Diversified Metals & Mining

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Royal Bank of Canada - Sydney BranchChris Drew, CFA (Analyst)+61 2 9033 [email protected]

Ken Tham, CFA (Associate)+61 2 9033 [email protected]

December 5, 2013

Diversified Metals & MiningIron ore and coal commodity price revisions: Iron ore lookingsupported in 2014Q4 has seen iron ore prices hold elevated levels after the Q3 strength. We believe iron ore is wellpositioned for further gains into year-end as Chinese mills look to restock ahead of winter when Chinesedomestic iron ore supply is disrupted and global supply runs into the seasonally weaker Q1 period.Into 2014, we believe supply additions, primarily from the Australian major producers, will be largelyabsorbed; we forecast US$121/t CFR China for 2014. In metallurgical coal, supply has surprised on theupside, resulting in greater price weakness than anticipated; this looks set to continue into early 2014and we have lowered our 2014 HCC forecast 7% to US$154/t FOB Aus, and longer-term we continue toexpect limited supply growth to see prices rise over time. Thermal coal is experiencing seasonal strengthas Northern Hemisphere buyers stock up in preparation for winter; however, we see ongoing oversupplyweighing on prices, and our 2014 forecasts are unchanged.

Iron ore upside risk building for 2014: Following the Q3 price strength, iron ore prices have heldfirm through Q4. Chinese domestic steel production and steel prices have held up, while iron oreinventories at mills have remained moderate. In the short term, we believe iron ore restocking byChinese mills ahead of winter will see demand for seaborne iron ore lift supporting prices. For 2014,we are comfortable that the capacity expansions by the three major Australian producers will be largelyabsorbed by moderate steel production growth from China. There will be a modest surplus remaining;thus we expect prices to lower, although not aggressively. We forecast US$121/t CFR China for iron orein 2014, easing to US$110/t and US$100/t over 2015E and 2016E, respectively.

Metallurgical coal weighed down by recent supply growth: Productivity drives by Australian producershave resulted in an increase in Australian metallurgical coal supply through 2013 that has seen pricesremain depressedytd exports are up 17%. Canadian exports are also up 17% ytd. US exports havestarted to ease but are down only 10% ytd. Meanwhile, demand conditions have been moderate.Global steel production ex-China remains down slightly (1%) for the year. Chinese steel production hassurprised on the upside, up 10% ytd, and Chinese metallurgical coal imports have been elevated, up88% ytd. However, this is not acting to drive up prices, rather it is absorbing the surplus seabornesupply, as Chinese buyers switch to cheaper seaborne coal over domestic material. For 2014, we expectmodest price appreciation as supply growth slows and demand lifts. We have lowered our 2014 HCCprice forecast 7% to US$154/t FOB Aus.

Thermal coal showing few positive signs: Thermal coal is ending the year on a slightly stronger note,with Northern Hemisphere seasonal demand, in particular in China where domestic prices are rising,boosting prices. However, we see little to get excited about in 2014, with no major changes expectedin the market. Supply side strength appears likely to continue; with record exports expected out ofIndonesia, Australia, and South Africa this year and further growth anticipated next year, supply looksunlikely to abate. We have held our JFY14/15 forecast at US$90/t FOB Australia. We have also introducedquarterly spot price forecasts for Newcastle export thermal coal. We expect these to average US$83/t FOB for 2014.

Priced as of prior trading day's market close, EST (unless otherwise noted).All values in USD unless otherwise noted.

For Required Non-U.S. Analyst and Conflicts Disclosures, see page 21.

Iron ore: 2013 much better than expected, a repeat possible in 2014 Following the Q3 price strength, iron ore prices have held firm so far through Q4. Chinese domestic steel production and steel prices have held firm, while iron ore inventories at mills have remained moderate. In the short term, we believe iron ore restocking by Chinese mills ahead of winter will see demand for seaborne iron ore lift supporting prices. Iron ore prices exhibit strong seasonality over December/January with prices typically rising over this period; we expect this trend to be repeated.

Looking ahead into 2014, we are comfortable that the capacity expansions by the three major Australian producers will be largely absorbed by moderate steel production growth in China. Prices have averaged US$135/t CFR China so far in 2013; with supply growing, we do expect a surplus to build from 2014, which we expect to result in easing, but not collapsing, prices. Introducing quarterly forecasts for 2014 sees our annual average adjust slightly; we now forecast US$121/t CFR China for 2014 (up US$1/t), easing to US$110/t and US$100/t over 2015E and 2016E, respectively. We see upside risk to our prices driven by questions around Chinas ability to maintain domestic iron ore production rates and the speed with which seaborne supply will be added.

Exhibit 1: Iron ore price forecasts

Q313 Q413E Q114E Q214E Q314E Q414E CY 2013E CY 2014E CY 2015E CY 2016E CY 2017E LT

New Price Forecasts

62% Fe Fines - Spot Average US$/dmt CFR China 133 135 130 115 120 120 136 121 110 100 100 75

62% Fe Fines - Quarterly Benchmark US$/dmt CFR China 133 131 134 132 120 118 130 126 110 100 100 75

Grade premium per % Fe unit US$ / dmt / % Fe 2.3 2.4 2.5 2.5 2.5 2.5 2.4 2.5 2.5 3.0 3.0 4.0

Vale SSF Tubarao (65% Fe) US$/dmt CFR China 140 142 138 123 128 128 143 129 118 109 109 87

Freight Aus-China US$/wmt (spot average) 10 10 10 10 10 10 8 10 10 10 10 7

Freight Brazil-China US$/wmt (spot average) 23 23 22 22 22 22 21 22 22 22 22 15

Pilbara Blend Fines (61.5%) US$/dmt FOB Aus 124 126 120 105 110 110 127 111 100 90 90 68

Pilbara Blend Lump (62.5%) US$/dmt FOB Aus 132 138 132 114 119 119 136 121 109 99 99 80

Vale SSF (65% Fe) US$/dmt FOB Tubarao 115 117 114 99 104 104 120 105 94 85 85 71

BF Pellets (66% Fe) US$/dmt FOB Tubarao 157 159 153 137 143 143 159 144 132 121 121 90

DR Pellets (68% Fe) US$/dmt FOB Tubarao 162 164 158 142 148 148 164 149 137 126 126 95

Previous Price Forecasts

62% Fe Fines - Spot Average US$/dmt CFR China 133 125 120 120 120 120 127 120 110 100 100 75

62% Fe Fines - Quarterly Benchmark US$/dmt CFR China 133 131 105 105 105 105 127 105 110 100 100 750 0 0 0

Grade premium per % Fe unit US$ / dmt / % Fe 2.2 2.3 2.5 2.5 2.5 2.5 2.3 2.5 2.5 3.0 3.0 4.0

Vale SSF Tubarao (65% Fe) US$/dmt CFR China 140 132 128 128 128 128 134 128 118 109 109 870 0 0 0

Freight Aus-China US$/wmt (spot average) 8.5 9.5 9 9 9 9 8 9 9 9 9 7

Freight Brazil-China US$/wmt (spot average) 22 25 20 20 20 20 18 20 20 20 20 150 0 0 0

Pilbara Blend Fines (61.5%) US$/dmt FOB Aus 125 116 111 111 111 111 119 111 101 91 91 68

Pilbara Blend Lump (62.5%) US$/dmt FOB Aus 133 125 120 120 120 120 127 120 110 100 100 80

Vale SSF (65% Fe) US$/dmt FOB Tubarao 116 105 106 106 106 106 114 106 96 87 87 71

BF Pellets (66% Fe) US$/dmt FOB Tubarao 157 148 143 143 143 143 150 143 132 121 121 90

DR Pellets (68% Fe) US$/dmt FOB Tubarao 162 153 148 148 148 148 155 148 137 126 126 95 Source: CRU, Platts, RBC Capital Markets estimates

Diversified Metals & Mining

December 5, 2013 2

Exhibit 2: Iron ore spot price

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62% Fe fines CFR China

Source: Platts

Inventory dynamics key for near-term outlook We believe that Chinese steel mill iron ore inventory dynamics are a key driver of iron ore prices. The chart below demonstrates how closely steel price inflection points are tied to mills switching from destocking to restocking or vice versa. The absence of any destocking in Q3 (there was in fact a stock build), as credit conditions were loosened, macro data improved, and the steel price environment improved, explains why we did not see the trend that was evident in recent years. Currently, inventory levels remain modest. Going into Chinese winter, mills usually hold elevated inventories to cover the period of reduced domestic supply in January/February as well as to protect them against potential seasonal disruption from Australian and Brazilian supply. We believe this points to the need for further restocking, which should see iron ore prices supported in the short term.

Exhibit 3: Chinese steel mill iron ore inventories vs. price; Chinese iron ore port inventories

Chinese steel mill iron ore inventories vs. price

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Iron Ore Inventories Months of Supply

Mt Mths

Source: Bloomberg, Platts, MySteel


December 5, 2013 3

Could be a volatile first half for iron ore in 2014 We expect strengthening iron ore prices into year-end 2013 and into early 2014. This follows the typical seasonal trend as Chinese buyers stock up ahead of winter. At the same time, Q1 is the seasonally weaker period of supply from Australia and Brazil, normally made up for by improving Indian supply, but at present Indian exports are likely to stay subdued.

As we move into the post Chinese New Year period, we see risk that prices could ease. As we move through the end of Q1 and into Q2, Rio aims to complete its ramp-up to 290Mt and FMG expects to lift its Kings project to full production of 40Mtpa. BHP is likely to continue its gradual expansion from Jimblebar. At the same time as the Australian producers ramp to near-term targets, Chinas domestic iron ore production will be recovering, while steel productions seasonal peaks are not until mid-year. Consequently, the rapid lift in supply in Q1/Q2 is unlikely to be matched by demand, creating an exacerbated shorter-term surplus, likely to weigh on prices. We expect the market balance to improve through the year as Chinese demand continues to grow.

Exhibit 4: Iron ore price seasonality; Australian and Brazilian iron ore exports; Chinese domestic iron ore production; Chinese steel production seasonality

Iron ore price seasonality

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m/m iron ore price change

2009 2010 2011

2012 2013 Average

Australian and Brazilian iron ore export seasonality

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Domestic iron ore production Spot Price (1mth lag)

Mt US$/t

Chinese steel production seasonality

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2013 2012 2011 2010 2009 Avg

Source: Platts, TEX, WSA


December 5, 2013 4

Chinese steel production holding elevated rates, steel prices holding Current steel production rates are showing no sign of slowing within China. The constant debate about over-capacity and loss making mills, as always, is not driving any production response. We do not expect to see mills reduce production unless directly mandated to by government.

Chinese steel production growth of around 10% for 2013 is unlikely to be repeated in 2014. Nevertheless, with an outlook for GDP growth of ~7% and IP of ~10%, we continue to expect ongoing modest steel production growth. Our current forecast is for 3% growth. Off 2013s base, this should see around 23Mt of steel added, boosting iron ore demand by almost 40Mt.

The steel price environment in China has also proved resilient in the face of the elevated level of production. With an absence of any obvious inventory build, this demonstrates that underlying demand has remained relatively solid. Second-half economic data has been broadly robust, with solid IP, PMI, land sales, and construction data.

Exhibit 5: Chinese steel prices vs. iron ore prices; Chinese 10-day steel production rates annualised

Chinese steel prices vs. iron ore prices

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US$/t CFRRMB/t (incl 17% VAT)

Chinese Domestic Rebar Chinese Domestic HRC

Fe Spot

Chinese 10-day steel production rates annualised

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Source: Platts, SBB

Beyond 2014, supply growth looking more limited Capacity additions in 2014 are not inconsequential. Rio is adding approximately 40Mtpa from current production rates to hit its 290Mtpa interim production target by mid-2014. FMG will also add 40Mtpa capacity from Kings, almost all expected to come on in Q1. BHP is adding 35Mtpa at Jimblebar although this ramp-up will extend out until mid-2015. There is no major export increase from Vale planned in 2014. Allowing for ramp-up, the Australian producers should add 90100Mt of incremental supply in 2014. In a 1.3Bt market, this represents approximately 7% supply growth.

As noted, we expect Chinese steel production growth to absorb a high proportion of this. While other major importersJapan, Europe, and Koreaare showing some positive signs, their impact is likely to be minor (we forecast less than 10Mt increased demand across all three).

Beyond 2014, the supply threat has diminished somewhat, in our view. Major projects such as Rios Simandou and Vales S11D continue to be deferred; Anglo Americans Minas Rio


December 5, 2013 5

project has suffered delays and cost overruns; the entire African development story, which two years ago was slated to deliver as much as 200Mtpa of supply from 2015, is no longer on the map; Canadas Labrador Trough developments have largely stalled; and large-scale but second-tier projects from the likes of MMX, CSN, and Usiminas in Brazil, and Aquila and Atlas in Australia are facing delays or scrapping of plans.

Beyond the current round of expansions by the major Australian exporters, it appears that broader supply growth is set to slow. Rios 40Mt expansion to 330Mt in 2015 is the next major step, but largely alone within the 2015/16 time frame. Many of the other projects planned (and highlighted in our bubble chart below) face risks around timing. BHP is likely to gradually add 3040Mt over 20162018, Gina Rineharts Roy Hill project could add 50Mt from 2017, and Vales S11D remains planned for 2017. We believe that the outlook through to 2016 for iron ore appears relatively robust, supporting prices at or above US$100/t.

Exhibit 6: Major iron ore projects

BHP - WAIO Stage 1

Pilbara Stg 2 - 360mt

Carajas Serra Sul (S11D)

Vargem Grande ItabiritosFMG 55 Sishen South (Kolomela)

Serra Azul

Namisa expansionMinas Rio - Phase 1

Casa de Piedra ApoloFMG - Firetail

Usminas J-Mendes

FMG - Kings

Pilbara Stg 1 - 290mt

Jimblebar

Carajas +40Mt

Caue Itabiritos RIO - IOC

Tonkolili DSO

Tonkolili hematite con

Jimblebar +20mt

Roy Hill

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2011 2012 2013 2014 2015 2016 2017

RIO Vale FMG Anglo American MMX CSN Usminas J-Mendes RIO - IOC Tonkolili DSO Tonkolili hematite con Jimblebar +20mt Roy Hill

Bubble size reflects production targetMt

Source: Company data, RBC Capital Markets estimates


December 5, 2013 6

Exhibit 7: Iron ore supply and demand summary

Global Steel Production (mt) 2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e

China 500 568 639 683 709 780 803 827 852

Chinese production growth rate 2% 13% 12% 7% 4% 10% 3% 3% 3%

Japan 119 88 110 108 107 110 114 114 114

India 55 57 67 72 77 81 87 93 100

Other Asia 74 64 78 91 90 90 92 95 99

European Union (27) 198 139 173 177 169 165 168 172 175

Other Europe 31 29 32 37 38 38 39 40 41

North America 125 82 111 119 122 122 124 127 129

South America 47 38 44 48 47 48 51 54 58

CIS 114 97 108 112 111 111 115 118 121

Africa, Middle East, Oceania, Other 64 58 43 42 40 45 46 48 49

Total 1327 1220 1405 1490 1510 1590 1639 1688 1738

Global growth -1% -8% 15% 6% 1% 5% 3% 3% 3%

World ex-China (mt) 826 652 766 807 801 811 836 861 886

World ex-China growth -3% -21% 17% 5% -1% 1% 3% 3% 3%

Pig Iron Production 927 898 1031 1086 1101 1161 1197 1232 1269

Pig Iron to Crude Ratio 0.70 0.74 0.73 0.73 0.73 0.73 0.73 0.73 0.73

Iron Ore Supply 2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e

Australia 333 393 430 461 494 586 695 728 784

Brazil 278 273 306 336 340 346 368 420 438

India 101 114 103 85 37 22 27 33 27

Canada 28 30 30 35 36 45 55 60 60

South Africa 33 45 50 50 54 59 59 58 58

Sw eden 17 15 20 25 25 25 25 25 25

Rest of World 97 87 66 60 80 85 90 100 100

Total Seaborne Supply 886 958 1,005 1,052 1,066 1,167 1,318 1,424 1,491

Iron Ore Demand 2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e

China 444 628 619 687 745 828 864 901 940

Japan 140 99 131 128 131 135 139 139 139

Korea 50 41 53 65 66 66 67 70 73

Taiw an 16 12 19 21 21 21 21 22 23

Europe 153 110 138 141 135 131 134 137 139

Rest of World 84 67 45 46 47 47 49 50 52

Total Seaborne Demand 886 958 1,005 1,088 1,144 1,228 1,274 1,319 1,365

% chg yoy 7% 8% 5% 8% 5% 7% 4% 4% 4%

% chg ex-China 0% -25% 17% 4% 0% 0% 2% 2% 2%

Implied balance -60 44 105 126

Source: CRU, RBC Capital Markets estimates


December 5, 2013 7

Metallurgical Coal Growth in supply weighing on prices Productivity drives by Australian exporters have resulted in an increase in Australian metallurgical coal supply through H2 2013 that has seen prices remain depressed. Australian exports have finally recovered from the floods and strikes that had impacted in recent years, with exports up 17% ytd. The Australian metallurgical coal exporters are now in better shape, with unit costs benefiting from the boosted volumes, while labour cuts, mine closures, reduced use of contractors, and a weaker A$ have also all acted to reduce costs, improving the competitive position of Australian exporters. Canada has similarly increased supply, with exports also up 17% ytd and Teck reporting that its unit costs have fallen ~20%. US exports have started to ease but are down only 10% ytd. We look for further weakness in export volumes from the US as prices remain under pressure.

While supply has been strong, demand conditions have been moderate. Steel production in major metallurgical coal importing regions of Japan and Europe has most recently started to tick up after a fairly soft first six months of the year, although global steel production ex-China remains down slightly (1%) for the year. Chinese steel production has surprised on the upside, up 10% ytd, and Chinese metallurgical coal imports have been elevated, up 88% ytd; however, this is not acting to drive up prices; rather, it is absorbing the surplus supply, as Chinese buyers favour cheaper seaborne coal over domestic material.

Into 2014, supply growth from Australia is expected to slow, while US supply is likely to decline. We are expecting modest price appreciation, as demand slowly lifts, tightening the market. We have slightly lowered our 2014 price forecasts, now forecasting an average HCC benchmark price of US$154/t FOB Aus, down 7% from our prior forecast of US$165/t, largely reflecting weaker current market conditions heading into 2014.

Exhibit 8: Metallurgical coal price forecasts

Q313A Q413A Q114E Q214E Q314E Q414E CY 2013E CY 2014E CY 2015E CY 2016E CY 2017E LT

New Price Forecasts

HCC US$/t FOB 145 152 145 150 160 160 159 154 170 170 170 160

LV PCI US$/t FOB 116 121 115 120 125 125 125 121 125 125 125 120

SSCC US$/t FOB 105 106 105 110 115 115 112 111 115 115 115 110

Previous Price Forecasts

HCC US$/t FOB 145 150 165 165 165 165 158 165 170 170 170 160

LV PCI US$/t FOB 116 120 125 125 125 125 125 125 125 125 125 120

SSCC US$/t FOB 105 110 115 115 115 115 113 115 115 115 115 110

Source: CRU, Platts, RBC Capital Markets estimates


December 5, 2013 8

Exhibit 9: Coking coal spot and benchmark prices

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Source: Platts

Strong supply weighing on prices In the face of weaker metallurgical coal prices, supply has been surprisingly strong in 2013. Australian exporters have been successfully boosting production in an effort to lower unit costs. The weaker A$ is also once again benefiting the Australia-based producers. Overall, Australian exports are up 17% ytd, September was a record, and monthly volumes are now regularly back at pre 2010/11 flood levels. Canada also exported at record levels in September, and its exports are also up 17% ytd. US volumes are holding up better than expected in the face of weaker prices, down only 10% ytd. Into 2014, we do expect reduced US supply; however, this is likely to be offset by growth in Australian exports.


December 5, 2013 9

Exhibit 10: Australian, Canadian, USA and Mongolian metallurgical coal exports

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Korea China Netherlands Brazil Total

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2014E seaborne met coal supply

Australia61%

Canada12%

USA19%

Russia2%

Indonesia2%

Other4%

Source: McCloskey, CRU

Spot price weakness heading into Q1 negotiations Spot prices have been drifting lower since peaking in early September and now sit around US$135/t FOB Aus for premium low vol HCC. Industry publications suggest that BHP-BMA has secured US$148/t FOB for monthly sales of its flagship Peak Downs coal; this is US$4/t lower than November levels. With the spot price weakness through the quarter, we expect Q1 negotiations are likely to deliver a step down from the US$152/t Q4 2013 settlement; we currently forecast US$145/t FOB. Weather disruptions, if any, are likely to come too late to affect negotiations, but they may play a greater part in Q2 discussions.


December 5, 2013 10

Exhibit 11: Coking coal spot prices; HCC premium over PCI and SSCC

HCC vs. PCI vs. SSCC spot prices

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HCC premium over PCI and SSCC

0

20

40

60

80

100

120

140

Oct

-11

Dec

-11

Feb

-12

Ap

r-1

2

Jun

-12

Au

g-1

2

Oct

-12

Dec

-12

Feb

-13

Ap

r-1

3

Jun

-13

Au

g-1

3

Oct

-13

Dec

-13

SSCC LV PCI

US$/t

Source: Platts

Chinese demand absorbing the surplus, but not driving prices Chinese seaborne metallurgical coal import volumes are up 88% ytd, with imports totalling 49.3Mt through to October. This compares to 34.2Mt for all of 2012. Despite this Chinese demand, metallurgical coal prices have struggled to gain any momentum in 2013. This highlights that Chinese buying of seaborne coal is largely a result of imports being competitively priced against domestic tonnes. To move the volume, exporters have to price competitively against Chinas domestic supply, and Chinese buyers will search for the cheapest option. We do not expect this dynamic to change, with Chinese buying not acting to lift prices; rather, it is there to absorb excess supply at weaker prices.

Exhibit 12: Chinese met coal imports; seaborne vs. domestic HCC prices

Chinese met coal imports by source

0

1

2

3

4

5

6

7

8

Jan

06

Jul 0

6

Jan

07

Jul 0

7

Jan

08

Jul 0

8

Jan

09

Jul 0

9

Jan

10

Jul 1

0

Jan

11

Jul 1

1

Jan

12

Jul 1

2

Jan

13

Jul 1

3

Canada Mongolia Australia Total

Mt

Chinese imports vs. seaborne prem/disc to domestic prices

0

1

2

3

4

5

6

7

-100

-50

0

50

100

150

200

250

300

350

400

Jan

07

Jul 0

7

Jan

08

Jul 0

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Jan

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9

Jan

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0

Jan

11

Jul 1

1

Jan

12

Jul 1

2

Jan

13

Jul 1

3

Seaborne Met coal imports (RHS)

Seaborne premium/discount to domestic HCC (LHS)

UUS$/t Mt

Source: McCloskey, Bloomberg, Platts


December 5, 2013 11

Japanese steel production edging up, European finding a floor The Japanese steel environment is showing signs of life. Pig iron production is up 3% ytd, driving metallurgical coal imports up 11%. After a weak end to 2012, 2013 steel production appears to have stabilised at higher levels. In Europe, steel production is not on an uptrend as yet, but the trend of negative y/y growth for monthly production has ceased; October was the first month of y/y steel production growth reported since September 2011. This follows August and September, which were flat y/y. We are not particularly bullish about the prospects for a rapid recovery in Europe, but stabilising demand would be a minor incremental positive for metallurgical coal.

Exhibit 13: Japanese and European steel production

Japanese steel production

0

2

4

6

8

10

12

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Mt

European steel production

0

5

10

15

20

25

30

35

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

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-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Mt

Source: McCloskey, Bloomberg, Platts

Exhibit 14: Global HRC prices

300

400

500

600

700

800

900

1000

1100

1200

1300

Jan

-07

Jul-

07

Jan

-08

Jul-

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Jan

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Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

US$/t

USA Domestic Europe Domestic East Asia Import China Domestic

Source: SBB


December 5, 2013 12

Weather forecast for a normal wet season Australian producers are likely to be better prepared to deal with wet season disruption, having invested in measures to reduce the impact following the 2010/11 flooding. At the moment, the forecast is for a drier than average wet season, with much of the Bowen Basin (which supplies approximately 50% of the worlds hard coking coal) having a 6070% chance of below-average rainfall. At this stage, the cyclone season is expected to be normal, with four cyclones expected to hit the East Coast of Australia.

Exhibit 15: Queensland rainfall forecast; Australian met coal export seasonality

Queensland rainfall forecast

Australian met coal export seasonality

-30%

-20%

-10%

0%

10%

20%

30%

40%

Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

Dec

2009 20102011 20122013 Avg (2001-2013)

m/m Aus met coal exports change

Source: BOM, McCloskey

Longer-term picture intact We continue to believe the longer-dated, supply-side picture remains relatively tight for metallurgical coal. Mongolia continues to struggle to deliver, with delays, permitting, and financing issues restricting development. Mozambique political risk appears to be on the rise again, exemplified by Rios recently sending its expat workers home. More broadly, the current metallurgical coal price environment is not encouraging investment. For example, Teck has continued to defer Quintette, Rio has slowed activity in Mozambique, BHP has cancelled its Peak Downs expansion and is curtailing additional development beyond Caval Ridge, and Anglo American has deferred its Moranbah South project.


December 5, 2013 13

Exhibit 16: Major metallurgical coal projects

Teck - Quintette

Peabody - North Goonyella

BMA - IndoMet

Vale - Ellensfield

RIO - Benga Stg 1

RIO - Kestrel

Teck - Elk Valley Stg 2

Vale - Moatize Stg 1

MEC - Khushuut

Vale - Moatize Stg 2

BMA - Caval Ridge

Anglo - Grosvenor Stg 1

Consortium - Tavan Tolgoi

BMA - Appin Area 9

RIO - Benga Stg 2

Vale - Belvedere

Anglo - Roman

BMA - Saraji East

Anglo - Grosvenor Stg 2

Anglo - Moranbah South Stg 1

Peabody - Millennium

MMC - Ukhaa Khudag

Mechel - Elga

BMA - Daunia

Xstrata - Donkin

Peabody - Burton

Peabody - MetropolitanTeck - Elk Valley Stg 3

BMA - Broadmeadow0

1

2

3

4

5

6

7

8

9

2011 2012 2013 2014 2015 2016 2017 2018

BMA RIO Xstrata Teck Vale Anglo Peabody MEC MMC Mechel Consortium

Bubble size reflects production targetMt

Source: Company data, RBC Capital Markets estimates

Exhibit 17: Metallurgical coal supply and demand summary

Seaborne Met Coal Supply/Demand (Mtpa) 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

World Crude Steel Production 1,327 1,220 1,405 1,490 1,510 1,590 1,639 1,688 1,738

Key Exporters

Australia 134 134 159 133 145 165 180 195 201

Canada 25 21 25 26 30 34 34 36 36

USA 35 31 47 58 58 60 55 55 55

Russia 3 3 6 5 4 5 5 5 5

Indonesia 2 2 4 4 4 6 7 8 8

Other 8 4 4 7 8 9 12 13 13

Supply of Seaborne Coal 206 196 245 234 250 279 293 312 317

Key Importers

Europe 75 45 60 59 57 58 60 61 63

China 3 31 32 25 35 60 64 68 72

India 26 28 35 33 35 37 43 54 59

Japan 54 45 53 49 47 52 54 54 54

Korea 20 16 22 26 26 25 26 27 28

Other 43 44 41 49 62 34 38 40 41

Demand for Seaborne Coal 221 209 244 241 261 266 286 304 317

Implied Seaborne Market Balance 13 7 8 0 Source: CRU, RBC Capital Markets estimates


December 5, 2013 14

Thermal Coal No improvement expected in 2014 While thermal coal appears to be ending the year on a slightly stronger note, with Northern Hemisphere seasonal demand, in particular in China, boosting prices, we see little to get excited about in 2014. As has been the case for some while, supply-side strength appears likely to continue, with record exports expected out of Indonesia, Australia, and South Africa this year. Chinas domestic prices have lifted relatively sharply in recent weeks, with FOB QHD prices rising from US$70/t in October up to US$84/t, as buying accelerates going into winter. Stronger domestic prices should open the window for elevated imports in November and December; however, we expect this seasonal boost to unwind as we move through Q1 2014. Demand has also been strong in India, now the second-largest importer behind China, although the rupee weakness has moderated import growth in the current half.

Looking into 2014, we do not expect any major changes in the market. Supply looks set to remain strong for 2014, with export growth likely from all major markets except the US. We would expect ongoing demand from India and China, but at moderated rates of growth vs. 2013. We have held our JFY forecasts at US$90/t FOB Australia. We have also introduced quarterly spot price forecasts for Newcastle export thermal coal. We expect these to average US$83/t FOB for 2014.

Exhibit 18: Thermal coal price forecasts

New Price Forecasts Q313A Q413A Q114A Q214A Q314A Q414E CY 2013E CY 2014E CY 2015E CY 2016E CY 2017E LT

Spot Thermal US$/t FOB (Newc, 6300kcal/kg GAR) 78 83 80 85 80 85 85 83 85 90 90 90

JFY14A JFY15E JFY16E JFY17E JFY18E LT

JFY Benchmark Thermal US$/t FOB 95 95 95 90 90 90 95 90 90 90 90 90

Previous Price Forecasts Q313A Q413E Q114E Q214E Q314E Q414E CY 2013E CY 2014E CY 2015E CY 2016E CY 2017E LT

Spot Thermal US$/t FOB (Newc, 6300kcal/kg GAR)

JFY14A JFY15E JFY16E JFY17E JFY18E LT

JFY Benchmark Thermal US$/t FOB 95 95 95 90 90 90 95 90 90 90 90 90 Source: CRU, Platts, RBC Capital Markets estimates

Exhibit 19: Thermal coal spot prices

70

80

90

100

110

120

130

140

May

-10

Au

g-1

0

No

v-1

0

Feb

-11

May

-11

Au

g-1

1

No

v-1

1

Feb

-12

May

-12

Au

g-1

2

No

v-1

2

Feb

-13

May

-13

Au

g-1

3

Newc FOB RB FOB Sth China CFR

US$/t

Source: McCloskey, Platts


December 5, 2013 15

Chinese buying into year-end, domestic prices indicate demand strength Chinese domestic prices have lifted sharply this month, with both QHD FOB and South China CFR prices gaining. With buyers stocking up ahead of winter, we would expect to see strong import volumes in November and December. Most producers are reported to be largely sold out of near-term availability, so we could see prices push higher into year-end. However, we consider this a seasonal factor, likely to unwind once we move further into Q1. More broadly, Chinese coal demand remains supported, with coal-fired power generation up 12% ytd after a weak H1.

Exhibit 20: Thermal coal prices; Chinese imports; Chinese electricity generation; proportion of imports from Indonesia

Thermal coal prices

400

500

600

700

800

900

70

80

90

100

110

120

130

140

150

Jun

-10

Au

g-1

0O

ct-1

0D

ec-1

0Fe

b-1

1A

pr-

11

Jun

-11

Au

g-1

1O

ct-1

1D

ec-1

1Fe

b-1

2A

pr-

12

Jun

-12

Au

g-1

2O

ct-1

2D

ec-1

2Fe

b-1

3A

pr-

13

Jun

-13

Au

g-1

3O

ct-1

3

Newcastle (FOB) Richards Bay (FOB)

South China (CFR) QHD (FOB, RMB/t)

US$/t RMB/t

Chinese thermal coal imports

0

2

4

6

8

10

12

14

16

18

20

Jan

06

Jul 0

6

Jan

07

Jul 0

7

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08

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8

Jan

09

Jul 0

9

Jan

10

Jul 1

0

Jan

11

Jul 1

1

Jan

12

Jul 1

2

Jan

13

Jul 1

3

Mongolia Indonesia Australia Total

Mt

Chinese electricity generation growth

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

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Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

China - Percentage of imports from Indonesia

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan

03

Jul 0

3Ja

n 0

4Ju

l 04

Jan

05

Jul 0

5Ja

n 0

6Ju

l 06

Jan

07

Jul 0

7Ja

n 0

8Ju

l 08

Jan

09

Jul 0

9Ja

n 1

0Ju

l 10

Jan

11

Jul 1

1Ja

n 1

2Ju

l 12

Jan

13

Jul 1

3

Source: Platts. McCloskey, Bloomberg

Renewed talk of Chinese import restrictions A Chinese ban on low-CV, high-ash, high-sulphur imports appears to be back on the agenda, with Chinas State Council now proposing the idea. Previously, the National Energy Administration (part of the NDRC, which itself works under the State Council) had proposed such a ban, but following opposition from domestic power producers it was not implemented.


December 5, 2013 16

With the more powerful State Council now pushing the move, it seems that implementing such measures would have a greater chance of success. Air pollution issues appear to be gaining greater notoriety in China and may be forcing the change.

The most recent proposals restricted imports of lignite with a CV less than 3941kc/kg NAR and ash above 20% and sulphur over 1%; for bituminous coal, restrictions of a minimum CV level of 4300kc/kg NAR and max ash of 30% and sulphur of 2% were proposed. The impact of any such ban is not clear cut. While we would expect a lift in demand for higher-quality coal (primarily benefiting Australia), the surplus of lower-quality coal in the market would likely lower prices in that space, potentially acting to pressure coal prices more broadly.

Exhibit 21: Chinese thermal coal imports; Indonesian thermal exports

Chinese thermal coal imports

0

2

4

6

8

10

12

14

16

18

20

Jan

06

Jul 0

6

Jan

07

Jul 0

7

Jan

08

Jul 0

8

Jan

09

Jul 0

9

Jan

10

Jul 1

0

Jan

11

Jul 1

1

Jan

12

Jul 1

2

Jan

13

Jul 1

3

Mongolia Indonesia Australia Total

Mt

Indonesian thermal coal exports

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

5

10

15

20

25

30

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40

Jan

-03

Jul-

03

Jan

-04

Jul-

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Jan

-05

Jul-

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Jan

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06

Jan

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Jul-

07

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Jul-

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Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Exports % Sub-Bituminous

Mt

Source: McCloskey

Along similar lines, Korea is introducing an import tax on thermal coal from July 1, 2014. The tax will be initially levied at US$20/t before rising to US$30/t at some stage (unspecified for now). The tax is uniform across all grades of coal, so it should favour a switch to higher-CV coal. Korea is the fourth-largest coal importer, on track for ~92mt this year (10% of seaborne demand). Any tax is likely to see reduced demand for coal, although it is anticipated that given coal provides base load power in Korea, the impact of the tax on coal demand is likely to be minor.

Supply remains strong Indonesia, Australia and South Africa are all on track for record exports this year despite the weaker price environment. US exports are likely to fall, but only ~8Mt from 2012 levels. Australian exports had slightly weaker months in August and September, but the important Hunter Valley Coal Chain, responsible for delivering NSW coal exports through Newcastle Port, hit sequential throughput records in September (13.5Mt) and then October (14.4Mt), with stronger semi-soft shipments offsetting the weaker thermal volumes noted above, demonstrating available capacity. Currency weakness in Australia and Indonesia is likely to further support producers, keeping them in the market. The US remains a swing supplier into Europe and is likely to benefit in the near term from seasonal strength. With our steady price outlook for 2014 we expect US supply in 2014 to match 2013 levels; while down on 2012, this remains high by historical standards.


December 5, 2013 17

Exhibit 22: Australian, Indonesian, South Africa, and US thermal coal exports

Australian thermal coal exports

0

2

4

6

8

10

12

14

16

18

20

Jan

03

Jul 0

3Ja

n 0

4Ju

l 04

Jan

05

Jul 0

5Ja

n 0

6Ju

l 06

Jan

07

Jul 0

7Ja

n 0

8Ju

l 08

Jan

09

Jul 0

9Ja

n 1

0Ju

l 10

Jan

11

Jul 1

1Ja

n 1

2Ju

l 12

Jan

13

Jul 1

3

Taiwan Korea China Japan Total

Mt

Indonesian thermal coal exports

0

5

10

15

20

25

30

35

40

Jan

03

Jul 0

3Ja

n 0

4Ju

l 04

Jan

05

Jul 0

5Ja

n 0

6Ju

l 06

Jan

07

Jul 0

7Ja

n 0

8Ju

l 08

Jan

09

Jul 0

9Ja

n 1

0Ju

l 10

Jan

11

Jul 1

1Ja

n 1

2Ju

l 12

Jan

13

Jul 1

3

India Taiwan Korea

China Japan Total

Mt

South Africa thermal coal exports

0

1

2

3

4

5

6

7

8

9

Jan

03

Jul 0

3Ja

n 0

4Ju

l 04

Jan

05

Jul 0

5Ja

n 0

6Ju

l 06

Jan

07

Jul 0

7Ja

n 0

8Ju

l 08

Jan

09

Jul 0

9Ja

n 1

0Ju

l 10

Jan

11

Jul 1

1Ja

n 1

2Ju

l 12

Jan

13

Jul 1

3

Netherlands China India Total

Mt

US thermal coal exports

0

1

2

3

4

5

6

Jan

03

Jul 0

3Ja

n 0

4Ju

l 04

Jan

05

Jul 0

5Ja

n 0

6Ju

l 06

Jan

07

Jul 0

7Ja

n 0

8Ju

l 08

Jan

09

Jul 0

9Ja

n 1

0Ju

l 10

Jan

11

Jul 1

1Ja

n 1

2Ju

l 12

Jan

13

Jul 1

3

Pacific Atlantic Total

Mt

Source: McCloskey

Colombian supply a question mark for early 2014 There are some risks around Drummond supply post January 1, 2014. The company has a year-end deadline to convert its port facilities to a direct-loading operation. This is a requirement for all Colombian exporters from January 1. Drummond is constructing the facility but appears unlikely to meet the deadline, partly a result of the July strikes. There are several possible options, with a worst-case scenario being a ban on exports by Drummond. This would result in approximately 2.3Mt/month of supply being withdrawn (~3% of global supply). Two significant disruptions to Colombian supply in 2013 saw very little price action: the rail restrictions in January and the Drummond strike through July. Given continued strength in supply, we would not expect any major price response if Drummond were forced to cease exports.


December 5, 2013 18

Exhibit 23: Colombian thermal coal exports

0

1

2

3

4

5

6

7

8

Jan

03

Jul 0

3

Jan

04

Jul 0

4

Jan

05

Jul 0

5

Jan

06

Jul 0

6

Jan

07

Jul 0

7

Jan

08

Jul 0

8

Jan

09

Jul 0

9

Jan

10

Jul 1

0

Jan

11

Jul 1

1

Jan

12

Jul 1

2

Jan

13

Jul 1

3

USA UK Netherlands Total

Mt

Source: McCloskey

Japanese demand boosted by prolonged nuclear outage Japanese coal demand has been rising, with October consumption up a strong 26.7% y/y and overall coal consumption up 16% ytd. Imports have, however, fallen 1% for the year, reflecting a slight shift in mix away from lower-CV Indonesian coal (down 10% y/y) toward higher-CV Australian coal (+2% y/y). The ongoing nuclear outages continue to support coal demand. We expect this to continue into 2014. Once the nuclear plants do restart, other higher-cost power generation sources are likely to be impacted before coal (in particular HFO), so we do not expect this to be a major threat to coal demand in 2014.

Exhibit 24: Japanese thermal coal imports

0

2

4

6

8

10

12

14

Jan

03

Jul 0

3

Jan

04

Jul 0

4

Jan

05

Jul 0

5

Jan

06

Jul 0

6

Jan

07

Jul 0

7

Jan

08

Jul 0

8

Jan

09

Jul 0

9

Jan

10

Jul 1

0

Jan

11

Jul 1

1

Jan

12

Jul 1

2

Jan

13

Jul 1

3

China Indonesia Australia Total

Mt

Source: McCloskey


December 5, 2013 19

Exhibit 25: Thermal coal supply and demand summary

Seaborne Thermal Coal Supply/Demand (Mtpa) 2009 2010 2011 2012 2013E 2014E 2015E 2016E

Key Exporters

Indonesia 233 291 323 347 385 393 401 401

Australia 139 141 148 171 180 191 197 208

CIS 126 134 135 140 143 147 152 156

Colombia 63 69 76 80 72 82 86 90

South Africa 67 70 69 72 74 76 77 79

USA 19 23 34 50 42 42 41 40

Vietnam 25 21 17 14 17 17 18 18

Other 47 40 36 28 27 30 30 30

Supply of Seaborne Coal 719 789 837 902 941 977 1001 1022

Key Importers

EU 158 162 162 170 175 180 186 191

China 58 92 102 147 150 155 159 164

Japan 113 125 120 133 135 136 138 139

India 60 76 94 123 145 151 157 163

Korea 80 89 94 92 92 94 96 98

Taiwan 49 54 47 43 45 46 47 47

Other Asia 69 81 106 74 85 90 96 103

CIS 26 26 26 26 30 30 30 30

Americas 46 45 36 37 34 35 35 36

Other 33 36 36 36 30 31 31 32

Demand for Seaborne Coal 692 785 824 880 920 948 975 1002

Demand growth 2.7% 13.5% 5.0% 6.8% 4.6% 3.0% 2.8% 2.8%

Implied Seaborne Market Balance 20 29 26 20

Source: CRU, RBC Capital Markets estimates


December 5, 2013 20

Required disclosures

Non-U.S. analyst disclosureChris Drew and Ken Tham (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not beassociated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2711 and NYSE Rule 472restrictions on communications with a subject company, public appearances and trading securities held by a research analystaccount.

Conflicts disclosuresThe analyst(s) responsible for preparing this research report received compensation that is based upon various factors, includingtotal revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generatedby investment banking activities of the member companies of RBC Capital Markets and its affiliates.

Distribution of ratingsFor the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively,the meanings are not the same because our ratings are determined on a relative basis (as described below).

Distribution of ratingsRBC Capital Markets, Equity Research

As of 30-Sep-2013Investment BankingServ./Past 12 Mos.

Rating Count Percent Count Percent

BUY [Top Pick & Outperform] 769 51.00 271 35.24HOLD [Sector Perform] 656 43.50 179 27.29SELL [Underperform] 83 5.50 13 15.66

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December 5, 2013 21

opportunity as a result of temporary selling pressure in the market; conversely, the security of a subject company that is rateda long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-Term Trade Ideasare not ratings, nor are they part of any ratings system, and RBC Capital Markets generally does not intend, nor undertakes anyobligation, to maintain or update Short-Term Trade Ideas. Short-Term Trade Ideas discussed in SPARC may not be suitable for allinvestors and have not been tailored to individual investor circumstances and objectives, and investors should make their ownindependent decisions regarding any Short-Term Trade Ideas discussed therein.

Analyst certificationAll of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all ofthe subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly orindirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poors Financial ServicesLLC (S&P) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or impliedwarranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warrantiesof originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing,in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special,punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Disclaimer

RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBCCapital Markets, LLC, RBC Europe Limited, RBC Capital Markets (Hong Kong) Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, SydneyBranch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty,express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. Allopinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice andare provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investmentadvice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives ofpersons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independentinvestment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buyany securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC CapitalMarkets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment bankingrevenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and otherinvestment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not beeligible for sale in some jurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicableindustry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report isnot, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is notlegally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets norany of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the informationcontained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets.

Additional information is available on request.

To U.S. Residents:This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which acceptsresponsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting ina broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, shouldcontact and place orders with RBC Capital Markets, LLC.To Canadian Residents:This publication has been approved by RBC Dominion Securities Inc.(member IIROC). Any Canadian recipient of this report that is not a Designated Institution inOntario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) andthat wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBCDominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada.To U.K. Residents:This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized by the Prudential Regulation Authority and regulated by the FinancialConduct Authority ('FCA') and the Prudential Regulation Authority, in connection with its distribution in the United Kingdom. This material is not for generaldistribution in the United Kingdom to retail clients, as defined under the rules of the FCA. However, targeted distribution may be made to selected retail clients ofRBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom.To Persons Receiving This Advice in Australia:This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been preparedfor general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting onthis material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisitionor possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product


December 5, 2013 22

and consider that document before making any decision about whether to acquire the product. This research report is not for retail investors as defined in section761G of the Corporations Act.To Hong Kong Residents:This publication is distributed in Hong Kong by RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited and RBC Capital Markets (HongKong) Limited, licensed corporations under the Securities and Futures Ordinance or, by the Royal Bank of Canada, Hong Kong Branch, a registered institution underthe Securities and Futures Ordinance. This material has been prepared for general circulation and does not take into account the objectives, financial situation,or needs of any recipient. Hong Kong persons wishing to obtain further information on any of the securities mentioned in this publication should contact RBCInvestment Services (Asia) Limited, RBC Investment Management (Asia) Limited, RBC Capital Markets (Hong Kong) Limited or Royal Bank of Canada, Hong KongBranch at 17/Floor, Cheung Kong Center, 2 Queen's Road Central, Hong Kong (telephone number is 2848-1388).To Singapore Residents:This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch and Royal Bank of Canada (Asia) Limited, registered entities grantedoffshore bank and merchant bank status by the Monetary Authority of Singapore, respectively. This material has been prepared for general circulation and doesnot take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser beforepurchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicativeof future performance. If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch or Royal Bank of Canada(Asia) Limited.To Japanese Residents:Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd., a registered type one financialinstruments firm and/or Royal Bank of Canada, Tokyo Branch, a licensed foreign bank.

. Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license.Copyright RBC Capital Markets, LLC 2013 - Member SIPC

Copyright RBC Dominion Securities Inc. 2013 - Member CIPFCopyright RBC Europe Limited 2013

Copyright Royal Bank of Canada 2013All rights reserved


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