CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +44 20 7278 0003
517, Tower 2,
Bright China Chang An
Building,
7 Jianguomennei Avenue,
Beijing 100005, China
Tel: +86 10 6510 2206
Fax: +86 10 6510 2207
Augusto Leguía Norte
Nº 100 of.506,
Las Condes,
Santiago,
Chile
Tel: +56 2 231 3900
Fax: +56 2 231 4314
PO Box 1269,
Langley,
WA 98260
USA
Tel: +1 360 321 4707
Fax: +1 360 321 4709
Level 2, Kalpataru Synergy, Opp.
Grand Hyatt
Santa Cruz (East),
Mumbai 400055,
India
Tel: +91 22 3953 7395
Fax: +91 22 3953 7200
Mineral Commodities Outlook
Mining The Territory Conference
September 2013
Allan Trench
CRU STRATEGIES
2
“Uranium is the next great China story.
What China did for iron ore in the last decade,
it will do for uranium in the coming decades”.
A Trench & D Packey
Australia’s Next Top Mining Shares – Major Street Press
Uranium
CRU STRATEGIES
Uranium demand to 2035
0
60,000
120,000
180,000
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
202
4
202
5
202
6
202
7
202
8
202
9
203
0
203
1
203
2
203
3
203
4
203
5
ton
ne
s U
3O
8
USA Japan Europe China - Mainland India Russia RoW
Uranium
CRU STRATEGIES
4
“Our demand versus long-run marginal cost analysis out to
2035 suggests that only those tonnes that lie within the first
and second cost quartiles of
the project universe will be required to meet demand”.
CRU Group
Long-Term Outlook for Iron Ore
Iron Ore
CRU STRATEGIES
5
“Copper prices are supported by demand from China which
never fails to deliver – and by supply from the miners –
which frequently fails to deliver”.
John Sykes
Principal, Greenfields Research
Copper
CRU STRATEGIES
6
“Everything has its limit – iron ore cannot be educated into
gold”.
Mark Twain
“You’re still the one”
Shania Twain
Gold
CRU STRATEGIES
7
Gold – The Rise & Stall of Australian Gold
From De Assuncao 2013
CRU STRATEGIES
8
Ore Grades & Labour/Mining
Costs
Resource Nationalism &
Public Perception
Environmental Concerns & Governance
Infrastructure & Energy
Non-mine Supply Factors
e.g. Scrap, ETF s
Many immediate challenges facing mining industry
decision-makers
CRU STRATEGIES
9
CRU STRATEGIES
Grade decline can result from a combination of geological,
mining and economic factors acting together...
CRU Strategies
Grade Enhancement Near Surface Mined First
Low
grade
High
grade
(blind)
Enrichment zone
General
grade
decline
with
depth
Surface
So Grade Must Fall Over Time....
Enriched
cap
High
grade pod
Mine design brings
this forward
%
Cu
(eq)
GEOLOGY
Preferential ‘Bring-Forward’ of High Grade
High grade
taken firstPit outline 2013
MINING
High Prices ‘Creates’ Low Grade Ore
ECONOMICS
Economic low-grade
Final pit
outline
CRU STRATEGIES
0.5
0.6
0.6
0.7
0.7
0.8
0.8
0.9
0.9
1.0
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Forecast of ore grades at
currently operating mines
Average ore
grade in
2012:
0.65%
Cu
Average ore
grade in
2022:
0.60%
Cu
Average ore
grade in
2002:
0.81%
Cu
% Cu
……Copper’s future grade challenge is well known
Data - CRU
CRU STRATEGIES
Porphyry 86.5%
IOCG 7.0%
VMS 0.4%
Other 6.2%
Major Cu mine projects
Porphyry 61.7%
VMS 8.5%
IOCG 6.2%
Sediment 12.4%
Other 11.1%
Existing Cu mine operations
Geology by production from existing operations; geology by potential capacity at 97 major copper
projects
…with a coming shift in the geology of copper mine supply
CRU STRATEGIES
0.1
1
10
100
1000
0.1 1 10 100 1000 10000
Closed Mine
Operating Mine
Development
Feasibility
Exploration
Stalled
Pre-Mined Resource (mt ore)
Gra
de (
kg U
3O
8/t
) The future grade (& scale) challenge is not limited to
copper - Uranium example
CRU STRATEGIES
The Economic Context
The Future of Mining
CRU
CRU STRATEGIES
The OECD still reeling from the Global Financial Crisis (GFC)
80
84
88
92
96
100
104
-6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54
index of OECD IP
GFC
Mid-1970s
Early 1980s
Early 2000s
Early 1990s
months after cyclical peak
CRU STRATEGIES 15
Steady economic recovery forecast…..
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2012 2013 2014
February May August Long-run trend
Data: CRU
World GDP forecasts 2013 and trend growth, y/y %
CRU STRATEGIES
16
16
0
2
4
6
8
10
12
2013 2014 2015
China OECDRest of World World
Data: OE, CRU
GDP growth, % y/y
Growth to no longer be just a China story
0
2
4
6
8
10
12
2013 2014 2015
China OECDRest of World World
Data: OE, CRU
IP growth, % y/y
CRU STRATEGIES
0
200
400
600
800
1000
1200
1400
2010 2011 2012 2013 2014 2015 2016 2017
Re
fin
ed
Co
pp
er
Co
ns
um
pti
on
‘0
00
t
India India x 2
Source: CRU Group
India has a strong demand outlook too, take
copper….
CRU STRATEGIES
0
2000
4000
6000
8000
10000
12000
2010 2011 2012 2013 2014 2015 2016 2017
Re
fin
ed
Co
pp
er
Co
ns
um
pti
on
‘0
00
t
India India x 2 China
Source: CRU Group
But India is no replacement for China….
CRU STRATEGIES
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Stronger dollar
Weaker energy
High stocks
in China
Macro uncertainty
stronger US$
Investment Factors $1,625/t Copper Fundamentals $6,075/t
Source: CRU
Stocks/
Demand
Relationship
Short
term
Investors
Hedge
Funds
Index
Funds
Total
Price
Physical
ETFs
China
Balance
Energy Currency
However not just the economy drives prices:
Investor influence can accentuate fundamentals LME Copper Cash Price Constituent Analysis – 2013 Example
CRU STRATEGIES
Selected Market Outlooks
20
The Future of Mining
CRU
CRU STRATEGIES
Consumption of copper Global balance
mill
ion t
onnes
-6%
-3%
0%
3%
6%
9%
12%
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy change (mt)
yoy change %
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2009 2010 2011 2012 2013 2014 2015 2016 2017
www.crugroup.com
Copper – price battered, but solid support seen at $6,650/t 21
Executive Summary
• CRU has increased its 2013 refined market surplus after adjusting for lower
consumption projections and a large drawdown of Chinese bonded stocks.
• CRU’s market balances remain unchanged from 2015. Lower consumption and
lower prices are offset by delays to production increases.
• CRU’s mine output growth has been lifted from 2.4% to 3.7% in 2013. Despite
the Bingham Canyon wall collapse in April, there have been few mine disruptions
this year. 43%
Chinese copper consumption
as a proportion of global
consumption in 2013
30% Chinese copper production
as a proportion of global
production in 2013
$151bn CRU calculated value of
global copper metal
production in 2013
mill
ion t
onnes
CRU STRATEGIES
-10%
-5%
0%
5%
10%
15%
20%
25%
-100
-50
0
50
100
150
200
250
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy change (000kt)
yoy change %
Consumption of nickel
-60
-40
-20
0
20
40
60
80
100
120
2009 2010 2011 2012 2013 2014 2015 2016 2017
Global balance
www.crugroup.com
Nickel – fundamentals to improve after 2015
Source: CRU Nickel Market Outlook, Jul 2013
thousand tonnes
Executive Summary
• The nickel market is in oversupply, with little sign of any significant production
response outside of China. The only supply response, from Chinese nickel pig iron
producers, not been sufficient to address the market imbalance.
• The low nickel price environment is slowing development in new capacity
outside China. This will result in a need for higher NPI production to limit the
shortfall.
• CRU has increased primary nickel demand growth to 7.1% in 2013. CRU
expects stronger Chinese consumption, due to robust stainless steel output.
50% Chinese nickel consumption
as a proportion of global
consumption in 2013
33% Chinese nickel production as
a proportion of global
production in 2013
$28.5bn CRU calculated value of
global nickel metal
production in 2013
thousand tonnes
CRU STRATEGIES
-10%
-5%
0%
5%
10%
15%
20%
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy change (mt)
yoy change %
Consumption of zinc
-0.75
-0.50
-0.25
0.00
0.25
0.50
0.75
1.00
2009 2010 2011 2012 2013 2014 2015 2016 2017
Global balance
www.crugroup.com
Zinc – squeeze still in sight 23
Source: CRU Zinc Market Outlook, Jul 2013
mill
ion t
onnes
mill
ion t
onnes
Executive Summary
• CRU’s expectation that mine exhaustions will lead to a late-decade metal
squeeze remain intact. This will happen without further mine closures or cutbacks.
• With their profitability under pressure, Chinese smelters are presently unwilling
to produce any metal for which there is no domestic market. This has again
delayed the commissioning of new capacity and led to renewed cutbacks.
• The new Chinese leadership confirm is serious about rebalancing its economy.
This has caused CRU to trim estimates of current zinc consumption and, more
importantly, our expectation for the period ahead.
43% Chinese zinc consumption as
a proportion of global
consumption in 2013
39% Chinese zinc production as a
proportion of global
production in 2013
$24.8bn CRU calculated value of
global zinc metal
production in 2013
CRU STRATEGIES
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
-20
0
20
40
60
80
100
120
140
160
180
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy change (mt)
yoy change %
Iron Ore Demand
0
200
400
600
800
1,000
1,200
1,400
2009 2010 2011 2012 2013 2014 2015 2016 2017
Australia
India
Brazil
Iron Ore Exports
www.crugroup.com
Iron Ore – 3 digit prices hold 24
Source: CRU Iron Ore Market Outlook, Jul 2013
mill
ion t
onnes
Executive Summary
• To 2017, further price falls are forecast as demand growth eases and low-cost
supply ramps up, squeezing marginal Chinese production, despite new capacity
being planned.
• Oversupply in the Chinese steel sector, negative EBITDA margins at mills and
bearish sentiment pressurized miners into lowering Q2 2013 ore prices.
• Aggressive growth in low-cost Australian supply has added downward price
pressure to ore. In part, however, this ramp up has offset a weak performance in
Brazilian and Indian exports.
57% Chinese iron ore consumption
as a proportion of global
consumption in 2013
17% Chinese iron ore production
as a proportion of global
production in 2013
62% Chinese seaborne iron ore
imports as a proportion of global
seaborne exports in 2013
Mill
ion t
onnes
CRU STRATEGIES
Commodities to heat up again by 2017: Prices will increase
17% on average.*
Hot
> 15%
Warm
5% to 15%
Cold
-5% to 15%
Freezing
< -15%
Mild
0% to 5%
Cool
0% to -5%
Sulphuric Acid, Uranium, Tin, Palladium, Zinc, Nickel,
Coking Coal, Cobalt, Lead, Platinum, Aluminium, Coke
Molybdenum, Alumina, Phosphate DAP, Bauxite
Oil, Ferrochrome, Urea
Copper, Manganese
Gold, Potash
Sulphur, Ammonia, Iron Ore, Phosphate Rock, Silver
This is a relative story, prices will still be down by ~20% from their cyclical
peaks†
* 2017 annual average price forecast over 2013 Q2 average actual prices
† annual average price high 2014-2017 over quarterly average 2000-20013Q4
CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +44 20 7278 0003
517, Tower 2,
Bright China Chang An
Building,
7 Jianguomennei Avenue,
Beijing 100005, China
Tel: +86 10 6510 2206
Fax: +86 10 6510 2207
Augusto Leguía Norte
Nº 100 of.506,
Las Condes,
Santiago,
Chile
Tel: +56 2 231 3900
Fax: +56 2 231 4314
PO Box 1269,
Langley,
WA 98260
USA
Tel: +1 360 321 4707
Fax: +1 360 321 4709
Level 2, Kalpataru Synergy, Opp.
Grand Hyatt
Santa Cruz (East),
Mumbai 400055,
India
Tel: +91 22 3953 7395
Fax: +91 22 3953 7200
Thank you
Contacts:
Allan Trench ([email protected])
Philip Sewell ([email protected])
CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +44 20 7278 0003
517, Tower 2,
Bright China Chang An
Building,
7 Jianguomennei Avenue,
Beijing 100005, China
Tel: +86 10 6510 2206
Fax: +86 10 6510 2207
Augusto Leguía Norte
Nº 100 of.506,
Las Condes,
Santiago,
Chile
Tel: +56 2 231 3900
Fax: +56 2 231 4314
PO Box 1269,
Langley,
WA 98260
USA
Tel: +1 360 321 4707
Fax: +1 360 321 4709
Level 2, Kalpataru Synergy, Opp.
Grand Hyatt
Santa Cruz (East),
Mumbai 400055,
India
Tel: +91 22 3953 7395
Fax: +91 22 3953 7200
Back-up slides
CRU STRATEGIES
-10%
-5%
0%
5%
10%
15%
20%
-4
-2
0
2
4
6
8
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy change (mt)
yoy change %
Consumption of aluminium
-1.0
0.0
1.0
2.0
3.0
4.0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Global balance
www.crugroup.com
Aluminium – inventories ahoy
Source: CRU Aluminium Market Outlook, Jul 2013
Executive Summary
• Following LME proposals to address queuing warehouses have reduced
incentives to attract metal. Premiums are poised for a downward correction.
• CRU has downgraded its Chinese consumption growth in 2013 to 8.7% from
10%. Lower GDP and industrial production growth has caused the revision.
• CRU believes that 1.0m tpy of production have been curtailed in China in 2013
in response to low SHFE prices. CRU expects that a further 325,000tpy of capacity
will be curtailed by the end of the year. 47% Chinese aluminium
consumption as a proportion
of global consumption in 2013
48% Chinese aluminium
production as a proportion of
global production in 2013
$95.1bn CRU calculated value of
global aluminium metal
production in 2013
mill
ion t
onnes
mill
ion t
onnes
CRU STRATEGIES
-3%
0%
3%
6%
9%
12%
-200
0
200
400
600
800
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy change (000kt)
yoy change %
Consumption of lead
-150
-100
-50
0
50
100
150
2009 2010 2011 2012 2013 2014 2015 2016 2017
Global balance
www.crugroup.com
Lead – firmer market yet to fire prices 29
Source: CRU Lead Market Outlook, Aug 2013
Executive Summary
• Mine cuts on lower metal prices (notably silver) have moved centre stage,
adding to the already hard fight for raw materials between smelters, particularly
scrap.
• CRU’s new lead/zinc mine cost model shows that about 90% of mined lead
benefits from a precious metals revenue stream, mostly silver.
• After five years of surplus, CRU expects a greater rise in consumption over
production will finally move the market balance into deficit next year. The scale of
the shortfall will be modest.
44% Chinese lead consumption
as a proportion of global
consumption in 2013
44% Chinese lead production as a
proportion of global
production in 2013
$23.6bn CRU calculated value of
global lead metal
production in 2013
thou
sand tonn
es
thousand tonnes