H2 2016 Commodity outlook Nickel

BME company presentation, 2016

Commodity outlook: NickelMarket conditions, expectations, and 5 opportunities

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Copyright Blast Mining Enterprises 2

Overview

• Introduction (2)

• Nickel market (5)

• Sulfide vs. laterite (4)

• Production and reserves (3)

• Current state of affairs summary (1)

• Future expectations (8)

• Five opportunities (1)


Expected future developments

Historic performance

Introduction (1/2)

Etymology: The name nickel is derived from “Kupfernickel” – literally meaning “copper demon”, because the mineral from which nickel was first derived (niccolite) looked like copper but yielded none…

Discovery: Although used since ancient times, nickel was only isolated as an element (atomic #28) in 1751 by a Swedish mineralogist Axel Fredrik Cronstedt.

Favorable attributes:

• Corrosion resistance

• Toughness

• Strength at high and low temperatures

• Favorable magnetic and electronic properties


LME symbol for Nickel (Ni)

Introduction (2/2)

Nickel is described as a “silvery-white lustrous metal with a slight golden tinge”

Applications:

• Stainless steels: 65%

• Steel and non-ferrous alloys: 20%

• Plating: 9%

• Other uses: 6% (Coins, electronics, batteries portable equipment & hybrid cars)

Copyright Blast Mining Enterprises

Source: www.nickelinstutute.org Major applications in:

• Construction• Armament

5

Nickel market (1/5)


Ni is a top 10 metal (#6) by revenue (26B USD in 2013, 3% major metal market)

*Rest includes: Ag, Pb, PGM, Mo, Li, Co, U, Sn

Nickel market (2/5)

Norilsk Nickel

276 kt

Vale

231 kt146 kt

115 kt

143 kt

51 kt

51 kt

75 kt39 kt

In 2013, top 10 producers have a combined:

…66% market share


Source data: www.statista.com

Producing companies are relatively well spread around the World – allowing for a competitive market

Nickel market (3/5)Producing nations are relatively well spread around the World – also allowing for a competitive market• Top five nickel producing countries responsible

for 56% of global output

• The Philippines (#1 producer) may drop out of the top five producing nations when its reserves are depleted

• Based on current reserves there is significant growth potential in:• Australia• Russia• New Caledonia• Brazil


Source data: www.USGS.gov 8

Nickel production and reserves 2015ECountry Production Reserves Reserve- tons tons yearsPhilippines 530,000 3,100,000 5.8Russia 240,000 7,900,000 32.9Canada 240,000 2,900,000 12.1Australia 234,000 19,000,000 81.2New Caledonia 190,000 8,400,000 44.2Indonesia 170,000 4,500,000 26.5Brazil 110,000 10,000,000 90.9China 102,000 3,000,000 29.4Cuba 57,000 5,500,000 96.5South Africa 53,000 3,700,000 69.8Other countries 608,500 11,160,000 18.3World total 2,534,500 79,160,000 31.2


Current nickel pricing is at inflation adjusted lows for the last 100 years

Nickel market (4/5)

Sources: www.USGS.gov, www.infomine.com

Nickel market (5/5)


Source: WoodMackenzie, Mod. After Presentation Vale Investor Tour 2015

1st quartile 2nd quartile 3rd quartile 4th quartile

2015 Global Nickel industry C1 cost curve24,000

20,000

16,000

12,000

8,000

4,000

0-2,000

-12,000

Ni p

rod

uct

ion

co

st [

USD

/to

n N

i]

50% of the market is underwater at current prices…

Todays Ni price10,360 USD/t(28/07/2016)

Note: Chart figures include all downstream processing costs to finished product

Nickel sulfide and nickel laterite (1/4)

Nickel is produced from sulfide & laterite deposits.

- Nickel laterite deposits:

- Oxidized (weathered, near surface) deposits amenable to open pit mining

- Nickel minerals can be associated with Fe, Al, and Co (of which Co payable)

- Account for 42% of current production & 60% of reserves

- Nickel sulfide deposits:

- Conventional type of nickel mining operation

- Type 1 nickel sulfide: Ni – Cu deposit with Co, PGM, and Au byproducts

- Type 2 nickel sulfide: PGM deposit with Ni and other byproducts

- Account for 58% of current production & 40% of reserves




Source: AME Group

Average nickel grade of all nickel producing mines

Although the grade of Non-PGM nickel sulfide mines is declining…

…The development of the average overall Ni grade extracted is relatively flat

ForecastHistorical data



Qualitative comparison between nickel laterite and nickel sulfide deposits

Nickel laterite Nickel sulfide

HSE: Higher risk personnel during processing, higher energy consumption (2-5x) and emissions

HSE: Current processing techniques have lower impact on the environment, underground mining inherently more dangerous to personnel

Financial: More amenable to economies of scale, higher CAPEX and OPEX and fewer byproduct metal credits resulting in a high position on the cost curve, lower revenue

Financial: Low cost curve position, mix of products provides sought after protection in highly cyclical (nickel) economy, underground mining usually requires longer lead times

TFOR: Potential for game changing technological improvements, many known undeveloped deposits, feasibility issues, lower quality product, batch process, complex, lower system reliability, less stable producing nations

TFOR: Conventional source nickel mined, grades existing deposits decreasing, few known undeveloped deposits, more difficult exploration, higher uncertainty w.r.t. orebody grades and variability, low operational flexibility

Preferred



Summary quantitative comparison nickel sulfide vs nickel laterite

Category Importance Nickel laterite Nickel sulfide

Health, safety environmental issues 5 2.0 3.0

Financial considerations 5 2.3 3.3

Technical feasibility & operational risk 5 2.8 3.7

Score achieved 2.4 3.3

Note: High score indicates preference. Valuations range from 1 to 5. The score achieved is calculated as the weighted average of valuations per category. The assessment is based on the following criteria:• HSE: Positive heath and safety impact, positive environmental issues impact• Financial considerations: Capital expenditure, operational expenditure, revenue, competitive advantage• Technical feasibility and operational risk: Technical feasibility, quality result obtained, interference to

existing operations, simplicity, system reliability, flexibility of the operation, ability to monitor and control, technological acceptance within the industry, suitability choice of manufacturer(s)/partner(s)

Preferred

Production and reserves (1/3)


Source: www.USGS.gov

In the last two decades reserves kept up with the production rate growth



The nickel industry attempted to reduce unit cost by increasing output. This has acted to further decrease prices and is not sustainable for all operations.

Source: www.USGS.gov, www.infomine.com



Note: Chart based on data world primary mine production and identified reserves. Influence secondary production (as a result of recycling) not included.

At a glance it does not look as if we will run out of nickel very soon…

State of affairs summary

• Nickel is a top 10 metal (#6) in terms of revenue

• The market for nickel is global and relatively competitive

• There are two sources of nickel: Nickel laterite and nickel sulfide

• Nickel laterite is recovered from weathered rock & amenable to open pit mining, usually at high CAPEX & OPEX. There are many undeveloped nickel laterite deposits.

• Nickel sulfide is favored. Characterized by lower cost, higher Ni grades, and often byproduct credits that result in a low position on the cost curve. This material is also easier to process using conventional mining technologies.

• Over the past two decades nickel reserves have increased and kept up with the growth in production. After several years of surplus, Nickel is currently trading around all time inflation corrected lows (past 100 years).

As a result nickel is not much loved in the industry


So what about the future?


Expected future developments (1/8)

I. The curtain will (continue) to fall on some producers

II. We see encouraging signs that the nickel market is about to rebound:• Nickel supply is expected to slightly reduce in 2016• 2016 looks like the first year in five that there will be a demand surplus• Relative reserves have been shrinking and are currently overestimated.• Future nickel demand looks solid



Stating the obvious: In a market that is 50% underwater, not everyone is going to make it. Assets owned by the companies on the list below occupy the best 50% of positions on the cost curve and are therefore the least likely to default.


I. Norilsk nickelII. ValeIII. GlencoreIV. Jinchuan GroupV. Anglo AmericanVI. BHP Billiton

VII. First quantumVIII. Cunico resourcesIX. ErametX. CubanickelXI. Western Areas

Companies that occupy best cost curve positions If a nickel producer is not on this list, chances are it has been in trouble for some time. For these companies even a significant and quick rise in the nickel price may no longer be enough to keep the wolves at bay…

Source data: Norilsk nickel presentation 2013


Developments in production rates usually lag 1 or 2 years behind price fluctuations. The production rate is expected to decline slightly in 2016.




For those that can hang on there is light at the end of the tunnel. For the first time in the last five years the nickel market looks to be heading towards a deficit for 2016.


Sources: LME, SHFE, Infomine, USGS, nickel institute, fastmarkets.com


Since 2009, reserves have shrunk by 39% as a result of depletion, impairments caused by lower metal prices, and reduced exploration efforts.


0

10

20

30

40

50

60

1995 1999 2003 2007 2011 2015

Nic

kel r

ese

rves

[ye

ars]

Relative nickel reserves

31 years


51 years-39%

Note: Chart based on data world primary mine production and identified reserves. Influence secondary nickel production (as a result of recycling) not included.


Although there are no set rules in the determination of the right price on which to base reserve estimates, the securities and exchange commission generally accepts the lowest of:

• The spot price

• The three year moving average


Based on a H1 2016 monthly average of 8,665 USD/ton and todays price of 10,360 USD/ton (28/7/2106) it is expected that the reserve base will decline further under the influence of impairments.


Expected future developments (7/8)Factors influencing nickel demand

• Global population +33% Increase up to 2050 projected by UN

• Average GDP per capita Rising, particularly in developing nations

• Construction Urbanization expected (developing nations)

• Nickel price Currently trading at historic lows (conditions ideal for the creation new nickel products)

• Innovation Ni properties include corrosion resistance, toughness, strength at high & low temperatures, favorable magnetic & electronic properties. These properties may be in demand w.r.t. future products.

• Substitution potential Some substitutes for stainless steel products exist and become attractive at (much) higher Ni prices



• We believe that nickel is a versatile and adaptable commodity with hard to beat favorable attributes: Corrosion resistance, toughness, strength at high and low temperatures, favorable magnetic and electronic properties.

• As a result we do not believe that – despite phenomenal historic growth in the application of nickel – nickel demand will subside below current production levels in the next twenty years. In fact, during this time we are expecting the nickel demand to further increase.

• The future of nickel may be as volatile as its past, which presents significant opportunities to a diversified investor.

Several years of surplus appear to have come to an end we expect to see that the price of nickel will substantially recover in H2 2016.


Five potential investments (1/4)

We believe that this is the time to invest


Five opportunities

Particularly if you are (i) an equity company searching for high yield investment opportunities, (ii) a junior or diversified miner already engaged in nickel, (iii) or a mining equipment manufacturer – at a risk level that suits your organization – Interesting opportunities include, but are not limited to:

1. Trading in physical nickel or financial nickel derivative products (short – medium – long term)

2. Carry out exploration for and investigate feasibility of exploiting new nickel sulfide deposits yourself or sell to another mining company (medium – long term)

3. Investigate feasibility acquiring the rights to & exploiting a known undeveloped massive low grade Ni sulfide resource by block caving (long term)

4. Develop sensor sorting technology to sort low grade Ni sulfide ore (long term)

5. Develop a nickel laterite process that is better from an HSE, financial, and technical feasibility & operational risk perspective (long term)


Thank you for your attention!

Our team of consultants can help you realize your mining projectsFor more information on these opportunities and other services we provide, please contact us.

Willem Blaisse Reliable, cost effective, innovative

Mining consultant and partner BME

Blast Mining Enterprises

Lauriergracht 123 – II Hoog

1016 RK Amsterdam

The Netherlands

Email: [email protected]

Phone: +31622015563

www.blastminingenterprises.com


Cu

Au

Ni

Ag

Co

Zn

Fe

Pb

Al

U

CaCO3

Minerals

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H2 2016 Commodity outlook Nickel

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