0254 mining commodity attractiveness industry analysis gold copper lead and zinc
TRANSCRIPT
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Mining Commodity AttractivenessIndustry Analysis
March 2007
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2
Monitors Mining Credentials
Work Type
Monitors Mining Work by
Geography
(% o !ork"
Monitors Mining Work
by #iscipline
(% o !ork"
Strategy
Finance
StrategicTransactions
Operations
Organization
IT
Monitors Mining Work
by Industry
(% o !ork"
Metals
Minerals
PreciousMetals
Diversified
Africa
Europe
NA!erica
S A!erica
"lo#alAsia$Pacific
Across allt%e value
c%ain
Mining andE&traction
Process and
'eneficiation
MineDevelop
E&ploration
(ogistics
Monitors Mining Work by
$tep in the alue Chain
(% o !ork"
Source) Monitor*s +no,ledge Manage!ent Syste!
Monitor has a solid knowledge of the mining industry across several dimensions
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-
Monitors Mining Credentials
$elected &'amples o Monitors Work in the Mining Industry
Sales andMarketing
Logistics
MiningandExtraction
MineDevelopmentandfinancing!
Exploration
"uman #esources
Engineering and$ro%ects
&nnovation
'inance
Gro!th lanning
Developing. ran/ing andprioritising capital pro0ects
Opti!izing !ine design
#eveloped )uman
*esource $trategy or
Mines
Incentive sc%e!es
#eveloped )uman
*esource $trategy or
Mines
Incentive sc%e!es
Asset #ivestiture
1elped identify3 anddivest non4core and non4perfor!ing assets
Asset #ivestiture
1elped identify3 anddivest non4core and non4perfor!ing assets
$upplier Agreements
Negotiation support 5o!!odity lin/ed
pricing analysis
$upplier Agreements
Negotiation support 5o!!odity lin/ed
pricing analysis
M+A $upport
Post4!erger integrationfor leading glo#al
alu!inu! playerAssisted in a #id for a
large Sout% A!erican!ineral asset
Mining Cluster
Analysis
Industry4,ide co4operation
Mining Cluster
Analysis
Industry4,ide co4operation
ortolio,ptimi-ation
$trategy
Inter4!ine synergies Portfolio
reconfiguration Mar/et opti!ization 6eal options analysis
Innovation rocess Diagnosis of gaps Develop!ent of strategy.
process andi!ple!entation
Innovation rocess Diagnosis of gaps Develop!ent of strategy.
process andi!ple!entation
Corporate $trategy Scenario planning Design ac7uisition ca!paign Integrated individual (OM plans into one
group plan strategy
Activity .ased ManagementA'5 AnalysisA'M I!ple!entation
Activity .ased ManagementA'5 AnalysisA'M I!ple!entation
Marketing $trategy Do,nstrea! strategic
alliances Opti!ise !ine to
!ar/et3 !atc%es Introduced ne, #usiness
perfor!ance !easures
/ogistics Analysis
Met%ods to reduce stoc/ %olding Opti!ized inter4!ine stoc/ transfer
/ogistics Analysis
Met%ods to reduce stoc/ %olding Opti!ized inter4!ine stoc/ transfer
Monitor has extensive experience consulting to mining houses around the glo(e) undertakingover *00 mining engagements in the last *0 years) covering a (road range of topics+
$rocess and,eneficiation
,perational &iciency
Opti!ized over%ead structure Increased !ine and plant
efficiencies
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8
Monitors Mining Credentials
Three Illustrative &'amples
Case#escription
0ey Challenges ,ur Approach and ,utcomes #iscipline *egion IndustryalueChain
5orporateStrategy
Over t%e last decade.s%are%older value for t%eco!pany9s industry %asdeclined due to decreasingvaluation !ultiples :tied to t%eoutloo/ for gold prices; despitei!proving #usinessfunda!entals Monitor ,asengaged to %elp for! aperspective a#out t%e
attractiveness of a variety ofstrategic options #ot% ,it%in andoutside of t%e gold sector
Monitor facilitated strategic planning sessions ,it%e&ecutive !anage!ente developed a pilot innovation process at t%e ?inc#usiness unit and t%en rolled t%e process to ot%er '=s T%eresult ,as a !uc% ric%er set of opportunities for t%e#usiness. and significant cost savings
Organ4ization
Sout%A!erica
DiversifiedAcross allvalue c%ain
5orporateStrategicPlanning andPortfolioManage!ent
T%e #rief ,as to select a set of@platfor!s@ across t%eorganization t%at could #e usedto initiate a process of/no,ledge s%aring #et,eendivisions and t%us i!proveoperational perfor!ancet%roug%out t%e co!pany
T%e tas/ ,as split into t%ree !odules) Selecting/no,ledge s%aring platfor!s< 2 5%oosing appropriate/no,ledge s%aring !ec%anis!s< and - considering %u!anasset i!plications of t%e /no,ledge s%aring process T%e/no,ledge s%aring :and t%e platfor!s and !ec%anis!sproposed;. strategic planning and portfolio !anage!entare crucial to t%e core #usiness and for! a /ey part of t%eco!pany*s gro,t% t%roug% !erger agenda
Organ4ization
"lo#al Diversif iedAcross allvalue c%ain
Source) Monitor*s +no,ledge Manage!ent Syste!
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B
$ustained Gold price and increased consolidation !ill stabili-e *eturn
!hile decreasing *isk
#ynamics in The ast200* - 200.!
1uture ,utlooknext / to *0 years!
Gro!ing demand
Ce,ellery gro,t% indeveloping econo!ies
Flig%t to safety*
>ea/ =S
Increased econo!ic
uncertainty"ro,t% in ETFs
*eturn
*eturn
*isk
*isk*isk
*isk
$rices from S1 003o4 to S1 .003o4
*eturn Gro!th
*eturn
*eturn
olatility #ecrease Volatility Decrease
#emand gro!th sustained
Sustained 0e,ellerygro,t% in developingecono!ies
"old continues to act as
5 6store of wealth
1edge against =S Maturing ETF gro,t%
$upply catching up
Top players furt%erconsolidating
5ontinued scrap gro,t% Pri!ary supply to !eet
residual de!andincrease
Decreasing 5entral'an/s sales
Tight supply
Pri!ary supply decrease Increased consolidation Tig%ter control on
secondary supply
5entral 'an/ sales
Increased scrap sales :4B) GH 5A"6;
Increased efficiency and!ar/et control #y largerplayers
5onsolidation
Increased visi#ility
5entral 'an/sagree!ent
Steeper cas% cost curve
Increasing costs
Increased slope of t%e cas% cost curve
Costs increase urther
Increase in average cost of production< %ig% cost ne,entrants
$rices 8 S1 .003o4
*eturn $table
Furt%er consolidation int%e industry
Even steeper cas% costcurve
9old
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Source) Monitor analysis
Dou#ling e&posure to 5%inese de!and J and supply Inventories at %istoric lo,s
Chinese demand and supply !ill increase the *isk !hile keeping the
average *eturns constant
Gro!ing demand "ro,ing 5%inese
de!and &ndustrial+ Po,er and
electricity.construction
Middle class+A$5.
auto!otive
$otening demand gro!th Slo,ing 5%inese
de!and gro,t% 5A"6 fro! 8H
do,n to KH De!and fro! ne,
auto!otive applications Offset #y gro,ing
su#stitution #yAlu!inu!
=ncertainty in speculative $ investor sales Increasing e&posure to 5%inese de!and and supply (o, inventories at t%e start of t%e period
#ynamics in The ast200* - 200.!
1uture ,utlooknext / to *0 years!
*eturn
*eturn*eturn
*eturn
*isk
*isk*isk
*isk
olatility Increase
$rices from S1 *)/003t to S1 .)/003t
*eturn Gro!th
olatility Increase
$rices 8 S1 .)/003t: gradually down to a(ove historic average
*eturn $table
/agging supply increase 1istorical invest!ent
s%ort of current de!and Declining grade in !a0or
!ines Supply disruptions Fast stoc/ depletion
since 22 to partiallyoffset supply s%ortage
Tight supply balance Ne, capacity 0ust
enoug% to !eetincreased de!and Mostly fro! 5%ina.
(atin A!erica andNort% A!erica
Increasing consolidationto allo, %ig%er control
*elative cost decrease "ro,ing !ine size driving econo!ies of scale
$table costs No c%anges in cas% cost curve
;opper
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Asia J Pacific $ 5%inese de!and gro,t% 5%inese supply gro,t% :LBH 5A"6; Increased frag!entation Top B !ar/et s%are fro! c-KH :*; to c-8H :*;
.*IC !ill soon compensate or the recent Western supply shortage and
hence reduce the average industry *eturns
$table demand gro!th
(2% CAG*"Asia4Pacific de!and
gro,t% 5%ina BH 5A"6
#et,een *4*B 5%ina net i!porter
since *8 Mainly auto #atteries
and infrastructure Pull fro! financial
investors $ funds
Continued stable demand
gro!th Sustained de!and
gro,t% in 5%ina andSout% +orea 5ar e&ports
Furt%er pull fro! fuel
efficient ve%icles rene,a#le energystorage
Furt%er Asia J Pacific de!and gro,t% Furt%er 5%inese supply gro,t% =ncertainty around consolidation
#ynamics in The ast200* - 200.!
1uture ,utlooknext / to *0 years!
*eturn*eturn*eturn*eturn
*isk*isk*isk*isk
)igh olatility
$rices from S1 /003t to S1 *)2003t
*eturn Gro!th
olatility Increase
$rices gradually down to 8 S1 .003t
*eturn #ecrease
$light supply deicit (i!ited ne, capacity 5%ina #iggest
contri#utor Supply disruptions Significant decrease
in >estern >orld
s!elting capacity Deficit only partially
offset #y re4cyclingincrease
$upply to meet demand '6I5 supply gro,t% S!elting capacity
increase in India and5%ina
5ontinued glo#alincrease in recycling
Lead
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Contents
,vervie! by Industry
Gold
5opper
(ead
?inc
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Supply ;hain ?verview @ 9old
Ma5or miners are or!ard integrated
MiningMining ,re rocessing,re rocessingrocessrocess *eining*eining$emi61inished
Goods
$emi61inished
Goods
7$# 88.n93:
&nd Markets:&nd Markets:
?re crushing andprocessing (o,4grade ore 5yanide solution
to dissolvegold 1ig%4grade ore "rinding !ill for
furt%erprocessing
?re sampling)examination andextraction Drilling 'lasting (oading 1auling
#efining out remainingimpurities from gold Melting Electrolysis Molding into #ars
#escription#escription
Ma%or uses+ Ce,ellery. #y Artisans >%olesalers Integrated
!anufacturers 5utting.
polis%ing andretailing
Net retailinvest!ent2
ETFs-
Industrial $ dentaluses
,utput,utput
Ore containinggold and ot%er!aterials
6a, gold!aterial
H pure gold#ars
(o,4grade scrap Floor s,eepings
Ma5or
layers
Ma5or
layers
Ne,!ontAnglo"old 'arric/ "old "old Fields
Metalor "arfield 6efining
5o!pany
Co%nson Matt%eyS!aller co!panies) Se!ar :Italy;Argor :S,itzerland;
ET":ca Htotal !ar/et in gold4#ac/ed securities;
Ma0or 0e,ellery!anufacturers:Italy. Tur/ey andIndiaB;
Ma0or electronicsco!panies
$roducing semis for%ewelers3 offeringprecious metalsservices 1o!ogenization.
sa!pling. refining Production of
various se!is
Note) alues are for 2B 2 Net 6etail Invest!ent refers to #ar %oarding. !edals and i!itation coins purc%ased #y individuals - E&c%ange TradedFunds :ETFs; are gold #ac/ed. listed securities 8 In 2B. !ining co!panies accounted for a#out 2H of glo#al gold supply. ,%ile goldscraping and reserve li7uidation #y 5entral 'an/s. not included in t%is grap%. accounted for t%e rest. totaling B-' B Eg Inter"old. DivaCe,ellery. Fu#ula6o!a ET" Securities is listed on t%e Ne, or/. (ondon. Australia. Co%annes#urg and Paris stoc/ e&c%anges and is H4
#ac/ed #y allocated gold #ars %eld #y custodian 1S'5< as of Cune 2 it e&ceeded 2 #illion. representing 2H of !ar/et s%areSource) Data!onitor. 'arric/ "old ,e#site. >e# researc%. Monitor analysis
Alloys and se!i4finis%ed products
5oins and !edals Ot%er
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&ndustry $ast $erformance
Total Investment *eturn has signiicantly increased in the past ; years
Avg< 1inancials 9; years ; years /ast =ear 8$tandard
#eviation(9; years"
E'IT Margin 28H 2H 2H H
6OA H 8KH 2BH 82H
6OI5 GH BKH H BHTotal Invest!ent6eturn
9:
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7A
B*A
!"#$
%$
DB9
#ecline
&T1s !ill continue to drive demand along !ith increased 5e!elry sales in
developing !orld
Ee!ellery #emandEe!ellery #emand Fet *etail InvestmentFet *etail Investment &T1s&T1sIndustrial and #ental
#emand
Industrial and #ental
#emand
Declining econo!y(o, pro!otion
"ro,ing econo!y I!proved product
offeringSales in developing
,orld
E&pectations of price
gro,t% drive de!andMainly in India.
Capan. ietna! andMiddle East
>ea/ =SOil price uncertaintyETFs facilitate
transactionsMainly in t%e >est
Ne, uses in Electronics
:MP- players. Flatscreen Ts; andauto!o#iles. !ainly in,ires and plating
Mainly in Capan and t%e=S
&conomic Gro!th&conomic Gro!th rice &'pectationsrice &'pectations 1light to $aety1light to $aety InnovationInnovation
9B;
Gro!th
7sage Across Time (7$# bn"7sage Across Time (Tonnes"
Total
Ce,elry
Industrial
*/A
A
CAG*
DB;
BA
0A
CAG*
D;B9
2A
A
CAG*
D;B9
Total
Ce,elry
Industrial
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India
28%
*egional $plit3 Ee!ellery Fet
*etail Investment3 2;
Middle &ast
98%
Greater China9
%
*egional $plit3 Ee!ellery
Fet *etail Investment3 2?
IndiaIndia ChinaChina Middle &astMiddle &ast TurkeyTurkey
Mainly #ars and coins
Di,ali cele#rations
6eligious traditionsSavings ve%icle
Ce,elry de!and) 444 "etting !ore
sop%isticated and
diversified
Top glo#al 0e,elryde!and per %ead
Du#ai. glo#al gold
trading centre
Ce,elry de!and) 4BH
Touris! andecono!ic slo,do,n
Price volatility
7
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Increasing scrap sales !ill drive supply in the short term
Mine $upplyMine $upply
Mine supply slo,gro,t%
Sout% Africadecrease
1ig% price drive s!allplayer entry
Gold $crap $upplyGold $crap $upply
1ig% price drives fastgro,t% of scrap sales
,icial $ales $upply,icial $ales $upply
5entral 'an/s net sellersfor a ,%ile
c2BH :L-/t; of totalgold stoc/
In . !a0or 5entral'an/s agree!ent tosell less t%an B t$y
Total B*A2A
Global $upply by $ource Across Time (tonnes"
CAG*
2;B29
CAG*
2B2;
9old scrap sales increase and ?fficial sales decline forecast (y;S are aggressive
Mine production *AB*A
"old Scrap 7A7A
Official Sales B=0A.A
Source) "FMS. >orld "old 5ouncil. 5redit Suisse Standard Securities. Monitor analysis
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Australia
Start in 2
H> tonnes
capacity
5%ile $ Argentina
Start in 2
H @; tonnes
capacity
"%ana
Start in 2K
H92 tonnes
capacity
A number o ne! mines !ill come on line in the short term
Gold $upply by /ocation Across
Time (tonnes"3 6;
CAG*
2B2;
83>:? 83>9
Note) O,ned #y 'arric/ 2 O,ned #y Ne,!ont - "old supply figures reported #y t%e ello, 'oo/3 are different to t%e ones #y t%e >orld "old5ouncil
Source) 2B irtual Metals T%e ello, 'oo/. Data!onitor
.GCA
G2A
G7A
Total
%/&$
0"/#$
0%/1$
B=GCA
0G2ACo!al9
ascua6/ama9
Akyem2
&'amples o Fe! Mines
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In recent past. %ig%ere&ploratory invest!ents
Positive price outloo/
)o!ever3 supply !ill have a continued diiculty to keep up !ith demand
Tonnes
In late s3 early s.lo, e&ploratoryinvest!ents
Negative priceoutloo/
7ntil late s3 early s.lo, de!and #y investors
Strong dollar
Fears on t%e e&tent oft%e official sector selling
26to6date. strong de!and#y investors
>ea/ =S
Flig%t to safety '6I5 econo!ic gro,t%
Agree!ent in official sector
$upply and #emand3 Gold3 2B29;1
Esti-ate by Credit Suisse
Standard Securities
Esti-ate by Credit SuisseStandard Securities
#emand#emand
$upply$upply
Strong gro,t% of 5%ina. India and Middle East driving0e,elry de!and
Sustained flig%t to safety Industrial uses gro,t%
Slo, gro,t% of !ine supply Increased gold scraping Net officials sales decrease
astast 1uture1uture
Source) 5redit Suisse Standard Securities T%e "old 6eport :Fe#ruary 2G;. Monitor analysis
20*0 deficit forecasted (y ;S is unlikely to (e as high
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9old price expected to test SD C003o4 levels in short term on the(ack of fast increasing primary demand and supply slow growth
"old Price:=SD$oz;
Gold rice 1orecast
Consensus orecast indicates mid6term prices stabili-ing above historic levels
CPMorgan
5redit Suisse
Consensus
price
orecast o
over 7$#
;o-
Consensus
price
orecast o
over 7$#
;o-
5itigroup
='S
MorganStanley
Source) 5redit Suisse Standard Securities. 'loo!#erg
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Operating5ost
:=SD$oz;
Golds very steep cost curve sho!s lo! industry volatility
5u!ulative Production : oz;
/H 5verage $rice
Nort% A!erica 6eserve) 8! oz Operating costs) 2B =SD$oz
"oldstri/e Open PitAfrica 6eserve) ! oz Operating costs) -82 =SD$oz
'ulyan%ulu Mine
Sout% A!erica
6eserve) 2! oz Operating costs) -8 =SD$oz
Pierina Mine
Gold Mining Cost Curve (2;"
Source) Metals Mar/et Senti!ent uarter -. Monitor analysis
H 2BH 8H BBH GH KBH H
?nly the cash costs of the most costly assets are a(ove the /Haverage price
/H 5verage Demand
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2
)istoric cost curves o Gold production sho! that the slope is getting
steeper !ith time3 thus urther reducing industry volatility
Total 5as%5osts :=SD$oz;
5u!ulative Production
223 28 and 2:& Gold Mining Cost Curve3 26:&
22
2-
28E
Source) 'MO. Monitor analysis
y F !/21%'x I
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22
Although Gold is a ragmented industry3 top miners are strengthening their
positions
M+A &'amples
(arger players strengt%en t%eir position t%roug%ac7uisitions
In 2B. 'arric/ "old ac7uired Placer Do!e 'arric/ !ig%t #e currently valuating a
ta/eover #id for Ne,!ont Mining
In 2G. +inross #oug%t 'e!a
(ate s do,nturn left s!aller producersvulnera#le to ac7uisition or #an/ruptcy
Competitors Market $hares3 Gold
Mining3 2;
AngloGold@%
Fe!mont
@%
,ther
?@%
.arrick Gold
>%
lacer #ome
:%
Gold 1ields
;%
otal Sales in 200/ F caG , SD
Capacity Added by Ma5or layers3 2?
t
Source) A =ser "uide to 5o!!odities :Deuts%e 'an/. Culy 2;. Data!onitor. 5o!pany Annual 6eports. Monitor analysis
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28
.arriers to entry are lo! in Gold mining
Capital Investment
Low Ca.e, 5e=uired
Capital Investment
Low Ca.e, 5e=uired
olitical Conte't
Low Su..ly
Concentration
olitical Conte't
Low Su..ly
Concentration
Gold Mine $upply3 2;
$outh Arica
92%
Fo part o the
!orld has more
than 9;% o global
production
Fo part o the
!orld has more
than 9;% o global
production
7$A
99%
China
9%
,thers
2@%
Canada
;%
Australia
9%
*ussia
>%
eru
>%
,ther Arica
9%
&nvironmental Issues
Minor
&nvironmental Issues
Minor
Acid Mine Drainage. for ne, !ines in particular 5ostly collection and treat!ent progra!s
$hare o GlobalCapacity
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2B
Gold has a lo! threat o substitution on basic uses
,pportunity
in Fe!
Industrial and
&lectronics 7ses
,pportunity
in Fe!
Industrial and
&lectronics 7ses
Ne, applications
Eg MP- players. FlatScreen Ts
"reater use in auto!o#iles
I!proved 7uality andefficiency
Ne, industrial and !edical
uses
Mercury traps2
5%e!ical catalysts
Medical diagnostice7uip!ent
5ancer treat!ents
"ains !ainly in Capan and t%e=S
Ne, uses drive industrialde!and gro,t%
$ome Threat rom
Gold $ubstitutes
in Ee!ellery
$ome Threat rom
Gold $ubstitutes
in Ee!ellery
Platinu! 0e,elry gro,t% inearly *s
KK) 2. ,atc%es
8) . ,atc%es
1o,ever. cost - ti!es %ig%er)
2H !ore ra, !aterial
1ig%er production costs
Note) Nano4tec%nology usage 2 To re!ove !ercury fro! coal4fired po,er station e!issions
Source) >orld "old 5ouncil "old De!and Trends :Fe#ruary 2G;. Internet. Monitor analysis
E,a-.le
here are significant opportunities for increased use of gold inindustrial applications
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2
Contents
,vervie! by Industry
"old
Copper
(ead
?inc
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2G
Supply ;hain ?verview @ ;opperMa5or miners are or!ard integrated
MiningMining
yrometallurgical
*oute
($melting and*eining"
yrometallurgical
*oute
($melting and
*eining"
rocessrocess
?re crushing andgrounding to powder 1ig% te!perature
processes too&ide sulfur andot%er i!purities
H purity Electro4refining
?re mining Different grades T,o !ain for!s)
Sulfides:KH ofglo#al copper
ores;. leadingto stroute
O&ides.leading toSU4E> route
Leaching) and SJBEKstages SU
Solutioncontacted ,it%solvent
E> Electro4
c%e!icallypurified
Ma5or
layers
Ma5or
layers
)ydro6
metallurgical
*oute ($J6&WK"
)ydro6
metallurgical
*oute ($J6
&WK"
&nd Markets&nd Markets
Ma%or uses+ Energy ca#les 5onstruction :plu!#ing
and ot%er fi&tures; Electronics :c%ips.
tu#es. etc;
Transportation:radiators. #ra/es;
Industrial !ac%inery 5onsu!er goods :eg.
T cat%ode rays;
#escription#escription
,utput,utput
Mine ore
5ontaining lesst%an H copper
H pure copperdeposited in t%ecat%ode
5odelco
'1P 'illiton
"roupo Me&ico
Norddeutsc%e Affinerie
Nippon Mining and Metals
H or purercopper
5u!erio
EIT Margin %#$!
Transor6
mation
Transor6
mation
'irst and secondtransformation Transfor!ation
into se!iproducts
EIT Margin !!$!
5opperproducts
>ire rods.s%apes.
#illets.ca/es
Note) Q SU4E> stands for Solvent E&traction J Electro,inning E'IT Margin figures are 5u!erio*s 2 recurring E'IT Margins 5u!erio*s 5opperproducts include t%e production of ,ire rod. specialty rod and profiles. s%apes and ,ires
Source) 5redit Suisse Metals and Mining Pri!er NA. Scotia 5apital. >e# researc%. Monitor analysis
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2K
&ndustry $ast $erformance
$o ar3 Copper has been a high risk high return industry
Avg< 1inancials 9; =ears ; =ears /ast =ear $tandard
#eviation(9; =ears"
E'IT Margin 28H 28GH 82H 8H
6OA GH KH GH 8-H
6OI5 KH -H 2-2H BGH
TS6 8H GH G8BH BH
1inancials o $ingle Metal roducers3 Copper Industry (99B2;"
&n recent past) $rice hike has caused a spectacular growth in margins
Note) 5o!panies used) Sout%ern 5opper. Sterlite Industries. First uantu! Minerals. Antofagasta. 'oliden. P%elps Dodge and "rupo Me&ico TS6does not include figures for Sout%ern 5opper
Source) A =ser "uide to 5o!!odities :Deuts%e 'an/. Culy 2;. T%o!son One 'an/er. Monitor analysis
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2
&ndustry ?utlook
Copper is e'pected to sustain its high risk high return proile
$otening demand gro!th
Slo,ing 5%inese de!andgro,t% 5A"6 fro! 8H do,n to
KH Ne, applications in
auto!otive Offset #y gro,ing su#stitution
#y Alu!inu! Tight supply balance
Ne, capacity 0ust enoug% to!eet increased de!and Mostly fro! 5%ina. (atin
A!erica and Nort%A!erica
1ragmented industry
Top B %eld a#out 8H of totalin 2B
Increasing MA activity
Ne, 5%inese players *elatively stable costs
Slig%t flattening of t%e cas%
cost curve Trend to,ards #igger. open
pit !ines .alanced value chain
'argaining po,er #alance#et,een !a0or !iners and#uyers Eg !a0or ca#le
producers
alanced Value Chain
Medium barriers or ne!
entrants
$- of glo#al reserves indifficult3 locations
$igniicant price substitution
threat
Alu!inu! !ainly forelectrical ca#les and A$5
Ot%er for piping $ome opportunity in ne!
automotive applications
Stable Prices in Short Ter-:
then 8radually Decreasing
Mediu- arriers to Entry;
Significant Price
Substitution Threat
#emand and $upply
#ynamics
#emand and $upply
#ynamics *ivalry*ivalry &'ogenous 1actors&'ogenous 1actors
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-
#emand !ill keep gro!ing3 driven by construction activity and ne! uses in
automotive
Note) Q T%e 2B split #y application refers to t%e 5opper 5onsu!ption #y End =se for >estern >orld only
Source) 6'5 5apital Mar/ets esti!ates. 'roo/ 1unt. Monitor analysis
Industrial roduction (I"Industrial roduction (I"
2>B2@
"G econo!ies IP to gro, at2H y4y
5%inese IP to gro, at H y4o4y
0ey #emand #river0ey #emand #river
ConstructionConstruction
Trends by ApplicationTrends by Application
&lectronics&lectronics AutomotiveAutomotive ,thers,thers
5%inese gro,t%Su#stitution ris/
for ca#ling. piping plu!#ing
So!e su#stitutionfro! fi#re optics
So!e gro,t% Ne, applicationsand i!provedtec%nology in car!anufacturing:eg. #ra/etu#ing;
Increased energysavings #y copperapplications
Construction
8>%
&lectronic
roducts2?%
Industrial
Machinery
9;%
Transport
99%
,ther
99%
*eined Copper #emand 2;K
C>85
"&&!*
"&&'
C>85
"&&'*
"&!&E
G=A =G=A
Total *eined Copper #emand (29B29&"
+t
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-2
Chinese industriali-ation choices !ill drive !orld Copper demand
Copper #emand Intensity o G# (9;B22"
Chinese Cu Consumption and
G# er Capita
"DP) =SD $ 5apita
Chinas position today
(Ldoubled in 9 years"
Chinas position today
(Ldoubled in 9 years"
0orea and Tai!an have
sho!n very strong
increases in copper
intensity.er ca.itaas
they industriali-edsince the 9>s
0orea and Tai!an have
sho!n very strong
increases in copper
intensity.er ca.itaas
they industriali-edsince the 9>s
Eapan ollo!ed a path o slo!er3 but
consistent3 increases in copper
demand intensity o G# (per
capita" during its post6WWII
industriali-ation
Eapan ollo!ed a path o slo!er3 but
consistent3 increases in copper
demand intensity o G# (per
capita" during its post6WWII
industriali-ation
6efined5u5onsu!ptionper5apita
:+g$Person;
1ig% apparentconsu!ption fore&port oriented!anufacturingecono!iesV
"DP per 5apita :22 =SD $ Person;
W
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--
$upply !ill gro! steadily driven by added capacity in China3 Arica and the
Americas
Total *eined Copper roduction by /ocation3 29629& (0t"
Latin 5merica
;hina
5sia
orth 5merica
Kestern Europe
?ther Eastern,loc
5frica
?ceania
otal
#ussia
CAG*
D9B;
*G=A
B=G/A
*G0A
=G2A
2GCA
B0G
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-8
$J6&W !ill gro! at aster rates than electro6reinery production and !ill
drive copper supply by 29
Total $upplyTotal $upply
2:B2?8H decline in ore grade for
22H of !ine supply
$upply struggling
to keep up
$J6&W roduction$J6&W roduction
2s Marginal gro,t%
.y 29
*apid gro!th
Tec%nology offsettingdeposits depletion
&lectro6*einery
roduction
&lectro6*einery
roduction
.y 29 Steady gro,t%
CAG*
29B2;
*G=A
*G/A
0G
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-B
In the mid6term3 supply and demand balance !ill be tight
astast 1uture1uture
28B2?
Supply consistently #elo, de!and
Production disruptions and declining ore Deficit closed #y de4stoc/ing
2;
Decline of H
5onsu!er de4stoc/ing
Tig%t p%ysical supply 6ecord %ig% prices
2?
"lo#al gro,t% re#oundedat 8BH
Potentially %ig%er ,it%out5%inese de4stoc/ing andprice4induced su#stitution
Scotia ;apital and #,; supply forecasts differ significantly
#emand#emand
$upply$upply
Fear 1uture
Disruptions and declining ore replaced #y ne, pro0ects
Ma0ority of ne, supply #y 2 fro! e&istingoperations and pro0ects already approved
2>B2@
"lo#al gro,t% a#ove4trend rates. at B8H
End of 5%inese de4stoc/ing
2Bbeyond
"ro,t% rate of -BH 5%inese s%are of
consu!ption rise e&pectedto decrease
$upply and #emand3 Copper (29B29&"
+t
Source) 6'5 5apital Mar/ets Esti!ates. 'roo/ 1unt. Scotia 5apital. Monitor analysis
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-
7ntil the end o the s Copper prices !ere decreasing
Annual Average 7
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-G
*ecently3 inventory deicits and supply disruptions have lead to a price
peak3 !hich is e'pected to remain in the short6term
'orecast
=SD$t>ee/s of
5onsu!ption:(S;
(MEPrices :6S;
5ritical(evel :(S;
Source) 6'5 5apital Mar/ets Esti!ates. 'loo!#erg. 'roo/ 1unt
Total *eined Copper Inventories and rice (9@:B29"
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-K
In the long term3 analysts e'pect price to stabili-e at ca< 23; 7$#t
'orecasts show differences in the ShortBterm) (ut tend to agree onthe LongBterm price
Copper rice Trends (99B22"
=SD$t
(ME %ig%4grade
1istorical Price
Scenario 2
Scenario
Scenario -
Note) Price forecasts) Scenario is a forecast fro! 5odelco assu!ing a >orld 5onsu!ption Annual "ro,t% 6ate of 8H. e&pressed in 28 5urrencyorld 5onsu!ption Annual "ro,t% 6ate of -BH. e&pressed in 28 5urrency< Scenario - is aforecast fro! 6'5 5apital Mar/ets and 'roo/ 1unt. e&pressed in No!inal (ME 5as% Price
Source) 5odelco J Trends in t%e 5opper Industry :April 2B;. 6'5 5apital Mar/ets Esti!ates. 'loo!#erg. 'roo/ 1unt
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-
The Copper cash cost curve is e'pected to slightly latten
5u!ulative Percent of "lo#al Production
=SD$t
Mining Cost .reakdo!n
#ecreasing /abour Cost
Increasing &nergy Cost
#ecreasing /abour Cost
Increasing &nergy Cost
Trend or
)igher6capacity3
/arge6scale3
,pen6pit mines
Trend or
)igher6capacity3
/arge6scale3
,pen6pit mines
Copper Cash Cost Curve (2?&"
+ansans%i
O+ Tedi
Anta!ina
PT Freeport Indonesia
+ansans%i
O+ TediAnta!ina
PT Freeport Indonesia
Copper Total Cost Curve (2?& vs< 29&"
5u!ulative Percent of "lo#al Production
2
2
4.
4
42222
.
.BB
2.
2.8
2.K
-.-
-GB
H 2BH BH GBH H
=SD$t
2J2Baverage
De!and
2De!and
ForecastDe!and
2J2Baverage price
2 price.G8
Source) 6'5 5apital Mar/ets Esti!ates. 'roo/ 1unt. Monitor analysis
?verall industry costs will remain sta(le
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8
.ig or!ard integrated miners share bargaining po!er !ith ma5or buyers
Med (o,1ig%Processing
3Con
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82
$22$B $22$B
The location o 98 o global reserves poses some barriers to entry
Capital InvestmentCapital Investment
&st< Cape' or $mall ro5ects
olitical Conte'tolitical Conte't
Global Copper *eserves .ase3 2:
Chile
89%
#
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8-
Copper is acing an increasing price substitution threat by Aluminum and
other materials
Threat o
$ubstitution
3ased on Price6
Threat o
$ubstitution
3ased on Price6
Titanium and steelTitanium and steel 1eat e&c%anges
,ptic 1ibre,ptic 1ibre Teleco!!unication applications
lasticlastic Piping plu!#ing fi&tures
AluminiumAluminium
Po,er ca#les. electrical e7uip!ent. auto!o#ileradiators. cooling and refrigeration tu#es
2;B2?
5opper se!is gro,ing at lo,er rates t%analu!iniu! se!is
China) GH copper se!is consu!ption gro,t%vs 2H alu!iniu! se!isAlu!iniu! po,er ca#les #elo, -B/A$5 applications :BH of total 5%inese
copper de!and;
India) S%arp increase of alu!iniu! po,er
ca#les
Fe! Technologies
and 7ses
Fe! Technologies
and 7ses
,thers,thers
AutomotiveAutomotive Ne, applications :eg. #ra/e tu#ing;
Increased energy efficiency #y 5opper usageCopper
#emand
Source) D'. Scotia 5apital. Morgan Stanley. Norils/ Nic/el Annual 6eport 2B. 5opper Develop!ent Association. Monitor analysis
Copper
#emand
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88
Contents
,vervie! by Industry
"old
5opper
/ead
?inc
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&ndustry ?utlook
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8G
&ndustry ?utlook
/ead is e'pected to sustain its risk return proile
ery ragmented industry No significant sign of
c%ange
Transparent price setting
mechanism
Prices set on (ME
7rag-ented IndustryPrices to Decrease in Short
Ter- then Increase >gain
Low Threat of Substitution;
Mediu- Entry arriers
Source) Monitor analysis
$luggish gro!th '6I5 auto consu!ption
De!and for fuel efficientve%icles in t%e >est
1o,ever. recyclingdeters %ig% gro,t%
$upply e'pected to meet
demand in short term S!elting capacity
restored
Increased !iningcapacity
Steady increase insecondary output
In mid6term supply issuesrom e'isting mines
depleting
*elatively lo! threat osubstitution
No strong su#stitute forlead in #atteries
,pportunity rom nuclear
!aste containment
applications
$ome entry barriers (onger ti!e to ra!p up
operations
Environ!ental t%reat
#emand and $upply
#ynamics
#emand and $upply
#ynamics *ivalry*ivalry &'ogenous 1actors&'ogenous 1actors
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8K
#emand gro!th or /ead has been sluggish
9229;
$22$B
9229;
9229;
9229;
$22$B
9229;
9229;
9229;
$22$B
9229;
9229;
$22$B
9229;
9229;
$22$B
9229;
9229;
9229;
$22$B
9229;
9229;
9229;
9229;
Global /ead #emand by 7sage (29B29&"
0ey .attery 7ses0ey .attery 7ses
.atteries or automotive industry
6ising ve%icle population #oosting de!and for
replace!ent #atteries 1eavier #atteries re7uired in %ig% co!pression
!otor ve%icles
1y#rid ve%icles otential energy storage options
6ene,a#le energy tec%nologies
CAG*
9B;
CAG*
;B9
2G*
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8
9229;
9229;
9229;
$22$B
9229;
9229;
$22$B
9229;
9229;
9229;
$22$B
9229;
9229;
9229;
9229;
9229;
9229;
9229;
$22$B
9229;
9229;
9229;
9229;
$22$B $22$B
Western demand or uel eicient vehicles and .*IC auto consumption !ill
drive demand in the uture
/ead Consumption by *egion (29B29&"
CAG*
9B;
!t
ChineseChinese
Auto consu!ption
'attery e&ports
De!and for criticalinfrastructure andteleco!!unications to,ers
&merging &conomies&merging &conomies
Auto consu!ption risingin India. Malaysia. 'raziland Sout% Africa
Forth America3 &urope3 EapanForth America3 &urope3 Eapan
Fuel4efficient autos re7uire larger #atteries:#ut not all use lead4acid #atteries;
Auto consu!ption !odest or flat
LKH of lead is recycled. resulting in flat per4capita consu!ption
CAG*
;B9
6est of >orld
(atin A!erica
Europe
Nort% A!erica
Asia4Pacific
Capan0G
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B
$22$B$22$B
9229;
9229;
9229;
9229;
$22$B
9229;
9229;
9229;
9229;
$22$B
9229;
9229;
9229;
9229;
9229;
9229;
9229;
9229;
9229;
9229;
9229;
$22$B
9229;
/ead supply is migrating rom the West to China
/ead Mine roduction by *egion (28B2>"
ChinaChina
/t
G G G driven (y smelting capacity closure in the S
9229;
$22$B
9229;
$22$B
9229;
$22$B
9229;
$22$B
9229;
$22$B
/ead Mine roduction3 China and*est o World (28B2>"
CAG*8B>
CAG*8B>
GC
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B
$22$B $22$B $22$B $22$B $22$B $22$B $22$B $22$B $22$B $22$B
The /ead market has remained airly balanced
astast
*eined /eadK3 $upply and #emand (29B29&"
#em
and
#em
and
$upply
$upply
!t
resent 1utureresent 1uture
Increases in de!and driven #y developing countries.especially for auto!otive industry :do!inated #y5%ina also India. 'razil;
De!and driven #y fuel efficient ve%icles in t%e >est
6ecycling deters fast gro,t%
8H of lead co!es fro! !ined production. re!aining H
fro! recycling (ead %as t%e %ig%est rate of recycling of all !etals
Supply
De!and
Q 6efined lead includes pri!ary :!ined; and secondary :recovered fro! post4consu!er; lead production Source) =S"S. Ivernia A6 2B. Monitor analysis
S!elting capacity s%ortage in t%e >est
Increasing supply fro! 5%ina and Australia
Since 2B. reined lead production increasing
S!elting capacity restored
Increased !ine capacity
Steady increase in secondary output In Mid4ter! e&isting !ines depleting
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B2
)istoric /ead price has been volatile
2Dollars
=SD$t
Annual Average /ead rice (9;B9@"
Source) =S"S
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B-
/ead stocks are replenishing ater a deicit in 2:
/t =SD$t
/ead Inventories and /M& rice (22B2?"
(ME stoc/s currently lo,. #ut high pricesencourage investment
(o,er prices e&pected in near future due to!ine production increase
(ong4ter! supply e&pected to tig%ten ase&isting !ines close
$22$B
$22$B
$22$B
$22$B
$22$B
$22$B
$22$B
$22$B
$22$B
$22$B
$22$B
Global /ead $urplus (2B29&"
/t
$igniicant deicit o reined lead in 2:
Can 2-) Metaleurop closes Noyelles4"odault lead$zinc refinery : /tpy;
Fe# 2-) MIM closes Avon!out% lead$zinc
s!elter$refinery :-B /tpy; Dec 2-) Doe 6un closes "lover s!elter
:- /tpy; $ince 2;3 reined lead production
increasing
Easier availa#ility of concentrate fro!increased !ine capacity
Steady increase in secondary outputSource) Ivernia A"M Cun 2. "FMS 'MM6 Can 2. (ME Metals 2. Monitor analysis
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B8
/ead price is e'pected to decrease in the medium term < < 85 200*-200/+ =G7A C>85 200.-20*0+ 2G7A
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With high supply gro!th rates3 by 29 China is e'pected to have balanced
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B
its 4inc position
Source) 6'5 5apital Mar/ets Esti!ates. 'roo/ 1unt. Morgan Stanley 6esearc%. Monitor analysis
Total *eined 4inc roduction by /ocation across Time (29B29&"
&ndia is likely to (ecome a net exporter (y 20*0 I *0 ktpa!
82%
3?>2 3@:93982 93?;
923;?
/t
5%ina
Europe
Ot%er Asia
Ot%er
N A!erica
( A!erica
India
6ussia
Total
Oceania
C>85
"&&'*
"&!&E
(/'$
7G
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term
2G0A =G/A
=G=A G=A
astast 1uture1uture
Source) 6'5 5apital Mar/ets Esti!ates. 'roo/ 1unt. Scotia 5apital. Monitor analysis
2:62;
Supply s%ortage Slo,do,n of production Depletion of inventories Negative effect on 2B and 2G consu!ption levels
2962;
Driven #y Asian !ar/ets :H of total increase;
Asian econo!ies steady gro,t%
First signs of recovery in Capanese. A!erican andEuropean econo!ies
E&pectations of decline of (ME and ot%er inventories
N;hina effectO plays a sta(ili4ing role on (oth) demand and supplyside
#emand#emand
$upply$upply
2>
5onsu!ptionconstrained #y supply
(o, y4o4y gro,t% rate 2H. vs H in 2and BH in 2K
26beyond
De!and setting #ac/ attrend rates
>> consu!ption tore#ound 5%ina t%e /ey driver
$upply and #emand3 *eined 4inc (29B29&"
/tTotal "lo#al 6efined ?inc Supply
Total "lo#al 6efined ?inc De!and
C>85
"&&!*
"&&'
C>85
"&&'*
"&!&E
Supply
Demand
2>62
Increasing production 1ig%er capacity utilization. due to strong de!and and %ig% prices
ulnera#ility to disruptionsAppearance of ne, 5%inese s!all !ines #ecause of %ig% prices
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G
The tight balance !ill keep up high prices in the short term
Source) 6'5 5apital Mar/ets Esti!ates. 'roo/ 1unt. . 'loo!#erg Ter!inal. Monitor analysis
Decreasing price forecasts assupplydemand rebalance. #ut longter! price e&pected to #e %ig%er t%an2 level. driven #y t%e strong
momentum o Chinese demand
$upply shortage starting 2:%asdeter!ined s%arp price increases:co!!odity cycle is currently %ig%;
=SD$t
4inc rice Trends and 1orecast
)igh pricesto constrain de!anddue to lac/ of availa#le supply
'loo!#ergEsti!ate
6'5 Esti!ate
he long term prices expected to converge to SD *)003t levels
)igh prices in the near term are also conirmed by all6time6lo! inventory
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K
Source) 6'5 5apital Mar/ets Esti!ates. 'roo/ 1unt
>ee/s of5onsu!ption
=SD $l#
'orecast
levels
&nventories expected to remain well (elow critical levels until 20*0which will support prices at historically high levels
- B G 2 2- 2B 2 2G
Total 4inc Inventory and rice
The average -inc cash cost is e'pected to rise and the curve to latten in the
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medium term
Source) 6'5 5apital Mar/ets Esti!ates. 'roo/ 1unt
=SD$t =SD$t
6ed Dog
4inc Cash Cost Curve (2?&"
5u!ulative Percent of "lo#al Production 5u!ulative Percent of "lo#al Production
5entury
Anta!ina
San 5risto#alPro0ect
4inc Total Curve (2?& vs 2&"
Keighted5verage
Anta!ina
6ed Dog
5entury
his is likely to increase the competitive pressure in the industry
2E
2E
BB
.
.B
BB
.
.B
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G
4inc is a highly ragmented industry (compared to other base metals"
M+A Activity Ustrata ac7uired Asturiana de ?inc :t%
#iggest producer; 4 2 Pas!inco. 2nd#iggest producer in 2)
restructure process. leading to Deeds of5o!pany Arrange!ent :@DO5As@;
Esta#lis%!ent of ?inife& (i!ited.
currently -rd#iggest producer Ustrata :Gt% #iggest producer in 2B;
ac7uired Falcon#ridge :Bt%#iggestproducer; 4 2
1o,ever. 6ate of consolidation sta#le over ti!e
Ne, entrants 5apacity increase #y 0uniors
Mined olume Market $hares9
Note) 2 !ar/et s%ares appro&i!ated fro! 'NP Pari#as 2 2B !ar/et s%ares fro! Deutsc%e 'an/Source) Deutsc%e 'an/. =S"S. 'NP Pari#as. 5o!pany Annual 6eports. Monitor analysis
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8/9/2019 0254 Mining Commodity Attractiveness Industry Analysis Gold Copper Lead and Zinc
71/72
G
/o! to medium entry barriers B not likely to rule out ne! entrants
Cape' IntensityCape' Intensity
Source) Morgan Stanley 6esearc% Esti!ates. 5redit Suisse J Metals and Mining Pri!er J NA. Monitor analysis
$hare o globalcapacity
;%
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8/9/2019 0254 Mining Commodity Attractiveness Industry Analysis Gold Copper Lead and Zinc
72/72