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Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
Chris urzaa, hdr salva
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Chris urzaa, hdr salva

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  • 1. Coal Markets Update Longwall 2013 Conference 14 October 2013
  • 2. Agenda § Coal Markets – Recent History § Fundamentals of Asian Demand § 2013 and the Immediate Future § Market Outlook Beyond 2015
  • 3. Thermal Coal Prices 60 70 80 90 100 110 120 130 17-­‐Jun-­‐11 17-­‐Jul-­‐11 17-­‐Aug-­‐11 17-­‐Sep-­‐11 17-­‐Oct-­‐11 17-­‐Nov-­‐11 17-­‐Dec-­‐11 17-­‐Jan-­‐12 17-­‐Feb-­‐12 17-­‐Mar-­‐12 17-­‐Apr-­‐12 17-­‐May-­‐12 17-­‐Jun-­‐12 17-­‐Jul-­‐12 17-­‐Aug-­‐12 17-­‐Sep-­‐12 17-­‐Oct-­‐12 17-­‐Nov-­‐12 17-­‐Dec-­‐12 17-­‐Jan-­‐13 17-­‐Feb-­‐13 17-­‐Mar-­‐13 17-­‐Apr-­‐13 17-­‐May-­‐13 17-­‐Jun-­‐13 17-­‐Jul-­‐13 17-­‐Aug-­‐13 17-­‐Sep-­‐13 Newcastle FOB Marker -­‐ 6,000Kcal NAR (US$/t)
  • 4. Demand Was Strong In 2012 § Thermal coal import demand growth hit record levels in 2012 of 80Mt which was 12% growth; § China, India and Japan accounted for an additional 45, 23 and 12 Mt respectively; 4 160 140 120 100 80 60 40 20 -­‐ Thermal Coal Imports (Mt) 2011 2012 China Japan India Korea Taiwan UK Germany Italy Turkey
  • 5. But Supply was Stronger § No major supply disruptions – strikes, derailments, storms, floods, port closures; § US supply was ‘freed up’ due to domestic coal being displaced in the energy mix by the shale gas boom, and looking for a market internationally; § Along with significant infrastructure upgrades in Australia and South Africa (and minor enhancements in Colombia), this resulted in an unprecedented supply surge. 5 450 400 350 300 250 200 150 100 50 -­‐ Thermal Coal Exports (Mt) 2011 2012 Indonesia Australia Russia Colombia South Africa USA
  • 6. 100 150 200 250 300 350 15-­‐Aug-­‐11 15-­‐Sep-­‐11 15-­‐Oct-­‐11 15-­‐Nov-­‐11 15-­‐Dec-­‐11 15-­‐Jan-­‐12 15-­‐Feb-­‐12 15-­‐Mar-­‐12 15-­‐Apr-­‐12 15-­‐May-­‐12 15-­‐Jun-­‐12 15-­‐Jul-­‐12 15-­‐Aug-­‐12 15-­‐Sep-­‐12 15-­‐Oct-­‐12 15-­‐Nov-­‐12 15-­‐Dec-­‐12 15-­‐Jan-­‐13 15-­‐Feb-­‐13 15-­‐Mar-­‐13 15-­‐Apr-­‐13 15-­‐May-­‐13 15-­‐Jun-­‐13 15-­‐Jul-­‐13 15-­‐Aug-­‐13 15-­‐Sep-­‐13 Australian Prime Hard Coking FOB (US$/t)
  • 7. Coking Coal Demand § Apart from China, almost all other major end-users were slightly lower in imports for 2012 compared to 2011. Just as more tonnage came on-line from most exporters.
  • 8. Coking Coal Supply - Up § The major exporters had a strong year in 2012, moving the market into over-supply as global growth started to falter.
  • 9. Coal Sector Pain in 2012 Causes of the Pain in 2012 § Thermal coal demand was strong in 2012, but supply was stronger pushing prices lower. § For coking coal, with only China growing, the increased supply saw prices move lower. § Faced with lowering margins all producers moved to lower average costs by producing more thereby increasing supply further. § The US moved more thermal onto the seaborne market due to gas competition at home. § Cost inflation driven by labour supply shortages (gas and iron ore boom), increased taxes and royalties; § A stubbornly strong Australian dollar hampered margins of Australian producers; Solutions § New Chief Executives at 4 of the Top 5 global miners have seen a much greater focus on cost control, capex and opex. § Greenfield and Brownfield projects are currently on the backburner. All management focus is on maximising production and efficiency from existing operations. § Australia has seen record exports in the past 2 quarters with utilisation of assets at or close to 100%. 9
  • 10. Asian Demand Changing the Coal Industry
  • 11. China and India Driving Demand § In a decade, India and China have gone from 5% of seaborne thermal coal imports to 35%, accounting for 61% of the demand growth; § This has seen a shift in coal procurement mentality from long term contracts (Japan and Korea), to a much larger spot market. 11 Thermal Coal Imports -­‐ 2002 China 2% Japan 29% India 4% Korea 14% Taiwan Spain 6% USA 4% Thailand 1% Hong Kong 15% 2% UK 7% Germany 7% France 2% Italy 4% Turkey 3% Thermal Coal Imports -­‐ 2012 China 21% Japan 19% India 15% Taiwan 9% Korea 13% Spain 2% USA 1% Thailand 2% Hong Kong 2% UK 5% Germany 4% France 1% Italy 3% Turkey 3%
  • 12. Indonesia Has Met That Demand § In a decade, Indonesia has gone from 14% of the seaborne thermal coal market supply to 39%, and accounting for 61% of the supply growth; § China has exited the market, and South Africa has lost market share. 12 Thermal Coal Exports -­‐ 2002 Indo 14% Aust 21% Col SA 9% 16% Russia 15% China 11% USA 6% Other 8% Thermal Coal Exports -­‐ 2012 Indo 39% Aust 21% Col 10% China 0% SA 10% USA 6% Russia 14%
  • 13. Coking Coal – China Muscles In § In just 5 years, China’s market share has jumped from 4% to 26%, accounting for almost all the demand growth over the period; § Over the same period, Europe’s share has gone from 24% to 16% and Japan from a dominant 32% down to 23% last year. Market Size: 155Mt Market Size: 215Mt 13
  • 14. And Australia Falters § Over the past 5 years, Australia has lost coking coal market share to the USA, Mongolia and Russia; § However Australia had major issues with flooding during 2011 and 2012. Market Size: 155Mt Market Size: 215Mt 14
  • 15. Asian Demographics
  • 16. Demographics - Today The different shapes of the population pyramid between China and India will lead to a sustained period of growth for India due to its significantly younger population. The Population Pyramid China 2010 The Population Pyramid India 2010 Source : UN Population Prospects, 2008 revision1 6
  • 17. Demographics - Tomorrow The shapes of the population pyramid will remain very different as China becomes an ‘old’ country and India remains “young” with ~60% below 30 years of age. The Population Pyramid China 2030 The Population Pyramid India 2030 Source : UN Population Prospects, 2008 revision1 7
  • 18. Per Capita Steel Usage 1400 1200 1000 800 600 400 200 0 Steel Intensity Curves of Different Countries 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 Per Capita Steel ConsumpOon (kg) Per Capita GDP (US $) Brazil China India Germany Japan USA Korea
  • 19. The Rise of the Chinese Consumer
  • 20. Urbanisation India will urbanise a further 215 million people by 2025. Although China will exceed this total the effect will see India adopYng some of the key Chinese concepts i.e. ConstrucYng taller buildings which will boost steel demand. Source : McKinsey, BHPBilliton presenta<on 20
  • 21. GDP Growth and Steel Demand § On measures of population growth, Urbanisation rates and increasing GDP per capita, it is quite clear that steel requirements and therefore coking coal
  • 22. Emerging Economies Need Power 16 14 12 10 8 6 4 2 0 Electricity ConsumpOon Per Capita (MWh) USA Japan Germany Russia China Brazil India
  • 23. Coal is Cost Competitive § As shown below in this Indian specific example, producing Electricity using coal is very cost competitive. § Hydro is cheaper but usually subject to seasonal weather patterns. § As Gas reserves in India have been drastically reduced, its cost has risen from that shown below. 23
  • 24. 2013 – Looking Up??
  • 25. Thermal Demand – Continues to be Driven by India and China § Asian imports have grown strongly in H1 2013, with India leading the charge: § Indian imports are up nearly 30Mt ytd, driven by poor domestic coal and gas supply and surging new coal-fired capacity; India will be the No. 2 importer this year, displacing Japan. § Chinese import growth has slowed in recent months but is still positive; 25
  • 26. Supply – Indo/Aus Growing 26 § 2013 has seen only Indonesia, Australia and Russia (mainly to Europe) growing – Indonesia continues to dominate growth with exports rising over 25Mt ytd; – Australia is also growing as producers seek to offset low prices by producing more in an effort to lower their average costs. – Colombia, South Africa and the USA have seen strikes, environmental regulations, the lowering price, and rising ocean freights all work against them this year. 30 25 20 15 10 5 -­‐ -­‐5 -­‐10 2013 YTD Export Growth (Mt, yoy) Indonesia Australia Colombia South Africa USA Russia
  • 27. Steel Production Growth 27 § China now accounts for almost half of world steel production and its steel industry continues to grow. 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 -­‐5,000 -­‐10,000 -­‐15,000 EU Other Europe CIS North America Sth America China India Japan Other Asia Steel ProducOon Growth (Mt, yoy) 2012 2013
  • 28. Coking Coal Demand Growth 28 § China’s GDP growth continues so it continues to import coking coal. § Japan is up mainly due to the yen depreciation benefitting their exporters. § 10Mt of steel capacity is due to come online in India in 2013/14.
  • 29. Coking Coal Supply Growth § Australian Coking Coal supply growth continues as expansions come on-line and efficient utilisation of assets is now the focus to lower average costs § Canada is still expanding but the drop in price has hurt some of their exporters. § Low prices and higher freight is pricing the US out of the Asian growth markets. 29
  • 30. 2015 and Beyond
  • 31. Australia is High Cost § Australia has high cost and low productivity issues to overcome if it wants to be in a position to meet the growing coal demand from Asia Average Yearly Output of Saleable Coal Per 12 000 10 000 8 000 6 000 4 000 2 000 -­‐ Employee (tonnes) QLD NSW 2006-­‐2007 2007-­‐2008 2008-­‐2009 2009-­‐2010 2010-­‐2011
  • 32. Op Costs are Reducing § However it appears costs can be reduced when the focus is on production and efficiency. Source: BHPBilliton PresentaYon of May 29, 2013.
  • 33. Thermal Coal Demand Long Term § For these 6 countries alone the total imports were 613Mt in 2012. § In 2020 it is expected to be 990Mt, and rising to 1,547Mt in 2030.
  • 34. US$/t Thermal Coal Price Forecasts Analyst 2014 2015 2016 2017 2018 Long Term CIMB Group 97 110 116 105 100 83 RBC Capital Markets 95 91 90 90 99 90 Morgan Stanley 91 105 105 100 100 97 UBS 89 94 95 95 98 85 Wilson HTM 89 92 94 96 98 87 Macquarie Bank 86 90 90 90 95 80 Commonwealth Bank 86 89 91 93 95 83 Numis 73 69 69 70 72 65 Average 88 93 94 92 95 84
  • 35. Hard Coking Coal Demand § In 2012 these 6 countries were responsible for 162Mt of import demand. § By 2020 we expect these 6 countries to import 246Mt of HCC and this will rise to be 307Mt in 2030. China India Japan Korea Brazil Taiwan 2011 45 34 36 15 13 5 2012 est. 54 39 36 15 13 5 2015 f/c 89 54 36 15 17 9 2020 f/c 93 70 36 17 21 9 2025 f/c 97 88 36 19 24 10 2030 f/c 101 111 36 21 28 10 CAGR Growth 2012 to 2030 3.5% 6.0% 0.0% 1.9% 4.4% 3.9%
  • 36. US$/t Coking Coal Price Forecasts " " " " " " Long Term" Long Term" " " " " (nominal)" (real)" 2013" 2014" 2015" 2016" 2017" 2018" 2019-2023" 2019-2023" Average" 148.1" 166.8" 176.4" 176.8" 175.0" 171.7" 174.2" 147.8" Scotiabank" 150" 190" 198.8" 190" 190" 180" 180" " Macquarie Bank" 145" 178.8" 200" 200" 200" 200" " 155" RBC Capital Markets" 162.5" 180" 180" 180" 180" 176.7" 176.7" 160" CIMB Group" 150" 177.5" 227.5" 222.5" 200" 180" 180" 149.6" Morgan Stanley" 145" 171.3" 185" 190" 185" 180" 173.4" 148.5" ANZ" 145" 166.3" 178.8" 180" 178" 175" " " Credit Suisse" 148.5" 162.5" 173" 180" 185" " " 165" UBS" 142.5" 155" 150" 150" 146" 149.2" " 130" Wilson HTM" 148.5" 157.5" 167" 170" 172" 180.3" 194" 159.1" Commonwealth Bank" 142.25" 155.7" 152.1" 155.5" 159" 162.6" 171.5" 143" Numis" 150" 140.6" 128.5" 126.9" 130" 133.3" 144" 120"
  • 37. Conclusions…Thermal Coal Demand is Strong § Global thermal coal demand grew by a massive 80Mt (12%) in 2012, a record year, and the rate is continuing in 2013 and expected to continue through the next 2 decades; § This is being driven primarily by India and China, but the secondary sources of growth remain important such as Korea, Taiwan, Malaysia; § Coal is a cheap, widely available fuel source § Nuclear is on the outer, heavily subsidised renewables are starting to become unpopular and cannot provide base load power, and hydro has environmental and social challenges Supply Will Struggle to meet the Challenge § Australia, while providing for a safe jurisdiction in which to invest is hindered by high operating and capital costs and is slow to get projects operational. § The Indonesians will therefore continue to capitalise on their strengths of being quick to market, close in proximity to the demand centres, and the ability to utilise their river systems to continue to satisfy the majority of the demand growth. 37
  • 38. Conclusions…Coking Coal § Fundamentally, coking coal remains scarce despite the current oversupply, which will probably take 24 months to work through the system; § Chinese steel growth continues, but for how long…. § The growth in steel usage globally is tied to GDP. Consequently it will be the developing economies which will continue to drive steel growth and therefore coking coal demand. § Australia holds a dominant position in Coking Coal supply. § The US, Canada, Mongolia and Russia are the current threats to Australian dominance in coking coal supply. The US in particular are aggressively looking for market share in Asia. § Mozambique is expected to have infrastructure in place by 2016/17 and so will compete. § Indonesian coking coal shows promise but its deposits are remote. § Provided it can provide low cost coking coal, Australian dominance will be hard to displace. 38
  • 39. Contact Details InternaOonal Head Office Salva Pty Ltd Level 11, 82 Eagle Street | Brisbane, 4000 | AUSTRALIA P: +61 (0) 7 3211 9911 | E: info@salvaresources.com International Head Office Level 11, 82 Eagle Street Brisbane, Queensland, 4000, Australia +61 7 3211 9911 Chris.Urzaa@salva.com.au www.salva.com.au
  • 40. HDR | Salva Capabilities Across the Mining Life Cycle
  • 41. Welcome to HDR | Salva § HDR | Salva, delivers exploration, mining and commodities consultancy services to some of the world’s largest mining and investment firms. § From Markets to Exploration to Mining, HDR | Salva has the capabilities to assist in all phases of the mining lifecycle. § HDR | Salva’s parent company, HDR is a global, employee-owned architecture, engineering, consulting and construction services firm. With more than 8,000 professionals in nearly 200 offices worldwide, we are committed to helping clients manage complex projects and make valued and informed decisions.
  • 42. HDR | Salva Service Capabilities Our services cover the entire lifecycle of a mine § A global solution provider from “Conceptual Stage” to “Closure Stage” for mining projects and operations. § Strategic management processes and optimisation of mining operations § Covering multiple commodities and located in diverse geographical locations.
  • 43. HDR | Salva Turn-Key Solutions
  • 44. HDR | Salva Turn-Key Solutions
  • 45. Associated Services: ü Due Diligence & Valuations ü Commodity Analysis & Forecasting ü Energy Analysis ü Infrastructure Reviews ü Policy & Regulations ü Economic Modelling Markets & Economics § Our consulting and analytics team, in conjunction with our flagship publication group, Salva Report, delivers marketing, supply & demand studies, and commodity forecasting. § Our global expertise is applied across due diligence projects, infrastructure studies and commodity analysis. § We provide commodity focused publications, consulting, forecasts and analysis across multiple commodities for leading organisations around the globe. § The Salva Report suite of publications will soon include an Australian focused edition.
  • 46. Associated Services: ü Target Generation ü Exploration Design & Budgeting ü Land Access, Community & Environment ü Site Safety ü Field Geology Management ü Turnkey Project Delivery Exploration § At HDR | Salva, we specialise in the exploration phase of resource development and provide individual geologists for field support right through to “turn-key” exploration management solutions for projects of all sizes, geographies and complexities. § Our project management specialists ensure projects run on time, on budget and to the safest working environment. § We work to deliver land access agreements on behalf of our clients that result in workable outcomes for all parties.
  • 47. § Beginning at target generation through to feasibility studies, we manage and coordinate a wide variety of projects. § Utilising our in-house technical services and supplementing with specialist disciplines as required, HDR | Salva provides seamless project assessments, studies and permitting delivery for our clients. § HDR | Salva also works closely with HDR’s environmental and permitting practice, which is focused on streamlining and managing the regulatory process for our clients throughout a project’s life cycle. Associated Services: ü Mine Planning & Economic Analysis ü Study Management ü Marketing Studies ü Environmental & Permitting ü Rail, Port, Power & Waste Treatment ü Site Infrastructure Studies Feasibility & Permitting
  • 48. Associated Services: ü Site Safety & Training ü Project Management ü Rail Port & Power ü Water Treatment ü Mine Operations Review Development § Our technical and operational services extend across the mining development phase. HDR | Salva’s capabilities in rail, port and power are critical inputs to successful mine and infrastructure development. § We also supply experienced personnel to provide operational and project support during the construction period. § A safe and skilled workforce is critical during major construction and development projects. HDR | Salva’s safety team can provide bespoke safety management and training solutions for each project as required by our clients.
  • 49. Associated Services: ü Site Safety & Training ü Project Management ü Mine Operations Review ü Site Operation Support Operations § HDR | Salva can provide integrated services to assist our clients in maximising the value of their projects through efficient mining techniques. § Our team of geologists, engineers and analysts specialise in identifying process bottlenecks in the entire pit to port value chain. § HDR | Salva’s commitment to safety is recognised through key roles on a number of global mining projects. § Post mine operations, we also provide mine closure and site rehabilitation services.
  • 50. § HDR | Salva have been actively involved in closure and rehabilitation planning for a large number of mining operations. § HDR | Salva can provide conceptual and detailed mine closure plans including design and implementation of rehabilitation monitoring and assessment programs, development of post-closure groundwater management strategies, operational support and environmental management supervision of multi-disciplinary closure and rehabilitation activities. Associated Services: ü Mine Reclamation ü Remediation ü Water Treatment ü Environment Compliance & Monitoring Closure
  • 51. § Proactive, collaborative and responsive stakeholder and public outreach is utilised throughout a project in order to minimise risk and costly development delays or cancellations. § Those taking a more holistic, strategic and continuous approach to stakeholder engagement are finding it easier to foster and maintain project understanding, acceptance and support among affected communities. § At HDR | Salva, we work to understand what motivates public resistance and use proven and emerging best practices for outreach, throughout all stages of planning and development. Associated Services: ü Sustainability Management ü Community Consultation ü Corporate Communications ü Strategic Planning Strategic Services
  • 52. § HDR | Salva’s consulting team is comprised of skilled geological and mining professionals that provide the necessary technical services across the resource life cycle. § Our team of geologists utilise their technical expertise and up-to-date geo-statistical and resource modeling software to deliver our client’s resource modeling requirements to the relevant international reporting standard. § For project evaluation, we utilise our global data base of mine operating and capital costs, and our techno-commercial expertise, to build financial models to evaluate mine economics. § In addition, HDR | Salva can assist our clients with public equity raising on major global stock exchanges. Associated Services: ü Due Diligence & Valuations ü Resource Geology ü Mine Planning ü Geo-Technical ü Water & Natural Resources Management ü Environmental Services Technical Services

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