exploration trends, supply adam webb - head of mine...

Exploration trends, supply pipeline and battery materials

April 3, 2019

Adam Webb - Head of Mine Economics

Metals & Mining Research

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Agenda

Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Global Market Intelligence. Not for distribution to the public. Copyright © 2019 by S&P Global Market Intelligence. All rights reserved. 3

Global exploration activity and outlook1234

Battery materials - Lithium

Battery materials - Cobalt

Battery materials - Nickel

Global Exploration Activity and Outlook


Source: S&P Global Market Intelligence; as of February 27 2019.

1,651companies with budgets

US$10.1Bbudgeted for 2018, growth of 19%

-53%decline in budgets from 2012 to 2018

0

1

2

3

4

0

3

6

9

12

15

18

21

24

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Ann

ual i

ndex

ed m

etal

s pr

ice

(199

6=1)

Glo

bal n

onfe

rrou

s ex

plor

atio

n bu

dget

(US

$B)

Global nonferrous exploration budget Annual indexed metals price

In 2018 gold accounted for US$5 billion of budgets whilst copper accounted for US$2 billion Gold and base metals dominate exploration focus


0

5,000

10,000

15,000

20,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Exp

lora

tion

budg

et (U

S$M

)

Gold Base Metals Diamonds Uranium PGM Other



0

20

40

60

80

100

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Sha

re o

f glo

bal e

xplo

ratio

n bu

dget

(%)

Gold Base Metals Diamonds Uranium PGM Other




>50%majors accounted for more than half of spending last three years

4year high for juniors’ share of exploration in 2018

35%increase in junior budgets in 2018

0

10

20

30

40

50

60

70

80

90

100

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Sha

re o

f glo

bal e

xplo

ratio

n bu

dget

(%)

Majors Intermediates Juniors Government/Other

Mining sector financings turned a corner in early 2016… But currently very challenging




-

500

1,000

1,500

2,000

2,500

3,000

3,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Am

ount

rais

ed (U

S$M

)

Gold Base/Other Metals

US$5.7B

-

250

500

750

1,000

1,250

1,500

1,750

2014 2015 2016 2017 2018

Am

ount

rais

ed (U

S$M

)

Gold Base/Other Metals Specialty Metals

Active projects remained strong through January Number of drill holes also high



Source: S&P Global Market Intelligence; as of February 27 2019

0

50

100

150

200

250

300

2014 2015 2016 2017 2018

No.

of d

istin

ct p

roje

cts

Copper Gold Silver Nickel PGM Lead-Zinc Minor Base Specialty

-

1,000

2,000

3,000

4,000

5,000

6,000

2014 2015 2016 2017 2018

No.

of h

oles

dril

led

Copper Gold Silver Nickel PGM Lead-Zinc Minor Base Specialty




-16%drop in value since January 2018

US$1.39trillion mining industry market cap

75-100Activity levels since early 2017

25

40

55

70

85

100

115

130

145

160

175

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pipeline A

ctivity Index and Exploration P

rice Index (May

2008=100)

Agg

rega

te m

arke

t cap

italiz

atio

n (U

S$B

)

Mining Industry Market Cap Pipeline Activity Index Exploration Price Index


0

1,000

2,000

3,000

4,000

5,000

6,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cop

per i

n ne

w d

epos

its ('

000t

)

9.7Mt 9.3Mt 14.3Mt


Source: S&P Global Market Intelligence; January 2019.

9new copper deposits in 2018

94%of new copper hosted in Timok Lower zone and Alpala

25%of new deposits in Australia host only 5% of total copper since 2008

Major copper discoveries lacking since 2008 ….and many older discoveries already producing



Source: S&P Global Market Intelligence; as of February 27 2019

0

20

40

60

80

100

120

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Cop

per i

n m

ajor

dis

cove

ries

(Mt)

Major discoveries Projected major discoveries

0

20

40

60

80

100

120

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Cop

per i

n m

ajor

dis

cove

ries

(Mt)

Projects Operating/planned mines Past Production

0

1

2

3

4

0

3

6

9

12

15

18

21

24

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Indexed metals price (1996=1)E

xplo

ratio

n bu

dget

(US

$B)

Estimated budget Annual indexed metals price




Equity marketsupport needed to sustain high drilling levels

Producerskey to 2019 exploration budgets

5-10%increase in 2019 budgets

Cathode

Anode

Electrolyte

Current

NMC111N0.8C0.15A0.05

Graphite

Organic solvent + LiPF6 salts

Being deployed

NMC622N0.9C0.05A0.05

Carbon alloys

Gel Polymer

Next generation

NMC811

Graphite + 5-10% silicon

5V electrolyte

Advanced

Li metalHVS

Graphite/Silicon composite

Polymer

Battery Materials


Lithium ion battery technology currently dominated by cathode chemistries which use nickel and cobalt

Source: IEA, Meeus (2018); Nationale Plattform Elektromobiliat (2016); NEDO (2018); Howell (2016); Pillot (2017), S&P Global Market Intelligence; as of March 11 2019

Lithium demand from battery manufacturing has increased by almost 500% since 2007

In 2017 global new EV sales where over 1 million, up from less than 1,000 in 2007



Source: SQM, IEA, S&P Global Market Intelligence, March,11 2019.

0

200

400

600

800

1,000

1,200

1,400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Thou

sand

China Total All other

0 20 40 60 80 100 120 140 160 180 200 220

2007

2017

Kt LCE

Batteries Glass Ceramics

Greases Air Conditioning CC Powder

Cement and Adhesives Aluminium Others



Source: Benchmark Minerals, S&P Global Market Intelligence, March,11 2019.

US$21,500/tonneCIF Asia price hit peak in October 2017 and has since dropped back towards US$13,000/tonne

Long term contracts most lithium products are brought on long term contracts and prices are specific to individual products

25%YOY increase in 2018 carbonate price from Atacama operations despite 4% drop in CIF Asia price 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

5,000

10,000

15,000

20,000

25,000

Pric

e (U

S$/

tonn

e)

Salar de Atacama (SQM) Salar de Atacama (Albemarle) Lithium Carbonate - CIF Asia



Source: S&P Global Market Intelligence, March,11 2019.

58%of 2018 lithium production from pegmatite deposits in Australia

68%of global lithium resource base found in brine deposits

Boliviahas the biggest resource base globally but no commercial production0 10 20 30 40 50 60 70

Bolivia

Argentina

USA

Chile

China

Australia

DRC

Mexico

Czech Republic

Other

Share of global (%)

Brine resource Brine production Pegmatite resource Pegmatite production Other resource

Lithium projects produce a number of different end products

Lithium Hydroxide premium averaged US$2,500 in 2018 similar to levels seen in 2011-2014



18

Source: Benchmark Minerals, S&P Global Market Intelligence, March,11 2019.

Pegmatite Concentrate

Lithium Carbonate

Lithium Hydroxide

Brine

Lithium Chloride

2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

5,000

10,000

15,000

20,000

25,000

Pric

e (U

S$/

tonn

e)

Lithium Carbonate - CIF Asia Lithium Hydroxide - CIF Asia

Increasing lithium prices have led to global lithium exploration budgets increasing by 58%

In 2018 exploration budgets increased most in Argentina while Chile and Australia saw drops



19


0

20

40

60

80

100

120

140

160

0

50

100

150

200

250

300

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018N

umbe

r of c

ompa

nies

Bud

get (

US

$M)

Lithium budget No. of companies

-6.6

-4.5

-2.0

-2.0

-0.9

5.4

6.5

12.1

12.3

54.7

-10 0 10 20 30 40 50 60

Chile

Australia

Serbia

Bolivia

Czech Republic

Canada

Germany

United States

DRC

Argentina

Budget change (US$M)




30%of total cash costs for brine producers is reagents

US$2,415/LCE average cost of pegmatite operations in 2019, 56% lower than average brine cost

US$230Mincrease in royalties at Atacama operations from 20170

2,000

4,000

6,000

8,000

10,000

12,000

0 100 200 300 400 500 600

Cos

t (U

S$/

LCE

)

LCE Production ('000 tonnes)

Labor Energy Reagents Other Offsite transport Seaborne shipment Royalty




44%average price received for LCE in concentrate compared to carbonate

US$9,135/LCE average margin of brine operations in 2019, double that of pegmatite operations

197%higher margins for lithium hydroxide produced from Greenbushes concentrate

0

5,000

10,000

15,000

20,000

0 100 200 300 400 500 600

Tota

l cas

h m

argi

n (U

S$/

LCE

)

LCE production ('000 tonnes)

Brine Pegmatite



Source: Lithium power international, WorleyParsons, Albemarle, S&P Global Market Intelligence, March,11 2019.

0.007%maximum Mg content in high purity lithium carbonate

Chemistryof brines is the most important factor influencing costs

0.05%maximum SO4 content in high purity lithium carbonate

0

5

10

15

20

25

30

35

0 5 10 15 20

SO4/L

i rat

io

Mg/Li ratio

Salar de Maricunga Silver Peak Salar de Atacama Salar del Hombre Muerto

Salar de Cauchari Salar del Rincon Salar de Uyuni Zhabuye

Mined lithium supply to reach over 1.2MT by 2022By 2023 spodumene will account for 63% of production down from 67% in 2018




0

200

400

600

800

1,000

1,200

1,400

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

LCE(

'000

tonn

es)

Australia Chile China Argentina Zimbabwe Canada Mexico Other

0

100

200

300

400

500

600

700

800

900

Brine Hard rock Clay

LCE

('000

tonn

es)

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Price peaked at over US$90,000/tonne in 2018 but has now dropped back towards US$30,000/tonne

…price increases have led to a three fold increase in exploration budgets for cobalt




0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2013 2014 2015 2016 2017 2018 2019

Pric

e (U

S$/

tonn

e)

LME-Cobalt Cash

0

10

20

30

40

50

60

70

80

90

100

0

20

40

60

80

100

120

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Num

ber o

f com

pani

es

Cob

alt b

udge

ts (U

S$M

)

Cobalt budget Number of companies




54%forecast 2019 net revenue generated from cobalt at DRC operations

US$8.5/lbDRC operations are on average lower cost than those in other countries

High margins, long lifeDRC operations likely to continue to dominate cobalt supply in future0

500

1,000

1,500

2,000

2,500

3,000

3,500

0 20 40 60 80 100 120

Tota

l cas

h co

st (U

.S. c

ents

/lb)

Paid cobalt ('000 tonnes)

Dem. Rep. Congo Other




63%of 2018 global cobalt production from DRC

2.17MTcontained cobalt in reserves in DRC

0.8%average grade of reserves in DRC vs 0.08% from other major producers

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0 500 1,000 1,500 2,000 2,500 3,000

Cob

alt r

eser

ve g

rade

(%)

Contained cobalt in reserves ('000 tonnes)

Australia Canada China Cuba Dem. Rep. Congo

Madagascar New Caledonia Philippines Zambia

Batteries only currently account for 3% of Nickel use, this is forecast to increase to 8% by 2021

Price of nickel still driven by stainless steel, less dramatic changes compared with lithium and cobalt



Source: Nickel Institute, S&P Global Market Intelligence, March,11 2019.

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Pric

e (U

S$/

tonn

e)

LME-nickel cash

70%

9%

8%

9%3% 1%

Stainless Steel Non-ferrous alloys Plating

Alloy and steels & casting Batteries Other

Nickel reserves in laterite deposits over double that found in sulfide deposits

Nickel exploration budgets up over 20% in 2018 but still well down from 2008 peak


0 10 20 30 40 50

Laterite

Sulfide

Contained nickel in reserves (Mt)

Russia Canada China

Philippines Indonesia Cuba

Australia New Caledonia Brazil

Guatemala Madagascar Dominican Republic

Kazakhstan Papua New Guinea Other



0

50

100

150

200

250

300

350

0

200

400

600

800

1,000

1,200

1,400

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Num

ber o

f com

pani

es

Nic

kel b

udge

t (U

S$M

)

Nickel budget Number of companies


Class 1 Nickel is the only form that is suitable for battery manufacturing – this is primarily sourced from sulfide and limonite deposits



Saprolite(Laterite) Pyrometallurgy

Ferronickel/NPI

Matte

Limonite (Laterite) Hydrometallurgy Nickel Chemical

Powders

Class 1 Nickel

Sulfide Concentrate Pyrometallurgy Matte Class 1Nickel

29




47%forecast 2019 net revenue generated from nickel at sulfide operations

US$3.1/lbaverage cash cost of sulfideoperations, lowest cost type of nickel operation

Hydrometallurgycapital intensive and have proved difficult to operate efficiently

0

100

200

300

400

500

600

700

800

0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300

Tota

l cas

h co

st (U

.S. c

ents

/lb)

Paid nickelt ('000 tonnes)

Sulfide concentrate Hydrometallurgy Pyrometallurgy

Nickel production expected to increase 1.3% by 2021

….biggest increase is expected from hydrometallurgical laterite projects




0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Sulfide concentrate Hydrometallurgy Pyrometallurgy

Nic

kel p

rodu

ctio

n (k

t)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Nic

kel p

rodu

ctio

n (k

t)

Indonesia Philippines New Caledonia Canada

Russia Australia China Brazil

South Africa Cuba Other

Summary


Exploration budgets are increasing but copper discovery rates remain low1234

Lithium brine operations are higher cost than hard rock mines but have higher margins

Cobalt production will continue to be dominated by mines in the DRC

Nickel demand from batteries will increase but remain relatively small compared to global supply

exploration trends, supply adam webb - head of mine...

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