Commodity Outlook Impact on South Australia Mark Gordon Senior Resource Analyst

Transcription

1 Mining South Australia 2014 Whyalla Commodity Outlook Impact on South Australia Mark Gordon Senior Resource Analyst 25 November 2014

2 Disclaimer Analyst Verification I, Mark Gordon, hereby certify that the views expressed in this presentation accurately reflect my personal views about the subject securities or issuers and no part of analyst compensation is directly or indirectly related to the inclusion of specific recommendations or views in this presentation. Disclosure Breakaway Investment Group (AFSL ) may receive corporate advisory fees, consultancy fees and commissions on sale and purchase of shares of any companies mentioned and may hold direct and indirect shares in those companies. Disclaimer Any observations, conclusions, deductions, or estimates of figures that have been made by Breakaway Research and the Breakaway Investment Group in this presentation should not be relied upon for investment purposes and the reader should make his or her own investigations. This publication has been issued on the basis that it is only for the information and exclusive use of the particular person to whom it is provided. Any recommendations contained herein are based on a consideration of the securities alone. In preparing such general advice no account was taken of the investment objectives, financial situation and particular needs of a particular person. Before making an investment decision on the basis of this document, investors and prospective investors need to consider, with or without the assistance of a securities adviser, whether the advice is appropriate in light of the particular investment needs, objectives and financial circumstances of the investor or the prospective investor. Although the information contained in this publication has been obtained from sources considered and believed to be both reliable and accurate, no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred therein. Page 2

3 Presentation Outline Breakaway Investment Group/Lime Street Capital Overview A Quick Look at History South Australian Exploration South Australian Development South Australian Production Global Commodity Forecasts Impact on South Australia Page 3

4 What we do Breakaway Investment Group AFSL Breakaway Research: Commissioned Research companies over 3 years and growing The Digger Independent, free newsletter with selected research. More than 30,000 subscribers. Breakaway Mining Services: Project evaluation and execution. Breakaway Private Equity: Focused on pre-ipo or direct project investments. Investigating setting up an overseas strategic metal fund. Page 4

5 2014 and Ongoing Coverage Page 5 Companies with South Australian interests highlighted

6 A Quick Look at History (of the markets that is) Page 6

7 The Rise 2003 to 2007 A Quick Look at History Start of the Super Cycle in 2003 growth in demand from China Sharp increases in commodities prices due to demand increases In addition to commodity imports, China ramped up domestic production in a number of commodities GFC and Recovery 2007 to 2011 External shock GFC, ( ) truncated the peak Recovery back to the cycle (commencing early 2009) Fall to 2013 Bottoming out are we back to a normal phase? Most commodities now flat, however we have a structural rise in prices AUD/USD exchange rate higher than historical Page 7

8 History Anatomy of the Cycle Theoretical cycle? Rise GFC Rec. Fall Source: IRESS, IMF, OECD Page 8

9 History Y on Y GDP Rise GFC Rec. Fall Source: IMF, OECD Page 9

10 Cumulate GDP Growth History Cumulative GDP 350% 300% 250% 200% GDP - China GDP - Australia GDP - United States GDP - European Union (28 countries) 150% 100% 50% 0% Source: IMF, OECD Page 10

11 History Commodities Non-bulk prices flat for the foreseeable future Rise GFC Rec. Fall Source: IRESS, IMF, OECD Page 11

12 Page 12 South Australian Exploration

13 South Australian Exploration Exploration for a wide range of commodities, including base and precious metals, uranium, iron ore, mineral sands, graphite As for the rest of Australia, exploration expenditure has been severely curtailed, falling by 54% from CY2012 to CY2013 In the same period, overall Australian exploration expenditure fell by 31% This trend is continuing into 2014 the March and June 2014 quarterly expenditures for SA are approximately 50% lower than the corresponding periods in 2013 Although expenditure fell across all commodities, the hardest hit have been iron ore and uranium This has been in absolute terms, and share of the exploration dollar Copper remains relatively strong Page 13

14 South Australian Exploration Data sourced from ABS some data is incomplete Shows quarterly exploration expenditure by mineral Source: ABS Page 14

15 South Australian Exploration Data sourced from ABS some data is incomplete, esp. gold in recent years Shows quarterly exploration expenditure share by mineral Page 15 Source: ABS

16 South Australian Advanced and Development Projects Page 16

17 South Australian Advanced and Development Projects South Australia has a large number of advanced projects over a broad range of commodities below is a selection of these Copper, Copper/Gold Gold Olympic Dam Expansion Carrapateena Hillside Kalkaroo Portia Tunkillia Heavy Mineral Sands Atacama et al Iron Ore Central Eyre Iron Project Project Fusion Razorback Ridge Braemar Bungalow Gum Flat Hawks Nest Maldorky Silver, Lead, Zinc Menninnie Dam Paris Tunkillia Olympic Dam Expansion Uranium Olympic Dam Expansion Junction Dam Samphire Crocker Well Graphite SE Eyre Peninsula Page 17

18 Page 18 South Australian Production Overview

19 South Australian Production Overview 2013 value dominated by copper (39%) and iron ore (38%), with gold (9%) third Copper (263kt) from three mines, Olympic Dam, Prominent Hill and Kanmantoo Gold (310koz) largely as a by-product from the above operations Also standalone gold production at Challenger Iron ore produced by Arrium Includes hematite (12Mt) for export and some internal smelter feed Magnetite (2.6Mt) for Arrium Steel s smelter feed Uranium (4,700t U 3 O 8 ), largely as a co-product at Olympic Dam (+90% of SA production), with production also from Beverley/Four Mile 53% of Australian and 6.8% of world production in 2012/2013 Heavy Mineral Sand products (3% of value, 347kt cons) from Jacinth/Ambrosia and Mindarie Minor production of lead, zinc, silver, coal Uley recommencing graphite production Page 19

20 South Australian Production Source: ABS Page 20

21 Global Commodity Outlook Commodities Pertinent to South Australia Page 21

22 Copper Page 22 Global Commodity Outlook A Selection of Commodities Pertinent to South Australia Generally flat to positive outlook Bellwether commodity generally follows global economy 45% of demand comes from China Maturing of Chinese economy after the initial and ongoing expansion phase increase in the number of consumers will be a key driver Some commentators forecast supply deficits from 2016, both from growth in demand and restriction in supply Iron Ore Strongly negative outlook for the immediate future Prices have fallen 46% so far in 2014 Increase in low cost supply from the Pilbara and Brazil, and decreasing demand in China The major producers have more than enough supply potential to take up the slack as smaller producers fall by the wayside Some commentators predicting average prices in 2015/2016 of US$65/tonne for 62% CFR material

23 Gold Global Commodity Outlook Commodities Pertinent to South Australia Who knows? Mixed signals, widely varying forecasts for pricing China a significant buyer Potential to trade between US$1100 and us$1400 per ounce for the foreseeable future Uranium Bullish sentiment starting to re-emerge Recent spot price increases Chinese nuclear power expansion plans forecast to be a key demand driver 28 reactors under construction, 177 in the pipeline Potential for Japan to restart reactors closed after the Fukushima accident in March 2011 Potential supply shortages operations closed or scaled back in response to the price falls following Fukushima End of the HEU progamme in 2014 Page 23

24 Global Commodity Outlook Commodities Pertinent to South Australia Heavy Mineral Sands Generally positive outlook for the zircon and high grade TiO 2 feedstock sectors Gradual price recovery expected Downstream consumer destocking apparently complete for zircon, and almost complete for high grade TiO 2 feedstock Producers that needed to unwind inventory did so during 2013 China a significant buyer however there could be a decrease in demand for zircon and TiO 2 feedstocks due to slowing of the building sector However, a slowing in Chinese growth could lead to stimulus measures to maintain growth recent rate cut hints at this Page 24

25 Implications and Outlook for the South Australian Minerals Sector Page 25

26 Outlook for South Australia South Australia internationally recognised as an attractive exploration destination during and subsequent to the recent boom Fraser Institute rankings 2 nd highest of Australian jurisdictions - ranked 15 in 2009; 11 in 2013, average ranking of Australian jurisdictions was 22 in 2013 One of Australia s best exploration destinations for copper and uranium Work has identified, and developed a number of highly prospective exploration targets and areas, and areas ready for the next upturn, including Musgrave Province base metals Gawler Craton IOCG, epithermal silver, gold and others Uranium various styles and terranes Adelaide Fold Belt Iron ore extensive work done on a number of large beneficiation projects Supportive government very pro-active in developing initiatives to support exploration and project development The state has a number of robust, world class production assets in a range of commodities Page 26

27 Page 27 Where else in the world are arrivals greeted by a promotion of the minerals exploration industry and the strong Government support for that industry?

28 Outlook for South Australia - Exploration Past focus on uranium, Gawler Craton IOCG, iron ore Focus now largely on copper, copper/gold South Australia not immune from the general exploration malaise, and cutbacks in expenditure However, exploration expenditure mix will change to reflect views on commodities We expect to see renewed interest in uranium in the five years from June 2007, approximately 45% of Australian uranium exploration expenditure was incurred in SA We expect copper and copper/gold exploration to remain strong Iron ore exploration expenditure as expected will decrease Page 28

29 Outlook for South Australia - Development Actual and potential delays in development projects due to relative low commodity prices This has been highlighted by the August 2012 indefinite postponement of the Olympic Dam Expansion Project, however BHPB continues to investigate potential alternatives for progressing this There are a number of large, beneficiation iron ore projects at the advanced exploration to feasibility stage More robust projects will have better chance of getting funding projects need to be able to absorb adverse movements in prices and costs Look to lowering costs (both operating and capital) on potential projects to accommodate changing commodities prices Page 29

30 Outlook for South Australia - Production Our view is that current conditions will not significantly affect current copper, uranium and gold production The majority of these resources are produced as by-products in the same operation, or else are produced from relatively robust operations However recent developments include the Honeymoon Uranium Mine being put on care and maintenance due to low prices and less than expected recoveries Should conditions improve this could be turned back on Mineral sands operators are flexible can curtail production and sell from stockpiles when prices fall However, there are a number of current operations in different commodities with operating costs close to the prices for their respective commodities We have also seen the recent closure of some operations due to various factors, including falling commodities prices Page 30

31 Thank-you Mark Gordon Breakaway Research Suite 505, 35 Lime Street Sydney NSW