The future of nickel production - the outlook for nickel sulphide and laterite resource development

The future of nickel production - the outlook for nickel sulphide and laterite resource development Nickel Processing 215 Falmouth, UK. May 215 Strategy with substance www.woodmac.com Agenda 1. Supply/Demand outlook 2. Dispelling some myths 3. So whats the problem with laterites? 4. Sulphides easier now, but for how long? 5. Is Indonesia the key to the future? 6. The long term nickel price 7. Summary Wood Mackenzie 2 1

Agenda 1. Supply/Demand outlook 2. Dispelling some myths 3. So whats the problem with laterites? 4. Sulphides easier now, but for how long? 5. Is Indonesia the key to the future? 6. The long term nickel price 7. Summary Wood Mackenzie 3 Declining refined production is expected from 215-217 New projects needed through 219 if supply is to keep pace with demand Refined nickel supply and consumption (kt Ni) kt 3 25 2 15 1 Existing supply Probable projects Consumption The global nickel market is expected to be in deficit between 215 and 219, after a near 5% cut in Chinese NPI production due to the Indonesian ore export ban Beyond 219, even with the development of new projects, including a replacement NPI sector in Indonesia, world nickel demand will continue to outstrip the supply 775kt of new nickel is required by 23 to maintain a reasonable market balance 5 199 1995 2 25 21 215 22 225 23 Wood Mackenzie 4 2

Agenda 1. Supply/Demand outlook 2. Dispelling some myths 3. So whats the problem with laterites? 4. Sulphides easier now, but for how long? 5. Is Indonesia the key to the future? 6. The long term nickel price 7. Summary Wood Mackenzie 5 Dispelling the myth low grade high cost laterite projects Ore processed head grades Operating costs pre by-product credits 2. 9. 1.8 8. Average Head Grade (%Ni) 1.6 1.4 1.2 1..8 Gross Costs $/lb Ni 7. 6. 5. 4. 3. 2. 1..6 1992 1997 22 27 212 217 222 227 232 237. 25 26 27 28 29 21 211 212 213 214 Laterite Sulphide Average Laterite Sulphide Wood Mackenzie 6 3

While laterite and sulphide processes have similar costs, sulphide producers benefit from significantly higher by-product credits 8 214 Sulphide/laterite cost comparison Operating Costs ($/lb Ni) 6 4 2-2 Laterite Sulphide Sulphide ex-norilsk -4-6 Concentrate Intermediate Refined By-product credits NOTE: Ore, intermediate and refined costs were calculated as a weighted average of the costs of the different processes, excluding FeNi. Prices were calculated based on a nickel price of $1697/t, with ore, intermediate and FeNi prices being 22%, 8% and 9% of the metal price, respectively. As we didn t have ore costs, the chart currently shows cost to concentrate instead, giving ore sales a negative margin. Wood Mackenzie 7 Agenda 1. Supply/Demand outlook 2. Dispelling some myths 3. So what is the problem with laterites? 4. Sulphides easier now, but for how long? 5. Is Indonesia the key to the future? 6. The long term nickel price 7. Summary Wood Mackenzie 8 4

Capex increases on average 16% p.a. since 25 through to 213 No isolated to large scale laterite projects or indeed just nickel commodity wide phenomenon Capex increases from 27 8, 7, Other Operations 6, Capital Costs (US$M) 5, 4, 3, 2, 1, VNC Koniambo Ramu Eagle Onca-Puma Kevitsa Taganito 27 214 N.B. VNC capital estimated, some sources suggest that true capital may be over $7bn Wood Mackenzie 9 Recent projects highlight the tendency towards start-up delays and capital cost increases Startup Year VNC 8, 211 6, 29 27 4, 25 2, 23 2 23 26 29 212 Startup Year Capex Planned Capex (US$M) Startup Year 214 213 212 211 21 29 28 Eagle 27 29 211 213 Startup Capex 8 7 6 5 4 3 2 Planned Capex (US$M) Startup Year Ramu 212 211 21 29 28 26 28 21 212 Startup Capex 2,5 2, 1,5 1, 5 Planned Capex (US$M) Startup Year Koniambo 214 213 212 211 21 29 28 27 23 25 27 29 211 Startup Capex 7, 6, 5, 4, 3, 2, 1, Planned Capex (US$M) Wood Mackenzie 1 5

PAL ramp up is significantly lower than general industry expectations A case of over promise and under deliver % of Capacity 12% 1% 8% 6% 4% PAL ramp-up by asset Addition of second line taking capacity to 24kt from 1kt % of Capacity 1% 8% 6% 4% Ideal vs. actual PAL ramp-up 2% % 1 2 3 4 5 6 7 8 9 1 Year Bulong Cawse Murrin Coral Bay Ramu VNC Ambatovy Ravensthorpe FQM 2% % 1 2 3 4 5 Year "Ideal" Average Wood Mackenzie 11 FeNi is much more varied, however beyond initial ramp-up it maintains the trajectory towards nameplate capacity 12% FeNi ramp-up by asset 12% Ideal vs. actual FeNi ramp-up 1% 1% 8% 6% 4% % of Capacity 8% 6% 4% 2% 2% % 1 2 3 4 5 6 7 8 9 1 Antam FeNiIII Pohang Cerro Matoso Loma de Niquel Onca Puma Barro Alto Koniambo % 1 2 3 4 5 6 Year "Ideal" Average Wood Mackenzie 12 6

Ramp-up to capacity comparison % of Capacity 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % PAL and FeNi Ramp-up 1 2 3 4 5 6 Year HPAL Average FeNi Average Both processes are remarkably similar on average but FeNi tends to keep to trajectory and get closer to name plate capacity quicker Clearly much variation between individual operations i.e. Coral Bay (HPAL) reached capacity very quickly, VNC (HPAL) yet to get anywhere near capacity Wood Mackenzie 13 In addition to quick ramp-up periods, FeNi is less capital intensive but it is still not cheap and HPAL has greater potential upside if done right Process* Pros Cons Key Considerations HPAL Significantly reduced net energy requirement due to power generation from sulphur burning, reducing opex Ability to recover cobalt as a saleable product this reduces overall C1 cash operating costs The process produces Class 1 nickel i.e. is LME deliverable Capital costs are significant, ca. US$9-1/t Ni/a Ramp up to capacity potentially slow and/or problematic, due largely to process complexity Industry and observer perception is poor developer tendency to over promise but under deliver outcome Keep it simple and do not try and reinvent HPAL - Learn from the mistakes made previously BUT don t believe you can do it better another way Understand the orebody and its variability - Critical to understand not only nickel but also the other major components such as MgO, FeO, Al2O3, SiO2 as these control the ore behaviour in processing FeNi Capital intensity of FeNi lower particularly when compared to HPAL (ca. US$6/t Ni/a) Process well understood and less complex in comparison to HPAL Ramp-up to capacity generally quicker than HPAL, ca. 4.5 years FeNi is a Class 2 nickel product i.e. not LME deliverable Can only be used in stainless steel - limiting market for sale Significant competition with NPI which currently limits access to main market of China for sale of product Limited market with significant risk of having to discount product - significant growth in production has increased competition for sales and puts pressure on sellers to discount product; also issue of no market of last resort, limited end user markets and NPI competition Lower capital for entry into production but not cheap - relatively less complex than HPAL but potential for major issues e.g. furnace run outs at Barro Alto and Onca Puma Wood Mackenzie 14 Wood Mackenzie 14 7

New Technology New technologies and potential impacts Description Opex Impact Capex Impact Stage Summary Nitric acid pressure leaching (NAPL)/ Direct nickel Uses a nitric acid leach and is believed to be the first process capable of treating the full laterite profile using a single flowsheet Potential to significantly decrease opex, as most of the nitric acid used can be recycled Uses atmospheric pressure and a standard stainless rig so high potential to significantly decrease capex Undergoing pilot plant trials NAPL has the potential to be a huge step forward in laterite processing Heap leaching Leaching with sulphuric acid, solution purification followed by nickel and cobalt recovery as a mixed hydroxide - potential to roast the ore prior to processing Variable - dependant on sulphur price and labour costs Relatively low in comparison to HPAL or FeNi Small-scale commercial operations Effect of pre-roasting ore being investigated Scaling up yet to be progressed Atmospheric leaching Leaching with sulphuric acid at atmospheric pressure Higher than HPAL due to higher quantities of sulphuric acid necessary to obtain suitable quantities of nickel Lower than HPAL, as cheaper, more conventional structures and equipment can be used Used on small scales as a secondary process Has unclear potential as a primary process due to high quantities of waste High pressure acid leaching Uses a sulphuric acid leach under high temperatures and extremely high pressures Opex largely influenced by sulphur price and capacity utilisation High capex- uses a titanium rig to withstand high pressures and temperatures Used extensively in nickel production. Undergoing studies to optimise production A widely used technique being researched further in order to optimise it Wood Mackenzie 15 Agenda 1. Supply/Demand outlook 2. Dispelling some myths 3. So whats the problem with laterites? 4. Sulphides easier now, but for how long? 5. Is Indonesia the key to the future? 6. The long term nickel price 7. Summary Wood Mackenzie 16 8

Sulphide deposit resource grades 6. 5. 4. 3. Grade (%Ni) 2. 1...1 1. 1. 1. 1. 1. -1. Resources (Mt) Source: Company reports Wood Mackenzie 17 Future of sulphide mine development a low(er) grade story Historic Future 1.5 1.6 1.4 1.4 Average Head Grade (%Ni) 1.3 1.2 1.1 1..9.8.7 Head Grade (%Ni) 1.2 1..8.6.4.2.6 1992 1997 22 27 212. 215 216 217 218 219 22 221 222 223 224 225 Projects Existing Wood Mackenzie 18 9

Global nickel concentrate balance New base case and highly probable projects potentially leading to excess concentrate availability in near term Balance from 216 dependent upon FQM s Enterprise project and what level the mine produces at. Nominal rate 4kt Ni/a but FQM has stated that actual output will depend upon market demand at the time Vale Thompson smelter and refinery closure deferred to ca. 219 Boliden has stated its intention to continue to operate the Harjavalta smelter on a custom basis now needs to secure offtake agreements for both concentrate purchases and subsequent matte sales Need for additional sulphide concentrate from 218 In order to meet this requirement need to see sulphide mine development either by existing producers or new players within the next two to three years Nickel in Concentrate (kt) 95 9 85 8 75 7 65 6 55 5 1998 2 22 24 26 28 21 212 214 216 218 22 222 224 Concentrate Feed Smelter Concentrate Requirement Source:Wood Mackenzie Wood Mackenzie 19 19 The custom concentrate market 186t Ni in concentrate custom production for 214, forecast to increase to 197kt for 215 5.9% increase on 214. Production from Eagle in the USA offsetting decline in Australia and Botswana. Botswana decline due to Tati becoming integrated feed with BCL Australia remains the major producer of custom concentrates with 33% of custom production Other 4% Canada 17% 124kt Ni in concentrate expected to be exported from country of origin in 215 Bulk of concentrate export market is to China and Canada and Finland. China 28% For 215, there is presently a significant tonnage of nickel in concentrate for which the destination is unclear Finland 15% Wood Mackenzie 2 2 1

There have been several nickel processing developments in China (1) Tsingshan NPI production via nickel sulphide concentrate In March 213, Canadian company Royal Nickel Corporation and Chinese group, Tsingshan Holding Group entered into a strategic alliance to work together on the downstream processing of nickel sulphide concentrate. The process is being trialled at present (ca. 2t/d conc) and is believed to be working well. Our view is that although this process may be suitable for atypical nickel concentrates (like that which could be produced by Royal Nickel s Dumont project, i.e. no by-products and low in sulphur content due to the specific mineralogy) this is unlikely to find large scale application. Typically nickel sulphide concentrates will contain by-product metals such as copper, cobalt and precious metals and these are not recovered via the Tsingshan process. Thus the miner would not get paid for the these values and generate less revenue than if sold to conventional sulphide smelters Wood Mackenzie 21 Agenda 1. Supply/Demand outlook 2. Dispelling some myths 3. So whats the problem with laterites? 4. Sulphides easier now, but for how long? 5. Is Indonesia the key to the future? 6. The long term nickel price 7. Summary Wood Mackenzie 22 11

Impact of ban on NPI costs of production 213 214 1. 1. 9. 9. 8. 8. 7. 7. Costs ($/lb Ni) 6. 5. 4. Costs ($/lb Ni) 6. 5. 4. 3. 3. 2. 2. 1. 1.. BF EAF RKEF. BF EAF RKEF Freight/Marketing ($/lb Ni) Ore Freight ($/lb Ni) Smelting ($/lb Ni) Ore Purchase Cost ($/lb Ni) Freight/Marketing ($/lb Ni) Ore Freight ($/lb Ni) Smelting ($/lb Ni) Ore Purchase Cost ($/lb Ni) Wood Mackenzie 23 There are several Indonesian nickel project developments post the export ban Proposed and existing smelters capacity addition Ni n FeNi (NPI) capacity (kt/a) 2 15 1 5 PT Bosowa Metal Industri PT Macika Mineral Industri PT Karyatama Konawe Utara (KKU) (Hanking) Fajar Bhakti Lintas Nusantara / Gebe Sentra Nickel PT Central Omega Industri PT Duta Nikel Sulawesi (DNS) (Huadi) PT Titan (Shenwu) PT Bintang Smelter Indonesia (BSI) PT Sambas Mineral Mining PT Artabumi Sentra Industri Tsingshan Bintang Delapan CIMM Indoferro In early 214, the Government of Indonesia presented a list of some +6 proposed nickel smelter developments almost solely from Chinese companies in partnership with Indonesian companies Of these, we believe that there are only 13 which could potentially be in production by the end of 217 2 are already in production, a third will enter production this year, the balance are considered only probable projects at best currently Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Wood Mackenzie 24 12

There is significant nickel potential production from existing and new project developments Proposed and existing smelters production forecast There are presently two producers that have commenced nickel production post the ban and a single project we consider definite to enter production in the next 2-3 years: PT Indoferro current capacity around 8kt Ni in 4-6% NPI using a blast furnace Expanding to 2kt with the addition of an EAF (under construction) which should commission around 216-217 CMMI entered production at the end of 213 ca. 2kt Ni in low grade NPI using blast furnace Tsingshan Bintang Delapan started construction in 212. Phase I capacity of 3kt Ni in FeNi using RKEF Commissioning Q2 215 Wood Mackenzie 25 There have been several nickel processing developments in China (2) Application of the Krupp-Renn process The Krupp-Renn process was developed in Germany in the 193 s to recover iron from low-grade iron ores that could not be directly blast furnace smelted During WWII, Nippon Yakin built a plant at Miyazu to process nearby low grade nickel ore. In 195, the company switched to utilising ore from New Caledonia. Presently it processes ore from New Caledonia and the Philippines but did take a large portion of its ore from Indonesia prior to the ore export ban. Essentially ore is mixed with anthracite and fluxes and formed into briquettes. These are into reduction kilns and travel counter currently to the combustion gases. Preheating, drying, reduction and metal formation all take place in the kiln. At the far end of the kiln the pasty slag is cooled rapidly in water and the solids crushed and screened to recover the nickel-iron-cobalt alloy (known as luppen), which at Yakin is then subsequently refined in an electric furnace to a finished FeNi. The luppen typically grades around 22% Ni+Co and therefore depending upon the other impurities could actually be used directly for stainless steel production as with NPI Clearly this relatively simple process could have wide ranging application to produce NPI both in China and Indonesia at a relatively low capital cost (in 21 GITS Sintering Services Inc indicated capital costs of just $4M per 1kt/a production module, and an operating cost of around US$63/t of sintered product ca. $.7/lb for a 4% Ni luppen). Our estimate for Nippon Yakain, inclusive of ore purchasing, freight and the refining stage for 214 is $6.6/lb Ni. We are aware that at least 3 companies in China have attempted to utilise the Krupp Renn process with apparently minimal success. Key is ensuring that the charge is fully homogenised and does not become too fluid. This results in the charge sticking to the kiln walls (ringing) which creates hot spots and all control is lost in the overall process and production has to be stopped and the kiln cleaned out and potentially relined Wood Mackenzie 26 13

There have been several nickel processing developments in China (3) Application of the Krupp-Renn process continued The process can treat any lateritic ore but the nickel content of the product will depend upon the nickel and iron grade of feed a high nickel, low iron laterite producing a higher grade nickel luppen than a low nickel high iron feed Not easy to swap between ore types as the control of the melting in the kiln will be governed by the overall ore, flux and coal mixture characteristics which needs to be consistent There is no doubt that such a process could readily be applied to Indonesian ores to produce a luppen which would be allowed for export. The product could then be further refined in China with existing furnace capacity if necessary. This would increase overall operating costs but would lower transportation costs or raw material feed Wood Mackenzie 27 There have been several nickel processing developments in China (4) Large hearth blast furnaces Typically blast furnaces have been used to process 1-1.5% Ni ore with high iron to produce a 3-5% Ni in NPI. For comparison, EAF s typically utilise >1.5-2% Ni ore with low iron to produce 5-15% Ni in NPI. An option being suggested is to construct blast furnaces with a larger base area at the bottom of the furnace providing a greater surface area for slag/metal separation and the possibility to utilise lower iron bearing ores in order to make a higher grade NPI. The capital costs of blast furnaces are lower than for EAK or RKEF and construction is quick and relatively simple. It is not clear whether this modification has been trialled AlloyStream Process Potential to process 1-3% Ni ore to a 3-3+ Ni in NPI. The process has apparently been trialled in the production of ferromanganese but is untested in the nickel industry. A patented process owned by Exxaro not on China s radar as yet Wood Mackenzie 28 14

Philippines ban possibility Impact of Filipino export ban Ni in Ore (kt) 6 5 4 3 2 1 1996 1998 2 22 24 26 New Caledonia Indonesia Philippines Other The Philippines has proposed a ban on the export of unprocessed nickel ores akin to that implemented by Indonesia commencing January 1 st 221 The implementation of such a ban, which appears very likely to happen, will result in the total cessation of NPI production in China as it is currently undertaken the removal of some 26kt Ni from global supply from around 221/222 depending on what ore stocks are present when the ban is implemented Our present market adjustment for 222 is a requirement for an additional 46kt of new nickel supply in order to meet our demand forecast. The ban on Filipino ore exports would push this to 72kt 3% of the required global supply at that time *Base Case Operations and Projects only Wood Mackenzie 29 Indonesian and Filipino nickel resources (212 data) Philippines 716.8Mt grading 1.29% Of which +1.5% Ni around 111Mt Based on 213 production of 25Mt ore in 213 implies a resource life of ca. 27 years On same basis, high grade production in 213 was around 13.6Mt implying just 7 years production capability from high grade ores Indonesian resources totalled 32Mt grading 1.47% Ni, of which proven and probable was 1163Mt grading 1.85% Ni On the basis of tonnage and grade alone, Indonesia would be the country of choice to develop smelters Wood Mackenzie 3 3 15

Agenda 1. Supply/Demand outlook 2. Dispelling some myths 3. So whats the problem with laterites? 4. Sulphides easier now, but for how long? 5. Is Indonesia the key to the future? 6. The long term nickel price 7. Summary Wood Mackenzie 31 Incentive price analysis for 214 214 Incentive price 775 kt Ni required to balance market by 235. Assume China produces for her own needs, reducing the requirement from western development s to around 4kt Ni Wood Mackenzie 32 16

Historically, the growth of the incentive price over time reflects the rise in capital intensity and operating costs in the industry Nickel Incentive Price Development US$/lb Ni 18 15 13 1 8 5 3 7 6 5 4 3 2 1 US$/lb Ni/a 22 23 24 25 26 27 28 29 21 211 212 213 214 Incentive Price Avg C1 Cost Capital Intensity The sharp decline in 213 reflects our view that China will develop nickel projects to fulfil its own needs, the balance having to come from Western World developments Wood Mackenzie 33 Potential margin capture Nickel Revenue 2 9% 14 18 8% 12 $/t contained Ni 16 14 12 1 8 6 4 2 7% 6% 5% 4% 3% 2% 1% % % Margin Pre Tax Cash Flow ($/lb Ni) 1 8 6 4 2-2 24 25 26 27 28 29 21 211 212 213 214-4 Cost Price Margin %Margin -6 Industry Sulphide Laterite NOTE: Ore mining costs assumed to be ca. $38/wmt, selling price based on Filipino ore into China FOB, 15% Ni concentrate,, Intermediate MHP sales price 75% of Ni price, nickel price $17637/t. FeNi selling price discounted by 5% to LME Ni price but this will depend on prevailing market conditions and may be flat or even attract an iron credit. Refined nickel margin based on LME flat priceing Wood Mackenzie 34 17

Agenda 1. Supply/Demand outlook 2. Dispelling some myths 3. So whats the problem with laterites? 4. Sulphides easier now, but for how long? 5. Is Indonesia the key to the future? 6. The long term nickel price 7. Summary Wood Mackenzie 35 Summary and conclusions We need to see nickel project development NOW if we are to meet our outlook for global nickel demand» It is too late for the west to meet the challenge and much of new nickel production will have to be from Chinese investment in Indonesia» There is a distinct lack of what would historically have been considered world class projects in the pipeline Costs of production and capital will remain challenging» Although new process developments are being looked at, there has not been a game changing development arguably since HPAL» NPI was old technology which filled a requirement Nickel prices need to be higher in order to see project development» Our view is that there are limited number of projects which can generate a reasonable return on investment at nickel prices below $22,/t» Ultimately, maybe it only needs to be a perception of higher nickel prices that will drive development Nirvana would be realistic feasibility study capital estimates, opex estimates and views on ramp-up» All too often the nickel industry has over promised and under delivered. If it is to regain credibility it needs to get real and manage expectation and deliver on promises Opportunities exist for both sulphide and laterite developments» Although the future of nickel will undoubtedly be dominated by laterite developments, new sulphide mines are needed in order to maintain existing smelter production rates Wood Mackenzie 36 18

Wood Mackenzie Disclaimer Strictly Private & Confidential This report has been prepared for the Nickel Processing 215 Conference by Wood Mackenzie Limited. The report is intended solely for the benefit of the conference participants and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie s prior written permission. The information upon which this report is based comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them. Wood Mackenzie 37 Europe +44 131 243 44 Americas +1 713 47 16 Asia Pacific +65 6518 8 Email contactus@woodmac.com Website www.woodmac.com Wood Mackenzie* is a global leader in commercial intelligence for the energy, metals and mining industries. We provide objective analysis and advice on assets, companies and markets, giving clients the insight they need to make better strategic decisions. For more information visit: www.woodmac.com *WOOD MACKENZIE is a Registered Trade Mark of Wood Mackenzie Limited Wood Mackenzie 38 19