Lead Production in South America: The Silver Factor. March 12, 2015

Transcription

1 Lead Production in South America: The Silver Factor March 12, 2015

2 Mine Output: Has concentrate production recovered significantly? E China 1,837 2,365 2,502 2,827 2,914 2,919 Oceania North America Europe Asia Other South America Argentina Bolivia Brazil Chile Peru Total World Production 4,007 4,487 4,725 5,175 5,262 5,413 YoY Growth 12% 5% 10% 2% 3% 2 Source: BofA Merrill Lynch Research

3 Where is the majority of supply being taken up? China has seen steady growth in primary smelting capacity while other regions including the US have focused more on secondary capacity SMELTER CONSUMPTION World Ex China China Total ('000 MT) Primary 2,181 3,937 6,118 Secondary 4,182 1,447 5,629 6,363 5,384 11,747 3 Source: BofA Merrill Lynch Research

4 Main Lead & Silver Producers in S.America MT Top S.American Producers account for 217K MT in 2014 (55% of total S America) 2014 World Lead Production: 5,262K MT 2014 S.American Lead Production: 391K MT 4 Source: minem.gob.pe / Reuters

5 Main Lead & Silver Producers in Perú & Bolivia Lead Producers 2014 ( 000 MT) % 43 16% % 7% 5% % 50% 40% 30% 20% 10% 0% 50 67% 5 7% 20 27% Sumitomo Sinchi Wayra Others Silver Producers 2014 ( MM Oz) % % 12% 11% 7 6% 48 38% 40% 30% 20% 10% 0% 13 30% 6 15% 4 10% 19 45% Sumitomo Coeur D'Alene Pan Am. Silver Others 5 Source: In house elaboration / minem.gob.pe / Reuters

6 How has a sharp fall in silver prices affected primary lead producers worldwide? US$/MT/ US$/Oz 000 MT % Change 2, , Lead Price 12% 14% 4% 2% Silver Price 74% 11% 23% 20% World Mine Production 12% 5% 10% 2% 6 * Pb/Ag prices are based on monthly averages Source: In house elaboration

7 How has a sharp fall in silver prices affected primary lead producers in S.America? US$/MT/ US$/Oz MT % Change 2, , Lead Price 12% 14% 4% 2% Silver Price 74% 11% 23% 20% S.American Mine Production 1% 1% 6% 7% 7 * Pb/Ag prices are based on monthly averages Source: In house elaboration

8 Industry Cash Costs: Ag Price Sensitivity to Pb Production Various Factors affecting cash costs: Production Costs Production Product Breakdown Commercial Discounts Sales Expenses Royalties 8

9 Industry Cash Costs: A Case Study I ** Example applicable for a miner who has sales distribution in US$ of 40% Ag & 50% Pb Ag Base Price (US$/Oz): US$ 20 Pb Base Co-Prod Cash Cost (US$/MT): US$ 1,463 Co Prod Cash Cost Pb (US$/MT) % Change 1 US$ 1, % +1 US$ 1, % As silver prices rise, the cash cost for lead reduces, making it more profitable. The opposite happens if silver prices reduce. 9 Source: In house elaboration

10 Industry Cash Costs: A Case Study II ** Example applicable for a miner who has sales distribution in US$ of 45% Ag & 10% Pb Ag Base Price (US$/Oz): US$ 20 Pb Base Co-Prod Cash Cost (US$/MT): US$ 878 Co Prod Cash Cost Pb (US$/MT) % Change 1 US$ % +1 US$ % In mining companies were lead accounts for a small portion of the total sales, it s co prod cash costismuchsensitiveto variationson silverprice. 10Source: In house elaboration

11 Pb/Ag Geology SILVER OUTPUT BY SOURCE METAL 2013 Output % of Total Primary % Gold % Lead/Zinc % Copper % Other 4 0% TOTAL % *Million oz Silver Content in Ex China Lead Concentrate Production 11 Source: World Silver Survey 2014

12 Is this a dampener on enthusiasm for investment and expansion? PROBABLE Country Mine Company 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Australia Dugald River Minmetals Portugal Neves Corvo Exp. Lundin Russia Berezitovy High River Gold Russia Ozernoye Renova Group Australia Woodlawn Tri Origin Minerals TOTAL Source: BofA Merrill Lynch Research

13 Is this a dampener on enthusiasm for investment and expansion? POSSIBLE Country Mine Company 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Algeria Tala Hamza Terramin Australia Prairie Downs Prairie Downs Australia Whim Creek/SulphuVenturex Canada Errington-VermillionGlencore Xstrata Canada Pine Point Tamerlane Canada Prairie Creek Canadian Zinc Corp Canada Selwyn Yunnan Chihong Canada Stratmat/Stratmat mtrevali Canada Tulsequah Chieftain Metals Chile Paguanta Herencia Resources India Rajpura Dariba exp HZL-Vedanta India Sindesar Khurd exphzl-vedanta India Zawar exp HZL-Vedanta Namibia Berg Aukas Weatherly Turkey Yenipazar Aldridge Minerals Russia Gorevsk Expansion Gorevsk GOK Uzbekistan Uch Kulach AGMK Kosovo/SerbiaTrepca KTA Canada Scotia Reactivation Selwyn USA Pend Oreille Teck USA Montana Tunnels Apollo Gold TOTAL Source: BofA Merrill Lynch Research

14 Is this a dampener on enthusiasm for investment and expansion? REFINERY CONFIRMED EXPANSIONS / (1) Country Company 2016E Korea Korea Zinc 200,000 Australia Nyrstar 70,000 China Others China 30,000 TOTAL 300,000 REFINERY POSSIBLE RESTARTS / (2) Country Company 2016E Peru La Oroya 108,000 Bolivia Karachipampa 20,000 TOTAL 128, Source: / (1): Korea Investment & Securities Co.,Ltd / (2): In house elaboration

15 Will we see further primary production come back online in the near future? Probably yes, but 2 main quesions would be: I. WHY? Projects: 70% of the world s Ag production comes as a by-product of Zn/Pb/Cu. There are many probable & possible projects for Zn/Pb/Cu. However, the main concern should be prices in order to see if these projects will take place. Recent years Zn/Pb/Cu Prices: They have been depressed, but Ag prices were buoyant, giving an extra motivation to explote main metals. However, Ag s price is not that motivational lately Future years Zn/Pb/Cu Prices: We expect Zn/Pb s prices to rise as a result of the closure of important mines and thus, future deficit in the physical market. This will have a direct impact on the Pb world production. II. WHERE? Most probable, not in South America. The main reasons being: - Difficulty to obtain permissions - Environmental concerns are stronger - Political instability is always a potencial issue throughout S.America (Eg: Bolivia & Argentina) 15

16 Conclusions Mine output worldwide has increased YoY, but at a slow rate. Primary production offtakers have been Chinesse smelters. This is aligned with the increase in capacity programmed for Despite Peru and Bolivia are the main Pb producers in S. America, no new projects are on list for the upcoming years. Environmental and political reasons being the strongest issues. Three directions for future Pb production: i) Pb/Zn Geology: They come together, and 40% of the world s Ag production comes from Zn/Pb concentrate. i) Main Product Prices (Zn/Pb): Zn prices should increase as a result of the anticipated physical deficit starting in By default, Pb s prices should increase too. Prices are the main motivation for production. i) Ag prices: 40% of the world s Ag comes from Zn/Pb. If Zn/Pb prices are expected to increase in 2016 onwards, and this is sufficient motivation to produce Pb, then, we should question ourselves where do we see Ag prices heading in the future. Remember that an increase in Ag prices, turns Pb more profitable for mining companies. 16

17 THANK YOU Contact Details: Paolo Cabrejos Martin Volcan Compañía Minera S.A.A. Tel: /