Alaska Resources Development Council November 14-15, 2018 Alaska s Natural Resource Commodities: A 10-Year Outlook David R. Hammond, Ph.D. Principal Mineral Economist Hammond International Group
Commodities are the Fundamental Source of Economic Wealth! Dave s Axiom of Wealth: Real Societal Wealth is Created Only by Growing It, Digging It out of the Ground, or Building It as a Tangible Product with Your Hands; All Other Forms of Commercial Activity are Just Transfers of Wealth Between Parties! 2
Commodity Prices Over Time: 11-14-18 188 3
Drivers of Mineral Demand: Ø World Population Growth Ø Intensity of Use Drivers of Mineral Price: Ø Short-term Demand Ø Short-term Supply 4 4
World Population Growth Projections: Source: Heilig, Gerhard K. (2016), United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2015 Revision, Volume I. 5 5
Copper: 25,000 20,000 World Copper Supply/Demand 000 Metric Tons 15,000 10,000 5,000 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Mine Production Refined Production Refined Usage 25,000 World Copper Consumption 8.00 Source: ICSG 000 Metric Tons 20,000 15,000 10,000 5,000 - Per Capita Consumption Total Consumption Total Consumption 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 lbs / person 6 6
Zinc: 16,000 14,000 World Zinc Supply/Demand 000 Metric Tons 12,000 10,000 8,000 6,000 4,000 2,000 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Mine Production Refinery Production Refined Usage 16,000 World Zinc Consumption 4.50 000 Metric Tons 14,000 12,000 10,000 8,000 6,000 4,000 Per Capita Consumption Total Consumption 4.00 3.50 3.00 2.50 2.00 1.50 1.00 lbs / person 2,000 0.50 Source: ILZSG, USGS - 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 0.00 7 7
Copper & Zinc Future Demand Forecast World Copper Demand (assuming 7.0 lbs fixed per capita consumption rate) Forecast World Zinc Demand (assuming 4 lbs fixed per capita consumption rate) Billion lbs Copper 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 2028 2032 2036 2040 2044 2048 Billion lbs Zinc 45.0 35.0 25.0 15.0 5.0-5.0 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023 2027 2031 2035 2039 2043 2047 Actual Forecast Actual Forecast 8 8
Nominal & Real 2017$ Prices: US /lb 5.00 4.00 3.00 2.00 1.00 Average Annual Copper Price London Metal Exchange 0.00 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Nominal $ 2017$ Linear (Nominal $) Linear (2017$) 2.00 Average Annual Zinc Price Platts Metals Week Price for North American SHG Zinc 1.50 US $ / lb 1.00 0.50 0.00 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Nominal $ Price 2017 $ Price Linear (Nominal $ Price) Linear (2017 $ Price) 9 9
Future Issues for Copper: Demand: Driver continues to be economic growth in key consuming economies. Uncertainties induced by tariff and other trade disputes. Currency exchange volatility Supply: Need to replace 50 billion pounds produced each year. Declining ore grades at major existing deposits. Discovering of new giant near-surface deposits 10 10
Lead: 14,000 12,000 World Lead Supply/Demand 000 Metric Tons 10,000 8,000 6,000 4,000 2,000 Recycled 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Mine Production Refinery Production Refined Usage Source: ILZSG, USGS 000 Metric Tons 14,000 World Lead Consumption 12,000 10,000 8,000 6,000 4,000 2,000-2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 lbs / person 11 11
Nominal & Real 2017$ Pb Prices: 1.600 Nominal & Real 2017$ Pb Prices North American Market 1.400 1.200 1.000 US $ / lb 0.800 0.600 0.400 0.200 0.000 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Nominal $ NA Price 2017 $ NA Price Linear (Nominal $ NA Price) Linear (2017 $ NA Price) 12 12
Future Issues for Zinc & Lead: Demand: Zinc is critical for societal development A lot more galvanization of steel products will occur More uses evolving, such as in health and agriculture Supply: Existing high quality deposits are being mined out Lack of new discoveries More underground deposits in future, with higher costs 13 13
The World Gold Inventory: Total above-ground stocks = ~187,000 tonnes ( 6 billion ounces) Source: World Gold Council; Sep 2016 14 14
World Gold Production: 3,500 World Gold Production 3,000 2,500 Metric Tons 2,000 1,500 1,000 500 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: USGS, World Gold Council 15
Gold Demand: Other (11%) North America (4%) Western Europe (7%) Affluent Asia (1%) India (22%) China (30%) Developing Asia (8%) Middle East & Africa (5%) Eastern Europe (13%) Source: World Gold Council; Sep 2016 16 16
Nominal & Real (2017$) Gold Prices: $2,000 Real vs Nominal Gold Price (Annual LME Average) $1,800 $1,600 Gold Price (US$/oz) $1,400 $1,200 $1,000 $800 $600 "Real" 2017 $ $400 $200 Nominal $ $0 Source: Nominal Price Data from KITCO 17 17
Future Issues for Gold: Demand: Millennial generation lack of interest in gold. ETF effect on price volatility. Fall-off in China and India demand: Ø Establishment of formal and trustworthy banking systems. Ø Cryptocurrencies Supply: Declining ore grades at existing mines. New giant discoveries are increasingly rare. Underground deposits require higher grade to be economic. Economic Fundamentals for Gold are substantially different from other metals! 18 18
Critical Materials: 19
Future Issues for Critical Materials: Demand: Demand is complex and evolving; aggressive research on new apps. Consumption currently involves relatively small tonnages. US imports are large but are we really serious about security of supply? Supply: Separation technologies are technically challenging and expensive. Economic production of end products requires integrated process. Lots of prospects but can they be turned into economic mines? 20 20
Alaska Continues to be Ranked High for Mineral Investment: Source: Fraser Institute Annual Survey of Mining Companies 2017 21 21
Alaska s Position: Ø Alaska: 10/92 overall (was ranked 5 th in 2013) Ø For mineral potential: 5/91 Ø For uncertainty of existing regulations: 41/91 22
Conclusions: Ø Global demand for base metals will grow. Ø New mine discovery will require much higher exploration investment. Ø Alaska will remain a highly attractive region for mineral investment, from both resource potential and political favorability perspectives. Ø Problematic governmental jurisdictions of today will be just as risky in 10 years. Metal Price Outlook: Current Long-Run Price 2030 Price* Price Volatility** LME Bank Consensus HIG HIG Copper: $2.76/lb $ 3.10/lb $ 4.25/lb 35% Zinc: $ 1.16/lb $ 1.10/lb $ 1.30/lb 25% Lead: $.87/lb $.95/lb $ 1.00/lb 20% Gold: $1,203.30/oz $ 1,335.00/oz 1,200.00/oz 15% * In 2018 Constant Dollars ** Annual 23 23
Future Issues for Oil & Gas: Global oil demand will continue to grow and is unlikely to peak before the 2040s-50s; wide-spread adoption of EVs not going to happen as fast as advocates claim. Oil demand will shift significantly from transport fuel to petrochemical manufacture. LNG export direct from North Slope to Europe and Asia with climate change. Possible/Probable breakup of OPEC. Fact: 100 million bbls/day = 35 billion bbls/yr.! 24 24