CRU CONSULTING a division of CRU International Limited

International Perspective

US$ / Nickel / Coal

ANDI - Colombia Genera

February 2015

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Preface

This report is supplied on a private and confidential basis to the customer. It must not be disclosed in whole or in part, directly or indirectly or in any other format to any other company, organisation or individual without the prior written permission of CRU International Limited.

Permission is given for the disclosure of this report to a company’s majority owned subsidiaries and its parent organisation. However, where the report is supplied to a client in his capacity as a manager of a joint venture or partnership, it may not be disclosed to the other participants without further permission.

CRU International Limited’s responsibility is solely to its direct client. Its liability is limited to the amount of the fees actually paid for the professional services involved in preparing this report. We accept no liability to third parties, howsoever arising. Although reasonable care and diligence has been used in the preparation of this report, we do not guarantee the accuracy of any data, assumptions, forecasts or other forward-looking statements.

© CRU International Limited 2015. All rights reserved.

CRU CONSULTING

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Who is CRU?

LondonPittsburgh

Santiago

Sao Paulo Mumbai

Sydney

Beijing

CRU Analysis CRU Consulting CRU Events

CRU CONSULTING

• US$ - Continued dollar strength

• Nickel – Indonesia export ban & NPI

• Coal – China still key; Colombia a competitive producer

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Presentation topics

CRU CONSULTING

5CRU believes nickel has the best short term prospects

Nickel,

Sulphuric Acid, Tin, Palladium, Bauxite, Sulphur, Cobalt

Zinc, Silicon, Molybdenum,

Chrome Ore, Alumina, Aluminium, Phosphate DAP,

Ferrochrome, Metalics Scrap, Silico-Manganese,

Lead, Platinum,

Ammonia, Thermal Coal, Oil,

Met Coal, Urea, Phosphate Rock, Copper, Potash,

Manganese, Gold,

Iron Ore Silver

Hot> 15%

Warm5% to 15%

Cold-5% to 15%

Freezing< -15%

Mild0% to 5%

Cool0% to -5%

2015 annual average price forecast (nominal $ or benchmark) versus 2013 average actual prices

CRU CONSULTING

46

48

50

52

54

56

58

60

Sep-13 Dec-13 Mar-14 Jun-14 Sep-14

US ChinaEurozone Other emergersJapan

Manufacturing PMIsDiffusion index. In theory 50 = no change

Data: Markit, CRU

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USA’s upswing and China’s slowdown are causing currencies to realign

Global economic performance is diverging

• Plunging oil prices are net positive for the outlook

• Modest economic recovery in 2015 – US is key

• The $ is going from strength-to-strength

• Significant uncertainty and risk

• Upside: Oil prices low, US take-off, Indian strength

• Downside: China crash, Eurzone woes & ‘Grexit’, Geo-politics: Russia, Mid-East, oil stress

CRU CONSULTING

The US dollar and commodity prices have moved inversely over the years

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0

20

40

60

80

100

120

14050

100

150

200

250

300

350

400

450

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

2013

CRB Commodity Index (LHS)

Narrow Dollar Index (Inverted - RHS)

Commodity Prices vs. the US Dollar

Jan 1973 = 100

Data: Haver Analytics, US Federal Reserve, CRU

Dollar Strengthens

• ‘As US dollar soars, commodities get

crushed’ – CNBC

• ‘Copper slumps to 5-1/2-year low on

strong dollar’ – Reuters

• ‘Strong U.S. Dollar to challenge global

fertilizer demand’ – Capital Press

• ‘Dollar rally only just getting

started...expect more downward

pressure on commodity prices’ – FT

CRU CONSULTING

CRU CONSULTING

Why might prices and the USD move inversely?

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DEMAND FACTORS

• Foreign demand for commodities down when USD is strong

• USD-denominated assets more expensive

• ‘Imported inflation’ may lead to tighter monetary policy

SUPPLY FACTORS

• Strong dollar makes revenues look even better against local costs

• Greater profit margin

• Producers see incentive to increase supply where possible

CRU CONSULTING

CRU CONSULTING 9

Dollar moves are just one factor pushing prices around

Market dynamics differ for each commodity. Dollar impacts on a commodity’s price will

vary.

CRU CONSULTING

CRU CONSULTING

Dollar strength to continue

10

60

70

80

90

100

110

120

130

140

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

2013

Broad Dollar Index

Pre-2008 average

Real Broad Dollar Index

March 1973 = 100

Data: US Federal Reserve, CRU

By broadest measure, US dollar up by > 9% since last summer

CRU CONSULTING

CRU CONSULTING

Nickeloutlook

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CRU CONSULTING

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

China

World ex China

Nickel market deficits:Stainless steel growth to outpace nickel supply

-100

-50

0

50

100

150

200

250

Global Ni balanceCAGR

3.4%

CAGR

15.2%

‘000 t

Apparent consumption stainless steel flat products, million tonnes

CRU CONSULTING Data: CRU, LME

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CRU CONSULTING

Will Indonesian ore ban bring NPI boom to an end?

Background

• 2005-2009 NPI industry emerges

• RKEFs emerge as lowest cost producers using

high-grade laterite from Indonesia

• 2013 Imports >40Mt ore from Indonesia

• January 2014 Indonesia banned export

unprocessed nickel products (<4% Ni)

The Future

• New ore sources

• NPI costs rise in China ; plant closures

• Indonesian NPI – lower cost; can volumes be

sustained?

• Can Philippines sustain current ore output?0.0

1,000,000.0

2,000,000.0

3,000,000.0

4,000,000.0

5,000,000.0

6,000,000.0

7,000,000.0

8,000,000.0

9,000,000.0Philippines

Indonesia

How has the industry responded? Philippine exports increase

Data: CRU, LME

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CRU CONSULTING

CRU CONSULTING

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Ore key driver of NPI costsBusiness cost breakdown by technology type, 2014, %

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

RKEF Hydromet CuNiSulphide Pyro

Other

Energy

Raw Materials

Data: CRU

CRU CONSULTING

Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 140

50

100

150

200

250

LME Nickel

10% NPI/t

1.7-1.8% Ni ore

1.4-1.6% Ni ore

Monthly average prices, September 2012 = 100

Ore prices have risen with the ban; NPI prices have not

Data: CRU, LME

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CRU CONSULTING

Cost curve for the nickel industry (business costs), 2014, US$/tonne

Cumulative production, ‘000 tonnes

VB

C B

usi

nes

s C

ost

s,

$/t

nic

kel

Cerro Matoso

Chinese NPI producers occupy upper end of the cost curve in 2014 due to higher ore costs

Data: CRU

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CRU CONSULTING

Coaloutlook

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CRU CONSULTING

A changing thermal coal industry

Data: CRU Thermal Coal Market Outlook

0

50

100

150

200

250

300

350

400

450

2011 2012 2013 2014

Indonesian exports Australian exports

Russian exports Columbian exports

South African exports US exports

Thermal coal export volumes, Mt

Data: CRU Analysis.Data: CRU Analysis.

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2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

050

100150200250300350400

0%1%2%3%4%5%6%7%8%

yoy change (mt)

Thermal coal consumption

Q1

13

Q2

13

Q3

13

Q4

13

Q1

14

Q2

14

Q3

14

Q4

14

50

60

70

80

90

100

Newcastle, 6,000 kcal/kg spot US$/t FOB

CRU CONSULTING

CRU CONSULTING

The South-East coastal area:

• consumes ~40% of China's total power

• generates ~35% of China’s total power

• produces 4% of China's total coal

Coastal coal trade influenced by:

Demand factors:– Interprovincial transmission

– Substitution & generation mix

– Underlying demand intensities

Supply factors:

– Local provincial production and inland supply

– Seaborne imports

– Domestic north-south coastal trade

Seaborne thermal markets integrated w/ China’s SE provincesProvincial analysis highlights both opportunities & threats for seaborne

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XINJIANG

QINGHAI

INNER MONGOLIA

GANSU

NINGXIA

SHAANXIXIZANG

SICHUAN

CHONGQING

YUNNAN

GUIZHOU

GUANGXI

HAINAN

HUNAN JIANGXIZHEJIANG

FUJIAN

GUANGDONG

MACAU

SHANGHAI

JIANGSU

ANHUIHUBEI

HENAN

SHANXI

SHANDONG

HEBEI LIAONING

JILIN

HEILONGJIANG

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

-600-500-400-300-200-100

0100200300400

Power surplus/(deficit) by Region Bn Kwh

East West North East Middle

Data: CRU

CRU CONSULTING

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India set to overtake China as world’s largest importer

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

China India

Seaborne imports, Mt

Data: CRU Analysis.

CRU CONSULTING

0

2,000

4,000

6,000

8,000

kcal/kg – exported coal average energy content

Colombian coal production:Above average quality & below average costs

Data: CRU Thermal Coal Cost Model

Australia ChileColombia

Indonesia

MozambiqueRussia

South Africa

United StatesVenezuela

Vietnam0

102030405060708090

2014 Business Costs (CFR US$/t, nominal)

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CRU CONSULTING

Indonesian & Colombian supply fill most of bottom half – Russian, US & some Australian supply occupy high end of cost curve Seaborne CFR Business Costs – 2014 (US$/tonne)

Data: CRU Thermal Coal Cost Model

22CRU CONSULTING

Cumulative Production (Mt)

CRU CONSULTING

Industry margins down from 2012 despite cost decreases. Colombia & Indonesia: only 2 major exporters with margins above global averageWeighted global and regional US$/t margins, 2012-2014

Data: CRU Thermal Coal Cost Model

2012 2013 2014-30

-20

-10

0

10

20

30

40

50Australia

Colombia

Indonesia

Mozambique

Russia

South Africa

United States

Vietnam

World average

23CRU CONSULTING

CRU CONSULTING

Nearly 40% of seaborne production sold at a loss in 2014

Margins by operation US$/t, 2014

Data: CRU Thermal Coal Cost Model

(+) margins

(-) margins

Cumulative Production (Mt)

24CRU CONSULTING

CRU CONSULTING

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Zinc, Nickel, Tin, Palladium, Sulphuric Acid, Cobalt, Bauxite, Alumina, Aluminium, Molybdenum, Thermal Coal, Chrome Ore, Platinum,

silicon,

Ferrochrome, Silico-Manganese, Lead, Manganese, Urea, Met Coal,

Oil

Phosphate DAP, Copper,

Metalics, Scrap, Potash, Ammonia,

Phosphate Rock, Sulphur

Gold, Iron Ore, Silver

Hot> 15%

Warm5% to 15%

Cold-5% to 15%

Freezing< -15%

Mild0% to 5%

Cool0% to -5%

Nickel & Thermal Coal set for strong price increases over medium term2018 annual average price forecast over 2013 average actual prices

CRU CONSULTING

Taylor Shively – CRU Base Metals Consulting Manager

taylor.shively@crugroup.com

+56 2 2231 3900

Marcio Goto – CRU Gerente Regional América Latina y el Caribe

marcio.goto@crugroup.com

+55 11 5051 8124 / cel.: +55 11 997 264 466

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Thank You

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