Professional Documents
Culture Documents
Industry Analysis
March 2007
Precious
Metals
Diversified
Asia/Pacific
Global
S. America
Operations
N.
America
Minerals
Strategic
Transactions
Logistics
Exploration
Mine
Develop.
Process and
Beneficiation
Europe
Mining and
Extraction
Africa
Across all
the value
chain
Finance
Metals
Strategy
Portfolio
Portfolio
Optimization
Optimization
Strategy
Strategy
Inter-mine synergies
Inter-mine synergies
Portfolio
Portfolio
reconfiguration
reconfiguration
Market optimization
Market optimization
Real options analysis
Real options analysis
Innovation
Innovation Process
Process
Diagnosis
of
Diagnosis of gaps
gaps
Development
Development of
of strategy,
strategy,
process
process and
and
implementation
implementation
Corporate Strategy
Corporate Strategy
Scenario planning
Scenario planning
Design acquisition campaign
Design acquisition campaign
Integrated individual LOM plans into one
Integrated individual LOM plans into one
group plan strategy
group plan strategy
Activity
Activity Based
Based Management
Management
ABC
ABC Analysis
Analysis
ABM
ABM Implementation
Implementation
Finance
Innovation
Engineering and
Projects
Mining
Mining Cluster
Cluster
Analysis
Analysis
Industry-wide
Industry-wide cocooperation
operation
M&A Support
M&A Support
Post-merger integration
Post-merger integration
for leading global
for leading global
aluminum player
aluminum player
Assisted in a bid for a
Assisted in a bid for a
large South American
large South American
mineral asset
mineral asset
Supplier
Supplier Agreements
Agreements
Negotiation
Negotiation support
support
Commodity
Commodity linked
linked
pricing
pricing analysis
analysis
Mining
and
Extraction
Logistics
Developed
Developed Human
Human
Resource
Resource Strategy
Strategy for
for
Mines
Mines
Incentive
Incentive schemes
schemes
Marketing Strategy
Marketing Strategy
Downstream strategic
Downstream strategic
Human Resources
Exploration Mine
Development
(and
financing)
alliances
alliances
Process and
Beneficiation
Optimise mine to
Optimise mine to
Sales and
Marketing
market matches
market matches
performance measures
performance measures
Asset
Asset Divestiture
Divestiture
Helped
Helped identify
identify and
and
divest
divest non-core
non-core and
and nonnonperforming
performing assets
assets
Growth Planning
Growth Planning
Developing, ranking and
Developing, ranking and
prioritising capital projects
prioritising capital projects
Optimizing mine design
Optimizing mine design
Logistics
Logistics Analysis
Analysis
Methods
to
Methods to reduce
reduce stock
stock holding
holding
Optimized
Optimized inter-mine
inter-mine stock
stock transfer
transfer
Operational Efficiency
Operational Efficiency
efficiencies
efficiencies
Key Challenges
Discipline Region
Industry
Value
Chain
Gold
Mining and
Extraction
Corporate
Strategy
Strategy
North
America
Innovation
Management
Organization
South
Across all
Diversified
America
value chain
Corporate
Strategic
Planning and
Portfolio
Management
Organization
Global
Diversified
Across all
value chain
Gold
Future Outlook
(2001 2006)
(next 5 to 10 years)
Return
Return
Return
Return
Growing demand
Jewellery growth in
developing economies
Flight to safety
Weak US$
Increased economic
uncertainty
Growth in ETFs
Tight supply
Primary supply decrease
Increased consolidation
Tighter control on
secondary supply
Central Bank sales
Increased scrap sales
(00-05: 7% CAGR)
Increasing costs
Increased slope of the cash cost curve
Return Growth
Return Stable
Risk
Risk
Supply catching up
Top players further
consolidating
Continued scrap growth
Primary supply to meet
residual demand
increase
Decreasing Central
Banks sales
Risk
Risk
Increased visibility
Central Banks
agreement
Steeper cash cost curve
Volatility Decrease
Further consolidation in
the industry
Volatility Decrease
5
Copper
Chinese demand and supply will increase the Risk while keeping the
average Returns constant
Dynamics in The Past
Future Outlook
(2001 2006)
(next 5 to 10 years)
Return
Return
Return
Return
Growing demand
Growing Chinese
demand
Industrial: Power and
electricity,
construction
Middle class: A/C,
automotive
Return Growth
Return Stable
Risk
Risk
Risk
Risk
Volatility Increase
Volatility Increase
Lead
BRIC will soon compensate for the recent Western supply shortage and
hence reduce the average industry Returns
Dynamics in The Past
Future Outlook
(2001 2006)
(next 5 to 10 years)
Return
Return
Return
Return
Return Growth
Return Decrease
Risk
Risk
Risk
Risk
High Volatility
Volatility Increase
7
Zinc
Supply uncertainty, M&A activity and Chinese growth will increase average
Return and Risk for Zinc
Dynamics in The Past
Future Outlook
(2001 2006)
(next 5 to 10 years)
Return
Return
Return
Return
Return Stable
Risk
Risk
Risk
Risk
Volatility Increase
8
Contents
Overview by Industry
Gold
Copper
Lead
Zinc
Mining
Mining
Ore
Ore Processing
Processing
Semi-Finished
Semi-Finished
Goods
Goods
Refining
Refining
End
End Markets
Markets44
USD 33Bn1,4
Description
Description
Ore sampling,
examination and
extraction
Drilling
Blasting
Loading
Hauling
High-grade ore
Major uses:
Jewellery, by
Artisans
Wholesalers
Integrated
manufacturers
Output
Output
Ore containing
gold and other
materials
Raw gold
material
10
Metalor
Garfield Refining
Company
Net retail
investment2
ETFs3
Industrial / dental
uses
Players
Players
manufacturers
Johnson Matthey
(Italy, Turkey and
Smaller companies:
India5)
Semar (Italy)
Major electronics
Argor (Switzerland)
companies
Note:
1. Values are for 2005 2. Net Retail Investment refers to bar hoarding, medals and imitation coins purchased by individuals 3. Exchange Traded
Funds (ETFs) are gold backed, listed securities 4. In 2005, mining companies accounted for about 62% of global gold supply, while gold
scraping and reserve liquidation by Central Banks, not included in this graph, accounted for the rest, totaling $53B 5. E.g. InterGold, Diva
Jewellery, FubulaRoma 6. ETG Securities is listed on the New York, London, Australia, Johannesburg and Paris stock exchanges and is 100%backed by allocated gold bars held by custodian HSBC; as of 1 June 2006 it exceeded $9.2 billion, representing 92% of market share
Source: Datamonitor, Barrick Gold website, Web research, Monitor analysis
Newmont
AngloGold
Barrick Gold
Gold Fields
Cutting,
polishing and
retailing
Standard
Deviation
(15 years)
15 years
5 years
Last Year3
EBIT Margin
12.4%
11.2%
10.2%
6.9%
ROA
6.9%
4.8%
2.5%
4.2%
ROIC
9.7%
5.8%
6.0%
5.9%
Total Investment
Return
14.2%
27.6%
25.8%
35.1%
Note: Companies used: Newmont, Anglogold, Barrick, Gold Fields, Placer Dome
Source: Thomson One Banker, Monitor analysis
11
Industry Outlook
Gold is expected to remain an attractive industry
Demand
Demand and
and Supply
Supply
Dynamics
Dynamics
Sustainable demand
growth
ETF growth
Flight to safety
Weak US$
Jewelry growth in
developing world
Matching supply
Growth in Scrap sales
Smaller player entry in
mining
Central banks net
sellers
Declining sales
Stabilizing Prices
Rivalry
Rivalry
Exogenous
Exogenous Factors
Factors
Increased Control of
Value Chain by Miners
Low threat of
substitution
Established volatility
hedge
Increased industrial
uses
Some threat from
platinum in jewelry
Low barriers for new
entrants
ETFs will continue to drive demand along with increased jewelry sales in
developing world
Demand projections by CS are highly optimistic
CAGR CAGR
0005 0510
-1%
128%
ETFs
Bar Hoarding 3%
By Value
9901
Decline
0105
Growth
CAGR CAGR
0510 0510
3%
15%
7%
Total
ETFs
9%
154%
8%
19%
Net Retail
30%
3%
Industrial
0%
3%
Industrial
9%
14%
Jewelry
-3%
2%
Jewelry
6%
6%
Economic
Economic Growth
Growth
Price
Price Expectations
Expectations
Flight
Flight to
to Safety
Safety
Innovation
Innovation
Jewellery
Jewellery Demand
Demand
Net
Net Retail
Retail Investment
Investment
ETFs
ETFs
Industrial
Industrial and
and Dental
Dental
Demand
Demand
Declining
economy
Low promotion
Growing
economy
product
Improved
Expectations
of price
growth drive demand
Mainly in India,
Japan, Vietnam and
Middle East
Weak
US$
Oil price uncertainty
ETFs facilitate
transactions
Mainly in the West
New
uses in Electronics
(MP3 players, Flat
screen TVs) and
automobiles, mainly in
wires and plating
Mainly in Japan and the
U.S.
offering
in developing
* 2010
forecast
world was calculated at 500 USD/oz 2. Net Retail Investment includes bar hoarding, medals and imitation coins purchased by individuals 2.
Sales
Note:
Exchange Traded Funds (ETFs) are gold backed securities 3. Industrial and Dental Uses: Electronics (e.g., gold plated circuit board contacts, gold plated
connectors), dental alloys, biomedical applications 4. China, Russia and Japans Central Banks expected to increase their gold reserves
Source: GFMS, World Gold Council, Credit Suisse Standard Securities, Datamonitor, Monitor analysis
13
India, China and the Middle East are driving demand, while 2006 price hike
and volatility decreased jewelry demand levels
The
The 0506
0506 Example
Example
Regional Split, Jewellery + Net
Retail Investment, 2005
India
23%
Other
34%
Other
29%
India
26%
Greater China1
9%
Turkey 8%
U.S.
12%
Investment
Investment
Consumption
Consumption
India
India
Mainly
Turkey 9%
Middle East
13%
China
China
U.S.
13%
bars
Coins
as gifts
Marriage
Childbirth
Haji pilgrimage
and coins
Year of the Pig
Olympics
Middle East
12%
Middle
Middle East
East
Commemorative
Greater China1
11%
Turkey
Turkey
Jewelry
demand: -15%
Tourism and
economic slowdown
Price volatility
Net
Retail Investment:
+12%
Inflation hedge
Note: 1. Greater China includes: China, Hong Kong, Taiwan 2. 2006 figures are based on actual data
Source: World Gold Council Gold Demand Trends (February 2007), WGC The Role of Gold in India (September 2006), Monitor analysis
14
CAGR
CAGR
20002005 20052010
Mine
Mine Supply
Supply
Gold
Gold Scrap
Scrap Supply
Supply
Source: GFMS, World Gold Council, Credit Suisse Standard Securities, Monitor analysis
15
Total
2%
-1%
Official Sales
6%
-40%
Gold Scrap
7%
7%
Mine production-1%
1%
Official
Official Sales
Sales Supply
Supply
CAGR
20002005
0.2%
Cowal1
Total
3,791
3,746
3.0%
6.8%
Australia
Start in 2006
~70 tonnes
capacity
Pascua-Lama1
Chile
/ Argentina
Start in 2009
~ 850 tonnes
capacity
3.7%
-3.9%
-4.8%
Akyem2
Ghana
-2.8%
Start in 2008
~12 tonnes
capacity
3.2%
Note: 1. Owned by Barrick 2. Owned by Newmont 3. Gold supply figures reported by the Yellow Book are different to the ones by the World Gold
Council
Source: 2005 Virtual Metals The Yellow Book, Datamonitor
16
Tonnes
Estimate
Estimate by
by Credit
Credit Suisse
Suisse
Standard
Securities
Standard Securities
Past
Past
Demand
Demand
Supply
Supply
Future
Future
Source: Credit Suisse Standard Securities The Gold Report (February 2007), Monitor analysis
17
Historically, world crises, oil price and official sales have driven the Gold
price
Washington Agreement on
Gold announced 1999
Second
Gulf War,
2003
USD / Oz
Credit Suisse
Citigroup
Gold Price
(USD/oz)
UBS
JPMorgan
Consensus
Consensus
price
price
forecast
forecast of
of
over
USD
over USD
500/oz
500/oz
5Y Average Price
Pierina Mine
Operating
Cost
(USD/oz)
South America
Reserve: 2m oz
Operating costs: 134 USD/oz
Bulyanhulu Mine
Goldstrike Open Pit
North America
Reserve: 14m oz
Operating costs: 215 USD/oz
Africa
Reserve: 11m oz
Operating costs: 342 USD/oz
5Y Average Demand
10%
25%
40%
55%
70%
85%
100%
Historic cost curves of Gold production show that the slope is getting
steeper with time, thus further reducing industry volatility
2003
Total Cash
Costs (USD/oz)
y = 3.1722x + 88.294
2004E
y = 2.4958x + 93.874
y = 1.7935x + 91.134
2002
Cumulative Production
Source: BMO, Monitor analysis
21
M&A Examples
Other
68%
Gold Fields
5%
Placer Dome
4%
Total Sales in 2005 = ca. 33B USD
Source: A User Guide to Commodities (Deutshe Bank, July 2006), Datamonitor, Company Annual Reports, Monitor analysis
22
Big, forward integrated miners have bargaining power over their customers
Mining
Mining
Newmont,
AngloGold
Barrick Gold,
Gold Fields
Processing
Processing
(Smelting
(Smelting // Refining)
Refining)
Production
Production of
of SemiSemiFinished
Finished Goods
Goods
Big,
Small Mostly Small
diversified, Players, Players
22% EBIT
e.g., E.g. Cookson (UK),
margin
Metalor Algemeine Gold
(Germany), Semar
(Italy), Argor
Johnson
(Switzerland)
Matthey
Note:
End
End Markets
Markets
1. ETG Securities is listed in the New York, London, Australia, Johannesburg and Paris stock exchanges and is 100%-backed by allocated gold
bars held by custodian HSBC; as of 1 June 2006 it exceeded $9.2 billion, representing 92% of market share
Source: Web research, Monitor analysis
23
Capital
Capital Investment
Investment
1/22/15
Low
Low Capex
Capex Required
Required
1/22/15
Share of Global
Capacity
0.04%
0.04%
Political
Political Context
Context
Low
Low Supply
Supply
Concentration
Concentration
China
10%
Other Africa
10%
Canada
5%
Environmental
Environmental Issues
Issues
Minor
Minor
USA
11%
No
No part
part of
of the
the
world
world has
has more
more
than
15%
of
than 15% of global
global
production
production
Australia
10%
Peru
7%
Russia
7%
Source: Barrick Gold Company Annual Report, Newmont Mining Corporation Annual Review, The Yellow Book, World Gold Council, Monitor analysis
24
Example
Platinum jewelry growth in
early 90s
1988: 2,000 watches
1994: 10,000 watches
New applications
E.g. MP3 players, Flat
Screen TVs
Greater use in automobiles
Improved quality and
efficiency
New industrial and medical
uses1
Mercury traps2
Chemical catalysts
Medical diagnostic
equipment
Cancer treatments
Opportunity
Opportunity
in
in New
New
Industrial
Industrial and
and
Electronics
Electronics Uses
Uses
Note: 1. Nano-technology usage 2. To remove mercury from coal-fired power station emissions
Source: World Gold Council Gold Demand Trends (February 2007), Internet, Monitor analysis
25
Contents
Overview by Industry
Gold
Copper
Lead
Zinc
26
Mining
Mining
Pyrometallurgical
Pyrometallurgical
Route
Route
(Smelting
(Smelting and
and
Refining)
Refining)
HydroHydrometallurgical
metallurgical
Route
Route (SX(SXEW*)
EW*)
Description
Description
Ore mining
Different grades
Two main forms:
Sulfides
(80% of
global copper
ores), leading
to 1st route
Oxides,
leading to
SX-EW route
Output
Output
Major
Major
Players
Players
Mine ore
Containing less
than 1% copper
Codelco
BHP Billiton
Groupo Mexico
99.9% or purer
copper
TransforTransformation
mation
End
End Markets
Markets
Major uses:
Energy cables
Construction (plumbing
and other fixtures)
Electronics (chips,
tubes, etc.)
Transportation
(radiators, brakes)
Industrial machinery
Consumer goods (e.g.,
TV cathode rays)
Copper
products
Wire rods,
shapes,
billets,
cakes
Norddeutsche Affinerie
Nippon Mining and Metals
Cumerio
Note:
* SX-EW stands for Solvent Extraction Electrowinning 1. EBIT Margin figures are Cumerios 2006 recurring EBIT Margins. Cumerios Copper
products include the production of wire rod, specialty rod and profiles, shapes and wires
Source: Credit Suisse Metals and Mining Primer NA, Scotia Capital, Web research, Monitor analysis
27
5 Years
Last Year
Standard
Deviation
(15 Years)
EBIT Margin
20.4%
24.7%
42.9%
11.4%
ROA
7.1%
8.9%
17.9%
4.3%
ROIC
8.6%
11.3%
23.2%
5.7%
TSR
41.9%
61.7%
74.5%
51.9%
Avg. Financials
Note: Companies used: Southern Copper, Sterlite Industries, First Quantum Minerals, Antofagasta, Boliden, Phelps Dodge and Grupo Mexico. TSR
does
not include figures for Southern Copper
Source: A User Guide to Commodities (Deutshe Bank, July 2006), Thomson One Banker, Monitor analysis
28
Industry Outlook
Copper is expected to sustain its high risk/ high return profile
Demand
Demand and
and Supply
Supply
Dynamics
Dynamics
Rivalry
Rivalry
Exogenous
Exogenous Factors
Factors
Fragmented industry
Top 5 held about 40% of total
in 2005
Increasing M&A activity
New Chinese players
Relatively stable costs
Slight flattening of the cash
cost curve
Trend towards bigger, open
pit mines
Balanced value chain
Bargaining power balance
between major miners and
buyers
E.g. major cable
producers
29
Demand will keep growing, driven by construction activity and new uses in
automotive
Refined Copper Demand 2005*
3.4%
Other
11%
Transport
11%
CAGR CAGR
2001 2005
2005 2010E
Construction
37%
4.4%
Kt
Industrial
Machinery
15%
Electronic
Products
26%
Key
Key Demand
Demand Driver
Driver
Trends
Trends by
by Application
Application
Industrial
Industrial Production
Production (IP)
(IP)
Construction
Construction
Electronics
Electronics
Automotive
Automotive
Others
Others
Chinese
Some
New
Increased
20072008
G7 economies IP to grow at
2% y-y
Chinese IP to grow at 19% yo-y
growth
Substitution risk
for cabling, piping
& plumbing
Some substitution
from fibre optics
growth
applications
and improved
technology in car
manufacturing
(e.g., brake
tubing)
Note: * The 2005 split by application refers to the Copper Consumption by End Use for Western World only
Source: RBC Capital Markets estimates, Brook Hunt, Monitor analysis
30
energy
savings by copper
applications
Kt
China
China
20002006
China: from 15% to 25% of world
copper consumption
Industrial: Power & Electricity,
Construction
Middle class: A/C, automotive
India,
India, Eastern
Eastern Europe
Europe
20062010
Analysts see
Chinese demand
growth softening
CAGR
0510E
3.4%
4.4%
11.0%
2.9%
7.8%
5.8%
-0.6%
2.8%
12.1%
6.1%
-2.8%
2.3%
-2.4%
2.9%
4.4%
3.7%
14.4%
7.7%
U.S.
U.S.
20012005
Declining industrialisation
20052010
Construction growth
Hurricane Katrina
Source: RBC Capital Markets estimates, Brook Hunt, Mo Ahmadzadeh (Global Market Trends Conference), Monitor analysis
31
CAGR
0105
Korea
Korea and
and Taiwan
Taiwan have
have
shown
very
strong
shown very strong
increases
increases in
in copper
copper
intensity
per
capita
intensity per capita as
as
they
they industrialized
industrialized
since
since the
the 1970s
1970s
Chinese
Chinese slope
slope at
at
average
average of
of one
one of
of S.
S.
Korea
and
Taiwan
Korea and Taiwan
Y=0.0022x+5.2314
Y=0.0014x-2.7037
Y=0.0003x+0.434
Y=6E-05x+7.1529
Y=0.0017x+0.0898
Chinas
Chinas position
position today
today
(>doubled
in
10
years)
(>doubled in 10 years)
Japan
Japan followed
followed aa path
path of
of slower,
slower, but
but
consistent,
consistent, increases
increases in
in copper
copper
demand
demand intensity
intensity of
of GDP
GDP (per
(per
capita)
capita) during
during its
its post-WWII
post-WWII
industrialization
industrialization
Supply will grow steadily driven by added capacity in China, Africa and the
Americas
CAGR CAGR
0105 0510E
Source: RBC Capital Markets Estimates, Brook Hunt, Scotia Capital, Monitor analysis
33
1.4%
4.9%
Oceania
-4.5%
Russia
1.0%
Africa
4.2%
Other Eastern 2.8%
Bloc
Western Europe-0.9%
-1.1%
-3.0%
21.1%
5.9%
Asia
1.8%
3.2%
China
14.4%
Latin America
-0.4%
4.5%
-0.7%
8.2%
4.9%
SX-EW will grow at faster rates than electro-refinery production and will
drive copper supply by 2010
CAGR
CAGR
20012005 20052010E
1.4%
4.9%
SX-EW
Production
0.9%
11.1%
ElectroRefinery
Production
Total
Total Supply
Supply
SX-EW
SX-EW Production
Production
20042006
4% decline in ore grade for
22% of mine supply
2000s
Marginal growth
By 2010
Rapid growth
Technology offsetting
deposits depletion
Supply struggling
to keep up
Electro-Refinery
Electro-Refinery
Production
Production
By 2010
Steady growth
1.5%
3.6%
Kt
Past
Past
Demand
Demand
Supply
Supply
2005
Decline of 0.6%
Consumer de-stocking
Tight physical supply
Record high prices
Future
Future
2006
Global growth rebounded
at 4.5%
Potentially higher without
Chinese de-stocking and
price-induced substitution
20072008
Global growth abovetrend rates, at 5.4%
End of Chinese destocking
2009beyond
Growth rate of 3.5%
Chinese share of
consumption rise expected
to decrease
Near Future
Disruptions and declining ore replaced by new projects
Majority of new supply by 2010 from existing
operations and projects already approved
20032006
Supply consistently below demand
Production disruptions and declining ore
Deficit closed by de-stocking
Source: RBC Capital Markets Estimates, Brook Hunt, Scotia Capital, Monitor analysis
35
1992
Dollars
USD/t
High
production
and strong
consumption
Production
cutbacks to
stabilize
prices
Strong demand
Vietnam war: stockpile
releases
Longest, most severe
strike to date
Price volatility
Recession
and high
inventories
Growth and
low stock
levels
Years
Source: USGS Metal Prices in the U.S. Through 1998, Monitor analysis
36
Recession
Draw down of
high inventories
Price volatility
8789 growing
world consumption
93 stagnant world
demand and rising
inventories
Asian crises
Global
capacity growth
LME
Prices (RS)
Weeks of
Consumption
(LS)
Critical
Level (LS)
USD/t
In the long term, analysts expect price to stabilize at ca. 2,500 USD/t
Forecasts show differences in the Short-term, but tend to agree on
the Long-term price
Copper Price Trends (19912020)
Scenario 3
USD/t
Scenario 2
LME high-grade
Historical Price
Scenario 1
Note:
Price forecasts: Scenario 1 is a forecast from Codelco assuming a World Consumption Annual Growth Rate of 4%, expressed in 2004 Currency;
Scenario 2 is a forecast from Codelco assuming a World Consumption Annual Growth Rate of 3.5%, expressed in 2004 Currency; Scenario 3 is a
forecast from RBC Capital Markets and Brook Hunt, expressed in Nominal LME Cash Price
Source: Codelco Trends in the Copper Industry (April 2005), RBC Capital Markets Estimates, Bloomberg, Brook Hunt
38
2006
2010
3,300
2006 price
Forecast
Demand
2,800
20012005
average
Demand
Kansanshi
2,400
USD/t
20012005
average price
USD/t
3.750
Kansanshi
2,000
1,550
OK Tedi
Antamina
OK Tedi
1,100
Antamina
PT Freeport Indonesia
660
220
-220
2006
Demand
PT Freeport Indonesia
-660
-1,100
0%
25%
50%
75%
Decreasing
Decreasing Labour
Labour Cost
Cost
Increasing
Increasing Energy
Energy Cost
Cost
Trend
Trend for
for
Higher-capacity,
Higher-capacity,
Large-scale,
Large-scale,
Open-pit
Open-pit mines
mines
100%
Copper is a fairly fragmented industry with top players accounting for 40%
of total share in 2005
Top players are expected to lose market share between 2005 and
2010 because of local players entry in China and other developing
countries
Mined Volume Market Shares
Note: 1. 2010E market shares inferred from new refined production levels (adjusted for mined volume) 2. SPCC = Southern Peru Copper Corporation
Source: ICGS, Outlook 2000, Company Production Data, Morgan Stanley, Magnus Ericsson 1999, Yahoo Finance, Monitor analysis
40
Big forward integrated miners share bargaining power with major buyers
Among other markets, Copper is traded in London Metal Exchange
(LME) and New York Commodity Exchange (COMEX)
Bargaining
Power
High Med Low
Mining
Mining
Copper
Copper
Big,
Forward
Integrated
Miners
Other
Miners
Sales
Sales
Process
Process
Codelco,
BHP Billiton,
Groupo
Mexico
Processing
Processing
(Converting
(Converting // enriching)
enriching)
Smelters, Refiners
Norddeutsche Affinerie,
Nippon Mining and Metals
Cumerio
Production
Production of
of SemiSemiFinished
Goods
Finished Goods
End
End Markets
Markets
Diversified Players
Other Players
Plumbing Manufacturers
Electronics Companies
Industrial machinery
companies
USD
Capital
Capital Investment
Investment
1/22/15
1/22/15
Share of Global
Capacity
0.13%
0.28%
Chile
31%
Other
32%
Political
Political Context
Context
Mexico
5%
Mongolia
5%
Indonesia
8%
Environmental
Environmental
Issues
Issues
D.R.C.
12%
Peru
8%
Local
Local network
network critical
critical to
to operate
operate in
in these
these areas
areas
Smelter decontamination plans, solid and liquid waste and tailings disposal
E.g., environmental impacts due to the space necessary for tailing deposits
Application of thickened tailings technology to reduce space necessary under study
Source: Australia Commodities vol. 13 no. 2 (June 2006), Brook Hunt, Monitor analysis
42
Heat
exchanges
Telecommunication
Piping
applications
Power
Aluminium
Aluminium
Automotive
Automotive
New
Threat
Threat of
of
Substitution
Substitution
(Based
(Based on
on Price)
Price)
New
New Technologies
Technologies
and
and Uses
Uses
Others
Others
Copper
Demand
Increased
Source: DB, Scotia Capital, Morgan Stanley, Norilsk Nickel Annual Report 2005, Copper Development Association, Monitor analysis
43
Copper
Demand
Contents
Overview by Industry
Gold
Copper
Lead
Zinc
44
Mining
Mining
Smelting
Smelting
Refining
Refining
End
End Markets
Markets11
Description
Description
Ore extraction
Usually mined from
underground
Ore beneficiated to raise
lead content
Zinc, iron and waste rock
removed
Output
Output
Lead concentrate
(70%)
(smaller players)
Lead bullion
Major
Major
Players
Players
Refining
Bullion refried by
pyrometallurgical methods
BHP Billiton
Doe Run
Xstrata
State of China
Teck Cominco
Anglo American
Zinifex
Major uses:
Auto ignition starters
Uninterruptible and
standby power supplies
Paint, glass and ceramics
additives
Ammunition
Solder
Pipes and cable coverings
Lead bullion of
>99.85% purity
(smaller players)
Automotive industry
Power consumers
Materials manufacturers
Note:
* Value from 2005 1. Semis producers not included
Source: Global Diversified Metals and Mining (Datamonitor Apr 2006), Nonferrous Metals: Industry Structure (U.S. OTA Sept 1990), Monitor analysis
45
5 Years
Last Year
Standard
Deviation
(5 Years)
EBIT Margin
N/A
14.7%
10.2%
3.8%
ROA
N/A
12.3%
11.4%
4.8%
ROIC
N/A
13.6%
12.5%
5.4%
TIR
N/A
53.9%
-1.2%
56.7%
Avg. Financials
Note:
1. Used Financials of Ivernia and Thye Mining Industrial Company Ltd for TIR and of Thye for the other metrics 2. Total Investment Return =
(Market Price Year End + Dividends Per Share + Special Dividend -Quarter 1 + Special Dividend-Quarter 2 + Special Dividend-Quarter 3 +
Special Dividend-Quarter 4) / Last Year's Market Price-Year End - 1) *100
Source: A User Guide to Commodities (Deutshe Bank, July 2006), Thomson One Banker, Monitor analysis
46
Industry Outlook
Lead is expected to sustain its risk/ return profile
Demand
Demand and
and Supply
Supply
Dynamics
Dynamics
Sluggish growth
BRIC auto consumption
Demand for fuel efficient
vehicles in the West
However, recycling
deters high growth
Supply expected to meet
demand in short term
Smelting capacity
restored
Increased mining
capacity
Steady increase in
secondary output
In mid-term supply issues
from existing mines
depleting
Rivalry
Rivalry
Exogenous
Exogenous Factors
Factors
Fragmented Industry
CAGR
0510
Total
2.19%
2.02%
1/22/15
Non-battery
Use
1.63%
1.48%
Battery Use
2.44%
2.24%
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22
/15
1/22
/15
1/22
/15
1/22
/15
1/22
/15
1/22
/15
kt
Ammunition
6%
Rolled
Extrusions
7%
Key
Key Battery
Battery Uses
Uses
Cable
Sheathing
3%
Pigment
12%
Batteries
72%
Starting, lighting
and ignition
replacement 45%
Traction 11.5%
Stationary 15.5%
TOTAL 72%
Source: DB Jul 2006, Lead GSBR Feb 2006, Ivernia Presentation Feb 2007, LME Metals 2006, Monitor analysis
48
Western demand for fuel efficient vehicles and BRIC auto consumption will
drive demand in the future
Lead recycling deters industry growth
Lead Consumption by Region (20012010E)
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
mt
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
CAGR
0105
CAGR
0510
Total
2.2%
2.0%
Rest of World
Japan
Latin America
0.9%
0.5%
2.3%
0.6%
0.3%
2.1%
North America
1.2%
1.0%
Asia-Pacific
5.0%
4.6%
Europe
1.3%
11.0%
1/22/15
Drivers
Chinese
Chinese
Auto consumption
Battery exports
Emerging
Emerging Economies
Economies
North
North America,
America, Europe,
Europe, Japan
Japan
Source: The Lead Market Charge (Abra Mining Dec 2005), Lead A Global Strategic Business Report (GIA Feb 2006), Monitor analysis
49
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
CAGR
0307
3.89%
7.24%
1/22/15
1/22/15
5.24%
1/22/15
1/22/15
-0.46%
1/22/15
1/22/15
1/22/15
CAGR
0307
1/22/15
1/22/15
5.21%
2.92%
1/22/15
kt
1/22/15
1/22/15
1/22/15
Africa
1/22/15
Europe
1/22/15
1/22/15
1/22/15
1/22/15
Oceania
5.50%
kt
1/22/15
Americas
1/22/15
Asia
1/22/15
1/22/15
China
Smelting
Smelting Capacity
Capacity Changes
Changes
1/22/15
1/22/15
Rest of World
China
China
Supply
mt 1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
Past
Past
Supply
Supply
Demand
Demand
1/22/15
1/22/15
1/22/15
1/22/15
Present
Present // Future
Future
Increases in demand driven by developing countries,
especially for automotive industry (dominated by
China also India, Brazil)
* Refined lead includes primary (mined) and secondary (recovered from post-consumer) lead production Source: USGS, Ivernia AR 2005, Monitor analysis
51
1992
Dollars
USD/t
Source: USGS
52
kt
USD/t
kt
1/22/1 1/22/1 1/22/1 1/22/1 1/22/1 1/22/1 1/22/1 1/22/1 1/22/1 1/22/1 1/22/1
5
5
5
5
5
5
5
5
5
5
5
Source: Ivernia AGM Jun 2006, GFMS BMMR Jan 2006, LME Metals 2006, Monitor analysis
53
Little or no supply
deficit by 2007 will
drive price decrease
Bloomberg
Forecast
Price
USD/t
Historical
Price
Source: USGS, Bloomberg, Perilya (LT forecast), Ivernia Inc., Deutsche Bank, LME Metals 2006
54
New projects
coming online
not sufficient
to cover current
demand
increases . . .
. . . maintaining
long term price
above 2000
level
1/22/15
1/22/15
Australia
Australia
Upcoming
Upcoming
Capacity
Capacity
Increases
Increases
(2006
(2006
onwards)
onwards)
1/22/15
Others
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15 1/22/15
1/22/15 1/22/15
1/22/15
1/22/15
Ivernia: Magellan (100ktpy)
Xstrata: Black Star (50ktpy)
Intec: Hellyer (40ktpy)
Teck Cominco: Lennard Shelf (30ktpy)
BHP Billiton: Cannington (20ktpy)
Perilya: Broken Hill (20ktpy)
Top 5
1/22/15
2000
2000
1.
2.
3.
4.
5.
1/22/15
2005
2005
1.
2.
3.
4.
5.
M&A
M&ADeals
Deals
55
Time to market and environmental issues pose some barriers to entry in the
Lead industry
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7 Year 8
Year 9
Time
Time to
to
Market
Market
EnvironEnvironment
ment
Political
Political
Context
Context
Approx.
Approx. 59
59
years
to
build
years to build
new
new capacity
capacity
Significant
Significant
environenvironmental
mental
impact
impact
Geographic
Geographic
spread
spread of
of
reserves
reserves
Capital
Capital
Investment
Investment
Avg.
Avg. Entry
Entry
Project
Project Size
Size
Development of
operational mine
(34 years)
Most lead
production comes
from mixed leadzinc mines
Also gold, silver
or copper
Ramp-up Production
(1 year)
Lead Reserves by Country (%), 2005
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15 1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
Share of Global
Capacity
2.73%
1/22/15
0.30%
Source: DB Jul 2006, Ivernia Magellan Technical Report Sept 2004, www.xe.com (30/03/2007), Lead the facts (ICON 2001), Monitor analysis
56
1/22/15
Threat
Threat from
from
Substitution
Substitution
A
A Low
Low
Threat
Threat
LegislLegislation
ation
Nuclear
Nuclear
Waste
Waste
ContainContainment
ment
New
New Applications
Applications
LeadLeadfiberglass
fiberglass
Laminate
Laminate
Electric
Electric
Cars
Cars
Ongoing research into titanium canisters with inner layer of lead or lead and plastic
Possible that a one-inch layer of lead could add 880 years to container life
Lead sheeting can be laminated between gypsum and fiberglass to form a superior duct
material
Helps isolate noise and dampen din of machines
Ongoing studies to improve lead-acid battery technology for powering electric cars
Contents
Overview by Industry
Gold
Copper
Lead
Zinc
58
Description
Description
Output
Output
HydroHydrometallurgica
metallurgica
ll Process
Process
Mining
Mining
Elimination of
impurities
Adding zinc dust
Then electrolytic
process
Deposited zinc is
stripped off, dried,
melted and casted
into ingots
Zinc ingots of
different grades
High, 99.95%
Special High:
99.99% zinc
Major
Major Players
Players
Xstrata
Zinifex
Boliden
Pyrometall
Pyrometall
urgical
urgical
Process
Process or
or
Imperial
Imperial
Smelting
Smelting
Note:
1. Semis producers not included
Source: Credit Suisse Metals and Mining Primer - NA, Monitor analysis
59
End
End Markets
Markets11
Major uses:
Construction (~45%)
To galvanize steel
Heating, roofing
Transport
Automotive
manufacturers use
galvanized steel and
zinc alloys
Consumer and industrial
usage (~30%)
E.g. refrigerators and
industrial equipment
5 Years
Last Year
Standard
Deviation
(9 Years)
EBIT Margin
15.1%
7.5%
13.0%
12.8%
ROA
5.1%
3.7%
10.3%
4.1%
ROIC
6.0%
4.7%
13.3%
4.9%
TIR
28.2%
28.9%
62.7%
69.8%
Avg. Financials
Note: 1. Used Financials for Zinifex, Volcan Cia Minera 2. Total Investment Return = (Market Price Year End + Dividends Per Share + Special Dividend
-Quarter 1 + Special Dividend-Quarter 2 + Special Dividend-Quarter 3 + Special Dividend-Quarter 4) / Last Year's Market Price-Year End - 1) *100
3. TIR data available for 1998 onwards, EBIT Margin for 1996 onwards
Source: A User Guide to Commodities (Deutshe Bank, July 2006), Thomson One Banker, Monitor analysis
60
Industry Outlook
In the future, Zinc will most likely remain a volatile industry
Demand
Demand and
and Supply
Supply
Dynamics
Dynamics
Rivalry
Rivalry
Exogenous
Exogenous Factors
Factors
Highly fragmented
competitor base
Top 10 players make up
45% of total
Sustained industry
landscape in the
medium term
Slope of cash cost curve
decreasing
Structural production
cost increases
Slope decreasing
61
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
Source: RBC Capital Markets estimates, Brook Hunt, Credit Suisse, Monitor analysis
62
Kt
Source: RBC Capital Markets estimates, Brook Hunt, Credit Suisse, Monitor analysis
63
Other
Russia
India
Americas
CAGR
2001
2005
4.4%
2.4%
2.7%
8.0%
0.4%
CAGR
2005
2010E
3.4%
1.3
0.7%
4.5%
1.3%
Other Asia
3.6%
2.5%
Europe
-1.6%
1.9%
China
16.9%
6.9%
Total
kt
Source: RBC Capital Markets Estimates, Brook Hunt, Morgan Stanley Research, Monitor analysis
64
With high supply growth rates, by 2010 China is expected to have balanced
its Zinc position
India is likely to become a net exporter by 2010 (+ 130 ktpa)
CAGR
2001
2005
9,672
9,894
10,132
Total
2.0%
4.5%
Other
5.6%
9.0%
-4.7%
-4.6%
6.3%
7.9%
0.6%
16.0%
L. America
2.4%
1.6%
N. America
1.1%
1.2%
Other Asia
2.8%
1.6%
-2.4%
-1.1%
6.4%
8.7%
Russia
Oceania
India
10,065
kt
Europe
32%
Long
Long Term
Term
Supply
Supply is
is aa
challenge
challenge
Few
Source: RBC Capital Markets Estimates, Brook Hunt, Morgan Stanley Research, Monitor analysis
65
CAGR
2005
2010E
China
kt
CAGR
2005
2010E
Supply
2.0%
4.5%
Demand
4.4%
3.4%
Past
Past
Future
Future
Demand
Demand
2001-2005
Driven by Asian markets (90% of total increase)
Asian economies steady growth
First signs of recovery in Japanese, American and
European economies
Expectations of decline of LME and other inventories
2007
Consumption
constrained by supply
Low y-o-y growth rate
2%, vs 6% in 2006
and 5% in 2008
Supply
Supply
2004-2005
Supply shortage
Slowdown of production
Depletion of inventories
Negative effect on 2005 and 2007 consumption levels
2007-2009
Increasing production
Higher capacity utilization, due to strong demand and high prices
Vulnerability to disruptions
Appearance of new Chinese small mines because of high prices
Source: RBC Capital Markets Estimates, Brook Hunt, Scotia Capital, Monitor analysis
66
2009-beyond
Demand setting back at
trend rates
WW consumption to
rebound
China the key driver
The tight balance will keep up high prices in the short term
The long term prices expected to converge to USD 1,300/t levels
Zinc Price Trends and Forecast
High prices to constrain demand
due to lack of available supply
RBC Estimate
Bloomberg
Estimate
USD/t
Source: RBC Capital Markets Estimates, Brook Hunt, , Bloomberg Terminal, Monitor analysis
67
High prices in the near term are also confirmed by all-time-low inventory
levels
Inventories expected to remain well below critical levels until 2010
which will support prices at historically high levels
Total Zinc Inventory and Price
Forecast
USD /
lb
Weeks of
Consumption
1991
1993
1995
1997
1999
2001
2003
2005
2006
2007
The average zinc cash cost is expected to rise and the curve to flatten in the
medium term
This is likely to increase the competitive pressure in the industry
1,650
1,650
2009E
2006E
Century
Red Dog
1,100
1,100
USD/t
Antamina
USD/t
Antamina
San Cristobal
Project
Century
550
550
Weighted
Average
Red Dog
0
Cumulative Percent of Global Production
M&A Activity
However,
Rate of consolidation stable over time
New entrants
Capacity increase by juniors
Note:
1. 2000 market shares approximated from BNP Paribas 2. 2005 market shares from Deutsche Bank
Source: Deutsche Bank, USGS, BNP Paribas, Company Annual Reports, Monitor analysis
70
Low to medium entry barriers not likely to rule out new entrants
Est. Capex for Small Projects
USD m
Capex
Capex Intensity
Intensity
1/22/15
1/22/15
Share of global
capacity
0.75%
0.15%
Political
Political Context
Context
Other
27%%
Mexico
4%
Canada
5%
Peru
7%
Environmental
Environmental
Impact
Impact
China
15%
USA
14%
Kazakhstan
14%
Discharge of toxic substances into natural streams leading to heavy metal contamination
Source: Morgan Stanley Research Estimates, Credit Suisse Metals and Mining Primer NA, Monitor analysis
71
No major threats to the use of Zinc are expected given its cost advantage in
galvanizing
New technologies will provide some opportunities for growth
New
New technologies
technologies
Hydrogen economy applications for both transport (automotive) and energy sector represent most promising growth areas
Cost
Cost advantage
advantage of
of
galvanizing
galvanizing
Galvanizing substitution is
mostly recoverable when
Zn prices return to more
normal levels (after a 1 2 year lag time)
kt
Low
Low threat
threat of
of
substitution
substitution
Global Zn
Consumption
Substitution Impact
(Short-lived)
Source: DB, RBC Capital Markets, Zinifex Morgan Stanley Asia Pacific Summit (November 2006), Brook Hunt, Monitor analysis
72