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Future of the mining industry
www.pwc.com/mining
Tim Goldsmith PwC Global Mining Leader
PwC
The Growing Disconnect
Slide 2 November 2012 PwC Asia School of Mines 2012
PwC
The current state of the mining industry
• Doubts over the Chinese growth and urbanisation story
• Demand will be there – % increases may not be as high as before, but will off a larger base
• Continued structural change to historically high commodity prices, underwritten by higher production costs and lower grades. However, this does not guarantee increasing gross margins
• Future will be about bringing on supply through the right projects
• Large miners invested $98 billion in capital projects in 2011 - plan for a further $140 billion in 2012
• There is still a great future for mining
Slide 3
November 2012 PwC Asia School of Mines 2012
PwC
The world’s GDP
0
10
20
30
40
50
60
70
80
90
100
0 1500 1700 1870 1950 1998 2006 2008 2010
China India Western Europe US Japan
Source: Maddison, Deloitte Access Economics
Slide 4 November 2012 PwC Asia School of Mines 2012
PwC
Source: Goldman Sachs
2010-2050
Slide 5 November 2012 PwC Asia School of Mines 2012
PwC
It’s all been China for demand over the past decade….
Slide 6 November 2012 PwC Asia School of Mines 2012
PwC
Iron Ore: Composition of Global Imports
Slide 7 November 2012 PwC Asia School of Mines 2012
PwC
China has met a lot of its own requirements, especially in smelting/refining
Slide 8 November 2012 PwC Asia School of Mines 2012
PwC
China – a history of delivery
• The market continues to be nervous about China’s ability to manage its economy
• Historically China has outperformed 5 Year Plan targets
• 7% growth target in 5 Year Plan a floor
• Not a ceiling
Slide 9 November 2012 PwC Asia School of Mines 2012
PwC
China’s urbanisation will continue apace
Source: Rio Tinto Economic outlook and commodity prices presentation 29 June 2012
Slide 10
November 2012 PwC Asia School of Mines 2012
PwC
Chinese steel intensity by province vs. GDP per capita
Slide 11 November 2012 PwC Asia School of Mines 2012
PwC
Consumption of metals increases in line with increasing income
Slide 12 November 2012 PwC Asia School of Mines 2012
PwC
Many countries set to follow China
Slide 13 November 2012 PwC Asia School of Mines 2012
PwC
Population distribution
Slide 14 November 2012 PwC Asia School of Mines 2012
PwC
Projections of the global middle class by region
0
1
2
3
4
0
1
2
3
4
2009 2020 2030
North America Europe Asia Pacific Central and South America Africa and Middle East
Billions (persons) Billions (persons)
Note: The global middle class is defined as those households with daily expenditures between USD10 and USD100 per person in purchasing power parity terms. The lower bound is chosen with reference to the average poverty line in Portugal and Italy. Source: Kharas, H, 2010, ‘The emerging middle class in developing countries’, OECD Development Centre, Working Paper No. 285.
Slide 15 November 2012 PwC Asia School of Mines 2012
PwC
“Super” to “Mega” Demand Cycle ....
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Coal
Iron ore
Lead
Zinc
Aluminium
Copper
Nickel
Change in global demand, 2010 - 2030Source: ABARES, Deloitte Access Economics Commissioned by Minerals Council of Australia
Slide 16 November 2012 PwC Asia School of Mines 2012
PwC
Cost pressures felt by all
BHP Billiton Western Australian Iron Ore cash costs (US$/t)
Slide 17 November 2012 PwC Asia School of Mines 2012
PwC
Bringing supply to market as promised is challenging
Providing supply to meet the demand has proven problematic
Supply has fallen below forecast
As BHP highlighted - multiple disruptions:
• Queensland metallurgical coal
• Indian iron ore
• Chilean copper
Slide 18 November 2012 PwC Asia School of Mines 2012
PwC
Despite record commodity prices, the industry has faced challenges in bringing on new supply
350% increase
11% increase
-
1 .0
2.0
3.0
4.0
2005 2006 2007 2008 2009 2010 2011
Annual average AME gold prices, total global gold production (2005 = 1)
Gold price Global gold production
Source: The World Bank, World Gold Council
245% increase since 2005
29% increase since 2005
-
1.0
2.0
3.0
2005 2006 2007 2008 2009 2010 2011
Annual average thermal coal prices, total global thermal coal production (2005 = 1)
Thermal coal price Global thermal coal production
Source: The World Bank, BP Statistical Review of World Energy June 2012
240% increase
10% increase
-
0.5
1 .0
1 .5
2.0
2.5
2005 2006 2007 2008 2009 2010 2011
Annual average AME copper prices, total global copper production (2005 = 1)
Copper price Global copper production
429% increase
30% increase
-
1 .0
2.0
3.0
4.0
5.0
2005 2006 2007 2008 2009 2010 2011
Annual average CFR China iron ore prices, total global iron ore production (2005 = 1)
Iron ore price Global iron ore production
Source: The World Bank, International Copper Study Group
Source: The World Bank, AME Outlook
Slide 19 November 2012 PwC Asia School of Mines 2012
PwC
Capital expenditure by region
Source: Xstrata Presentation to Bank of America Merrill Lynch Conference May 2012
Slide 20 November 2012 PwC Asia School of Mines 2012
PwC
Among the Top 5 Diversified miners there is much more iron ore and comparatively less diversity
20%
42%
25%
16%
13%
15%
17%
12%
10%
10%
15%
5%
-
50
100
150
200
250
2007 2011
Top 5 Diversifieds - 2007 and 2011 Segment Revenue ($ billion)
Nickel
Aluminium
Others
Coal
Copper
Iron Ore 24%
66%
30%
15%
6%
10%
11%
6%
7%
1%
22%
2%
-
10
20
30
40
50
60
70
80
90
100
2007 2011
Top 5 Diversifieds - 2007 and 2011 Segment EBIT($ billion)
Nickel
Aluminium
Other metals
Coal
Copper
Iron Ore
Source: PwC Analysis Source: PwC Analysis
Due to Glencore’s significant marketing activity, they have been excluded from this particular analysis, although they are a large diversified company.
Slide 21 November 2012 PwC Asia School of Mines 2012
PwC
Supply from emerging markets continue to have a larger presence in the Top 40
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003 2004 2005 2006 2007 2008 2009 2010 2011
Mine - Composition of the Top 40
Traditional Markets Emerging Markets
• Composition of Top 40 continuing to shift to emerging markets
• 19 of the Top 40 are either from or primarily concentrated on emerging markets
Slide 22 November 2012 PwC Asia School of Mines 2012
PwC
Outlook
• Future will be about bringing on supply through the right projects
• Demand will be there – % increases may not be as high as before, but will off a larger base
• Continued structural change to historically high commodity prices, underwritten by higher production costs and lower grades. However, this does not guarantee increasing gross margins
• The market doesn’t seem to be buying the industry’s long-term growth story, sending share prices lower - 2012 has shown the growing disconnect
Slide 23
November 2012 PwC Asia School of Mines 2012
Mine 2012 The growing disconnect
Tim Goldsmith
PwC Global Mining Leader & National China Practice Leader
T: +61 3 8603 2016
M: +61 419 201 877
Thank you
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