David Rynne

Director Economic and Infrastructure Policy

Drill 2014 ConferenceGold Coast21 August 2014

Queensland’s resources: The outlook 2014

> Overview of the QRC

> The economic contribution of the QLD resources sector

> Tough market conditions and industry’s positioning

> Long term demand fundamentals for resources

> Capitalising on these fundamentals

> State and federal governments policy reform agenda

Presentation outline

> The Queensland Resources Council (QRC) is a not-for-profit peak industry association representing the commercial developers of Queensland’s minerals and energy resources

> 79 full members – explorers, miners, mineral processors, site contractors, oil and gas producers, electricity generators

> 161 service members - providers of goods or services to the sector

> State-based multi-commodity advocacy group formed in 2003 as successor to the Queensland Mining Council

Who is the Queensland Resources Council?

79full members

161service members

39associate members

Aberdare CollieriesAdani MiningAllegiance CoalAltona MiningAnglo AmericanAnglo American Exploration Aquila ResourcesAreva Resources AustraliaArrow EnergyBandanna Energy Beach EnergyBengal CoalBHP Billiton CanningtonBHP Billiton Mitsubishi AllianceCaledon CoalCape AluminaCape Flattery Silica MinesCarabella ResourcesCarbon EnergyCarpentaria GoldCement Australia

Civil Mining and Construction Coalbank Cockatoo CoalConocoPhillips AustraliaDowner EDI MiningEagle Downs Coal MgtEnsham ResourcesERM Power Evolution MiningExco ResourcesGlencore Coal Glencore CopperGlencore ZincGuildford Coal GVKInternational CoalInvestigator ResourcesIsaac Plains Coal MgtJellinbah ResourcesJindal Steel & PowerJohn Holland

Kalimati Coal CompanyLinc EnergyLucas GroupMacmahon HoldingsMastermyneMetallica MineralsMetroCoalMillmerran Power MgtMinerals and Metals GroupMitsubishi DevelopmentNew Hope GroupNorton Gold FieldsOrigin EnergyPaladin EnergyPeabody EnergyQCoalQERQGCQueensland Coal InvestmentsRio Tinto AlcanRio Tinto Coal Australia

Rockland ResourcesSantos/TOGASenex EnergyShell Development (Australia)Sibelco AustraliaSojitz Coal MiningStanmore CoalSummit ResourcesThiessU & D Mining Industry

(Australia)ValeValiant ResourcesWesfarmers ResourcesWestside CorporationWhitehaven CoalYancoal Australia

The resources ‘boom’ has delivered enormous socio-economic benefits to Queenslanders

Economic contribution

5

> The almost decade-long and unprecedented investment cycle has peaked

> Coal and LNG in particular moving from investment to production phases

> Supply has caught demand in most commodities with prices currently too low to encourage another significant supply response – especially for coal

The changing playing field in Queensland resources

6

Coal prices’ long journey south

> Thermal and coking coal prices weak as market over-supplied

> Demand still growing steadily – global thermal coal trade up by 5% pa – driven by India and China. Japan desperate to ensure supply given nuclear uncertainty.

> Marginal suppliers to Asia (e.g. USA) being squeezed out

> Costs and shareholder returns focus

> Australian producers waiting for someone else to blink, but can it last?

> Signs that rail providers willing to share some pain on ‘take or pay’

> 25 per cent of all Qld coal produced at a loss (and half of all thermal coal)

> 10 per cent of all Qld coal produced at a loss of more than $US14/tonne

Coal market imbalances the 2014 reality

8

Substituting lousy prices with record volumes

2004

-05

2005

-06

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14 140,000

150,000

160,000

170,000

180,000

190,000

200,000

210,000

220,000

Total Qld coal exports (mt)

Source: London Metals Exchange

Metals prices

> SURVIVAL! Companies working their way back down global cost curves

> Improved productivity from best resources/targeted operations

> Higher production counter to low prices and fixed costs

> Maintain tenements by doing bare minimum

> Respond strongly to ideological opposition (masking as environmental activism) to shore up social licence now and into the future

Industry positioning (here and now)

Industry positioning (medium to longer term)

> Wait for price recovery and attract capital

> Put capital into sustaining production and focus on brownfield expansions

> Look for more gas for existing project

> Look for acquisition opportunities

> Get project approvals – a pre-condition for attracting capital

> Complete feasibility studies

> Diversify: other commodities, countries

TitleSubtitle

Global demand fundamentals

Global demand fundamentals

16

Positive outlook – addressing energy poverty a UN priority

Current renewables can’t deliver reliability and scale to lift billions from poverty

Skyrocketing electricity demand dictates we must make more from everything we have – coal, gas, uranium, renewables.

1.3 bn people without electricity; 2.7 bn without clean cooking facilities

Capitalising on these opportunities (QRC CEOs)1. Uncompetitive costs (labour, energy, transport, taxation) and productivity

2. * Regulatory uncertainty, ad hoc policies, sovereign risk, red tape

3. * Regional planning policy, legislation

4. * Ability to raise capital – both for majors and juniors

5. Commodity prices (low), exchange rate (high)

6. Infrastructure access, government vacating space

7. Activists’ attacks, community sentiment

* Of particular concern to the exploration sector

Avg per annum change between 2006 and today

+ REGULATION!!

Approval time for a new mining project- 7 months on average in 2002- 18-36 months in 2012Govt’s are aiming to halve this

Approval time for an exploration permit- 22 months on average in 2013Govt is aiming to get this down to 6 months

AUD:USD

Western System rail ($/t)

Blackwater rail ($/t)

Goonyella rail ($/t)

Moura rail ($/t)

Newlands rail ($/t)

Electricity costs ($/kwh pa)

Coal royalty costs ($/t)

Labour costs ($ avg mining weekly earnings)

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Source: BREE, ABS, QLD Government, ATO and QCA

How exploration managers rate Queensland

How exploration managers rate Queensland

How exploration managers rate Queensland

How exploration managers rate Queensland

> Abolish the carbon tax

> Abolish the MRRT (difficult to do given Senate resistance)

> ‘One stop shop’ for environmental approvals

> Reduction in green and red tape

> Government’s fiscally are very constrained so unlikely to see direct investment but perhaps recycled capital from privatisations

Government reforms to encourage production

> $32m over three years for pre-competitive geological programs

> Development of ResourcesQ being a 30 year vision for the QLD resources sector

> Exploration Development Incentive scheme for investors ($100m over 4 yrs)

> Streamlining the assessment pathway for coal and mineral exploration permits to 6 months (12 months where applications are subject to native title)

> Prioritising the technical assessment of work programs at the start of the application process so that explorers are advised within 90 days of lodgement whether their exploration program has been approved or rejected

> Modernising Queensland's Resources Acts

Government reforms to encourage exploration

David Rynne

Director Economic and Infrastructure Policy

Drill 2014 ConferenceGold Coast21 August 2014

Queensland’s resources: The outlook 2014