Australia Minerals & Mining Group Ltd - RM Research Pty...

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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 Project 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 40-50 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 50-70 cents per

share.

Capital Structure

Sector Materials

Share Price (A$) 0.105

Fully Paid Ordinary Shares (m) 100.98

Opt (ex A$0.20, exp 11/12) (m) 41.99

Opt (m) 9.8

Performance Rights (m) 8.2

Market Cap (undil) (A$m) 10.6

Share Price Year H-L (A$) 0.175-0.09

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

+61 8 9488 0800

Share Price Performance

Australia Minerals & Mining Group Ltd

Focus on the bulks - early days but kaolin (aluminous clay) project looking good.

11th July 2012

ASX Code:

Initiating Coverage

12 month price target 50-70 cents

– Copyright © 2012 RM Research - www.rmresearch.com.au

11 July 2012

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.

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.

Australia Minerals &

Mining Group

Constance Range Project (100%)

Yilgarn Iron Ore Project (100%)

South West

Kaolin Project (100%)

Canning Coal

Project (100%)

Lake Macleod Gypsum Project (100%)

South West

Mineral Sands Project (100%)

South West Salt Project (100%)

Maytown Gold

Project (100%)

East Pilbara Iron Ore Project (100%)

RM Research believes

have a well-

articulated strategy of

targeting the bulk

commodities,

particularly those that

China is short of.

FIGURE 1: Exploration

Portfolio (source:

presentation, March

2012).


11 July 2012

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.

The nine project areas highlighted above include:

1. South West Kaolin Aluminous Clay Project, WA

2. East Pilbara Iron Ore Project, WA

3. Yilgarn Iron Ore Project, WA

4. Lake Macleod Gypsum Project, WA

5. South West Mineral Sands Project, WA

6. South West Salt Project, WA

7. Canning Coal Project, WA

8. Constance Range Iron Ore Project, QLD

9. Maytown Gold Project, QLD

Of these nine projects, RM Research will cover three main projects in more detail below: The

South West Kaolin Aluminous Clay Project, the Yilgarn Iron Ore Project and the Constance

Range Iron Ore Project – 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.

FIGURE 2: Overview of

's activities (source:

Quarterly Report, 31

March 2012).

AKA has generally targeted

projects in areas of

infrastructure support

and/or with historical

database augmenting

prospectivity and easier

drill targeting.

With a diverse package of

tenements covering several

in-demand bulk

commodities, AKA is well

positioned to take

advantage of increasing

Chinese development.

– Copyright © 2012 RM Research – www.rmresearch.com.au

11 July 2012

EXPLORATION OVERVIEW

South West Kaolin (Aluminous Clay) Project, WA

Location and Access

The South West Kaolin Aluminous Clay Project comprises 4 distinct project areas; the

Meckering, Kerrigan, Kellerberrin and Bobalong projects. All are located in the South West of

Western Australia within 150-200 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

AKA has 100% equity in one exploration license and 11 applications covering a total land

area of 2,934km2. 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.

FIGURE 3: Tenement

locations of the South

West Kaolin Project

(source: Quarterly

Report, 31 March 2012).

AKA signed an MOU with

Kalamazon – but where will

it lead?


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.

Resources

Project Indicated Inferred Exploration Land %-45 Brightness

(Mt) (Mt) Target Holding micron

(Mt) (km

2)

Meckering 16.77 48.28 75-130 966 42.3 83.2

Kerrigan

85 140-190 459 41.8 83.5

Kellerberrin

70-110 408 52 80-85

Bobalong 200-400 600 80-85

TOTAL 16.77 133.28 485-830 2433

1. The % minus 45 micron was measured by wet screening

2. Brightness is ISO brightness of the minus 45 kaolin

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;

FIGURE 4: Geological

Model of the South West

Kaolin Project (source:

Presentation March

2012).

TABLE 1: Kaolin

Resources of the South

West Kaolin Project

(source:

Presentation March

2012).

AKA is following several

paths on its kaolin project.

A prudent approach until

the new acid based process

is proven at scale.


11 July 2012

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:

Smelter Grade Alumina (Al2O3) High Purity Alumina (Al2O3)

Experimental Water Industrial & cationised water (3rd 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 Fe2O3 <0.02 wt% <30ppm

Impurities SiO2 <0.05 wt% <45ppm

Impurities Na2O 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 100-150 kilometres of a major port and within 10-15

kilometres of rail so infrastructure access is excellent by Western Australia standards.

TABLE 2: Alumina

specification results

(source:

Presentation March

2012).

FIGURE 5: Infrastructure

Context of South West

Kaolin Project (source:

Presentation March

2012).


11 July 2012

Next Steps

There are a number of near term value adding steps that we will look for from :

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 Project, 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 Project being only 80 kilometres from the port of Albany (Figure 6, 7).

Access is considered excellent with very straight forward logistical support.

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 3,599km2.

There are two main projects currently being worked on as part of this iron ore targeting:

1. Southdown Extension Iron Ore Project ( 100%, with final 20% recently acquired)

2. Bencubbin Iron Ore Project ( 100%)

AKA needs to do more work

on the kaolin resource, get

some bulk samples and

prove their new process at

scale.

FIGURE 6: Tenement

locations of Yilgarn Iron

Ore Project (source:

Presentation March

2012).


11 July 2012


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 Project there is already a

strong indication of the target unit with a defined resource by Grange Resources in an

adjacent tenement (1.22Bt @ 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).

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.

FIGURE 7: Proximity of

Albany port to Southdown

Extension Project as part

of the Yilgarn Iron Ore

Project (source:

Presentation March

2012).

FIGURE 8: Southdown

Extension

geological/geophysical

context and proximity to

Grange Resources

Southdown magnetite

Project (source:

Presentation March

2012).


11 July 2012

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 9: Southdown

Extension recent RC

drilling and proposed

diamond hole targeting

both iron formations.

(source: ASX

Announcement, 7 June

2012).

FIGURE 10: Bencubbin

Project recent RC drilling

locations and total

magnetic intensity map

illustrating the 14km strike

extent. (source: ASX

Announcement, 12 June

2012).


11 July 2012

Constance Range Iron Ore Project

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

814km2. The most recent tenement grant, EPM18375, covers areas called “D”, “C1” and “C2”

which were deposits previously defined by BHP.

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.


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.

FIGURE 11: Tenement

Map of Constance Range

Iron Ore Project - note

tenement locations of

Alliance partners also

illustrated (source:

Presentation March

2012).

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.


11 July 2012

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 (236mt @ 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 4.6m @ 36.16% iron from 7.9m; and

OCC25 6.6m @ 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

Other Projects

Canning Coal Project, WA

Covering an area of over 1400km2, the Canning Coal project is located to the north-west of

Rey Resources1 (“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.

FIGURE 12: Illustration of

BHP‟s Deposits C and D

at the Constance Range

Iron Ore Project (source:

Quarterly Report, 31

March 2012).

With a different geological

interpretation to BHP, AKA

may unlock more value at

Deposits C and D.


11 July 2012

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 non-

premium 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.

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 2015.

World Kaolin Demand (% annual growth)

2003-2008 2008-2013 2015

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?

Paper, 40%

Others, 5%

plastics, 2% cement, 5% rubber, 4%

Fibreglass, 4%

Paint, 8%

Refractories, 14%

ceramics, 18%

FIGURE 13: Kaolin uses

(source: PDAC

Presentation, March

2012).

TABLE 3: World Kaolin

demand (source:

PDAC Presentation,

March 2012).


11 July 2012

ALUMINA MARKET OUTLOOK

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.

While China does have a domestic bauxite production capacity, it is insufficient to meet its

demand (Figure 15).

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 2011.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500

1000

1500

2000

2500

3000

3500

4000

2005 2006 2007 2008 2009 2010 2011

10

,00

0 t

on

s

Chinese Bauxite Import from Indonesia

Tones Proportion %

0

20

40

60

80

100

120

140

160

2005 2011 2016

m t

on

ne

s

China's Domestic Bauxite Production

China's Global Bauxite Imports

The alumina market is in

transition and still

dominated by the majors.

FIGURE 14: Chinese

bauxite imports from

Indonesia (source:

PDAC Presentation,

March 2012).

FIGURE 15: Chinese

bauxite consumption split

by imports and domestic

production (source:

PDAC Presentation,

March 2012).

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.


11 July 2012

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.

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.


11 July 2012

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 2012-2013.

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 2012).

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).

US$/tonne 2011 2012E 2013E 2014E 2015E 2016E

Pilbara* 168 150 165 150 120 78

*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.

Figure 16: Platts IODEX

and Australia 62%Fe

Fines spot prices January

2010-January 2012

(Source: Goldman Sachs

Global Investment

Research, 29 February

2012)

TABLE 4: Seaborne Iron

Ore Price Forecasts

(Source: Goldman Sachs

Global Investment

Research, 29 February

2012)


11 July 2012

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.

Company Project Measured

mt

Indicated

mt

Inferred

mt

M+I+I

mt

Exploration

Target (mt)

Australia

Minerals &

Mining

Group

South West

Kaolin

Project

16.7 133 150 485-830

Minotaur

Exploration

Ltd

Poochera 16.3 (20)# (40)

# 16.3 570-810

Orbite

Aluminae

Grande-

Vallee

800-1000 800-1000

Gulf Mines Skardon

River

0.6 1.6 9.4 11.6

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 Project ISO Brightness

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):

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.

TABLE 5: Comparison of

kaolin project resources

(Source: AKA, media

reports).

TABLE 6: Relative project

quality by ISO Brightness

factor (Source: AKA,

media reports).

TABLE 7: Relative

financial metrics (Source:

ASX, company reports).


11 July 2012

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 2012.

In November 2011 AKA signed an MOU with the Anhui Provincial Bureau of Coal and Geology ("Anhui") to advance the Southdown Extension Iron Ore Project (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 counter-

party.

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.

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.


11 July 2012

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 2007. 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, 2011. 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, 2011. 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

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.


11 July 2012

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.

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.


11 July 2012

Registered Offices

Perth

Level 2, 6 Kings Park Rd

West Perth WA 6005

Phone: +61 8 9480 0800

Fax: +61 8 9488 0899

PO Box 154 West Perth WA 6872

Email / Website

[email protected]

www.rmresearch.com.au

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 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.

Speculative Buy 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.

Hold 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.

Sell 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. 221938). 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 solici tation 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.

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