supply shortages in tin mine supply - sept 2012 - john p. sykes - greenfields research / itri

Supply shortages in tin mine supply…

John P. Sykes, Director, Greenfields Research Ltd (on behalf of ITRI Ltd)

…and its effect on the global electronics industry

Supply shortages in tin mine supply

Contents

1 Demand: Tin solder not tin cans

2 Prices: Highest since 1980s ITC Tin Crisis

3 Supply problem: costly alluvial production

4 Supply problem: decline in Asia

5 Supply problem: dependent on other riches

6 Supply problem: dealing with capital costs

7 Conclusions: new mine supply required!


Demand: Tin solder not tin cans

Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

Demand: Tin solders not tin cans

2010: solder is +50% of demand 1970s: tinplate is ~40% of demand

Copyright: Greenfields Research & ITRI; Data: ITRI

China dominates solder demand

Tinplate: 54,200t (17%)

Chemicals: 42,600t (13%)

Brass/Bronze: 18,300t (6%)

Glass: 7,300t (2%)

Others: 26,600t (8%)

China: 94,400t (30% of tin &

55% of solder)

ROW: 76,700t (24% of tin &

45% of solder)

Solder: 171,100t (54%)

Tin Consumption (2009)



Prices: Highest since 1980s ITC Tin

Crisis Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

Tin prices are at 30-year highs

Long-term tin price history

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1900 1920 1940 1960 1980 2000

US$/tonne, inflation adjusted 2010 prices

0

10

20

30

40

50

60

0 to 5 5 to10

10 to15

15 to20

20 to25

25 to30

30 to35

35 to40

Price range, $000/tonne, 2010 real terms

Number of years in each price band

Tin price histogram 1900-2011


Prices at 30 year highs Recent prices

mainly is this

range

Lead to tin solder substitution has

driven demand & prices

Copyright: Greenfields Research & ITRI; Data: IPC 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Lead-free solder Lead solder

Lead-free solder as a % of global shipments

Conversion to tin

solder drove tin

prices

Weak supply now looks to be the

driver of prices

Tin supply demand balance (Kt)

250.0

275.0

300.0

325.0

350.0

375.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Refined Supply Mine Supply Refined Demand

Tin supply demand growth (%)

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

Refined Demand Refined Supply Mine Supply


Demand strength

driving prices Supply weakness

driving prices

Demand strength

driving prices

Supply weakness

driving prices


Supply problem: Costly alluvial

production Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

Alluvial and artisanal important for tin

mining in contrast to other base metals

Copyright & Images:

Greenfields

Research

Unregulated alluvial and artisanal

mining occurs in short cycles

Global tin production (Kt)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

197

0

197

3

197

6

197

9

198

2

198

5

198

8

199

1

199

4

199

7

200

0

200

3

200

6

200

9

201

2

Other

Africa

CIS/USSR

Australia

Bolivia

Brazil

Peru

Thailand

Malaysia

Indonesia

China

Index of alluvial mining booms

0.0

100.0

200.0

300.0

400.0

500.0

600.0

Malaysia 1958-1987 Thailand 1962-1991

Brazil 1977-2006 Indonesia 1992-20112

Indonesia 2012-2017???

?

?

?


Hard or soft rock: Grade is king!

Theoretical change in cost due to changes in ore grade for a

primary tin, alluvial mine in Indonesia, producing 7,500 tonnes of tin

per year, from a team of gravel pumps, with a 100% recovery. Copyright: Greenfields Research & ITRI; Data: ITRI

0

5,000

10,000

15,000

20,000

25,000

1.0kg/m3 0.8kg/m3 0.6kg/m3 0.4kg/m3 0.2kg/m3

US

$/t

on

ne

Mining Other

2015, Theoretical Net of By-Product Cash Costs Approximate grade of

S.E. Asian alluvial ores

Hard rock mining costs becoming

competitive with alluvial mining


0

5,000

10,000

15,000

20,000

25,000

OP 2.0% UG 4.0% OP 1.5% UG 3.0% OP 1.0% UG 2.0% OP 0.5% UG 1.0%

US

$/t

on

ne

Mining Processing Other

2015, Theoretical Net of By-Product Cash Costs Approximate grade of

new hard rock projects

Underground mine is a theoretical primary tin, underground mine in Australia,

producing 7,500 tonnes of tin per year, with a processing recovery of 75%.

Open pit mine is a theoretical primary tin, open pit mine in Australia, producing

7,500 tonnes of tin per year, with a processing recovery of 75%.

Hard or soft rock: Grade is king!


0%

20%

40%

60%

80%

100%

Alluvial Open Pit Underground

% b

rea

kd

ow

n o

f c

os

t in

pu

ts

Fuel Electricity Labour Other

2015, Theoretical Net of By-Product Cash Costs

Theoretical cost breakdown for a primary tin, open pit mine in Australia grading 0.5%,

producing 7,500 tonnes of tin per year, with a 75% recovery.

Theoretical cost breakdown for a primary tin, alluvial mine in Indonesia grading 0.2kg/m3, producing

7,500 tonnes of tin per year, from a team of gravel pumps, with a 100% recovery.

Theoretical cost breakdown for a primary tin, underground mine in Australia grading 1.0%,

producing 7,500 tonnes of tin per year, with a 75% recovery.

Vulnerable to fuel costs

Vulnerable to labour

costs


Supply problem: Decline in Asia

Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

Asian countries dominate production,

very few developed world tin miners

World Tin Mine Production (2012 est.)

Indonesia

(34.5%)

China

(34.5%)

Peru

(9.4%)

Bolivia (6.9%)

Brazil (3.8%) Australia

(2.3%)

DR Congo

(2.6%)

Malaysia

(1.2%) Vietnam (1.2%)

Nigeria (0.6%)

Portugal (<0.1%) Egypt (0.1%)

Rwanda

(1.4%)

Burundi (<0.1%)

Myanmar (0.7%)

Thailand (0.1%)

Laos (0.4%)

Mongolia

(<0.1%)

Russia

(0.2%)


Developed versus developing world

labour rates versus fuel prices?

0

10,000

20,000

30,000

40,000

50,000

60,000

2011, GNI Per Capita (US$)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2007-11 GNI Per Capita CAGR (%)

Copyright: Greenfields Research & ITRI; Data: World Bank

Developed world

labour costs are

higher…

…but developing

world labour costs

are rising quickly

Developed nations a safer investment,

important for large capital projects

Country Ranking (of 181)

Canada 4th

Australia 5th

- -

USA 10th

- -

Germany 20th

- -

UK 25th

- -

Spain 27th

Country Ranking (of 181)

Peru 56th

- -

China 71st

Brazil 72nd

- -

Indonesia 111th

- -

Bolivia 125th

- -

DR Congo 159th

Rankings based on Greenfields Research’s proprietary mining political risk ranking system. The ranking system correlates economic data sets

that cover most of the world’s countries (such as the Transparency International Corruption Index, the World Bank Doing Business dataset and

GDP/land area) with well known mining industry political risk surveys, including the Fraser Institute, Behre Dolbear and ResourceStocks, to get

a system which ranks all countries by their suitability for mining, not just those in the mining industry surveys.

Copyright: Greenfields Research & ITRI; Data: Greenfields Research

Exchange rates important, a stronger

Rupiah raises marginal costs


0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

2006 2007 2008 2009 2010 2011

Exchange rates (to US dollar) indexed to 2006

Indonesian Rupiah (IDR) Chinese Renminbi (CYN)

Bolivian Bolivano (BOB) Brazilian Real (BRL)

Australian Dollar (AUD)

Weaker

Stronger

Indonesian Rupiah affects

marginal costs in tin. A

stronger Rupiah means

higher long term tin prices

Asian mining in decline, replaced by

developed world production

World Tin Mine Production (2016 est.)

China

(26.2%)

Indonesia

(22.0%) Australia

(8.5%)

Peru

(10.6%)

Bolivia

(7.5%) Brazil (4.8%)

Malaysia (2.9%)

Vietnam (1.1%)

Laos (0.4%)

Thailand (>0.1%)

Myanmar

(3.1%)

Mongolia

(0.4%)

Russia (0.9%)

Kazakhstan

(1.8%) Canada (0.1%)

UK (0.1%)

Germany

(1.2%)

Spain

(0.3%)

Portugal (<0.1%) Egypt

(0.7%)

Morocco

(2.1%)

Nigeria (0.5%)

DR Congo (3.0%)

South Africa (0.5%)

Rwanda (1.2%)

Burundi (<0.1%)



Supply problem: Dependent on

other riches Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

Tin mining is dependent on a wide

variety of by-products

Copper

Australia & China

Silver

China

Lead

China

Zinc

Bolivia, China

Antimony

China Indium

China

Gallium

China

Tungsten

Egypt, Mongolia,

Myanmar

Tantalum

Burundi, Congo,

Rwanda

Niobium

Brazil, Burundi,

Nigeria

World Tin Mine By-Products (2012 est.)

Copyright: Greenfields Research & ITRI; Data: ITRI; Images: Shutterstock, www.csksg.com, www.tradekorea.com, www.cdves.com, American

Elements, Wikipedia

http://www.csksg.com/

http://www.tradekorea.com/

http://www.cdves.com/

Tin industry uneconomic without by-

products


0%10%20%30%40%50%60%70%80%90%

100%

2016 estimates of revenue shares for tin producing mines and mine projects

Tin Aggregates Copper Iron Ore Mineral Sands Niobium Silver Tantalum Tungsten Lead/Zinc

Tin mining will become more

dependent on by-products

Copper

Australia, China,

Germany,

Kazakhstan,

Peru, UK

Silver

Australia,

Canada,

China,

Kazakhstan,

USA

Lead

China

Zinc

Australia,

Bolivia,

Canada, China,

Germany, UK,

USA

Antimony

China

Indium

Australia, Canada,

China, Germany

Gallium

China,

Germany

Tungsten

Australia, Canada,

Egypt, Kazakhstan,

Mongolia, Myanmar,

Portugal, Russia,

Spain, UK, USA

Tantalum

Australia, Burundi,

Congo, Egypt,

Kazakhstan,

Rwanda

Niobium

Brazil,

Burundi,

Nigeria

Iron Ore

Australia,

Kazakhstan

Molybdenum

Canada Titanium

Kazakhstan,

Malaysia

Zirconium

Brazil

World Tin Mine By-Products (2017 est.)

Copyright: Greenfields Research & ITRI; Data: ITRI; Images: Shutterstock, www.csksg.com, www.tradekorea.com, www.cdves.com, American

Elements, Wikipedia, www.made-in-china.com; www.images-of-elements.com

Lithium

Czech Rep. Aggregates

Malaysia

http://www.csksg.com/

http://www.tradekorea.com/

http://www.cdves.com/

http://www.made-in-china.com/





http://www.images-of-elements.com/






Supply problem: Dealing with

capital costs Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

Dominated by small, private

companies and state miners

~32,000t, 11.0%,

Private/Public, Peru

~39,400t, 13.6%,

State/Public, Indonesia

~27,200t, 9.4%,

State/Public, China

~11,600t, 4.0%,

State, Bolivia

~10,500t, 3.6%,

Private, China

~3,200t, 1.1%, Public,

Australia

~7,125t, 2.5%, Public,

Malaysia/Indonesia

~3,500t, 1.2%, State,

Vietnam

~2,500t, 0.8%, Private,

China

~2,000t, 0.7%, Co-op,

Brazil

Copyright: Greenfields Research & ITRI; Data: ITRI; Images: Company websites, ITRI, Wikipedia

Substantial investment required in new

tin supply, bigger companies required

Company Project Capex

(US$M)

Capacity

(t/y Sn)

Capex

(US$/t/y)

Source

Consolidated Tin Mines Mt Garnet 124.0 3,050 40,700 Scoping 2010

Kasbah Resources Achmmach 167.0 6,880 24,300 Pre-Feasibility 2012

Metals X Rentails 173.2 5,300 32,700 Feasibility 2009

Stellar Resources Heemskirk 108.0 3,900 27,700 Scoping 2011

Venture Minerals Mount Lindsay 144.6* 3,700 39,100 PFS 2011

Total & average 716.8 22,830 31,397

Total new mine supply required 2011-15: 70,000t/y

Average capital cost per tonne new capacity: $31,400

Total investment required in new supply: $2.2 billion

* Mount Lindsay is a tin-tungsten-magnetite project. The tungsten plant in particular greatly adds to capital costs. Copyright: Greenfields Research & ITRI; Data: ITRI


Conclusions: New tin mine supply

needed Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7

High marginal tin costs, mean high

long term prices


Hard rock

Alluvial

Artisanal (non-alluvial)

High and rising

marginal costs dictate

long term prices –

currently ~$25,000/t,

rising to $40,000/t ???

Generally rising costs mean that even

floor prices are quite high

Recent price lows versus marginal cash costs Copper Zinc Nickel Tin

2011 Cash Costs (US$/tonne)

Median 2,250 922 6,505 8,686

10th Decile 4,000 1,530 16,048 13,327

Recent price history (monthly average LME 3-months prices)

GFC low 3,108 1,119 9,791 10,465

2011 peak 9,854 2,489 28,266 32,464

GFC low versus:

Median 138% 121% 151% 120%

10th Decile 78% 73% 61% 79%

Copyright: Greenfields Research & ITRI; Data: ITRI, Barclays Capital, Brook Hunt

Floor (100%)

seems to be about

¾ the marginal

cost for base

metals, currently

about $18,000/t,

rising to about

$25,000/t ???

Alternative price forecasts are all high

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Price history and forecast scenarios (US$/tonne)

Historical price (real 2010) Central Forecast

Double Dip Scenario Robust Growth Scenario

High demand growth,

significant new supply

required, prices will trends

towards a high & rising

marginal cost

No demand growth, new

supply will struggle to

come on stream, prices will

trend towards a high &

rising floor price

Future price

range: $20,000-

40,000/t ???

Floor price: $20,000/t ???

Marginal cost: $40,000/t ???


Plenty of projects in the pipeline: time

and money needed to develop them

~130 known projects

~60 with historical

resources

10 with compliant

resources

4 at scoping

stage

1 at feasibility stage

~4.8Mt of estimated reserves

(USGS)

~3.2Mt as historical

resources

824Kt as compliant

resources

310Kt at

scoping

stage

90Kt at feasibility stage

Copyright: Greenfields Research & ITRI; Data: ITRI, Greenfields Research, USGS, Infomine, company websites

New supply will have to enter the cost

curve lower than marginal alluvials

Data: ITRI/Greenfields Research


Operating (2012)

Brownfields

Greyfields

Greenfields New projects

need to enter the

cost curve here!

These projects

currently not

economic


Conclusion

1 Tin is an electronic metal driven by solder demand.

2 30-year price highs are effecting the electronics industry.

3 Alluvial tin supply falling to be replaced by hard rock mining.

4 Declining Asian mining, new supply from elsewhere in the world.

5 Increasing reliance on by-products as grades decline.

6 Future supply will have much higher capital costs.

7 High medium term prices, will encourage new supply on-stream

Contact Details: John P. Sykes

Director, Greenfields Research

[email protected]

www.greenfieldsresearch.com

Today’s reference: ITRI Tin Industry Review 2011

Peter Kettle

Manager, Statistics & Market Studies

[email protected]

www.itri.co.uk

supply shortages in tin mine supply - sept 2012 - john p. sykes - greenfields research / itri

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