Why I am not so sure about Parys. Recently sold my investment in AYM, fortunately I bought at 12.

7 so havent lost too much, but a deeper investigation of AYM left me less convinced that that company was a golden opportunity mispriced by the market certainly I wasnt confident enough in the AYMs intrinsic value to ride out any future market deterioration. I wanted to share an opinion on Anglesey in the hope that it may be of some interest. To be clear, I am not saying that AYM wont generate strong returns, just that it doesnt have quite the margin of safety I look for in an investment and I feel that there may be better short term opportunities. Initial investment thesis: Two parts to the company which was undervalued relative to both, 26% of Canadian Iron Miner (LIM) valued based on market at 25m and 100% of a derelict welsh mine, almost sold for 14m in 2008. 3.7m cash and 2m debt. Market cap of company 22m so clearly a large discount. Wanted exposure to long term copper price appreciation and also thought that LIM was undervalued. Believed that I had a strong margin of safety due to the fact that the cost of production ($65t) was well below market price (c. $ 138/t). Share price had collapsed since 2011 (by a factor of c.5). Why I sold out: I think the biggest challenge to AYMs value is the LIM stake. Although the actual mining progress has been strong, the share price is hostage to fluctuations in iron ore prices. Recently we have seen the price come down to $126/t which, as I will explain, I believe is pretty close to LIMs breakeven price excluding Capex: Despite the fact that LIM is a low cost miner, and on the face of it the marginal cost of production is massively lower than even worst case projections of both long and short term iron ore spot prices, its breakeven costs are far higher than they appear at face value. The biggest issue is, as people have rightly commented, the IOC commission in addition to the shipping fees. When both of these are taken into account, a spot of $126/t results in a realised price of c. $73/t. With a marginal cost of production currently at $60-65, although due to come down to $50-55, and a 2012 Capex budget potentially as high as $113m, it potentially leaves the company in a vulnerable position if iron ore prices remain soft or deteriorate further. If there was a way to effectively hedge spot iron prices, then I would have more confidence, but as this is not really feasible for a retail investor (there are mixed iron and steel ETFs, but nothing linked directly to iron ore spot) I find LIM beyond my risk tolerance. Furthermore it doesnt make sense to me that LIM should be spending $35m of capex to bring mining costs down by $10/15 per tonne without making greater efforts at achieving a realised sales price closer to the spot rate which would most likely be far cheaper. What I do think would make a reasonably compelling investment would be a long position in AYM hedged with out of the money puts on LIM. I dont have any access to any options pricing data for LIM, but I will explain the rationale behind my thinking. The key likely scenarios I see for LIM/AYM are as follows: 1) Spot iron prices continue to deteriorate to less than breakeven cost of production with no short or medium term recovery. The long term price of iron which is currently projected to be $90-100/t is gradually transitioned into. Capex overspend makes LIM financially

vulnerable and the company is unable to pay out significant dividends. AYM unable to be developed, share price continues to stagnate/collapses. 2) Spot iron recovers, LIM makes significant profits and pays out dividends. AYM possibly developed, although realisation of shareholder value takes a significant amount of time. 3) Anywhere on the spectrum between these two scenarios. I think an out of the money put on LIM, provided not too expensive, would prove useful in all of these scenarios. If LIM becomes strongly cash generative, then AYMs share price should increase by so much that the small cost of the options will be easily recouped and much more; the cost of the insurance I dont think will be missed. If LIM however goes to 0, or close to it, then the put payout will effectively mean that you have brought Parys at a huge discount to its intrinsic value. That being said, regardless of LIMs success, which as I have made clear I believe is by no means a sure thing; I am concerned that AYM is potentially a value trap. The reason for this belief is a general lack of confidence in AYM managements determination to maximise shareholder value. The reasons underpinning this concern are as follows. The first is that AYM has been listed since 1988, and yet very little progress has been made to develop the mine. While it was almost sold in 2008, the relationship between LIM and AYM unfortunately gives me the impression that the managements approach has been to focus almost completely on LIM at the expense of AYM shareholders. In other words, the management has had over 20 years to generate shareholder value from the Parys mine and yet has singularly failed to do so, unless I saw a catalyst that this was going to happen I would imagine further softness in the share price for at least the immediate future. In addition to this there are a couple of other alarm bells. The first is the 10% loan on the companys balance sheet that looks completely un-needed and unnecessary, especially when it is to an individual who has a large shareholder interest in both AYM and LIM. I would have thought that with 24m in liquid securities, AYM could raise more competitive financing, if that is they even need it. They have over 3m earning c. 1% without any clear plans to maximise shareholder value and, although the actual cost is reasonably slight, it just seems symptomatic of a management team that potentially is not as interested as it should be in maximising value for AYM shareholders. The final thing that concerns me slightly is why AYM didnt sell a portion of its LIM stake during the 2011 mining boom in order to finance the development of AYM. I dont really see why AYM needed to keep the LIM stake on its books. It is possible that there was a covenant in the initial spinoff that AYM would retain its stake in LIM, but I have not seen any reference to this. From a shareholder value perspective therefore, considering the market has persistently discounted AYMs LIM stake, the most effective course of action would have been to sell of the LIM stake and use the proceeds to develop Parys this was not done. Furthermore I believe the Passport hedge fund, with a 5.6% holding of Anglesey is currently being liquidated and as a result we may see some short term softness in the share price that will allow me to re-enter if the Iron Ore price begins to recover. Summary In summary, while I think that AYM could still be a decent long term play given the constraints on long term copper supply and likely accompanied price appreciation, I believe that in the short term I may be able to find better value investment opportunities. I remain not entirely convinced about the managements determination to maximise value for AYMs shareholders and feel that the part miner

part investment vehicle structure will put off investors and continue to result in a weak share price. Key catalysts to consider reinvesting would be a recovery in and stability of iron ore spot prices, more competitive sales structure or more significant moves by management to demonstrate that they are committed to realising value for AYM shareholders.