The document discusses base metals markets, focusing on copper. It notes that China's demand growth is driving up metals prices. While copper discoveries and exploration financing are increasing, resource announcements are trending down due to falling ore grades. Developing new copper supply faces hurdles like long development times, political risk, and high capital costs. It predicts that constraints on new supply could cause a medium-term squeeze in the copper market.

1. Base Metals &
the Copper
Pipeline
David Cox
Vice President
Metals Economics Group
UNCTAD Commodities Forum
Geneva
January 31, 2011
© Metals Economics Group, 2011

2. Overview
• Copper, Nickel, and Zinc markets
• A closer look at the copper supply pipeline
• Hurdles to new supply
• Will there be a medium-term copper squeeze?
© Metals Economics Group, 2011

3. China Driving Demand, Growth, and Metals Prices
Source: ICSG, INSG, ILZSG, Metals
© Metals Economics Group, 2011
Week, MEG estimates

4. Copper Market
Source: ICSG, Metals Week,
© Metals Economics Group, 2011
MEG estimates

5. Copper Exchange Stocks and Prices
Source: LME, Metals Week,
© Metals Economics Group, 2011
MEG estimates

6. Nickel Market
Source: INSG, Metals Week,
© Metals Economics Group, 2011
MEG estimates

7. Nickel Exchange Stocks and Prices
Source: LME, Metals Week,
© Metals Economics Group, 2011
MEG estimates

8. Zinc Market
Source: ILZSG, Metals Week,
© Metals Economics Group, 2011
MEG estimates

9. Zinc Exchange Stocks and Prices
Source: LME, Metals Week,
© Metals Economics Group, 2011
MEG estimates

10. Looking more closely at the supply pipeline
• Metals Economics Group - the trusted source of global supply-
side mining information and analysis since 1981
• Tracking the supply pipeline through
• Exploration strategies and spending
• Financing
• Discoveries
• Project development and operating mines
• Production
• Acquisitions
© Metals Economics Group, 2011

11. What is the path that projects take to production
• Finding Financing
• Exploration/Drilling
• Resource Definition
• Feasibility – less than 1 in 1000 pass the test
• Financing/Construction
• New Production
© Metals Economics Group, 2011

12. Significant Copper Financings on the Upswing
Source: MEG Exploration Activity
© Metals Economics Group, 2011
Services, Industry Monitor

13. Recent Surge in Significant Copper Drill Results
Source: MEG Exploration Activity
© Metals Economics Group, 2011
Services, Industry Monitor

14. Location of Initial Finds Drill Results for 2010
Source: MEG Exploration Activity
Source: ??
© Metals Economics Group, 2011
Services, Industry Monitor

15. But Copper Resource Announcements Trending Down
Source: MEG Exploration Activity
© Metals Economics Group, 2011
Services; Industry Monitor

16. Hurdles to new supply
• Falling grades
• Long development time
• Political risk
• High capital costs
© Metals Economics Group, 2011

17. Ore Grades Falling
Source: MineSearch
© Metals Economics Group, 2011

18. A Long Time Getting to Feasibility
Tracked in Number of
Project Country MineSearch since Discovered previous owners
Reko Diq Pakistan 1999 1997 4
Cobre Panama Panama 1992 1969 5
Tampakan Philippines 1995 1992 5
Toromocho Peru 1993 1974 3
Quellaveco Peru 1991 1939 2
El Pachon Argentina 1994 1963 4
Agua Rica Argentina 1992 1994 5
El Arco Mexico 1992 1991 2
Mirador Ecuador 1996 1995 2
Source: MineSearch
© Metals Economics Group, 2011

19. Resources by Stage of Development
Source: MineSearch
© Metals Economics Group, 2011

20. Preproduction Copper Projects & Sovereign Risk
Source: MineSearch
© Metals Economics Group, 2011

21. Preproduction & Feasibility-Stage Primary Copper Projects
Source: MineSearch
© Metals Economics Group, 2011

22. Preproduction, Feasibility, & Reserves Development
Source: MineSearch
© Metals Economics Group, 2011

23. Capital Costs of Copper Projects Under Construction
Initial Capital Cu Contained Total
Project Country Costs Reserves Resources (mt)
Oyu Tolgoi Mongolia $4,600 30,844,000
Aynak Afghanistan $4,390 10,998,000
Las Bambas Peru $4,200 8,759,000
Konkola North Zambia $380 7,655,000
Salobo Brazil $1,808 7,149,000
Esperanza Chile $2,500 4,567,000
Galeno Peru $2,500 4,297,000
Antapaccay Peru $1,470 4,046,000
Caserones Chile $2,000 3,947,000
Source: MineSearch
© Metals Economics Group, 2011

24. Who will develop new supply?
• $2 - $5 billion - projects need deep pockets and expertise
• BHP, Rio, Anglo, Vale, Xstrata have strong pipelines for
expansions and new projects
• However, 21 of 50 largest reserves-development projects are in
junior hands
• Will countries’ sovereign wealth funds take up these projects?
© Metals Economics Group, 2011

25. Copper Acquisitions by Chinese Companies
Source: MEG
© Metals Economics Group, 2011
Acquisitions Service

26. Will there be a medium-term copper supply squeeze?
Known Unknowns
• Chinese demand and inflation
• European sovereign debt issues
• World growth, developing-country economies
• US quantitative easing
• Trade tensions
• Metals ETFs
• Production disruptions
Weighing all these factors, we believe there will be a squeeze in the near
future.
© Metals Economics Group, 2011

27. Poor Copper Forecasting History
Source: MEG Strategic
© Metals Economics Group, 2011
Report

28. Price Forecast 2011
Copper: $4.10 /lb (range $4.90 -3.90)
Nickel: $10.35/lb ($11.50 – 9.40)
Zinc: $1.06/lb ($1.02-1.12)
© Metals Economics Group, 2011

29. METALS
ECONOMICS
GROUP
www.metalseconomics.com
+1 902 429-2880
dcox@metalseconomics.com
© Metals Economics Group, 2011