Minerals and Metals Industry Comprised of mineral exploration, mining and quarry industries, primary metals, fabricated metal products and nonmetallic mineral products industries Includes Metal, nonmetal and coal mines, stone quarries, sand gravel pits, oil sands operations and manufacturing capacity (nonferrous metal smelters, refineries and steel mills)
Industry Characteristics Extremely Capital Intensive Exploration cost Operation cost Equipment cost Recovery cost Sensitive to changes in business cycle Large, medium and small size companies
Industry Characteristics (2) Very sensitive to fluctuations in exchange rates and commodity prices Hedge: Less speculative Reduced exposure and uncertainty Smooth cash flows No Hedge: Volatile cash flow Tax Self-correction in long run
Industry Characteristics (3) Environmental consideration: Noise pollution Acid mine drainage Changes in local water balance Soil erosion Disruption of animal life Stringent environmental regulations
The Canadian Mining Industry A Key Feature of Canada’s Economic Landscape Canada is a leading producer and exporter of minerals and mineral-based products. Canada is one of the largest mining nations in the world, producing more than 60 minerals and metals. The industry employs some 388,000 Canadians Contributed $40 billion to Canada’s GDP in 2008 (Statistics Canada, 2009)
Capped Diversified Metals and Mining Index vs TSE Market Index (1yr)
Capped Diversified Metals and Mining Index vs TSE Market Index (5yr)
Uranium in Canada Canada has three operating uranium mines and mill sites, one mine site, and one new uranium mine site under construction (all in Northern Saskatchewan). Nuclear power provides approximately 14.7% of Canada’s electricity. Over 80% of the uranium shipped from Saskatchewan mines goes to non-Canadian markets for the generation of electricity.
Uranium in Canada (2) Canada is among the top producers of uranium in the world. The uranium mining and milling industry is the only mining industry in Canada licensed and regulated by the federal government. The Canadian Nuclear Safety Commission (CNSC) is the federal regulator for the uranium industry.
Future Uranium Demand (2) China is expected to lead the world in the construction of nuclear power plants as electricity demand continues its rapid growth. China is currently operating 11 reactors, building 20 and planning more. We expect it to have a net increase of 42 reactors by 2019. India is also planning more reactors.
Copper Overview About Copper Copper Supply and Demand World Copper Usage Refined Copper Usage by Region Prospects and Price
About Copper -Efficient conductor of electricity and heat -Flexible, strong, durable and resistant to corrosion
About Copper (2) Conducting electricity and heat Communications Transporting water and gas Roofing, gutters and downspouts Protecting plants and crops, and as a feed supplement Making statues and other forms of art.
Copper Supply and Demand Demand Growing demand because of: Widespread use Industrializing countries such as China and India Supply Copper supply comes from two sources: Primary production (88%) ~ mine from the ground Secondary supply (12%) ~ recycled copper scrap
Copper Prospects Weak world economy due to financial crisis is expected to an overall global decrease in usage of 0.7% Surging industrial output in China China is the world’s largest consumer of industrial metals Decline of 17% in the 3 major markets is partly offset by growth in apparent usage in China of 26% Prices expected to stabilize by 2011 (ICSG)
Coal Overview About Coal Energy Demand Types of Coal World Coal Consumption Annual Coal Prices
Energy Demand Primary energy demand has increased 50% since 1980 Growth is forecast to continue at annual rate of 1.6% between 2004-2030 70% of this growth will come for developing countries Fossil fuels projected to provide 80% of total energy demand into the future Coal will see the largest demand increase in absolute terms (International Energy Agency)
About Coal Coal is the world’s most abundant and widely distributed fossil fuel. Coal is carbon-rich mineral deposit formed as organic plant matter decayed. Coal generates the largest single source of electricity in the world. Electricity generation, steel and cement manufacturing and industrial process heating.
Investments – Core Assets Copper Highland Valley Copper (97.5%) Antamina (22.5%) Quebrada Blanca (76.5%) Carmen de Andacollo (90%) Duck Pond (100%) Metallurgical Coal Teck Coal Partnership (100%)
Investments – Core Assets Zinc Trail (100%) Red Dog (100%) Energy Fort Hills Project (20%) Frontier and Equinox Projects Other Oil Sand Leases (50%)
Non-Core Asset Dispositions 78.8% interest in the Morelos gold project Disposed in November 2009, for US$150 million cash, approximately 1.6 million common shares, and 12.4 million special warrants of Gleichen 60% interest of the Agi Dagi and Kirazli gold projects in Turkey Disposed in January 2010, for US$24 million, and 2.4 million shares Interest in future gold production from Andacollo mine sold to Royal Gold Disposed in January 2010, Provided Andacollo with US$218 and 1.2 million common shares of Royal Gold Teck’s share is 90%
Other Dispositions Sale of one-third interest in the Waneta Dam for C$825 million, closed on March 5, 2010 Total debt decreased to C$6.7 billion Term loan is US$1.14 Cash balance C$1.3 billion
History Teck is Canada's largest diversified mining, mineral processing and metallurgical company Owns or has interests in 15 mines in Canada, United States, Chile and Peru Cominco started in 1906 as a mining and smelting company After a merger in 2001, became Teck Resources Ltd.
Highlights and Significant Items (in billions)20092008 Operating profit before depreciation 3.72.8 Net earnings1.8.659 EBITDA4.12.0 Revenue7.76.7
Management Norman B. Keevil (B.A. Sc., Ph. D., LL.D) Joined the Board in 1963 VP Exploration at Teck from 1962-1968 Executive VP from 1968-1981 President and CEO form 1981-2001 Chairman of the Board since 2001 Lifetime director of the Mining Association of Canada Inducted into the Canadian Mining Hall of Fame in 2004
Managment Donald R. Lindsay (B.Sc., M.B.A) President and CEO of Teck since January 2005 President of CIBC world Market Inc, Head of Investment and Corporate Banking
Debt positions and credit ratios (in millions)Dec. 31, 2008Dec. 31, 2009March 5, 2010 Term loan3,9372,325800 Bridge loan5,284-- Fixed rate term notes1,1815,086 Other167205 Total debt (US$)10,5697,6166,091 Total debt (C$)12,8748,0046,402 Cash balances (C$)8501,420900 Net debt (C$)12,0246,5845,502 D/E54%36%29% Net D/E52%31%26%
Outlook General economic conditions Base metal prices increased Improved customer demand Capital expenditures Approximately $1.05 billion for 2010 $375 million of sustaining capital expenditures $675 million on development projects
Outlook Foreign exchange, debt revaluation and interest expense Sales of products are denominated in USD Expenses are incurred in local currency (CAD)
Market Profile 5 Year Stock Chart - CCO vs TTMN
Business Overview Cameco Uranium Fuel Services Electricity
Business Overview Uranium 16% of world production 480M lbs of U 3 O 8 (Cameco`s share) Low cost producer Fuel Services Refines and converts uranium to UF 6 for use in nuclear reactors Electricity Generation 31.6% stake in Bruce Power L.P Gold As of December 2009, CCO sold stake in Centerra Gold Inc.
Business Overview The Athabasca Basin hosts the world's richest high-grade uranium deposits
Uranium Processing McArthur River Key Lake Port Hope Blind River ( UO 3 )
Important Mines McArthur River World's largest high-grade uranium deposit Milled at Key Lake 232.2M pounds (69.8% share) End product: U 3 O 8 – 19.5% grade
Important Mines Cigar Lake World's second largest undeveloped high-grade uranium deposit 104.7M pounds reserve (50% share) End product: U 3 O 8 – 17% grade
Important Mines Cigar Lake Development began 2005 2006 and 2008 flooding Share price dropped to $38 from $43 Production start date mid-2013 New Jet Boring mining method
Important Mines Inkai, Kazakhstan 85.1M pounds (60% share) End product: U 3 O 8 – 0.07% grade In Situ Mining method Currently test mine Commercial production expected 2009* Was able to produce 0.3M lbs for Cameco
Expected Realized Prices How long terms contracts would respond to changing spot prices Assumption: current contract portfolio remains unchanged
Financial Contracts Most contracts are long term; CCO sells directly to nuclear utilities Sells uranium concentrate, UO 2, UF 6, conversion or fuel fabrication Current contracting strategy is to have contracts of 10+ years Provides cash flow visibility (reduced volatility)
Financial Contracts Contracts include embedded derivatives to protect downside and participate with price increases 40:60 ratio 40% at fixed prices based on long term indicator adjusted for inflation 60% at spot price near delivery time CME contract size: 250lbs of U 3 O 8
Foreign Exchange Natural hedge against USD Cash outlays denominated in USD $0.01 increase in USD/CAD decreases net earnings $7.1M
Growth Oriented Increasing demand for electricity by India and China Global clean energy movement 53 reactors in construction, 91 projected to come online in 2019 Uranium demand projected to grow at 3% over next 10 years
Strengths Low cost Canadian operations Largest high-grade uranium deposits Long-term contracts High capital costs and long lead times Barriers to entry
Weaknesses Nuclear plant construction very costly Does not qualify for greenhouse gas emission credits Moderate growth for uranium fuel as not many reactors are online Demand is cyclical due to market’s infancy Uranium prices are volatile
Long Term Strategy Uranium – double production to 40M pounds by 2018 from existing assets Fuel Services – invest to support nuclear reactor growth Electricity – maintain cash flow and look for new opportunities Cigar Lake Maintain exploration 70 active exploration projects
New Projects Millennium Founded in Saskatchewan in 2000 42% ownership, 19.6M lbs of U 3 O 8 Kintyre Acquired from Rio Tinto in Australia in 2008 in joint venture 70% ownership
Material Risks to Long Term Strategy Inability to increase production at mines Partner and political risks Natural forces Ex: flooding at Cigar Lake
Management Gerald W. Grandey, President and CEO Current Appointed CEO of Cameco January 1, 2003. Appointed president elected as director on Cameco's board May, 2000. On the boards of the Canadian Nuclear Association, the Nuclear Energy Institute, the National Mining Association
Management Gerald W. Grandey, President and CEO Previous Vice-chair and chief executive officer of The Concord Mining Business Unit President of Energy Fuels (an American coal and uranium mining company) Practiced law in the mid '70s with a major Denver law firm specializing in mineral financing, natural resources and environmental law. President of the Uranium Producers of America Vice-chair of the World Nuclear Association Colorado School of Mines (1968), Bachelor of Geophysical engineering Northwestern University (1973), Law Degree
Management Tim S. Gitzel: Senior Vice-President and Chief Operating Officer -16 yrs of senior management experience in uranium industry -Executive VP of mining business unit for AREVA (France): global uranium and gold exploration - Chief of staff to SK deputy premier and minister of economic development
Management O. Kim Goheen: Senior Vice-President and Chief Financial Officer - Extensive experience in domestic and international finance in transportation, petroleum, mining and energy industries -Served in a variety of financial capacities at IPL Energy Inc. (Enbridge) - Commerce degree from UBC 1977, MBA from U of Western Ontario.
Board of Directors High degree of independence from management Only 2 of 14 individuals on Board of Directors are not independent
Financial Highlights Highlights20092008Change % Revenue231521836 Gross profit750829(10) Net earnings1099450144 -$ per common share (diluted) 2.821.28120 Adjusted net earnings (non- GAAP) 582589(1) -$ per common share (adjusted and diluted) 1.491.67(11) Cash provided by continuing operations 69053030
Financial Analysis – Net Earnings Net earnings higher due to sale of Centerra gold stake 374M of 1099M Mark to market gains of 179M on financial instruments ~50% of net earnings from one-time items
Financial Analysis – Adjusted Net Earnings Earnings decreased 1% Higher uranium costs due to purchasing at higher prices Lower gold sales Electricity sales increased due to higher prices
Outlook Doubling production by 2018 to 40M lbs Exploration costs increase by over 75% Administration costs increase 25-30% Cost increases for sustaining operations
Recommendation HOLD Increased exploration and costs Weak demand for uranium Uranium competes with other forms of alternative energy (i.e. coal and wind) SPECULATIVE BUY Market leader Highly levered to Ux prices
ABOUT Leading gold producer engaged in gold mining and related activities including exploration, extraction, and processing One of the top senior gold producers in the world Produces Gold, Silver, and Copper
2004: Goldcorp: Red Lake Mine & Wharf Mine 2005: Acquired Wheaton River Minerals & Virginia Gold 2006: Acquired Canadian Placer Dome assets & Glamis Gold 2008: Gold Eagle Mines 2009: El Morro project 2009: Goldcorp acquired 100% interest in the Camino Rojo gold/silver project in Mexico
FINANCIAL RISKS The Company closely monitors its financial assets and does not have any significant concentration of credit risk. The Company ensures that sufficient committed loan facilities exist to meet its short-term business requirements The Company is exposed to currency risk The Company monitors its exposure to interest rates Price-Risk: May hedge up to 50% of its base metal sales volume to manage its exposure to fluctuations in base metal prices
FINANCIAL CONTRACTS Sells its products exclusively to large international financial institutions Enters into contracts and performs business activities that give rise to commitments for future minimum payments. May hedge up to 50% of its base metal sales volume over the next fifteen months to manage its exposure to fluctuations in base metal prices.
Growth & Development Peñasquito is one of the largest projects and one of the largest new mines in the world that will be the primary driver of growth for Goldcorp in the next 5 years Other important projects include Red Lake, Musselwhite, and Pueblo Viejo
STRATEGIC OBJECTIVES Goldcorp is focused on delivering long-term value and superior returns to its shareholders. Its goal is to be a low cost gold producer with geographic diversification and low political risk operating in a responsible manner with our neighbours and the environment.
STRATEGY FOR GROWTH Strong focus on organic growth No gold hedging Low cost gold producer Maintain a strong balance sheet Focus on low political risk jurisdictions $110 million exploration budget for 2009
FACTS Goldcorp is the 2009 recipient of the Viola R. MacMillan Award for company or mine development Goldcorp announces 6 th consecutive annual increase in gold reserves It completes acquisition of 70% interest in EI Morro project Delivers record 2009 gold production; peer leading 5-year growth profile extended Its cash flow increases 35% in the 2009 3 rd quarter Goldcorp has grown from a strong intermediate player to one of the top senior gold producers in the world
MANAGEMENT Charles Jeannes Charles A. Jeannes was appointed President and CEO of Goldcorp effective 1 st January 2009 Previously Executive Vice President from 2006-08 From 1999 until the completion of the acquisition of Glamis, he was Executive Vice President, Administration, General Counsel and Secretary of Glamis
MANAGEMENT Ian Telfer (Chairman) - President and CEO of Goldcorp from 2005 until its merger with Glamis Gold in 2006 - CEO & President of Wheaton River from 2002 until merger in 2005 - Over 20 years experience in mining industry -Raised over $1 billion for mining exploration and development around the world