Copper Outlook: New Supply in Uncertain Times. November 2012 Andrew Stonkus, Vice President Base Metals Marketing

Transcription

1 Copper Outlook: New Supply in Uncertain Times November 2012 Andrew Stonkus, Vice President Base Metals Marketing

2 Forward Looking Information Both these slides and the accompanying oral presentation contain certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of the Securities Act (Ontario) and comparable legislation in other provinces. Forward-looking statements can be identified by the use of words such as plans, expects or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or variation of such words and phrases or state that certain actions, events or results may, could, should, would, might or will be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Teck to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements include statements relating to the size and quality of Teck s projects and operations and the timing and outcomes of those projects, our production growth profile including but not limited to our potential growth in copper production, mine lives and mineral reserves and resources. These forward-looking statements involve numerous assumptions, risks and uncertainties and actual results may vary materially. These statements are based on a number of assumptions, including, but not limited to, assumptions regarding general business and economic conditions, the supply and demand for, inventories of, and the level and volatility of prices of coal, zinc and copper and other primary metals and minerals produced by Teck, the timing of receipt of regulatory and governmental approvals for Teck s development projects and other operations, Teck s costs of production and production and productivity levels, as well as those of its competitors, the accuracy of Teck s reserve and resource estimates (including with respect to size, grade and recoverability) and the geological, operational and price assumptions on which these are based, the resolution of environmental and other proceedings, our ongoing relations with our employees and partners and joint venturers, and the future operational and financial performance of the company generally. The foregoing list of assumptions is not exhaustive. Events or circumstances could cause actual results to differ materially. Factors that may cause actual results to vary include, but are not limited to: unanticipated developments in conditions in the principal markets for Teck s products or in the supply, demand, and prices for metals and other commodities to be produced, inaccurate geological or metallurgical assumptions (including with respect to the size, grade and recoverability of mineral or oil and gas reserves and resources), changes in taxation laws or tax authority assessing practices, legal disputes or unanticipated outcomes of legal proceedings, unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalation, unavailability of materials and equipment, government action or delays in the receipt of permits or government approvals, industrial disturbances or other job action, and unanticipated events related to health, safety and environmental matters), decisions made by our partners or co-venturers, political risk, social unrest, lack of available financing for Teck or its partners or co-venturers, and changes in general economic conditions or conditions in the financial markets. Certain of these risks are described in more detail in Teck s annual information form available at and in public filings with the United States Securities and Exchange Commission. Teck does not assume the obligation to revise or update these forward-looking statements after the date of this document or to revise them to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.

3 T E C K R E S O U R C E S A C L O S E R L O O K Diversified, Low Risk, Long Life Portfolio Teck Coal (100%) World s 2 nd largest seaborne met coal producer Six open-pit operations >25 year mine life >100 year resources Potential Quintette production in 2014 Oil Sands Fort Hills: 20% Frontier: 100% Lease 421: 50% 3.5b bbl contingent resource First production by 2017 Red Dog (100%) Large scale, low cost zinc production ~20 year+ mine life, with potential to increase further Red Dog Fort Hills Frontier & L421 Highland Valley Elk Valley Trail Pend Oreille Duck Pond Growth, Diversity and Cost Competitive Production Antamina Quebrada Blanca Relincho Andacollo Refinery Mine Advanced Project Trail: Top 5 zinc/lead facility in the world Antamina (22.5%) Large, low cost copper-zinc co-product mine Current operations to 2028 Quebrada Blanca Blanca (76.5%) (76.5%) Current operations to 2016 with cathode production to continue until 2018; Plan to triple production; $5.6b capital project moving to concentrates; 40 year life Andacollo (90%) Recently completed expansion that quadrupled production >20 year mine life Highland Valley (97.5%) Mine life to 2026 Potential to extend mine life by an additional yrs Note: References throughout to mine lives are based on Teck reserve estimates (or where indicated resource estimates) and current production rates. Actual mine lives may vary

4 Teck Copper Snapshot Operating in the Americas Galore Creek 2012 Revenues Q1-Q3: CMA 29% HVC 31% Highland Valley Mesaba Duck Pond C$2,247 million CDA 19% QB 17% DPO 4% San Nicolas Antamina Quebrada Blanca Relincho 2012 Gross Profit Q1-Q3: CMA 43% HVC 32% Andacollo Mine Advanced Project C$1,070 million CDA 14% QB 8% DPO 3% Note: References to Gross Profit are before depreciation and amortization.

5 Major Projects in the Pipeline QB Phase 2 and Relincho can double current copper production Approved Projects Future Projects kt Cu - Acquisition of Aur Resources kt Cu - Extended HVC LOM - Andacollo Hypogene to 375 kt Cu - Antamina Expansion - Andacollo Pre-crushing - HVC Buttress HVC Optimization Detailed Engineering - QB Phase 2 Feasibility Stage - Relincho Scoping and Pre- Feasibility Stage - Galore Creek (JV) - Mesaba (100%) - San Nicolas (JV) - Zafranal (JV) - La Verde (JV) Note: Development scenarios for future projects are not based on technical reports filed under National Instrument

6 Global Copper Mine Production Growth and The Challenges Supply Disruptions Ongoing New Mining More Complex Costs to Build New Mines Increasing Cost to Operate Existing Mines Increasing Water & Water Issues New Stakeholders & New Regulations

7 Supply - Copper Mine Growth by Region thousand tonnes contained 9,000 8,000 7, Reported 2020 Forecast 2020 Including Highly Probable & Probable Projects 6,000 5,000 4,000 3,000 2,000 1,000 0 Chile South America North America Europe Oceania Asia China Africa Source: Wood Mackenzie, Teck Concentrates + SXEW

8 Sulphide Mine Production Increases Too Many Projects, Too Quickly? thousand tonnes contained copper Million tonnes of additional production built Million tonnes of additional production committed or under construction Million tonnes of additional production uncommitted but under consideration. In the next 10 years the industry will try to add 7.6 Million tonnes of new concentrate production, or 4 times what it has done in the previous 10 years. Can the industry bring 88 new projects and expansions to market at the same time? Forecast Source: Wood Mackenzie

9 How projects keep slipping Execution Risk Of the 22 highly Probable Projects listed in 2007 Only 11 made it to production, 11 remain as projects (pushed out between 6 11 years). Of the 42 Probable Projects in 2007 Only 11 made it to production (on average 2.5 years late) 27 are still on the list (pushed out on average 7 years) The rest have been scrapped. Source: Wood Mackenzie, Teck

10 Concentrate Production Disruptions - are Continuing thousand tonnes contained copper To End September 2012 Guidance Production disruptions to mine production continue into Before 3 rd Quarter Guidance has been released we have already exceeded our estimate of 6%. Mine production was to have increased 1.2 million tonnes in 2012, we are now likely to get less than half. In 2011 no increase in mine production. For 2013 we are projecting an increase of 1.8 million tonnes of new production. Lower grades have increased the unpredictability of production forecasts. Source : ICSG, Wood Mackenzie Brook Hunt, Teck, Company Reports

11 Copper Net Mine Production Increases May Not Be Sufficient thousand tonnes contained copper Source: Wood Mackenzie, Teck

12 Capital Cost Escalation Next Generation of Mines Higher Cost Real 2011 $/t Cu Equiv Brownfield Greenfield Source: Wood Mackenzie

13 Brownfield projects will need to be part of the solution Types of brownfield projects Re-opening mothballed capacity Extension of existing mine life Expansion of existing facilities to increase production or combat falling grades. New process facilities. SXEW to Concentrates. Benefits Some or all of infrastructure already in place (lower capital intensity) Lower Technical Risk (Ore body understood) Permitting and Social License to Operate, potentially easier in established mining area Established work force

14 Cost of Mining on the Rise 2012 Estimate (USȼ/lb) Current LME price : US $3.50lb Cost of getting out of the ground (cost to concentrate) has gone up 285% since Costs increased 24% in 2011 over th percentile cost is estimated for 2012 at US $2.37/lb up from $2.06 in 2011 and $0.65/lb in Average C1 cash cost of production is US $1.44/lb, up from US $0.49/lb in Source: Wood Mackenzie

15 Cost Increase By Cost Element 2000 to 2012 C3 Total Cost US /lb Source: Wood Mackenzie

16 Hiring Requirement Forecasts for Canadian Mine Workers Additional Workers in Mining Source: Mining Industry Human Resources Council

17 Power Grid Future is Strained In Chile mining consumes 1/5 of the country s energy Need to increase power generation by 47% by 2020 or 8,000 GWh. At least 4.85 GW of planned power projects have been delayed or scraped. Power costs in Chile now the highest for any major copper producing country 50% higher than the global average. Northern SING Power Grid Already Constrained Future Copper Projects will Increase Strain At low case - capacity utilization could reach 65%. At mid case - capacity utilization could reach 81%. At high case - exceeds 140%. US average power plant utilization rate is 45%. Falling Head grades more ore must be processed to produce the same amount of copper requiring additional water and power Water Shortage = Power Shortage Desalinated seawater = power. Mines at elevation, require Power to pump seawater Currently insufficient capacity for reliable power supply to deal with power surges / unplanned outages.

18 Resource Nationalism Deters Investment Increasing Royalty Rates Bans on Exports of Mineral Ores and Concentrates Increasing Export Taxes Resource Taxes Excessive Profit Taxes aimed at Resource Industry New Mining Codes requiring Higher Mining Projects Levy Government Free Floats in Developing Countries. New VAT Laws Re-Reviews of Existing Mining Contracts

19 Regulatory Issues Facing Copper International Marine Organization MARPOL International Marine Organization Dangerous Goods Code IMDG Conference on Sustainable Development (Rio +20) ILO 169 Convention on Indigenous Peoples. OECD Environmental Hazard Assessment of Metals (Marine Pollutants) UNEP Intergovernmental Committee on Mercury Contamination Environmental Taxes to heavily polluting industries. Controls of Heavy Metal Pollution. New Air/Water Emissions Controls. Raw Materials Alternate Recycle Extract Resource Efficiency Roadmap REACH Biodiversity Policy BASEL convention on movement of Hazardous Wastes

20 Challenges to Mine Production Challenges to New Copper Mine Production Permitting Labour/Skills Shortages Returns to Shareholders Falling Head Grades Diminishing Oxide Resources Resource Nationalism Social License to Operate Unstable Jurisdictions/ Changing Regulations Power Access & Cost Water Too Much or Too Little

21 Thank You