Multi-year Expert Meeting on

COMMODITIES AND DEVELOPMENT 23 - 25 March 2011, Geneva

Iron ore –still positive long term outlook

by

Mr. Magnus Ericsson Raw Materials Group, Sweden

"The views expressed are those of the author and do not necessarily reflect the views of UNCTAD"

Multi-year Expert Meeting on Commodities and Development

Iron ore – still positive long term outlook Magnus Ericsson/ Anton Löf

Selenium drawing: Kaianders Sempler.

Geneva, March 23 2011

UNCTAD Iron Ore Trust Fund • 1987, since 2002 with Raw Materials Group of Sweden. • Two annual publications – Iron Ore Market Review in June – Iron Ore Statistics in October • Financed by sales and contributions from Australia, Brazil, Canada, Sweden, the US. • Contact [email protected] for information.

Raw Materials Group • Raw Materials Data, Metals/Coal/Iron Ore. • Strategy development: – Miners, equipment & service providers. • Mineral policy, investment promotion: – Governments, international organisations. • Pre-feasibility/Feasibility studies; market studies, price forecasts: – Banks, companies: juniors and majors.

Outline • • • • •

Steel production / iron ore demand Global iron ore production Nordic projects Price line Conclusions

Steel production Iron ore demand

Manganese drawing: Kaianders Sempler.

World and China crude steel production Mt

Source: World Steel Association

Crude steel growth pattern

Steel intensity per capita 1400

Kg/cap 1200 1000 800 600 400 200 0

China

South Korea

Japan

Taiwan

Chinese GDP and steel use Annual change (%)

China GDP / steel production Annual change (%)

Monthly steel production kt

Chinese steel production Mt 800

700 600 500 400 300 200 100 0 1980

1985

1990

1995

2000

2005

2010

2015

Indian steel stages Peak Point Point of Saturation Singapore

Japa

n EU

USA Point of Inflection

20 ina 00 -0 6

Ch

Trigger Point

Japan EU 15 Australia Singapore USA

India

China India 0

100

200

300

Per capita in KG

400

500

600

700

800

World crude steel production Mt 1,800

35.0%

1,400 30.0%

27.5%

1,000 25.0%

600

22.5%

1985

1990

1995

2000

2005

2010

2015

EAF Share of Production, %

32.5%

Steel production 2010-2010

Manganese drawing: Kaianders Sempler.

Global growth Chinese growth Rest of Asia Europe North America Japan

3.8 % 5.5 6.0 0.5 1.0 0.5

Global production

Vanadium drawing: Kaianders Sempler.

Global iron ore production

Source: Raw Materials Data Iron ore, 2010.

Iron ore production 2010 Mt

1830 Mt + 15 % China 319 Mt + 44 %

Sources: Raw Materials Data Iron ore; UNCTAD.

Top iron ore companies 2009 Company

Country

Prod Share of Mt total %

Production area

Metal

1 Vale

Brazil

255

16.0

Brazil

Div.

2 Rio Tinto

UK

172

10.8

Australia, Canada

Div.

3 BHP Billiton SAIL/NMDC 4 (State of India)

Australia

137

8.6

Australia, Brazil

Div.

India

55*

3.5

India

5 Anglo American

UK

43.8

2.8

South Africa, Brazil

6 ArcelorMittal

Luxembourg

37.7

2.4

Global

Fe/coal

7 Metalloinvest

Russia

35.5

2.2

Russia

Div.

8 Fortescue

Australia

34.9

2.2

Australia

9 System Capital

Ukraine

27.0

1.7

Ukraine

10 Cliffs

USA

24.9

1.5 US, Australia, Brazil

Note: Estimate.

Source: Raw Materials Group, Stockholm 2010.

061030 Anton Löf Source: Raw Materials Data, Stockholm 2005.

Fe Div.

Fe Fe/coal Fe

Global iron ore exports 2010 Mt

1068 Mt + 14 % Australia 402 Mt

Sources: Raw Materials Data Iron ore; UNCTAD.

Global iron ore imports 2010 China 612 Mt -3%

Chinese iron ore revisited Domestic Prod. need major mines

Prod. small mines

Total domestic prod.

Previous Production figure

Mt Fe

Mt Fe

Mt Fe

63 % Fe

63 % Fe Mt ore

2003

112

37.5

93.4

208

123

261

2004

115

35.1

99.5

214

146

310

2005

150

34.3

145

285

198

421

2006

186

34.2

190

356

276

588

2007

209

37.6

214

400

365

683

2008

171

43.4

159

321

366

824

2009

127

44.0

103

234

na

880

Source: Raw Materials Group 2010.

Chinese iron ore production/imports Mt

China iron ore production/import Gross volume

Project pipeline

Source: Raw Materials Data Iron ore, 2011.

Vertical integration % of total world iron ore production

2009 2008 2007 2006 2005

Market economies

CIS

China

Total

11 11 12 12 12

7 5 9 12 12

4 4 5 6 6

22 20 24 28 28

Source: Raw Materials Data Iron Ore, 2010.

Project pipeline 2010 - 2012 Total 685 Mt ”Big 3” 22 %

Juniors 27 %

Source: Raw Materials Group, Stockholm 2010.

Steel 22 %

Other miners 29 %

Future developments • “Big 3” controls large share of reserves/resources. • Juniors/new projects slightly larger share. • Steel companies’ share of new projects does not indicate increasing vertical integration. • Corporate concentration will increase but “Big 3” in a careful balancing act.

Nordic project pipeline Loca Reso/Resv % tion Mt Fe Northern Iron

Nor

Gruvberget +

459 (112)

Inv. MUSD

Start Cap. Mt/a

Life

32

OP

150 2009

2.9 30+

Swe

300 (na) ~60

OP

2010

2- 10

>8

Northland

S/F

252 (na)

32

OP

462 2012

5

28

Dannemora

Swe

54 (29)

38

UG

127 2011

2

13

Rana Gruber

Nor

250 (na)

34

UG

? 2011

1-2

14

Beowulf

Swe

140 (na)

39

OP

798

?

4.8

10

Grängesberg

Swe

83 (38)

57

UG

?

?

?

?

Nordic Iron Ore

Swe

Håksberg, Blötberget UG closed 1970s, cap 2 Mt

Tertiary Minerals, G4G Resources, and others early stage

Capital intensity Project

Total inv. MUSD

Mine & proc. Cap. int. MUSD m&p

Cap. int. ex pellet

Cap. int. Cap. int. ex pellet &trans total

(MUSD/Mt/a)

Amapá Bloom Lake KéMag Guelb el Aouj Sydvaranger Ruoutevare Kaunisvaara

763 587 3783 1650 150 798 462

311 353 1234 564 137 567 445

48 44 56 81 47 116 89

117 73 138 171 47 116 89

81 61 88 142 47 116 89

Source: Raw Materials Group 2010. Note: m&p mining and processing.

117 73 172 236 47 166 92

Operating costs Project

Product

Amapá Bloom Lake KéMag

Pellet feed Concentrate Pellet Concentrate Pellet Concentrate Concentrate Pellet feed

Guelb el Aouj Sydvaranger Ruoutevare Kaunisvaara

Source: Raw Materials Group.

Capacity Mt/a

6.5 8 15 7 7 2.9 4.8 5

Total opex USD/t

Opex mining USD/t

37.4 24.8 21.8

6.49 1.76 5.6

36.6 32.8 41.4 38.6

3.38 2.38 9.3 7.6

Nordic conclusions • • • •

European leaders: today and in the future. High quality ore and products. Long mining history – industry accepted by all. Local and regional authorities supportive – slowly also central bureaucrats in Stockholm, Helsinki and Oslo and perhaps even Brussels. • Operating & capital costs high but competitive.

Iron ore 2010 • Global production + 15 %. • Chinese production strong growth 319 Mt + 44 %. • Chinese swing producers: – Poor ore quality. – High costs. – Resources depleting.

Vanadium drawing: Kaianders Sempler.

• Chinese shake out delayed. • Slow growth of Chinese overseas mines.

Chinese foreign operations

Source: Raw Materials Data 2011.

061030

Anton Löf

Chinese foreign projects

061030

Anton Löf

Iron ore prices

Nickel drawing: Kaianders Sempler.

Iron ore prices in China Renminbi/t

Spot freight rates iron ore Brazil to China/Japan

Source: Drewry.

USD/t

Prices Kaunisvaara/China USc/dmtu (FOB Narvik) 250

200

150

Low High

100

50

0

30 2029 2028 2027 2026 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 20

Conclusions • Tight market next few years. • Projects delayed. • Chinese domination continues. • Nordic projects good prospects. • Prices will fall but stay above 75/80 USD/t. Selenium drawing: Kaianders Sempler.

Merci/ thank you! Raw Materials Group PO Box 3127 SE-169 03 Solna, Sweden Tel: +46-8-744 00 65 [email protected] UNCTAD [email protected] Manganese drawing: Kaianders Sempler.

www.rmg.se