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Headline Verdana Bold Arctic Mining Forum Lulea, Sweden Phil Hopwood October 2016

© Deloitte LLP and affiliated entities.

Topics

Macro-economic backdrop Mining indices Market activity Trends in Mining Conclusions


The Mining sector globally

Signs of light?

3


4

Long-term trends world economy

Growth stabilises?

4


5

Global economic forecasts near-term growth

Volatility is the new stability

5

© Deloitte LLP and affiliated entities. 6

Business pulse – manufacturing PMI survey

Over 50 is positive…


Business pulse – Composite Leading Indicator

All economies except India in modest downturns


Mining indicators


Commodity Price @ 20th May 2016

Q-on-Q %

Y-on-Y %

3 Oct 2016

Iron ore ($/t) 56.50 20% - 4% 56

Hard coking coal ($/t)

84.20 17% 5% 200

Thermal coal ($/t) 51 1% - 15% 40

Copper ($/t) 4,588 -1% -26% 4,832

Aluminium ($/t) 1,535 - 2% -12% 1,658

Nickel ($/t) 8,457 - 1% - 35% 10,460

Gold ($/OZ) 1,252 2% 3% 1,310

Uranium 28.50 -16% -20% 26

Mining commodity prices monitor

What a difference a year makes

9


Declining Capex….capital austerity expected to continue

Weak commodity prices a applying pressure on industry profit margins and valuation metrics….albeit an improving outlook in 2016 and 2017

Rising corporate debt levels are a concern….gearing ratios are higher and there’s pressure on credit ratings. Ongoing focus on balance sheet protection or repair in 2016

Capital allocation priorities are shifting….end of progressive dividend commitments. More discretional FCF for growth projects?

Source: Morgan Stanley May 16th 2016

Sample set:

• Antofagasta

• Anglo American

• BHP Billiton

• First Quantum

• FMG

• Freeport

• Glencore

• Norilsk Nickel

• Rio Tinto

• S32

• South Copper

• Teck Resources

• Vale

The global picture is changing right now

10


Miners still in dark times but signs of a rebound Bruised miners emerge from dark times

11


Commodity price forecasts

Modest improvements forecast – but they are only forecasts…

12


Mining demand/supply: bulk commodities

Tightening coal supply with increased demand the major story

13


Mining demand/supply: base metals

Under-supply in nickel and zinc the major headlines

14


• Weaker Producer currencies – AUD, CAD, ZAR

• Declining freight rates

• Lower energy costs – diesel, electricity, explosives

• Reduced labour and equipment costs – big squeeze on contractor rates

• Internal cost reduction/productivity initiatives – ‘doing more with less’

• Capital costs – low to zero interest rates

Cost tailwinds

Falling cost environment providing much needed margin support

15


• Mining capex cliff. ABS capex survey indicates reduced appetite for capital spend. Second estimate for mining capex in 2016/17 came in at $36b, 32% below the second estimate offered in 2015/16.

• NAB predicts 70% decline in AUS mining investment over next 3 years! AUS Mining capex was 8% of GDP at peak in 2012. 1.5% by 2018

• Exploration spend is increasing. First half-year increase in AUS mineral exploration since 2011. Bigger miners announcing exploration programs, increases in exploration budgets. Preference for near mine, low risk brownfield exploration in known geologies

• Less activity in Junior exploration sector due to cash-flow/finance shortages

Australia: capital austerity…but with an eye on growth

Strict capital discipline but alert to ‘value accretive’ growth

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Source: Deloitte Canada

Traditional vs. new financing options*

The Capital Crisis

Starved of finance, miners struggle to survive


Sell-side global mining deals since January 2012, by acquisition technique


Investment Attractiveness Index

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• Australia is the most attractive destination for mining investments based on Fraser Institutes global survey of mining executives

• Competitive, transparent, and stable mining policies to encourage exploration and investment

Why Australia?

• Quality of Mineral resources

• Transparent mining policies

• Strong legal system

• Clear regulations

• Skilled labour force

Australia is the most attractive place for Mining investment

Where is Africa?


Finland and Sweden are the most attractive Nordic locations

Finland has ranked in the Top 10 in the last 5 surveys


Trends in Mining


Tracking the trends 2016

ARE WE THERE YET?

SAFE, SECURE AND HEALTHY AN EXPANDED VIEW OF CORPORATE AND PERSONAL WELFARE

THE M&A PARADOX TO BUY OR NOT TO BUY; THAT IS THE QUESTION

A TAXING TIME FOR MINERS A GLOBAL TAX RESET CHALLENGES YESTERDAY’S TAX MANAGEMENT

THE CAPITAL CRISIS STARVED OF FINANCE, MINERS STRUGGLE TO SURVIVE

ENGAGEMENT PARTY CHANGING THE NATURE OF STAKEHOLDER DIALOGUES

THE SHIFTING GLOBAL ENERGY MIX PREPARING FOR INEVITABLE CHANGE

ADJUSTING TO THE NEW NORMAL WHAT GOES DOWN MUST COME UP

CHINA’S PAINFUL TRANSITION LOOKING FOR THE SILVER LINING

INNOVATION: THE NEXT GENERATION PREPARING FOR EXPONENTIAL CHANGE

GOING LEAN OPERATIONAL EXCELLENCE REMAINS FRONT AND CENTRE

INNOVATION: THE NEXT GENERATION

PREPARING FOR EXPONENTIAL CHANGE

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• 81% of innovation in mining falls in product and product system innovation

− Technological optimization of old techniques vs. new ways to configure and

engage externally

• Stay ahead of innovation with systematic approach and applying cross-sectoral

best-practices that help shape “mines of the future”

• Near-term strategies:

− Enhanced innovation

− Collaborative ecosystems

− Digital workforce engagement

− Energy optimization

− Modularization

− 3D printing

© 2015. For information, contact Deloitte Touche Tohmatsu Limited | Tracking the trends 2016

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STRATEGIES THAT BUCK THE TREND

Getting serious about innovation

A holistic approach includes an innovation focus, commitment to develop innovation

strategies, ability to tap into ecosystems and ability to align organizations’ systems and

processes to drive innovation

Collaborative ecosystems

Innovation doesn’t happen in isolation

Digital workforce engagement

Mobile and social technologies bridge the gap between management and employees to

encourage collaboration and creativity across the organization

Enhanced asset management

Minimizing maintenance costs and improving asset efficiency require intuitive tools that can

amass and turn data into insights

Aligning work processes with energy availability

Forwarding-thinking companies continue to make strides towards adoption of renewable

energy alternatives and changing work processes to align with energy availability

3D printing and modularization

Cost- and time-efficient approaches especially for companies with mine sites in remote

locations

© 2015. For information, contact Deloitte Touche Tohmatsu Limited | Tracking the trends 2016


Conclusions


• People in urban areas: 54% in 2015 -> 66% by 2050

• Nearly 2.4b increase in urban population is expected by

2050.

• Asia-Pacific and African urbanisation estimated to grow

the fastest

• India is targeting the construction of 100 smart cities

over the next 10-15 years

26

Urbanisation to drive commodity demand


Note: Size of the bubble is infrastructure spending US$T during 2008–17

Source: Statista, EIU, Central Intelligence Agency

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

Rate

of

Urb

an

isati

on

(2

01

0-1

5)

Population CAGR (2010-15)

India

China

Rest of Emerging Economies

Brazil

Mexico

Saudi Arabia

South Africa

Indonesia

Russia

Emerging Economies Saudi Arabia bubble is US$0.5T

Emerging market infrastructure investment…a positive growth catalyst?

27


Phil Hopwood DTTL Global Leader, Mining [email protected] +16138510028

Contact

mailto:[email protected]

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© 2016. For information, contact Deloitte Touche Tohmatsu Limited.

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