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Great expectations: The upcoming rationalisation of metals supply Shaun Browne, Chairman, AME group.

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Presentation on theme: "Great expectations: The upcoming rationalisation of metals supply Shaun Browne, Chairman, AME group."— Presentation transcript:

1 Great expectations: The upcoming rationalisation of metals supply Shaun Browne, Chairman, AME group

2 Great Expectations: Metals Supply and Political Economics Shaun Browne AME Group October 2013 London, New York, Hong Kong, Beijing, Sydney

3 RelationshipSupportResearchEngineering London New York Hong Kong Beijing Sydney Engineering Economics – AME Group

4 AME Group Supply & Value Chain Advanced Exploration Geological Modelling to Prefeasibility Project Development Feasibility Studies to Commissioning Production Completion test, Debottlenecking, Expansions Infrastructure & Transport Logistics Ports, rail, barges, shipping & trucking Beneficiation Smelters, Refineries, Steel Mills, Hydrometallurgical/Pyrometallurgical. General Commercial Marketing Trading, Sales, Contracts Manufacturing Company Demand, Specifications End User Analysis Consumer real demand (not apparent demand)

5 Taking stock: The supply perspective Aluminium: The new supply and technology war Copper: A different type of squeeze Nickel: Market consolidation and a shift to the East Zinc: Restrictions or exercising restraint? Agenda – Is this political economics?

6 The composition of growth is good news for a cyclical uplift in metals demand Japanese Industrial Production and Copper Demand, 1979 - 2012 US Industrial Production and Copper Demand, 1964 - 2012 Source: AME A recovery in construction from low levels will provide a welcome lift for metals in the Atlantic Economies

7 Taking stock: The supply perspective Aluminium: The new supply and technology war Copper: A different type of squeeze Nickel: Market consolidation and a shift to the East Zinc: Restrictions or exercising restraint? Agenda – Is this political economics?

8 Aluminium: The supply and technology war

9 New supply holding prices under $1,800/t in the third quarter of 2013 Aluminium Projects scheduled to be commissioned in 2013 Source: AME Oversupply means not all projects will commission as scheduled

10 Chinese committed supply next year is breathtaking – more production cuts coming Aluminium Projects expected to be commissioned in 2014 Source: AME More project commissioning deferrals will be announced New Aluminium centre of the world – Xinjiang Uygur Autonomous Region

11 Proposed smelting capacity in China would eclipse current global capacity by 2017 Source: AME Estimated Chinese Aluminium Smelting Capacity 2000 – 2015 We do not expect any new capacity to be commissioned in the West which is not already under construction

12 Aluminium production of the future will be a technology war Soderberg vs Pre-bake technology Source: AME Typical size vs power for reduction pots Chinese producers are winning the war…for now…

13 Soderberg capacity will experience faster obsolescence than previously expected Soderberg vs Pre-bake Smelter Technology for Key Aluminium Producers (Includes affiliated smelters) Source: AME The question is now when the next step change in technology will be

14 Taking stock: The supply perspective Aluminium: The new supply and technology war Copper: A different type of squeeze Nickel: Market consolidation and a shift to the East Zinc: Restrictions or exercising restraint? Agenda – Is this political economics?

15 Copper: A different type of squeeze

16 Copper smelting cost and energy consumption for different smelting technologies Reverberatory and Noranda furnaces are high energy consumers resulting in high cost of production Older technology progressively being replaced with Bath and Mitsubishi smelters o Cheaper cost of production o Better emission capture o Flash capex high No reverberatory technology built since the fall of the iron curtain Smelter technology costs and energy consumption rates A shift to cleaner, lower cost technologies will increase capex requirements for the base metals smelting industry

17 Sulphur dioxide and acid plants will be a medium term defining feature for smelters

18 The changing environmental landscape changing competitive landscape for base metals smelter Average SO 2 Daily Emission Limits (μg/m 3 ) 2013 Tighter emission standards will generally cause refits, not closures Source: AME

19 Despite better TCs, supply chain margins will sit with concentrate producers Copper Smelter Cash Costs Source: AME Operating and upgrade costs will determine smelter viability

20 Further concentrate delays mean TCs may disappoint, adding additional pressure Supply from new copper mine projects – 2012 vs. 2013 Source: AME AMEs base case supply forecast for 2015 has been reduced by 2Mt on project delays and cancellations

21 Taking stock: The supply perspective Aluminium: The new supply and technology war Copper: A different type of squeeze Nickel: Market consolidation and a shift to the East Zinc: Restrictions or exercising restraint? Agenda – Is this political economics?

22 Nickel: Market consolidation and a shift to the East

23 The medium term demand outlook for nickel remains favourable Nickel to Steel Consumption Ratio, 2013 Source: AME Lower nickel prices will encourage a shift back to 300 series stainless steel

24 AME forecasts Chinese Nickel Pig Iron (NPI) production of 430kt in 2013 Estimated NPI operating costs, 2013 Source: AME Iron Credits make Chinese ferronickel cash costs opaque

25 The Indonesian government has backed away from a complete ban of nickel ore exports This adds to the 500+kt of capacity added in China over the last 6 years More Indonesian project announcements are expected Not enough ore and demand to go around in the rest of Asia Suphides will continue to shrink as a share China Nickel Ore Imports, 2009 - 2013 Source: China Customs, AME The weight of production firmly now in Asia Proposed Ferronickel smelters in Indonesia

26 Taking stock: The supply perspective Aluminium: The new supply and technology war Copper: A different type of squeeze Nickel: Market consolidation and a shift to the East Zinc: Restrictions or exercising restraint? Agenda – Is this political economics?

27 Zinc: Restrictions or exercising restraint?

28 After two disappointing years, rising incomes gives zinc demand leverage to steel production Source: AME Zinc consumption (kg) per tonne of steel production, 2013 Global zinc consumption % ch. p.a, 2005 - 2013 Zinc is becoming a demand story

29 Zinc still has the long term demand narrative despite expected demand slowdown Zinc Intensity of GDP – The Japanese and US experience Source: AME Zinc in particular has leverage to growing wealth in the East

30 Chinese production cuts have put the lead & zinc markets in a sweet spot, temporarily. Zinc prices and stocks, 2003 – 2013 Refined Zinc Production (kt), 2003 - 2013 AME expects a 100kt zinc deficit and 200kt lead deficit in 2013 Source: AME, Bloomberg

31 Forward looking information Certain statements and graphics contained in this presentation may contain forward-looking information within the meaning of various securities laws. Such forward-looking information are identified by words such as "estimates", "intends", "expects", "believes", "may", "will" and included, without limitation, statements regarding the company's plan of business operations, production levels and costs, potential contractual arrangements and the delivery of equipment, receipt of working capital, anticipated revenues, mineral reserve and mineral resource estimates, and projected expenditures. There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from such statements. Factors that could cause actual results to differ materially include, among others, metal prices, risks inherent in the mining industry, financing risks, labour risks, uncertainty of mineral reserve and resource estimates, equipment and supply risks, regulatory risks and environmental concerns. Most of these factors are outside the control of the company. Investors are cautioned not to put undue reliance on forward-looking information. Except as otherwise required by applicable securities statutes or regulation, the company expressly disclaims any intent or obligation to update publicly forward-looking information, whether as a result of new information, future events or otherwise. These materials are provided by and remain the copyright of the AME Group. Unless otherwise agreed to in writing with the AME Group, they may not be in whole or part reproduced or published. This material is public, and we encourage you to share it within your organisation, under your own personal awareness of relevant local laws and jurisdiction relating to information dissemination. The AME Group takes no responsibility for this. Copyright ©AME Group 2013 Contact details and important notices For further details, please visit our website at www.amegroup.com AME Group Hong Kong SydneyLondonNew York Tel: +852 2846 8220 Tel: +612 9262 2264Tel: +44 207 933 8732 Tel: +44 207 933 8732 hk@amegroup.com ame@amegroup.com uk@amegroup.com usa@amegroup.com

32 Thank you Questions


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