What drives investors to put money into European mining projects? Andor Lips

Transcription

1 What drives investors to put money into European mining projects? Andor Lips 4th annual High Level Conference the European Innovation Partnership (EIP) on Raw Materials Brussels 1 December 2016

2 Brief introduction Commodity Discovery Fund - CDF Licensed by the Netherlands Authority for Financial Markets (AFM) under UCITS regime Undertaking for the Collective Investment in Securities Mutual open-end fund - Participants can enter or withdraw capital on a monthly basis EUR 50 mln assets under management, managed by four professionals Investments in publicly-listed mining and exploration companies, with dual focus: Discovery Investing creation of value by a new quality mineral resource discovery Asset Investing safe-guarding hard-asset value in evolving world economy CDF is currently one of the most performant resource investment funds worldwide Citywire 1 yr performance: rank 3 rd of 184 resource funds worldwide

3 Investment Focus Mineral Commodities Cyclical nature price fluctuations are a function of supply & demand Demand driven by different applications : Industrial applications (copper, nickel, iron ore, silver, platinum, ) Food supply / agriculture (phosphate, potash) Energy demand (uranium) Monetary investments flight to hard-assets (gold, silver) Speculative markets speculating on (or hedging against) future supply constraints or oversupply from primary & secondary sources Commodity Discovery Fund projects the (long) development timeline and protracted capital requirements of a qualified mineral project on (future) demand scenarios

4 Investment appetite for mining projects Framework for investment appetite Investors have different appetite for risk / reward balance, but all investment appetite is rooted in the fundamental quality of project Investment focussed on different stages of project / company development (discovery, development, production, expansion) Investment timelines often shorter than entire project development timeline Appetite may include early-stage unknowns in project exploration or development, but is adverse to material uncertainties (even at low probability but with high impact) Investment proposition can accept some individual project parameters of average quality (if well-quantified) Investment appetite may easily shift to alternative propositions outside Europe with (incrementally) better risk/reward in a global commodity market

5 Quality mining projects Developing money-making mines Good practices demonstrated in country and internationally Developing highly-skilled workforce Adapting to international standards / professional ethics Be(come) a low-cost producer (.. but you can t change geology) A good project starts with successful exploration and project development Low on the commodity cost-curve (+ low energy consumption) Cultivate license to operate and safe-guard a good reputation Stakeholder framework - prepare / anticipate well in advance and deliver on promises Environmental/social accountability (legal framework + regulator s experience/capacity)

6 Mining projects in Europe Quality projects in Europe Including: - Largest underground metal mine in the world - Largest underground zinc mine(s) in the world - Most production-efficient copper mine in the world - Most production-efficient zinc mine in the world - Two low-cost nickel mines - World-class high-grade undergound copper mine - Quality large high-grade gold mine(s) and project - The world 2 nd largest producing tungsten mine - World largest copper discovery in last decade Curraghinalt (Dalradian Gold) Tara (Boliden) Hemerdon (Wolf Minerals) Neves Corvo (Lundin Mining) Las Cruces (FQM) Aguas Teñidas (Trafigura) Kitilla Mine (Agnico-Eagle) Kevitsa Mine (acquired by Boliden) Kiruna (LKAB) Aitik Mine (Boliden) Pyhäsalmi (FQM) Garpenberg Mine (Boliden) Rudna Mine (KGHM) Timok (acquired by Nevsun) Skouries (Eldorado Gold)

7 Questions

8 Annex Supply and Demand

9 Commodities Supply and Demand Copper Continuous increase in copper use per capita (as conductor of hear and electricity), a function of growing world population and growing middle class Passing a phase of excess mine supply (19Mt copper metal in 2015), after start-up of several large-scale copper projects. Copper prices have been low as a consequence, threatening several high(er)-cost operations to cut production. Near-term demand (> 23Mt) will (soon) exceed total supply again, a consequence of natural run-off of existing mine production and very few new quality development projects. Copper recycling has its own challenges to maintain a ~20% share of total supply NB. Other base metals (nickel, zinc,.) show similar issues

10 Commodities Supply and Demand Uranium Growing demand of (clean) energy (+ 80% from 2011 to 2035 levels) Nuclear power a component of the world energy mix in support of high base-load (11% today from 447 commercial reactors in 31 countries) Current uranium demand is 67kt. Supply is abundant from mine supply (56kt + spare capacity) and from secondary resources Excess stocks of uranium available after shut-down of several reactors, and (hence) uranium prices at 12-year low Upcoming increase in nuclear power capacity will soon demand increased quantities of uranium. 60 new reactors under construction, a further 95 in advanced stage of planning Development timeline of quality uranium projects is lagging any rise in demand

11 Commodities Supply and Demand Gold Continuing build-up of gold reserves by central banks since Gold repatriation provides additional pressure point. Increase in private investments in gold. Flight to hard-assets by retail investor. Increased institutional demand for gold ETF s. Gold mine production under pressure to sustain a constant output (~3,000 t p.a.), with existing mines demonstrating a gradual run-off of production and insufficient growth of reserve base Little new large gold-mines under construction and very few new material discoveries