Manish Garg - HDR Salva - Market outlook for base metals
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Manish Garg - HDR Salva - Market outlook for base metals

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Manish Garg delivered the presentation at the 2014 Mining NSW Conference. ...

Manish Garg delivered the presentation at the 2014 Mining NSW Conference.

Mining NSW Conference is the premier event focused on base metals exploration, building regional skill, and promoting economic development.

For more information about the event, please visit: http://bit.ly/miningnsw14

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  • 1. © 2014 HDR, Inc., all rights reserved.
  • 2. Disclaimer All of the information contained in this report is to be considered confidential, and the recipient of this report agrees to retain the information in confidence and will not disclose any of the information to others except as expressly permitted by Salva Resources Pty Ltd. Only the recipient may rely upon this report. This report is intended to provide general information only. Given that forecasts change on a daily basis, it is not intended to be completely accurate and should not be relied upon as such. Salva Resources Pty Ltd disclaims liability for loss incurred by any person acting in reliance upon the information contained in this paper.
  • 3. Manish Garg is the Director consulting for HDR Salva. Manish has more than 25 years’ experience in mining Industry in Australia. Manish have worked in various commodities including copper, lead, zinc, nickel, gold and coal having worked for mining majors including Vedanta, Pasminco, WMC Resources, Oceanagold, BHP Billiton and Rio Tinto.  Manish has wide experience in delivering due diligences, feasibility studies and project reviews for banks, financial investors and mining companies on global projects, some of these deals are valued at over US$5 billion.  At present, Manish’s team is working intensively on the biggest listing of a mining company on the main market of Singapore Stock Exchange. Deal size for his transaction is over $2Bn.
  • 4. Commodities Covered Today:  Zinc  Copper  Nickel Additional Commodities Covered:  Gold  Iron Ore  Manganese  Graphite Full Coverage at: http://www.hdrsalva.com/market-news/
  • 5. Zinc Consumption 14 13 12 11 10 9 8 7 6 100% 80% 60% 40% 20% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Mt of Zinc % of total Consumption Global Zinc Consumption China Rest of Asia Europe South America North America Rest of World World (RHS)  3.8% y-o-y growth
  • 6. Zinc Consumption 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Zinc Consumption Growth Rate 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Growth Rate (%) Mature Economics Developing Economics Total World  Growth in China (12%), India & Brazil (6%) accounts for majority of growth
  • 7. Zinc Demand Outlook 13.5 14.1 14.9 15.3 25 20 15 10 5  4% CAGR growth anticipated CAGR 4.0% 16.3 16.9 17.4 18.1 18.5 19.0 19.5 20.0 20.1 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Mt of Zinc World Zinc Demand Forecast World Zinc Demand (Mt)
  • 8. Zinc Concentrate Supply 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%  But supply growth was only 2% growth in 2013 – LME stocks declining! 16 14 12 10 8 6 4 2 0 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Mt of Zinc % of production Global Zinc Supply China Rest of Asia Europe South America Australia North America Rest of World World (RHS)
  • 9. Zinc Mine Closure Planned Mine Closures 2013 2014 2015 2016 2017 -­‐442 -­‐716 -­‐1310 -­‐1720 -­‐1884 -­‐81 -­‐143 -­‐182 -­‐228 -­‐470 0 -­‐200 -­‐400 -­‐600 -­‐800 -­‐1000 -­‐1200 -­‐1400 -­‐1600 -­‐1800 -­‐2000 Kt Brunswick Preservence Snow/Trout Lake El Monchito Lisheen Kassandra Angas Mt Garnet Zinc (kt) Lead (kt) Century Duck Pond Golden Grove Scorpion, Myra Falls, Mae Sod , El Toqui, Mahr Tunnel, Raura, Pomozany Cannigton, Pyhasalmi Guemassa, Cayelli  Nearly 2Mt (14% of current world production) of production lost anticipated in next 4 yrs
  • 10. Zinc Grade Source: Presentation by MMG at International Zinc Association, 2014  Ore grades for new projects is lot lower than current operating mines
  • 11. Zinc Supply Demand Balance 25 20 15 10 5 0 Increasing Demand Supply Gap 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025  Increasing Demand Supply Gap Mt of Zinc World Zinc Demand (Mt) World Zinc Supply (Mt)
  • 12. Zinc Outlook Healthy demand, declining production levels and the lack of genuine development opportunities should ensure a more than favourable outlook for zinc in the near future. A bull market is anticipated!
  • 13. Copper Consumption 28 24 20 16 12 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F Cu (Mt)  3.7% CAGR growth for past 10 yrs, 4.5% anticipated!
  • 14. Copper Supply Copper Ore Production 32% 9% 7% 7% 6% 5% 3% 5% 5% 21% Chile China Peru USA Australia Russia Congo Zambia Canada Others Refined Copper Production 30% 14% 5% 7% 3% 3% 4% 3% 3% 28% China Chile Japan USA Russia Zambia India Germany Korea Others
  • 15. Import of Copper Concentrates 25000 20000 15000 10000 5000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Thousand Tonnes China Japan India Rep. of Korea Spain Germany Brazil Zambia
  • 16. Copper Supply 28 24 20 16 12 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F Cu (Mt) Copper Supply (Mt) Likely Case Possible Case
  • 17. Copper Declining Grade 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 % Cu Chile China Australia Peru Canada Mexico  Metal content in 1% Cu Ore is worth $65/t (Marginal economics?)
  • 18. Copper Projects - Planned Source: ICSG Directory of Copper Mines and Plants – February 2013
  • 19. Copper Projects - Uncertainty 700 600 500 400 300 200 100 0 Brownfield Greenfield  Geopolitical issues + viability of large, low grade Porphyry deposits? Likely to be delayed
  • 20. Copper Demand Supply Balance 1000 500 Cu Balance (Kt) Possible Case Likely Case 0 -500 -1000 -1500 2014F 2015F 2016F 2017F 2018F 2019F 2020F  Surplus diminishing on basis on project start up delays
  • 21. Copper Outlook  Current prices doesn’t support investment in large, low grade copper projects requiring massive capital investments.  Most of the proposed projects are in high geo-political risk locations. Project delays are likely. Mr Ivan Glasenberg, CEO of Glencore, recently said he saw no opportunity for new projects. “We can buy them a lot cheaper than we can build them,” he said.
  • 22. Nickel Demand Global Nickel Usage 66% 5% 3% 7% 12% 7% Source: International Nickel Study Group, HDR Salva Stainless steel Non-ferrous alloys Plating Alloy Steel Foundry Other 2,500 2,000 1,500 1,000 500 0 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F kt of Ni Primary Nickel Demand 4% CAGR Source: International Nickel Study Group, HDR Salva
  • 23. Nickel Supply 2500 2000 1500 1000 500 0 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F Kt of Ni Primary Nickel Supply Source: International Nickel Study Group, HDR Salva Nickel Ore Types Ore Types Processing Routes Examples Laterites- Oxides High Pressure Acid Leach (HPAL) Goro, Taganito, Ramu, Murrin Murrin Ferro Nickel PT Inco, Koniambo, SNL Nickel Pig Iron Chinese Plants Sulphides Conventional Pyrometallurgy BHP NW, Norilsk Nickel
  • 24. Implications of Indonesian Exports Ban Source: HDR Salva 600 500 400 300 200 100 0 2014F 2015F 2016F 2017F 2018F 2019F 2020F Kt of Ni Potential Replacement for Indonesian Export Ban Processed NPI - Indonesia Laterites - Philippines Laterites - PNG Laterites - Guatemala Sulphides - Incremental  Indonesia exported 400kt Ni in 2013. Replacement tonnes have long lead time.
  • 25. Demand Supply Balance Source: HDR Salva 250 200 150 100 50 0 -50 -100 -150 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F Kt of Ni Demand Supply Balance Balance
  • 26. Nickel Indonesia will continue to be the key driver of the nickel price. Mr Potanin, CEO of Norilsk said: “I see Indonesia as the key nickel price driver for the time being”. Any change in government policy will have a significant impact on prices.
  • 27. © 2014 HDR, Inc., all rights reserved.
  • 28. © 2014 HDR Architecture, Inc., ©A©r 2c2h00i1t1e44c HtHuDDreRR, ,,I nIInncc.c,.. ,,a aalll lr l rirgigighhhtstts sr rereesseseerrvrveveeddd. ..
  • 29. Seaborne Demand 1600 1400 1200 1000 800 600 400 200 0 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F Mt of Iron ore (Fe 62% eq) Seaborne Iron ore demand China Japan South Korea Taiwan Other Asia Western Europe Others
  • 30. © 2014 HDR Architecture, Inc., ©A©r 2c2h00i1t1e44c HtHuDDreRR, ,,I nIInncc.c,.. ,,a aalll lr l rirgigighhhtstts sr rereesseseerrvrveveeddd. ..
  • 31. Cost Pressure, Changing Supply Location Source: BHP Billiton Presentation  High cost production under threat
  • 32. West Africa Iron Ore – Bigger than Pilbara !
  • 33. Iron Ore Outlook China has shown it is determined to acquire iron ore assets no matter how remote or how expensive in a bid to be free of the tentacles of the world’s Big Three producers - Rio, BHP and Vale. This was evident in its investment in Australia’s Citic Pacific Sino magnetite project and the takeover of Aquila for its API West Pilbara Project as well as the Guinea JV with Rio for the Simandou Project and the $1.5Bn for minority stake in African Minerals in Sierra Leone. It would be reasonable to assume China will continue to seek out iron ore assets into the future.