south australia minerals and resources...

South Australia Minerals and Resources Overview

Sydney Mining Club – 31 July 2014

Dr Paul Heithersay Deputy Chief Executive Resources and Energy

Premier and our ministers Hon. Jay Weatherill MP • Economic Development Board • Chair; Economic Development Cabinet Committee

Hon. Tom Koutsantonis MP • Minister for State

Development • Minister for Mineral

Resources and Energy • Minister for Small

Business

Hon. Martin Hamilton-Smith MP • Minister for

Investment and Trade • Minister for Defence

Industries

Hon. Gail Gago MLC • Minister for

Employment, Higher Education and Skills

• Minister for Science and Information Economy

Hon. Susan Close MP • Minister for

Manufacturing and Innovation

• Minister for Automotive Transformation

Hon. Jack Snelling MP • Minister for the Arts • Minister for Health

Industries

Hon. Ian Hunter MLC • Minister for

Aboriginal Affairs and Reconciliation

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Dr Don Russell – Incoming CEO

• Dr Don Russell was the Secretary of the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education from 2011 to 2013. Dr Russell was previously Independent Chairperson of State Super, a role that he held from January 2008. State Super is a $38 billion fund that manages public service defined benefit schemes for the NSW State Government.

• Until March 2010, Dr Russell was the Global Investment Strategist at

BNY Mellon Asset Management Australia. BNY Mellon is a global investments company.

Source: www.economicdevelopmentboardsa.com.au

• Between 1997 and 2000, Dr Russell worked for Sanford C. Bernstein, a research and money management firm in New York. Between 1985 and 1993 and again in 1996, he was Principal Adviser to the Hon Paul Keating both during his time as Treasurer and Prime Minister. Between 1993 and 1995 Dr Russell served as Australia’s Ambassador to the USA in Washington. He has a PhD from the London School of Economics, a MEc from ANU and a BEc (Hons) (First) from Flinders University. Don also holds the Chartered Financial Analyst designation (CFA) 2007.

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Resources Industry Achievements 2013

• Minerals ($144.7m) and Petroleum ($367.7m)

$512 million EXPLORATION EXPENDITURE

• ~$30 billion of potential capital for Minerals and Energy projects in the Major Developments Directory

$1.6 billion new CAPITAL EXPENDITURE

• Minerals ($5.4 b) and Petroleum ($1.6 b) RECORD HIGH

$7.0 billion resources PRODUCTION

• Minerals ($4.5 b) and Petroleum ($0.2 b) RECORD HIGH • 38% of South Australia’s total exports ($12.3 b)1

$4.7 billion EXPORTS

$188.7 million ROYALTIES

• more than double - 6,641 ten years ago RECORD HIGH

15,372 EMPLOYED

1 Twelve months to April 2014

5

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$ Bi

llion

Copper Hematite Magnetite Gold Uranium Coal

Other Metallics Industrial Construction Gemstones Caroline 1 CO2 (well) Condensate

Crude Oil Ethane LPG Natural Gas

Mineral and Petroleum Production

Record Production

Production by commodity 2000 – 2013 In 2013 was $7 billion ($5.4b – Minerals and $1.6b – Petroleum)

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Exploration Expenditure

Minerals and Petroleum exploration expenditure 1998 – 2013 For 2013 was $512.4million ($144.7m – Minerals and $367.7m – Petroleum)

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

0

100

200

300

400

500

600

700

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Minerals Petroleum SA % share of Australia

$m

Source: ABS data cat . 8412.0 Dec 2013

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Mineral Exploration Expenditure 1993 - 2013

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

50

100

150

200

250

300

350

400

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

South Australian expenditure SA's percentage share of Australian expenditure SASP Target 41 - $200m to 2015 Former SASP Target T1.18 - $100m

Sout

h Au

stra

lian

min

eral

ex

plor

atio

n ex

pend

iture

($ m

)

SA's

sha

re o

f Aus

tralia

n m

iner

al e

xplo

ratio

n ex

pend

iture

(%

)

source: ABS data Cat. 8412.0 and Department of State Development

Challenger discovery

PACE

Four Mile discovery

Olympic Dam Expansion

Carrapateena discovery

Olympic Dam drill-out

PACE 2020

Prominent Hill

discovery

Jacinth-Ambrosia discovery

Hillside discovery

Impact of GFC

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South Australia’s Major Mines and Resource Projects

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Economic Demonstrated Resources operating Australian copper mine (Geoscience Australia)

Olympic Dam – a world class Tier 1 asset

Resource: 9.6 billion tonnes, 0.82% Cu, 0.26 kg/t U3O8

• world’s largest U deposit

• 4th largest Cu deposit

Australia’s largest underground mine ~60 years reserves at current production. 2013 production:

• 174,400 tonnes copper (cathode)

• 4,009 tonnes U3O8

• 119,928 ounces gold

• 882,000 ounces silver

Focus on returning mine to profitability, despite negative trends in commodity prices

Technology studies proceeding. Heap Leach testing continues

Nyrstar Port Pirie Smelter Transformation The Issue

Nyrstar required to improve lead-in-air emissions levels from 2016, through EPA licence variation in July 2012 • Reductions in % children with blood lead levels below Australian guideline level

had plateaued

2 options

1. INVEST - replace 60-year-old sinter plant smelting technology

2. CLOSE - significant economic, environmental, social and community impacts for the Port Pirie region and the State • Lose 965 regional jobs,

• Lose 2,500 jobs across SA;

• Lose $840 million in exports;

• GRP reduced by $132 million in Port Pirie region;

• GSP reduced by $304 million

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Nyrstar Port Pirie Smelter Transformation The Solution 1. Financing Agreement - to transform smelter, secure Port Pirie’s long-term

sustainable and commercial future 2. Regulatory certainty for 10 years relating to lead-in-air concentrations for

transformed smelter • Port Pirie Smelting Facility (Lead-In-Air) Concentrations Act 2013 commenced operation on 1

May 2014 3. 10 year, $50 million ‘Targeted Lead Abatement Program’ for Port Pirie, jointly

developed with Nyrstar • Leverage air quality improvements to lower children’s blood lead levels through targeted

interventions on lead exposure

4. Major Development Authorisation, granted in December 2013

Outcomes • Modern - best available enclosed bath smelting technology • Flexible - ‘advanced metals processing facility’ • Reduce emissions - lead reduced by 50%, sulphur by 90% • Lower blood lead - improve health outcomes for young children • Avoid - major economic, environmental & community impacts

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13

Nyrstar Port Pirie Smelter Transformation

Source: Courtesy of Nyrstar

Feed material

Spent slag to construction industry

Sulphuric Acid Plant

Blast Furnace

Sinter Plant Sulphur dioxide

Sulphuric Acid

Sinter

Lead Refinery

Copper Plant Slag Fumer

Zinc Plant

Precious Metals Refinery

Zinc rich slag

Lead bullion

Precious metals concentrate

Selenium Palladium

Platinum Rhodium

Silver Gold

Copper

Lead Antimony

Copper in matte

Zinc oxide

Oxygen Enriched Bath Smelting

Furnace

Transferred to Hobart from August 2014 onwards

Nyrstar to construct new and improved capacity acid plant

Internal residue to blast furnace

Nyrstar Port Pirie flowsheet transformed

Slag

Tellurium

Existing metals & other products recovered Possible additional metallurgical circuits

Core assets Change due to Redevelopment process

External sales

Potential future investments to capture additional metal streams

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Slag Fuming Plant

Precious Metals Refinery

Lead Refinery

Sinter Plant

Blast Furnace

New Acid Plant

Oxygen Enriched Bath Smelting Furnace

Zinc Plant

Copper Plant

Closed end of July. Zinc oxide transferred to Hobart from August 2014 onwards

Change due to Redevelopment process Advanced metal recovery and refining facility 3-D snapshot of Redevelopment on completion

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Residues

Concentrates

2017e 2013

Own mine concentrates & residues from own zinc

smelting network - ca. 50% of feed material

requirements

2013 2017e

319

399

80 Pb

Zn

Cu

Ag

Au

TCs

183

ca. 50% increase in throughput Kt

Material increase in gross profit EURm

Residues and own mine lead concentrates

ca. 250,000 tonnes of refined lead 179,000t ca. 40,000 tonnes of zinc in fume 30,000t metal

ca. 7,000 tonnes of copper in matte 4,100t

ca. 25.0 million troy ounces of silver dore 18m troy ounces

(containing ca. 100,000 troy ounces of gold) 65,800 troy ounces

Improved production capacity - 2017e 2013

Improved throughput and production capacity

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Forward sale of future silver deliveries AUD120m / EUR79m

Funding package delivered

Financing summary

Direct contribution ends 2014 AUD103m / EUR68m

Nyrstar Port Pirie Total capital

investment: AUD 514m / EUR 338m

Nyrstar’s direct contribution

Project level financing Proceeds from forward sale of

silver production

Equity-like perpetual securities with EFIC guarantee AUD291m / EUR191m

Increase from ca. EUR 231 million (ca. AUD 351 million) at prefeasibility stage: reflects Nyrstar constructing a sulphuric acid plant; and expected inflationary impacts over the spending horizon for the project being formalised

AUDm EURm

Nyrstar direct contribution 1031 68

Project level financing 2912 191

Proceeds from forward sale of silver production 120 79

Total 514 338

1 Exact Nystar contribution AUD 102,750,000.

2 Exact Project Level Financing AUD 291,250,000.

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Structured equity-like investment; perpetual securities receive IFRS equity accounting treatment Nyrstar expects to utilise the funding from early 2015 Forecast distributions expected to reduce amount of perpetual securities outstanding, 2017 - 2021 Amortisation of perpetual securities is discretionary however no perpetual securities expected to be on issue

by the end of 2021

SPV Created solely for financing

Redevelopment

Nyrstar Port Pirie Third party financiers

EFIC

NPP will issue perpetual securities to SPV

South Australian Government ffinancing agreement with Nyrstar and EFIC, Australia’s export credit agency

Raised funds benefit from a guarantee from EFIC

supported by a back-to-back guarantee from the

South Australian Government

SPV Special Purpose Vehicle. EFIC: Export Finance and Insurance Corporation.

South Australian Government

Funding raised guaranteed by EFIC, AAA credit rating


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Air quality improvement – before and after transformation

Arrium Mining – Iron Ore

• South Australia was the birthplace of Australia’s iron ore production and is South Australia’s second largest producer

• Production has stepped up from 3 million tonnes per year ($28 million) a decade ago to 14.6 million tonnes/year – with a production value of $1.9 billion

19 Source: Photographs by Sean Kelly, courtesy of Arrium Mining

20 Source: Photographs by Sean Kelly, courtesy of Arrium Mining

• 2013 was a watershed year, celebrating the expanded port capacity at Whyalla complete with rail-loops

• Strong case management is underwriting and will continue to underwrite the sector. The last year has seen Arrium port and mining operation expansion

Arrium Mining – Iron Ore

Resources Infrastructure Taskforce (RIT)

• The Regional Mining and Infrastructure Plan launched by the Minister for Transport and Infrastructure 12 June 2014

• Resources Infrastructure Taskforce (RIT) within the Olympic Dam Taskforce, jointly chaired by senior staff from the Department of State Development and DPTI

• The RIT will guide development of rail, road, port, water and electricity infrastructure supporting expansion of State’s resources and energy sectors

• In 12 months development of a business case for a port solution supporting increased export of iron ore from prospective mines in SA

• Work closely with key private sector stakeholders

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RIT 12 month program

• Establish Taskforce • Steering Committee, Taskforce, agency links, resources, budget • Further Cabinet approval

• Engage Stakeholders • Identification, mapping, meetings, forums • Undertake “Road Map” mapping • Summarise infrastructure issues

• Review infrastructure knowledge • Examine existing reports • Identify key commercially viable resource projects • Explore multi user access models

• Develop intervention/ assistance/ support options • Prepare spectrum of options and financing • Prepare Business Case

• Make recommendations to Government

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Mining and Petroleum Services Centre of Excellence (CoE)

• Supporting the development of South Australian capabilities that assist local supply chains to compete nationally and globally, providing high value added products and services to the resources sector

Objective

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Governance Structure

MIPO Advisory Council

CoE Executive

Committee • Provides formal approval of project funding

• Individual projects managed by lead project partner

CoE Secretariat • Entry point for inquiries and project proposals • Manages CoE activities and funding • Supports the Advisory Council and Executive Committee • Connects SMEs, resources industry and researchers

• Reviews projects and makes recommendation to the CoE Executive Committee on project prioritisation and funding

• Generates recommendations for new projects to be considered

CoE Projects

Project A

Project B Project D

Project C

Project E

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Project Pipeline

4. Project(s) Projects to proceed with CoE and partner funding, with clear links to

overarching objective of the CoE

3. Fund CoE Executive Committee to approve funding for projects

2. Qualify CoE Secretariat to assess project ideas that emerge from Stage 1, apply

CoE criteria to assess eligibility, then provide information to MIPO Board who will provide recommendation to fund or not

1. Generate CoE Secretariat to link SMEs, resources industry and researchers to

generate innovative ideas Part

ners

hips

& c

olla

bora

tion

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Build on existing SA comparative advantage, either in terms of research, industry or natural endowments

Have industry funding or in-kind support

Have material impact and be identified as priority for industry

Solve problems which industry can’t solve itself, for reasons such as incomplete or asymmetrical information or common resource problems

Have multiple partners and require a collaborative approach, and

Be publicly reportable

Criteria for Funding Project

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18/07/2014 27

• Onshore Petroleum training facility • Australia's first comprehensive ICT Roadmap for Minerals and Energy; • Brukunga Mine Skills Centre Feasibility Study; • Remote Mining Operations Centre; • Chair of Geo-statistics and Qualitative Geology; • South Australian Research Fellowship in Unconventional Energy Resources • The Real-Time Drill Site; and • Australian Copper/Uranium Transformation Research Hub

The following projects are being supported by the CoE:

Projects to date

Disclaimer

The information contained in this presentation has been compiled by the Department of State Development and originates from a variety of sources. Although all reasonable care has been taken in the preparation and compilation of the information, it has been provided in good faith for general information only and does not purport to be a professional advice. No warranty, express or implied, is given as to the completeness, correctness, accuracy, reliability or currency of the materials. The Department of State Development and the Crown in the right of the State of South Australia does not accept responsibility for and will not be held liable to any recipient of the information for any loss or damage however caused (including negligence) which may be directly or indirectly suffered as a consequence of use of these materials. The Department of State Development reserves the right to update, amend or supplement the information from time to time at its discretion.

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