as opposed to EPCM has been observed

• Study activity continues to grow presenting strong potential for future design and construction project delivery, particularly in West Africa and South East Asia

• Volatile financial and commodities markets causing some project start-up delays. High A$ and client’s internal processes also contributing to delays

• Increasing activity in West Africa buoyed by attractive project economics, particularly in gold

• Focus on margin improvement

• 2H12 revenue expected to be consistent with 1H12 with potential for upside

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Growth Strategy

• Focus remains on winning larger construction projects

• Strong balance sheet provides a platform to undertake work of increased scale

• Focus on quality revenue at acceptable margins will remain

• Continue expansion into West Africa and South East Asia

• Study activity for West African and South East Asian gold projects is strong

• Numerous opportunities to win construction contracts on foot

• Continue conversion of studies into projects in line with historic strategy

• Attract and retain the highest calibre of professionals and skilled labour in the market

• Capitalise on numerous brownfields expansion opportunities in both precious and base metals

• Increase exposure to iron ore

• Consider corporate / M&A opportunities

• GR Engineering is now positioned on a strong growth platform to take advantage of numerous opportunities and deliver solid results for FY13 onwards

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Contact

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Joe Ricciardo

Managing Director  +61 8 6272 6000  joe.ricciardo@gres.com.au

Joe Totaro

CFO & Company Secretary  +61 8 6272 6000  joe.totaro@gres.com.au

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Appendix: Project Photos

Zinc / Lead Processing Plant – New South Wales

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Appendix: Project Photos

Zinc / Lead Processing Plant – New South Wales

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Appendix: Project Photos

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Mine Paste Back Fill Plant – South Australia
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Appendix: Project Photos

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1Mtpa Gold Process Plant Upgrade – Western Australia
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Appendix: Project Photos

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1.7Mtpa Gold Process Plant Refurbishment – Western Australia
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Appendix: Project Photos

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Flotation Circuit Upgrade – Western Australia
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