Commodities outlook for the Territory

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

Commodities Outlook for the Territory

Mining The Territory Conference

19 September 2012

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 2012

Australia‟s Next Top Mining Shares – Major Street Press

Uranium

CRU STRATEGIES

3

“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 2012

Long-Term Outlook for Iron Ore

Iron Ore

CRU STRATEGIES

4

“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, 2012

Copper

CRU STRATEGIES

5

“Everything has its limit – iron ore cannot be educated into

gold”.

Mark Twain

“You‟re still the one”

Shania Twain

Gold

CRU STRATEGIES

6

“ When man first viewed planet Earth from space, he saw

white hot tungsten in the form of incandescent light bulbs,

making Edison‟s dream of light for the masses a reality.

Today, tungsten is used to make tungsten carbide tools and

used to shape and form all other metals.

The lack of new discoveries and the expansion of China‟s

manufacturing capacity create the perfect storm of limited

supply and increasing demand”.

Prof. Ian Plimer

Tungsten

CRU STRATEGIES

7

“ The evolution of manganese ore prices over the medium

term depends upon how rapidly seaborne supply continues

to expand.

On paper, there is no shortage of new capacity in the

pipeline – but only a handful of such projects are

committed”.

CRU Group, Manganese Ferroalloy Market Service

Manganese

CRU STRATEGIES

8

“ The most common perspectives on the rare earth market are

NOT actually correct in reality:

Firstly, imminent over-supply will NOT be the case

– as realistic project timelines are over a decade long.

Secondly, it is more about ore value and

NOT about „heavies versus lights‟

Finally – rare earth projects require scrutiny as to quality

NOT simply quantity”.

John Sykes, The 3-Day MBA in Rare Earth Metals

Rare Earths

CRU STRATEGIES

Uranium

9

Mining The Territory

CRU

CRU STRATEGIES

What are the key points ?:

• Uranium price has held up despite unprecedented demand destruction

• Price outlook is for strong growth – Upside asymmetry in price risk

• The growth in demand will come from China primarily

• Supply is expanding – there are projects in the pipeline .... But

• There are a number of risks to supply in the short, medium and long

term

• Costs have been rising, and will continue to rise. This is putting a floor

under prices and will support higher prices over the next 20 years

• The industry needs new supply, and higher prices are required to

incentivise new capacity to enter

10

CRU STRATEGIES

Uranium Market Overview – Market size growing beyond 2007 peak

0

50,000

100,000

150,000

200,000

250,000

Mark

et

Siz

e,

US

$2010 (

‘000

s)

Selected Commodities by Market Size

Copper

Met Coal

Nickel

Potash

Tin

PGMs

Uranium

11

0

10,000

20,000

30,000

40,000

50,000

60,000

Mark

et

Siz

e,

US

$2010 (

‘000s)

Focus on Commodities under $50Bn

Nickel

Potash

Tin

PGMs

Uranium

Data : CRU Group

CRU STRATEGIES

0

10

20

30

40

50

60

70

80

90

100

110

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Historical price movement

Average of weekly spot prices- Nominal

Real prices ($ 2010)

Historical Prices volatility resembles a minor metal market ....

Uranium now well positioned to compete for the majors

12Data : CRU Group

Ura

niu

m s

po

t p

rice

($/lb

)

CRU STRATEGIES

13

Uranium Demand – Chinese Demand on a Charge

CRU Analysis, WNA

Top Ten Uranium Consumers, 2010

By Country, t U

Country 2010

USA 18,726

France 9,539

Japan 7,130

Russia 4,971

China - Mainland 4,628

Germany 3,255

South Korea 3,139

Ukraine 2,304

UK 2,032

Canada 1,999

Top 10 57,723

Rest of World 9,908

WORLD Total 67,632

USAFrance

Japan

Russia

China -Mainland

GermanySouth Korea

Ukraine UK

Canada

Rest of World

Top Ten Uranium Consumers, 2010By Country, t U

• Top 10 countries constitute 85% of demand

• 2011 saw demand loss in Japan & Germany

• Negative impact exceeding 10% of 2011 demand

CRU STRATEGIES

Chinese stockpiling has had a significant impact on the

market over the last 2 yearsUranium consumption, by region, 2002-2011

14

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

ton

ne

s o

f n

atu

ral

ura

niu

m

Chinese Stockpiling

RoW

South America

CIS

Asia

North America

Europe

“By 2020 CRU believes that China will have built a stockpile

equivalent to 2 times their commercial requirements in 2025”

CRU STRATEGIES

Electricity generation in developing Asia is expected to

triple in the next 20 years

World total net electricity generation from central producers, by region

and country, 2007 and 2030, in Terawatthours

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2007 2030 2007 2030 2007 2030 2007 2030 2007 2030 2007 2030 2007 2030 2007 2030

OECD North America

OECD Europe OECD Asia Non-OECD Europe and

Eurasia

Non-OECD Asia

of which China

Middle East/Africa

Central and South

America

TWh

CRU STRATEGIES

Uranium demand growth will chiefly come from China,

India and countries new to nuclear power

Uranium demand, by region, 2010-2035

16

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,0002

01

0

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

ton

ne

s o

f n

atu

ral u

ran

ium

RoW

Europe

Russia

India

China -Mainland

Japan

USA

CRU STRATEGIES

China becomes the world’s largest consumer by 2030;

India enters the top ten before 2020Uranium demand, percentage of world total, 2020 and 2030

17

23%18%

7%

10%

5%7% 5% 3% 1% 3%

18%

Demand in 2020

20%

24%

5%

8%

4%

7% 7% 3% 3% 0%

19%

Demand in 2030

█ USA █ China – Mainland █ Japan █ France █ South Korea █ Russia

█ India █ Ukraine █ Germany █ Canada █ UK █ RoW

CRU STRATEGIES

Demand growth from 2011 to 2020

50,000 tonnes U3O8

Where will those tonnes come from ?????

18

CRU STRATEGIES

Supply: Three countries dominate uranium supply

74%

26%

0%

20%

40%

60%

80%

100%

Primary

Supply

Secondary

Supply21,840 tonnes of U3O8 equivalent:

Recycled or reprocessed material, either

from surplus nuclear weapons or used fuel

Drawdown of stockpiles and inventories

61,750 tonnes of U3O8 equivalent:

Material produced at mining operations

0% 20% 40% 60% 80% 100%

Country supply contribution

Kazakhstan

Canada

RoW

Africa

Australia

Asia

Europe

U3O8 Supply, 2010

Data : CRU Group

19

CRU STRATEGIES

Supply will need to increase rapidly from 2015 – In-ground

exists potential to do so (A production possibilities frontier)

Potential supply by status 2010-2035

20

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2010 2015 2020 2025 2030 2035

ton

ne

s U

3O

8

Operating Committed Probable Possible Closed

Primary Supply Needs

to Double by 2020

CRU STRATEGIES

21

But material mine supply growth is likely to be subject to

further delays

Trekkopje (AREVA)

•Location: Namibia

•Type: open pit

•Capacity: 2,800 tU

•Start date: 2018 ?

•Capex: US$750m

Imouraren (AREVA)

•Location: Niger

•Type: open pit



•Capex: US$1.5bn

Husab

•Location: Namibia

•Type: open pit


•Start date: 2016

•Capex: US$700m

Yeelirrie (Cameco)

•Location: Australia

•Type: open pit



•Capex: US$650m

Olympic Dam

expansion

(BHPB) - Curtailed

•Location: Australia

•Type: open pit &

underground

•Lost Potential

Capacity: 16,000 tU

Cigar Lake (Cameco)

•Location: Canada

•Type: underground


•Start date: 2013

•Capex: US$2bn

Data: CRU Group ; Note: that start dates, capital costs, etc. are CRU estimates

CRU STRATEGIES

0.01

0.1

1

10

100

1000

0.10 1.00 10.00 100.00 1,000.00 10,000.00

Gra

de (

kg

/t U

3O

8)

0.01

0.1

1

10

100

1000

0.10 1.00 10.00 100.00 1,000.00 10,000.00

Gra

de (

kg

/t U

3O

8)

Resources (Mt)

Underground Open Pit Insitu Leach

Lots of potential projects, but grades are an issue for next generation

costs

Data: CRU Analysis, Company Resource Data

Uranium only resource tonnages across varying JORC

classifications

Operating Mines

Pre-feasibility and

Feasibility Projects

Envelope of

operating mines

New projects are

of lower grade...

0.01

0.1

1

10

100

1000

0.10 1.00 10.00 100.00 1,000.00 10,000.00

Resources (Mt)

Underground Open Pit Insitu Leach Unknown

Exploration Projects

..and exploration

projects even lower

22

CRU STRATEGIES

Industry Cost structure rising – Implications for Kazakhstan Example

23

Source : CRU Group

0%

10%

20%

30%

40%

50%

60%

70%

2009-2014 2014-2020

No

min

al w

ag

e in

fla

tio

n,

% C

ha

ng

e

Wage inflation, % Change Highest in Emerging Markets

■ Advanced Economies

■ Emerging markets

■ Uranium Average

0

50

100

150

200

250

300

350

2009 2014 2020

No

min

al U

S$

/to

nn

e

Black Sea Benchmark

Estimated cost at mine gate in Kazakhstan

Costs of Sulphuric Acid:

Delivered Costs to Double by

2020

Data : CRU Group

CRU STRATEGIES

Risks and Opportunities – Multiple Price Risks: short, medium and

long term

24

SHORT TERM MEDIUM TERM LONG TERM

U

P

S

I

D

E

D

O

W

N

S

I

D

E

• Supply disruptions at

existing mines (floods,

strikes)

• Higher energy prices

(specifically coal)

• Japan re-starts reactors

• China speeds up nuclear

build after successful

commissioning

• Continued ban on Uranium

mining in parts of Australia

• Technology leap in

renewable energy

• Thorium reactors developed

• Multiple new resources developed

in many countries

• Early lifting of Uranium mining

ban in parts of Australia

• Rapid expansion of shale gas

supply in China/India

• Fukushima ‘hangover’

continues to influence

nuclear policy

• Lack of available finance

delays new nuclear plant

builds

• Nuclear accident (time

independent)

• Delays in new entrant start-

ups including Olympic Dam

(OD), finance and permitting

• Sustained higher energy

prices through to 2015+

• Exploration confirms lower

grade of future supply

CRU STRATEGIES

Iron Ore

25


CRU

CRU STRATEGIES

26

“The iron ore market has experienced exceptional growth over the last

decade led by China‟s rapid development and consequential hunger for

steel. As demand increased from annual rates of 1-2% to 5% in the early

2000s, supply could not keep pace leading to tight market fundamentals,

sharp hikes in prices and the emergence of a sellers‟ market.

Over the next 5 years, we maintain that Chinese demand growth will remain

robust, in line with GDP annual growth in excess of 7.5% through this

period. Moreover, given the considerable time it takes for new projects to be

realised, a trend likely to be further exaggerated by the current nervousness

in the investor environment, we forecast the demand/supply balance to

remain relatively tight, with prices holding at historically elevated levels”

CRU Group 2012

Long-Term Outlook for Iron Ore

Iron Ore – Over-emphasis on Recent Price Weakness

CRU STRATEGIES

Despite a thriving junior mining scene, the majority of

committed Australian production growth remains in the

hands of the majors

Junior miners‟(1) share of Australian production by our “gateway assessment”, %

Data: CRU. Note (1) “Junior miner” represents non Rio Tinto, BHPB or FMG production

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Junior share of Australian committed production

Junior share of total Australian potential production

CRU STRATEGIES

6%

27%

4%

3%

4%2%9%

11%

33%

3%

North America

Brazil

Other Latin America

South Africa

Other Africa

Europe

Russia & CIS

India

Australia

Rest of world

Australia and Brazil are expected to retain their dominant

share of the market

28

Supply scenario in 2035(1), % of total supply

Data: CRU. Note: (1) excludes Chinese production.

CRU STRATEGIES

Gold

29


CRU

CRU STRATEGIES

What are the key points ? Gold

• Gold driven higher by heightened macroeconomic risks

• Loss of one of the important sources of gold supply – official sector

sales, which primarily represent the actions of central banks in various

countries. Likewise, low „new supply‟ from producer hedging

• Price outlook is for growth in 2014 – then consensus is for downside

price risk as US economic recovery now looks real

• Fabrication demand impacted by high prices – but forecast to recover

• Mine supply struggling to expand – forecasts in 1 – 2% per annum

growth range

• Costs have been rising – Small Australian gold miners at risk of price

pull-back if not matched by A$ exchange rate pullback

• Miners now seen as competing with gold ETFs for investment support

30

CRU STRATEGIES

Palladium, Tin, Zinc, Uranium, Alumina, Aluminium,

Platinum, Lead, Nickel, Met Coke

Vanadium, Phosphate DAP, Cobalt

Iron Ore,

Manganese, Gold, Copper, Coking Coal

Potash, Ammonia, Urea, Silver, Sulphuric Acid, Sulphur

CRU Commodity Heat for 2016: price changes average 8%CRU expects to see diverging prices trends, some significant rises while others languish

Hot

> 15%

Warm

5% to 15%

Cold

-5% to 15%

Freezing

< -15%

Mild

0% to 5%

Cool

0% to -5%

* 2016 annual average price forecast (nominal $ or benchmark) versus 2012 Q2 average actual prices

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 youContacts:

Allan Trench ([email protected])

Philip Sewell ([email protected])

Commodities outlook for the Territory

Business

Transcript of Commodities outlook for the Territory