Hunter Business Chamber May 2014
Forward looking statements This document contains statements that are, or may be deemed to be, forward looking statements which are prospective in nature. These forward looking statements may be identified by the use of forward looking terminology, or the negative thereof such as "plans", "expects" or "does not expect", "is expected", "continues", "assumes", "is subject to", "budget", "scheduled", "estimates", "aims", "forecasts", "risks", "intends", "positioned", "predicts", "anticipates" or "does not anticipate", or "believes", or variations of such words or comparable terminology and phrases or statements that certain actions, events or results "may", "could", "should", shall, "would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Forward-looking statements are not based on historical facts, but rather on current predictions, expectations, beliefs, opinions, plans, objectives, goals, intentions and projections about future events, results of operations, prospects, financial condition and discussions of strategy. By their nature, forward looking statements involve known and unknown risks and uncertainties, many of which are beyond Glencore s control. Forward looking statements are not guarantees of future performance and may and often do differ materially from actual results. Important factors that could cause these uncertainties include, but are not limited to, those discussed under Principal risks and uncertainties of Glencore Xstrata s Annual Report 2013. Neither Glencore Xstrata nor any of its associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this document will actually occur. You are cautioned not to place undue reliance on these forward-looking statements which only speak as of the date of this document. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority and the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Listing Requirements of the Johannesburg Stock Exchange Limited), Glencore Xstrata is not under any obligation and Glencore Xstrata and its affiliates expressly disclaim any intention, obligation or undertaking to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of Glencore Xstrata since the date of this document or that the information contained herein is correct as at any time subsequent to its date. No statement in this document is intended as a profit forecast or a profit estimate and no statement in this document should be interpreted to mean that earnings per Glencore Xstrata share for the current or future financial years would necessarily match or exceed the historical published earnings per Glencore Xstrata share. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities. The making of this document does not constitute a recommendation regarding any securities.
GLENCORE FAST FACTS Employ approximately 200,000 people around the world Over 150 operations including mining and metallurgical sites, offshore oil production assets, farms and agricultural facilities Global network of more than 90 offices Located in over 50 countries 3
Glencore in Australia Australia is an important part of our global business and we have been successfully investing in Australia for over 15 years 4
Employing 18,000 people and contributing over $17 Billion to the national economy 5
12 coal mining complexes producing over 81Mt 6
We are the biggest coal exporter in NSW (& in the Hunter Valley) Glencore 29% Rio Tinto 19% BHPB 13% Centennial 9% Peabody Yancoal Whitehaven Idemitsu Anglo Vale Bloomfield Gujarat LD Operations 0 10 20 30 40 50 60 Mt Source: Glencore 7
West Wallsend Grout Remediation Progress Photos BEFORE Glencore disappointed by grouting incident Not consistent with our good track record on sustainability issues Cooperation with Government and community on remediation activities AFTER Successful remediation process and grout material being removed Material broken up by hand and airlifted from the site by helicopter Ahead of schedule and expected completion by early June 2014 8
Why now brown cow? Why are we in trying times? 9
Why there s no shortage of bad news.. 10
Price Deterioration 2012-2014 140 Thermal coal prices (FOB - USD/t) Hard 260 Coking coal prices (FOB USD/t) 130 120 110 100 90 80 70 60 50 240 220 200 180 160 140 120 100 JFY GC Newc Quarterly Spot Source: Glencore 11
Australian Dollar at historically high levels 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Traditionally, when Australian coal prices fall, the A$ falls Low US and European interest rates (near zero), has made the A$ a safe haven for global investors and remains stubbornly high against other currencies Australian producers are therefore getting less for their coal compared to international competitors Source: RBA 12
1/3 rd of Australian coal mines are loss making USD/t 50 Australian Cash Margin Curve 40 30 20 10 - -10-20 -30 0 50 100 150 200 250 300 350 Million Tonnes Source: Glencore Margin including $5/t sustaining capital 13
Key industry risks and challenges License to operate Coal price and FX Government regulation Operating performance Industrial relations Project delivery 14
Time - Months Delays and uncertainty around project approvals have become a material risk for future investment in Australia 45 40 2013 35 30 2010 Additional Time for Appeals 25 20 15 10 5 0 2004 Additional time for EPBC Time Taken for Determination (Months) At the rate of 120Mt of ROM coal, Glencore consumes one large mine every year Source: New South Wales Government Department of Planning and Infrastructure http://majorprojects.planning.nsw.gov.au/page/ 15
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 A little bit of history.. 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 0 Australian Exports and Coal Price Aust Total Exports - Mt Price USD/t Supply Cost versus Price Marginal supply cost Price Global GFC Capacity response exceeds demand Iran Oil Crisis Diversification of Asian electricity generation fleet from oil to coal China becomes net coal importer ~300Mtpa Source: Glencore 16
Robust export growth. Australian Exports and Coal Price 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 0 Aust Total Exports - Mt Price USD/t Source: Glencore 17
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 This is our margin squeeze dilemma this time around Mt 600 Australia coal port capacity & throughput 500 400 300 200 100 Aust East Coast Total Aust Total Exports Spare Capacity We have 100Mt of spare export capacity and we have to pay for it whether we use it or not 0 Source: Glencore We pay a high price for our labour and we need to maintain flexible working arrangements 18
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Charles Darwin would be proud of us! Those of us who have survived have done so through increased labour productivity supported by significant capital investment $/t 150 USD Price USD/t $/t 150 AUD Price AUD/t 125 USD/t Indexed 125 AUD/t Indexed 100 100 75 75 50 50 25 25 0 0 Source: Glencore 1985 coal priced indexed by Australian CPI 19
Is there light at the end of the tunnel? Will we learn from the previous five slides? What s different this time? The global demand for energy will grow The other coal producing domains have their own issues Shorter term demand / supply imbalance is correcting? Glencore is a believer in coal (Clermont completed today) 20
World energy poverty is widespread 1.3 billion people in the world live without electricity 2.7 billion live without clean cooking facilities Sub-Saharan Africa China 8 423 Latin America 31 85 585 653 India 289 379 Rest of developing Asia 836 661 Millions of people without electricity Millions of people without clean cooking facilities Source: IEA, WEO 2012 21
Emerging economies contribution to global energy demand IEA predicted growth in primary energy demand by country Mtoe 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2010 2015 2020 2025 2030 2035 China India Other developing Asia Russia Middle East Rest of world OECD Global energy demand increases by one-third from 2010 to 2035, with China & India accounting for 50% of growth Source: IEA, WEO 2012 22
Global coal production and exports Major Coal Producers Major Seaborne Coal Exporters Country Production Mt, 2013(e) Share % Country Exports Mt, 2013 Share % China 3,680 46 USA 893 11 India 610 8 Indonesia 485 6 Australia 474 6 Russia 355 4 South Africa 260 3 Germany 197 2 Poland 144 2 Kazakhstan 116 1 Colombia 89 1 Ukraine 88 1 Turkey 88 1 Canada 67 1 Greece 60 1 Others 363 5 World 7,970 Indonesia 414 33 Australia 356 29 Russia 116 9 USA 105 8 Colombia 79 6 South Africa 73 6 Canada 39 3 Vietnam 16 1 China 7 1 Others 39 3 Total 1,245 Source: Glencore, BP statistics 23
All the other major coal domains have their issues as well USA Challenge: Higher cost, regulatory change, Asian supply constraints Opportunity: High quality, long life resources Russia Challenge: Rail distance and capacity Opportunity: Market proximity, high quality China (deeper/thinner) Challenge: Transportation to coastal markets, supply cost Opportunity: Market proximity, strong demand Indonesia Challenge: Low quality, increased regulation Opportunity: Low capex expansions, market proximity Colombia Challenge: Regulatory and stakeholder environment Opportunity: High quality, low cost South Africa Challenge: Capacity constraints, regulatory burden Opportunity: High quality, low cost Australia Challenge: High cost, regulatory burden, distant markets Opportunity: High quality, political stability 24
1/3 rd Global seaborne coal supply cash negative USD/t 30 20 10 Canada Australia Colombia Indonesia Mozambique South Africa Russia Other South Africa USA - -10-20 -30 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 1000 1050 1100 1150 1200 1250 Million Tonnes Source: Glencore internal analysis Margin including $5/t sustaining capital 25
Positive outlook Coal Market remains oversupplied in the nearterm despite strong demand Demand expected to remain solid in key regions amid high gas prices and a recovering global economy Coal remains the prime choice to fuel economic growth in Asia Australian and Indonesian supply growth expected to be significantly lower in 2014 capex slashed / projects suspended Medium/long-term upside intact coal remains the lowest cost fuel source for industrialising economies Source: Ivan Glasenberg 2014 Global Metals, Mining & Steel Conference, Miami May 2014 26
Clermont acquisition supports Glencore position on continued strong global demand for coal New open cut thermal coal mine currently reaching nameplate capacity of 12mtpa saleable Ownership: Rio Tinto 50.1%, Mitsubishi 31.4%, J-Power 15%, JCD 3.5% Clermont Glencore and Sumitomo will takeover Rio Tinto 50.1% stake Glencore appointed manager for operating and marketing entity Financial close anticipated Q2 2014 Low risk, established open cut operation with relatively benign geology (172Mt reserve) Fully established mine with minimal capital to spend and low sustaining capital <$2/t due to new fleet Connected by rail to DBCT (280km) and Abbot Point (380km) 27
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