State of the Mining Market Trends and Opportunities Chris Hinde Pick and Pen Ltd ABMEC Conference; Thursday, Nov 22nd, 2018 Permission to reprint or distribute any content from this presentation requires the prior written approval of Pick and Pen Ltd. 2018 by Pick and Pen Ltd. All rights reserved.
The Mining Sector (2017) MINED ('000t) AVERAGE PRICE (US$/t) VALUE PA (US$ bn) Coal (commercial) 7,300,000 113 * 825 Iron Ore (62% Fe) 2,165,000 71 154 Copper 23,350 6,173 144 100.7 Moz $1,258/oz Gold 3.1 40,445,600 127 Zinc 13,790 2,888 40 Nickel 2,050 10,406 21 885 Moz $17.0/oz Silver 28 546,600 15 Diamonds 140 Mct 0.028 535,700,000 $107/ct 15 Bauxite 300,000 45 14 Potash (K2O) 37,000 290 11 Top Ten Total 9,841,220 Av $138/t 1,366 Other major metals include Lead (4.6 Mt at $2,315/t for $10.6 billion), and the PGMs (12.6 Moz at a combined $950/oz for total of $12.0 billion) * 70% Thermal ($85/t) + 20% Met ($250) + 10% Lignite ($30) Source: S&P Global Market Intelligence; as of end-january 2018
Main Mined Commodities 10 Year Price Trend * Australian thermal coal; FOB Newcastle. Source: S&P Global Market Intelligence; end-june 2018.
Key Metal Prices (indexed to January 1, 2012) 2 1.8 1.6 1.4 Zinc 1.2 1 0.8 0.6 Copper Gold Nickel 0.4 Feb 2012 Feb 2013 Feb 2014 Feb 2015 Feb 2016 Feb 2017 Feb 2018 Nickel Zinc Gold Copper Source: S&P Global Market Intelligence; November 13, 2018.
Coal and Iron Ore Prices (US$/t) 120.00 (Past Five Years) 110.00 Coal Price (6,000 kcal/kg, FOB Richards Bay; LH axis) 135.00 100.00 90.00 Iron Ore Price (Chinese imports, 62% Fe; RH axis) 115.00 80.00 95.00 70.00 75.00 60.00 50.00 55.00 40.00 Source: globalcoal from Financial Times; November 10, 2018 35.00 5
Industry's Reaction to the Falling Prices i) Lower, and Flatter, Cost Curves Average copper cash price (2017; US$2.80/lb) 2011 2013 2015 2016 Average copper cash price (2016; US$2.20/lb) 2017 COO = Cash Operating Cost (excludes royalties). TCC = Total Cash Costs. AISC = All-in-Sustaining Cost. Margin = Operating profit. Source: S&P Global Market Intelligence; November 2017. 6
Reducing Costs Mining Less Waste STRIPPING RATIO (Copper and Gold Open Pits) Gold ore, ore+waste and strip ratio circled Source: S&P Global Market Intelligence; August 2018
Gold Sustaining Costs* (2018e) Source: S&P Global Market Intelligence; end-july 2018
Reaction to the Falling Metals Prices ii) Falling Equipment Orders (large excavators/loaders/trucks) 4,500 4,000 3,500 3,000 2,500 Shipments 2,000 1,500 1,000 500 Next Three Years: Installed equipment capacity grows at under 1.5% pa 2,500 excavators/loaders and 12,000 trucks replaced 2020 shipments still 25% below 2012 peak. 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: The Parker Bay Co. Information as of end-september 2017 9
Reaction to the Falling Metals Prices iii) Lower Exploration Expenditure 25 20 15 10 US$10.1bn in 2018 5 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: S&P Global Market Intelligence; October 2018 10
Reminder: Demand is Cyclical Global IP and Base Metal Demand (year-on-year % change) Slowdown/recession
Price Trends OECD Output vs. Metal Prices Source: Professor Phillip Crowson; end-2015.
Exploration Update Very Disappointing Third Quarter The softening of most precious and base metals prices in the 2nd and 3rd quarters has impacted exploration activity. Same number of active exploration projects as in the previous quarter but 7% fewer holes have been drilled. Only 95 'significant' financings (those of over US$2 million) were announced during the quarter. This is the lowest number since Q1 2016. There were only eight positive 'milestones' (mine start-ups etc) announced during the quarter. This is the lowest total since S&P Global's measurements started in 2008.
Number of distinct projects drilled Global Drill Activity (Projects; Q3 2018) Copper Gold Lead-Zinc Silver Nickel PGM Minor base metals Specialty metals 600 500 400 300 200 100 0 M J S D M J S D M J S D M J S D M J S D M J S D M J S. 2012 2013 2014 2015 2016 2017 2018 Source: S&P Global Market Intelligence; Nov 8, 2018
Number of drillholes announced Average number of drillholes per project Global Drill Activity (Drill Holes; Q3 2018) Copper Gold Lead-Zinc Silver Nickel PGM Minor base metals Specialty metals Average no. of holes 35 12,000 30 10,000 25 8,000 20 6,000 15 4,000 10 2,000 5 0 M J S D M J S D M J S D M J S D M J S 2014 2015 2016 2017 2018 0 Source: S&P Global Market Intelligence; Nov 8, 2018.
Global Drill Activity (Q3; 2018) Source: S&P Global Market Intelligence; Nov 8, 2018
Quarterly Financing * Company classification according to definitions in the Corporate Exploration Strategies report, adjusted to include all commodities. Source: S&P Global Market Intelligence; November 8, 2018
Regional (Allocated) Financing (US$m) Source: S&P Global Market Intelligence; November 13, 2018 81% of total announced financing
Mergers and Acquisitions Deal Value (US$M) 18,000 Gold Copper Nickel Number of transactions 50 16,000 45 14,000 12,000 40 10,000 8,000 6,000 35 30 Number of Transactions 25 4,000 2,000 20 0 Q4 2017 Q1 2018 Q2 2018 Q3 2018 15 Source: S&P Global Market Intelligence; November 13, 2018.
Consensus Commodity Forecasts (end-october)
S&P Global's Short-Term Price Expectations Index 160 Iron ore Copper Nickel Zinc US$3,017/t 150 Zinc; currently US$2,504/t 140 130 120 Iron Ore (62% Fe); US$77.3/t Copper; currently US$6,045/t US$70.5/dmt CFR US$6,664/t 110 100 90 Nickel; currently US$11,430/t US$12,976/t 80 2015 2016 2017 2018 2019 2020 Source: S&P Global Market Intelligence; November 2018.
Mining Industry Market Cap (US$B) Industry's Market Capitalisation Mining Industry Market Cap Pipeline Activity Index Exploration Price Index 2,500 160 2,000 1,500 1,000 Recovery? 130 100 70 Pipeline Activity Index/Exploration Price Index (June 2008-100) 500 40 0 10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: S&P Global Market Intelligence; end-october 2018
Thank You Chris Hinde Director, Pick and Pen Ltd Tel: 01892 722920 Mobile: 07368 470142 Email: Chris.Hinde@PickandPen.co.uk
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