copper smelter - bolideninvestors.boliden.com/.../kokkola-2008-6_smelters_copper_us.pdf · the...

Boliden Commercial AB 2008-11-041

Bildplatshållare

Capital Markets DayNovember 2008

Copper smelter revenue stream

Ulf SöderströmPresident BA Market

1


Table of content1. Important information2. Copper concentrates – example of content3. Pricing of copper concentrates4. Typical pricing clauses

i. Deductions – Treatment Charge and Refinery Charge (TC/RC)ii. Deductions – Price Participation (PP)iii. Deductions – RC Gold, RC Silveriv. Deductions – Penalties

5. Pricing of secondary raw materials6. Free metals7. By-product credits8. Metal premiums9. Putting it together10. Smelter’s share of raw material value11. Business cycle of metals12. How to increase smelters’ profit?


1. Important information

This presentation contains examples of common calculations that can be used to model the businesses in which Boliden operates.

All concentrate specification and contract terms presented here are hypothetical and are used to illustrate the relevant calculations.


2. Copper concentrate – examples of content

Copper30%

Iron30%

Sulphur30%

Others10%

Others include for example gold 2-40 g/DMT and silver 30-200 g/DMT


3. Pricing of copper concentrates

The price of the raw materials shall be the sum of the values of the payable metals less the sum of the deductions.

In general smelting business consists of the following gross profit elements:

Treatment Charge and Refining Charge for copperRefining Charges for other metalsFree metalsBy product creditsMetal premiums


3.1 Typical pricing clause – Copper


Buyer shall pay for 96.65% of the final copper content, subject to a minimum deduction of 1.0 unit at the official LME Grade A Settlement Copper Quotation averaged over the quotational period.

Example) For a concentrate with a copper content of 30 % the payable copper value is:

30% x 96.65% x 7,000 USD/t-Cu = 2,030 USD/DMT

Example) For a concentrate with a copper content of 24% the payable copper value is 24% – 1%-unit = 23% i.e. 23/24 x 100 = 95.83% payment:

(24%-1%) x 7,000 USD/t-Cu = 1,610 USD/DMT


3.1 Typical pricing clause – Copper

92 %

93 %

94 %

95 %

96 %

97 %

98 %

15 % 20 % 25 % 30 % 35 % 40 %

Paym

ent %

Cu content in the concentrate %

Minimum deduction mechanism compensates smelters for processing low grade concentrates.


3.1 Typical pricing clause – Gold


Buyer shall pay for 97.50% of the final gold content, subject to a minimum deduction of 1.0 g per DMT, at the London Morning Quotation averaged over the quotational period.

Example) For a concentrate with a gold content of 40 g/DMT the payable gold value is:

40 g/DMT x 0.0321 x 97.50% x 800 USD/troz = 1,002 USD/DMT

Example) For a concentrate with a gold content of 2.0 g/DMT the payable gold value is 2 g/DMT – 1 g/DMT = 1 g/DMT i.e. 1.0/2.0 x100 = 50.0% payment:

(2.0 g/DMT – 1.0 g/DMT) x 0.0321 x 800 USD/troz = 25.7 USD/DMT


3.1 Typical pricing clause – Silver


Buyer shall pay for 90.0% of the final silver content, subject to a minimum deduction of 30.0 g per DMT, at the London Silver Spot/US Cents Quotation averaged over the quotational period.

Example) For a concentrate with a silver content of 200 g/DMT the payable silver value is 200 g/DMT – 30 g/DMT = 170 g/DMT i.e. 170/200 x 100 = 85.0% payment:

(200 g/DMT – 30 g/DMT) x 0.0321 x 12 USD/troz = 65.5 USD/DMT

3.2 Deductions – Treatment Charge (TC)

TC

The price of the raw materials shall be the sum of the values ofthe payable metals less the sum of the deductions.

Treatment Charge shall be 45 USD per DMT of concentrate.

Example) 1 DMT Cu concentrate x 45 USD= 45 USD/DMT

TC,RC and Price Participation are negotiated annually between miners and smelters. Typically negotiations start in October and normally finished by year-end. Benchmark terms are normally established when the major mines and smelters have agreed the annual terms.


3.2 Deductions – Refining Charge (RC)

RC


The refining charge for payable copper shall be 4.5 USc per pound of payable copper.

Example) For a concentrate with a copper content of 24% the payable copper value is 24% – 1 %-unit = 23%.

23% x 22.046 x 4.5 USc/lb = 22.8 USD/DMT


3.3 Deductions – Price Participation (PP)

RC


On long-term contracts there has been a Price Participation clause in the past. i.e. the copper RC shall be increased by 0.10 USc per payable pound of copper for each 1.00 USc per pound which the average LME settlement price for Grade A copper during quotationalperiod exceeds 90 USc per pound payable copper.

Example) An average LME settlement price at 140 USc/lb.

Copper PP: (140 USc/lb – 90 USc/lb) x 10% = 5.0 USc/lbs Copper RC incl. PP: 4.5 USc/lb + 5.0 USc/lb = 9.5 USc/lb


In recent years the miners have not accepted shown structure for PP in the annual negotiations.

3.4 Deductions – Refining Charge for gold

RC


The Refining Charge for payable gold shall be 6.0 USD per ounce of payable gold.

Example) For a concentrate with a gold content of 40 g/DMT the RefiningCharge for gold is:

40 g/DMT x 97.50% x 0.0321 x 6.0 USD/troz = 7.5 USD/DMT


3.4 Deductions – Refining Charge for silver

RC


The Refining Charge for payable silver shall be 35.0 USc per ounce of payable silver.

Example) For a concentrate with a silver content of 200 g/DMT the payable silver value is 200 g/DMT – 30 g/DMT = 170 g/DMT:

170 g/DMT x 0.0321 x 0.35 USD/troz = 1.9 USD/DMT


3.5 Deductions – Penalties

TC


For instance, a zinc penalty means that for each 1.0 units by which the final zinc assay exceeds 3.00%, the seller shall pay a penalty charge of 3.00 USD per DMT of concentrates, fractions pro rata.

Example) A final zinc assay of 5.00%, i.e. 2%-units over 3.00%:

2 x 3.0 USD/DMT = 6.0 USD/DMT

Penalty clauses are typically applied for the impurities harmful to copper smelting and refining processes.



4. Pricing of secondary raw materials

In addition to copper concentrate, secondary raw materials can be used as raw material. Secondary raw materials include (among other things):

– Copper scrap– Electronic scrap (containing copper, gold, silver and lead)– Copper/zinc residues

Commercial terms for these materials are constructed and calculated in the same way as copper concentrate but levels of Payment %, TC and RC are not necessary following the copper concentrate terms.Legislations and “green image” are strong drivers to recycle material suitable for a copper smelter.

5. Free metal

Free metal

The value of the free copper, gold and silver in a copper concentrates for a copper smelter is depending on the recovery rate, LME copper price and LMBA gold and silver price.

In this example the recovery rate for a copper smelter is 98.0%. The value of free gold and silver is normally greater than the value of the free metal for copper.

Example) Value of Free Cu = Cu content x (Recovery% - Payable Cu %) x LME Cu price:

30% x (98.0% - 96.65%) x 7,000 USD/t-Cu = 28.4 USD/DMT



By-product

6. By-product credits

Main by-product for a copper smelter is sulphuric acid (H2SO4)

Example) Value of Sulphur (rule of thumb)= 1 DMT of Cu concentrate with30% of sulphur gives approximately 1 ton of sulphuric acid (H2SO4) depending on recovery rate. Typical recovery rate is 95% in a Cu smelter.

1 DMT Cu concentrate (30%S) x (98/32) x 95% 0.873 ton H2SO4x 75 USD/t = 65.5 USD/DMT

S u lp h u r ic a c id , c o n tra c t C F R N W E u ro p e 1 9 8 8 -2 0 0 8S o u rc e : F e r t iliz e r M a rk e t B u lle t in

02 04 06 08 0

1 0 01 2 01 4 01 6 01 8 02 0 0

1 9 8 81 9 8 81 9 8 91 9 8 91 9 9 01 9 9 11 9 9 11 9 9 21 9 9 31 9 9 31 9 9 41 9 9 41 9 9 51 9 9 61 9 9 61 9 9 71 9 9 71 9 9 81 9 9 91 9 9 92 0 0 02 0 0 02 0 0 12 0 0 22 0 0 22 0 0 32 0 0 32 0 0 42 0 0 52 0 0 52 0 0 62 0 0 62 0 0 72 0 0 8

€ /t

L o wH ig h

7. Metal premiums

Premium


The value of metal premium depends on:– Demand/supply situation– The product (preferred quality)– The amount of value added in customer service functions

CIF NW Europe port US$/ton + Coldeco Premia

50

120140 140

100120

10090

8060

5060

5040

70 70

40 40

70 75

4530 30 30

50

8090

100

75 7050

40

90

130

165180

130150

130110

10080

7080

60 60

100 100

55 60

9080

6050 50 50

7090

130110

95 100

7050

105 105 105 105 105 105 105 105 105 105 105 105

125 125 125 125 125 125 125 125 125 125 125 125115 115 115 115 115

020406080

100120140160180200

020406080100120140160180200

Low 50 120 140 140 100 120 100 90 80 60 50 60 50 40 70 70 40 40 70 75 45 30 30 30 50 80 90 100 75 70 50 40

High 90 130 165 180 130 150 130 110 100 80 70 80 60 60 100 100 55 60 90 80 60 50 50 50 70 90 130 110 95 100 70 50

Premia Codelco 105 105 105 105 105 105 105 105 105 105 105 105 125 125 125 125 125 125 125 125 125 125 125 125 115 115 115 115 115

Jan06

Feb06

Mar06

April06

May06

June06

July06

Aug06

Sep06

Oct06

Nov06

Dec06

Jan07

Feb07

Mar07

April07

May 07

June 07

July 07

Aug 07

Sep 07

Oct 07

Nov 07

Dec 07

Jan 08

Feb 08

Mar 08

April 08

May 08

June 08

July 08

Aug 08

Example) Value of metal premium = Metal ton x Cu content x recovery rate x premium/USD

1 MT Cu metal x 30% x 98.0% x 115 USD/t = 33.8 USD/DMT


8. Putting copper smelters’ revenues together

4 0 %

1 3 %

1 6 %

3 1 % Treatment Charge (TC/RC)

Free metal

By-products

Metal premium

Treatment Charge (TC/RC) USD/DMT ShareTC:1 DMT Cu concentrate x 45 USD= 45 RC: 23% x 22.046 x 4.5 USc/lb = 22.8PP: No PP 0Au: 40 g/DMT x 97.5% x 0.0321 x 6.0 USD/troz = 7.5Ag:170 g/DMT x 0.0321 x 0.35 USD/troz = 1.9Zn penalty: 2 x 3.0 USD/DMT = 6.0Sum TC/RC 83.2 40%

Free metalCu: 30% x (98.0% - 96.65%) x 7,000 USD/t-Cu = 28.4Sum Free metal 28.4 13%

By-products1 DMT Cu concentrate (30%S) x (98/32) x 95% = 0.882 ton H2SO4 x 75 USD/t 65.5Sum By-product 65.5 31%

Metal premiumCu Premium: 1 MT Cu metal x 30% x 98.0% x 115 USD/t 33.8Sum Metal premium 33.8 16%

Sum Raw Material revenue 210.9 100%


8.1 Putting copper smelters’ revenues together


8.2 Putting copper smelters’ revenues together

9M 2008

TC/RC44%

Free metal25%

Premiums3%

By-products28%

9M 2007

TC/RC55%

Free metal25%

Premiums5%

By-products15%

Boliden’s copper smelters’ approximate year-to-date revenue distribution

2008-10-2822


9. Smelters’ share of raw material value


10. Business cycle of metals Availability of raw materials

Availability of metals

–

+

+ –

High metal prices Low TC/RC

High metal prices High TC/RC

Low metal pricesHigh TC/RC

Low metal prices Low TC/RC


11. How to increase smelters’ profit?

BA Market

Boliden Mines New Mines

New SmeltersBoliden Smelters

Metal sales

Concentrate salesExternal Mines and Smelters

Commercial terms

Tolling Tolling

Tolling concept (optimisation and rules for settlement/compensation) is the cornerstone in BA Market Business model

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