UNCTAD Commodity Forum Presentation Jan. 31, 2011

© Metals Economics Group, 2011

Base Metals & the Copper Pipeline

David CoxVice President

Metals Economics Group

UNCTAD Commodities Forum Geneva

January 31, 2011


Overview

• Copper, Nickel, and Zinc markets

• A closer look at the copper supply pipeline

• Hurdles to new supply

• Will there be a medium-term copper squeeze?


China Driving Demand, Growth, and Metals Prices

Source: ICSG, INSG, ILZSG, Metals Week, MEG estimates


Copper Market

Source: ICSG, Metals Week, MEG estimates


Copper Exchange Stocks and Prices

Source: LME, Metals Week, MEG estimates


Nickel Market

Source: INSG, Metals Week, MEG estimates


Nickel Exchange Stocks and Prices



Zinc Market

Source: ILZSG, Metals Week, MEG estimates


Zinc Exchange Stocks and Prices



Looking more closely at the supply pipeline

• Metals Economics Group - the trusted source of global supply-side mining information and analysis since 1981

• Tracking the supply pipeline through• Exploration strategies and spending

• Financing

• Discoveries

• Project development and operating mines

• Production

• Acquisitions


What is the path that projects take to production

• Finding Financing

• Exploration/Drilling

• Resource Definition

• Feasibility – less than 1 in 1000 pass the test

• Financing/Construction

• New Production


Significant Copper Financings on the Upswing

Source: MEG Exploration Activity Services, Industry Monitor


Recent Surge in Significant Copper Drill Results

Source: MEG Exploration Activity Services, Industry Monitor


Location of Initial Finds Drill Results for 2010

Source: ??Source: MEG Exploration Activity Services, Industry Monitor


But Copper Resource Announcements Trending Down

Source: MEG Exploration Activity Services; Industry Monitor


Hurdles to new supply

• Falling grades

• Long development time

• Political risk

• High capital costs


Ore Grades Falling

Source: MineSearch


A Long Time Getting to Feasibility

Source: MineSearch

Project Country

Tracked in

MineSearch since Discovered

Number of

previous owners

Reko Diq Pakistan 1999 1997 4

Cobre Panama Panama 1992 1969 5

Tampakan Philippines 1995 1992 5

Toromocho Peru 1993 1974 3

Quellaveco Peru 1991 1939 2

El Pachon Argentina 1994 1963 4

Agua Rica Argentina 1992 1994 5

El Arco Mexico 1992 1991 2

Mirador Ecuador 1996 1995 2


Resources by Stage of Development

Source: MineSearch


Preproduction Copper Projects & Sovereign Risk

Source: MineSearch


Preproduction & Feasibility-Stage Primary Copper Projects

Source: MineSearch


Preproduction, Feasibility, & Reserves Development

Source: MineSearch


Capital Costs of Copper Projects Under Construction

Source: MineSearch

Project Country

Initial Capital

Costs

Cu Contained Total

Reserves Resources (mt)

Oyu Tolgoi Mongolia $4,600 30,844,000

Aynak Afghanistan $4,390 10,998,000

Las Bambas Peru $4,200 8,759,000

Konkola North Zambia $380 7,655,000

Salobo Brazil $1,808 7,149,000

Esperanza Chile $2,500 4,567,000

Galeno Peru $2,500 4,297,000

Antapaccay Peru $1,470 4,046,000

Caserones Chile $2,000 3,947,000


Who will develop new supply?

• $2 - $5 billion - projects need deep pockets and expertise

• BHP, Rio, Anglo, Vale, Xstrata have strong pipelines for expansions and new projects

• However, 21 of 50 largest reserves-development projects are in junior hands

• Will countries’ sovereign wealth funds take up these projects?


Copper Acquisitions by Chinese Companies

Source: MEG Acquisitions Service


Will there be a medium-term copper supply squeeze?

Known Unknowns• Chinese demand and inflation

• European sovereign debt issues

• World growth, developing-country economies

• US quantitative easing

• Trade tensions

• Metals ETFs

• Production disruptions

Weighing all these factors, we believe there will be a squeeze in the near future.


Poor Copper Forecasting History

Source: MEG Strategic Report


Price Forecast 2011

Copper: $4.10 /lb (range $4.90 -3.90)

Nickel: $10.35/lb ($11.50 – 9.40)

Zinc: $1.06/lb ($1.02-1.12)


METALSECONOMICSGROUP

www.metalseconomics.com

+1 902 429-2880

[email protected]

http://www.metalseconomics.com/

UNCTAD Commodity Forum Presentation Jan. 31, 2011

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