Please refer to page 8 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

GLOBAL

LME cash price

% change

US$/tonne day on day

Aluminium 2,003 2.0

Copper 7,030 0.6

Lead 2,185 0.9

Nickel 18,751 0.9

Tin 22,161 0.4

Zinc 2,331 1.9

Cobalt 32,361 0.0

Molybdenum 29,000 0.0

Other prices

% change

day on day

Gold (US$/oz) 1,312 0.3

Silver (US$/oz) 20.93 0.0

Platinum (US$/oz) 1,494 -0.2

Palladium (US$/oz) 884 0.3

Oil WTI 104.91 1.2

USD:EUR exchange rate 1.352 0.0

AUD:USD exchange rate 0.938 -0.1

LME/COMEX stocks

Tonnes Change

Aluminium 4,947,200 -10,750

LME copper 158,000 300

Comex copper 21,159 290

Lead 213,725 0

Nickel 311,064 -24

Tin 11,895 10

Zinc 656,675 -400

Source: LME, Comex, Nymex, SHFE, Metal

Bulletin, Reuters, LBMA, Macquarie Research, July

2014

Analyst(s) Macquarie Capital (Europe) Limited Colin Hamilton +44 20 3037 4061 colin.hamilton@macquarie.com Yubin Fu +44 203 037 2622 yubin.fu@macquarie.com Vivienne Lloyd +44 203 037 4530 vivienne.lloyd@macquarie.com Matthew Turner +44 20 3037 4340 matt.turner@macquarie.com Jim Lennon Senior Commodities Consultant +44 20 3037 4271 jim.lennon@macquarie.com Stefan Ljubisavljevic +44 20 3037 4247 stefan.lj@macquarie.com Macquarie Capital Securities Limited Graeme Train +86 21 2412 9035 graeme.train@macquarie.com Angela Bi +86 21 2412 9086 angela.bi@macquarie.com Chen Shao +86 21 2412 9041 chen.shao@macquarie.com

22 July 2014

Commodities Comment Orderly iron ore displacement increases confidence in the cost curve Whenever the iron ore price falls below $100/t, questions always arise around

whether the cost curve is still valid. The recent move has been no different.

However, with both international supply and Chinese domestic ore exiting the

market in an orderly fashion, this has increased our confidence that the cost

curve is doing its job as the displacement cycle accelerates.

Latest news

Chinese trade data was released on Monday. Alumina imports in June rose

to 372,293t, up 19% MoM and more than three times the imports from the

same time last year. YTD alumina imports were 2.76mt, up 67.8% YoY. This

is in line with our expectations, with the arbitrage between China ex-works

and CFR China being open in May. We expect the widening arb through June

will result in the July trade data for alumina imports remaining at a high level.

Chinese bauxite imports in June reached 2.9mt and YTD have fallen 40.2%

YoY, but unit value remains unchanged above $60/t.

Thermal coal imports, including lignite and Vietnamese anthracite, totalled

17.5mt in June, up 15.5% YoY. Total 1H14 imports were up 5.4% YoY to

117mt, despite the fact that national thermal power generation was up just

4.7% YoY over the same period and power plant inventories are, on average,

lower than where they started the year. This illustrates the role Chinese

imports play in clearing the seaborne market surplus. Meanwhile, Chinese

met coal imports were up 5% YoY in June but were down significantly in

1H14, dropping 14.5% YoY.

Refined copper imports were down 8% YoY to 255kt, reflecting the impact of

the Qingdao scandal on copper financing activity, while imports of copper

concentrates were up strongly by 47% YoY to 990kt. This is a rebound of

40% MoM, as Chinese smelters returned to normal operating levels after a

spate of outages and maintenance downtime in May. YTD imports of copper

concentrates are up 21.8% – highlighting mine supply growth and the

likelihood that larger volumes were ordered on long-term contract due to

annual benchmark TCRCs being agreed at five-year highs in 2014.

Meanwhile, refined zinc imports saw growth of 123% in June YoY. Most of

the material has probably not moved from the bonded zones at the ports,

since the SHFE/LME arbitrage worsened for importers during the month on

strong LME gains. Importing zinc to China’s bonded warehouses seems to

have the main purpose of reducing the ex-China market’s ready material.

Anglo American Platinum (“Amplats”) released their 2H 2014 interim results

and put flesh on their plans to restructure their mining portfolio. They said they

would sell their Union and Rustenburg operations as well as their share of the

Pandora joint venture and were considering what to do with their Bokoni joint

venture. These operations produced about 0.75 Moz of the 2.3 Moz of refined

platinum production produced by Amplats in 2013.

Latest IAI data showed global aluminium production in June reached 52.3mt

on an annualised basis, up by 1.35mt from the previous month. The increase

was led by China, where the daily production rose to 73.4kt in June from

69.3kt in May, which we think was mainly driven by production resumption

from idled capacities in recent months. Ex-China production was relatively flat

compared with May at 25.5mt annualised, down slightly by 0.66% from May.

Macquarie Research Commodities Comment

22 July 2014 2

Orderly iron ore displacement increases confidence in the cost curve

Whenever the iron ore price falls below $100/t, questions always arise around whether the cost

curve is still valid. The recent move has been no different. However, with both international supply

and Chinese domestic ore exiting the market in an orderly fashion, this has increased our

confidence that the cost curve is doing its job as the displacement cycle accelerates.

As a reminder, in September last year Macquarie produced a global contestable market cost curve

(seaborne plus Chinese domestic), with particular focus on the Chinese portion of the curve. Our

curve also has projections through to 2020 and is presented on a 62%Fe equivalent basis to

compare assets on a like-for-like basis. In this report we predicted that in our base-case forecasts

40% of Chinese capacity would be uneconomic by 2018 and would require to be displaced. The

recent supply push and accompanying price downturn has rapidly accelerated that displacement

process. However, with the relatively rapid exit of supply as prices fell, the veracity of the cost

curve data has been tested and validated.

Fig 1 Macquarie’s iron ore cost curve (seaborne + Chinese domestic)

Source: SMM, Macquarie Research, July 2014

Figure 2 splits out the Chinese domestic portion of the cost curve, which tends to cover much of

the right-hand side of the contestable curve. Indeed, at current price levels around one-third of

Chinese domestic tonnes are losing money. Over time, this Chinese domestic ore has been

extremely reactive to price, and it is this flexibility that forms our view that iron ore is perhaps the

most efficient commodity market we cover. This year has shown similar characteristics, with

domestic ore consistently exiting the market as prices fell.

Supply curve to Chinese market for iron ore fines

-5

101520253035404550556065707580859095

100105110115120125130135140145150155160165170

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050

1100

1150

1200

1250

1300

1350

1400

1450

1500

1550

1600

1650

1700

Volume (mt)

CIF

Co

st

Ch

ina

($

/t),

62%

bas

is

Big 4 Existing 2013 Existing Seaborne Big 4 Expansion

Seaborne Expansion China Private China SOE

Macquarie Research Commodities Comment

22 July 2014 3

We are often asked how we calculate domestic ore use. This involves a number of approaches

and cross checks. One thing we do not use at all is the crude ore number produced by the NBS.

This is often used to justify that Chinese domestic production continues to grow despite price

fluctuations; however, this does not cross-check with any other approach. Figure 3 shows one

rationale why we don’t trust domestic ore. In 2009, crude ore production in China grew 9% YoY on

the basis of NBS statistics. However, data from the China Electricity Council shows electricity

consumption in the ferrous metal mining sector falling 9% YoY – something which ties in much

better with our estimates of a fall in output.

Fig 2 Stripping out the Chinese portion of the cost curve shows around a third is currently loss-making

Fig 3 NBS crude ore output always grows, despite associated indicators suggesting this isn’t the case

Source: SMM, Macquarie Research, July 2014 Source: NBS, CEC, Macquarie Research, July 2014

Our main method of calculating Chinese domestic iron ore output is back calculation – using pig

iron production, import and change in stock data with domestic ore as the balancing factor. This

highlights the severity of displacement thus far this year. Using the back calculation method

suggests Chinese iron ore production has fallen 6% YoY over Jan–Jun, but the sharpest falls have

occurred in recent months, with 2Q down 18% YoY. Now that we have full Chinese trade data for

1H we can see that the rise in imports has also led to June’s real domestic ore consumption falling

to ~200mtpa (62% basis), the lowest level since May 2009. This is a significant cut in domestic

output from the ~275mtpa average seen over 2H13.

Fig 4 Moves in Chinese domestic ore output continue to correlate well with movements in spot prices

Fig 5 China’s use of domestic iron ore is now at the lowest level since mid-2009

Source: NBS, China Customs, Macquarie Research, July 2014 Source: NBS, China Customs, Macquarie Research, July 2014

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

YoY

Ch

ange

Electricity consumption - ferrous metal mining, YoY

China official iron ore output YoY

China iron ore output - Macquarie estimate, YoY

70

90

110

130

150

170

190

210

230

200

250

300

350

400

450

Ja

n-1

0

Ap

r-1

0

Ju

l-1

0

Oct-

10

Ja

n-1

1

Ap

r-11

Ju

l-11

Oct-

11

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oct-

12

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oct-

13

Ja

n-1

4

Ap

r-1

4

Sp

ot iro

n o

re p

rice (

62%

Fe,

CF

R C

hin

a)

Imp

lied

do

mestic o

re c

onsum

ptio

n, m

tpa

Implied domestic ore consumption vs spot prices

Implied Chinese domestic ore consumption, 62%Fe equivalent vol

Iron ore price (62% Fe)

317 3

49

390

363

346

336

298

231

216

196

231

270

261

270 3

07 316

295

341

332

263 2

95

338

291

263

261 295

284

265

281

241

150

200

250

300

350

400

450

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

An

nu

ali

sed

, m

t, 6

2%

Fe e

qu

iv

Chinese use of domestic ore

0

20

40

60

80

100

120

140

160

180

0 50 100 150 200 250 300 350 400

Iro

n o

re p

rod

uctio

n c

osts

, $

/t,

62

%F

e C

FR

eq

uiv

ale

nt

Chinese domestic iron ore volumes, 62% Fe equivalent

Chinese domestic iron ore supply cost curve - 2014

Current spot price ~$95/t

Macquarie Research Commodities Comment

22 July 2014 4

This result cross-references well with surveys by two Chinese data providers (Mysteel and SMM)

that conduct regular reviews of the domestic iron ore industry and monitor output and utilisation

rates. Both surveys now show a further decline in domestic mine utilisation rates in June to <50%

– a level last seen briefly in the 2H12 iron ore price collapse. This time round, the closures are set

to be of a more permanent nature in many cases.

With this, yet again Chinese domestic iron ore has contributed the bulk of displaced tonnes thus

far in 2014. This is reinforced by the Mysteel survey of smaller Chinese steel mills, which asks

about the proportion of imported ore in the blast furnace mix. This is reported to have risen to

~90% by early-July, up from an average of 74% in 2013, implying that domestic ore is being

displaced. As a result, implied purchasing of domestic ore by those surveyed has essentially

halved since the start of the year.

There is also anecdotal evidence that production is cutting back. A visit to Shanxi by Mysteel in

June revealed a sharp decline in the output of smaller non-captive iron ore producers. Meanwhile,

during our own visits to iron ore mines this month, we heard reports of closures at smaller mines in

South Hebei and Shandong. In one county, only two of the nine mines in the area were still

operating.

Fig 6 Latest mine utilisation surveys confirm output cuts, with levels down below 50% ...

Fig 7 … which ties in with the dramatic fall in iron ore purchased from the domestic market by smaller mills

Source: Mysteel, Macquarie Research, July 2014 Source: Mysteel, Macquarie Research, July 2014

Unlike previous cycles, however, 2014 is not just about Chinese domestic ore. For the first time

since late-2008, ex-China is contributing displaced tonnes as well. The accelerated displacement

means seaborne tonnes at the top end of the cost curve are now under severe pressure and are

starting to exit the market – in other words, the market share-driven battle to survive is well and

truly underway, as evidenced by Chinese import data.

Digging in below the headline China iron ore import number to the origin country level shows a

distinct divergence. As is well publicised, Australia has been the dominant source of supply growth

in the market over the past year, driving the displacement cycle, backed up by Brazil and South

Africa in recent months. The red line in figure 8 shows Chinese imports from these three countries

plus India, in other words the traditional ‘big 4.’ These have recently pushed up above 750mtpa for

the first time and continue to rise steadily as new supply hits the market.

In contrast, the black line on the same figure shows the imports from all other countries (totalling

52). These have been falling rapidly as the iron ore price has declined, and over May–June were

down 25–30% YoY. This is a major reversal of the trend seen since 2010 (when the iron ore price

shifted above $100/t), which showed these smaller suppliers gaining market share. Thus far, the

displacement of smaller suppliers from Chinese imports has totalled 40mtpa. Certainly, ex-China

strength may be an offset to a drop in shipments to China, but only a small one.

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

200

220

240

260

280

300

320

340

360

380

Sep-1

2

Oct-

12

Nov-1

2

Dec-1

2

Jan-1

3

Feb-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

Jul-13

Aug-1

3

Sep-1

3

Oct-

13

Nov-1

3

Dec-1

3

Jan-1

4

Feb-1

4

Mar-

14

Apr-

14

May-1

4

Jun-1

4

Capacity u

tilis

ation

Concentr

ate

outp

ut, m

tpa

Output of Chinese domestic iron ore mines

Implied annualized output

Implied capacity utilisation -

20

40

60

80

100

120

140 S

ep-1

0

Nov-1

0

Jan-1

1

Mar-

11

May-1

1

Jul-11

Sep-1

1

Nov-1

1

Jan-1

2

Mar-

12

May-1

2

Jul-12

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-13

Sep-1

3

Nov-1

3

Jan-1

4

Mar-

14

May-1

4

Jul-14

Imp

ort

ed

ore

pu

rch

asin

g,

mtp

a,

6w

k m

a

Implied iron ore purchasing (consumption net of stock changes),

Domestic ore

Macquarie Research Commodities Comment

22 July 2014 5

Fig 8 Divergent trends in Chinese imports – big rise from majors, big decline elsewhere …

Fig 9 … thus the trend of increasing imports from smaller regions has gone into reverse

Source: China Customs, Macquarie Research, July 2014 Source: China Customs, Macquarie Research, July 2014

Figure 10 gives displacement estimates for individual countries that have contributed to ‘ex-China’

weakness. This has been calculated by taking the average May–Jun imports into China versus a

‘normal’ period, in other words October 2013–March 2014, on an annualised basis. Certainly,

there are individual stories involved. Canada may be diverting some more tonnes into Europe;

however, local customs data suggests the opposite, while the higher export tax in Indonesia has

taken exports to zero. However, the underlying trend is clear. Lower-grade, higher-cost suppliers

are exiting the market and reacting to price, even though the average value of China imports in

June remained above $100/t CFR (compared with a $92.7/t spot price average in the month).

Many of these suppliers are small and/or unlisted (and even in the Big 4 countries), with recent

media reports highlighting the impact of falling prices on such existing and future projects. Below

are a few examples, with more to be expected as mining companies themselves reassess the

likely future range for iron ore:

Local resident expectations that Territory Resources’ Frances Creek mine would close (AAP)

Temporary shutdown for Sherwin’s Rope River project (Mining Australia)

Pluton Resources needing a hefty rights issue to remain viable (The West Australian)

Kimberley Resources laying off 40 workers at Ridges Ore mine (ABC)

IMX putting the Cairn Hill mine into administration (Mining Australia)

Alderon temporarily suspending the EPCM contract for Kami (Ferret)

Labrador Iron haling mining operations (Reuters)

Fig 11 looks at the volume of iron ore our supply-demand balance suggests needs to be displaced

through our forecast period. Looking at 2014 highlights a couple of pertinent points. Firstly, that

2014 is set to be the year of most aggressive displacement – ongoing supply growth means 40–

50mtpa will still need to be removed in 2015/16, but this will tend to be a steadier trend. Secondly,

taking June alone the supply cuts already taken place have exceeded this level – even with lower

Chinese steel output in 2H little more is required sequentially. With displacement a common

theme through 2019 there remains potential for a market where supply doesn’t react as quickly to

price, creating a ‘coal-type’ scenario. However on the basis of the data it is a case of so far, so

efficient for iron ore in 2014, with the cost curve proving itself once more.

150

160

170

180

190

200

210

220

230

240

500

550

600

650

700

750

800

Jan-1

3

Feb-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

Jul-13

Aug-1

3

Sep-1

3

Oct-

13

Nov-1

3

Dec-1

3

Jan-1

4

Feb-1

4

Mar-

14

Apr-

14

May-1

4

Jun-1

4

Ch

inese i

ron

ore

im

po

rts f

rom

sm

all

er

su

pp

liers

, m

tpa

Ch

inese i

ron

ore

im

po

rts f

rom

big

4 c

ou

ntr

ies,

mtp

a

China's iron ore imports

Aus, Brz, Ind, SA (LHS) Non big 4

47%41%38%39%38%41%39%38%41%42%43%42%46%50%

55%

21%27%27%26%

22%20%23%26%23%23%21%20%22%19%

17%

5% 4% 5% 7% 11%11%11%13%12%13%16%22%22%25%21%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

YT

D

Proportion of Chinese iron ore imports by source

Australia Brazil India South Africa Other

Macquarie Research Commodities Comment

22 July 2014 6

Fig 10 Second-tier suppliers of ore have borne the brunt of displacement thus far

Fig 11 2014 is the year of maximum iron ore displacement, but 40–50mtpa required in 2015–2016

Source: Customs Statistics, Macquarie Research, July 2014 Source: Customs Statistics, Macquarie Research, July 2014

14.7

8.9

3.02.0 2.6 2.0 2.5

1.30

2

4

6

8

10

12

14

16

Ind

on

esia

Can

ad

a

Kazakh

sta

n

Mo

ng

olia

Me

xic

o

US

A

Vie

tnam

Ho

nd

ura

s

mil

lio

n t

on

ne

s, a

nn

ua

lis

ed

Estimates of displaced tonnes versus 'normal' volumes

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

10

2014f

2015f

2016f

2017f

2018f

2019f

2020f

millio

n to

nn

es

Forecast net iron ore displacement

China Ex-China

Macquarie Research Commodities Comment

22 July 2014 7

Closing price * Closing price *

21-Jul-14 21-Jul-14 18-Jul-14 18-Jul-14 % ch. day 2014 YTD Ave 2013

US$/tonne US¢/lb US$/tonne US¢/lb on day US$/tonne US$/tonne

LME Cash

Aluminium 2,003 91 1,965 89 2.0 1,770 1,845

Aluminium Alloy 1,970 89 1,965 89 0.2 1,880 1,800

NAASAC 2,260 103 2,291 104 -1.3 2,046 1,831

Copper 7,030 319 6,987 317 0.6 6,936 7,322

Lead 2,185 99 2,164 98 0.9 2,108 2,141

Nickel 18,751 851 18,588 843 0.9 16,806 15,003

Tin 22,161 1,005 22,072 1,001 0.4 22,842 22,305

Zinc 2,331 106 2,289 104 1.9 2,075 1,909

Cobalt 32,361 1,468 32,362 1,468 0.0 30,548 27,326

Molybdenum 29,000 1,315 29,000 1,315 0.0 26,710 22,925

LME 3 Month

Aluminium 2,020 92 1,981 90 2.0 1,809 1,887

Aluminium Alloy 1,990 90 1,985 90 0.3 1,909 1,828

NAASAC 2,280 103 2,310 105 -1.3 2,073 1,861

Copper 7,025 319 6,985 317 0.6 6,907 7,346

Lead 2,203 2,136 2,187 99 0.7 2,131 2,157

Nickel 18,825 854 18,660 846 0.9 16,861 15,078

Tin 22,200 1,007 22,100 1,002 0.5 22,814 22,318

Zinc 2,336 106 2,294 104 1.8 2,076 1,940

Cobalt 32,500 1,474 32,500 1,474 0.0 30,608 27,515

Molybdenum 29,000 1,315 29,000 1,315 0.0 26,710 22,927

* LME closing price - 1700 hrs London time. Year-to-date averages calculated from official fixes.

1,312 1,307 0.3 1,294 1,410

20.93 20.94 0.0 20.16 23.80

1,494 1,497 -0.2 1,444 1,486

884 881 0.3 789 725

104.91 103.67 1.2 101.28 97.89

1.352 1.352 0.0 1.369 1.328

0.938 0.939 -0.1 0.917 0.968

Change since last report Cancelled End-13 Ch. since

(tonnes) 21-Jul-14 18-Jul-14 Volume Percent warrants stocks end-13

LME Aluminium 4,947,200 4,957,950 -10,750 -0.2% 2,910,875 5,458,075 -510,875

Shanghai Aluminium 382,302 382,302 0 0.0% - 181,644 200,658

Total Aluminium 5,329,502 5,340,252 -10,750 -0.2% - 5,639,719 -310,217

LME Copper 158,000 157,700 300 0.2% 39,725 366,425 -208,425

Comex Copper 21,159 20,869 290 1.4% - 15,073 6,086

Shanghai Copper 108,851 108,851 0 0.0% - 125,849 -16,998

Total Copper 288,010 287,420 590 0.2% - 507,347 -219,337

LME Zinc 656,675 657,075 -400 -0.1% 72,375 933,475 -276,800

Shanghai Zinc 211,669 211,669 0 0.0% - 238,723 -27,054

Total Zinc 868,344 868,744 -400 0.0% - 1,172,198 -303,854

LME Lead 213,725 213,725 0 0.0% 11,375 214,450 -725

Shanghai Lead 67,306 67,306 0 0.0% - 90,209 -22,903

Total Lead 281,031 281,031 0 0.0% - 304,659 -23,628

Aluminium Alloy 35,320 35,320 0 0.0% 1,580 56,440 -21,120

NASAAC 62,440 62,960 -520 -0.8% 13,440 84,860 -22,420

Nickel 311,064 311,088 -24 0.0% 104,214 261,636 49,428

Tin 11,895 11,885 10 0.1% 2,075 9,685 2,210

Source: Comex, LBMA, LME, Nymex, Reuters, SHFE, Macquarie Research

Palladium - London PM Fix (US$/oz)

Oil WTI - NYMEX latest (US$/bbl)

EUR : USD exchange rate - latest

AUD : USD exchange rate - latest

Monday 21 July 2014

Exchange Stocks

Commodities Prices

Gold - London PM Fix (US$/oz)

Silver - London AM Fix (US$/oz)

Platinum - London PM Fix (US$/oz)

Macquarie Research Commodities Comment

22 July 2014 8

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

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Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada

Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be

expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 30 June 2014

AU/NZ Asia RSA USA CA EUR Outperform 51.67% 60.69% 34.67% 42.33% 55.41% 44.84% (for US coverage by MCUSA, 6.76% of stocks followed are investment banking clients)

Neutral 33.00% 23.93% 38.67% 50.92% 38.51% 35.87% (for US coverage by MCUSA, 7.25% of stocks followed are investment banking clients)

Underperform 15.33% 15.38% 26.67% 6.75% 6.08% 19.28% (for US coverage by MCUSA, 0.48% of stocks followed are investment banking clients)

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Macquarie Research Commodities Comment

22 July 2014 9

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