Rating, page-2

GS is very bullish on SGM, & very positive for becoming the 100% owner

GS Comment: Consolidation of its ANZ footprint; Reiterate Buy (CL) For SGM, the NZ market is highly attractive and we view the full consolidation of SPM as logical continuation of SGM’s current growth strategy of “complementary bolt-on acquisitions in core markets.” The country’s strong economic and in particular construction activity is leading to a high volume of scrap generation, and following the closure (and dismantling) of the Pacific Steel Electric Arc Furnace in late CY15 it has become a predominantly export market, very well suited to deliver supply to SGM’s global distribution network. While the relative volume contribution is relatively small (c.350kt vs SGM c.9mt), with no major competition and no major local scrap consumer, we expect the raw material margins and overall profitability of the NZ assets to be materially higher than the broader SGM portfolio, hence for the acquisition to make a positive contribution to Group metrics. We remain positive on SGM and reiterate our Buy rating (on CL) and A$19.44 12-month target price.