GR ENGINEERING SERVICES LIMITED — Investor Presentation 2012

Aug 23, 2012

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FY12 Financial Results Presentation

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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 FY2012 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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Corporate Summary

Capital Structure

Share Price Performance

Shares on issue1		m 150.0
Share price_(GNG.ASX) (22/08/12)_		$ 0.99
Market capitalisation		$m 148.5
Cash_(30 June 2012)2 _		$m 38.9
Debt_(30 June 2012)_		$m 0.5
Enterprise Value		$m 110.1
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

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

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34.8%
46.0%
19.1%
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

2. Including cash held to secure contingent liabilities under the Company’s bonding facilities

• 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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FY12 Results Summary

• Sales revenue - $152.8 million - a record achievement for GR Engineering

• EBIT - $17.8 million

• PBT - $19.9 million - in line with guidance

• NPAT - $13.1 million

Financial

• Cash flow from operations - $16.2 million

• Net Cash - $38.4 million[1]

• EPS 8.7 cents

• Final dividend of 4 cps - brings total FY12 dividend to 8 cps (fully franked)

• Margins impacted by sub-optimal manpower utilisation and higher overhead costs as a proportion of revenue

 Period of transition - expansion into West Africa and the execution of operational strategies leaves GR Engineering well placed to undertake increased levels of work

• Currently engaged on 10 EPC / EPCM projects with aggregate revenue contributions of over $100 million

• Completed over 30 studies and consulting engagements in FY12

Operational

• Established on ground presence in West Africa – delivering on strategy

• Primary exposure to gold and base metals retained

• Workforce comprising +220 professional and support staff plus direct construction workforce and subcontractors, up 20% from FY11

• Continued strong OH&S performance – zero LTIFR, 734 consecutive days to FY12

• Continued conversion of studies into design and construction work

Strategic

• Continued geographic expansion into West Africa

• 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

1. Including cash held to secure contingent liabilities under the Company’s bonding facilities

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FY12 Financial Results

		FY12	FY11		Comment	Comment
Revenue from operations	$m	152.8	142.5			Record revenue achieved in FY12
EBITDA	$m	18.4	28.9			Margins declined at all earnings levels primarily
						due to the following factors:
EBITDA Margin	%	12.1%	18.9%			 delays in contracts being awarded due to uncertain financial and
						commodity market conditions
EBIT	$m	17.8	28.3			 less than optimum manpower utilisation
						 higher overhead costs as a
EBIT Margin	%	11.6%	18.5%			proportion of revenue Margin improvement to be a key focus in FY13
PBT	$m	19.9	29.2			PBT in line with guidance of $19.5 - $20 million
Tax	$m	6.7	8.1			Effective tax rate of 33.5%
NPAT	$m	13.1	21.1			Strong profitability remains. Final dividend of 4
						cps (in line with interim dividend). Total FY12
NPAT Margin	%	8.6%	13.8%			dividend of 8 cps full franked
				1
Basic EPS	cps	8.7	14.1
Net operating cashflow	$m	16.2	15.6			Strong operating cash flow reflected robust EPC contracting activity
Net Cash2	$m	38.4	34.6			Balance sheet remains strong, with a healthy cash balance and no material debt
						GR Engineering remains well placed to fulfil
Total Equity	$m	42.2	40.8			bonding requirements necessary to undertake large scale EPC contracts

1. Adjusted for 150 million shares on issue post IPO

2. Including cash held to secure contingent liabilities under the Company’s bonding facilities

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FY12 Results Summary

Revenue

EBIT

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$180m $30m $28.3m 25%
$152.8m
$142.5m
$150m
$24m 20%
$120m 2H12 19.9% $17.8m
$18m 15%
$90m 11.6%
$12m 2H12 10%
$60m
1H12
$30m $6m 1H12 5%
$0m $0m 0%
FY11 FY12 FY11 FY12
PBT NPAT
$29.2m
$30m 25% $24m 20%
$21.1m
$24m 20%
20.5% $19.9m $18m 15%
$18m 13.0% 15% 14.8% $13.1m
$12m 10%
2H12
$12m 10% 8.6%
2H12
$6m 1H12 5% $6m 5%
1H12
$0m 0% $0m 0%
FY11 FY12 FY11 FY12
EBIT ($m)
Revenue ($m) EBIT Margin (%)
PBT ($m) NPAT ($m)
NPAT Margin (%)
PBT Margin (%)
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$180m
$152.8m
$142.5m
$150m
$120m 2H12
$90m
$60m
1H12
$30m
$0m
FY11 FY12
Revenue ($m)
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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 +220 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

• Over 80% of revenue is non-tendered

About GR Engineering

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FY12 Revenue by Commodity
5%
35%
Precious Metals
Base Metals
Other
60%
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Operational Performance

• Over 90% contribution to revenue

• Profitability and margins impacted by:

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

• sub-optimal manpower utilisation and proportionately higher overhead costs

• New contracts won with top tier mining companies

• Continued to deliver successful financial and operational outcomes to clients in the base metals and gold sector

Design & Construction

• Successful delivery on time and on budget of GR Engineering’s largest project to date - $75 million 750Ktpa lead / zinc processing plant for CBH Resources’ Rasp Mine

• West African presence established, with local incorporation in Ghana, Mali and the Ivory Coast obtained

• Detailed design being undertaken for gold projects in Mali and the Ivory Coast

• Robust opportunity pipeline for near term gold projects in Australia and West Africa

• Profitability for current contracts remains strong with no loss making contracts

• Tendering activity remains steady – recent success achieved with preferred contractor award for Andy Well project in WA

• GR Engineering has positioned itself in FY12 to successfully deliver larger contracts on a lump sum EPC basis – benefits of this strategy expected to be realised in FY13 and beyond

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Operational Performance

• Over 30 studies and consulting engagements completed in FY12

• Currently engaged on 18 studies, many for near term projects and with notional potential EPC / EPCM revenue values of over $850 million in aggregate

 Studies primarily for gold projects – including projects in West Africa

Studies & Consulting

• Healthy exposure to base metals retained – well positioned for a commodity price rebound

 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

• Active on multiple peer review assignments for Australian clients with overseas projects (i.e. Brazil & Turkey) - acting as independent engineers to provide project oversight and support to manage and mitigate technical, operational and project delivery challenges

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

• EPC contracting method offers effective solutions for all client types

• Larger clients seek budgeting certainty and efficiency in project delivery

• Junior clients often require fixed price turnkey solutions to obtain project financing

• GR Engineering can also work with clients in an EPCM environment or by adopting a hybrid contracting model – flexible risk profile management

• A significant proportion of GR Engineering’s revenue is sourced from repeat business

• GR Engineering has a strong track record of delivering company making projects for its clients

GR Engineering’s Clients

Selected Clients

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Selected Completed Contracts – FY12

 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 Precious Metals  GR Engineering was engaged by Integra Mining to undertake the upgrade to 1Mtpa of the Randalls gold processing plant in Western Australia
	CBH Resources Ltd Rasp Mine Processing Plant Base Metals  GR Engineering was engaged by CBH (Toho Zinc) to design and construct the 750Ktpa lead / zinc processing plant for the Rasp Mine at Broken Hill, New South Wales
	Newcrest Mining Ltd Telfer Regrind Project Precious Metals  GR Engineering was engaged by Newcrest to undertake the installation of two ISA mills, for a pyrite and copper circuit as a brownfields expansion at the Telfer Gold Project in Western Australia
	Ramelius Resources Ltd Checker Processing Plant Precious Metals  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 Precious Metals  GR Engineering was engaged by Newcrest to provide EPC services for the installation of vendor supplied Jameson cells as a brownfields expansion at the Telfer Gold Project in Western Australia
	Xstrata Nickel Cosmos Fuel Farm Base Metals  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 Base Metals  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 African Strategy

• Significant progress in FY12 with strategy to diversify into West Africa - corporate presence established in Ghana, Mali and the Ivory Coast

• West African strategy is now delivering:

• engaged on detailed design works for 2 West African gold projects in Mali and the Ivory Coast, both of which have the potential to lead into EPCM engagements

• pursuing an additional 3 near term opportunities to deliver EPC and EPCM projects in Mali, Ghana and the Ivory Coast post delivery of feasibility studies. Well placed to be awarded EPC / EPCM roles (pending client / project approvals and financing)

• West African works currently being undertaken represent EPCM revenue in the order of $25 - $30 million in FY13

• Near to medium term opportunities exist for GR Engineering to be engaged to undertake significant EPC and EPCM contracts

• GR Engineering is confident that its contract activity and operational presence in West Africa is going to continue to grow materially throughout FY13

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

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HS&E Performance

• Maintained strong HS&E performance in FY12

• Zero lost time injury frequency rate (LTIFR)

• 734 consecutive days of zero LTIFR for all employees and sub-contractors to 30 June 2012. No LTI’s recorded to date post FY12

• GR Engineering focusing on long term planning to maintain current excellent safety performance and to prevent harm and injury

• Pursuing the principals of compliance, involvement, encouragement, recognition and reward

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GRML Arbitration

 Gold Ridge Mining Limited ( GRML ) Arbitration

• GR Engineering commenced debt recovery proceedings against GRML in June 2011 to recover outstanding costs and associated damages of around $4.5 million relating to a lump sum EPC contract for the expansion and refurbishment of the Gold Ridge Mine in the Solomon Islands

• On 18 May 2012 GRML served GR Engineering with a further amended defence and counterclaim, including a new and further counterclaim for gold losses arising from alleged defects and alleged representations regarding performance

History & Status

• Counterclaims comprised of alleged losses which GR Engineering considers are ambit, without basis and in any event of a consequential and indirect nature – such losses are expressly and specifically excluded from the EPC Contract between GR Engineering and GRML

• GR Engineering aggressively protecting its reputation and excellent industry track record through a vigorous defence of GRML’s counterclaim

• GR Engineering has provisioned $1.525 million in doubtful debts in its FY12 accounts (unchanged from 1H12) and its insurers have been notified of the counterclaim

• GRML currently subject to a proposed change of control via scheme of arrangement involving its parent company, Allied Gold Mining Plc

• An arbitration hearing is scheduled for November 2012 with a decision anticipated in February 2013

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Market Conditions & Outlook

• Anticipate that gold exposure will constitute the majority of GR Engineering’s revenue for FY13

• Design and construction activity for base metals projects likely to remain subdued until commodity prices stabilise

• Volatility in financial markets and commodity prices may continue to constrain capital expenditure profiles for junior to mid tier clients

• Brownfields projects likely to remain an attractive option for clients seeking to optimise existing projects rather than develop new projects

• Expectation that GR Engineering will continue to diversify its earnings profile into West Africa

• Capacity exists to take on significant additional work

• GR Engineering anticipates revenue and profit before tax for FY13 in line with FY12 results, with earnings weighted towards the second half of the financial year

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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

• Study activity in West Africa remains strong

• Build on early success in West African strategy through strong project execution and delivery

• 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

• Increase exposure to iron ore

• Continue to consider corporate / M&A opportunities

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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

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Regrind Project – Western Australia
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Appendix: Project Photos

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Mine Paste Backfill Plant – Western Australia
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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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