0254 Mining Commodity Attractiveness Industry Analysis Gold Copper Lead and Zinc

8/9/2019 0254 Mining Commodity Attractiveness Industry Analysis Gold Copper Lead and Zinc

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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


3/72

-


$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


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!


5/72

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


6/72

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



*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


7/72G

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



*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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9/72

Contents

,vervie! by Industry

Gold

5opper

(ead

?inc


10/72

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


11/72

&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:


12/72


13/72-

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


14/728

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


15/72B

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


16/72

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


17/72G

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


18/72


19/72

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


20/722

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


21/72

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


22/72

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


23/72


24/72

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


25/72

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


26/72

2

Contents


"old

Copper

(ead

?inc


27/72

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


28/72

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


29/72

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


30/72

-

#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


31/72


32/72

-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


33/72

--

$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


34/72

-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


35/72

-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


36/72

-

7ntil the end o the s Copper prices !ere decreasing

Annual Average 7


37/72

-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"


38/72

-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


39/72

-

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


40/72


41/72

8

.ig or!ard integrated miners share bargaining po!er !ith ma5or buyers

Med (o,1ig%Processing

3Con


42/72

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%

#


43/72

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


44/72

88

Contents


"old

5opper

/ead

?inc


45/72


46/72

&ndustry ?utlook


47/72

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


48/72

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*


49/72

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


50/72

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


51/72

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


52/72

B2

)istoric /ead price has been volatile

2Dollars

=SD$t

Annual Average /ead rice (9;B9@"

Source) =S"S


53/72

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


54/72

B8

/ead price is e'pected to decrease in the medium term < < 85 200*-200/+ =G7A C>85 200.-20*0+ 2G7A


64/72

With high supply gro!th rates3 by 29 China is e'pected to have balanced


65/72

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


66/72

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


67/72

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


68/72

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


69/72

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


70/72

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


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

;%


72/72

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0254 Mining Commodity Attractiveness Industry Analysis Gold Copper Lead and Zinc

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