2018 and Beyond Trends in the Mining Industry Phil Newall, Managing Director, Wardell Armstrong International

Transcription

1 2018 and Beyond Trends in the Mining Industry Phil Newall, Managing Director, Wardell Armstrong International

2 The Markets What is Affecting Them? Trump Trade Wars Sanctions Brexit Supply & Demand EV Story Conflict China Renewables

3 International Situation Optimism - infrastructure-fuelled metals boom in the US, fiscal expansion and easier corporate regulations. China s continued +6% growth. Pessimism - Chinese economy, potential US trade war, left field factors. Mining industry struggling to recover from a deep downturn after four years of sharp declines exploration budgets were the lowest in 11 years. Exploration dominated by the industry's largest companies, mainly for copper and gold (and zinc).

4 Recent Metal Price Correction?

5 Thermal Coal, Bucking the Trend? Thermal Coal prices have risen 148% in the last 2 years as coal demand for power generation continued to increase in Asia and the rest of the world. China s ongoing crackdown on pollution and focus on closing poor quality coal mines in China has helped to lift thermal coal prices. Electric Vehicle sales will only exacerbate the problem by raising power consumption massively.

6 The EV & Battery Storage Factor World transition towards EV s and Renewable Energy. Battery demand will increase over the coming years. China is the fastest growing market with global forecasts (IEA) of between million units by Pressure on electricity networks. Renewable energy rising in importance, but issues with intermittent output and storage. Battery storage becoming major focus.

7 Which Metals? Conversely, PGM s may take a major hit in demand.

8 EV Metal Prices

9 Potential Risks? Insufficient critical metals such as cobalt. Battery technology evolving rapidly, but might different metals become more important? Other known technology becomes more popular, such as hydrogen fuel cells? Development of unknown technology?

10 Global Exploration Budgets After four years of depressed exploration spending, the mining industry upped aggregate nonferrous exploration budget to US$8.4 billion. Canada, Australia and U.S. continue to lead exploration spending: with allocations totalling US$5.55 billion. The top 10 countries accounted for 70%. Expected to increase a further 15%+ in 2018.

11 Type of Exploration Gold led the way to a higher global budget in Battery metals exploration surges: lithium exploration allocations in 2017 more than doubled year-over-year, while cobalt-focused exploration also increased strongly. Worryingly, grassroots exploration still declining, whilst minesite increasing.

12 Exploration Activity by Commodity

13 Exploration Summary In 2017, exploration spending forecast to hit $11bn after recording a low of around $9bn in Majors desperately trying to replenish project pipelines and overturn the industry s lack of recent success in unearthing deposits. The mining sector is gearing up for a hunt for mines after a period of low investment. Still preferring to target development projects and expansion into underground operations. Building for a storm?

14 Financial Considerations Capital raising increased slightly in IPO s increased markedly to US$2.8bn of which Russia s En+ accounted for US$1.5bn. Copper attractive, but gold still popular easy to build, reduced risk and gold is also seen as a financial product. Battery metals private and public money becoming available. Volume of private equity (PE) deals in the mining sector doubled to 60 deals in 2017, compared to 30 in Total deal value rose by 31% in 2017 to $2.3bn compared to $1.75bn in Africa main beneficiary, with copper and battery metals popular. However, PE model changing to reflect shortage of suitable projects more money going into earlier stage projects.

15 M&A Activity 2017 up slightly by value from 2016, although the number of deals were fewer. This was anticipated as higher metal prices and a stronger global economy, notwithstanding political uncertainty, fuelled activity. China was the main player as acquirer and target. Coal and steel were the main drivers, but gold activity down. Exploration stage assets strongly up bodes well for the future? Early indications for 2018 seems good - US$25bn already in Q1.

16 Global Outlook Markets to remain reasonably strong fuelled by overall supply and demand as well as need for battery metals and renewable energy. Future supply of some metals (copper, zinc, cobalt) problematic. China is likely to continue at +6% growth and will play a huge role in mining. M&A activity likely to continue. IPO s on the rise. Starkly, by 2050, an additional 2.5 billion people will be urbanised, and 90% of the increase will take place in Asia and Africa metals will underpin this.