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CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +4...
CRU STRATEGIES
2
“Uranium is the next great China story.
What China did for iron ore in the last decade,
it will do for ur...
CRU STRATEGIES
3
“Our demand versus long-run marginal cost analysis out to
2035 suggests that only those tonnes that lie w...
CRU STRATEGIES
4
“Copper prices are supported by demand from China which
never fails to deliver – and by supply from the m...
CRU STRATEGIES
5
“Everything has its limit – iron ore cannot be educated into
gold”.
Mark Twain
“You‟re still the one”
Sha...
CRU STRATEGIES
6
“ When man first viewed planet Earth from space, he saw
white hot tungsten in the form of incandescent li...
CRU STRATEGIES
7
“ The evolution of manganese ore prices over the medium
term depends upon how rapidly seaborne supply con...
CRU STRATEGIES
8
“ The most common perspectives on the rare earth market are
NOT actually correct in reality:
Firstly, imm...
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 out...
CRU STRATEGIES
Uranium Market Overview – Market size growing beyond 2007 peak
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50,000
100,000
150,000
200,000
250,000
Mar...
CRU STRATEGIES
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1990
1992
1994
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2012
Historical...
CRU STRATEGIES
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Uranium Demand – Chinese Demand on a Charge
CRU Analysis, WNA
Top Ten Uranium Consumers, 2010
By Country...
CRU STRATEGIES
Chinese stockpiling has had a significant impact on the
market over the last 2 years
Uranium consumption, b...
CRU STRATEGIES
Electricity generation in developing Asia is expected to
triple in the next 20 years
World total net electr...
CRU STRATEGIES
Uranium demand growth will chiefly come from China,
India and countries new to nuclear power
Uranium demand...
CRU STRATEGIES
China becomes the world’s largest consumer by 2030;
India enters the top ten before 2020
Uranium demand, pe...
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
...
CRU STRATEGIES
Supply will need to increase rapidly from 2015 – In-ground
exists potential to do so (A production possibil...
CRU STRATEGIES
21
But material mine supply growth is likely to be subject to
further delays
Trekkopje (AREVA)
•Location: N...
CRU STRATEGIES
0.01
0.1
1
10
100
1000
0.10 1.00 10.00 100.00 1,000.00 10,000.00
Grade(kg/tU3O8)
0.01
0.1
1
10
100
1000
0.1...
CRU STRATEGIES
Industry Cost structure rising – Implications for Kazakhstan Example
23
Source : CRU Group
0%
10%
20%
30%
4...
CRU STRATEGIES
Risks and Opportunities – Multiple Price Risks: short, medium and
long term
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SHORT TERM MEDIUM TERM LONG ...
CRU STRATEGIES
Iron Ore
25
Mining The Territory
CRU
CRU STRATEGIES
26
“The iron ore market has experienced exceptional growth over the last
decade led by China‟s rapid develo...
CRU STRATEGIES
Despite a thriving junior mining scene, the majority of
committed Australian production growth remains in t...
CRU STRATEGIES
6%
27%
4%
3%
4%2%
9%
11%
33%
3%
North America
Brazil
Other Latin America
South Africa
Other Africa
Europe
R...
CRU STRATEGIES
Gold
29
Mining The Territory
CRU
CRU STRATEGIES
What are the key points ? Gold
• Gold driven higher by heightened macroeconomic risks
• Loss of one of the ...
CRU STRATEGIES
Palladium, Tin, Zinc, Uranium, Alumina, Aluminium,
Platinum, Lead, Nickel, Met Coke
Vanadium, Phosphate DAP...
CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +4...
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Commodities outlook for the Territory

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Professor Alan Trench, Centre for Exploration Targeting, from University of Western Australia delivered this presentation at Mining the Territory 2012. For more information on the annual event, please visit www.miningnt.com.au/

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Transcript of "Commodities outlook for the Territory "

  1. 1. 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
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. CRU STRATEGIES 5 “Everything has its limit – iron ore cannot be educated into gold”. Mark Twain “You‟re still the one” Shania Twain Gold
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. CRU STRATEGIES Uranium 9 Mining The Territory CRU
  10. 10. 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
  11. 11. CRU STRATEGIES Uranium Market Overview – Market size growing beyond 2007 peak 0 50,000 100,000 150,000 200,000 250,000 MarketSize,US$2010(‘000s) 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 MarketSize,US$2010(‘000s) Focus on Commodities under $50Bn Nickel Potash Tin PGMs Uranium Data : CRU Group
  12. 12. CRU STRATEGIES 0 10 20 30 40 50 60 70 80 90 100 110 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Historical price movement Average of weekly spot prices- Nominal Real prices ($ 2010) Historical Prices volatility resembles a minor metal market .... Uranium now well positioned to compete for the majors 12 Data : CRU Group Uraniumspotprice($/lb)
  13. 13. 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 WORLDTotal 67,632 USA France Japan Russia China - Mainland Germany South Korea Ukraine UK Canada Rest of World Top Ten Uranium Consumers, 2010 By Country, t U • Top 10 countries constitute 85% of demand • 2011 saw demand loss in Japan & Germany • Negative impact exceeding 10% of 2011 demand
  14. 14. CRU STRATEGIES Chinese stockpiling has had a significant impact on the market over the last 2 years Uranium 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 tonnesofnaturaluranium 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”
  15. 15. 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
  16. 16. 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 80,000 100,000 120,000 140,000 160,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 tonnesofnaturaluranium RoW Europe Russia India China - Mainland Japan USA
  17. 17. CRU STRATEGIES China becomes the world’s largest consumer by 2030; India enters the top ten before 2020 Uranium 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
  18. 18. CRU STRATEGIES Demand growth from 2011 to 2020 50,000 tonnes U3O8 Where will those tonnes come from ????? 18
  19. 19. CRU STRATEGIES Supply: Three countries dominate uranium supply 74 % 26 % 0% 20% 40% 60% 80% 100% Primary Supply Secondary Supply 21,840 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
  20. 20. 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 tonnesU3O8 Operating Committed Probable Possible Closed Primary Supply Needs to Double by 2020
  21. 21. 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 •Capacity: 5,000 tU •Start date: 2015 ? •Capex: US$1.5bn Husab •Location: Namibia •Type: open pit •Capacity: 5,100 tU •Start date: 2016 •Capex: US$700m Yeelirrie (Cameco) •Location: Australia •Type: open pit •Capacity: 3,500 tU •Start date: 2017 ? •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 •Capacity: 6,930 tU •Start date: 2013 •Capex: US$2bn Data: CRU Group ; Note: that start dates, capital costs, etc. are CRU estimates
  22. 22. CRU STRATEGIES 0.01 0.1 1 10 100 1000 0.10 1.00 10.00 100.00 1,000.00 10,000.00 Grade(kg/tU3O8) 0.01 0.1 1 10 100 1000 0.10 1.00 10.00 100.00 1,000.00 10,000.00 Grade(kg/tU3O8) Resources (Mt) Underground Open Pit Insitu Leach Lots of potential projects, but grades are an issue for next generation costs Data: CRU Analysis, Company Resource Data Uranium only resource tonnages across varying JORC classifications Operating Mines Pre-feasibility and Feasibility Projects Envelope of operating mines New projects are of lower grade... 0.01 0.1 1 10 100 1000 0.10 1.00 10.00 100.00 1,000.00 10,000.00 Resources (Mt) Underground Open Pit Insitu Leach Unknown Exploration Projects ..and exploration projects even lower 22
  23. 23. CRU STRATEGIES Industry Cost structure rising – Implications for Kazakhstan Example 23 Source : CRU Group 0% 10% 20% 30% 40% 50% 60% 70% 2009-2014 2014-2020 Nominalwageinflation,%Change Wage inflation, % Change Highest in Emerging Markets ■ Advanced Economies ■ Emerging markets ■ Uranium Average 0 50 100 150 200 250 300 350 2009 2014 2020 NominalUS$/tonne Black Sea Benchmark Estimated cost at mine gate in Kazakhstan Costs of Sulphuric Acid: Delivered Costs to Double by 2020 Data : CRU Group
  24. 24. 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
  25. 25. CRU STRATEGIES Iron Ore 25 Mining The Territory CRU
  26. 26. 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
  27. 27. 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
  28. 28. 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.
  29. 29. CRU STRATEGIES Gold 29 Mining The Territory CRU
  30. 30. 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
  31. 31. 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
  32. 32. 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 you Contacts: Allan Trench (Allan.Trench@crugroup.com) Philip Sewell (Philip.Sewell@crugroup.com)
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