Outlook for copper and DRC in the global context Stephane Redon, Director
Overview Demand Supply Prices DRC 1
Robust global demand prospects 2011-25 expected global demand CAGR of close to 3.5% Accelerating trend Additional 800mtpa required for the next 15 years Chinese demand to be supported by power infrastructure investment motor vehicle production consumer products and less so by construction Alternative sources of long-term growth India (and Asia excluding Japan and China) Brazil (and Latin America) Turkey (and the Middle East) 2
Snowballing effect of high growth countries Growth in Refined Copper Consumption (%) 8 6 4 2 0-2 India, Brazil and Turkey China Rest of World 2011 2014 2017 2020 2023 India, Brazil and Turkey 11% 2011 2025 China 39% India, Brazil and Turkey 7% China 51% Source: Wood Mackenzie 3
Two ways of looking at copper s macroeconomic leverage China s Demand per GDP Demand per GDP (%) 1.0 0.8 0.6 0.4 0.2 Steel Copper Copper Consumption (kg pc) 18 14 10 6 2 China Japan Germany USA 2 4 6 8 10 12 14 16 18 0 10,000 20,000 30,000 40,000 US$ PPP GDP per Capita GDP per Capita * Indexed intensity of use Source: Anglo-American, Rio Tinto 4
China s path 20 South Korea Copper Consumption (kg pc) 15 10 5 0 China (Peak high case) China (2011) China (2025e low case) US at peak (1973) Germany Japan US today 0 10,000 20,000 30,000 40,000 50,000 60,000 GDP per Capita Source: Exane BNP Paribas 5
Supply challenges here to stay Decreasing grades, increasing weight of underground production Increasing OpEx and CapEx Consistently high disruption levels Move to new jurisdictions Environmental / social limitations Access to infrastructure Skills shortage 6
Adverse trends 1200 1000 800 Head Grade Unit Capex Cost 1.7 1.6 1.5 1.4 (c/lb) 600 400 1.3 1.2 1.1 (%) 200 0 90 th Percentile Cost 1980 1990 2000 2010 2020 1 0.9 0.8 Sources: Wood Mackenzie 7
High disruption levels, diversity of factors Weather 5% Pit Walls 13% Other 10% Slow Ramp Up 20% Grades 18% Percentage of Total Volume of Production Lost (%) 9 8 7 6 5 4 3 3.7% 7.4% 6.8% 5.7% 8.0% Technical 17% 5.8% 5.0% Strikes 17% 5.8% 2004 2005 2006 2007 2008 2009 2010 2011 Source: Wood Mackenzie 8
Solid price supports Good price resilience throughout crisis Our preferred metal Tight supply, steep cost curve Limited short-term downside potential Best-in-class medium-term prospects Long-term price expectations are positive USD 6300/t to USD 7500/t Estimated incentive price of USD 6600/t Market tightness to keep prices above marginal production cost 9
Prices still off historical peak 500 Copper Price (c/lb) 450 400 350 300 250 200 150 100 50 Nominal 2012 USD 0 1961 1971 1981 1991 2001 2011 2021 Source: Exane BNP Paribas 10
Price resilience 2 year peak - 2012 10 year peak - 2012 0 0-5 -10 Percentage Change (%) -10-15 -20-25 -30-35 -24% -24% -20% -17% Percentage Change (%) -20-30 -40-50 -60-59% -41% -40% -25% -19% -40-38% -70 Iron Ore Zinc Aluminium Zinc Iron Ore Aluminium Palladium Copper Palladium Copper 11
Pole position amongst main metals Short term Medium term Availability Surplus - Deficit + Copper Platinum Iron ore Coking coal Thermal coal Zinc Aluminium Nickel Availability Abundance - Scarcity + Coking coal Iron ore Copper Nickel Platinum Thermal Coal Zinc Aluminium Significant - Limited + Price downside Downside - Upside + Price upside Source: Exane BNP Paribas 12
Optimism on long-term prices 8500 Copper Price (US$/t) 8000 7500 7000 Exane BNP Paribas Wood Mackenzie 6500 6000 2012 2013 2014 2015 LT Broker Consensus 13
DRC copper prospects: a remote bounty A large club of new frontier producing countries Vast, undeveloped resources Hard and soft challenges Market feedback evidences some key challenges Country risk Realisation and transport costs Power reliability A past and future producer Some major, positive milestones Large commissionings Large acquisitions Large discoveries There is a lot policy can achieve Rule of law Public investment Education Wealth redistribution 14
Production migrating to new countries 1995 2025 Chile + USA + Australia + Canada c. 40% Peru + Zambia + DRC + Indonesia + Mexico + Russia + Mongolia c. 40% Sources: Wood Mackenzie 15
DRC coming back 800 Copper Production in the DRC (kt) 700 600 500 400 300 200 100 0 1980 2000 2020 Sources: Wood Mackenzie Note: Columns represent total production data for that year 16
A deficit of perception Country Taxes / Royalties Availability of Human Resources Access to Infrastructure Licensing / Permitting Community Opposition Electricity Supply Access to Water DRC Peru Chile Guinea South Africa Australia Mongolia USA Brazil Philippines Indonesia Canada Sources: Anglo-American 17
High realisation and freight costs 80 60 40 20 0 0 Realisation and Freight Costs (c/lb Cu) USA Chile Peru Australia Zambia DRC Paid Metal (Mlb) Sources: Wood Mackenzie 18
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