james rilett, mvs: forecast of the iron ore production across the world - how are miners adjusting...
DESCRIPTION
James Rilett, Commercial Manager, Minerals Value Service - MVS delivered this presentation at the 2013 Americas Iron Ore conference. Americas Iron Ore is one of the most respected annual gatherings for North and South American iron ore markets. The agenda features iron ore industry and market developments; new project developments and expansions in North and South America; overview of steel demand; iron ore spot market price; infrastructure and transport challenges and investment opportunities. After five successful editions, the Americas Iron Ore Conference consolidates as the largest meeting place for executives and professionals of the steel and iron ore industry in the region. For more information, please visit the conference website: https://www.immevents.com/mining-conference/americas-iron-ore-conferenceTRANSCRIPT
© Minerals Value Service GmbH 2013
November, 2013
1
www.mvs-corp.com
2 Copyright: MVS
New Generation of Miners, James Rilett MVS
Introduction: MVS and Bryanston Resources, achieving excellence in technical
marketing and iron ore analytics
The rapidly evolving iron ore market – more liquidity, sophistication and derivatives
present opportunities for price risk management for all market participants
West Africa overview - commercial and technical benchmarking exercise, key
challenges and outcomes for the next generation of miners
What can be learned from the new generation’s best practices?
3 Copyright: MVS
About MVS
Founded 2011, Munich Germany, by team of consultants, metallurgists, traders and
software developers
2012 Opened London office and continued to grow diverse and eminent client
base
Sep, 2013 signed a financing and marketing deal with McGraw Hill Financial making
a significant investment in the continuing development of the business
Leading edge web based Iron Ore analytical modelling and pricing system
4 Copyright: MVS
Bryanston resources - a global presence drawing on
international experience
Bryanston is the fastest growing firm in its space –
ca. 100 employees are serving clients globally – soon offices to cover all major mining regions
Opening 2014
Recent projects
Existing offices
Western
Africa
North America
South
America
Southern Africa
ANZ
South East Asia
Europe
Asia
London
Zug
Tel Aviv
Lagos
Johannesburg
Shanghai
Moscow
Rio de
Janeiro
New Delhi
Perth
Munich
Singapore
Toronto
5 Copyright: MVS
The Global Commodities Markets are evolving – where is Iron Ore on its evolutionary journey?
Pricing Mechanism Evolution
Pricing Mechanism in
Iron Ore industry ?
Benchmark Pricing: Yearly fixed prices to an agreed reference
Short- Term Pricing: Ongoing negotiation, e.g. after each transaction
Index Pricing: Spot market traded reference
Financial Markets Participation
Terminal Markets
Financial settlement: Paper traded derivatives
Journalistic Pricing: Based on published transactions
Natural Gas
Crude Oil
Ferrochrome
Chrome
Iron Ore
6 Copyright: MVS
How does Iron Ore compare to other Global commodities in its sophistication and liquidity?
Bubble size indicates relative market size
Highly liquid markets:
Adjacent markets develop
• Vibrant spot and financial
market further encourage
adjacent markets to
develop
Low liquidity markets:
Benchmark Sales
• Sales based on yearly
benchmark prices
• Market liquidity very limited,
most deals closed on long-
term basis
• Large variety of product
types
Liquid markets : Financial
markets exist
• Intermediaries facilitate
shorter-term transactions
• Liquid financial forward /
futures market develops
• Creative financial
structures emerge e.g.,
swaps, options
Hybrid markets: Benchmark
and spot sales
• Producers shift increasing
volume to shorter
contracts
• Single reference product
emerges as the pricing
standard to simplify
trades
• Period typically
accompanied by greater
volatility
Physical vs.
Paper traded volumes
Ma
rket
Liq
uid
ity
Commodity Market Evolutions
Gold
Crude Oil
Copper
Aluminum
Natural Gas
ZincNickel
Thermal Coal
Platinum
Iron Ore
Met Coal
Chrome Ore
BM Concentrates
7 Copyright: MVS
MVS is helping large and junior mining and trading organisations incorporate sophisticated VIU pricing & analytics to their toolkit
BC
A
Understand the specific needs of
each of your customer's
products and their technical processes
Geo-server calculates best
routing and optimal cost under various constraints
(land and seaborne)
Identify best uses and adjust prices
based on customer needs,
freight differentials and value-in-use
Logistic options and optimal cost routing
Mine data, production
and product options
Customer process and burden mix
options
“Best”customer and
portfolio optimization
Input data and parameters
Value-in-Use calculation engine
1 2 43
Take whole value chain into
account to determine real
value of iron ore in a given
application
Proprietary databases and
external sources
+/-
Fair price
=
VIU 1
VIU 2
“fair pricing”and best
customers
Iron Ore specs
Plant database
Logistics and costs
Mine Information
Steelmill process
Prices indexes
Observed differentials
Cloud-based server
Value to MVS user
8 Copyright: MVS
Junior minors are using detailed customer analysis and VIU methodologies to better negotiate terms
• Fully integrated from Mining (Coal & IO) through Final
Product
• Crude Steel Capacity: – 4mtpa
• Utilisation: ~98%
• Hot Metal Production 2012: ~4mt
• Iron Ore Demand: 7mtpa
• 1mtpa captive supply
• 0.2mtpa purchased locally
• 5.8mtpa imported
• Majority ore supplied by Rio Tinto & Vale
• Captive Power Supply: Yes – generate in excess of
100% of required supply
• Captive Coking Coal: Yes – 100% of required coal,
premium quality source
• Location:
• Zhongyang County, Shanxi Province
• ~700km by rail from port
Customer intelligence
• Has Long term contracts but regularly purchases on
spot
• Prefers CFR basis
• Comfortable using Platts 62% as base
• Will pro rata for higher FE content
Buying Terms
Benefit of
harder ore
Benefit of high
Fe Content
Low ZA ore %
means Alkali is
less of an issue
Push for DDP and
then concede CFR
We are competing
with international
supply
There is A LOT AfricaOre can do to infer SteelCorp preferences
• Fe
• Alkali
• Moisture
• Sulfur
• Pricing Formula
• Index reference
• Price average
interval
• Discounts
• Credit Risk
• Shipping Terms
• Prov. Payment %
• Cancellation Terms
Customer Preferences
-0.2
0.1
0.4
0.7
1Price
Service TermsQuality
Price
Quality Service
Terms
Increasing value
for Steel Company
9 Copyright: MVS
Juniors have sophisticated tools available to calculate freight netbacks and to rank their best customers on a CFR basis
10 Copyright: MVS
West Africa: The new Pilbara?
Burkina Faso
Be
nin
Ghana
Côte
d'Ivoire
Liberia
Sierra
Leone
Equatorial Guinea
Gabon
Nigeria
The Democratic Republic of Congo
Congo
Cameroon
Gambia
Senegal
Guinea
Central
African Republic
Guinea Bissau
To
goPort Pepel
Lolabe
Pointe-
Noire
Greenville
Buchanan
Port
African Minerals
Tonkolili
20
2011
Sundance Resources
Mbalam
35
2017
Afferro Mining
Nkout
35
2017
London Mining
Marampa
5
2011
Aluvance
Bikoula
2015
Severstal
Putu
12
2017
Core Mining
Avima
35
2016
Arcelor
Yekepa
152
2011
Rio Tinto
Simandou
951
2015
Sable Mining
Nimba
10
2014
Company
Project
Annual production target Mtpa
Production Start date
Bellzone
Kalia
10
2015
Kogi Iron
Agbaja
20
2015
Tawana
Mofe Creek
Warri
Simandou
Zanaga Iron Ore
Zanaga
30
2014
Equatorial Resources
Badondo
2015
Equatorial Resources
Mayoko
2
2014
Exxaro
Mayoko
102
2013
11 Copyright: MVS
Reviewing each West African mining project from 3 perspectives to assess their attractiveness to investors
Cost Perspective Commercial Perspective Risk Perspective
Domestic
Logistics
Analysis
FOB Cost
Opex
Analysis
Capex
Analysis
Technical VIU
Analysis
Netback
Post-FOB
Logistics
Analysis
Overall Risk
Assessment
Opex
Risk
Country
Risk
Market
Risk
Capex
Risk
Overall Project Attractiveness Compared to Benchmarks
Logistics
Risk
Cost
Perspective
Commercial
Perspective
12 Copyright: MVS
Company Project Large Small Large Small Large Small Netback ($/t)1
Aluvance Bikoula
Rio Tinto Simandou
Core Mining Avima
ArcelorMittal Yekpa2
Sable Nimba3
Sundance Res. Mbalam
Equatorial Res. Badondo
Equatorial Res. Mayoko
Exxaro Mayoko
Severstal Putu
Afferro Nkout
African Minerals Tonkolili
Bellzone Kalia
London Mining Marampa
Zanaga Iron Ore Zanaga
From a commercial and technical ViU perspective, we rank the West African projects by product quality Total Technical Value in Use difference vs Platts 62% at different furnaces ($/t)
1. Netback calculated as the average price received for 10mtpa supplied (5% of customers’ burden mix), based on Platts 62% long-term price of $110/t2. Yekepa specs not disclosed, Nimba specs taken as proxy (similar location & ore body) 3. Nimba specs used are the averaged lumps / fines of consolidated specs : 63.1% Fe, 0.07% P, 2.6% SiO2, 2.5% Al2O3, 4.2% LOINote: Projects ranked by netback valueSource: Company reports, Bryanston analysis
6.2
1.3
8.3
14.9
6.2
1.2
-5.0
-10.7
1.7
1.3
-3.1
-6.9
7.4
7.8
-12.2
20.3
-8.3
-4.8
1.6
2.2
1.5
-17.4
7.8
1.5
9.2
10.8
15.5
8.6
8.0
6.4
1.7
6.4
1.2
-5.6
1.2
-3.3
-11.6
0.7
-7.5
-12.9
-6.2
-3.8
-8.6
1.2
8.1
1.6
0.9
6.7
16.7
1.2
9.1
6.7
-3.9
6.8
1.2
-13.8
-9.4
1.2
1.4
1.6
6.8
8.2
9.1
17.0
-6.6
1.9
1.7
9.0
9.0
10.6
12.2
-21.7
-10.4
-5.5
2.8
1.9
-15.9
23.5
No DSO
No DSO
Tie
r 1
Tie
r 2
Tie
r 3
Tie
r 1
Tie
r 2
Tie
r 3
87.5
78.8
97.6
102.6
83.4
87.8
87.8
108.0
85.8
82.8 92.0
70.9
78.8
97.5
91.6
92.6
98.788.8
99.8
91.6
83.2
79.2
85.368.2
63.4
66.5
13 Copyright: MVS
Case Study: CORE mining’s Avima project, 2 phase approach, Phase 1 - road and river port loading
Source: CORE mining
14 Copyright: MVS
Case Study: CORE mining’s Avima project, 2 phase approach, significant volumes predicted 2018 onwards
Source: CORE mining
15 Copyright: MVS
Case Study: CORE mining’s Avima project Phase 2 sees significant cost reductions and real volumes at truly competitive CIF costs
Source: CORE mining
16 Copyright: MVS
Bryanston West Africa Iron Ore benchmarking studyKey Takeaways
Exxaro Mayoko, Sable Nimba and African Minerals Tonkolili rank in the top 3 most
attractive West Africa Iron Ore projects in our investor-perspective analysis
There is a high importance of developing early contact and relationships with the
highest netback European customers
Capex and logistics costs are the key differentiators of project
attractiveness for investors
The West Africa region has an abundance of high quality DSO. The ‘best customer’
ranking is very similar for all projects
Chinese customers are well positioned on the netback curve and this should be the
priority market for the majority of DSO volume
17 Copyright: MVS
What lessons can be learned from the next generation
best practices?Key Takeaways
Through engaging directly with the emerging derivatives markets juniors are
increasingly able to capture and protect value from active price risk management
Breaking into and sustaining sales in Europe is proving hard but they are
capturing opportunity by dealing directly with China, in an INFORMED way
By using the latest technical marketing methodologies and technologies juniors
are able to achieve better pricing terms both in spot and term agreements