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Significant synergy. The acquisition will enhance Noble’s capacity to source for quality iron ore to satisfy demand from buoyant global steel industry. We believe that through the acquisition, Noble is able to have access to high quality iron ores to satisfy the growing demand, particularly from the steel industry in China. Mhag on the other hand will be able to tap on Noble’s expertise in iron ore, logistics and freight, together with a deep knowledge of emerging markets. Incidentally, Noble has direct contacts with 120 steel enterprises in China. Mhag is already producing and shipping high quality iron ore through the port of Suape in the state of Pernambuco. It has plans to increase, immediately, production of iron ore to 3.6 million tons per year, with output to reach 10 million tons per year by 2009. By 2009 (after expanding production capacity), it is expected that Mhag will be amongst the most competitive producers because of favourable strategic location (Mhag’s mine is near to a port), high quality ore, low cost internal transport and availability of all other necessary resources.

Demand for raw materials like iron ore, steel, and coal to remain strong, driven by strong growth in infrastructural spending as seen in many developing countries. Steel production in Japan, South Korea, China, and the EU combined has increased by 42.4% since 2003. In China alone, steel production has increased by 92.2% from 219.3 million tons in 2003, to 421.5 million tons in 2006 (see Exhibits 1 & 2). The substantial increase in steel production also leads to an increase in demand for iron ores and (coking) coal. With a stake in Mhag, we expect Noble to benefit from being able to provide quality iron ores to the buoyant steel industry, especially in China.

Although the Chinese government has recently imposed export tariffs on a variety of steel products, we retain our optimistic long term view on the demand for steel. Our view is supported by strong demand for steel, not only in the construction sector of emerging Asian countries, but also in their automotive, oil & gas, and marine sectors. Local demand in China also remains strong, with infrastructural spending maintaining at a high level.

Fair value revised up to S$2.15. BUY recommendation maintained. We do not see the steel industry, especially in China, slowing down in the near term. As such, we remain positive on the overall demand level for iron ores. We believe that the Brazilian acquisition will reinforce Noble’s position as a major supplier of quality iron ores to China. According to trade statistics, Brazil exported 22.5 million tons of iron ore in May this year with China being their largest customer. China’s iron ore imports from Brazil for the January to May 2007 period were 40.3 million tons, up 40.5% y-o-y (source: Clarkson).

We increase our estimation for tonnage growth for Noble’s MMO segment (which includes iron ore as part of the product portfolio) to an average of 8.9% for the FY07 to FY09 period. Although we are positive that the acquisition will result in the increase in tonnage volume of Mhag’s iron ore export shipment to be handled by Noble, we remain conservative in our projections. Accordingly, we revise upward our average earnings growth rate to 16.4% CAGR over the FY07 to FY12 (inclusive) period.

Our fair value of S$2.15 is derived at using the three-stage DDM model. Key assumptions are highlighted in the table below (see Exhibit 3). Our fair value translates to FY08 P/E of 22.3x and a FY08 P/B of 2.9x. We maintain our BUY