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Analyst Actions: Credit Suisse Neutral on Labrador Iron Ore

Credit Suisse says: "The financial engineers seem to have eyes back on LIF.TO this week, and this report aims to quantify what a 'break up' of the LIF.TO assets could be worth; the thesis being that the sum of the parts is worth more than the whole.

"Our last report on LIF.TO and Iron Ore Company of Canada focused on valuation as a 'vanilla' mining asset, but in marketing shortly thereafter the main pushback we had from investors was that the valuation multiples we use (typically 5x EV/EBITDA or a 10% discount rate for DCF) might be appropriate for mining assets but they are too conservative for assets like a) royalty streams and b) infrastructure.

"We illustrate in this report how we can generate a LIF.TO valuation of up to C$43/share by valuing its underlying assets separately. Although we can see why the financial engineers are excited by this opportunity, generating a LIF.TO valuation this high today requires restructuring of the underlying business in a way that would make it unsustainable on our LT C$90/t price assumption. Our analysis offers a review of the financial re-engineering opportunity, as well as considering some of the practical constraints.

"We continue to like LIF.TO as a defensive iron ore exposure; its revenue based royalty meaning that it is far less leveraged to a (declining?) iron ore price than the peers. Recent commodity price strength and moving into a 'post-capex' phase could see an increase to the dividend - which we see as a more material share price driver than the financial engineer opportunity that some shareholders have proposed."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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