Australia Minerals & Mining Group Ltd

Transcription

1 11 th July 2012 ASX Code: Initiating Coverage 12 month price target cents Capital Structure Sector Materials Share Price (A$) Fully Paid Ordinary Shares (m) Opt (ex A$0.20, exp 11/12) (m) Opt (m) 9.8 Performance Rights (m) 8.2 Market Cap (undil) (A$m) 10.6 Share Price Year H-L (A$) Approx Cash (A$m) 5.0 Directors & Management Luke Atkins Non-Exec. Chairman Ric Dawson Managing Director Peter Bailey Non-Exec. Director Jamie Coote Non-Exec. Director Dan Tenardi Non-Exec. Director Piers Lewis Company Secretary/ CFO Major Shareholders Lake McLeod Gypsum 23.7 Tenardi, Daniel Lewis 6.9 Analyst GT Le Page Share Price Performance Australia Minerals & Mining Group Ltd Focus on the bulks - early days but kaolin (aluminous clay) project looking good. Focus on Bulk Minerals Australia Minerals and Mining Group Ltd ( ) has a strategy of identifying, defining and developing bulk mineral projects with a focus on iron ore, kaolin (aluminous clay) and coal. The Company also has projects in commodities as diverse as mineral sands, salt, gypsum and gold. With so many irons in the fire and with several of them moving to a more advanced stage, the right ingredients are there to see upside in the share price in the near term. Price Catalysts So what could be a catalyst? is making good progress on its kaolin project, bringing in project development partners, Kalamazon Estudos Geologicos Ltda ( KEG ), and developing its own continuous acid-based process technology. The Company is also looking for alternative applications suited to the unique geochemistry of their aluminous clay resource. Much of the South-West Kaolin resource is either in the Inferred category or an Exploration Target. Improving the quality of the kaolin resource as well as demonstrating the scale of the resource by target conversion will be well received by the market, especially if line up an off-take or JV partner to take the project to the next level. The drill rigs are now starting work on s iron ore projects. It is possible that one of these projects could surprise on the upside, in particular the Constance Range project may start to get significant scale and a relatively easy conversion of the historical resource from BHP work completed in the 1960 s. Drilling at Southdown Extension near Albany, WA, may see new iron ore resources defined relatively quickly and these become obvious additions to the Grange Resources ( GRR ) Southdown deposit. There is a deal to be done here assuming can define something. Furthermore is currently actively looking for counterparties to take strategic positions, backing spin-outs, signing off-take agreements, construction backing for projects and support infrastructure and the funding of exploration. Expect to see more corporate activity, in particular relationships into China, maturing from the MOU level to firm commitments. Action and Recommendation currently has an EV/tonne of 9 cents/tonne. Accepting that Minotaur s Exploration Ltd ( MEP ) Poochera project may be on the high premium end of the scale, and Gulf Mines Ltd ( GLM ) at the low end of the scale, RM Research can see EV/tonne levels around cents in the medium term, particularly as the quality and size of the kaolin resource is fully defined into JORC. This implies a share price range of 4-5 times current levels in the range of cents per share. Page 1 Copyright 2012 RM Research - Please read the disclaimer for terms.

2 INVESTMENT CASE KAOLIN TO ALUMINA PROCESS SHAPING UP: Although is pursuing its kaolin interests in a number of ways, perhaps the most interesting development is the new acid based kaolin to alumina extraction process. Not without its risks, pursing this processing option has the potential to unlock significantly more value from s high quality kaolin. RM Research believes have a wellarticulated strategy of targeting the bulk commodities, particularly those that China is short of. CHINA IS SHORT BAUXITE AND NEEDS ALUMINA FEEDSTOCK: The alumina product target that the new process promises makes sense because the Chinese market is short bauxite and has a substantial aluminium industry that will need reliable source of alumina feedstock. Indonesian restrictions on bauxite exports to China help here. EARLY DAYS BUT ALSO SEVERAL SOLID IRON ORE PROJECTS: While drilling has only just started on iron ore projects, the Company has several interesting options in this regard. While Constance Range might provide some infrastructure challenges, there is a chance the alliance (that is a member of) will pull together a substantial resource base. Drilling at the Southdown Extension is low hanging fruit and we expect to see results not dissimilar to Grange Resources (ASX: GRR) in terms of grade but the tonnes will be additive, not stand-alone. Recent Davis Tube Recovery testwork at Southdown returned grades of 65% and average mass recovery of 35.6% at a coarse grind size of -75 microns. CORPORATE ACTIVITY LEVEL IS HIGH: keeps itself busy. While much of this activity has taken the form of non-binding MOU s up to this point, management have laid solid foundations and now the time is coming where some of these MOU s will need to move to the next level. RM Research anticipates that this high level of corporate activity will continue going forward and start to bear fruit for shareholders. DIVERSE EXPLORATION PORTFOLIO: RM Research likes the diversified portfolio with a bulk commodity theme and also likes the targeting of commodities China is short of a sound approach for the long term. Maintaining momentum on the full diverse range of projects will be a challenge in the mid-term, especially if one of them starts to see solid progress due to good results. The choice at this point may be: spin out or retain the promising asset? POTENTIAL SPIN OUT TO RELEASE VALUE? The kaolin initiative may eventually get enough momentum in its own right that a corporate spin out may be in the offering. Shareholders may get to see released value, markets permitting, by taking stock in a newco and taking the promising project forward to the next level. FIGURE 1: Exploration Portfolio (source: presentation, March Australia Minerals & Mining Group Constance Range (100%) Yilgarn Iron Ore (100%) South West Kaolin (100%) Canning Coal (100%) Lake Macleod Gypsum (100%) South West Mineral Sands (100%) South West Salt (100%) Maytown Gold (100%) East Pilbara Iron Ore (100%) Page 2 Copyright 2012 RM Research -

3 COMPANY OVERVIEW Australia Minerals and Mining Group Ltd ( or the Company ) (ASX: ) is a diversified exploration company focusing on bulk commodity projects in Western Australia and Queensland. While the company retains some interests in minerals sands, gypsum and salt, its principal focus is on kaolin (aluminous clay), iron ore and coal. In particular, significant activity and focus has begun to shift to the kaolin assets and these appear to be the most likely to move through to development and then production. With over 12,000 square kilometres of tenements (some as applications) in nine project areas across two states and targeting seven different commodities, runs the risk of being overstretched. However, it appears that most of the focus of activity is on the aluminous clay/kaolin and iron ore projects in Western Australia. FIGURE 2: Overview of 's activities (source: Quarterly Report, 31 March AKA has generally targeted projects in areas of infrastructure support and/or with historical database augmenting prospectivity and easier drill targeting. The nine project areas highlighted above include: With a diverse package of tenements covering several in-demand bulk commodities, AKA is well positioned to take advantage of increasing Chinese development. 1. South West Kaolin Aluminous Clay, WA 2. East Pilbara Iron Ore, WA 3. Yilgarn Iron Ore, WA 4. Lake Macleod Gypsum, WA 5. South West Mineral Sands, WA 6. South West Salt, WA 7. Canning Coal, WA 8. Constance Range Iron Ore, QLD 9. Maytown Gold, QLD Of these nine projects, RM Research will cover three main projects in more detail below: The South West Kaolin Aluminous Clay, the Yilgarn Iron Ore and the Constance Range Iron Ore all three projects are well positioned to fulfil expanding Chinese demand. With having the stated aim of seeking joint ventures to advance their projects, RM Research expects this to be applied to the non-core projects such as Maytown Gold and the gypsum, salt, and mineral sands projects. Page 3 Copyright 2012 RM Research -

4 EXPLORATION OVERVIEW South West Kaolin (Aluminous Clay), WA Location and Access The South West Kaolin Aluminous Clay comprises 4 distinct project areas; the Meckering, Kerrigan, Kellerberrin and Bobalong projects. All are located in the South West of Western Australia within kilometres of the nearest port at either Perth or Albany. The projects have excellent infrastructure including road, rail and water resources. The most advanced project, Meckering, is also located on private property with no Native Title issues. Tenure FIGURE 3: Tenement locations of the South West Kaolin (source: Quarterly Report, 31 March AKA signed an MOU with Kalamazon but where will it lead? AKA has 100% equity in one exploration license and 11 applications covering a total land area of 2,934km 2. All of these tenements are targeting aluminous clay/ kaolin in the Yilgarn (South-West of Western Australia). Earlier this year, AKA signed an MOU with Kalamazon Estudos Geologicos Ltda, a wholly owned subsidiary of Kalamazon Minerals Corporation, a Canadian exploration company. The MOU contemplates a potential joint venture to develop kaolin projects (in Brazil or Australia) with a view to also exploiting the acid based kaolin to alumina process (see below). Kalamazon, with 35% shareholder in Guangdong Highsun Yongye Group Ltd, is developing the 29Mt Manus deposit in Brazil. Geology & Mineralisation All major economic deposits of kaolin are formed through weathering processes. Generally, a large granite body is subject to millions of years of leaching due to the percolation of rainwater through the top of the granite. The leaching removes the soluble components leaving behind the relatively insoluble alumina-silicates. As the illustration below highlights, during the weathering process a lateritic crust is formed at the top of the granite due to the concentration of iron hence the belief by geologists that kaolin is formed through weathering processes in the tropical environment. Page 4 Copyright 2012 RM Research

5 11 July 2012 The kaolin is then formed in-situ and results in a relatively lower level of impurities. Subsequent erosion of the land surface can expose this in-situ kaolin making the strip ratio either very small or zero in the case of outcropping kaolin. FIGURE 4: Geological Model of the South West Kaolin (source: Presentation March Resources TABLE 1: Kaolin Resources of the South West Kaolin (source: Presentation March Meckering Indicated Inferred Exploration Land %-45 (Mt) (Mt) Target Holding micron (Mt) (km2) Kerrigan Kellerberrin Bobalong TOTAL AKA is following several paths on its kaolin project. A prudent approach until the new acid based process is proven at scale The % minus 45 micron was measured by wet screening 2. Brightness is ISO brightness of the minus 45 kaolin Brightness Current Exploration Because most of the title is currently under application, has done little exploration on the ground. Instead, much of the current work is in the lab where is working with a Chinese partner under a licensing arrangement (currently covered by an Option Agreement) as well as developing its own in-house techniques. Alternative Products? A New Process? is looking at a number of ways to take their kaolin interests forward: Process the kaolin to produce alumina under a process licensed from a Chinese technology holder; Process the kaolin to produce alumina under s own propriety process; Page 5 Copyright 2012 RM Research

6 Process and market the kaolin as a conventional white clay product but look to alternative applications to secure superior pricing. RM Research believes this is a prudent approach as being the vanguard on new technology or process is very risky and difficult for a junior company to take to a commercial level. Having said that, appear to be doing a good job of getting several options open and delivering a high quality alumina product on the laboratory scale. Using a Chinese technology holder to process kaolin, the new acid based process produced two grades of product: Smelter Grade Alumina (SGA) and High Purity Alumina (HPA) with the following specifications: TABLE 2: Alumina specification results (source: Presentation March Smelter Grade Alumina (Al 2O 3) High Purity Alumina (Al 2O 3) Experimental Water Industrial & cationised water (3 rd grade) Decationised water (3 rd grade) Sample Weight 1065g 85g Ignition Loss <1 wt% <1 wt% Purity >99wt% >99.99 wt% Crystal Form (XRD) Alpha () Alpha () Impurities Fe 2O 3 <0.02 wt% <30ppm Impurities SiO 2 <0.05 wt% <45ppm Impurities Na 2O 0.02 wt% <25ppm TSW Analytical have been engaged as consultants to to review the above results as well as s own proprietary process. Initial results include the confirmation of the SGA and HPA products. HPA is a 99.99% high purity alumina (HPA) and a relatively high-value product depending on the particle size; the finer the final product, the better. HPA product could be very important to as this is used in niche high technology markets such as LED/displays, lithium batteries and semiconductors (not unlike Rare Earth Elements). Infrastructure Considerations The South-West of Western Australia, with its proximity to Perth and Albany, enjoys excellent infrastructure access with significant rail assets, multiple port options, good roads and water resources. The projects are within kilometres of a major port and within kilometres of rail so infrastructure access is excellent by Western Australia standards. FIGURE 5: Infrastructure Context of South West Kaolin (source: Presentation March Page 6 Copyright 2012 RM Research

7 Next Steps There are a number of near term value adding steps that we will look for from : AKA needs to do more work on the kaolin resource, get some bulk samples and prove their new process at scale. Continue to move the kaolin to alumina processing technology forward and demonstrate viability at scale; Improve the quantum and quality of the kaolin resource; Bulk sampling of the kaolin in preparation for testwork completed at pilot scale; Pilot plant scaled testwork to confirm the process on a continuous batch basis. It is prudent for to continue to advance the project as a conventional kaolin resource to cover for the possibility that the new acid based alumina extraction does not scale well. In this scenario will need to demonstrate good quality and high brightness kaolin resources to have an exportable product for both paper and filler markets. Lower quality larger resources will only serve local markets and suffer from a restricted margin. Yilgarn Iron Ore, WA Location and Access Iron ore is being sought by at various projects in the Yilgarn district of WA. While these are scattered across a wide area, road access and general infrastructure support is very good in this part of Western Australia (as per comments in kaolin section above) with the Southdown Extension being only 80 kilometres from the port of Albany (Figure 6, 7). Access is considered excellent with very straight forward logistical support. FIGURE 6: Tenement locations of Yilgarn Iron Ore (source: Presentation March Tenure has 10 granted exploration tenements and an additional 8 exploration license applications. These are scattered across the Yilgarn or South-West corner of Western Australia but in sum total cover an area of 3,599km 2. There are two main projects currently being worked on as part of this iron ore targeting: 1. Southdown Extension Iron Ore ( 100%, with final 20% recently acquired) 2. Bencubbin Iron Ore ( 100%) Page 7 Copyright 2012 RM Research

8 FIGURE 7: Proximity of Albany port to Southdown Extension as part of the Yilgarn Iron Ore (source: Presentation March Geology & Mineralisation As is typical for iron ore targeting, is using aeromagnetic data to analyse lithology and structure and map the iron rich units. is targeting hematite/goethite in the oxide zone and coarse grained magnetite below this. At the Southdown Extension there is already a strong indication of the target unit with a defined resource by Grange Resources in an adjacent tenement 34% magnetite). have three target areas: WSD001, WSD002 and WSD003 and it is expected that these will reflect very similar geology as defined by Grange Resources to the east at Southdown (Figure 8). FIGURE 8: Southdown Extension geological/geophysical context and proximity to Grange Resources Southdown magnetite (source: Presentation March Current Exploration RC drilling has been undertaken during January and February 2012 on both Southdown Extension and Bencubbin projects. At Southdown Extension (Figure 10) three RC holes have been completed (294 metres) and Davis Tube Recovery ( DTR ) resulted in concentrate grade of ~68% iron with mass recovery of up to 35.6% with low silica and low alumina. DTR analysis was done at -38 and -75 microns with little difference between the two. This implies a potential coarser grind size than that quoted by Grange Resources at their Southdown project where optimum grind size is -34 microns. The RC drilling program failed to hit the geophysical target in the first hole (partly due to drill rig capacity not being able to achieve target depth) and just the very top of the formation was hit with the other 2 holes. AKA have commenced its stage 1 diamond drill program to intersect both formations, including the larger geophysical target. Page 8 Copyright 2012 RM Research

9 FIGURE 9: Southdown Extension recent RC drilling and proposed diamond hole targeting both iron formations. (source: ASX Announcement, 7 June At Bencubbin 9 RC holes were completed (for 574 metres under a WA Government co-funded EIS drilling program, see Figure 10) with very good Davis Tube Recovery (DTR) results. Average iron concentrate results of 71.4% with average mass recovery of 42.8% under a relatively coarse grind size of -75 microns point to relatively benign metallurgy. Coupled with the excellent infrastructure context and easy access a rail line runs through the middle of the project, the port of Kwinana is only around 240kms away and the area is private freehold title with no Native Title issues the Bencubbin project is shaping up well. Follow-up RC drilling is now planned to cover the strike extent of the deposit, which judging from the geophysical signature (magnetics) is interpreted to be around 14km (Figure 10). FIGURE 10: Bencubbin recent RC drilling locations and total magnetic intensity map illustrating the 14km strike extent. (source: ASX Announcement, 12 June Page 9 Copyright 2012 RM Research

10 Constance Range Iron Ore Location and Access The Constance Range project (Figure 11) is in the north-western corner of Queensland, a relatively remote part of the country with limited infrastructure, a disruptive wet season and challenging relationships with the Traditional Owners, so this area is not for the faint hearted. On the other hand, prospectivity and opportunities are very good, and AKA have access to some interesting historical results from work done by BHP. Tenure AKA has three granted tenements and six under application with the total area pegged at 814km 2. The most recent tenement grant, EPM18375, covers areas called D, C1 and C2 which were deposits previously defined by BHP. FIGURE 11: Tenement Map of Constance Range Iron Ore - note tenement locations of Alliance partners also illustrated (source: Presentation March With 92km of strike length of ironstone unit there is much to work with here. AKA needs to leverage the Alliance and its other members into doing its fair share of drilling. An MOU has been signed between, Viento, Resolve Geo and Carbine Tungsten to form a Constance Range Iron Ore Alliance which seeks to consolidate the regional iron ore position of all the signing companies. The Alliance covers 92 kilometres of strike length of ironstone outcrop. Geology & Mineralisation The target iron ore member is called the Train Range Ironstone Member and it can be mapped as outcropping ridges for tens of kilometers. The bedded ironstone appears to be conforming to the broader stratigraphic sequence and is folded along more than one axis. For example, the target on EPM18375 while outcropping in the north (where BHP drilled), has been mapped as a bowl like deposit. Page 10 Copyright 2012 RM Research

11 Historical and Current Exploration BHP was active in the area during the late 1950 s and early 1960 s, defining several deposits including Deposit A 53.2% based on >16km drilling), Deposit P, Deposit C, Deposit D (Figure 12). Example intersections previously reported by BHP for Deposit D include: DDC25A OCC % iron from 7.9m; and 38.42% iron from 3.3m. intend to define a resource based on proposed new drill holes and BHP s historical drill data covering Deposits P, C and D. expect to begin drilling in September FIGURE 12: Illustration of BHP s Deposits C and D at the Constance Range Iron Ore (source: Quarterly Report, 31 March With a different geological interpretation to BHP, AKA may unlock more value at Deposits C and D. Other s Canning Coal, WA Covering an area of over 1400km 2, the Canning Coal project is located to the north-west of Rey Resources 1 ( RBY ) 305Mt thermal coal resource. has entered into an MOU with Anhui Bureau to take the project forward. While still early days, the project area is within 200 kilometres off the port of Derby and/or Broome. Page 11 Copyright 2012 RM Research

12 KAOLIN MARKET OUTLOOK Kaolin has a two tiered market a premium product used for very high quality papers and ceramics and a secondary market in industrial applications such as catalysts, fibreglass and refractories. Kaolin struggles to compete against other cheaper alternatives on the nonpremium end of the scale in industrial applications but the market for super premium kaolin product is alive and well. The use of kaolin (Figure 13) in paper is by far the largest end-use market accounting for approximately 40% of production. FIGURE 13: Kaolin uses (source: PDAC Presentation, March Refractories, 14% ceramics, 18% Paper, 40% Paint, 8% Fibreglass, 4% rubber, 4% cement, 5% Others, 5% plastics, 2% Output of kaolin (Table 3) is concentrated in a few countries (USA, China, Brazil, UK) and a handful of larger companies (Imery, BASF, J.M. Huber) a result of difficult trading conditions through the 1990 s. The recent industrialisation in Asia and expanding markets has seen a pick up for higher specification products such as high quality papers, sanitary ware and decorative ceramics. High quality kaolin is required to meet these growing markets. For example, China is predicted to surpass the US as the largest market for kaolin by 2013, largely driven by its expanding paper industry. The global kaolin market is expected to grow at 3.7% per year until TABLE 3: World Kaolin demand (source: PDAC Presentation, March World Kaolin Demand (% annual growth) World 1.4% 1,7% 3.7% North America -1.6% -1.0% Western Europe -0.5% 0.4% Asia/Pacific 4.5% 3.7% Other 4.4% 3.0% The key for any new entrant would be to demonstrate a superior product: High brightness and whiteness; Small particle size (especially if fine enough to not require grinding); and High opacity and chemical purity. Because of the wide range of product specification there is a very wide range of achievable prices, anything from US$100/t to US$1200/t for the super-premium products. In general, the fate of the kaolin market tends to track the paper market and this in turn appears to have improved significantly in recent times with growth in Asia and China in particular. RM Research forecasts prices will grow steadily reflecting the underlying growth rate in demand for kaolin of around 4%. But what if succeeds with its technology process of converting the kaolin to alumina? Page 12 Copyright 2012 RM Research

13 m tonnes 10,000 tons 11 July 2012 ALUMINA MARKET OUTLOOK The alumina market is in transition and still dominated by the majors. As discussed in the project section above, is advancing the kaolin project with a view to treating it with a new licensed process developed by a technology holder in China that converts the aluminous clay into high purity alumina. AKA is also developing its own kaolin to alumina technology process in-house. Alumina is another industry dominated by the major miners (Alcan, Rio Tinto, Alumina Ltd) and has seen difficult trading conditions in recent times. Many in the industry lament prices achieved for alumina given the traditional pricing mechanism is related to a benchmark 13-14% of final aluminium metal prices. Industry players such as Alumina have moved to a more spot price based system which tends to trade at a premium to standard 13% benchmark prices. believes the future market for alumina will be very buoyant off the back of restricted bauxite exports from Indonesia (Figure 14), the majority of which has been shipped to China. About 80% of Chinese bauxite imports came from Indonesia. Chinese Bauxite Import from Indonesia FIGURE 14: Chinese bauxite imports from Indonesia (source: PDAC Presentation, March Tones Proportion % % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FIGURE 15: Chinese bauxite consumption split by imports and domestic production (source: PDAC Presentation, March Captive to the aluminium market there are downside risks to alumina prices but most analysts believe China will maintain strong demand to feed its important aluminium industry. While China does have a domestic bauxite production capacity, it is insufficient to meet its demand (Figure 15) China's Domestic Bauxite Production China's Global Bauxite Imports As a consequence, it is predicted that Chinese demand for alumina (and other sources of bauxite) will increase rapidly to feed its significant aluminium metal industry. predict China will require 140Mt of alumina by 2016, up from 103Mt in Page 13 Copyright 2012 RM Research

14 Rather than compete in the bulk alumina market, or smelter grade alumina, SGA, another approach is to produce high-quality alumina HPA a niche high-value product with more robust margins. AKA is looking at producing high purity alumina (HPA) using its proprietary process. In this respect it is attempting to follow in the footsteps of Canadian junior Orbite Aluminae (TSX: ORT). Orbite has been developing its own patented methods of producing HPA and Smelter Grade Alumina ( SGA ) from the waste products of conventional alumina plants. Orbite claim they can build their first 1000tpa HPA plant for C$30 million, a capital cost within the range of a typical junior. HPA is a niche product used in specialist applications such as aerospace, high-end automotive and electronic components (LED s for example). While the total global market is currently only 100,000 tonnes per year it is estimated to be growing at 8-9% per year and is approximately 10,000 tonnes in deficit. The devil, as always, is in the detail. HPA is a detailed spec product different buyers look for different applications and therefore have their own specific element requirements and purity levels. The key for HPA is the purity and fineness of grain size with ultra high purity and very fine grain size HPA attracting the highest prices. In the LED industry for example, HPA prices circa $100/kg are possible. The HPA market is therefore relatively opaque and AKA s ability to attract the premium pricing will depend on what form of HPA product they end up producing from their kaolin resource and the success of their proprietary process. Page 14 Copyright 2012 RM Research

15 IRON ORE MARKET OUTLOOK Iron ore has had a patchy start to 2012 (Figure 16) and some negative media to go with it. Notwithstanding the softer market iron ore prices have held above US$130/tonne through most of this period and RM Research believes the remainder of 2012 will be more positive with pricing around US$140-US$150/tonne in Figure 16: Platts IODEX and Australia 62%Fe Fines spot prices January 2010-January 2012 (Source: Goldman Sachs Global Investment Research, 29 February 2012) Underpinning this price is the relative high cost of domestic iron ore production in China (~US$140/tonne) and with buoyant steel production predicted for the near term (~5% in It is no wonder then that Chinese companies continue to support Australian iron ore companies and more recently the Indian Government has entered the fray with its investment into Legacy Iron Ore Ltd ( LCY ). On top of this firm Chinese-Indian demand picture is the usual story of overestimated supply expansion. Analysts typically over-estimate the ability of project proponents to deliver a project on time and the companies themselves are under pressure to project an ambitious date to compete for capital. BHP CEO Marius Kloppers illustrated this point when he emphasised in a recent presentation that about 55% of supply growth projected for 2008 to 2010 had not been delivered. Medium Term View RM Research s medium term view (Table 4) of the iron ore market is essentially unchanged although a surplus may be possible in the seaborne market should capacity expansion occur in Australia, Brazil and West Africa. However, the marginal cost of production in China will help underpin prices to around US$140/tonne. (source: Goldman Sachs Global Investment Research). TABLE 4: Seaborne Iron Ore Price Forecasts (Source: Goldman Sachs Global Investment Research, 29 February 2012) US$/tonne E 2013E 2014E 2015E 2016E Pilbara* *Pilbara Blend Fines, 62% Fe (CFR China) With medium to longer term price declines it is possible that sector sentiment could become negative and hit junior iron ore explorers such as. However, RM Research takes the view that fundamental demand from the industrialising economies of Asia will underpin a steadily growing iron ore market for a long time to come. While there may be short periods of market weakness (perhaps reflecting global uncertainties and risk aversion), we continue to believe that there will always be appetite for investment in good quality projects, in particular those projects in Australia that are close to the target market. Page 15 Copyright 2012 RM Research

16 PEER COMPARISON The closest peer comparison to listed on the ASX is Minotaur Exploration Ltd (ASX: MEP). Minotaur is a diversified explorer (gold, iron ore, IOCG) with its flagship development project being the Poochera kaolin project in South Australia (Table 5). Poochera is promoted as a 16Mt ultra-high quality kaolin deposit with all the right characteristics to market to the premium end of the market. TSX listed company, Orbite Aluminae Corporation (TSX: ORT) is more advanced having completed pilot studies and patenting their own proprietary process. TABLE 5: Comparison of kaolin project resources (Source: AKA, media reports). Company Measured Australia Minerals & Mining Group South West Kaolin mt Indicated mt Inferred mt M+I+I mt Exploration Target (mt) Minotaur Exploration Ltd Poochera 16.3 (20) # (40) # Orbite Aluminae Gulf Mines Grande- Vallee Skardon River WA Kaolin Wickepin 100* *WA Kaolin claims a reserve of 100mt. #It is not clear if original indicated and inferred resource is in addition to measured resource. The projects kaolin quality level is described in terms of ISO Brightness, with >75% generally indicating a quality product and >90% a premium product (Table 6). Company ISO Brightness TABLE 6: Relative project quality by ISO Brightness factor (Source: AKA, media reports). Australia Minerals & Mining Group Meckering/ Kerrigan 83.5%/83.2% Minotaur Exploration Ltd Poochera 90-92% Gulf Mines Skardon River ~65% WA Kaolin Wickepin 88-90% Broadly speaking, and Minotaur are comparable companies with a principal kaolin asset and other exploration interests that are less advanced. Looking at financial metrics we can compare the relative market valuation (Table 7): TABLE 7: Relative financial metrics (Source: ASX, company reports). Company Share Price Market Cap Cash EV M+I+I (mt) EV/t AKA $0.14 $20m $5m $15m 150 $0.09 GLM $0.01 $3m $0 $3m 11.6 $0.26 MEP $0.19 $20m $5m* $15m 16.3 $0.92 ORT C$1.66 C$297m C$70m C$227m 800 C$0.28 *Excludes additional $10m to be received from BHP on recent sale of tenements. Note AUD:CAD C$1.02. Minotaur, Orbite and Gulf Mines Limited (ASX: GLM) are achieving a higher multiple for their kaolin resources. This would imply that has some room to move north, especially if it can convert some of its current project resource into the measured category. Alternatively, further value might be released if s kaolin assets were spun out or combined with other kaolin focused companies to form a consolidated group. Page 16 Copyright 2012 RM Research

17 CORPORATE In November 2011, AKA completed a non-renounceable entitlement offer to refresh existing optionholders on a one-option-for-one-option basis priced at $0.001/option. The options are exercisable at 20 cents and expire 30 November In November 2011 AKA signed an MOU with the Anhui Provincial Bureau of Coal and Geology ("Anhui") to advance the Southdown Extension Iron Ore (similar MOU's were signed with Anhui on the Yilgarn Iron Ore and Canning Coal projects in August 2011). Also, in November 2011, AKA signed an option agreement with the Chinese technology owner to acquire the technology licence for the processing of kaolin or aluminous clay to alumina via an acid-based technology process. RM Research expects this level of corporate activity to continue although further evidence of progress beyond the non-binding MOU on some projects would be a positive. RISK ANALYSIS FINANCE RISKS: As an exploration company with limited cash resources, is reliant on the share market to raise additional funds. Recent share market volatility and softness in markets off the back of sovereign debt related turmoil in Europe could see difficult conditions for junior explorers going forward. OPERATING RISKS: The various initial agreements established with third parties may ultimately not lead to value-adding outcomes. The challenge for many companies is to translate the non-binding MOU into a concrete investment from the Chinese counterparty. As a small cap exploration company, runs the risk of struggling to raise finance at the right time. Markets are fickle and sentiment is volatile. COMMODITY RISKS: Kaolin (aluminous clay) is not a mainstream or deeply traded product when targeting the premium end of the market. With these sorts of niche markets specific expertise may be required to sell the product at a reasonable margin. Furthermore, commodities of this sort typically suffer from volatile pricing environments. MARKET RISKS: The recent pullback in iron ore pricing has seen some pressure on junior iron ore explorers as a result. The space looks increasingly crowded, especially on the North West coast of Australia and there are limited companies with the requisite scale to take a project forward. Mitigating s position is the fact it holds a diversified portfolio and is not holding single-project iron ore risk. METALLURGICAL RISKS: While initial indications from laboratory testwork at the bench scale are positive, the new acid based process to convert kaolin to alumina may not translate into success at a commercial scale. Results from further testing at increasing scale will be watched with interest. EXPLORATION RISK: Much of the kaolin resource is defined as exploration. Further drilling and exploration may not confirm the indicated scale of the project. We do note however that in excess of 100Mt is already defined in JORC indicated/ inferred. MANAGEMENT RISK: The Company is covering a lot of commodities in a number of projects and may become too stretched. Management will need to be careful to maintain discipline on project turnover. While has a strong ground position with time this can be expensive to maintain and manage properly. Investors should keep an eye on the cash burn, which to this point appears to have been managed well. Page 17 Copyright 2012 RM Research

18 Ric Dawson is the driver behind AKA and appears to push a hectic corporate agenda. The AKA Board has a lot of background in bulk commodities. DIRECTORS AND MANAGEMENT Luke Atkins, LLB. NON-EXECUTIVE CHAIRMAN Luke Atkins is currently Non Executive Director of ASX listed mining and exploration company, Bauxite Resources Ltd (ASX: BAU). Mr Atkins formerly held the role of Executive Chairman of BAU after co-founding the company in Mr Atkins has had extensive experience in capital raisings and has held a number of executive and non-executive directorships of private and publicly listed companies including a number of mining and exploration companies. Mr Atkins is a lawyer and was previously the principal of Atkins and Co Lawyers, a Perth based legal firm which he owned and managed for 7 years. Ric Dawson, B.App.Sc. (Geol.), EMBA, MAusIMM MANAGING DIRECTOR Mr Dawson was appointed Managing Director of the Company in January, He was previously Managing Director of Western Australian based gold, copper and iron ore explorer, Prosperity Resources Ltd (ASX: PSP). Mr Dawson has over 25 years experience in the Australian and international resource industries, and is a qualified geologist. As the founder of PSP, he successfully managed and developed the company's exploration projects in WA, the NT, and the Masuparia gold porphyry project in Indonesia. The Woolshed Iron Ore project at Mt Gibson was managed, discovered and developed by Mr Dawson. Furthermore, he has lead commercial negotiations with numerous Chinese steel companies, and played key roles in capital raisings, joint ventures, and IPO's. Mr Dawson has worked for over 10 years for one of the leading Australian broking firms. Daniel Tenardi NON-EXECUTIVE DIRECTOR Dan Tenardi has 40 years experience in the industry across a range of commodities, including iron ore, gold, bauxite, and copper. Prior to this appointment, Dan was Managing Director of BAU. Mr Tenardi previously spent 13 years with Alcoa, at its bauxite mines in the Darling Range in Western Australia, and a further two years at Alcoa's Kwinana refinery. Mr Tenardi also worked at executive level for Rio Tinto's Robe River Iron Associates and their East Pilbara Division, and was appointed as a director of Robe River Iron Associates in the latter years of his employment with Rio Tinto. Mr Tenardi also held the positions of General Manager of Operations and Chief Operating Manager at CITIC Pacific Mining. Peter Bailey, B.A.Hons (First) NON-EXECUTIVE DIRECTOR Mr Bailey is an executive with over 40 years experience in iron ore, base metals and bauxite mining and alumina refining experience. Mr Bailey is the former CEO and co-owner of Sherwin Alumina, which was ultimately sold to China Minmetals and Glencore after the business was successfully turned around from its distressed state. Prior to Sherwin Alumina, Mr Bailey was President of Alcoa Worldwide Chemicals and prior to this President of Alcoa Bauxite and Alumina. Mr Bailey also has experience in iron ore operations (Hamersley Iron), copper (RCM, Zambia) and zinc-lead-copper (Rosebury). Jamie Coote, B.Comm., B. App Sc., M. Sc. INDEPENDENT DIRECTOR Mr Coote has over 20 years experience in marketing, management, sustainability and financial services including significant experience in dealing with state and federal government processes. Currently Executive Chair of the Australasian Securities Dealers Association, Mr Coote has extensive experience in developing project delivery strategies encompassing issues of social and environmental sustainability. Piers Lewis, B.A., Comm, CA COMPANY SECRETARY/CFO Piers Lewis joined the Company in January, Mr Lewis is a Chartered Accountant with 13 years corporate experience, and has held executive and senior management positions throughout London and Australia. Mr Lewis also holds Company Secretary and CFO positions with other ASX listed resource companies Page 18 Copyright 2012 RM Research

19 With so many irons in the fire and with a strong strategic vision of providing bulk minerals, principally those that China is short of, RM Research can see several exciting possibilities for this ambitious company. CONCLUSION is a very active junior exploration and development company with high ambitions and many irons in the fire. RM Research likes the mix of assets, some diversification from iron ore with other bulk commodities including a very interesting new focus on the kaolin/aluminous clay business with the ultimate aim of providing a high quality alumina product to China. With China very short bauxite, this is an interesting play. We look forward to further advances on the process development front for the kaolin project and further evidence that recent commercial arrangements currently as non-binding MOU s will start to translate into project progress and ultimately production. Although will have its challenges, in particular raising funds in the current environment, the company appears to be prudently managed while maintaining momentum and high activity levels, including drilling of its iron ore projects. With so many irons in the fire RM Research expects at least one of them to act as a catalyst for a re-rating. Speculative Buy. Page 19 Copyright 2012 RM Research

20 Registered Offices Perth Level 2, 6 Kings Park Rd West Perth WA 6005 PO Box 154 West Perth WA / Website info@rmresearch.com.au Phone: Fax: RM Research Recommendation Categories Care has been taken to define the level of risk to return associated with a particular company. Our recommendation ranking system is as follows: Buy Speculative Buy Hold Sell Companies with Buy recommendations have been cash flow positive for some time and have a moderate to low risk profile. We expect these to outperform the broader market. We forecast strong earnings growth or value creation that may achieve a return well above that of the broader market. These companies also carry a higher than normal level of risk. A sound well managed company that may achieve market performance or less, perhaps due to an overvalued share price, broader sector issues, or internal challenges. Risk is high and upside low or very difficult to determine. We expect a strong underperformance relative to the market and see better opportunities elsewhere. Disclaimer / Disclosure This report was produced by RM Research Pty Ltd, which is a Corporate Authorised Representative of RM Capital Pty Ltd (Licence no ). RM Research will receive payment of A$35,000 for the compilation and distribution of four research reports. RM Research Pty Ltd has made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgement. Except to the extent required by law, RM Research Pty Ltd does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities. The securities recommended by RM Research carry no guarantee with respect to return of capital or the market value of those securities. There are general risks associated with any investment in securities. Investors should be aware that these risks might result in loss of income and capital invested. Neither RM Research nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision. DISCLOSURE: RM Research Pty Ltd and/or its directors, associates, employees or representatives may not effect a transaction upon its or their own account in the investments referred to in this report or any related investment until the expiry of 24 hours after the report has been published. Additionally, RM Research Pty Ltd may have, within the previous twelve months, provided advice or financial services to the companies mentioned in this report. As at the date of this report, the directors, associates, employees, representatives or Authorised Representatives of RM Research Pty Ltd and RM Capital Pty Ltd may hold shares in Australian Minerals and Mining Group Limited. Page 20 Copyright 2012 RM Research -