Competitiveness Conditions for Copper Investment in Brazil

Size: px

Start display at page:

Download "Competitiveness Conditions for Copper Investment in Brazil"

Francine Phelps
5 years ago
Views:

1 Simexmin Brazilian Symposium on Mineral Exploration Competitiveness Conditions for Copper Investment in Brazil Phil Newman, CEO May 22 th 2012 CRU STRATEGIES A division of CRU International Ltd 31 Mount Pleasant, London WC1X 0AD UK Tel: Fax: , Tower 2, Bright China Chan An Building, 7 Jianguomennei Avenue Beijing , China Tel: Fax: Augusto Leguía Norte Nº 100 of.506, Las Condes, Santiago, Chile Tel: Fax: PO Box 1269, Langley, WA USA Tel: Fax: West 54 th Street, Minneapolis, MN 55410, USA Tel: Fax: Level 2, Kalpataru Synergy, Opp. Grand Hyatt, Santa Cruz (East), Mumbai , India Tel: Fax:

2 Copper Investment in Brazil Brazil: Is it attractive to the international mining community? Investment: Who is investing here Copper: Is it competitive for copper? 2

3 Policy Potential So you want to invest in mining in Brazil? How is the country rated? Fraser Institute annual mining survey Not perfect: biased towards ASX and TSX? report card to governments on their policies Top 10 N America / Europe Chile fell out of top 10 this year, to 18 Brazil: 2 nd /3 rd quartile since 2008/ Quebec Quebec Alberta New Brunswick 2008/9 2009/ / /12 Data: Fraser Institute Brazil New Brunswick Finland Alberta Wyoming Quebec Saskatchewan Sweden Nevada Ireland Yukon W Aus Northern Territory Ontario Greenland Nova Scotia Nfld/Lab Botswana Chile South Australia Manitoba China Utah Minnesota Michigan Norway Alaska Idaho New Zealand Queensland Arizona Tasmania British Columbia New South Wales Colorado Morocco Mexico Nunavut Spain Burkina Faso Washington New Mexico Montana Mali Ghana Victoria Namibia Poland Bulgaria NWT Missouri Zambia California Mauritania Guyana South Africa Peru Brazil Madagascar Turkey Tanzania Colombia PNG Dominican Rpblic Argentina Niger Russia Suriname Zimbabwe Egypt DRC Mongolia Laos Romania Kazakhstan Panama Guinea Vietnam Indonesia Kyrgystan Ecuador Philippines India Venezuela Bolivia Guatelama Honduras

4 Lets keep it simple......big country = big opportunity? Looking at Iron Ore, Coal, Copper, Gold (majority of mineral value) Million km Russia Canada USA China Brazil Australia Land mass (Mkm2) Mine Production Value ($/km2) Data: CRU Mine Production Value (exc Coal) ($/km2) $/km 2 4

5 Mineral Potential (Existing Practice)..and Fraser looks at Mineral Potential: (assuming best practice ) Mineral potential takes into account geology Assuming best practice Brazil in 1 st quartile Taking the actual regulations and combining with mineral potential = risk-adjusted mineral potential?? Quebec Nevada Chile Botswana Brazil 2008/9 2009/ / /12 Data: Fraser Institute Alaska PNG Yukon DRC Mexico Philippines Nunavut NWT Indonesia W Aus British Columbia Mongolia Peru Quebec Nfld/Lab Chile Brazil Ghana Nevada Saskatchewan Colombia South Australia Botswana Ontario Greenland Burkina Faso Manitoba Queensland Turkey Arizona Mauritania Kazakhstan Montana Sweden Russia Poland Kyrgystan India Finland Wyoming Idaho China Tanzania Guinea Northern Territory Utah Laos Ecuador Argentina Zimbabwe South Africa New Mexico Colorado Alberta Guatelama Madagascar Zambia Morocco Ireland Venezuela Missouri Panama Bolivia California Niger Suriname New South Wales Michigan Minnesota Honduras Guyana Spain New Brunswick Norway Bulgaria Namibia Mali Washington Romania New Zealand Tasmania Nova Scotia Egypt Victoria Vietnam Dominican Rpblic

6 2009 Production = 100% Historical and predicted growth of mining shows Brazil is attractive for mining... Mining investment expected to reach $75Bn by Value of mining production in 2011 = $50Bn 200% 175% 150% 125% 100% 75% 50% Iron Ore Gold Copper Zinc 25% 0% Data: CRU (Only firm and probable projects included in projections) 6

7 Who s investing in mining? Mining companies from around the world are developing projects in Brazil Production Feasibility Brazil; 27 Brazil; 12 Australia 5 Canada; 12 Canada; 5 Australia; 3 USA; 3 UK; 3 S Africa; 1 China; 1 Japan; 1 USA; 3 Switz, 1 S Africa; 1 Japan; 1 China; 1 Data: Metals Economics Group 7

8 The Chinese are certainly interested... China is Brazil s largest trading partner (since 2009) China invested $4.5Bn in 2011 (7% of total FDI into Brazil) China has needs = Data: CRU, FAO Massive opportunities for Phosphate and Potash 8

9 Mined Copper Production ( 000t) But, Copper? Brazil s contribution to global copper production is not significant Data: CRU World S America Brazil 9

10 Copper is a great market to pursue... Despite current weakness, 2012 prices expected to hold: Funds have moved back into Copper in 2012 Quarterly deficits expected to persist through 2013 Copper demand growth +2.6% in 2012 (almost ALL China) and +5.1% in 2013 (assuming a cyclical upswing a key assumption!) Supply under-performed in 2011 and 2012 is not expected to impress! Price is currently significantly above cash costs US$/t, net of byproduct cash costs Costs are rising sharply but remain well below current LME prices. Data: CRU March 2012 average copper price, LME cash The current GrExit price - $ Cumulative Production, Mt contained Cu *143 operations covering 90% of global copper production 10

Looking ahead: World demand growth is strong

000 Global refined copper consumption by

Middle East & Russia RoW 12.000 8.000 4.

11 Looking ahead: World demand growth is strong but still highly China-dependent Global refined copper consumption by region, , 000 t China India, Brazil, Middle East & Russia RoW Data: CRU 11

12 Existing mine output is falling... 0,85 Mine closures to occur as ageing deposits are finally mined out. (% Cu), , world annual average No. of active mines currently covered ,80 0,75 0,70 0,65 Ore grades continue to decline worldwide 0, Data: CRU 12

output is to decline by 2.1% pa... 20 16 1997-2011: Global mine production CAGR of 2.0%.

13 Mt contained Cu...and widening gap between output from existing mines and demand. 24 World mine production and demand, , million tonnes contained Cu : Existing mine output is to decline by 2.1% pa : Global mine production CAGR of 2.0%...while demand for material from new mines is to grow by 3.0% pa 12 Existing operations Data: CRU 13

Mt contained Cu New projects have an impact from 2014.

14 Mt contained Cu New projects have an impact from World mine production and demand, , million tonnes contained Cu 24 Prospects 20 Wave of projects set to come in from 2013/14 Possible Existing operations Data: CRU 14

15 ...but project risks remain And, supply disappointment is a common theme! Finance Equipment Shortages Environmental Permit Mining Permit Power / Water Availability Local Community Opposition Resource Nationalism Skilled Labour Shortages 15

Production (LHS) 1200 150% Producer Margin (%) 25000 700 100% 20000 200 50%

16 However, CRU does forecast surpluses emerging towards the middle of the decade Supply/Demand Balance, 000 tonnes S/D Balance (RHS) Consumption (LHS) Production (LHS) % Producer Margin (%) % % % Data: CRU

17 Longer term (towards 2020 and beyond), the supply challenges don t get any easier... CRU (and consensus) can see supply coming in the middle of the decade but the long term fundamentals are still good. Copper projects are scarce, good copper projects are rare... What is the role for Brazil? 17

Copper production in Brazil Impact is likely to be modest Rest of World 3141 Copper Projects Brazil 38 Latin America 826 Of the 38: 29 are active 15 are focussed on

18 Copper production in Brazil Impact is likely to be modest Rest of World 3141 Copper Projects Brazil 38 Latin America 826 Of the 38: 29 are active 15 are focussed on Cu Companies looking include: Anglo Codelco Teck Vale Xstrata A positive note: only ~30% of Brazil has been geologically mapped Data: Metals Economics Group (MEG) 18

19 Where is current copper exploration focusing? Data: Metals Economics Group (Corporate Exploration Strategies)

20 Mt contained Cu CRU suggests strong growth in Brazil, although from a low base Brazil mine production, , million tonnes contained Cu Salobo (I and II) and Cristalino make up the majority of this new production Probable Firm projects Possible Current potential* from the Brazilian active projects, including by-product Cu = 518,000 tpa on top of existing operations 100 Existing operations 0 Data: CRU, *Metals Economics Group 20

21 But is it competitive? Brazil : Copper mining costs (2011) vs global average 150% 125% 100% 75% Royalty Conversion Realisation* Corporate Capital Full Economic Cost In terms of cost: capital costs ~$170/t; conversion costs ~$150/t and realisation costs add $115/t Data: CRU, * Realisation costs average compares with other concentrates producers only 21

22 Summary Brazil is a great mining nation It is attractive for investment and mining is attracting its fair share Copper has strong demand fundamentals Brazil and copper? Some exploration work ongoing Some good projects coming in the short term Undoubted potential exists but not necessarily a prime target for copper explorers 22

23 Thank-you for your attention Phil Newman CEO Marcio Goto Regional Manager Latin America CRU STRATEGIES A division of CRU International Ltd

IR-Pay Go Rates. There are three pricing groups for Pay Go rates for International Roaming as follows:

IR-Pay Go Rates. There are three pricing groups for Pay Go rates for International Roaming as follows: IR-Pay Go Rates A. IR Pay Go Rate Summary There are three pricing groups for Pay Go rates for International Roaming as follows: Sr IR Pay Go Rate Group 1 Rs 2 2 2 2 Rs 10 10 10 3 Rs 50 600 25 Applicable