commodities outlook for the territory
DESCRIPTION
Professor Alan Trench, Centre for Exploration Targeting, from University of Western Australia delivered this presentation at Mining the Territory 2012. For more information on the annual event, please visit www.miningnt.com.au/TRANSCRIPT
CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +44 20 7278 0003
517, Tower 2,
Bright China Chang An
Building,
7 Jianguomennei Avenue,
Beijing 100005, China
Tel: +86 10 6510 2206
Fax: +86 10 6510 2207
Augusto Leguía Norte
Nº 100 of.506,
Las Condes,
Santiago,
Chile
Tel: +56 2 231 3900
Fax: +56 2 231 4314
PO Box 1269,
Langley,
WA 98260
USA
Tel: +1 360 321 4707
Fax: +1 360 321 4709
Level 2, Kalpataru Synergy, Opp.
Grand Hyatt
Santa Cruz (East),
Mumbai 400055,
India
Tel: +91 22 3953 7395
Fax: +91 22 3953 7200
Commodities Outlook for the Territory
Mining The Territory Conference
19 September 2012
Allan Trench
CRU STRATEGIES
2
“Uranium is the next great China story.
What China did for iron ore in the last decade,
it will do for uranium in the coming decades”.
A Trench & D Packey 2012
Australia‟s Next Top Mining Shares – Major Street Press
Uranium
CRU STRATEGIES
3
“Our demand versus long-run marginal cost analysis out to
2035 suggests that only those tonnes that lie within the first
and second cost quartiles of
the project universe will be required to meet demand”.
CRU Group 2012
Long-Term Outlook for Iron Ore
Iron Ore
CRU STRATEGIES
4
“Copper prices are supported by demand from China which
never fails to deliver – and by supply from the miners –
which frequently fails to deliver”.
John Sykes
Principal, Greenfields Research, 2012
Copper
CRU STRATEGIES
5
“Everything has its limit – iron ore cannot be educated into
gold”.
Mark Twain
“You‟re still the one”
Shania Twain
Gold
CRU STRATEGIES
6
“ When man first viewed planet Earth from space, he saw
white hot tungsten in the form of incandescent light bulbs,
making Edison‟s dream of light for the masses a reality.
Today, tungsten is used to make tungsten carbide tools and
used to shape and form all other metals.
The lack of new discoveries and the expansion of China‟s
manufacturing capacity create the perfect storm of limited
supply and increasing demand”.
Prof. Ian Plimer
Tungsten
CRU STRATEGIES
7
“ The evolution of manganese ore prices over the medium
term depends upon how rapidly seaborne supply continues
to expand.
On paper, there is no shortage of new capacity in the
pipeline – but only a handful of such projects are
committed”.
CRU Group, Manganese Ferroalloy Market Service
Manganese
CRU STRATEGIES
8
“ The most common perspectives on the rare earth market are
NOT actually correct in reality:
Firstly, imminent over-supply will NOT be the case
– as realistic project timelines are over a decade long.
Secondly, it is more about ore value and
NOT about „heavies versus lights‟
Finally – rare earth projects require scrutiny as to quality
NOT simply quantity”.
John Sykes, The 3-Day MBA in Rare Earth Metals
Rare Earths
CRU STRATEGIES
Uranium
9
Mining The Territory
CRU
CRU STRATEGIES
What are the key points ?:
• Uranium price has held up despite unprecedented demand destruction
• Price outlook is for strong growth – Upside asymmetry in price risk
• The growth in demand will come from China primarily
• Supply is expanding – there are projects in the pipeline .... But
• There are a number of risks to supply in the short, medium and long
term
• Costs have been rising, and will continue to rise. This is putting a floor
under prices and will support higher prices over the next 20 years
• The industry needs new supply, and higher prices are required to
incentivise new capacity to enter
10
CRU STRATEGIES
Uranium Market Overview – Market size growing beyond 2007 peak
0
50,000
100,000
150,000
200,000
250,000
Mark
et
Siz
e,
US
$2010 (
‘000
s)
Selected Commodities by Market Size
Copper
Met Coal
Nickel
Potash
Tin
PGMs
Uranium
11
0
10,000
20,000
30,000
40,000
50,000
60,000
Mark
et
Siz
e,
US
$2010 (
‘000s)
Focus on Commodities under $50Bn
Nickel
Potash
Tin
PGMs
Uranium
Data : CRU Group
CRU STRATEGIES
0
10
20
30
40
50
60
70
80
90
100
110
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Historical price movement
Average of weekly spot prices- Nominal
Real prices ($ 2010)
Historical Prices volatility resembles a minor metal market ....
Uranium now well positioned to compete for the majors
12Data : CRU Group
Ura
niu
m s
po
t p
rice
($/lb
)
CRU STRATEGIES
13
Uranium Demand – Chinese Demand on a Charge
CRU Analysis, WNA
Top Ten Uranium Consumers, 2010
By Country, t U
Country 2010
USA 18,726
France 9,539
Japan 7,130
Russia 4,971
China - Mainland 4,628
Germany 3,255
South Korea 3,139
Ukraine 2,304
UK 2,032
Canada 1,999
Top 10 57,723
Rest of World 9,908
WORLD Total 67,632
USAFrance
Japan
Russia
China -Mainland
GermanySouth Korea
Ukraine UK
Canada
Rest of World
Top Ten Uranium Consumers, 2010By Country, t U
• Top 10 countries constitute 85% of demand
• 2011 saw demand loss in Japan & Germany
• Negative impact exceeding 10% of 2011 demand
CRU STRATEGIES
Chinese stockpiling has had a significant impact on the
market over the last 2 yearsUranium consumption, by region, 2002-2011
14
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ton
ne
s o
f n
atu
ral
ura
niu
m
Chinese Stockpiling
RoW
South America
CIS
Asia
North America
Europe
“By 2020 CRU believes that China will have built a stockpile
equivalent to 2 times their commercial requirements in 2025”
CRU STRATEGIES
Electricity generation in developing Asia is expected to
triple in the next 20 years
World total net electricity generation from central producers, by region
and country, 2007 and 2030, in Terawatthours
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2007 2030 2007 2030 2007 2030 2007 2030 2007 2030 2007 2030 2007 2030 2007 2030
OECD North America
OECD Europe OECD Asia Non-OECD Europe and
Eurasia
Non-OECD Asia
of which China
Middle East/Africa
Central and South
America
TWh
CRU STRATEGIES
Uranium demand growth will chiefly come from China,
India and countries new to nuclear power
Uranium demand, by region, 2010-2035
16
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,0002
01
0
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
ton
ne
s o
f n
atu
ral u
ran
ium
RoW
Europe
Russia
India
China -Mainland
Japan
USA
CRU STRATEGIES
China becomes the world’s largest consumer by 2030;
India enters the top ten before 2020Uranium demand, percentage of world total, 2020 and 2030
17
23%18%
7%
10%
5%7% 5% 3% 1% 3%
18%
Demand in 2020
20%
24%
5%
8%
4%
7% 7% 3% 3% 0%
19%
Demand in 2030
█ USA █ China – Mainland █ Japan █ France █ South Korea █ Russia
█ India █ Ukraine █ Germany █ Canada █ UK █ RoW
CRU STRATEGIES
Demand growth from 2011 to 2020
50,000 tonnes U3O8
Where will those tonnes come from ?????
18
CRU STRATEGIES
Supply: Three countries dominate uranium supply
74%
26%
0%
20%
40%
60%
80%
100%
Primary
Supply
Secondary
Supply21,840 tonnes of U3O8 equivalent:
Recycled or reprocessed material, either
from surplus nuclear weapons or used fuel
Drawdown of stockpiles and inventories
61,750 tonnes of U3O8 equivalent:
Material produced at mining operations
0% 20% 40% 60% 80% 100%
Country supply contribution
Kazakhstan
Canada
RoW
Africa
Australia
Asia
Europe
U3O8 Supply, 2010
Data : CRU Group
19
CRU STRATEGIES
Supply will need to increase rapidly from 2015 – In-ground
exists potential to do so (A production possibilities frontier)
Potential supply by status 2010-2035
20
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2010 2015 2020 2025 2030 2035
ton
ne
s U
3O
8
Operating Committed Probable Possible Closed
Primary Supply Needs
to Double by 2020
CRU STRATEGIES
21
But material mine supply growth is likely to be subject to
further delays
Trekkopje (AREVA)
•Location: Namibia
•Type: open pit
•Capacity: 2,800 tU
•Start date: 2018 ?
•Capex: US$750m
Imouraren (AREVA)
•Location: Niger
•Type: open pit
•Capacity: 5,000 tU
•Start date: 2015 ?
•Capex: US$1.5bn
Husab
•Location: Namibia
•Type: open pit
•Capacity: 5,100 tU
•Start date: 2016
•Capex: US$700m
Yeelirrie (Cameco)
•Location: Australia
•Type: open pit
•Capacity: 3,500 tU
•Start date: 2017 ?
•Capex: US$650m
Olympic Dam
expansion
(BHPB) - Curtailed
•Location: Australia
•Type: open pit &
underground
•Lost Potential
Capacity: 16,000 tU
Cigar Lake (Cameco)
•Location: Canada
•Type: underground
•Capacity: 6,930 tU
•Start date: 2013
•Capex: US$2bn
Data: CRU Group ; Note: that start dates, capital costs, etc. are CRU estimates
CRU STRATEGIES
0.01
0.1
1
10
100
1000
0.10 1.00 10.00 100.00 1,000.00 10,000.00
Gra
de (
kg
/t U
3O
8)
0.01
0.1
1
10
100
1000
0.10 1.00 10.00 100.00 1,000.00 10,000.00
Gra
de (
kg
/t U
3O
8)
Resources (Mt)
Underground Open Pit Insitu Leach
Lots of potential projects, but grades are an issue for next generation
costs
Data: CRU Analysis, Company Resource Data
Uranium only resource tonnages across varying JORC
classifications
Operating Mines
Pre-feasibility and
Feasibility Projects
Envelope of
operating mines
New projects are
of lower grade...
0.01
0.1
1
10
100
1000
0.10 1.00 10.00 100.00 1,000.00 10,000.00
Resources (Mt)
Underground Open Pit Insitu Leach Unknown
Exploration Projects
..and exploration
projects even lower
22
CRU STRATEGIES
Industry Cost structure rising – Implications for Kazakhstan Example
23
Source : CRU Group
0%
10%
20%
30%
40%
50%
60%
70%
2009-2014 2014-2020
No
min
al w
ag
e in
fla
tio
n,
% C
ha
ng
e
Wage inflation, % Change Highest in Emerging Markets
■ Advanced Economies
■ Emerging markets
■ Uranium Average
0
50
100
150
200
250
300
350
2009 2014 2020
No
min
al U
S$
/to
nn
e
Black Sea Benchmark
Estimated cost at mine gate in Kazakhstan
Costs of Sulphuric Acid:
Delivered Costs to Double by
2020
Data : CRU Group
CRU STRATEGIES
Risks and Opportunities – Multiple Price Risks: short, medium and
long term
24
SHORT TERM MEDIUM TERM LONG TERM
U
P
S
I
D
E
D
O
W
N
S
I
D
E
• Supply disruptions at
existing mines (floods,
strikes)
• Higher energy prices
(specifically coal)
• Japan re-starts reactors
• China speeds up nuclear
build after successful
commissioning
• Continued ban on Uranium
mining in parts of Australia
• Technology leap in
renewable energy
• Thorium reactors developed
• Multiple new resources developed
in many countries
• Early lifting of Uranium mining
ban in parts of Australia
• Rapid expansion of shale gas
supply in China/India
• Fukushima ‘hangover’
continues to influence
nuclear policy
• Lack of available finance
delays new nuclear plant
builds
• Nuclear accident (time
independent)
• Delays in new entrant start-
ups including Olympic Dam
(OD), finance and permitting
• Sustained higher energy
prices through to 2015+
• Exploration confirms lower
grade of future supply
CRU STRATEGIES
Iron Ore
25
Mining The Territory
CRU
CRU STRATEGIES
26
“The iron ore market has experienced exceptional growth over the last
decade led by China‟s rapid development and consequential hunger for
steel. As demand increased from annual rates of 1-2% to 5% in the early
2000s, supply could not keep pace leading to tight market fundamentals,
sharp hikes in prices and the emergence of a sellers‟ market.
Over the next 5 years, we maintain that Chinese demand growth will remain
robust, in line with GDP annual growth in excess of 7.5% through this
period. Moreover, given the considerable time it takes for new projects to be
realised, a trend likely to be further exaggerated by the current nervousness
in the investor environment, we forecast the demand/supply balance to
remain relatively tight, with prices holding at historically elevated levels”
CRU Group 2012
Long-Term Outlook for Iron Ore
Iron Ore – Over-emphasis on Recent Price Weakness
CRU STRATEGIES
Despite a thriving junior mining scene, the majority of
committed Australian production growth remains in the
hands of the majors
Junior miners‟(1) share of Australian production by our “gateway assessment”, %
Data: CRU. Note (1) “Junior miner” represents non Rio Tinto, BHPB or FMG production
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Junior share of Australian committed production
Junior share of total Australian potential production
CRU STRATEGIES
6%
27%
4%
3%
4%2%9%
11%
33%
3%
North America
Brazil
Other Latin America
South Africa
Other Africa
Europe
Russia & CIS
India
Australia
Rest of world
Australia and Brazil are expected to retain their dominant
share of the market
28
Supply scenario in 2035(1), % of total supply
Data: CRU. Note: (1) excludes Chinese production.
CRU STRATEGIES
Gold
29
Mining The Territory
CRU
CRU STRATEGIES
What are the key points ? Gold
• Gold driven higher by heightened macroeconomic risks
• Loss of one of the important sources of gold supply – official sector
sales, which primarily represent the actions of central banks in various
countries. Likewise, low „new supply‟ from producer hedging
• Price outlook is for growth in 2014 – then consensus is for downside
price risk as US economic recovery now looks real
• Fabrication demand impacted by high prices – but forecast to recover
• Mine supply struggling to expand – forecasts in 1 – 2% per annum
growth range
• Costs have been rising – Small Australian gold miners at risk of price
pull-back if not matched by A$ exchange rate pullback
• Miners now seen as competing with gold ETFs for investment support
30
CRU STRATEGIES
Palladium, Tin, Zinc, Uranium, Alumina, Aluminium,
Platinum, Lead, Nickel, Met Coke
Vanadium, Phosphate DAP, Cobalt
Iron Ore,
Manganese, Gold, Copper, Coking Coal
Potash, Ammonia, Urea, Silver, Sulphuric Acid, Sulphur
CRU Commodity Heat for 2016: price changes average 8%CRU expects to see diverging prices trends, some significant rises while others languish
Hot
> 15%
Warm
5% to 15%
Cold
-5% to 15%
Freezing
< -15%
Mild
0% to 5%
Cool
0% to -5%
* 2016 annual average price forecast (nominal $ or benchmark) versus 2012 Q2 average actual prices
CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +44 20 7278 0003
517, Tower 2,
Bright China Chang An
Building,
7 Jianguomennei Avenue,
Beijing 100005, China
Tel: +86 10 6510 2206
Fax: +86 10 6510 2207
Augusto Leguía Norte
Nº 100 of.506,
Las Condes,
Santiago,
Chile
Tel: +56 2 231 3900
Fax: +56 2 231 4314
PO Box 1269,
Langley,
WA 98260
USA
Tel: +1 360 321 4707
Fax: +1 360 321 4709
Level 2, Kalpataru Synergy, Opp.
Grand Hyatt
Santa Cruz (East),
Mumbai 400055,
India
Tel: +91 22 3953 7395
Fax: +91 22 3953 7200
Thank youContacts:
Allan Trench ([email protected])
Philip Sewell ([email protected])