MGX RESOURCES LIMITED — Annual Report 2013

Aug 22, 2013

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Financial Results FY2013
22 August 2013
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MOUNT GIBSON IRON LIMITED

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Disclaimer

This Document is Confidential and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person, or published, in whole or in part, for any purpose without prior written approval from Mount Gibson Iron Limited.

This Document is not a Prospectus nor an Offer to Subscribe for Shares.

Mount Gibson Iron Limited and its subsidiaries (ASX:MGX, “ MGX ”) makes no representations or warranty (express or implied) as to the accuracy, reliability or completeness of this document. MGX and its respective directors, employees, agents and consultants shall have no liability (including liability to any person by reason of negligence or negligent misstatement) for any statements, opinions, information or matters (expressed or implied) arising out of, or contained in or derived from, or for any omissions from this document, except liability under statute that cannot be excluded.

This document contains reference to certain forecasts, projections, intentions, expectations and plans of MGX, which may or may not be achieved. They are based on certain assumptions which may not be met or on which views may differ.

The performance and operations of MGX may be influenced by a number of factors, uncertainties and contingencies many of which are outside the control of MGX and its directors.

Investments in shares in MGX are considered highly speculative.

No representation or warranty (expressed or implied) is made by MGX or any of its respective directors, officers, employees, advisers or agents that any forecasts, projections, intentions, expectations or plans set out in this document will be achieved, either totally or partially, or that any particular rate of return will be achieved.

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FY2013 Significantly stronger operating performance

• Record ore sales of 8.8 Mwmt, up 68% yoy

• Record Mid West sales of 5.3 Mwmt, up 124%

• Koolan Island sales of 3.5 Mwmt, up 22%

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• Koolan Island ramp-up to 4 Mtpa commenced

• Tallering Peak mine life extended to mid 2014

• 9.0 to 9.5 Mwmt sales guidance in FY2014

Note: “Mwmt” means million wet metric tonnes, the standard unit of measurement for iron ore production and sales.

3

FY2013 Another strong financial performance delivered

• Record sales revenue of $852.9m , up 32% yoy

• Net profit after tax of $157.3m

• Underlying net profit after tax of $92.9m, excluding MRRT tax credit*

• Net operating cash flow of $179.7m , up 220%

• EBITDA of $330.7m

• Cash up $83m to $376m at 30 June 2013

• Fully franked final dividend of 2.0 cps , full year payout maintained at 4.0 cps

• Nil bank debt, equipment leases of $28.4m

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* The underlying basis is a non-IFRS measure that in the opinion of the Directors provides useful information to assess the Company’s financial performance. This non-IFRS measure is audited.

4

FY2013 Strong sales driven by stockpile drawdown

12 months ended:		30-Jun-13	30-Jun-12
Tonnes mined	Mwmt	5.8	7.3
Tonnes sold	Mwmt	8.8	5.2
Sales revenue	$ mill	852.9	648.5
Interest income	$ mill	11.9	20.4
Cost of goods sold	$ mill	(698.3)	(413.5)
Gross profit	$ mill	166.5	255.4
Admin and other expenses/income	$ mill	(30.8)*	(23.4)
Finance costs	$ mill	(7.3)	(7.3)
Profit before tax	$ mill	128.4	224.6
Tax (expense)/benefit	$ mill	28.9	(62.6)
Net profit after tax	$ mill	157.3	162.0

* Includes centralised mine support services and one-off items related to dispute settlements

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FY2013 Cash operating costs driven lower by stockpile drawdown

12 months ended 30 June:	2013	2013	2012	2012
Sales Volume (Mwmt)	8.8		5.2
Sales Revenue (A$m)	852.9		648.5
Realised Price (A$/wmt sold)	97.24		124.42
Cost breakdown	A$m	A$/wmt sold	A$m	A$/wmt sold
Total Cost of Goods Sold	698.3	79.61	413.5	79.34
Less: depreciation and amortisation	(194.4)	(22.16)	(119.7)	(22.97)
Add: deferred waste mining costs	100.9	11.50	209.6	40.21
Add: ore stockpiles inventory movement	(53.4)	(6.09)	41.2	7.90
Add: Other non-cash expenses	(4.6)	(0.53)	(3.2)	(0.60)
Cash operating expenditure including deferred waste mining and royalties	546.8	62.34	541.4	103.87
Less royalties	(64.8)	(7.39)	(47.0)	(9.01)
Cash operating expenditure excluding royalties	481.9	54.95	494.4	94.86

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FY2013 Significantly increased operating cashflow

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FY2013 Cash levels continue to build

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FY2013 Savings targets achieved, more targeted in 2014

• Total FY2013 cash expenditure reduced by $140m in line with October 2012 guidance

• Permanent savings of at least $50m in line with guidance, including:

• Significant net workforce reduction (~130 positions)

• Significant labour productivity improvement

• Focus on waste elimination (e.g. 30+ light vehicles removed from Koolan Island, 60+ surplus equipment items taken off hire)

• • Centralisation of support services to Perth

• Further opportunities targeted in FY2014:

• Labour productivity increasing to plan

• Further elimination of waste, duplication and other inefficiencies

9

Iron ore outlook remains healthy for A$ producers

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In the short term…

• ore inventories at Chinese ports remain extremely low compared with H2 2012

• Chinese steel mill production remains at historic highs

• Chinese economic growth is forecast to remain healthy at ~7% pa on a larger base

• potential for substantial short term destocking is limited

And in the long term…

• the outlook for underlying iron ore demand growth remains healthy

• planned supply side increases historically take much longer and deliver smaller volume increases than originally proposed

• the Australian dollar is expected to continue to soften towards a long term average below US$0.90

• AUD producers will benefit from comparatively stronger iron ore prices and lower costs

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Five Year Performance Summary

12 months ended:	12 months ended:	30 June 2009	30 June 2010	30 June 2011	30 June 2012*	30 June 2013
Mineral Resources	Mt	104.7	108.6	103.3	95.2	To be released
Mineral Reserves	Mt	56.7	56.4	52.0	44.3	To be released
OperatingMines	#	2	2	3	3	3
Sales	M wmt	5.4	6.5	5.2	5.2	8.8
Ore tonnes mined	M wmt	5.9	7.3	5.4	7.3	5.8
Total tonnes mined (ore & waste)	M wmt	33.7	36.8	26.8	48.3	28.1
Employees(excl. contractors)	#	275	327	464	694	599
Revenue	A$m	431.7	555.3	693.2	668.9	864.8
Average realised price	A$/wmt	78.80	82.67	128.36	124.42	97.24
Cost of Goods Sold	A$m	(293.5)	(357.5)	(325.1)	(413.5)	(698.3)
Cost of Goods Sold	A$/wmt	54.36	55.12	62.09	79.34	79.61
EBITDA	A$m	309.6	484.8	575.6	352.0	330.7
EBIT	A$m	78.7	206.5	355.9	231.9	135.8
Profit Before Tax	A$m	61.7	188.3	342.9	224.6	128.4
Net Profit After Tax	A$m	42.6	132.4	239.5	162.0	157.3
Earnings per Share	A$/share	0.05	0.12	0.22	0.15	0.14
Dividend	A$/share	-	-	0.04	0.04	0.04
Dividend Payout ratio	% NPAT	-	-	18%	27%	29%
Net Assets/Equity	A$m	780.5	926.9	1,166.5	1,071.3	1,182.0
Return on Equity (NPAT/Equity)	%pa	5.5%	14.3%	20.5%	15.1%	13.3%
Operating Cashflow (after tax)	A$m	99.5	169.1	222.4	56.2	179.7
Cash	A$m	222.2	347.4	387.0	292.7	376.0

• Financial results restated in 2012/13 upon adoption of new accounting requirements for waste mining.

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Supplementary information

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Multiple sites provide operational flexibility

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Koolan Island Mine

• Premium DSO lump and fines

• Ramping up to 4 Mtpa by end 2014

• Long life asset with dedicated shiploader Mid West Region

• Tallering Peak, Extension Hill & Geraldton Port facilities

• Tallering Peak Mine Extension Hill Mine • • Mine life extended Low cost 3 Mtpa to mid 2014 operation

• • • Targeting ~2.5 Mt High potential DSO sales in near-mine and FY2014 regional exploration targets

Upgrades to Geraldton port and rail infrastructure have doubled MGX export capacity from the Mid West to 6Mtpa

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Strong sales profile and credible growth strategy

Ore sales history and indicative outlook

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Actual Forecast
Priority Two growth
8
Priority One growth
6
Ore Sales
(Mwmt)
4
2
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year to 30 June
FY'14 guidance 9.0 - 9.5 Mt Ext. Hill Koolan Is. Tallering Pk.
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Priority One growth: targeting replacement tonnes in the Mid West via near-mine exploration, stockpile sales, regional M&A Priority Two growth: targeting new production through broader exploration, development and M&A opportunities

*Forecast ore sales are indicative only, and include all products except lower grade ore from Extension Hill stockpiles, which totalled 1.8Mt at 30 June 2013 with a further 2.5Mt to be stockpiled over the mine life. Actual future sales remain subject to future mine performance, continuous optimisation, exploration success and general market factors.

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Koolan Island – optimising a quality long life asset

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Long life asset

• 7 years at 4Mtpa

Simple logistics

• No road/rail, dedicated ship-loader

High value products

• DSO lump and fines, plus Rizhao Special Product

Optimised ramp up to 4 Mtpa

• Reducing unit mining costs and increasing productivity

Value-add opportunities

• Resource:reserve conversion upside

• Koolan South exploration commenced

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Tallering Peak – a prime example of extracting extra value

• An extra year of high value production

• Total ore sales of 2.5Mt targeted for FY2014

• T6 pit life extended to January 2014

• T1 development underway, first ore expected September 2013

• Mining operations to conclude mid 2014

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• Stockpile sales of ~700kt in FY2014

• Stockpile sales generate strong cash margins at current prices

• Final ore sales in September Qtr 2014

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4

Extension Hill – the jewel of the Mid West

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• Simple, low cost operation

• Initial five year mine life at 3Mtpa

• First sales achieved December 2011

• Total sales of 2.8 Mt in FY2013

• Established rail and port access

• Rail constrained to 3Mtpa, potential to secure additional train paths

• High potential near-mine DSO targets with known mineralisation

• Exploration access subject to regulatory approvals

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Field’s Find – greenfields potential near Extension Hill

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Plateau prospect past drilling results
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• Low cost entry to 250 sqkm land package ~65km from Extension Hill

• Confirmed hematite targets from past drilling

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Field’s
Find
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• Permitting well advanced

• Drilling approvals expected in current quarter

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Geraldton Port – established port access is priceless

• Infrastructure access - key barrier to entry for new producers

• Provides MGX leverage to regional opportunities

• MGX Mid West export capacity doubled to ~6Mtpa

• Total MGX port storage capacity trebled to 360,000t

• +40 year leases over port land (Berth 4 and Berth 5 sheds)

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• Rail unloader upgraded

• Regional rail link upgraded

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A disciplined approach to longer term growth

What are we looking for?

What is our competitive strength?

• Iron Ore

• Other bulk carbon steel materials

• Low capital intensity

• “Australia-first” preference

• Digestible acquisition and development cost

• Robust balance sheet, supportive major shareholders

• Experienced in project delivery

• Demonstrated operational improvement capability

• Record of disciplined application of capital

• Shareholders can expect continued application of our disciplined operational and project delivery capabilities to any new opportunities

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Summary

Mount Gibson Iron has:

• Established and profitable iron ore operations

• • cash reserves

• Strong

• Record of strong financial performance

• Credible management

• Demonstrated capability to deliver business improvement and manage market volatility

• Cost focused

• High potential organic resource growth opportunities

• Disciplined long-term growth strategy

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Appendix – Mineral Resources and Ore Reserves

(at 30 June 2012, except for T1 as stated)

Koolan Island	Koolan Island	Koolan Island	Koolan Island	Koolan Island	Koolan Island
Mineral Resources, above 50% Fe
	Tonnes millions	Fe %	SiO2 %	Al2O3 %	P %
Measured	10.8	59.6	13.0	1.04	0.02
Indicated	44.3	64.1	6.70	0.77	0.01
Inferred	13.7	60.6	12.1	0.63	0.01
Total	68.9	62.7	8.77	0.78	0.01
Ore Reserves
Proved	5.46	60.0	13.2	0.50	0.01
Probable	23.8	65.0	5.26	0.87	0.01
Total	29.3	64.1	6.73	0.80	0.01
Extension Hill
Mineral Resources above 50% Fe
, Measured	12.0	58.0	6.69	2.16	0.06
Indicated	5.14	58.0	8.91	1.67	0.06
Inferred	2.26	62.6	5.13	1.25	0.05
Total	19.4	58.6	7.10	1.93	0.06
Ore Reserves
Proved	8.97	59.3	5.30	1.84	0.06
Probable	3.26	59.9	7.12	1.25	0.06
Total	12.2	59.5	5.78	1.68	0.06
Tallering Peak
Mineral Resources, above 50% Fe
Measured	3.48	61.5	4.76	2.65	0.04
Indicated	2.84	57.4	8.21	3.74	0.07
Inferred	0.61	55.8	12.8	2.90	0.06
Total	6.93	59.3	6.88	3.12	0.05
Ore Reserves
Proved	1.77	63.0	4.14	1.97	0.03
Probable	1.02	57.5	8.11	3.86	0.05
Total	2.80	61.0	5.59	2.66	0.04
NOTE: All estimates quoted to three significant figures. Rounding errors may occur.

Total Group Mineral Resources and Ore Reserves as at 30 June 2012	Total Group Mineral Resources and Ore Reserves as at 30 June 2012	Total Group Mineral Resources and Ore Reserves as at 30 June 2012	Total Group Mineral Resources and Ore Reserves as at 30 June 2012	Total Group Mineral Resources and Ore Reserves as at 30 June 2012	Total Group Mineral Resources and Ore Reserves as at 30 June 2012
	Tonnes millions	Fe %	SiO2 ~~%~~	Al2O3 ~~%~~	P %
Mineral Resources	95.2	61.6	8.29	1.19	0.03
Ore Reserves	44.3	62.6	6.40	1.16	0.03
NOTE: All estimates quoted to three significant figures. Rounding errors may occur.

T1 Mineral Resources and Ore Reserves at 16 July 2013	T1 Mineral Resources and Ore Reserves at 16 July 2013	T1 Mineral Resources and Ore Reserves at 16 July 2013	T1 Mineral Resources and Ore Reserves at 16 July 2013	T1 Mineral Resources and Ore Reserves at 16 July 2013	T1 Mineral Resources and Ore Reserves at 16 July 2013
Mineral Resources above 50% Fe	Tonnes (Mt)	Fe %	SiO2 %	Al2O3 %	P %
Indicated	1.33	60.6	10.8	0.60	0.04
Inferred	0.08	56.9	19.2	0.32	0.07
Total	1.40	60.4	11.3	0.58	0.04
Ore Reserves
Probable	0.801	61.0	10.0	0.70	0.03
Total	0.801	61.0	10.0	0.70	0.03
NOTE: All estimates quoted to three significant figures. Rounding errors may occur.

Mineral Resources are reported inclusive of Ore Reserves. Updated Mineral Resource and Ore Reserve estimates will be published in September 2013.

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Appendix - Attributions

Attributions

The information in this report that relates to Exploration Results is based on information compiled by Gregory Hudson, who is a member of the Australian Institute of Geoscientists. Gregory Hudson is an employee of Mount Gibson Iron Limited group, and has sufficient experience relevant to the styles of mineralisation and type of deposit under consideration and to the activity he is undertaking, to qualify as a Competent Person as defined in the December 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Gregory Hudson has consented to the inclusion of the matters in this report based on his information in the form and context in which it appears.

The information in this report relating to Mineral Resources is based on information compiled by Rolf Forster, who is a member of the Australasian Institute of Mining and Metallurgy. Rolf Forster is a consultant to Mount Gibson Mining Limited, and has sufficient experience relevant to the styles of mineralisation and type of deposit under consideration and to the activity he is undertaking, to qualify as a Competent Person as defined in the December 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Rolf Forster has consented to the inclusion of the matters in this report based on his information in the form and context in which it appears..

The information in this report relating to Mining Reserves is based on information compiled by Weifeng Li, who is a member of the Australasian Institute of Mining and Metallurgy. Weifeng Li is a consultant to Mount Gibson Mining Limited, and has sufficient experience relevant to the styles of mineralisation and type of deposit under consideration and to the activity which is being undertaking, to qualify as a Competent Person as defined in the December 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Weifeng Li has consented to the inclusion of the matters in this report based on their information in the form and context in which it appears.

The information in this report relating to T1 Mineral Resources is based on information compiled by John Graindorge, who is a member of the Australasian Institute of Mining and Metallurgy (MAusIMM) and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity to which he is undertaking to qualify as a Competent Person as defined in the 2012 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. John Graindorge is a full-time employee of Snowden Mining Industry Consultants Pty Ltd, and has consented to the inclusion of the matters in this report based on his information in the form and context in which it appears.

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