Executive Summary - World-class Assets Don't

Stay Undeveloped Forever

• Baffinland is developing the world-class Mary River iron ore deposit on Baffin Island in Canada's Arctic. The deposits are of such high grade, no additional processing is required beyond mining, crushing, and screening. Customers in Europe have tested the trial cargo for process compatibility.
• The remoteness of the project's location presents a series of distinct challenges, subsequently impacting capex. The capex for Mary River is estimated at $4.1 billion, making financing the largest obstacle to development.
• We anticipate Baffinland will most likely form a strategic partnership, which would be dilutive at the project level. We believe possible acquirers include a steelmaker looking to fully integrate its upstream supply chain or a mining major looking to control the timing of when the project comes online.
• As of July 22, we are initiating coverage of Baffinland with a SO-S rating and $1.15 price target predicted on the assumption that 70% of the project is sold to a well-financed steel producer, and Baffinland is left with a 30% stake in Mary River and a free carry to production.