Copper
Mineral Exploration Roundup 2011
Copper The New Fundamentals
By Glen Jones of Intierra Resource Intelligence and Peter Hollands of Bloomsbury Minerals Economics
Is the exploration and mine project pipeline adequate to meet both industrial and investment demand? If not, what are the implications for prices?
Section One: Industrial and Investment Demand Data, insights from Bloomsbury Minerals Economics
Copper’s existing physical markets ‐ % share by segment WIRES, CABLES & LEADS
MILL, FOUNDRY & OTHER PRODUCTS
TOTAL
Energy / Bare Cable & Wire
Telecom/ Data Cable
Winding Wire
Copper Tube
Cu/Alloy PSSF
Alloy RBS & Other
All Products
Building Construction
18%
1%
0%
4%
1%
5%
30%
Power Network
6%
0%
3%
11%
Telecom Infrastructure
0%
3%
Industrial Machinery
4%
0%
Automotive
3%
1%
Air Conditioners
0%
1%
Electrical & Electronic
4%
0%
3%
General & Other
5%
0%
1%
TOTAL
41%
5%
11%
2%
0% 3%
0%
4%
1%
8%
16%
3%
0%
8%
0%
7%
4%
1%
12%
0%
4%
3%
12%
10%
13%
19%
100%
6%
Major markets and those to experience big volume change
New industrial applications for copper in tomorrow’s world
The main opportunities in copper have 3 focal points – each driven to a greater or lesser extent by the need to reduce carbon emissions and to create a stable energy future The focal points in order of importance are: (1) Transport ‐ electric & hybrid vehicles; (2) Power infrastructure ‐ distributed & renewable energy, smart & integrated networks; (3) Premise & Equipment ‐enhanced wiring, efficient systems and equipment Taken together, new markets are expected to contribute around 1.0Mt of consumption over the next decade
Refined copper consumption, historically and forecast to 2015 Kt
Refined Copper Consumption
25000 20000 15000 10000 5000
Americas
Eur.&Africa
Asia&Aust.
China
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
To consumption, one has to add investment demand Sources of demand
How these types of demand are met
From physical consumers 20 Mtpy
16.5 Mtpy primary (newly mined) 3.5 Mtpy secondary (scrap based)
From investors in physical stock (ETFs) ~ 0.2 Mtpy prospectively 0.2 Mtpy growth in non-hedged stock From investors in nearby futures (CIFs) ~ 0.2 Mtpy since 2005 either 0.2 Mtpy growth in the short hedges of exchange stock holders 0.2 Mtpy growth in speculative or shorts or producer hedge shorts
Section Two: Exploration and Mine Project Pipeline Data, insights from Intierra
Philippines: 113 projects = 2% China: 177 projects = 3% Peru: 264 projects = 5% Chile: 269 projects = 5%
Sweden: 107 projects = 2% Argentina: 103 projects = 2% Canada: 2198 projects = 39%
Mexico: 336 projects = 6%
United States: 411 projects = 7%
Active Copper Projects Top Ten Countries
Australia: 1633 projects = 29%
GLOBAL COPPER PROJECTS MAP
New Mining Projects 2011 – 2015 Year
Annual kt
2011 2012 2013 2014 2015
626 1,760 1,296 974 480
Projects 16 22 17 8 3
2011-2015 Total LOM Production: 66 Projects, 102,258 kt >2015 Total LOM Production: 55 Projects, 58,825 kt
New Mining Projects Production 2011 – 2015 Top Countries Country
Projects
Peru Chile Canada Afghanistan Panama Ecuador Brazil USA Mongolia Kazakhstan Zambia
11 6 10 1 1 2 1 4 1 2 1
Annual kt
LOM kt
1,787 828 349 260 250 239 200 195 191 105 100
34,025 13,820 6,617 4,160 7,500 4,780 3,600 3,765 11,460 1,300 2,800
North America Future Production Copper Projects
South America Future Production Copper Projects
Asia Future Production Copper Projects
Australia Future Production Copper Projects
Africa Future Production Copper Projects
Europe Future Production Copper Projects
The Project Pipeline
Global Gold Projects by Status Grass Roots (no drilling)
6198
38%
Exploration (limited drilling)
4732
30%
Advanced Exploration
2454
16%
Pre-Feasibility/Scoping
524
3%
Feasibility
393
4%
Construction
180
1%
Operating Mines
1211
8%
15,692
100%
Total
Global Copper Projects by Status Grass Roots (no drilling)
2770
39%
Exploration (limited drilling)
2285
32%
Advanced Exploration
1006
14%
Pre-Feasibility/Scoping
280
4%
Feasibility
193
4%
80
1%
571
8%
Construction Operating Mines Total
7,185
100%
GLOBAL COPPER DRILL PROJECTS FEEDING THE PIPELINE
Exploration Pipeline Comparison Early
Late
Gold
68%
23%
Copper
71%
22%
Silver
61%
27%
Uranium
83%
14%
Lead-Zinc
67%
24%
Nickel
68%
23%
Diamonds
79%
13%
PGE’s
70%
22%
Section Three: Production and Market Balance Data, insights from Bloomsbury Minerals Economics
Copper mine production to 2015, base case forecast Copper Mine Production
Kt
Americas
Eur.&Africa
Asia ex-China &Aust.
China
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0
Secondary (scrap-based) refined production, historically and base-case forecast to 2015
Scrap to Smelters
Scrap to Refineries
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
Secondary Production
2001
2000
Kt 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0
Refined production, historically and forecast to 2015 Kt
Refined Copper Production
25000 20000 15000 10000 5000
Americas
Eur.&Africa
Asia ex-China &Aust.
China
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Refined copper balance to 2015 under different ETF scenarios Kt 1250
Refined Balance
750 250 -250 -750 historical
forecast scenarios
Historic
rapid ETF success
modest ETF success
2014
2012
2010
2008
2006
2004
2002
2000
-1250
start/fail
Section Four: Prices Under the Influence of Combined Industrial and Investment forces Data, insights from Bloomsbury Minerals Economics
How investor longs in the futures market affect prices Investor longs in the nearby futures market require counter-parties. The quick route to equilibrium with new investor longs is for prices to rise until sufficient new speculative shorts or producer hedge shorts are tempted into the market. That raises the price above physical market equilibrium and a longer term equilibration mechanism begins: available stocks increase. Eventually, stocks rise above the pinch point and the market then shifts into contango. From that point, around 80% of exchange stocks are short hedged by their owners (predominantly financial institutions). Those short hedges provide a more stable set of counterparties for investors. Given an adequate supply response, investor longs thus initially create higher prices but in the longer term create higher stocks.
Investment in futures has shifted the price to stock curve upwards and to the right (the latter by around 600 kt) Copper Cash Price ($/t) 10000
Nov 2009-Nov 2010
9000
Aug 2009-Oct 2009
8000 7000
May 2006-Jul 2009
6000 5000
Aug 2005-April 2006
4000 Jan 2000-Jul 2005
3000 2000 1000 0 0
200
400
600
800
1000
1200
1400
Total Exchange Stock (kt)
1600
Prices are already behaving as if not all exchange stocks are available In the final quarter of 2010, according to the BME Copper Price Model, the cash to three months spread and prices have begun to behave as if around 250 kt of actual exchange stocks no longer existed. BME interprets this as the sequestering of stocks ahead of ETF launches, combined with the launch of one (so far small) copper ETF. The cash price has soared and the nearby curve has backwardated. That backwardation has begun to give a positive roll yield to those owning nearby futures and has thus further boosted index funds’ and other investors’ and speculators’ urge to buy copper futures.
The BME Copper Price Model’s forecasts through 2015 using four scenarios of ETF success – or failure. $/t
14000 12000 10000 8000 6000 4000
BME’s forward looking long-term average is $5,500/tonne, $2.50/lb
2000
rapid ETF success No ETFs
moderate ETF success Actual
ETFs start then fail
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Conclusions on short-term prices In the short term, too few mine projects will be starting up, resulting in physical deficits and falling stocks. Combined with about 200 ktpy of buying of futures by CIFs and 200 ktpy of buying of physicals by ETFs will keep prices in the $7,500 - $15,000 ($3.50 - $6.80) range in 2011-12, BME estimates.
Conclusions on medium- term prices After 2012, the balance of probability is that enough new mines will start up to create physical copper surpluses. This will, BME believes, bring ETF buying to a halt, but not necessarily CIF buying. BME believes that prices would fall to the $5,500 - $7,500 ($2.50 - $3.50) range as a result.
Conclusions on long-term prices If CIF buying were also to halt, BME believes that the price would fall to around $5,500 ($2.50) per tonne, which we regard as the forward-looking long-term equilibrium. Below equilibrium, there would be cyclical downside risk, as well as risk of a trend to CIF and ETF disinvestment.
Services that Intierra and BME can provide you with: BME Copper Briefing Service: a 16-page monthly report forecasting through 2011, covering physical and investment influences: US$3,000 p.a. Quarterly Report on Copper: a 280-page book style quarterly report forecasting five years ahead, including detailed database: US$8,250 p.a. Long Term Outlook Report: a concise 16-page report explaining setting out BME’s thinking and conclusions on long-term forces: US$7,500. Backing up these three reports, but also available as a stand-alone service, is BME’s new Interactive Price Model for Copper: US$16,500 p.a.
BUSINESS INTELLIGENCE FOR THE MINERAL RESOURCE SECTOR Intierra provides a Business Intelligence Service on a subscription basis • • •
•
Database contains over 40,000 projects, over 35,000 companies including 3500 listed companies Monitors all commodities and all projects from grass roots through production Data modules includes all relevant data including contact data, directors, financials, key financial ratios, capital raisings, property transactions, feasibility studies, resources, production, country risk, and all drilling programs Updated daily
Intierra Mapping is the global leader in hard copy map production; from global commodity maps to localized “Hot Play” maps
Disclaimer While this presentation has been prepared with care, neither Intierra nor Bloomsbury Minerals Economics (BME) make any warranty regarding the contents, and shall not be liable for any incidental or consequential damages arising out of its use.
Contacts Further information on Intierra’s services may be obtained from: Glen Jones: [email protected] www.intierra.com Further information on BME’s services may be obtained from: Robert Goldstein: [email protected] or, at this conference Peter Hollands: [email protected]
Copper The New Fundamentals
By Glen Jones of Intierra Resource Intelligence and Peter Hollands of Bloomsbury Minerals Economics
Is the exploration and mine project pipeline adequate to meet both industrial and investment demand? If not, what are the implications for prices?
Section One: Industrial and Investment Demand Data, insights from Bloomsbury Minerals Economics
Copper’s existing physical markets ‐ % share by segment WIRES, CABLES & LEADS
MILL, FOUNDRY & OTHER PRODUCTS
TOTAL
Energy / Bare Cable & Wire
Telecom/ Data Cable
Winding Wire
Copper Tube
Cu/Alloy PSSF
Alloy RBS & Other
All Products
Building Construction
18%
1%
0%
4%
1%
5%
30%
Power Network
6%
0%
3%
11%
Telecom Infrastructure
0%
3%
Industrial Machinery
4%
0%
Automotive
3%
1%
Air Conditioners
0%
1%
Electrical & Electronic
4%
0%
3%
General & Other
5%
0%
1%
TOTAL
41%
5%
11%
2%
0% 3%
0%
4%
1%
8%
16%
3%
0%
8%
0%
7%
4%
1%
12%
0%
4%
3%
12%
10%
13%
19%
100%
6%
Major markets and those to experience big volume change
New industrial applications for copper in tomorrow’s world
The main opportunities in copper have 3 focal points – each driven to a greater or lesser extent by the need to reduce carbon emissions and to create a stable energy future The focal points in order of importance are: (1) Transport ‐ electric & hybrid vehicles; (2) Power infrastructure ‐ distributed & renewable energy, smart & integrated networks; (3) Premise & Equipment ‐enhanced wiring, efficient systems and equipment Taken together, new markets are expected to contribute around 1.0Mt of consumption over the next decade
Refined copper consumption, historically and forecast to 2015 Kt
Refined Copper Consumption
25000 20000 15000 10000 5000
Americas
Eur.&Africa
Asia&Aust.
China
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
To consumption, one has to add investment demand Sources of demand
How these types of demand are met
From physical consumers 20 Mtpy
16.5 Mtpy primary (newly mined) 3.5 Mtpy secondary (scrap based)
From investors in physical stock (ETFs) ~ 0.2 Mtpy prospectively 0.2 Mtpy growth in non-hedged stock From investors in nearby futures (CIFs) ~ 0.2 Mtpy since 2005 either 0.2 Mtpy growth in the short hedges of exchange stock holders 0.2 Mtpy growth in speculative or shorts or producer hedge shorts
Section Two: Exploration and Mine Project Pipeline Data, insights from Intierra
Philippines: 113 projects = 2% China: 177 projects = 3% Peru: 264 projects = 5% Chile: 269 projects = 5%
Sweden: 107 projects = 2% Argentina: 103 projects = 2% Canada: 2198 projects = 39%
Mexico: 336 projects = 6%
United States: 411 projects = 7%
Active Copper Projects Top Ten Countries
Australia: 1633 projects = 29%
GLOBAL COPPER PROJECTS MAP
New Mining Projects 2011 – 2015 Year
Annual kt
2011 2012 2013 2014 2015
626 1,760 1,296 974 480
Projects 16 22 17 8 3
2011-2015 Total LOM Production: 66 Projects, 102,258 kt >2015 Total LOM Production: 55 Projects, 58,825 kt
New Mining Projects Production 2011 – 2015 Top Countries Country
Projects
Peru Chile Canada Afghanistan Panama Ecuador Brazil USA Mongolia Kazakhstan Zambia
11 6 10 1 1 2 1 4 1 2 1
Annual kt
LOM kt
1,787 828 349 260 250 239 200 195 191 105 100
34,025 13,820 6,617 4,160 7,500 4,780 3,600 3,765 11,460 1,300 2,800
North America Future Production Copper Projects
South America Future Production Copper Projects
Asia Future Production Copper Projects
Australia Future Production Copper Projects
Africa Future Production Copper Projects
Europe Future Production Copper Projects
The Project Pipeline
Global Gold Projects by Status Grass Roots (no drilling)
6198
38%
Exploration (limited drilling)
4732
30%
Advanced Exploration
2454
16%
Pre-Feasibility/Scoping
524
3%
Feasibility
393
4%
Construction
180
1%
Operating Mines
1211
8%
15,692
100%
Total
Global Copper Projects by Status Grass Roots (no drilling)
2770
39%
Exploration (limited drilling)
2285
32%
Advanced Exploration
1006
14%
Pre-Feasibility/Scoping
280
4%
Feasibility
193
4%
80
1%
571
8%
Construction Operating Mines Total
7,185
100%
GLOBAL COPPER DRILL PROJECTS FEEDING THE PIPELINE
Exploration Pipeline Comparison Early
Late
Gold
68%
23%
Copper
71%
22%
Silver
61%
27%
Uranium
83%
14%
Lead-Zinc
67%
24%
Nickel
68%
23%
Diamonds
79%
13%
PGE’s
70%
22%
Section Three: Production and Market Balance Data, insights from Bloomsbury Minerals Economics
Copper mine production to 2015, base case forecast Copper Mine Production
Kt
Americas
Eur.&Africa
Asia ex-China &Aust.
China
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0
Secondary (scrap-based) refined production, historically and base-case forecast to 2015
Scrap to Smelters
Scrap to Refineries
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
Secondary Production
2001
2000
Kt 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0
Refined production, historically and forecast to 2015 Kt
Refined Copper Production
25000 20000 15000 10000 5000
Americas
Eur.&Africa
Asia ex-China &Aust.
China
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Refined copper balance to 2015 under different ETF scenarios Kt 1250
Refined Balance
750 250 -250 -750 historical
forecast scenarios
Historic
rapid ETF success
modest ETF success
2014
2012
2010
2008
2006
2004
2002
2000
-1250
start/fail
Section Four: Prices Under the Influence of Combined Industrial and Investment forces Data, insights from Bloomsbury Minerals Economics
How investor longs in the futures market affect prices Investor longs in the nearby futures market require counter-parties. The quick route to equilibrium with new investor longs is for prices to rise until sufficient new speculative shorts or producer hedge shorts are tempted into the market. That raises the price above physical market equilibrium and a longer term equilibration mechanism begins: available stocks increase. Eventually, stocks rise above the pinch point and the market then shifts into contango. From that point, around 80% of exchange stocks are short hedged by their owners (predominantly financial institutions). Those short hedges provide a more stable set of counterparties for investors. Given an adequate supply response, investor longs thus initially create higher prices but in the longer term create higher stocks.
Investment in futures has shifted the price to stock curve upwards and to the right (the latter by around 600 kt) Copper Cash Price ($/t) 10000
Nov 2009-Nov 2010
9000
Aug 2009-Oct 2009
8000 7000
May 2006-Jul 2009
6000 5000
Aug 2005-April 2006
4000 Jan 2000-Jul 2005
3000 2000 1000 0 0
200
400
600
800
1000
1200
1400
Total Exchange Stock (kt)
1600
Prices are already behaving as if not all exchange stocks are available In the final quarter of 2010, according to the BME Copper Price Model, the cash to three months spread and prices have begun to behave as if around 250 kt of actual exchange stocks no longer existed. BME interprets this as the sequestering of stocks ahead of ETF launches, combined with the launch of one (so far small) copper ETF. The cash price has soared and the nearby curve has backwardated. That backwardation has begun to give a positive roll yield to those owning nearby futures and has thus further boosted index funds’ and other investors’ and speculators’ urge to buy copper futures.
The BME Copper Price Model’s forecasts through 2015 using four scenarios of ETF success – or failure. $/t
14000 12000 10000 8000 6000 4000
BME’s forward looking long-term average is $5,500/tonne, $2.50/lb
2000
rapid ETF success No ETFs
moderate ETF success Actual
ETFs start then fail
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Conclusions on short-term prices In the short term, too few mine projects will be starting up, resulting in physical deficits and falling stocks. Combined with about 200 ktpy of buying of futures by CIFs and 200 ktpy of buying of physicals by ETFs will keep prices in the $7,500 - $15,000 ($3.50 - $6.80) range in 2011-12, BME estimates.
Conclusions on medium- term prices After 2012, the balance of probability is that enough new mines will start up to create physical copper surpluses. This will, BME believes, bring ETF buying to a halt, but not necessarily CIF buying. BME believes that prices would fall to the $5,500 - $7,500 ($2.50 - $3.50) range as a result.
Conclusions on long-term prices If CIF buying were also to halt, BME believes that the price would fall to around $5,500 ($2.50) per tonne, which we regard as the forward-looking long-term equilibrium. Below equilibrium, there would be cyclical downside risk, as well as risk of a trend to CIF and ETF disinvestment.
Services that Intierra and BME can provide you with: BME Copper Briefing Service: a 16-page monthly report forecasting through 2011, covering physical and investment influences: US$3,000 p.a. Quarterly Report on Copper: a 280-page book style quarterly report forecasting five years ahead, including detailed database: US$8,250 p.a. Long Term Outlook Report: a concise 16-page report explaining setting out BME’s thinking and conclusions on long-term forces: US$7,500. Backing up these three reports, but also available as a stand-alone service, is BME’s new Interactive Price Model for Copper: US$16,500 p.a.
BUSINESS INTELLIGENCE FOR THE MINERAL RESOURCE SECTOR Intierra provides a Business Intelligence Service on a subscription basis • • •
•
Database contains over 40,000 projects, over 35,000 companies including 3500 listed companies Monitors all commodities and all projects from grass roots through production Data modules includes all relevant data including contact data, directors, financials, key financial ratios, capital raisings, property transactions, feasibility studies, resources, production, country risk, and all drilling programs Updated daily
Intierra Mapping is the global leader in hard copy map production; from global commodity maps to localized “Hot Play” maps
Disclaimer While this presentation has been prepared with care, neither Intierra nor Bloomsbury Minerals Economics (BME) make any warranty regarding the contents, and shall not be liable for any incidental or consequential damages arising out of its use.
Contacts Further information on Intierra’s services may be obtained from: Glen Jones: [email protected] www.intierra.com Further information on BME’s services may be obtained from: Robert Goldstein: [email protected] or, at this conference Peter Hollands: [email protected]
