NICKEL FUTURE SUPPLY CHALLENGES Asian Nickel Conference September 2013
Disclaimer Cautionary Statements Concerning Forward-Looking Statements This presentation contains "forward-looking information" including without limitation statements relating to mineral reserve estimates, mineral resource estimates, realization of mineral reserve and resource estimates, capital and operating cost estimates, project and life of mine estimates, construction of the mine and related infrastructure, the timing and amount of future production, costs of production, success of mining operations, ability to obtain permitting by the time targeted, size and ranking of project upon achieving production, economic return estimates and potential upside and alternatives. Readers should not place undue reliance on forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of RNC to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The feasibility study results are estimates only and are based on a number of assumptions, any of which, if incorrect, could materially change the projected outcome. Even with the completion of the feasibility study, there are no assurances that Dumont will be placed into production. Factors that could affect the outcome include, among others: the actual results of development activities; project delays; inability to raise the funds necessary to complete development; general business, economic, competitive, political and social uncertainties; future prices of metals; availability of alternative nickel sources or substitutes; actual nickel recovery; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; accidents, labour disputes and other risks of the mining industry; political instability, terrorism, insurrection or war; delays in obtaining governmental approvals, necessary permitting or in the completion of development or construction activities. The MOU with Tsingshan is non-binding and there is therefore no assurance that the strategic alliance with Tsingshan will result in any transaction or venture with Tsingshan. For a more detailed discussion of such risks and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, refer to RNC's filings with Canadian securities regulators available on SEDAR at www.sedar.com. Although RNC has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this presentation and RNC disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws NI 43-101 Compliance The technical information pertaining to the Dumont project feasibility study in this presentation is based on the news release titled Royal Nickel Confirms Economic and Technical Feasibility of Dumont Project Bankable Feasibility Study Delivers Over $1 Billion NPV 8% published on June 17, 2013 that describes the results of the Dumont project feasibility study and was prepared in accordance with Canadian regulatory requirements by, or under the supervision of, Paul Staples, P. Eng. of Ausenco Limited, Sébastien Bernier, P.Geo. of SRK Consulting (Canada) Inc. and David A. Warren, Eng. of Snowden Mining Industry Consultants, all of whom are independent Qualified Persons as set out in National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"). The Mineral Resource estimate set out in this presentation was classified according to the CIM Definition Standards for Mineral Resources and Mineral Reserves (November 2010) by Sébastien Bernier, P. Geo (OGQ#1034, APGO#1847), Principal Consultant Resource Geology at SRK. The Mineral Reserve estimate set out in this presentation was classified according to the CIM Definition Standards for Mineral Resources and Mineral Reserves (November 2010) by David A. Warren (OIQ 121481), Principal Consultant Mining at Snowden. All other technical information in this presentation has been prepared by or under the supervision of Alger St-Jean, P. Geo., Vice President, Exploration of RNC and Johnna Muinonen P. Eng., Vice President, Operations of RNC, each a Qualified Person as defined in NI 43-101. The full Dumont feasibility study, prepared as an NI 43-101 compliant technical report, will be filed under RNC s profile on SEDAR at www.sedar.com within 45 days. All currency references in U.S. dollars, unless otherwise stated. TSX: RNX 1
Overview The structure of supply in nickel has gone through profound changes during the past 5 years Nickel remains one of the metals in which China is the least self-sufficient Only Indonesia s willingness to allow its nickel resources to be high-graded and exported has allowed China to meet its nickel requirements The relationship in nickel between Indonesia & China is now one of the most important in mining Current Indonesian policy of unrestricted nickel exports significantly limits the economic benefits for Indonesia while encouraging investment in China Each tonne of higher grade ore exported is one less tonne to justify investment in Indonesia Unrestricted exports have driven down nickel prices penalizing those companies investing in Indonesia (such as PT Antam, PT Vale Indonesia) and only benefiting the lowest cost NPI/stainless producers in China Nickel market likely to face large deficits in 2 nd half of this decade only a doubling of NPI output could balance it (difficult given Indonesian ore constraints combined with Chinese cost pressures) Nickel prices, as in 2005-2007, will likely have to rise to force demand in line with available supply China is going to need 1+ MILLION tonnes more nickel annually during this decade and ROW will also need more Supply response will be structurally insufficient as current projects under construction only provide half this requirement (at best, as many are struggling) and project cupboard is largely empty - underpinned by 35+ years of underdevelopment Limited interest in new HPAL projects, no new high grade (>2%) FeNi projects in 30 years Few sulphide projects discovered/developed 2
China NOT Self-Sufficient in Nickel Nickel is one of the metals in which China is least self-sufficient in domestic production. Chinese Self-Sufficiency Mine Supply as a % of Demand (2012) 54% 57% 67% 85% <5% 15% 18% 29% Platinum Palladium Nickel Copper Iron Ore (62% Fe-eq) Lead Aluminium (Bauxite) Tin Zinc Source: USGS, Wood Mackenzie Ltd., Macquarie Research, RNC Analysis 3
China Becoming Less Self-Sufficient In fact, Chinese self-sufficiency in nickel has declined despite a decade of high nickel prices 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% Chinese Self-Sufficiency Mine Supply as a % of Nickel Demand 2005 2006 2007 2008 2009 2010 2011 2012 Source: Wood Mackenzie Ltd., RNC Analysis 4
China Unable to Ramp-up Domestic Nickel Supply as China has been unable to significantly ramp-up domestic nickel supply, particularly compared to other metals. Increase in Chinese Mine Production (2002 2012) 465% 380% 300% 159% 207% 63% Nickel Copper Zinc Lead Bauxite Iron Ore Source: USGS 5
Indonesia Has Filled Supply Gap Globally by Allowing Export of High-Grade Ore In just 5 years, Indonesia s share of global nickel supply has nearly tripled with most of the increase shipped as unprocessed ore to China. 30% 25% Indonesian Mine Supply as a % of Global Nickel Supply 20% 15% 10% 5% 2005 2006 2007 2008 2009 2010 2011 2012 2013F Source: Wood Mackenzie Ltd., RNC Analysis 6
China & Indonesia An Important Relationship In fact, China is more dependent on Indonesia for nickel supply than it is any other single country (with exception of PGMs) 90+% % of Chinese Demand from Largest Source Country Selected Metals - 2012 36% 35% 23% Platinum (South Africa) Nickel (Indonesia) Iron Ore (Australia) Copper (Chile) Source: USGS, Wood Mackenzie Ltd., RNC Analysis 7
China & Indonesia An Important Relationship but Indonesia realizes a much smaller fraction of the product value than the other countries (who ship a much greater proportion as higher valued added product). ~100% Export Value as % of Metal Value Selected Source Country /Metals to China Selected Metals - 2012 80% 14% 29% PGM (South Africa) Nickel (Indonesia) Iron Ore (Australia) Copper (Chile) Source: GTIS, USGS, Metalprices.com, RNC Analysis 8
Current Indonesian Policy of Unrestricted Exports Contributed to Large Market Surpluses Current Indonesian policy of unrestricted nickel exports significantly limits the economic benefits for Indonesia while encouraging investment in China. There is significant opportunity to improve this situation! Profit and taxes payable paid by PT Antam and PT Vale Indonesia and other local producers will be lower if nickel and nickel ore prices are lower Laterite deposits can be more easily high-graded than many other mineral deposits. As a result, sufficient high-grading can wipe out the potential of ever developing the deposit as a NPI/FeNi operation. Each tonne of higher grade ore exported is one less tonne to justify investment in Indonesia As there is no large-scale alternative to high-grade Indonesian saprolite supply, there should be significant opportunity to impose quotas / add duties / raise ore prices to generate more revenue in Indonesia (although won t see impact until ore stockpiles from earlier overshipments used up) Indonesian ore exports should be priced, at a minimum, to include freight capture difference in freight from next large scale alternative could easily add up to $20-$80 per tonne! (Australia does NOT give China a discount just because it s closer to China than Brazil!) Nickel supply, other than NPI, is relatively inelastic and will not respond immediately to higher prices 9
Overview The structure of supply in nickel has gone through profound changes during the past 5 years Nickel remains one of the metals in which China is the least self-sufficient Only Indonesia s willingness to allow its nickel resources to be high-graded and exported has allowed China to meet its nickel requirements The relationship in nickel between Indonesia & China is now one of the most important in mining Current Indonesian policy of unrestricted nickel exports significantly limits the economic benefits for Indonesia while encouraging investment in China Each tonne of higher grade ore exported is one less tonne to justify investment in Indonesia Unrestricted exports have driven down nickel prices penalizing those companies investing in Indonesia (such as PT Antam, PT Vale Indonesia) and only benefiting the lowest cost NPI/stainless producers in China Nickel market likely to face large deficits in 2 nd half of this decade only a doubling of NPI output could balance it (difficult given Indonesian ore constraints combined with Chinese cost pressures) Nickel prices, as in 2005-2007, will likely have to rise to force demand in line with available supply China is going to need 1+ MILLION tonnes more nickel annually during this decade and ROW will also need more Supply response will be structurally insufficient as current projects under construction only provide half this requirement (at best, as many are struggling) and project cupboard is largely empty - underpinned by 35+ years of underdevelopment Limited interest in new HPAL projects, no new high grade (>2%) FeNi projects in 30 years Few sulphide projects discovered/developed 10
Nickel Demand Evolution of Chinese Nickel Demand As an economy industrializes, demand moves from more basic materials like carbon steel into stainless steels and ultimately into specialty alloys that require a lot of nickel and will drive non-stainless nickel consumption in China Carbon Steel Stainless Steel Nickel 2010 Kg/capita consumption 2010 Kg/capita consumption 2010 Kg/capita consumption 500 400 300 200 100 0 203 503 441 China 20 15 10 5 0 3.8 18.4 13.5 China 1.5 1 0.5 0 0.3 1.3 1.3 China Source: World Steel Association, ICSG, World Stainless Steel Statistics, Brook Hunt A Wood Mackenzie Company, RNC Analysis 11
Chinese Nickel Demand - 1+ Million Tonnes More Despite huge growth in demand, Chinese per capita consumption is still less than half of that of industrial economies such as Western Europe and Japan 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Nickel Consumption per Capita 2010 (kg/capita) 1.3 1.3 0.4 Germany Japan China At Japanese and German per capita consumption levels, Chinese nickel demand would increase by at least over 1 million tonnes annually by 2020 Source: CRU, RNC Analysis 12
RNC Forecast Chinese Demand China s nickel demand expected to grow by 1Mtpa by 2020 given 15% growth from 2010-2013, nickel demand would have to grow by ~9% to achieve these levels Chinese Nickel Demand 63 88 98 131 156 2000-2010 25% CAGR 183 261 345 365 470 581 2010-2013F 15% CAGR 712 760 886 2016F-2020F 8% CAGR 2013F-2016F 1,604 10% CAGR 1,486 1,274 1,375 1,179 975 1,072 Source: Wood Mackenzie, CRU, RNC Analysis TSX: RNX 13
RNC Forecast Rest of World (ROW) Demand ROW demand is forecast to grow at 0.5% annually as demand growth in industrializing economies such as India and Brazil will be offset by demand substitution in non-stainless applications from ROW to China Other South Korea Taiwan Japan 1,067 1,060 987 Global Nickel Demand ex-china 915 842 2000 2020F (Kt) 961 945 963 968 973 978 983 988 993 997 1,002 Western Europe U.S. // // 2000 2005 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F Source: Wood Mackenzie, CRU, RNC Analysis 14
New Nickel Supply Fundamental Issue: An Empty Project Cupboard The fundamental issue facing the nickel industry by 2015 2016 is an empty project cupboard At the beginning of the last decade prior to the significant run-up in nickel prices, the project cupboard was very full with many projects known for decades Today s picture is very, very different, setting the stage for an exciting nickel cycle Laterite (ferronickel) Laterite (HPAL) Sulphide Project Cupboard 2001 (20+kt) TOTAL: 500+ kt Barro Alto Koniambo Onca Puma Tagaung Taung Ambatovy Goro Ramu Ravensthorpe Weda Bay Talvivaara* Kabanga Voisey s Bay Project Cupboard 2013 (20+kt) TOTAL: 150+kt Weda Bay Dumont Enterprise Kabanga Nova-Bollinger *bioheapleaching process Laterite (leach) Sulphide 15
Nickel Supply Little Project Development for 35+ Years Today s empty cupboard is a result of inertia from 35 years of relatively little project development after nickel boom in late 1960s (which discovered or advanced the development of many of the projects sitting in cupboard in 2001) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1.3% 5.2% Global Nickel Supply Growth Traditional vs. Alternative 1965 2010 (% CAGR) Japan FeNi < 2% growth for 35 years! FSU Collapse Stainless Demand Destruction 1.7% NPI 2.8% 1.2% 1.4% 1.6% 1.4% 1965-75 1975-90 1990-00 2000-10 Source: Brook Hunt A Wood Mackenzie Company, Macquarie, RNC Analysis 1965 75 saw a burst of new projects driven by inability of existing operations to meet global demand 1975 90 saw significant project rationalization Collapse of former Soviet Union demand (20% of world total) provided supply during 1990s Ni pig iron and demand destruction in 2000 10 closed gap caused by lack of new supply from weak project pipeline development 16
Nickel Supply 2007-2010 Projects A Tidal Wave that was more like a Little Ripple 2013 marks a milestone as Koniambo and Taganito, the last large projects of the tidal wave of more than 500kt of new supply that began at the end of last nickel boom, enter production Despite almost 400kt of capacity already built, production rates in 2013 remain at only a fraction of name plate capacity 17
Nickel Supply Project Cupboard Empty Beyond 2015, over 500+ kt of new supply is required, but project cupboard is empty few projects in pipeline and 35+ years of inertia to overcome Global Nickel Demand Growth Vs. Potential Supply 2010-2020 Where is new project supply going to come from? 1,000+ 490 242 500+ kt New Supply Required Higher Risk 1 PAL, Leach Laterites HPAL? Laterites FeNi? NPI? Sulphides? 248 Lower Risk 1 - FeNi, Sulphide Projected Nickel Demand Growth Nickel Supply In Construction 2010-15 Source: Wood Mackenzie Ltd., RNC Analysis TSX: RNX 18
New Nickel Supply: Laterites HPAL? Too High Cost, Too Much Risk? HPAL projects not expected to play a major role in nickel supply going forward HPAL projects have faced large capital overruns (3 projects now +$6 billion), delays, and commissioning issues. Industry will have little appetite for new projects until one or more ramp-up successfully which won t occur until 2014 at the earliest Few companies can afford to finance $5 6 billion projects Little visibility over operating costs for HPAL only recent project to date to ramp up to full capacity is First Quantum s Ravensthorpe project which has reported 2012 C1 cash costs of $13,200 per tonne of nickel ($5.97 per pound) and C3 cash costs of $16,000 per tonne ($7.25 per pound) 1 These operating costs are much higher than many other companies are indicating for their projects Many jurisdictions with the most attractive resources for HPAL continue to be among the more difficult jurisdictions globally e.g. Indonesian requirement for 51% domestic ownership in project once certain milestones are achieved 1. Source: First Quantum Q4 2012 Financial Report, Company reports 19
New Nickel Supply: Laterites FeNi? Little High Grade Left to Be Developed? FeNi also not expected to play a major role in new nickel supply going forward as the highest grade resources are already being developed and no new high grade discoveries have been made The current set of projects have now developed ALL known saprolite deposits with large resource of 2%+ average grade or higher (Koniambo, Onca Puma, Barro Alto, Tagaung Taung) NO NEW HIGH GRADE LATERITE DISCOVERIES HAVE BEEN MADE IN MORE THAN 30 YEARS TO REPLACE THESE PROJECTS IN THE PROJECT PIPELINE Tagaung Taung was discovered in early 1980s, Onca Puma in the 1970s, Barro Alto in the 1960s and Koniambo in the 1900s If Koniambo with an average grade of 2.6% required $5+ billion to develop, how much would similar output from a 1.8% saprolite (typical grade of the highest grade resources now available) greenfield project in a similar jurisdiction cost? 20
New Nickel Supply Sulphides A Potential Answer, but Few Projects in Pipeline Nickel sulphides are an attractive source of nickel production, but the pipeline is largely empty as there have been few new large scale discoveries. RNC s Dumont, First Quantum s Enterprise, and Sirius Nova-Bollinger projects are among the few large scale projects that could be in production by 2015 2016 Over last several decades, the only large greenfield discoveries have occurred when exploration was occurring for other metals: Voisey s Bay (diamonds), Kabanga (gold), Enterprise (copper) Anglo American s recent massive sulphide discovery in northern Finland is the only large greenfield nickel discovery made during a nickel-focused exploration program in recent decades Sulphides have a number of inherent advantages over laterites Typically use standard mine/mill facilities utilizing commonly used technology Inherently less energy intensive Less capital intensive as smelting/refining facilities don t typically need to be constructed In the mid-1990s, Mt. Keith showed that large scale, lower grade, ultramafic nickel deposits could be profitably developed Further growth in sulphide nickel production will likely come from large scale, lower grade deposits (following similar moves in both the copper and gold industries) such as RNC s Dumont project, one of few large scale projects that could be in production by 2015-2016 First Quantum s recent rapid commissioning (Q2-2012: startup, Q3-2012: commercial production) of its Kevitsa project demonstrates how lower grade (~0.25%) nickel sulphide projects can be successfully developed 21
New Nickel Supply NPI? Significant Challenges to Provide More Nickel at Similar Prices Like Japan in the 1960s, Chinese NPI output will ultimately be limited due to lower ore grades, stronger currency, and higher energy and input costs even before taking into account the impact of Indonesian announcements on restrictions on ore supply NPI is not new, it is effectively the same process used in Japan in the 1960s. 1 st time was France in 1880s 1920s Even by 1960s, ore grades in New Caledonia were falling. Minimum ore grade imported into Japan in 1963 was 3%. By 1970, it was down to 2.5% and is trending to 2% today By 1970, ore imports into Japan had leveled off as lower ore grades, higher energy costs, and rising input costs reduced its competitiveness. By 2010, ore imports were still at 1970 levels of approximately 4.5 Mt Source: USGS, Brook Hunt A Wood Mackenzie Company, RNC Analysis 22
New Nickel Supply NPI? Significant Challenges to Provide More Nickel at Similar Prices Indonesia, the Saudi Arabia of the nickel market supplying over 25% of the world s nickel, has provided almost 2/3 of nickel supply growth since 2005. Its ability to further increase nickel output will face a number of significant challenges. Export restrictions, ore export ban in 2014, and 51% investment requirements will impact amount of foreign investment Despite some analyst assertions, can t simply pick up and move NPI plant from China to Indonesia Most nickel ore is found in regions of the country with little infrastructure and no power = higher capex NPI plant at mine site saves transportation costs, but labour, power, and other costs are higher than China = higher (not lower) opex As an example, PT Antam, the state-owned nickel company, produced FeNi in 2012 at cash cost of $15,200/t ($6.90/lb) higher than lower cost NPI producers in China even though they process higher grade ore World Nickel Supply Growth Refined (Kt) 2012 vs 2005 Rest of World (39%) NPI (61%) Source: GTIS, Brook Hunt A Wood Mackenzie Company, 23
New Nickel Supply NPI? The Next Wave RNC Signs Strategic Alliance with Tsingshan RNC has leveraged its nickel industry expertise to support the leading Chinese NPI / stainless producer to be the first to use sulphide concentrate directly in a stainless steel process MOU signed in March 2013: RNC continues to share its downstream processing expertise RNC will assist Tsingshan to find sulphide concentrate feed to support Tsinghsan s planned investment in plant & equipment Tsingshan will make offtake and partnership proposals once RNC has completed its feasibility study to Tsingshan s satisfaction First time that nickel sulphide concentrate would be directly used to produce stainless steel (utilizing similar process announced by RNC on October 3, 2011) Tsingshan plant is also expected to be capable of handling nickel sulphide concentrate anticipated to be produced from Dumont Key Benefits for RNC Strategic alliance with one of the leading Chinese stainless steel producers and innovators in integrated NPI/stainless production Opens up downstream potential from small set of nickel smelters/refiners to much broader set of NPI producers Simpler downstream process, effective elimination of refining step, and opportunity for greater competition provides potential for lower TC+RC costs / higher realizations Potential offtake and project partner 24
RNC Forecast Nickel Supply Tidal Wave Projects New supply growth from the tidal wave of new projects is still <40% of capacity and RNC expects that it will only reach 60%+ by 2020. Global Nickel Demand Growth Vs. Potential Supply 2010-2020 1,000+ Projected Nickel Demand Growth 490 242 248 Nickel Supply In Construction 2011-15 Source: Wood Mackenzie Ltd., RNC Analysis TSX: RNX Nickel Supply Tidal Wave Ramping Up or In Construction 2010-2015 (Kt) Project Annual Capacity 2012 VNC (Goro) 60 4 Ambatovy 60 0 Koniambo 60 0 Onca Puma 55 6 Talvivaara 50 13 Barro Alto 40 22 Ravensthorpe 39 33 Ramu 33 5 Taganito 30 0 Santa Rita 26 19 Eagle 17 0 Niquelandia 10 0 Kevitsa 10 4 WoodMac 2013F RNC Forecast 2015 2020 Total 490 106 164 283 317 25
RNC Forecast Nickel Supply New Large Projects Many of the new large scale projects will struggle to be financed and be put into production by 2020 Nickel Supply Growth: New Projects (Kt) Project Annual Capacity Weda Bay 35 Kabanga 20 Enterprise 40 Nova-Bollinger 28 RNC Forecast 2015 2020 Dumont (1 st Phase) 33 1 Total 156 40 100 Source: Company reports, RNC Analysis 1. Average production over phase 1 of mine life 26
RNC Forecast - Supply / Demand Balance Massive deficits will emerge by 2 nd half of the decade as an empty project pipeline fails to deliver supply only an unlikely doubling of NPI production could balance the market. As a result, like 2005-2007, nickel prices will once again have to rise to force demand in line with available supply. 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1,542 54 135 228 344 2,607 2010 2013 2015 2016 2017 2018 2019 2020 * Strike recovery Source: Wood Mackenzie Ltd,, RNC Analysis Nickel Supply / Demand Forecast (Kt) * 474 Demand New NPI / Price Driven Demand Destruction Existing NPI New Projects Tidal Wave Existing Supply 27
Overview The structure of supply in nickel has gone through profound changes during the past 5 years Nickel remains one of the metals in which China is the least self-sufficient Only Indonesia s willingness to allow its nickel resources to be high-graded and exported has allowed China to meet its nickel requirements The relationship in nickel between Indonesia & China is now one of the most important in mining Current Indonesian policy of unrestricted nickel exports significantly limits the economic benefits for Indonesia while encouraging investment in China Each tonne of higher grade ore exported is one less tonne to justify investment in Indonesia Unrestricted exports have driven down nickel prices penalizing those companies investing in Indonesia (such as PT Antam, PT Vale Indonesia) and only benefiting the lowest cost NPI/stainless producers in China Nickel market likely to face large deficits in 2 nd half of this decade only a doubling of NPI output could balance it (difficult given Indonesian ore constraints combined with Chinese cost pressures) Nickel prices, as in 2005-2007, will likely have to rise to force demand in line with available supply China is going to need 1+ MILLION tonnes more nickel annualluy during this decade and ROW will also need more Supply response will be structurally insufficient as current projects under construction only provide half this requirement (at best, as many are struggling) and project cupboard is largely empty - underpinned by 35+ years of underdevelopment Limited interest in new HPAL projects, no new high grade (>2%) FeNi projects in 30 years Few sulphide projects discovered/developed 28