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In an investment era that feels likely to be defined by the rise and rise of cloud software platforms and iterations of the ‘as-a-service’ recurring revenue model, News Corporation (NWS) remains in many ways a throw-back investment. With a name synonymous with newspapers and traditional media formats, and a multi-national operating model borne out of extensive corporate activity over its four plus decades since incorporation, NWS is a truly unique investment proposition on the ASX (Chart 1). Chart 1. (For News Corp ownership (%) of above assets see Chester AM valuation – Table 4) Listed in both Australia and the US (Nasdaq) and carrying a legacy dual-class share structure that is unique on the ASX (but less so in the US), it can be hard to escape the feeling that NWS remains something of a share market misfit locally. Despite its strong presence in Australia via its majority ownership in REA Group (REA.ASX), its Foxtel stake (65%), its minority equity investments (HT1.ASX / HPG.ASX) and ownership of several leading newspaper titles, NWS remains an immaterial (<0.5%) constituent of any of the major ASX indices owing to its relatively small domestic float via the Chess Depository Interests (CDI) listing mechanism. Additionally, with Founder/Chairman Rupert Murdoch and family interests owning close to 40% of the group’s voting Class B shares, the investment proposition for local fund managers has rarely felt compelling since its split from the larger 21st Century Fox entertainment business in 2013. And to be fair, highlighted in Chart 2 (black line), not owning NWS has for a long time been a sound strategy. Chart 2. Source: UBS, October 2021 For Chester, the decision to invest in NWS during 2020 reflected a belief that the risk/reward profile of the stock had become extremely favourable, a key tenet of the Chester investment process. In the months following the onset of the Covid-19 pandemic, the implied value of NWS’ assets excluding its 61.4% ownership of the issued shares in REA Group (captured as the blue line above) had fallen to historically low levels. The comparison offered in chart 2 is simplistic and doesn’t necessarily consider the realities of being able to realise perceived or indicated (ie; mark to market) value from assets such as the group’s REA stake. It does however lead to two clear conclusions: Over the years, any investment in NWS has represented an increasingly large bet on the fortunes of REA Group and its share price. The implied value of NWS’ assets aside from its REA ownership has been one of almost continual decline since 2013. For Chester, NWS’ majority ownership of REA represents an investment in one of the highest quality companies on the ASX. As part of our assessment of quality, Chester consider seven specific questions about a company and their industry position including an assessment of barriers to entry, pricing power, threat of regulatory intervention and organic growth prospects. REA continues to compare very favourably with other listed companies and has a track record of success matched by few others. The fact that REA was able to achieve record EBITDA (earnings before interest, taxes, depreciation and amortisation) in 2020-21, more than 10% above the pre-pandemic levels of 2018-19, talks to a business that is highly predictable with a customer base highly dependent of its services – principally, online property listings. Accordingly, at a time when more and more digital businesses are being afforded premium valuations on the potential that they might achieve market leadership and strong profitability, REA continues to stand out as amongst the most deserving. With regards to the value of the ex-REA assets owned by NWS, commonly referred to as the News Corp stub, Chester remains confident that these assets continue to be under-appreciated by the market, despite the stronger NWS share price over the past 12 months. “We are acutely focused on simplifying the structure of the company and making clear the full value of the sum of our parts,” News Corp CEO Robert Thomson said in August 2019. Consistent with those ambitions, NWS has accelerated a digital transformation program in its business in the last two years. Faced with a decline in cyclical advertising revenues in 2020-21 in its News Media business, along with no contribution from the divested News America Marketing business (sold in May 2020), it’s notable that NWS was still able to achieve revenue growth in 2020-21 as other segments of the business more than compensated for these declines (Table 1). These trends toward a greater proportion of revenues from digital subscriptions across the Dow Jones, News Media and Subscription Video Services segments, together with the group’s resilient Book Publishing business, support the prospect of higher valuations being ascribed to these businesses in future. Table 1. Source: News Corporation Annual Results, 2020-21 Improving corporate governance The board’s decision to increase the disclosure it provided shareholders around business performance has been beneficial on multiple fronts. By splitting out the Dow Jones business unit from the traditional UK and Australian mastheads, investors are much more aware of the strong underlying performance of the Dow Jones business in recent years, free of some of the structural challenges still faced elsewhere in the news businesses of the group. Likewise, greater transparency about Move Inc, NWS’ US digital real estate portal, has also allowed for easier comparison with competitors and by extension improved insight as to the potential value of this businesses outside the NWS corporate model. By committing to greater transparency with shareholders, the board have proactively addressed one the most common criticisms of News Corp in the past. Namely, a lack of disclosure and shareholder engagement has seen NWS viewed as a quasi-private company with limited regard for minority shareholders. While Chester aren’t suggesting NWS don’t still have a lot of work to do on this front, recent gestures such as the board’s decision to terminate a legacy (2013) shareholder rights agreement, thereby preventing the Murdoch Family Trust increasing its voting rights as a result of the group’s approved US$1 billion share buy-back, do point to a board committed to improving company governance practices. Growing digital businesses with strong momentum Looking ahead, Chester is particularly optimistic about the possibility of the market ascribing greater value to the Dow Jones and Move businesses in the near term. Operating in the huge US market, both businesses have come through the pandemic-challenged 2020-21 very strongly and enter 2021-22 with considerable operating momentum. Purchased jointly with REA Group in 2014 (Ownership: NWS 80%/REA 20%) for US$950 million, Move has largely operated in the shadows of the highly profitable Australian real estate classifieds business since acquisition. Consistent investment has been a feature of the business largely offsetting strong growth that had seen revenues double to close to US$490 million by the end of 2018-19 since acquisition. After a tough final quarter of the 2019-20, when the pandemic severely impacted the US real estate sector, Move has emerged with considerable momentum and capped off 2020-21 in June with a record fourth-quarter result that saw US$186 million of revenue achieved at record margins (2020-21 revenue was US$641 million). With average monthly unique audiences consistently averaging over 100 million across its flagship realtor.com website recently, management are seeing record levels of agent adoption across their lead-generation and referral products. The ongoing transition of revenues away from branded site advertising toward packaged agent services talks to a higher quality revenue that should be less cyclical moving forward. With US-listed competitor Zillow (NASDAQ: Z) continuing to lead in the US real estate classifieds segment, it is notable that Zillow’s core IMT segment (internet, media, technology) generates EBITDA margins well above 40% currently, lead by its Premier Agent product. This compares to the low teens EBITDA margins delivered by Move in 2020-21. For Chester, ongoing revenue momentum in 2021-22 would strongly support the contention that Move has passed a tipping point in its development and is now ready to deliver material operating leverage. Overvalued or undervalued? Comparing the US-listed New York Times (NYSE: NYT) business to the Dow Jones business operating inside the NWS corporate structure is instructive (Table 2 below). Across numerous financial and operating metrics, the two businesses are very similar, having both achieved material EBITDA improvement in 2020-21 as costs were well managed through the pandemic and digital subscriber growth was strong. While the difference in total subscribers they each have is noteworthy, this discrepancy is wholly offset when you consider the large discrepancy in pricing strategies between the two companies, especially their respective flagship newspapers. In 2021-22, Chester expects that the integration of the recent OPIS (Oil Price Information Service) acquisition will shine further light on the higher margin Professional Business Information (PIB) unit that operates within Dow Jones. Led by Dow Jones’ Risk and Compliance business that has delivered revenue growth greater than 20% for the last six years (US$195 million revenue in 2020-21) Chester anticipate increased disclosure around the PIB unit in coming periods will lead to greater appreciation of the quality of this largely enterprise business. Table 2. Sources: as noted With an enterprise value currently exceeding US$9 billion, it’s notable that The New York Times valuation is more than double the current residual stub value of NWS at REA’s current share price (Table 3). So too this valuation comfortably exceeds the consensus valuation for the Dow Jones business, which appears to be around 50% of the current NYT valuation based on a recent sample of sell-side analyst estimates post the NWS 2021 annual result. With an increasingly digital customer base, Chester certainly sees upside to the consensus Dow Jones valuation if management can consolidate the operating gains achieved in 2020-21 and continue to grow digital subscribers at a healthy rate in the years ahead. Chester recognises that the stub value argument of valuing the conglomerate NWS structure appropriately has been around for a long time. That doesn’t make it wrong. What it may take is a catalyst to see this valuation gap close. Is that Rupert Murdoch’s passing I hear you ask? Perhaps something sooner? Table 3. Based on market prices at 20 October 2021 Resilient earnings, increasingly sustainable business models With regards to the remainder of the NWS assets, these businesses have by and large come through the last 18 months in very good health and made strong progress in their efforts to transition themselves for a more sustainable future. NWS’ book publishing business, HarperCollins, continues to defy those who forecast a slow death for the humble book and delivered EBITDA more than 20% higher than the business had achieved in any year since the separation in 2013. While it is unlikely to ever be considered a digital business for obvious reasons, 22% of the consumer revenues achieved by the HarperCollins business were sourced digitally in 2020-21, demonstrating the group’s ability to provide literature to consumers in their preferred format these days. HarperCollins will look to consolidate its strong recent performance in 2021-22 by integrating the recent Houghton Mifflin Harcourt (HMH) acquisition and will explore additional licencing/content partnerships to capitalise on the huge demand for audio streaming services currently. For Foxtel (Subscription Video Services), NWS is now making strong progress in its efforts to transition what was a challenged pay-TV business into a leading player in the highly competitive content streaming market. The launch of pure-play streaming services Kayo and Binge in recent years have contributed to the group achieving record paying subscribers of more than 4 million early in 2021-22. While the market will likely remain cautious on the outlook for Foxtel as long as a large proportion of the segment’s revenue continues to be drawn from traditional Foxtel residential customers paying significantly more (ie, 4-5 times) for their services than newer streaming subscribers, recent commentary from management was quite optimistic. Should management’s ambitions for 5 million subscribers together with revenue and profit growth be achieved over the next three years, it’s very likely the mid-single digit EBITDA multiples used to value the business currently would be revised higher. Despite being arguably the most impacted of NWS’ businesses by the global pandemic, the News Media segment of the group remained resilient and faces the prospect of a cyclical recovery in advertising in the periods ahead with an enlarged digital customer base. Excluding divested businesses, the News Media segment in 2020-21 saw underlying revenue declines of only -4% when adjusted for foreign exchange movements. Year on year digital subscriber growth of 25% and 9% across the key Australian and UK mastheads respectively underpin the ongoing revenue transition being achieved in the business. With digital revenues representing 32% of segment revenues in the final quarter of 2020-21, it’s clear the News Media segment is making good progress in its digital journey. “The past year has seen the revaluing of our content through landmark news payment agreements with the major tech platforms," Robert Thomson said in August. "These deals, the financial terms of which are confidential, will add significant revenue annually, clearly into nine figures and are a profoundly important part of the ongoing transformation of the content landscape.” While the true significance of NWS’ agreements signed with Google and Facebook in 2021 will take some time to become fully apparent, these agreements are supportive of a couple of Chester’s long held views. Specifically, News Corp’s businesses continue to generate content that resonates with large audiences under a portfolio of valuable brands. Additionally, as technology increasingly commoditises media content, a proportion of consumers will continue to pay a premium for original material from trusted sources. Chester expects the aggregate value of NWS’ assets to remain a topic of debate as the business cycles a record year of profits in 2020-21 and management look to maintain a strong digital transformation agenda. At a time when many listed companies enjoy premium valuations off the back of business models built around subscriptions and the potential to generate high levels of recurring revenue, Chester believes there is upside to the value the market is ascribing to several NWS businesses. With a portfolio of resilient, profitable and for the most part, strongly cash-generative businesses, Chester is confident News Corp remains an under-appreciated and undervalued investment opportunity. Table 4. Source: Chester Asset Management, 20 October 2021

Twelve months ago we wrote our second note on Mineral Resources (ASX: MIN) titled Can Mineral Resources be a $40 stock?. Within seven months our question was answered with an emphatic yes. Like all good sequels that enjoyed debatable success, we thought why not go a trilogy? We realise we may sound a bit like a broken record suggesting parts of the company remain underappreciated but hopefully some of the areas highlighted in this note make it less pointless than the Karate Kid III movie. As a recap, from our last note we felt the market was: underappreciating the quality and growth potential of Mining Services; behind the curve on iron ore projects; and mispricing lithium optionality. Ultimately some of this boiled down to being under-covered, which appears to no longer be the case with increased broker coverage. This probably brings with it reduced ability for unique insight but we still see a couple of interesting parts of the business that present meaningful upside to market (sell-side) valuations and the share price, including: The minimal value attributed by the market for the Southwest Creek project The limited value attributed by the market for Ashburton The FMG implied iron ore price well above that used by us and the market to value MIN (with the exception of one analyst) International deals for NextGen crushers present as meaningful upside Mixed approaches by the market in valuing Wodgina and Mt Marion hydroxide optionality Energy blue sky Our updated valuation is presented below with more detail following. Source: Chester Asset Management Lithium 12 months ago, we summarised the lithium market in FY20 as follows: “lower prices, operational issues, curtailments/mothballing, value destruction and bankruptcies”. With hydroxide prices now ~USD15,000/t CFR into North Asia and 6% spodumene (SC6) ~USD700/t, share prices up multiples in 12 months, lithium contracts being agreed and consolidation taking place, the tables have certainly turned. Obviously, prices are now up but we ask ourselves has spodumene become more attractive? Since the days of Standard Oil markets have been debating the appropriate economic split between upstream and downstream operations. It is not an easy question, and like many in markets can be answered by supply and demand fundamentals. When lithium markets were oversupplied spodumene was bid down to marginal cost of production (lower in some cases as entities like Alita/Tawana and Altura went into administration) however 2021 has seen the market tightening and prices reflecting that. Furthermore, with upstream producers expressing an increased desire to vertically integrate the spodumene left over for the hydroxide refineries is limited, so the margin available to upstream producers potentially increases. Companies like Pilbara Minerals (PLS) are even going a step further: by creating an exchange to sell spodumene into and investigating a midstream product with Calix (CLX). Source: Pilbara Minerals Corporate Presentation, May 2021 Hence we see a natural progression for downstream players, facing potential spodumene shortfalls to also seek increased integration via JV tie-ups/ acquisitions. Given the political climate it seems likely FIRB would stymie attempts to acquire Australian operators by certain players and see greater integration between African upstream (hardrock) entities and China downstream players to avoid these players ending up like the HBO show Ballers (1). As we commenced writing this note, supportive of our thesis, it was announced Gangfeng would pay Firefinch (FFX) USD130m for a 50% stake in the Goulamina mine in Mali. This preamble is a long-winded way of saying anyone with uncommitted spodumene should receive a greater share of value for it. Before the market got tight MIN was already planning for this and recent announcements have reinforced a desire to convert all spodumene to hydroxide within their own supply chains. Mt Marion continues to perform strongly with a steady run rate of ~450ktpa, recoveries (>85%) and costs (~USD350/t CFR) best in class. Although we don’t have updated reserves/ resources on the project MIN point to the project having a 20+ year mine life. We now value MIN 50% stake in Mt Marion at ~AUD560m assuming an ~20 year mine life, providing MIN steady state EBITDA of AUD90m p.a. (ex Mining Services) (2). In relation to Wodgina, planning is currently underway to restart the mine after it was placed on care and maintenance in November 2019 following construction. Given greater scale, lower strip ratio, higher grade and more favourable cost structure, potential exists for Wodgina to have a far superior cost structure to Mt Marion, albeit we await clarity on what this may look like. MIN had previously suggested a cost of USD296/dmt at 65% recovery for 750ktpa of SC6 but given the learnings from Mt Marion (and other operators) we see potential for production at a higher rate and lower product spec (5.5-5.8%) at improved recovery and cost. We now value MIN 40% stake in Wodgina at ~AUD1,060m assuming a ~30 year mine life, providing MIN steady state EBITDA of AUD150m p.a. (ex Mining Services) (2). Lithium Hydroxide – International Opportunity We reiterate our view that Kemerton will likely be fed by Greenbushes and MIN’s owns 40% even if it’s not fed by Wodgina. Furthermore, Kemerton being fed by Greenbushes does not alter MIN’s ultimate ambition of converting all of their spodumene (both Wodgina and Mt Marion) to hydroxide. Given quoted costs in China for downstream(3) vs more than double that in WA it is likely we see JVs established in China as the likely location of hydroxide refineries. We have provided an updated summary of our lithium hydroxide valuations below. Source: Chester Asset Management (with reference to various announcements around lithium hydroxide plants) Iron Ore At the time of our last note iron ore (62% dmt CFR fines) was trading at ~USD105/t and Fortescue (FMG) at AUD14.00/share. We admitted 12 months ago we weren’t predicting >USD150/t and still expect at some stage prices will roll over but MIN has certainly benefited from that strength. Due to our complete inability to predict the iron ore price we continue to use our FMG model to interpret a long term (LT) iron ore price implied by the market with FMG at AUD22.00/share. We continue to acknowledge this as an imprecise science but for us remains a useful exercise. Notably we now acknowledge that previously we had only modelled reserves but appreciate that higher iron ore prices would see resources convert to reserves. Hence we’ve added an additional scenario showing the implied iron ore price from 100% resource conversion. The outcome of this is we continue to use consensus USD66/t (real) LT as our assumed base case 62% Fe price (after 3 years using ~consensus) but flex this to USD80/t LT as an upside scenario. MIN notably at their most recent AGM announced a strategy around the four hubs of: Utah Point, Yilgarn, Ashburton and Southwest Creek. We provide an update on each of these below. Utah Point Currently MIN are exporting Iron Valley tonnes from Utah Point but in addition will export Wonmunna, Lamb’s Creek and Wedge Iron Ore through the port. MIN is currently developing a 10 year, 14Mtpa mine plan for the hub (within 12 months). Iron Valley and Wonmunna will form the base of production. Wonmunna was notably acquired (Q1 FY2021), developed and commenced production (March 2021) in the space of 6 months, showing all of the benefits of Next Gen Crushing plants referred to in this document. The all in cost of acquisition and development for 5Mtpa of capacity was quoted at AUD126m with output potential of 10Mtpa for “little additional capital cost”. Yilgarn The Yilgarn hub consists of infrastructure at Carina and Koolyanobbing. MIN is currently in the process of finalising a 10 year mine plan that includes Koolyanobbing, Parker Range and Mt Richardson. Planned capacity for the hub is 13Mtpa. Valuations of Existing Operations Source: Chester Asset Management, Mineral Resources Announcements Ashburton The latest with regards to the Ashburton iron ore project is that it is anticipated to be construction ready in August 2021 with a 2 year development (so first production 2H CY23). The project hub has been earmarked as 25-30Mtpa. The key sources of supply for Ashburton are Bungaroo South and Kumina. Notably, recently a subsidiary of MIN has also bought a 15% stake in Aquila resources that has a 50% stake in the Australian Premium Iron JV. I.e., MIN now has effectively 7.5% of the API project. Baowu owns 42.5% while US company AMCI and South Korea’s POSCO each own 25% of API. The key project of the JV is the 40Mtpa West Pilbara Iron Ore project. It was reported MIN paid AUD10m for the stake which also gives them exposure to Eagle Downs Coking coal project in QLD and Manganese assets in South Africa. We watch with interest how this asset may play into the strategies around Ashburton and Southwest Creek. Southwest Creek (SWC) In our previous note we provided a model for a 20Mtpa Marillana operation. Since then, MIN announced the desire for the business to be a 40-50 Mtpa operations consolidating more than just Marillana but also Ophthalmia and other stranded deposits. MIN has also announced that farm in agreements under the JV with Brockman had been satisfied and the JV had been amended(4) to include the Ophthalmia Project. Hence at least half of the SWC is proposed to come from Marillana/Ophthalmia. MIN are still competing for berth rights (3 and 4) at Southwest Creek which are reserved for emerging / junior iron ore miners. Although there is no guarantees around access there are certainly other options if they aren’t successful in securing rights. Hence we are surprised to see little value reflected in analyst valuations for the project. Valuations of Growth Projects Our valuations for Ashburton and SWC are summarised below. Notably capex is a key area of uncertainty however we have provided analogues below to drive our assumed capex figures. Source: Chester Asset Management with input from BHP, RIO and MIN announcements Source: Chester Asset Management, with input from various ASX announcements Mining Services Per our analysis the market seems to be pretty consistent (now) in how they value MIN’s Mining Services division at ~6-7x EBITDA. We continue to believe a higher multiple is warranted given: the sticky nature of the business, the IP in their crushers and the greater portion that is effectively locked in for life of Mine Operations. However, we use 6x EBITDA as our base and 8x EBITDA as our upside case within our valuation. Certainly, one of the key areas we had noted in our last note, being the market not recognising the earnings growth of the segment, has played out as MIN’s has delivered material growth and even softly upgraded the ‘guidance’ on the division to a doubling of production for calendar year 2019 within 3 years. As we previously noted historic analysis of MIN’s half year results suffer from variability from: intersegment transactions and undefined construction earnings meaning EBITDA margins and revenue aren’t reliable without stripping this out. Hence, we feel it most appropriate to consider the ex construction EBITDA attached to production for a reasonable indicator of past earnings and what that could mean for future earnings. Source: Chester Asset Management, with input sourced from MIN half year results Hence assuming reasonably consistent EBITDA margin we calculate the guidance implies ~AUD585m EBITDA at end CY22 (from annualised AUD460m 1H FY21). We believe this to be exclusive of both the key iron ore growth projects and any international deals that could be struck (refer below). We have rolled forward and updated our assessment of what the 2 key growth projects could deliver in sustainable EBITDA for the Mining Services division below. Source: Chester Asset Management, with multiple input sources Mining Services – International Opportunity Maybe it is just us but we are quite excited about the potential for MIN to take its crushing capabilities overseas. As a reminder the NextGen 2 Crusher is IP of MIN. MIN recently signed an agreement with Metso Outotec (“Metso”), whereby Metso will market the crushers internationally, however they still do not have the ability to sell plants without MIN’s agreement. The benefit of the NextGen Crushing plants are: They are portable – and can be relocated which makes them extremely useful for smaller or more isolated locations Lower capex and opex – Not having to lay a fixed slab of concrete provides one of the key benefits and being assembled in modules means the majority of construction can be performed at a location with labour cost advantages to WA They are quicker to have in place – Wonmunna achieved first ore within 5 months of the project commencing In addition to Wonmunna, one of the new NextGen 2, 12Mtpa crushing plants has recently been commissioned at BHP’s Mt Whaleback mine. Source: MIN Site Tour presentation April 2021 Some investors may look at the potential for MIN to go overseas as potentially risky but there would be ways to strike commercial terms that would not involve operatorship, such as: A sale of the plants to Mesto and Metso operate the plants A royalty arrangement that would see MIN leveraging the IP without taking on the execution risk of operating overseas Additionally, if MIN were to retain operatorship they could be selective in jurisdictions such as avoiding certain parts of Africa. What is the TAM of the international opportunity? This is a tough question to answer given the information isn’t readily available but we have performed a crude analysis below. Global crushing appears a relatively competitive market with multiple operators. Research suggests that Sandvik is the leading provider with ~14% of a USD11bn market with Metso number 2(5). Given the portability and cost vs traditional options we don’t see why a Next Gen solution can’t start to represent a meaningful slice of the global crushing market. Below we have conducted a theoretical exercise that conceptually estimates annual crushing additions outside of Australia at ~400Mtpa. Source: Chester Asset Management with inputs from various sources What could commercialisation look like? Under a contractor model, assuming similar economics to the Australian operations, MIN 50% share and a build-up of 5 years on these contracts over a longer period we can see scenarios whereby the international opportunity can generate meaningful margin to MIN. Source: Chester Asset Management I.e. under these assumptions a 20Mtpa contract could generate AUD30m p.a. in EBITDA, MIN share being AUD15m but 1 of these p.a. for 5 years could mean cumulative AUD75m in recurring EBITDA in 5 years’ time. An alternative to this model could be a sale of crushers for which MIN’s take a royalty. A hypothetical example of what this may look like is presented below. Source: Chester Asset Management We iterate both of these models are hypothetical and the international opportunity is at a very early stage. Management has not provided indication of the likely commercialisation model or LT potential. Energy The WA onshore energy scene has seen some excitement over the past 5 years and MIN hasn’t been too far off the scent. Recent discoveries such as Waitsia(6) and West Erregulla. indicate there is a lot of prospectivity in the Perth basin. Like most things that they do MIN’s energy exploits aren’t a flash in the pan based on recent successes but part of an orchestrated plan to replace diesel with micro LNG for internal purposes and as a service to clients. Source: Mineral Resources 2021 Investor Day MIN has an enormous land package in the Perth Basin (7,300 sq km gross acreage) and North Carnarvon Basin (6,300 sq km). The difficulty for us trying to analyse it is that they haven’t really announced any leads or prospects. We do know that MIN has announced the potential to drill 2 wells in FY22 and 2 more in FY23. The first of these is targeting the Lockyer Deep prospect. We note you don’t normally drill wells without identifying a prospect first. The differential between Warrego and Strike Energy provides some insights into how the market is valuing the highly prospective Perth Basin Acreage, which we have used to impute a potential value for MIN’s acreage. Source: Chester Asset Management We appreciate the market has more colour on STX upside via the key prospect of South Erregulla(7) but see no value being ascribed to MIN’s energy assets in market valuations. Vertical Integration is the goal Looking at MIN’s energy ambitions another way MIN has previously stated that diesel costs more than AUD140m p.a. Converting diesel to gas would materially reduce greenhouse gas emissions and ongoing reliance on 3rd party suppliers as well as save them money. In their FY20 sustainability report MIN notes total diesel consumed of 3.4 PJ. If we assume costs to the wellhead of ~AUD2.00/GJ for Perth Basin and AUD3/GJ for piping and conversion to LNG all in costs could equate to ~AUD5/GJ. The opex savings could exceed AUD120m p.a. based on FY20 energy requirements. Ignoring the cost of converting the transport fleet to micro LNG at 6x EBITDA this equates to ~AUD700m of value. Notably however with MIN’s growth ambitions future diesel requirements and savings would be significantly greater than the FY20 levels. Additionally if MIN were to make a material discovery we believe they would look to offer an integrated energy solution involving gas as an additional pillar within Mining Services. Steady State Earnings The following table represents our projection of the steady state EBITDA of MIN if the growth opportunities outlined in Iron Ore, Lithium and Mining Services are delivered within a 5 year timeframe. Cleary there are some immediate pressures around labour availability so this is a very hypothetical example but we thought worth highlighting the opportunity to develop MIN into a AUD3bn EBITDA p.a. business would clearly lead to a business much larger than the current AUD9bn market cap. Source: Chester Asset Management Keep on crushing it MINs (1) For those not familiar with the show the production ceased after 5 years because the Rock was unavailable (2) Assuming USD650/t real long term (LT) 6% spodumene prices. (3) USD200-250m for 25ktpa of capacity for hydroxide (4) Refer ASX announcement 23/4/2021 (5) (VIEW LINK) (6) A reminder that in December 2017 MIN previously bid for AWE (for its 50% share of Waitsia) (7) Identified as potentially connected to West Erregulla (Best estimate 1.6 Tcf gas with Geological Chance of Success at 57%)

Wage inflation, de-carbonisation and localisation are driving structural inflation, argues Chester Asset Management – and investors need to reposition their portfolios accordingly. Central bank policy is ultra-loose and will remain so until the US hits full employment, according to Australian equities manager Chester Asset Management – and investors must prepare for an inflationary pulse driven by rising wages. “Look no further than the Chairman of the US Federal Reserve, Jay Powell, who has consistently maintained that full employment equates to an unemployment rate of 3.5 per cent,” says Chester Asset Management’s Managing Director and Portfolio Manager Rob Tucker. “Every policy direction in the US – from Biden’s American Jobs Plan to the Fed’s unrelenting desire to pump liquidity into markets – is geared around achieving full employment. There’s a strong desire to create wage inflation, which has been missing for the bottom 60 per cent of the workforce for at least two generations,” says Tucker. Wage inflation remains the key to structural inflation, according to Tucker, but other elements like de-carbonisation and localisation of supply chains (rather than globalisation) are strong factors too. “With the Biden’s administration’s stated desire to cut fossil fuel emissions in half by 2030, there is a clear global imperative to get to a carbon neutral position as quickly as possible. That’s going to need capital investment of US$2.8-3.5 trillion per year for the next 20 years, which will add 3-4 per cent to global GDP every year,” says Tucker, citing a Credit Suisse research report. Another strong driver of structural inflation is the localisation of supply chains, he says. “Along with increased automation, the globalisation thematic has been one of the driving forces behind the deflationary backdrop of the past 30 years,” says Tucker. “Companies are increasingly trading off the cheaper cost of goods with increased control of supply chains as well as IP security.” “As a recent example, Intel recently announced a $20 billion investment to build a manufacturing facility in Arizona, which was seen as much as protecting intellectual property as securing supply,” he says. Cyclical factors are also playing a role in the inflation story, he says, with the inflationary pulse of the economic recovery and accompanying supply chain constraints playing a significant role. “There’s also the base effect of the oil price more than doubling, while copper and timber prices are also up significantly year on year, which all feed into the cost of manufacturing” says Tucker. Four strategies to beat inflation There are four key strategies that investors should adopt in response to the prospect of structural inflation, says Tucker. Buy real assets “In an inflationary environment you want to hold real assets – in other words, things that you can touch. Whereas capital-light growth companies have done well in the current low-interest rate environment, we believe investors should be moving to capital-intensive industries like property, commodities and agriculture,” says Tucker. “You want assets that are difficult to replicate and difficult to disrupt,” he says. Focus on valuation “If you’re buying equities in this environment, you have to look at valuations. In an inflationary environment, theoretically bond yields rise – and that means the valuation attached to long-duration assets will fall. All else being equal, a 100 basis point rise in the 10-year bond would see a stock on 40 times earnings see its valuation fall by 30 per cent,” says Tucker. Look for pricing power “When there’s inflation you want to be buying companies that can, at a minimum, hold their margins steady. If you have pricing power, you can pass on the rising cost of goods to your consumers, without impacting engagement,” he says. Invest in gold equities “Gold has historically done really well in times of inflation. For us, though, gold has a dual purpose – because in times of inherent volatility gold acts in a non-correlated manner. That’s why we’ve always allocated a portion of the portfolio to gold equities,” says Tucker.

The title of this article is a famous quote from Humphrey Bogart which couldn’t be more apt right now. Everyone has a favourite reopening trade. With some travel names up 100% from their lows(1) and casinos partially recovered, buying into some of these names before earnings normalise has been a relatively successful strategy. Although up from its lows, a re-opening name we remain constructive on is United Malt Group (UMG), which having demerged from GrainCorp (GNC) in March 2020 has endured a challenging first 12 months of listed life. This writer, having lived in an Adelaide bubble through COVID, has experienced first-hand the burgeoning popularity of craft breweries such as Pirate Life, Big Shed, and Little Bang. Adelaide (Perth and Brisbane) perhaps before other cities in Australia, and definitely before most of the US, has experienced the rebound in on-premise consumption. COVID enhanced two key themes that personify the craft beer movement: localisation and community. No one knows the exact shape of the recovery curve for (US) on premise / craft beer consumption but having experienced a leading analogue in Adelaide this writer believes we will at least return to normalised (FY19) levels within the next 12 months, if not overshooting as pent-up demand is released. Who doesn’t need a drink after being cooped up at home? Source: Australia Venue Co. Pub Turnover to October 2020 Apart from a normalisation in earnings, we are attracted to the following aspects of an investment in UMG: Ongoing penetration of craft Strategic nature of assets Management alignment Historic demerger outperformance Stability in historic earnings (pre COVID obviously) and de-gearing potential Private Equity (PE) Interest Background UMG is the fourth largest maltster globally with ~1.25Mtpa of processing capacity, operating at around 95% utilisation (pre-COVID) with 13 plants across Canada, the USA, Australia and the UK. For around 600 customers, UMG handles the barley procurement, processing and handling of malt, as well as the sale of co-products. UMG also operates an international distribution/ warehousing business, through a network of 21 warehouses, providing a full service offering to around 7,000 (craft) brewers and distillers including malt, hops, yeast, adjuncts and related products. At the time of demerger, UMG had some 970 employees globally with operational headquarters in Vancouver, Washington. Pre COVID revenue was split between the following customer mix and locations. Source: UMG Information Memorandum and Scheme Booklet It is worth noting that global beer consumption has been quite flat between 2014 and 2018(3) however craft production increased at a CAGR rate of 10.7% during that time (4). Craft beer is particularly important for the malt industry due to higher malt inclusion (~3x the requirement of mainstream beer), general requirement for higher quality and also a desire for specialty malts. UMG is established as one of the leading suppliers to the craft beer industry. In 2020 US overall beer volumes we estimated to be down ~3% with craft volumes down ~9% and sales revenue down 22% (4). Craft (which over-indexes to on-premise) was materially impacted by lockdowns, moreso than the major brewers. As discussed below as things ‘normalise’ we expect a return of craft volumes, with further tailwinds for craft from localisation trends particularly in underpenetrated states. Strategic assets Although there are many smaller players in the malting industry, very few maltsters have the required scale to service national brewers and the ever-changing requirements of craft brewers. Approximately three-quarters of global malt capacity is owned by commercial maltsters with the four largest (UMG, Boortmalt, Malteries Soufflet and Malteurop) accounting for around 35% of global production. UMG’s footprint throughout North America, Australia and the UK is strategically located across major barley regions in proximity to critical transport infrastructure (roads, rail, and ports) which maximises efficiency in lowering transport costs. UMG’s Warehouses and Distribution capabilities provide it the ability for a full service offering to craft customers, who were very reliant on the balance sheet of strong suppliers during COVID. This is enhanced by ~20 international craft distribution partnerships globally as well as an innovation centre in Vancouver, Washington which houses a pilot brewery enabling collaboration with customers. Having started to experiment with brewing ourselves this writer believes there is a level of incumbency with customers due to unique flavours and malt types creating a reluctance to change suppliers. Management alignment Upon demerger, MD, Mark Palmquist and Chairman, Graham Bradley made the decision to join UMG rather than GNC. A raft of factors would’ve played into this decision but we saw this initial move as a positive endorsement of the attractiveness of UMG. Further to this, as noted in our article from last year(5) UMG directors have been very active in purchasing stock on market. At the time of our article, we noted 14 insider buys of UMG, which has since increased to 17. Although UMG has outperformed another consumer staple stock, A2M that saw Director selling over the past 12 months, shareholders (including these directors) are yet to see this insider activity translate to outperformance. Historic demerger performance We’ve all heard the Investment Banker spiel 1+1=3, but apparently 2–1>1, at least demergers have tended to outperform historically(6). Clearly most demergers don’t occur in the middle of a global pandemic, but one analyst report on the topic(7) has noted that for a demerger of similar size entities both generally underperform the market for ~6 months (tick here for UMG), however over the long term both stocks tend to outperform. We do note that within the combined entity, GNC had struggled through drought potentially constraining focus and the capital afforded to UMG for growth opportunities like expansion into Mexico (and other regions), Warehouse CRM implementation, Perth Kiln upgrade, etc. Grant Samuels's analysis within its GNC demerger scheme booklet indicated that demerged entities have generally outperformed the market within two years of listing (refer to the graph below). At the current juncture this appears to be unlikely for UMG. Source: Chester Asset Management, IRESS Financials A couple of notes about UMG’s financials: EBITDA of UMG has shown a relatively steady profile between FY2016 to FY2019 from both a revenue and margin perspective particularly across Processing Revenue within warehousing has a greater skew to Craft beer customers and hence reflects the impact of stronger growth in craft vs mainstream beer in processing On our calculations cash conversion(8) has averaged >85% since FY2016 As a separate entity UMG took on a greater share of debt, due to its steadier cash flows and despite the May 2020(9) capital raise still has an opportunity for de-gearing. Net Debt at 30/9/2020 stood at AUD262m ~1.7x EBITDA UMG is targeting a payout ratio of ~60% of NPAT going forward, this puts UMG on a dividend of 3.5-4% using Chester’s normalised earnings at current prices Capex ran above D&A in FY2016 and FY2017 with the ~AUD105m expansion of the malt plant in Pocatello, Idaho. Capex is again high in FY21 at ~AUD120m with the 79ktpa, GBP51m expansion of Scottish Malt facilities We expect UMG to continue to invest in growth opportunities but stay in business (SIB) to remain relatively low at between $25 million and $30 million a year. Source(s): UMG Information Memorandum and Scheme Booklet, UMG FY2020 accounts, Chester Asset Management Private Equity This is a quote directly from the UMG Information Memorandum, highlighting one of the advantages of the demerger of GNC: “after the Demerger, there will remain the potential for GrainCorp, UMG or other GNC portfolio businesses to be sold to a third party potentially delivering a control premium”. Malt would have been a major consideration for the failed GNC takeover bid by Long Term Asset Partners in December 2018, so there has been historical interest in acquiring the business. Whether planted by motivated shareholders or genuine, the Australian Financial Review and The Australian seem to wheel out the same article every three months regarding private equity interest in the business (10). With the level of PE deal flow seemingly accelerating in a world of cheap money and surplus liquidity, we still believe the potential exists for suitors to be interested in UMG. Normalisation As discussed UMG’s FY20 and FY21 earnings have been materially impacted by COVID and the disruption to on-premise consumption. This has resulted in both volume and mix shift impacts, as the craft market segment was more materially impacted by COVID. Our understanding is that around 40% of craft sales pre-COVID were on-premise vs around 20% for mainstream beer. Notably, when we model UMG (refer to our valuation below) we arrive at a normalised EBITDA figure of $185 million (post AASB16), which is above FY22 consensus. Previously we have published notes showing upgrade candidates. This isn’t specifically one of those notes, as there are many moving parts and we can’t be too specific: the timing of recovery (given potential vaccine delays and further lockdowns) and Scottish expansion ramp-up. However, we do believe when things reopen UMG earnings should revert to a figure based on FY19 (normalised) due to the following factors: 1. Contract structure (margins) Historical passthrough mechanisms for barley and longer-term contracts with customers provide a reasonably predictable margin (when operating closer to full utilisation). 2. Craft volumes returning (volumes/revenue) The Brewers Association (US) is reporting US craft beer volumes down 9% in 2020 vs 2019 with dollar sales down 22%. This compares to overall beer volumes down only ~3%. Likely due to higher reliance for craft towards on-premise sales. Given the higher utilisation of malt and premium products, hence the higher value of craft customers, we believe the revenue and margin impacts have far exceeded volume impacts. Interestingly although US craft volumes were down in 2020 the number of craft breweries actually increased. Source: Statista (with data from Brewer’s Association) If we look to Australia as our leading analogue to recovery in the US, the two listed operators in Mighty Craft (MCL) and Good Drinks Australia (GDA) are quoting an expectation of Australian Craft sales + 7-10% in 2021. 3. Warehouse and Distribution Craft Leverage (revenue + margins) For UMG's Warehouse and Distribution (W&D) segment, revenue is predominantly derived from craft. Hence we use US craft sales and production changes as an indicator of direction of growth for UMG. It appears to have been highly correlated over recent times with UMG W&D Revenue, although UMG has been overachieving, which could indicate increased market share in the US, or greater growth ex-US craft. Sources: Brewers Association, Chester Asset Management We further note that there is a degree of operating leverage in W&D earnings given the fixed costs of operating a warehouse. Completely theorectical but below we have completed an exercise considering what (variable) GM might be available if ~1/3 (AUD100m) of costs within the business are fixed. Our calculations equate to a GM of ~40%. Extending that further if craft volumes normalise back to FY2019 type levels we see a roughly AUD20-30m uplift in W&D revenues, AUD8-12m EBITDA at assumed 40% GM. Sources: UMG FY20 Accounts, Chester Asset Management 4. Strategic value to customers (margins + revenue) UMG is strategically located close to customers in key barley growing regions proximal to transport. Hence we see them as engrained in customer supply chains. I.e., We have used FY2019 EBITDA as a relatively normalised base and adjusted these for the relatively ‘known knowns’ of AASB16, Corporate Costs, FX, Scottish Expansion and Efficiencies. Source: Chester Asset Management, with data sourced from UMG announcements Valuation We have developed a detailed Discounted Cash Flow (DCF) of UMG that assumes a re-opening recovery in particular craft volumes (and also mainstream beer at events) that provides for a valuation of UMG of AUD5.20/share. We believe deriving a normalised EBITDA, per our exercise above is important for performing an earnings capitalisation valuation as a cross check to our DCF. Grant Samuels within the GNC Demerger Scheme booklet IER suggested a figure of ~10x 1yr forward EBITDA as a reasonable base multiple (11x historic EBITDA, 9x 2yr forward). Notably there aren’t any listed public deals of relative comparison to UMG but the sale of Cargill’s malt business to French cereals co-operative Axereal is speculated to have occurred at close to 12x EBITDA(11). The business was a combination of 16 malthouses with combined capacity of 1.7Mtpa vs UMG at 1.25Mtpa hence represents a pretty good proxy for UMG under a takeover scenario. In the table below we combine these to provide a valuation per share. Source: Chester Asset Management, IRESS, Grant Samuel (UMG Information Memorandum and Scheme Booklet IER) Conclusion Hopefully, within the next 12 months, the world will have fewer problems. (1) WEB, QAN, FLT (2) Major brewers, craft brewers and distillers (3) and continues to underperform other alcohol categories such as seltzers and spirits (4) Brewer Association (5) (VIEW LINK) (6) Investment bankers are clearly smarter than this writer who is still working on the maths (7) Macquarie Research Equities, “Australian Gas Light: Acquisitions, Restructures and Au Revoirs”, 1 November 2005 (8) Operating Cash flow pre-tax and interest / EBITDA (9) AUD140m capital raise announced 14 May 2020 (10) The Australian reporting interest from the Carlyle Group in 6/12/202, the AFR reporting interest from Affinity, PEP, BGH (11) (VIEW LINK) Not already a Livewire member? Sign up today to get free access to investment ideas and strategies from Australia’s leading investors.

After a year many would describe as the most challenging in recent memory we are optimistic on the human spirit bouncing back in 2021. Whether it be reigniting the passion for travel, embarking on a life changing move, or simply being inspired by Cobra Kai to learn Karate we see 2021 as a year of personal exploration. “Exploration is really the essence of the Human Spirit” Frank Borman With increasing market commentary that we are at the start of a structural bull market in commodities, we also believe 2021 may mark the first year of a bull cycle in commodity exploration. Here in we discuss our reasons for this, what it may mean and provide some insights on how to play it. Why we could be at the start of an Exploration upcycle Recent exploration success stories. Chalice Mining (+1633%) and DeGrey (+1890%) were the two best performing ASX stocks of 2020. Success breeds confidence and also FOMO as investors dream of what could be the next big name to hit the billboards. The recent increase in junior capital raisings(1) is testament to this. Commodity price strength. In a year that contained a global pandemic it was almost amazing to see a host of commodities deliver record price growth. Gold +25%, Copper +26%, Iron Ore +72%. With the image below an approximate representation of global exploration spend by commodity, strength in these 3 provides the ability (via FCF) and confidence (via management and investor capital allocations) to invest in the drill bit. Source: Imdex 2020 AGM Presentation Historic underspend. Wood Mackenzie has suggested the gold industry alone must invest USD54bn by 2025 on greenfield projects and mine restarts just to maintain production at current levels. New age of electrification. The electrification of the global transportation fleet and increased demand for energy storage provides a strong backdrop for investing in new supply of commodities like copper, nickel, lithium, cobalt, rare earths, etc. Globally co-ordinated fiscal stimulus targeting infrastructure. Governments globally have spent over USD10trn since the onset of the COVID-19 pandemic. What does an Exploration upcycle look like? We view S&P Global’s Market Intelligence report(2) as the best reference to global exploration spend. It represents a comprehensive survey of current and projected budgets from over 3,600 mining companies operating over 6,000 mines. The graph below summarises this data for the last 25 years. S&P’s latest 2020 estimate is USD8,700m in expenditure, ~11% below 2019 levels. If accurate it would actually represent a material upgrade to the 29% decline projected in April 2020. Early indications have S&P Global projecting 2021 growth at ~20%, which we expect would be 2H weighted. Hence the upcycle may have already begun. But what might it look like past 2021? We believe the average of the 2 most recent up cycles (2002-2008) and (2009-2012) provide the best guide to what this potential upcycle may look like. We have averaged these 2 below which form our base case of global exploration spend in coming years. I.e., Chester’s base case is a 4-year bull cycle in exploration peaking in 2024 at ~USD20bn. Source: Chester Asset Management, with data from S&P Global Market Intelligence How to Play We break down opportunity into 5 separate categories which we work through from bottom (least risky) to top (most risky) through the rest of this paper. Pure greenfield opportunities – very high risk without the appropriate skills Pure play explorers that have made discoveries – resource delineation and development plays Established producers with underappreciated exploration upside Pure play service companies Service companies with some exploration exposure A Leveraged Services Exposure – ALQ ALS Limited (ALQ) is the largest and most liquid way to play a potential bull market in exploration. ALQ provides analytical testing services globally across 3 key segments being Life Sciences (Environmental Services ~70%, Food ~20% and Pharma ~10%), Industrials and Commodities. Given the topic of this paper below we have only focused on the (cyclical) Commodities division which represented ~50% of FY20 earnings (pre corporate costs). This division consists of Geochemistry, Metallurgy, Inspection and Coal with the majority of earnings (Geochem and Met) predominantly exploration driven. Summarised below are the division’s results since 2009. Source: Chester Asset Management with data sourced from ALQ financial reports Although ALQ’s Commodities division is more than just non-ferrous exploration we have compared results with S&P Global data to calculate ~ALQ market share since 2010. Per below we estimate ALQ’s revenue has averaged ~4.5% (pretty consistently) of global exploration spend over the past 5 years. Source: Chester Asset Management, S&P Global Market Intelligence Despite calculations suggesting a higher level in 2020, we have applied this ~4.5% average against our top-down model of global exploration spend to derive projected revenue for ALQ. To that we have applied similar margins to the last up-cycle (refer above) to project earnings for ALQ. Our analysis is tabled below. Source: Chester Asset Management Sources: Chester Asset Management, Various anonymous broker reports Notably 3 quarters of FY22 for ALQ is in 2021 for which we assume the sell side has largely relied on S&P’s 20% growth estimate and hence there is limited deviation to FY22 revenue forecasts. However, if we are in an exploration upcycle, we see opportunity for upgrades to FY23 revenue and margins. We have shown projections to only FY23 as comparison is only really available to then but as discussed previously based on our assumed cycle for exploration this jaws would continue / expand into FY24 and FY25. Note we see it reasonable in an upcycle margins would materially expand, based on: mix benefits – higher proportion of more profitable greenfield (including juniors) exploration; operating leverage – high degree of fixed costs in operating labs; and price rises. Given the more predictable nature for the remainder of the business, Commodities earnings represents the key area of divergence between these projections and consensus for ALQ. Sources: Chester Asset Management, Various anonymous broker reports A ‘Pure-play’ Services Exposure – IMD Imdex (IMD) is almost a pure play exploration service company so is an appealing play on a potential exploration bull cycle, but IMD is also exposed to the theme of increased technology adoption in the mining industry. By way of background IMD’s business in FY2019 was split ~55%/45% between specialised drilling fluids (historically called AMC) and 45% instrumentation (historically called Reflex). These operate across 3 geographical divisions being Americas, Asia Pacific, Africa / Europe. Previously 100% of IMD’s business was with drilling contractors but this is moving more to direct to resource companies (currently ~20%) to drive higher engagement and share of wallet. IMD are increasingly encouraging clients to connect to what is known as IMDEXHUB-IQ, a cloud-based information hub which allows exploration work streams to operate in the cloud. ~60% of top 100 clients are connected to IMDEXHUB-IQ and these clients are estimated to spend 60% more than non-connected clients. In addition, IMD is at various stages of rolling out new technologies which expand the company’s total addressable market, including beyond just exploration. Status on 3 of the 4 key technologies (in August 2020) are pictured below. BlastDog (4) being the 4th technology, combined with aiSIRIS expands IMD’s offering into production. Source: Imdex FY2020 Results Presentation Below we have compared S&P’s data for global exploration spend to IMD’s historical revenue. What we notice is that similar to ALQ, IMD’s revenue has remained a reasonably consistent share of global exploration spend at ~1.8%. Sources: Chester Asset Management, S&P Global Despite IMD commentary they are winning market share our base case for their core business is they retain market share at 1.8%. We have tabled what the implied revenue would mean for IMD under our top-down global exploration spend scenario and compared this to consensus for FY21 to FY23. Source: Chester Asset Management Additionally, we have developed adoption scenarios for the 4 new technologies above with a view this revenue is incremental to IMD’s base business. If correct our reference case for IMD’s revenue is comfortably above consensus. Notably the higher margin instrumentation side of the business, including these new technologies, is seeing greater growth so in addition to operating leverage we see favourable mix providing opportunity for margin expansion. Sources: Chester Asset Management with consensus revenue sourced from IRESS Based on our top-down scenario, if an exploration upcycle plays out we see opportunity for material IMD upgrades from FY22 and beyond. Established Producers with Underappreciated Exploration Upside Similar to diversified industrials that attract a conglomerate discount exploration plays within established producers are quite often undervalued compared to pure play exploration companies. Hence with a valuation bias when we consider commodity investments one of our preferred ways to gain exposure to exploration is via attractive plays within established producers.Below we have tabled a list of some names we are watching. This is by no means a complete list but rather a watchlist of some names we see as interesting. To avoid doubt we have chosen to present these in alphabetical, rather than preferential/upside order. Source: Chester Asset Management with data from Company Reports Resource Delineation / Development Plays Finding existing discoveries that are progressing through the resource delineation phase is far less risky than swinging at pure greenfield explorers but anyone who has invested in this end of the curve or watched the movie Gold will understand there are unique risks in doing so. It is quite an art to capture the value of the de-risking phase while trying to avoid the pre start-up ‘orphan period’. We find the picture below extremely useful in summarising the lifecycle of a mineral discovery. Source: the Visual Capitalist Below we have provided somewhat of a watchlist of plays we are tracking in this category, again in alphabetical order. Source: Chester Asset Management with data from Company Reports Pure Explorers (including Greenfields) This is the pointy end of exploration and the less we say about this space the better. Picking winners here is a bit like this writer’s golf game, in my spare time I infrequently have a swing and every now and then one comes off but that is the exception not the norm. In the meantime, I am more than happy to take tips from the pros! Conclusion Get out there and get exploring. Footnotes (1) Per Macquarie by 105% in Canada and 34% in Australia for the 6 months to October 2020 (2) Which despite being only non-ferrous exploration is the best representation of global spend(3) We have used analyst reports from 7 sell side analysts. Note not all analysts presented EBITDA, where this wasn’t available we grossed up EBIT projections to EBITDA using the D&A of the Commodities division in FY2020 of (AUD37m) (4) Optimised blasting technology, developed in conjunction with Orica, Teck and Anglo American (5) (VIEW LINK)

For anyone who has followed the ASX telco sector in recent years the challenges presented by the rollout of the Government’s National Broadband Network (NBN) has been stark. Together with Telstra who has faced truly unprecedented business change the previously high-flying TPG and Vocus have likewise seen their share prices come under pressure as these one-time sector consolidators have faced significant business disruption. Confronting the forced disconnection and migration of historically lucrative broadband customers from their owned networks onto the more marginal NBN at a time when alternate wireless technologies such as mobile continue to drive rapid change in how consumers and businesses access their phone and internet services the headwinds for the sector have been significant. Consistent with the original pro-competition design ambitions of the NBN as a wholesale, open-access broadband network, the NBN’s development unsurprisingly fostered a new generation of resellers keen to challenge the market share dominance of the incumbents and participate in this once-in-a-lifetime customer churn event. Despite the ambitions of these new challengers, for the vast majority of the NBN’s licensed resellers (189 as at June 30 2020)1 they remain relatively minor players in the NBN broadband market which at the end of August 2020 saw ~7.5m residences and businesses connected2. Indeed, the market shares of the four major broadband retailers have remained similar to their pre NBN shares and they continue to represent greater than 90% of total connections. Source; Prospectus Aussie Broadband Limited (ACCC Market Indicators Report, June 2017, June 2018, June 2019, June 2020) Introducing Aussie Broadband Evident above, the most notable exception to the historic status quo has been the emergence of Aussie Broadband (Aussie) which is clearly resonating with the Australian public. Having grown its residential customer connections from little more than 25k at the end of June 2017 to greater than 242k at the end of the 2020 financial year, including adding ~112k net new connections in the last 12 months alone (to June 30), Aussie is clearly doing something right. With ARPUs (Average Revenue Per User) comfortably higher than Vocus and TPG on a comparable basis and more than half of new connections in recent months being switching customers from other NBN resellers (as opposed to initial NBN connections) momentum is certainly strong for Aussie. For a business founded in 2008 following the merger of two regional Victorian internet providers, this week marks a significant milestone for the business and its founders as it prepares to list on the ASX on Friday (16/10/2020) following its IPO. Despite its relatively humble beginnings the decision of management in 2016 to focus much of the company’s resources on pursuing growth alongside the NBN rollout has so far paid dividends. Harbouring truly national ambitions the decision to secure (via leases) a national backhaul network and establish connectivity to all 121 NBN POIs (Points of Interconnect) gave Aussie the foundations to pursue customer acquisition across the country and on all NBN connection technologies except satellite. Highlighted below, customer growth has been consistent and widespread. Source; Prospectus Aussie Broadband Limited Why’s Aussie any different? For Chester, the Aussie business has a number of impressive features that supported our decision to invest in the IPO. As important as any is the fact that founders of the original businesses that formed Aussie Broadband in 2008 and drivers of the Aussie business performance to date retain key executive and board positions of the new listing entity. The fact that these key personnel will own more than a quarter of the shares on issue post listing ensures healthy alignment of interest with new shareholders from the outset. The manner in which Aussie has achieved its customer growth in recent years is another strong feature of the business. Free of the burdens of managing large back books of contracted customers across various category verticals, the legacy of years of acquisitions and capital heavy network investment, Aussie has been focused only on organic growth by concentrating on meeting key customer expectations. Addressing arguably the biggest gripe Australian telco customers have with their providers, as an Australian owned company, Aussie’s commitment to having only Australian support centres certainly sets Aussie apart from all of its larger competitors who rely heavily on offshore call centres. It’s notable that Telstra has recently committed to onshoring all of their call centres in the coming years, a nod to the challenges COVID-19 caused with these offshore centres recently and the strong demand from customers for this service. Other features of the Aussie customer proposition that align with the changing demands of local broadband customers include their commitment to no lock-in contracts across consumer internet plans, no excess data charges and a commitment to being amongst the fastest and easiest providers to sign up with. As the below graph demonstrates Aussie has also been remarkably efficient when it comes to acquiring new customers in recent years. Having spent little more than $15m on direct marketing in the last two financial years1 (including $6.7m in the final 3 months of FY20 as demand for broadband services rose strongly with the onset of COVID-19 and associated lockdowns, WFH, etc.) Aussie’s customer acquisition costs have averaged ~$82/customer (pre promotions) over this period when allowing for customer churn, or closer to $60 before churn. These statistics are very strong and represent acquisition costs considerably lower than what Aussie would be required to pay (per customer) if it sought to supplement organic growth with acquisitions currently. Evident below, it’s notable that Aussie’s forecasts for FY21 anticipate customer acquisition costs rising ~35%1 as Aussie’s ~$24m of budgeted marketing continues to deliver strong organic customer growth, albeit at lower levels of efficiency than prior periods. Whether these assumptions prove too conservative remains to be seen. Source; Prospectus Aussie Broadband Limited (Data post June 30 2020 are prospectus forecasts) What does the future hold? The opportunities for Aussie are considerable and all going to plan should set Aussie up for the delivery of meaningful free cash flow in the years beyond FY22. On top of using IPO proceeds to more than double their marketing spend in FY21 as it attempts to further grow its market share, Aussie will use the majority of the new IPO capital to part fund a budgeted $67m capital investment project that aims to replace nearly two thirds of the company’s leased backhaul capacity with its own fibre network designed to deliver meaningful long term cost savings. Having commenced this project in late FY20 and expected to complete in a little over 2 years, the prospect of group gross margins rising meaningfully above current levels at around 24% sets the business up for sustainable profit growth and supports a DCF valuation well north of the $1 issue price if executed to plan. While Chester consider the risks of investing in the Aussie IPO partly mitigated by the strength of the group’s management and performance track record a couple of key risks need to be understood for any potential investor. Whilst competition and regulatory risks are clearly towards the top of the list of challenges Aussie will need to manage, pricing risk around accessing the NBN is especially noteworthy. Per the current regulatory framework, the NBN retains the ability to set access pricing for all NBN resellers. Representing over 60% of the group’s total cost base in FY201, the challenge of provisioning adequate capacity on the network ahead of customer utilisation is a clear challenge and one that has continued to be a source of frustration for industry players. Once more, Aussie looks to be amongst the best positioned to confront this challenge given its lack of legacy systems and products relative to peers. Utilising internally developed systems Aussie continues to pursue improvements to how it purchases NBN capacity in accordance with anticipated customer consumption patterns. Aussie continues to do considerable modelling work with a view to reaching a point where purchasing will become more frequent (i.e. daily) and potentially even fully automated. Stepping up to the challenge Like all IPO’s, the success of Aussie Broadband as a listed company will mostly come down to management executing on their strategy and delivering against the forecasts it set for itself not only in FY21, but the years to come. In addition to carrying strong operating momentum into its prospectus year Chester believe management have built a business with very sound foundations on which to deliver sustainable growth. Beyond the core consumer broadband opportunity largely discussed in this note, Aussie also has a fast-growing business segment and considerable scope to extend its consumer offer through greater bundling of adjacent products (streaming/entertainment services and mobile phone offers) and new partnerships (utilities referrals and private (non-NBN) networks). Aussie is undoubtedly a business of considerable potential and we are backing management to continue to execute as a listed company. 1. Prospectus Aussie Broadband Limited – issued 14th September 2020 Available: https://www.aussiebroadband.com.au/investor-centre/ 2. NBN Monthly Progress Report August 2020

Amazon, Google, Woolworths, Tesla. No this isn’t an Ari Gold sales pitch(1) but rather a list of recent contract announcements by ASX companies we’ve seen greeted with enthusiastic share price reactions. Yet the reaction to government contract announcements is generally much more muted. Maybe comparing Government to Amazon as a counterparty is akin to the big value vs growth argument we’re currently witnessing but we do believe despite markets seemingly pricing in a recovery, (v, u or otherwise) in many parts of the economy, the heightened degree of certainty that comes from having government backing is being underappreciated. With the FY2021 federal budget this month drawing focus on government spending we thought it opportune to bring forward this thought piece we have been considering for some time. It is in some ways a follow-up to our April 2020 paper discussing the Defence sector(2) wherein we proposed that one of the key attractions of the sector in this uncertain environment is the strength of their key counterparty being in many cases a government department. Sugar Rush Hit or Complex Carbohydrates One thing that sticks with this writer from physical education classes at school is the lesson around simple vs complex carbohydrates. Complex carbohydrates contain longer chains of sugar molecules than simple carbohydrates which the body takes time to break down. They hence provide longer lasting energy than simple carbohydrates. We make this point because we believe there are analogies to the current level of fiscal spending and the much discussed “fiscal cliff”. In Australia; JobKeeper, JobSeeker, income support payments, early super withdrawals and other government programs have provided support during the pandemic, to the extent household incomes have actually been up over Q2 and Q3 but drop materially in Q4 (~AUD70bn) as programs are withdrawn. Many consumer discretionary names have benefited from this and experienced a sugar rush revenue surge with big jumps in like-for-like sales(3) i.e. HVN +30%, JBH +40%, SUL +30%, KGN+110%. Some of these rises are unsustainable and in some cases, like the data we have seen for gambling totes, are simply alarming. With the wisdom of hindsight, this tailwind appears obvious, but was less apparent to us in the 2Q. We have been focusing on businesses with a more sustainable benefit from fiscal spending. For example, approximately two months after our Defence paper was released the Australian Government, announced an AUD270bn 10-year package, an increase of AUD70bn (35%) from previous projections. Debt Investors price government deals differently Credit rating agencies assess the creditworthiness of corporations, i.e. their riskiness as a counterparty compared to the government. This transpires in what is called a credit spread, the difference between the yield of a corporate and treasury bond with the same maturity. Below we have included a table showing the current yields to maturity (YTM) of a handful of 10-year bonds in Australia. Source: Chester Asset Management, Bond Adviser daily rates sheet, bond rates as at 21/9/2020 The table highlights that debt investors require a return over and above that of a government bond, to be compensated for the risk of investing with that counterparty. Recently we heard the anecdote from a company that was securing debt and had jumped through hoops during previous bank diligence rounds. On this occasion that company had experienced a change in circumstances whereby they were managing assets backed by government contracts. The anecdote reminded us of the quote from the movie WogBoy “did you say government car?” whereby the bank that provided the debt didn’t even physically inspect the assets and provided a much lower rate under the knowledge they were secured against government backed assets. So, if debt investors who claim to be more stringent in their assessment of companies before allocating capital see government counterparties as less risky why doesn’t the same apply to equities? We consider this below with particular regard to ASX exposed equities and A-REITs. Equities with Government Counterparties We have performed an exercise filtering down the ASX300 to a list of companies with higher government counterparty exposure and attempted to demonstrate an earnings yield, comparable to a capitalisation (cap) rate, across the group. As we detail below, this cap rate is a function of risk, opportunity cost of capital and growth, hence we have tried to highlight some of these metrics by showing an average across the group (4). Source: Chester Asset Management, with data from IRESS, September 2020 – Noting some items here like debt cost and % of government revenue are not easily observable so are estimated by Chester A summary of some thoughts on these companies is presented below. Source: Chester Asset Management, September 2020 A-REITs We aren’t specialist property investors but do consider REITs(6) as part of our investment universe, An obvious but important point is that COVID-19 has certainly shined a light on counterparty risk. Among other things the pandemic seems to have accelerated the decline for Retail REITs(7) and created some uncertainty for the Office space, at a time when interest rates remain near record lows and there is a desire for steady income streams. Below, similar to the equities list above, we have filtered down the ASX300 REITs to some key metrics which we have averaged below. Astute readers might notice this doesn’t include retirement living(8) REITs, which we address later down the page. Source: Chester Asset Management, Company Presentation Material, IRESS, September 2020 What we note is that on a simple arithmetic mean basis Retail, Office and Industrial asset classes average out at a similar cap rate of ~5.7%, with an average debt cost of ~3.1%, WALE of 6.8 years and 96.5% occupancy for 1.2% LFL growth. Government as a counterparty represents ~9% of tenancies. We have chosen to focus on the cap rate for REITs because it is the key determinant in what these properties are worth, the inverse being the multiple at which net income is capitalised to calculate the net asset value of the properties. I.e. capitalisation rate = annual net operating income / value. There are a number of factors that can affect the cap rate of a property but simplistically these factors are: risk, opportunity cost of capital and growth expectations. We address each of these in detail below with particular regard to the retirement living operators. Risk Two key risks to assess when investing in REITs is the collectability of rent (a function of counterparty risk) and vacancy. On collectability we think the following image is very interesting, showing rent collections in the June Quarter 2020. Source: Ingenia FY20 results presentation Regarding retirement living operations rent is in most cases effectively underwritten by a government counterparty. What do we mean by this? Tenants within these communities generally receive fortnightly pension payments from the Australian Government. Upon the pension being received it is automatically debited to the accounts of the village operator (before being touched by the tenants). Additionally, particularly in the case of villages the pension is also coupled with a rental assistance rebate paid directly by the Government to the retirement living operator. I.e. the ultimate counterparty of retirement living operators is the Federal Government, hence the risk of the operator not receiving rent is potentially much lower than office, industrial and retail operators. On vacancy risk, our understanding is that lockdowns have resulted in increased demand for the vulnerable and the isolated seeking support and community. This has transpired to a material step up in inquiries within communities/villages and is also reflected in record occupancy levels of retirement villages. We further note expected tenure of tenants is ~10 years with tenants agreeing to long-term leases vs AREITs WALE average of 6.8 years. In the case of LIC tenants agree to a 90-year lease over the land their property is situated on. Opportunity Cost of Capital One company we spoke to during reporting season suggested there is material demand for quality property assets but there was a heightened focus on “beds and sheds” given the uncertainty around retail and office. Sheds refers to Industrial REITs, where cap rates for quality assets are in the 4s. We believe the conversation around beds was clearly referring to ‘Build to Rent’ as an asset class but can also extend to the retirement living space. Growth It’s hard to argue that the e-commerce trend driving the attraction of Industrial REITs isn’t a powerful thematic, but the demographic trend of an ageing baby boomer population is also quite appealing. Industrial REITs aside is the trend of an ageing population and the escalators built into leases (3.5% p.a. in LIC’s case) a potentially more attractive growth opportunity than Retail, Office or other REIT classes? We think it’s worth considering. Below we have tabled the ASX pure play retirement living providers, noting the list was longer prior to corporate activity in Aveo and Gateway Communities(9). Source: Chester Asset Management, Company Presentation Material, IRESS With potentially less risk, appealing characteristics(10) vs other REITs and attractive growth we suspect there is room for cap rate compression. At premiums to NTA this may be somewhat priced in, particularly for LIC, but we believe provides for valuation upside in the likes of EGH and INA. Conclusion The point of this exercise was not to say that every company that has government contracts will necessarily outperform those that don’t, but it does provide food for thought. I.e. it’s worth thinking about avoiding the sugar crash and considering whether it’s time to load up on carbs. (1) As seen in the TV Show Entourage, episode the Script and the Sherpa (2) Have you got your bunker in Order (3) I.e. FY21 YTD sales (4) Which can be further compared to the entire market and a FY22 growth rate (5) (Operating Cash Flow after tax excluding interest – capex)/ Enterprise Value (6) Real Estate Investment Trust (7) We don’t have space in this article to get into a debate around Retail REITs so will leave the comment at that (8) We have collectively considered land lease communities and retirement village operators (9) EGH is notably not an ASX300 company but has been considered by Chester as a company with exposure to this thematic (10) Including potential further industry consolidation

There is an asymmetry of information in markets which is one of the key reasons buyers and sellers are willing to transact at a given price, as investors try to make perfect decisions with imperfect information. So, what if we were closer to having perfect information, surely our decision making should improve right? That’s the theory of insider trading. A practice that despite the common misconception, does exist in a governed, legal form which is what we are referring to herein. At Chester we have material personal investments in our fund because we believe in what we do and believe aligning our interests with those of unit holders, enhances our stewardship of their capital. We seek the same when we invest in companies. I.e. we seek an alignment of interests between us and the board and management, which often comes with equity ownership. For this reason, we are encouraged when insiders take to buying stock and pause for consideration when insiders sell. What can be gleaned from insiders' trading? We wouldn’t want to cheapen a 50k word PHD by trying to replicate their work with a shorthand article but below we have attempted to quantify some of the historic studies to give us a point of reference on insider dealing. Despite debates around its application as a decision-making input, evidence does exist to support the notion insider dealing can lead to alpha generation. Source: Table prepared by Chester Asset Management but refer Further reading for links to referenced study This is by no means an exhaustive list and doesn’t include studies that argue to the contrary regarding insider dealing. However, it does provide evidence we have done at least some reading and provides a reference for anyone wanting to do further reading. How to interpret insider trading Following insiders' leads in buying and selling decisions is a bit like Sex Panther perfume (per the movie Anchorman), 60% of the time it works every time. This was evident in our review of historical literature and in the director trades of FY2019 and FY2020. We make the following points, some of which are somewhat obvious. Director buying has greater information than director selling. This famous Peter Lynch quote sums it up best "insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise." Without detracting from the above quote, buying is sometimes undertaken by insiders to game markets and assist capital raising efforts, a phenomenon common but not limited to small cap resource companies The closer to the coalface the better. As the Perich family may attest, executives buying and selling is a better signal than a non-executive director, given Management should have a better understanding of the day to day operations. Some papers have even gone as far as suggesting CFO trades are more profitable than CEO trades Director trading as a signal is more powerful the smaller the company Obvious point but the more directors transacting (and obviously the more material the stake) the better the signal. We have tried to show this as a % of market cap in the tables below One-off opportunistic trades (i.e. one off on-market buying) is more powerful than “routine” trades. The Cohen, Malloy and Pomorski 2010 study showed this best with 0.82% abnormal monthly return vs 0% for routine trades Insiders can often act well in advance of good news so the phrase “stay the course” is relevant Stocks with high free cash flow yields that are subject to insider buying have even stronger outperformance than low free cash flow yield purchases There can be many false flags. Just ask any investor who got spooked because Bevan Slattery sold 10 million NXT shares in November 2014 at AUD1.95/share, or 3.3 million MP1 shares in May 2019 at AUD5.11/share Director Transactions in FY19 and FY20 Most market participants will refer to Bloomberg for cues regarding insider trading but we have noted that the Bloomberg data doesn’t necessarily split insider dealing into on-market trades and other trades. While we can’t speak to the accuracy or completeness of the data contained in Market Index it does appear to offer greater information content than Bloomberg, albeit at the expense of extra manpower inputting data and working spreadsheets, to compile the following tables. We won’t provide a stock by stock analysis of each of these but in the subsequent paragraph we provide some examples of how Insider dealing has contributed to the Chester decision making process. Source: Chester Asset Management with data from Market Index Source: Chester Asset Management with data from Market Index Decision making examples While we don’t necessarily run screens searching for material director trades to identify stocks to buy, sell or avoid it does feature in our assessment of a company’s governance and in our decision making by testing or adding to our conviction. Below we have listed a subset of examples of the input of insider dealing within our process. ORA. We sold out in FY2019 given deteriorating fundamentals and management turnover. Multiple directors (MD and Chairman) selling in March 2019 contributed in our decision making to exit the position OGC. Multiple material director purchases in November 2019, including by the MD and Chairman added to our conviction in building a position. Refer Underappreciated and unloved Gold RWC. The (final) AUD367m 10% sell down and severing of ties by the original founders in February 2019, less than 12 months after the acquisition of John Guest left us very cautious and out of the name in 2019 UMG. Multiple (14!) director purchases (including executives) on-market in the past 6 months has increased our conviction in the stock MIN. Material director purchase (AUD19m) in May 2019 supported our buy on the stock right before our note, A different kind of Portfolio Manager IMD. Director selling in December 2019 provided an opportunity to test our thesis but didn’t change our decision to hold A2M. Material share disposals in August 2020 by the Chairman, interim CEO, AsiaPac CEO and other Executives leaves us cautious on the outlook for the company Energy. Multiple energy names have seen recent insider buying which has drawn our attention Technology. We have recently witnessed Directors selling in a number of technology companies above what we see as fair value for the company Owners of capital We will look to release a more detailed paper on executive remuneration and tenure in the coming 6 months but as noted in our opening, part of our thought process on insider dealing extends to the overall level of insider ownership. We find that owners of capital have much stronger alignment of interests with shareholders than non-owner stewards of capital (executives without significant stakes or long tenures) which as evident in the graph below has historically translated to outperformance. Another somewhat obvious point but the smaller the company the more likely it is for founders and owners of capital to exert more influece over the direction and success of the company, hence aligning ourselves to passionate and entrenched founders / CEOs is something we pay a good deal of attention to. There are plenty of reasons why owners of capital outperform including but not limited to the culture in the company driven by the mindest of its founders to challenge industry norms and persevere. Jeff Bezos, who is probably the most famous founder of our time, also has some of the most expensive failures was once quoted as saying, "If you decide that you’re going to do only the things you know are going to work, you’re going to leave a lot of opportunity on the table". Source: First Republic Bank Conclusion We would all love to be able to utter the phrase “I am not uncertain” in our stock selection. With information asymmetry not just a feature but one of the key reasons markets exist maybe the best we can hope for is less uncertainty. Hence insider dealing and ownership should be incorporated as factors to consider in a portfolio decision making framework.