Metal Price Outlook 2013-14, presented by Patricia Mohr at 2013 CMIC Signature Event

Metal Price Outlook 2013-14Innovation and Cost Control Key to Profitability

Patricia M. MohrVice-President, Economics

& Commodity Market Specialist, Scotiabank

2nd Annual Signature Event

“Collaboration & Innovation: The Future of Canadian Mining”

Canada Mining Innovation Council

Delta Chelsea Hotel, Toronto

February 12, 2013

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Scotiabank’s Commodity Price Index – Declines 19.7% From Near-Term Peak in April 2011

Scotiabank Commodity Price Index1

Index: Jan 2007=100

All Items1

October 2001Bottom

New record high in July 2008

Arab Oil Embargo

1. A trade-weighted U.S. dollar-based index of principal Canadian commodity exports, including Metals & Minerals, Oil & Gas, Forest Products and Agricultural commodities. – Shaded areas represent U.S. recession periods. Data to December 2012.

Decline From April 2011 Near-Term Peak -19.7%,

December -4.6%m/m

-46% in 2008: July to Dec.

Scotiabank’s Commodity Price Index rose to a near-term peak in April 2011 – just prior to financial market concern over excessive Eurozone sovereign debt and the negative impact on global economic growth.

The subsequent correction in commodity prices from April 2011 to December 2012 at 19.7% has been less than half the slide during the 2008 recession.

Prices rallied strongly in August (+3.1%) and in September (+3.6%), before losing ground again late in the year alongside another bout of concern over global growth and the U.S. ‘Fiscal Cliff’.

April 2011

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The rally in Scotiabank’s Commodity Price Index in August reflected a number of supply developments – 1) strong global oil prices linked to ‘geopolitical supply risks’ in the Middle East and North Sea maintenance, 2) the beginning of a rally in lumber & panel board prices alongside a nascent recovery in U.S. housing -- in the face of tight Canadian & U.S. building material supplies -- and 3) historically high grain & oil seed prices due to drought in the U.S. Midwest and parts of Russia.

In September, this improvement was followed by easier monetary policy from central banks and government policy measures -- to shore up the Eurozone financial system, to lift sub-par U.S. growth and to curb the slowdown in China & India -- bolstering business & investor ‘confidence’ and boosting demand for ‘riskier assets’ such as commodities and equities.

More specifically: The positive surprise at the June 28-29 EU Summit—the European Commission proposal for a single banking supervisor (not likely in place until 2014), after which Eurozone banks will have direct access to the European Stability Mechanism (ESM) rather than having to borrow through sovereigns, raising their debt-to-GDP ratios; triggered the beginning of a rally in commodity prices;

After a Sharp Correction, Commodity Prices Rally Back in August/September

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The proposed ECB bond purchase program (‘Outright Monetary Transactions’ in the secondary market, Sept 6), under which the ECB will buy the short-term debt of countries seeking help (under strict conditionality); A third round of ‘quantitative easing’ from the Fed (purchasing additional agency mortgage-backed securities -- US$40 bn per month); FOMC minutes stated that an exceptionally accommodative monetary policy would remain appropriate for a considerable time after the economic recovery strengthens;

A RMB1 trillion (US$160 bn) infrastructure investment program unveiled by China’s National Development and Reform Commission to boost growth. A broadly weaker U.S. dollar, following announcement of QE3, was also quite supportive of higher dollar-denominated commodity prices in September.

In late 2012, the FOMC then announced that it would replace ‘Operation Twist’ with open-ended purchases of longer-dated Treasury securities totalling US$45 bn per month – intended to keep long-term interest rates low. In 2013, commodity prices will receive a lift from slightly stronger – though still slow – world economic growth (especially in the second half of the year) and re-stocking of raw materials after liquidation or deferred orders in 2012; Medium-term, recent announcements of new mine delays will underpin base metal prices and eventually boost uranium prices.

Weaker U.S. Dollar, After QE3, Lifts Commodity Prices

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Source: Markit, Scotiabank Economics.Data to January 2013.

Global Purchasing Manager Indices (PMIs) lost considerable momentum last summer, reflecting declining business ‘confidence’ worldwide, with buyers deferring orders and liquidating inventories.

However, the PMI for manufacturing in China moved back over the 50 mark in October – indicating an end to inventory reduction and moderately stronger growth in 2012:Q4. China’s GDP growth picked up to 7.9% yr/yr in 2012:Q4 from 7.4% in Q3, yielding a ‘soft-landing’ of 7.8% for 2012 as a whole.

In 2013, commodity prices will receive a modest lift from re-stocking of raw materials, after liquidation or deferred orders in 2012.

Global Purchasing Manager IndicesLost Momentum Over The Summer,

But Have Rebounded in China

Germany

Euro zone

U.S.China

China PMI in January : 50.4

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China Industrial Production:

Jan-Feb 2009 3.8% yr/yr (a bottom)Mar 2009 8.3%July 2009 10.8% Dec 2009 18.5%

2010 14.4%China tightens monetary policy.

2011 13.7%

Q1 2012 11.9%Q2 2012 9.5%Q3 2012 9.1%Q4 2012 10.0%

December 2012 10.3%

G7 Industrial Production -0.1% (Oct) U.S. +2.2% (Dec) Japan -9.1% (Dec) Germany -1.1% (Dec)

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China -- Vital to Global Commodity Markets

yr/yr % change

China – Industrial Production*

G7 Industrial Production

China’s Share of Global Consumption in 2012e Compared with United States

(in brackets)

Copper 41.3%(9.0%)

Nickel* 41.5%(8.2%)

Zinc 43.3%(8.2%)

Aluminium 45.1%(10.9%)

*3 mth moving avg.

Four Base Metals: China 43.8%, USA 9.9%. *Japan 9.6%; excluding inventory accumulation in China Source: Scotiabank Commodity Price Index.

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World China UnitedStates

Japan Euro Zone

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2011

2012e

yr/yr % change

2008 2009 2010 2012e 2013f 2014f

WORLD* 2.8 -0.6 5.2 3.1 3.2 3.8

MEXICO 1.2 -6.2 5.5 4.0 3.6 3.9

CANADA 0.5 -2.5 3.2 1.9 1.7 2.4

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STATES0.0 -2.6 3.0 2.2 1.9 2.7

CHINA 9.6 9.2 10.4 7.8 8.1 8.3

INDIA 5.2 7.7 9.0 5.5 6.0 6.5

BRAZIL 5.1 -0.2 7.5 1.0 3.3 4.0

JAPAN -1.1 -5.5 4.5 1.9 0.8 1.2

EURO ZONE

0.5 -4.1 1.8 -0.5 -0.2** 1.0

GDP (% per annum)

*Scotiabank estimates. Average 1988-1997: 3.4% p.a. prior to the “economic take-off” in China and India. ** Systemic risks are easing and sentiment improving for positive economic growth in some Euro zone countries by 2014.

Global Growth Will Edge Up in 2013, But Stay In the Slow Lane

In 2014, world growth should strengthen to 3.8% – moderately supportive of stronger commodity prices. U.S. GDP 2.7%, China 8.3%. U.S. Federal Gov’t Deficit: FY2012 US$1.089 tr; 2013F US$950 bn.

A ‘seismic’ shift in global growth has occurred from the G7 to ‘emerging

markets’ (especially in Asia).

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CHINA -- Shifted To Pro-Growth Monetary & Fiscal Policy in 2012 To Shore Up Its Economy, Though Easing Was Cautious Due To Ongoing Concern Over

Inflation & Still High Municipal Debt

yr/yr % change

CPI +2% yr/yr in January 2013. The People’s Bank of China reduced the required bank reserve ratio for large banks by 50 basis points to 21.0% on Dec 5/11, by 50 basis points on Feb 24/12 to 20.50%, and by 50 basis points on May 18/12 to 20.00%. One-Year Lending Rates have been reduced in two steps by 53 bps to 6.00%, with more for ‘preferred’ commercial bank customers. Local Government Debt is still about 23% of GDP, only down slightly from a peak of 27% in 2010; ratio was 18% in 2008.

%

Consumer Price Index (LHS)

Required Reserve Ratios for Big Banks (RHS)

One-Year Lending Rate (RHS)

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China’s Economic Growth Has Been Led By Investment Spending

Second-largest economy in the world, with a nominal GDP in 2012 at US$8.254 trillion compared with U.S. GDP at US$15.704 tr.

The share of investment spending in China’s GDP at 48.7% is much higher than in the United States (12.3%), given China’s ongoing ‘industrialization, urbanization and technological upgrading’ – a feature which has tremendously boosted global demand for base metals, iron ore and steel over the past decade.

Consumer spending on goods & services garners a much lower share of GDP in China at 35% compared with 71% in the United States.

STRUCTURE OF CHINA’S ECONOMY, EXPENDITURE AS PER CENT OF GDP (2011 nominal GDP, % of Total)

CHINA UNITED STATES Consumer Spending 34.6%+ 71.2%Fixed Capital Formation* 48.7% 12.3%**Net exports of goods & services 2.7% -3.8%

* Business machinery & equipment, Non-residential construction, part of Residential construction, Government investment and inventory change. ** Excludes Government investment. + Includes some property investment; the overall comparison was similar in 2012.

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ONCE IN A DECADE CHANGE IN LEADERSHIP IN CHINA –As Important To The Global Growth Outlook

As The U.S. Presidential Election

November 8-15, 2012 – date of the 18th National Congress of the Communist Party of China, where a new leadership was established for only the fifth time since Mao Zedong – to be followed by the National People’s Congress (parliament) in March 2013. A large number of officials will be changed.

New Fifth Generation Leadership:

President (Head of State and Secretary-General of the Communist Party of China):

Mr. Xi Jinping; previously Mr. Hu Jintao

Prime Minister (Head of Government):

Mr. Li Keqiang, previously Mr. Wen Jiabao.

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China – Policy Continuity Expected Under New Leadership China is expected to continue pursuing the economic initiatives in the 12th Five-Year Plan, unveiled in March 2011, though the new leadership is expected to seek more market-related solutions (less central planning), be more ‘populist’ and emphasize government over party interests.

The 12th Five Year Plan (2011-15) seeks more ‘balanced’ economic growth – with less emphasis on export expansion & investment and greater focus on domestic consumer spending, development of the ‘service’ industries including the financial sector and ‘New Economy’ growth; other key objectives -- productivity gains through ‘economic restructuring’ – e.g. closure of smaller, less efficient plant & rationalization into larger, lower-cost entities (the steel & coal industries); reducing industrial energy intensity; a focus on developing the Western & Central parts of China, away from the heavily industrialized Eastern & Coastal areas, as initiated by President Hu Jintao; raising household incomes & living standards and building an environment-friendly society. In practice, progress on ‘rebalancing’ China’s economy towards domestically-led growth (e.g. via consumer spending) was not significant in 2012. Retail sales slowed to 14.3% in 2012 from 17.1% in 2011.

What is evident is that China is no longer pursuing ‘economic growth at any cost’. A subtle shift is underway, with China comfortable with a slower, more ‘market-determined’ advance (official target was 7.5% for 2012 – likely to remain at 7.5% in 2013).

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Infrastructure Spending Program Announced Last September To Spur Growth

However, noticeably weaker economic indicators in China in August 2012 triggered a RMB1 trillion (US$160 bn) infrastructure spending program – approved by the National Development and Reform Commission (NDRC) – 60 infrastructure projects including 25 urban rail transit projects in 19 cities (subway systems), 13 road construction projects, 10 civil projects and 7 port & navigation channel projects. Will boost GDP by 2% (0.5% p.a. over four years).

The stimulus package was about ¼ of the massive RMB4 trillion announced in November 2008 in the face of the ‘Great Recession”.

In addition, local governments have increased the pace of ‘land supply’ to support residential construction.

After reducing inventories of raw materials and consumer goods last summer and early Fall, China’s economy picked up moderately in late 2012, bolstered by stronger infrastructure spending as well as consumer incentives to buy power or fuel-efficient household appliances and small cars. Home sales have picked up again and ‘floor space under construction’ rose 15.4% in October, with residential construction up 10.6%. Rising confidence in the new ‘leadership’ will likely be reflected in strong business investment and consumer spending in early 2013.

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Medium-Term, The ‘Emerging’ Markets Will Remain Supportive for Commodity Prices

ChinaUnited StatesWestern EuropeJapanIndia

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Vehicle Penetration – 2011(Vehicles per 1,000 people)

Aluminium usage in automobiles in China has recently been an average of 127.5kg per vehicle compared with 145kg in the USA. As such, there is good potential to increase aluminium usage in China.

Huge Potential for Oil & Metal-Intensive Motor Vehicle Sales in China China’s population: 1.354 billion

China’s potential GDP growth is slowing -- in 2012: 8.5%, 2015-20: 7.0%p.a., 2025-30: 5% p.a. with less under-utilized labour and slower capital formation.

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Federal Funds – Effective Rates

per cent

Federal Funds Target Rate is 0-25 bps in February 2013. Exceptionally low funds rate will be warranted until U.S. unemployment rate falls below 6.5% (currently at 7.8%), unlikely until late 2014-2015.

The Fed Is Determined to Strengthen U.S. Employment Recovery – Signals Accommodative Monetary Policy Until Unemployment Falls to Normal

“Real” Federal Funds Rate (Adjusted for Inflation)*

per cent

* Inflation-adjusted with the U.S. Personal Consumption Deflator (PCE) and the core PCE. Shaded areas represent U.S. recession periods. Fed intends to keep inflation expectations 1-2 years ahead anchored at 2.5%.

Average

December 2012 = -1.09%Average = 2.00%

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U.S. Industrial Production

U.S. Motor Vehicle Assemblies

U.S. Payrolls

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Latest Data:Advance in Payrolls

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Gain inPast Year

yr/yr % change

North American motor vehicle assemblies strengthened to 15.8 million units in 2012 (+17%) and are forecast to climb to 16.4 million in 2013 (+4%). Output in Mexico reached a record 3.0 million in 2012 – lifted by Mexico’s free trade agreements with Japan, the EU and the USA.

U.S. employment recovery has been 5-times

less than normal.

+157,000

+2,016,000

Strong Auto Assemblies Buoy U.S. Industrial Activity In 2012-13,

But Employment Gains Have Been Sub-Par

U.S. Consumers

Replace Aging Fleet,

Japanese Assemblers re-stock in Early 2012

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Currency Trends

March 1973=100

Canadian Dollar

U.S. Dollar Trade-Weighted

Data to February 11, 2013: euro US$1.3422; Cdn$= US$0.9935 1US$ = 6.2324 Rmb.

US cents

euro

Chinese Yuan

US cents

euro: peak US$1.60 July 15, 2008

U.S. Dollar Trends Canadian Dollar Expected to Remain Above Par

Canadian dollar likely to remain around par to U.S. currency in 2013 due to Canada’s Triple-A credit

rating, low federal government debt-to-GDP ratio and relatively tight

monetary policy

US cents

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Technical Challenges in Mining Exploration & Development Requiring Innovation

Shortage of experienced geologists and replacement with ‘Black Boxes”, which provide a good indication of resources, but sometimes yield inaccurate and ‘risky’ assessments (e.g. scanning machines often lack good calibration).

Basic drilling equipment has not been developed as well as in the Oil & Gas industry; 3-dimensional modelling needs to be further developed.

Exploration and reserve estimates are being pushed, less depth in analyzing economic, financial market and engineering/supply side ‘risks’ when conducting ‘feasibility’ studies.

Junior mining company equity valuations are under pressure due to uncertain economic outlook; equity listings under threat, if share value falls below 10 cents; high regulatory burden.

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2,000The Re-Monetization of Gold

US$ per ounce

Gold Prices London PM Fix

Jan. 21, 1980 peak US$850

March 17, 2008 US$1,032.70,

following collapse of Bear Stearns *

London PM Fix on February 11, 2013: US$1,652.

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New Record: Sept 9, 2011 spot US$1,921.15

2007 6972008 8722009 9732010

1,2252011 1,5692012F

1,6722013F 1,700

Price Outlook (US$)

Gold prices have been on a ‘Bull Run’ since 2001 – with high government debt and deficits triggering a loss of investor confidence in paper currencies (especially the two reserve currencies – the U.S. dollar and euro).

Gold prices drifted lower through most of 2012, with traders awaiting QE3. However, announcement of a third round of quantitative easing by the Fed (QE3), combined with the ECB’s proposed bond purchase program, propelled gold back to a high of US$1,791.75 on October 4 in London.

Gold languished again in early January following release of the December 2012 FOMC minutes ,with observers noting that half of the participants thought the Fed might have to begin withdrawing its current Quantitative Easing sooner than expected. – Scotia’s view: not until late 2014 at the earliest.

Gold Prices May Be Consolidating

The recent disconnect between historically high gold prices and low equity valuations may reflect rapid operating and capital cost escalation in recent years, linked to declining ore grades and fewer super-giant discoveries than in the 1980s and 1990s. Technical innovation is needed to cut exploration, mining & processing costs.

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5.00Copper Prices Remain Lucrative

US$ per pound New Record High: US$4.60 on February 14, 2011

LME cash settlement prices. + Latest data: February 11, 2013: US$3.73, yielding a 46% profit margin over average world breakeven costs including depreciation, interest & indirect costs. ++ Dec. 24, 2008: US$1.26.

*

Low During Credit Squeeze(Dec. 24, 2008)

Price Outlook2009 US$2.342010 US$3.42 2011 US$4.002012 US$3.612013F US$3.502014F US$3.30

++

Extraordinary recovery in copper prices in early 2009 reflected buying by China’s State Reserve Bureau, massive credit expansion and a rapid rebound in China’s industrial activity.

The strength of copper prices in the past five years has reflected only limited global mine development -- up 1.7% per annum from 2008-2012 -- in the face of strong demand growth from China and the rest of the ‘emerging’ world.

China’s refined copper consumption:

2009 2010 2011 2012e 2013F 2014F+25% +13% +8% +5% +8.5% +6.0%

LME Copper Prices

Global supply & demand conditions for copper were in ‘deficit’ in 2011 and were roughly in balance in 2012, with a small surplus late in the year.

+

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China Dominates World Copper Consumption

Source: Scotiabank Commodity Price Index.

2012 estimates of world consumption.China's consumption = 1.5 times USA + Japan + Western Europe.

(% of Total)

China 41.3% USA

9.0%

Western Europe13.5%

Other Asia + Middle East + Latin America

+ Other25.5%

Japan5.1%

Russia + CIS5.6%

"Emerging" Markets = 66.8%

"Industrialized" Markets = 27.6%

% of total

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LME Copper Prices Likely To Remain High In 2013 LME copper prices are currently US$3.73 per pound – yielding a 46% profit margin over average world break-even costs including depreciation, interest, indirect & cash costs.

World demand only increased by about 0.2% in 2012 – with higher consumption in China (up 5%), the Middle East including Turkey (5.7%) and the United States (up 1%), just offsetting a 6.6% decline in Europe & Russia. However, the anticipated increase in copper mine production in 2012 again failed to meet expectations (up only 3.8%). Technical problems and lower ore grades at a number of major mines have been substantial – especially in Chile (Collahuasi, Los Bronces), Zambia and Indonesia (Grasberg) – keeping global supply & demand conditions balanced.

World mine production should finally increase more substantially in 2013 (+5.5%). However, global demand will also pick up (+5.0%), with some restocking of copper, after inventory liquidation in 2012. The net result, copper prices are likely to remain high at US$3.50. Market observers remain skeptical about the extent of new mine output, with a risk that actual production could again turn out lower. A number of mines in the Democratic Republic of Congo may not start as quickly as planned.

Longer-term, copper prices are expected to remain relatively high at US$3 per pound, given high capital costs.

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Nickel Prices

US$ per pound

LME official cashsettlement price

February 11, 2013: US$8.28 – still modestly profitable for existing Canadian mines, but yielding slim margins worldwide.

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Lucrative Grain Prices

Corn Prices Soybean PricesCanola Prices

Remain LucrativeUS$ per bushel

CBOT Yellow Corn

U.S. Corn Ending Stocks-To-Use Ratio:

2008/09 13.9%2011/12 7.9%2012/13f 5.4%

New Record

US$8.31 August 21, 2012

Data to February 8, 2013.

CBOT Soybean Futures

New Record US$17.70 August 30, 2012

Data to February 8, 2013.

US$ per bushel US$ per tonne

Data to January 2013.

Canola No. 1(In Store Vancouver)

Canola emerged as a $10 billion crop for Canadian farmers in 2012/13, amid record prices.

Canola: No. 1 ‘seeded’ crop in Canada in 2012

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1,000Potash Prices

US$ per tonneOffshore Sales

Spot Potash Prices (FOB Vancouver)

Spot Prices

2008-09 US$6332010 US$3512011 US$4592012 US$4762013:Jan US$424

New spot pricing in SE Asia at US$450 cfr = US$410-415 FOB VCR

Current Overseas Market Conditions – Potash World potash deliveries totalled about 51.9 million tonnes of KCL in 2012 – 8.1% from 56.5 million in 2011. While China’s MOP imports rose during the first ten months of 2012 (+10% yr/yr), China delayed signing new contracts for seaborne shipments in 2012:H2. India also deferred new contract orders following completion of its 2011:H2 contract shipment with Canpotex in first-half 2012. Indian potash demand has been weak since 2011 – the result of a reduction in government subsidies – due to government budgetary challenges as well as an increase in urea subsidies at the expense of potash and phosphates (to assist domestic urea manufacturers and guarantee a 12% return on equity); most of the urea consumed in India comes from domestic production, while potash and phosphate rock must be imported; a 25% depreciation of the Rupee from mid-2011 to mid-2012 also lifted potash prices in local currency terms, though the rupee has edged up in the past six months.

Delays in new contract volumes to China and -- particularly India -- have encouraged other buyers (e.g. in Malaysia & Southeast Asia) to delay orders, expecting lower prices. The slowdown in global growth and weak business confidence in 2012 caused order delays for many raw materials in the summer and early fall.

The net result, Canpotex on December 31, 2012 announced that it reached agreement with ‘Sinochem Fertilizer Macao Commercial Offshore’ to supply 1 million tonnes of potash from Jan-to-June 2013 at about US$400 per tonne cfr China (-US$70 from the previous US$470 contract price established in March 2012). Canpotex agreed to a significant price decline (though less than asked for by buyers), in return for a substantial pick-up in shipments.

Recent signs point to an improvement in market conditions in China. Domestic prices for potash (the equivalent of US$413-429) are improving on the back of a tighter market.

Russian rail shipments are curtailed in January due to weather; Uralkali will also cut its output by 50% from Dec to March 2013 to shore up world market conditions.

Forecast

2013 US$4532014 US$475

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Potash Outlook for 2013 – Strong Spring Application in North America and Restocking by Buyers

While CBOT corn & soybean prices have eased from spectacular record highs last August, prices remain historically high for U.S. & Canadian farmers – pointing to strong Spring fertilizer application, after good application last Fall.

However, U.S. dealers point to U.S./global economic uncertainty and wish to keep inventories low. In December, PCS Sales dropped its U.S. warehouse prices to US$470 per short ton (US$518 per tonne) to incentivize dealers to buy sooner rather than wait until the spring planting season – the practice in recent years.

The recent contract between Canpotex and China is expected to set a floor on potash prices in first-half 2013 and should spur the resumption of spot orders from Southeast Asian buyers. Strong prices for soybeans & corn should keep application strong in Brazil.

India has been seriously under-applying potassium -- leading to an imbalance in nutrient application of growing concern to India’s fertilizer association and contributing to low crop yields. N:K ratio is now 9:1 down from a peak of 4:1 (optimal is 2:1). If India is to improve its yields —important to food security – it must step up potash application again. Based on the 2011-12 crop year, India produced 15 tonnes of grain per tonne of fertilizer used compared with about 32 tonnes in the United States and the world average of 25 tonnes (also dependent upon good farm practice and machinery & equipment).

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million tonnes KCI

Growth Markets:China & Brazil

* Imports & domestic shipments.• 1993- 2012 about 3% p.a.; 2001-07 4% p.a.• Potash demand in China and Brazil has more

than doubled from 2000-12.

India is expected to increase its potash demand in 2013, after applying a mere 3 mt in 2012 (previous peak in consumption in India was 6.3 mt in 2010).

In February 2013, India signed a new contract with Canpotex for 1.1 mt at US$427 per tonne cfr India (significantly lower than the US$470/530 previous contract price), but higher than expected. India also signed a 1.0 mt contract with BPC at the same price. World potash deliveries should rebound to about 56 mt in 2013, as buyers restock.

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160Uranium Prices

US$ per pound

Spot Uranium Prices

February 4, 2013: US$43.65

Fukushima-DaiichiIncident

Price improvement expected in late 2013/2014

Soft Uranium Prices

Spot uranium prices remain at a low ebb in early 2013 – at US$43.65 per pound – well below the US$66 just prior to the Fukushima-Daiichi incident in Japan.

The pullback in prices in late 2012 to quite low levels partly reflected a slower re-start of Japan’s nuclear reactors than initially expected (only 2 of 50 reactors are operating, after safety checks following Fukushima Daiichi). Japanese utilities now have large stocks on hand (100 million lbs.) and have deferred some contract deliveries. The level of uncovered utility requirements is currently low. Long-term base contract prices (prior to escalation at time of delivery) have also lost ground – falling from US$60 to US$56 per pound in late 2012.

Spot price forecast: 2012 US$48.77 per pound; 2013F US$45; 2014F US$52; 2015-16F US$60-65.

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Uranium Prices Should Start to Rebound by late 2013-2014Global supply & demand conditions for uranium were in slight surplus in 2012, with U3O8 demand at about 184 million pounds just under total supply of 191 m lbs. (about 151-152 m lbs. of mine production plus ‘secondary’ supplies of 39 m lbs.). U.S. Department of Energy sales at roughly 10 m lbs p. a. add to secondary supplies. DOE had inventory of 111 m lbs equivalent in 2012 and will likely continue to sell off stock to pay for environmental cleanups.

However, the following developments point to a medium-term price recovery:

The landslide election of an LPD government in Japan, which is pro-nuclear, though the timing of re-starts will depend upon Japan’s new ‘Nuclear Regulatory Authority’ and local government approval; assumptions on operating reactors in Japan -- late 2012: 2 reactors; late 2013: 6 in areas away from fault lines; late 2014: 14; late 2015: 22 or 56% of capability;

China’s resumption of nuclear growth, with the State Council announcing in October a new target of 58 GWe by 2020 (moderately lower than previous expectations of 60-65 GWe, but still large, and 95 GWe by 2025; Construction of 5 reactors is expected in each of 2013 through 2015, with start-up in 2018-20 = 17 GWe;

While Kazakhstan will likely continue to ramp up production in 2013-14 (from 54 m lbs in 2012 to 65 in 2015) and Cigar Lake should start in late 2013, delays to new mine development elsewhere (BHP Billiton’s deferral of Olympic Dam expansion, seeking lower-cost technology; Cameco’s deferral of the feasibility study for Kintyre) and industry consolidation through M&A activity point to eventually tighter supplies; 9 producers already account for 87% of world mine production; and

Most importantly, the end of the U.S.-Russia HEU Agreement in late 2013 (reducing supplies in the West by 24 million lbs. U3O8 equivalent).

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‘Geopolitical Supply Risks’ Will Keep International Oil Prices High in 2013

US$ per barrel

Arab Oil Embargo

Iranian Revolution Gulf

War

Iraq War

Record High: July 11, 2008: US$147.90

2008 US$99.62 US$97.952009 US$62 US$622012 US$94 US$1122013F US$94 US$1122014F US$96 US$112

*

Oil prices have been boosted in early 2013 by a pick-up in demand in China, a temporary outage at the Cormorant Alpha production platform in the Brent North Sea, tensions in Algeria & Mali and recognition that actual supply & demand conditions in Q4 remained fairly tight.

Scotiabank Commodity Price Index

+

Price Outlook

WTI Oil Brent Oil

Saudi Arabia stepped-up its oil production above the ‘call’ for OPEC crude in 2012:H1 to offset the loss of Iranian oil due to sanctions and prevent high oil prices from derailing an already fragile world economy; this move accounts for the significant decline in oil prices in 2012:Q2.

However, prices rebounded in early July alongside the EU embargo on Iran, U.S. banking measures aimed at curbing oil exports from Iran and positive investor reaction to proposals at the EU Summit to steady Eurozone financial markets.

Global oil market conditions genuinely tightened in 2012:Q3, with the ‘call’ on OPEC oil rising by 0.7 mb/d due to a seasonal pick-up in demand and supply outages in the North Sea from strikes & maintenance.

Iranian oil exports have fallen by 1 mb/d yr/yr. The IAEA has made little progress in curbing Iran’s uranium enrichment or inspecting its nuclear facilities.

Despite slow growth in petroleum demand (+1%), international oil prices will remain high in 2013 – underpinned by ‘geopolitical supply risks’ in the Middle East & Africa.

+ Feb 11, 2013: US$97.01

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The Most Critical Economic Issue Facing Canada – Inadequate Export Pipeline Infrastructure Wide Discounts on Western Canadian Select Oil

US$ per barrel

Oil Price Differentials (US$/bbl)

Brent - WTI WTI - WCS2006-10 Avg. $0.06 $17.432011 $15.87 $17.09*2012 $17.09 $21.00*Jan 2013 $17.55 $32.84*

Brent

WTI Oil

WCS Heavy Oil

Building export pipeline capability to B.C. coast is key priority for Canada

Three Ways to Address Challenges: 1) To guarantee ‘world’ prices

for Western Canada’s oil – as well as volume growth – there is a critical need to expand pipeline or rail infrastructure to the B.C. Coast to tap Asia/Pacific markets;

2) Reverse pipelines in Eastern Canada to allow Western Canada’s crude to reach refineries in Montreal & Atlantic Canada, currently dependent upon more expensive imported crude; and

3) With refined products sold at ‘world’ prices, integrate forward into refining to capture the full value of the crude.

Source:* TMX/Shorcan Energy Brokers

Risk that light crudes could be discounted due to rising U.S. supplies from North Dakota Bakken & Eagle Ford.

U.S. approval of northern leg of Keystone XL? 300,000 b/d of West. Can. crude is now being railed to higher value markets across North America.

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High LNG Prices in Japan & AsiaFavour Canadian & U.S. LNG Exports

US$ per mmbtu

* Avg. LNG import price into Japan

*LNG prices delivered to Japan: peak at US$18.07 in July 2012, late Nov. US$15.30. Source: LNG Japan Corporation.

While steam coal could regain its competitiveness in 2013, if natural gas climbs back to US$3.50-US$4.00 later in the year, LNG exports should be the trigger for a large ‘structural’ increase in demand and stronger prices by 2016-17.

NYMEX Natural Gas Prices

Nymex Natural Gas Prices(US$ per mmbtu)

2008 8.902009 4.15

2011 4.032012E 2.852013F 3.75

2014F 4.00 Natural gas is the fuel of choice for North American manufacturers, recently rejuvenating the U.S. petrochemical and fertilizer industries. Development of 20 new U.S. natural gas ‘shale’ basins – made economic by new multi-stage fracture drilling technology – has lowered the industry cost curve.

NYMEX prices fell to a decade low of US$1.91 per mmbtu on April 19, 2012, but rallied back as high as US$3.90 on November 21, currently at US$3.28 on Feb 11/13. Traders recognize that the vast bulk of North American natural gas cannot be produced profitably at prices below US$2. Most ‘dry’ natural gas shale producers require higher prices of US$3 to generate a reasonable rate of return.

A sharp drop in CDN & U.S. gas drilling activity In 2012, a 25% jump in power use, with utilities shifting from coal to cheaper natural gas, boosted prices at the start of the U.S. heating season last November.

LNG Prices in Japan*

Japan turns to imported LNG and oil in wake of Fukushima-Daiichi incident; Korean demand also picks up due to nuclear safety checks.

32

Potential LNG Terminals on B.C. Coast

Proposed LNG Terminals• Canadian LNG terminals

currently under development:o Kitimat LNG (Apache / Chevron)

o Prince Rupert LNG (BG Group)

o BC LNG Export Co-Operative (Kitimat)

o PETRONAS / Progress LNG

o LNG Canada (Shell / PetroChina / Mitsubishi / KOGAS)

o Also:

o Exxon Mobil / Imperial / Celtic

o Nexen / INPEX / JGC

o Talisman

Chevron

33

Corporate Banking – Global Mining

2012 YTD, Scotiabank is ranked as the No.1 lead arranger (by deal count) in the Canadian and North American mining sectors; the most international of the Canadian banks, with offices in Beijing, Shanghai, Chongqing and Hong Kong, operations across Asia Pacific including India, Malaysia and Thailand and throughout Latin America (including Mexico, Chile, Peru, Brazil and Colombia), London and New York. Investment Banking and M&A Advisory Services

#1 Canadian Equity Issuer and a leading mining underwriter January 2011 to present.

Landmark Transactions:

-- Exclusive Financial Advisor to Red Back Mining’s C$8.0 billion merger with Kinross Gold – Fourth largest M&A transaction ever completed in the gold sector.

-- Co-Bookrunner on Barrick’s US$4.0 billion equity offering – the largest equity offering in Canadian history and the largest equity financing ever made in the international gold sector.

-- Sole Financial Advisor to China Investment Corporation in their landmark private placement in Teck Resources (US$1.5 billion) -- largest investment in a mining company by a Chinese investor in Canadian history.

Scotia Waterous #1 world leader in upstream Oil & Gas M&A and Divestiture mandates from January 2006 through October 2011; with offices in Hong Kong, Singapore, Calgary, Houston, Denver and London;

Co-Bookrunner of Gibson Energy Initial Public Offering (C$568 million ) – the largest Canadian IPO in 2011. Advised BHP Billiton on acquisition of Petrohawk Energy and Chesapeake’s Fayetteville assets.

Scotiabank’s Global Presence In Resource Industries

34

Recent Corporate Banking Mandates

Revolving Credit Facility

US$350,000,000

Joint Bookrunner & Syndication Agent

May 2012


US$500,000,000

Mandated Lead Arranger & Bookrunner

April 2012


US$250,000,000

Joint Lead Arranger, Joint Bookrunner & Admin Agent

April 2012


US$1,200,000,000

Joint Lead Arranger, Joint Book-runner & Admin Agent

July 2012


US$2,725,000,000

Joint Lead Arranger, Joint Book-runner & Syndication Agent

April 2011


US$1,200,000,000


August 2012


US$3,000,000,000

Co-Syndication Agent

May 2012


US$500,000,000


February 2012


C$1,250,000,000

Co-Lead Arranger & Co-Syndication Agent

October 2011


US$1,500,000,000

Joint Bookrunner

March 2011


US$200,000,000

Sole Lead Arranger, Bookrunner & Admin Agent

April 2012


US$750,000,000


February 2012


US$2,000,000,000

Co-Lead Arranger, Joint Book-runner & Syndication Agent

November 2011


C$350,000,000

Co-Lead Arranger, Joint Book-runner & Syndication Agent

June 2012


US$450,000,000

Co-Lead Arranger, Joint Bookrunner & Syndication Agent

August 2012

http://www.fcx.com/

35

Scotiabank is Canada’s most international bankGlobal Operations

Scotiabank has Canadian banking’s largest network in mainland China.

Scotiabank has operations in 11 Asian countries, the largest network of any Canadian bank.

36

Disclaimer

TM Trademark of The Bank of Nova Scotia. Used under license, where applicable.

This report has been prepared by Scotia Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.

Documents

Metal Price Outlook 2013-14, presented by Patricia Mohr at 2013 CMIC Signature Event