Thank you to our 2016 WA Forum Series host sponsor
CAMPBELL JASKI – PPB ADVISORY
WA FORUM SERIES 2016 MINING UPDATE
Where are we in the super-cycle?
Metals Price Index - Is this the bottom? 280.00 260.00 240.00 220.00 200.00
180.00 160.00 140.00 120.00 100.00
2010
2011
2012
2013
2014
Metals Price Index, 2005 = 100, includes Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium Price Indices
2015
2016
Recalibration • Cost cutting is still the key lever/hammer – Head count & reorganisation – share the pain – terms • Some costs have been stripped out – Truck drivers $135k+ down to $85k – Messing and Accommodation – Compliance and governance • Major resource projects now starting to come in ahead of time and under budget
Broader Economy (and workforce) is also Transition
Forecast Quarterly Capital Spend Down 50
2015
45
2016
40
USD Billion
35 30 25 20
15 10 5 0 Initial Capital
Sustaining Capital
Source: SNL Metals & Mining
Expansion
Extension
Optimisation
Reactivation
Forecast Quarterly Capital Spend by Commodity 40
2015 35
2016
USD Billion
30 25 20 15 10 5 0 Copper Source: SNL Metals & Mining
Gold
Iron Ore
Potash
U3O8
Coal
Demand Growth Favours Base Metals over Bulks Growth in Demand
10%
2011-2014
8%
2015
6%
4%
2%
-
(2%)
Iron Ore
Thermal Coal
Coking Coal
Copper
Aluminium
Zinc
Iron Ore – Price volatility the only sure thing 200 180 160
USD per dmt
140 120 100 80 60 40 20 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 China import Iron Ore Fines 62% FE spot (CFR Tianjin port)
• Forecasters predicting price to rise to USD70-80 over next 5 years • Futures markets punting on price around USD40 in 2018/2019 • Regardless of who is right, prices are likely to remain volatile
Increasing steel demand will help correct the bulk supply imbalance 3,000
2,500
2,000
Developing Economies (Ex China) 1,500
China
1,000
500
Developed Economies -
2010 Source: Wood Mackenzie,
2015
2020
2025
2030
FMG’s C1 Cash Costs around $16.90 (All-In Costs $39.00 delivered)
Developing Economies (Ex China)
China
Developed Economies
Thermal Coal 250.00
USD per metric ton
200.00
150.00
100.00
50.00
0.00 2006
2007
2008
2009
2010
2011
Australian thermal coal, FOB Newcastle/Port Kembla, US$ per metric ton
2012
2013
2014
2015
2016
Coal has overtaken oil as largest energy source Million Tonne of Oil Equivalent
5,000
Coal
4,500 4,000
Oil
3,500 3,000
Natural Gas
2,500 2,000 1,500
Hydro + Nuclear + Renewables
1,000 500 -
2000
2005
Source: Wood Mackenzie, BP, UN
2010
2015
2020
2025
2030
New Coal fired power station capacity
Coal is the lowest cost and most reliable form of electricity generation Vietnam
The last 5 Years: • 30 countries • 350 GW • 800 generators
Germany
Indonesia USA India China Source: Platts
50
100
gigawatt
150
200
250
Pressure forcing change • Industry facing increasing pressure from organised and well funded ‘groups’ • Focussed activity in QLD – 75% met coal??? • Funding disruptions and withdrawals following reputational coercion • Change in ownership profile: – – – –
Adani (Carmichael) GVK (Alpha, Kevins Corner) Salim (Mt Pleasant) Yancoal/Yanzhou (Moolarben, Ashton, Austar, Donaldson, Duralie, Stratford, Yarrabee, Middlemount JV, Cameby Downs, Premier)
Gold has upside – but fundamentals don’t apply 2000
• Further US rate rises (downside) • Fed found to have moved rates up too early (upside) • Brexit vote ‘Yes’ (upside risk) • The Trumpster (big upside risk)
1800 1600
1200 1000 800 600 400 200
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
2001
USD per Ounce
1400
Oil price decline and metals price decline same-same but different! 140 120
80 60 40 20
2016
2016
2015
2015
2015
2015
2015
2015
2014
2014
2014
2014
2014
2014
2013
2013
2013
2013
2013
0
2013
USD per Barrel
Crude Oil - Dated Brent 100
• Impacts producers across the board – you’re only as good as your field • Cost cutting in earnest • Will be flow on effects to oil and gas services • Rig utilisation way down • Although don’t expect same degree of fall-out compared to mining services
Key Takeaways •
Recalibration is inevitable following the largest resources investment cycle in history (unlikely to ever see this scale of investment in the future)
•
Demand still catching up to newly installed supply base
•
Boom-time cost structures are being broken down but long road ahead
•
More upside potential in base and precious metals compared to bulks
•
No real alternatives to coal for cheap base-load power
•
•
clean technology continuously improving
•
pressure forcing change in upstream ownership
Non-conventional oil and gas (shale) has been a significant market disrupter - oil and gas markets will continue to evolve at a rapid pace: •
Relevance of OPEC?
•
US opens up as an exporter
•
Price volatility
Q& A
Important Information The material in this presentation has been prepared by PPB Advisory for the purpose of providing a general market update. This information and material may be incomplete and the forecasts may be subject to significant uncertainty. This presentation is provided to members of ARITA for personal use only and should not be disclosed, used or duplicated in whole or in part for any other purpose without prior written approval from PPB Advisory.
ABOUT THE PRESENTER Campbell is Partner at PPB Advisory and has over 20 years’ experience in mining and corporate finance. Prior to joining PPB Advisory, Campbell worked in Australia and overseas for Rio Tinto. He first joined Rio Tinto (then CRA) in 1992 and worked on exploration and evaluation projects, including project feasibility studies. Later, Campbell moved into operational and management roles and gained experience in open cut and underground mining operations and mine expansion projects. Campbell was appointed Resident Mine Manager at one of Rio Tinto’s open cut mining operations in Western Australia in 2002 and later became Regional Operations Manager, where he was responsible for mining, processing and port and rail operations in the mid-west of Western Australia.
Campbell has worked on a number of projects throughout Australia, North and South America and Southern Africa and has deep experience across a wide range of commodities, including oil and gas, coal, iron ore, gold, copper, base metals, uranium, diamonds and industrial minerals. p: (03) 9269 4201 m: 0429 682524 e:
[email protected] w: www.ppbadvisory.com
In addition to his mining qualifications, Campbell has post graduate qualifications in accounting, economics and finance from New York University and the Melbourne Business School where he was awarded the Rupert Murdoch Fellowship in 2005.
