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Mining & Metals Primer
Mining & Metals Sector Overview
From hard rock to heavy metal
I Mining and metals again attracting more investor interest The industry offers global investment options that leverage off cyclical growth potential, primed by global destocking as well as structural re-positioning. We expect the coming years will see demand surprises in a growing Asia region, with supply tightness due to industry consolidation and capital expenditure decline. I Investors' needs Successful investment in this sector is based on an understanding of key exploration, development and production processes, commodity markets and the interaction between material prices and equities. This report offers a background to these issues. I Recurring themes Major sector drivers that are important for investors to understand include the effects of the cyclicality of the sector, how consolidation has changed commodity price and stock behaviour, exchange rate effects, cost structures, valuation trends, demand and end uses of metals, and the effect of China's growth. I Detailed data on companies All the major mining stocks, as well as a number of other important companies, are reviewed. A detailed jargon-busting glossary and other useful information, such as the location and ownership of major operations, conversion factors, and a list of other information sources should clarify investor issues. See disclosure information on page 185
Global Mining Team
UBS Warburg is a business group of UBS AG
Mining & Metals Primer 07 April 2003
How to use this report
The intention of this report is to provide newcomers to the mining and metals sector with a comprehensive guide to the industry, its processes, its markets and its participants in a single source. The report is divided into five sections.
The first section deals with the mining and metal production processes. It does not deal with every situation, but the principles discussed can be broadly applied across the industry. In the second section we discuss commodity market trends and identify the main producers, end uses, cost structures and price trends in a standardised fact sheet for each major material. Sections 3 and 4 deal with the key indicators used in analysing commodity price trends and the principle tools used to compare assets and companies in a financial sense, as well as looking at industry trends and drivers. Finally, Section 5 provides a standard fact sheet for all of the listed mining companies researched by UBS Warburg, and identifies the major companies that are unlisted or not currently under our research coverage. We include a comprehensive appendix with a glossary of commonly-used terms, a list of important places and projects in the world of mining and metals, data on the distribution of mineral reserves by region, a short discussion on metals trading, chemical symbols, conversion factors and a list of other useful sources of information.
Getting started? Read the Introduction and Section 1
Getting started should involve reading the Introduction and Section 1. Despite representing just over 1% by capitalisation of the Dow Jones World Index, history suggests that mining and steel, owing to their cyclical nature, can provide returns of 50-100% as markets anticipate recovery. However, such returns are far from being risk-free and the reader is advised to follow the various stages of production described in Section 1 to understand these risks and to better interprete company announcements. As Section 1 suggests, controllable factors for companies are production volume and costs. However, the earnings equation is most profoundly affected by the factors that a company does not control, such as prices and exchange rates. There are a multitude of views as to the likely course of commodity prices, including our own published bi-monthly in Commodity Connections. However, the discussion of price mechanisms and market trends in Section 2 should provide a guide for interpreting the disparate views in the equity market. In addition, Section 3 should be used to determine what indicators are of value and what are not. Those with strong commodity views may wish to go straight to Section 2 to identify the major producers of their preferred commodity and then move to Section 5 to review other attributes of that particular company. Finally, the industry is well known for confusing the uninitiated with a myriad of terms and exceptions to the rule. We have attempted to clear the fog by providing a glossary of commonly used terms, abbreviations and industry sites. If all else fails, there is a list of UBS Warburg mining analysts only too willing to join the dots and answer that question that continually defies logic.
Sections 2, 3 and 4 should provide for interpreting the disparate views of the equity market
If you have strong commodity views, go straight to Section 2 and then onto Section 5 The appendix should help to clear the fog of industry jargon
UBS Warburg 2
Mining & Metals Primer 07 April 2003
How to use this report Introduction Section 1: Hard rock to heavy metal
page 2 5 9 Matt Fernley
firstname.lastname@example.org +44 20 7568 8327
How did it get there and how do you get it out?.................................................................... 10
— — — —
Global Mining Team
Geology and mining............................................................................................................ 10 From prospect to mine ....................................................................................................... 17 Mine development and mining methods.......................................................................... 20 Minerals processing (beneficiation).................................................................................. 25
Steel – a major subset of the metals industry ....................................................................... 31
Steel manufacture............................................................................................................... 31
Section 2: Metals and commodities markets
— — — — — — — — — — — — — — — — —
Prices........................................................................................................................................... 38 Metal exchanges ........................................................................................................................ 40 Aluminium.................................................................................................................................... 43 Copper......................................................................................................................................... 46 Nickel ........................................................................................................................................... 48 Zinc............................................................................................................................................... 50 Lead ............................................................................................................................................. 52 Tin................................................................................................................................................. 54 Platinum group metals (PGMs)................................................................................................ 56 Gold.............................................................................................................................................. 60 Iron ore......................................................................................................................................... 63 Coal.............................................................................................................................................. 66 Coking coal ................................................................................................................................. 66 Steaming coal............................................................................................................................. 66 Steel............................................................................................................................................. 69 TiO2 (Titanium feedstock) ......................................................................................................... 72 Other materials ........................................................................................................................... 74
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Metals.................................................................................................................................... 74 Non metals ........................................................................................................................... 77 Industrial minerals............................................................................................................... 77 Gemstones........................................................................................................................... 80
Geographic distribution of mineral reserves and resources................................................ 82
Section 3: Major indicators
— — — — —
Industrial production (IP)........................................................................................................... 89 US ISM Manufacturing Index................................................................................................... 90 Metals prices (MGMI) ................................................................................................................ 91 10-year bond prices................................................................................................................... 92 Fed funds rate............................................................................................................................. 93 UBS Warburg 3
............................182 Other useful information sources....................................................106 Exchange rate effects................................... and to Rio Tinto plc for supplying some of the photographs on the front cover..................................................110 Valuation trends .. Also..................................................................................................177 Key chemical symbols......................................................................................................................................................................................... 98 Chinese import/export statistics................................................................................111 Demand and uses of metals.............................................................................. 94 COTR (Commitment of Traders Report) ...................................167 Common abbreviations ......................................................................................... UBS Warburg 4 ..............................................146 Appendix — — — — — — — — — — — 151 Definitions of common terms............................................170 Metals price management – an introduction......................................................................................................................... 99 Other important indicators ......................................................171 Accounting and valuation definitions.................................................................................. but in particular from John Reade..................................................122 Other companies (alphabetical order) .....................................................................................................................................................................................................................................................................................................................................................................................................................152 Where’s where in mining? ...........................113 China.........................................................................................................................................................102 Consolidation.........................107 Cost structures .......................................182 UBS Warburg global mining analysts ................................................................................................................................................................180 Earnings splits for key mining companies (2003E) ............................................................................................................................................................................................................................................... 95 Exchange rates......183 Acknowledgements We would like to acknowledge the input and advice given towards this report from our colleagues on the global mining team..........................179 Useful conversion factors ..................Mining & Metals Primer 07 April 2003 — — — — — — — Gold price ............................................................ Michael Cook.............................................................................................................181 UBS Warburg global mining sector stock coverage.................................................... Peter Blight and Peter Hickson................................................................................................................................................................................................................................................................................ thanks must go to Robert Kelly and Walter Kemmsies for their input..................100 Section 4: Sector drivers and valuation — — — — — — — — 101 Cyclicality...................................... 96 Freight rates..124 Companies not covered by UBS Warburg....................................................103 Pricing power .......................................................................... 97 Auto and business inventories..............................................115 Section 5: Major mining companies — — — 121 The ‘Big Three’ ............................
and in the building and chemicals industry. In a basic materials context. Chart 1: Mining as a percentage of the Dow Jones World Index Mining sector 1% Steel sector 0% Mining and metals companies represent just over 1% of DJ World Chart 2: Mining as a percentage of the DJ Basic Materials Index Building Mats 14% FP&P 12% Steel 7% Chemicals 41% DJ World 99% Source: Datastream Source: Datastream Mining 26% Basic Materials & Building Mats = 5% of DJ World In the past. cars. and it is only since The mining sector used to have a larger weighting. Materials extracted from the ground are sources not only for the metals used in buildings. Table 1: Uses of mined materials End use Automobiles Contribution from mining Aluminium and steel used to manufacture frame and body Copper and zinc used for parts PGMs used for catalytic converters Buildings/structures Iron and steel used as a key support material Cement manufactured from limestone and sandstone extracted from the ground Glass manufactured from silica and trace materials extracted from the ground Computers/internet Copper leads used for data transfer Nickel used for stainless steel parts Semi-conductor metals used for microchips Infrastructure/utilities Copper and aluminium wires for electricity supply. the mining sector has represented a higher percentage of the market capitalisation of the index. gas. telephone. with 26% of the sector market capitalisation. television lines Metal pipes used for transfer of water. The sector underwent a prolonged period of underperformance in the late-1990s. mining and metals companies represent just over 1% of the Dow Jones World Index. but has lost ground over the past 10 years UBS Warburg 5 . etc Aggregates and tarmac extracted from the ground Paper Energy Chemicals Source: UBS Warburg Limestone and china clay used as pigments/fillers Coal and uranium used to produce energy Metals and minerals used in the manufacture of specialty chemicals Mined materials have a myriad of uses From an investment perspective. representing over 3% in 1992. mining is the second largest sector.Mining & Metals Primer 07 April 2003 Introduction The importance of mining to the world should not be underestimated. aeroplanes and household products. but can also be used for energy.
The chart overleaf shows the most important producing regions in the world in terms of market value. Source: AME. UBS Warburg 6 . there is still further potential for outperformance. Chart 4: Different market values of different segments within the mining industry US$bn 45 40 35 30 25 20 15 10 5 0 Aluminium Base metals Bulk materials Precious metals Industrials Aluminium Alumina Smelting Refining Copper Mining Zinc Mining Nickel Mining Lead Mining Iron ore Mining* Coking Coal* Steaming Coal* Gold Mining Platinum Titanium Mining Minerals Market value = long-term price forecast x production. dependent on the different products produced by companies. *Seaborne trade only.Mining & Metals Primer 07 April 2003 late 2001 that it has started to regain some of this lost ground. WBMS. The chart below shows an indication of the different values of the separate markets that make up the mining industry. UBS Warburg estimates Another aspect of the mining industry is that regions where minerals are produced are not necessarily those regions in which they are used. Chart 3: DJ Mining & Metals Index relative to DJ World. We believe that the mining sector is of interest because. in our view. 1992-February 2003 120 110 100 90 80 70 60 50 40 30 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Source: Datastream There are several distinct segments to the mining industry.
Source: AME. WBMS. 2002 35 30 25 20 15 10 5 0 Europe N America Latam S Africa Aluminium Smelting Alumina Refining Copper Mining Iron ore Mining* Coking Coal* Steaming Coal* Australia Nickel Mining Gold Mining China Asia ex-China Other Lead Mining Zinc Mining Platinum Mining Titanium Minerals US$bn Market value = long-term price forecast x 2002 production. UBS Warburg estimates The aim of this publication is to help explain to the investor what the different factors are that determine how mining companies work. UBS Warburg 7 .Mining & Metals Primer 07 April 2003 Chart 5: Market value of commodities produced by major producing regions. and the major drivers that affect the performance of their shares. *Seaborne trade only.
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Mining & Metals Primer 07 April 2003 Section 1: Hard rock to heavy metal UBS Warburg 9 .
lead. such as copper and gold. uranium. The concentration of minerals in sufficient quantities is termed a mineral deposit. nickel. They are extremely rich in iron and are very dense. then to economically extract the key materials. aluminium. strontium. ytrium. Metals may be split into groups. PGMs Semi. or other commodities such as coal. Applied geology is used extensively by the mining industry first to locate ore deposits.Metals posess metallic and nonmetallic attributes eg silicon. to be recovered profitably. tin eg scandium. in chemical compounds to form solid crystalline substances called minerals. lead. cesium Refractory Metals can withstand high temperatures eg niobium. iron and calcium. chromium. plutonium Base Metals lower value metals eg copper. These elements bind together. UBS Warburg 10 . aluminium. zinc. lead. Mineralisation can be termed ore when the minerals are present in sufficient quantity or tonnage. depending on their uses or properties. Non-Ferrous Metals not used in steelmaking eg copper. used in steelmaking eg iron. selenium Rare Earth Metals Radioactive Metals often used for power generation eg radium. and quality (known as grade). but for the mining investor there are some key aspects of ‘geospeak’ that it is useful to know. Deposits are usually mined to produce metals. The diagram below shows the different groups of metals and some examples. silicon. manganese. Basic geology Geology is the science of the Earth The five most abundant elements in the earth’s crust are oxygen. magnesium. cobalt. arsenic. less stable eg lithium. silver. molybdenum Source: UBS Warburg Geology is an extensive subject. magnesium. Figure 1: The major groups of metals classified by uses and/or properties A concentration of minerals in sufficient quantity to be extracted economically is called a mineral deposit Precious Metals eg gold. tungsten. The inner two layers are the inner and outer core. titanium Reactive Metals easily react with oxygen. zirconium and 15 lanthanides Light Metals valued for lightness and strength eg berrylium. The Earth’s structure The Earth is split into four layers. zinc. ruthenium Ferrous Metals chemical affinity to iron. thorium.Mining & Metals Primer 07 April 2003 How did it get there and how do you get it out? Geology and mining Geology is the science of the earth. in association with other elements (often in trace amounts). like an onion.
or extrusive (the magma rose to the surface and was erupted. which contains many metallic elements at high pressures. it may cool and solidify to form igneous rocks. The intermediate stage in the geological cycle is caused by erosion. water or ice. This results in extremely high temperatures and pressures at depth. or below. and may be deposited as loose material (for instance at the end of a glacier. Sedimentary rocks tend to be the source of energy deposits (coal and oil). or may literally crumple up against another. whereby the tectonic plates which host the outer surface of the earth’s crust move around over the mantle. They are defined by their method of formation and are known as igneous. and its development during that time is the key to how ore deposits have formed and where they have formed. causing uplift. Molten rock rises from the centre of the Earth to form igneous rocks Erosion of rocks at the surface and subsequent burial and compaction results in the formation of sedimentary rocks Metamorphic rocks form at high temperatures and pressures within the crust UBS Warburg 11 . for example by a volcano). or by chemical means (when some of the minerals in a rock may be dissolved by a water solution). but not exclusively. a relatively thin (5-20 kilometres) outer layer. new material from deep within the earth is erupted to the surface. Mining is restricted to the top three kilometres of the earth’s crust. Eroded material is then carried. This may occur in convergent tectonic regions where rocks are pushed together at high temperature and pressure. by wind. is called magma. a thick slab of semi-molten material. The final stage of the cycle comes about as previously formed igneous and sedimentary rocks are heated and pressured at depth to form metamorphic rocks. or on a beach). while metallic deposits are often. sedimentary and metamorphic rocks. associated with igneous and metamorphic rocks. As this loose material collects. Resting on the surface of this layer is the Earth’s crust. Molten material originating at great depths in the crust. Plate tectonics is one of the key mechanisms that contributes to the formation of ore deposits.Mining & Metals Primer 07 April 2003 Beyond these is the mantle. At diverging margins. or may be caused by the intrusion of hot igneous material at depth. on the shore or bed of a river. Converging margins may also result in the formation of mountain ranges as the plates are pushed together. which can result in earthquakes. water or ice). volcanic reactions and lots of circulation by hot melted rock fluids close to these margins. Tectonic plates move across the earth’s surface and often govern the location of ore deposits Three major rock types There are three different types of rock in the Earth’s crust (the outer layer of the Earth). or one is pushed beneath another. Plate tectonics is the mechanism behind continental drift. by the effect of wind. As this magma rises through the crust. whereas at collision margins one plate may be pushed beneath another. Rock formations may be eroded at the surface by mechanical means (ie. The Earth’s cycle Earth is over four billion years old. These may be intrusive (ie. away from each other (diverging plate margins) and toward each other (collision or converging plate margins). it is buried and then compacted to form sedimentary rocks. the magma crystallised when still covered by other rocks). with approximately 70% from the near-surface area.
it is called a fault. a large body of magma at great depth. however. sedimentary or metamorphic rocks. The orientation of a particular layer or bed may be described by strike and dip. or sills (when they are parallel to that orientation). Metamorphic rocks are igneous. If subjected to high temperatures or pressures. This deformation is termed folding. When layers of sediment are deformed it is called folding Igneous rocks can occur in three major habits Metamorphism can obscure a rock’s previous identity forming new minerals Minerals often concentrate near rock fractures UBS Warburg 12 . new minerals can be formed that are stable under these conditions.Mining & Metals Primer 07 April 2003 Figure 2: The geological cycle Continental plate Mountain range Sedimentary rocks Mid-ocean ridge Uplift Weathering Transportation Deposition Compaction (high temp. while the angle the wood makes with the surface of the water is the dip. Mineral zones may form as igneous bodies cool and different minerals cool at different times. The line where the sheet and the water surface intersect is the strike. These intrusions may be known as dikes (when they cut across the orientation of the country rocks). In their most simple form they occur as a batholith. Igneous rocks occur in three major habits. Minerals often concentrate in shear zones and faults. Where a series of many smaller parallel fractures form a fault. which often obscure the original rock’s identity. Strike and dip can be illustrated by imagining a sheet of wood at an angle in a water tank. normally pushed by heat or pressure. pressure) Oceanic crust Molten and semi-molten mantle Plutonic Igneous rocks Contact metamorphism Convergent plate margin Source: UBS Warburg Metamorphic rocks Divergent plate margin Igneous rocks Development of rock formations and structures When sediments are laid down. this may be known as a shear zone. sedimentary or other metamorphic rocks that have undergone extreme chemical or physical changes. they are normally in relatively horizontal layers. and these can cut through older igneous. Fractures are common in rock. However. settling to different layers in the melt. small sheet-like offshoots of igneous material can also escape from larger bodies. these layers may be deformed over time through the effect of pressure to form different shapes. If the fracture is large enough and the two sides have moved relative to one another. and the layers may adopt different orientations up to and beyond vertical.
63% Cu) Gold Iron Au Fe Native gold Haematite (iron oxide. 77% WO3) Scheelite (calcium tunstate. and the ore minerals that contain the metals which are of interest to the mining industry. 80% Cu) Bornite (copper iron sulphide. This is not to say that the rock forming minerals do not contain economically significant metals. 48% Fe) Lead Molybdenum Nickel Platinum Silver Tin Titanium Tungsten Uranium Zinc Pb Mo Ni Pt Ag Sn Ti W U Zn Galena (lead sulphide. minerals may be split into two types.Mining & Metals Primer 07 April 2003 Different types of minerals For the purposes of this subject. of million years ago and minerals may have concentrated in mineable proportions via a variety of different processes. A table of metals and their common ore minerals is shown below: Table 2: Key metals and their ore minerals Metal Aluminium Cobalt Chromium Copper Symbol Al Co Cr Cu Common ore minerals Bauxite (hydrated aluminium oxide) Cobaltite (cobalt suplarsenide. to be of interest. 70% Fe) Magnetite (iron oxide. 79% Sn) Ilmenite (iton titanium oxide. 50-58% U3O8) Sphalerite (zinc sulphide. Ore deposits can form by a variety of processes UBS Warburg 13 . which in this context will mostly be referred to as gangue (waste from the mining process). 46% Cr) Native copper Chalcopyrite (copper iron sulphide. indeed they do. basic rock forming minerals. 35% Cu) Chalcocite (copper sulphide. 60% Mo) Pentlandite (nickel iron sulphide. 87% Pb) Molybdenite (molybdenum disulphide. 67% Zn) Gangue does not contain economically significant minerals Source: Northern Miner. Examples of common mineral deposit types and an explanation of their formation can be seen in Table 3. UBS Warburg Formation of ore deposits Most of the mineral deposits being mined today were formed hundreds. or in a structure that it is economically viable to break down. they do not contain these metals in enough concentration. such as quartz and feldspar. 81% WO3) Pitchblende (uranium oxide. 36% Co) Chromite (ferrous chromic oxide. 22% Ni) Native platinum Sperrylite (platinum arsenide. sometimes thousands. xx% Pt) Native silver Cassiterite (tin oxide. 72% Fe) Siderite (iron carbonate. however. 32% Ti) Wolframite (iron magnesium tungstate.
Physical properties such as the earth’s magnetic. but many areas have never been explored on foot. government geological surveys have produced regional geological maps. A geochemical survey is used to track anomalous concentrations of chemical elements in ground and surface water. analysing them for certain key elements and then plotting the results on a map. Geochemists use a detailed knowledge of the relative mobility of certain elements and the processes that cause this mobility in order to track metals back to their source. electric or gravitational fields are tested since different types of rock have different magnetic and specific gravitational properties. In recent years remote sensing has started to be of greater importance. which used to take years. using contours to delineate different levels. They do this by sampling materials such as water.Mining & Metals Primer 07 April 2003 Mineral exploration Exploration has changed dramatically in recent years. It can be useful for identifying large-scale geological structures like faults or contacts where mineralisation may occur. Geophysical surveys have become of great importance since World War II. A map can be created from the readings. These reports and maps are good sources of reference where they exist. On a large scale. In many countries. rather than employing teams of geologists to go tramping over smaller areas of land. This is the use of photographic or radar images taken by satellites and aircraft. enabling mining companies to search large areas of land using aeroplanes that could take weeks. Geophysics is the remote sensing of the physical properties of the earth and it is more concerned with highlighting anomalies where the earth has unusual properties. gravimetric and electric fields can also help in exploration Chemistry of waters also aids exploration geologists UBS Warburg 14 . soil or bedrock. sensors may be towed by aircraft or ships. These maps may have been developed over two hundred years and are cobbled together by mapping geologists who travel over large areas noting down key geological features as revealed by outcrops and landforms. exactly the same as on a relief map. while on a smaller scale they can be carried by individual geophysicists. Geochemistry is also used routinely in most exploration programs. Remote sensing by satellite or aircraft is of increasing importance Exploration has changed dramatically in recent years Geophysical properties such as magnetism.
gypsum Source: Northern Miner. zinc Tin. nickel Most of the world's bauxite Hamersley. Nevada. gold Copper. iron and nickel form insoluble compounds which remain in place Iron minerals are precipitated in layers on a sea floor Bodies of rock out of which ore-forming fluids have migrated leaving behind enough mineralisation to make ore. some minerals are leached out but several such as aluminium. Canada Iron formations Other deposits Iron Replacement deposits Gold Carlin. molybdenum and uranium. a process known as supergene enrichment Formed in veins or shear zones during tectonic deformation Form at or near the contact of overlying sandstone and underlying metamorphic rocks Common metals/minerals present Example Sudbury. Colorado (gold) Copper. may also contain base metals Uranium Saskatchewan. diamonds in Africa RSA. RSA. tin.Mining & Metals Primer 07 April 2003 Table 3: Different types of ore deposit Type of ore deposit Layered magmatic deposits Diamond pipes Formation Layering of minerals as they cool at different rates in magma chambers Kimberlite. Often the ore may be further concentrated by circulating fluids at a later date. gold. tungsten. is erupted to the surface. Arizona. salt. tin byproducts Base metals Kidd Creek deposit. US Red-bed copper Sedimentary uranium Placer deposits Copper Uranium Gold. silver. gemstones Gold. platinum group metals Diamonds Porphyry deposits Copper. northern Decayed plant material. Russia Andean copper porphyries Magmatic and intrusive deposits Nickel. tungsten. molybdenum. normally in shales and sandstones. lead. US Tin deposits of southwestern Britain Cripple Creek. SW US Witwatersrand gold. silver Skarn deposits Granite-hosted Epithermal veins Sedimentary deposits Stratabound massive sulphides Carbonate-hosted Twin Buttes. zinc. iron. They are often large. Australia Canada. usually in volcanic rocks Occur as part of a sequence of volcanic or sedimentary rocks and conform to the host rock's bedding Metal ores are precipitated by chemical conditions as fluids travel through fractures and pore spaces in carbonate rocks Fine-grained disseminations of base metal sulphides. Australia. UBS Warburg UBS Warburg 15 . formed by chemical precipitation of circulating fluids Precipitation of uranium from circulating fluids Chemically stable and physically resistant minerals are transported by water and may be deposited in a sedimentary bed Rocks in tropical climates weather to form laterites. gemstones Zambian copper belt Niger. a rock from the earth's mantle. Lake Superior region. US Lode deposits Unconformity uranium deposits Other materials Coal Evaporite Key source of high grade precious metals. Canada (Nickel). Canada Mississippi Valley. molybdenum. diamonds. buried and compacted Left over when seawater evaporates in a shallow basin Coal Potash. mineralisation forms in veins or breccia bodies within the intrusion itself and on its margins with country rock over a large area Form at the contact between intrusive rocks and carbonate country rocks Deposits form in veins and pegmatites (coarse grained dykes) associated with granite intrusions Large vein systems. carrying rock fragments of diamond-bearing rocks to the surface Fracturing and hydrothermal activity caused by igneous intrusions. tungsten. low grade deposits. gold. Bushveld. cadmium. iron. RSA (PGMs) Kimberlite pipes may be found in several areas including Canada. placer Laterites Aluminium.
tested by geophysicists and geochemists to build up a detailed three dimensional map of the test area. as well as being reflected at boundaries between different rock types. Drill cores may be stored by companies for future testing. but these do not tend to give a very clear view of the situation at depth. reverse circulation drilling and wireline drilling. pyrrhotitebearing nickel deposits and scarns may be detected directly.uranium. either in economic deposits or as pathfinders Because no contact with the ground is required. The time they take to travel allows geophysicists to determine the structures of rocks The presence of radioactivity can be determined using a scintillometer. However. This drill core may be split into pieces. like a 3D map. (2) Through many of these methods it is possible to keep a record of the whole operation. this is a useful method in airborne geophysics Used to indicate areas favourable for further mineral exploration Resistivity Induced polarisation (IP) Electromagnetics Gravity Seismics Widespread method in petroleum exploration Radiometrics Can be used to assist geological mapping since radioactive elements occur in greater abundance in granites Source: Northern Miner. Diamond drilling can also be important for established mines. the amount of current that flows depends on the resistance the rock offers Certain bodies can be ‘charged’ by passing an electric current through them. As a result companies will use drilling to take samples from depth. UBS Warburg As the exploration team homes in closer to prospects that look promising. Sampling is the process by which small amounts of material are extracted and analysed with the expectation that they will indicate the composition of a larger area. The advantages of this method are that: (1) Samples removed from underground are less likely to be heavily weathered than those taken from the surface. Used to aid geological mapping Economic massive sulphide occurrences exhibit anomalously low resistance.Mining & Metals Primer 07 April 2003 Table 4: Common geophysical methods Method Magnetics Parameters recorded Where rocks have high magnetic susceptibility. or gamma ray spectrometer. there will be a stronger magnetic field and vice versa Electric current is forced into the ground through widely spaced electrodes. they will use smaller scale exploration processes. It can be used to: — — — Companies use surface or sub-surface samples to analyse the composition of rocks explore for new ore. so this method should be used in association with other methods Effective in detecting disseminated sulphide minerals. Samples may be taken from the surface. Common drilling methods include diamond drilling. This can then be measured Alternating magnetic field induces a current in nearby conductors which can be measured Gravity is not uniform and is stronger over areas where the underlying rocks are more dense and vice versa Sound waves travel at different speeds through different rock types. which can distinguish between the three main radioactive elements in nature . potassium and thorium Application Deposits with magnetic minerals such as iron deposits. in the form of the drill core. or outline and map-known orebodies investigate rock types and structures locate ore bodies displaced by faults and other tectonic features UBS Warburg 16 . different pieces can be catalogued by geologists. other materials also cause low resistivity.
This is the reason why the payback period tends to be It can take several years for a discovery to be put into operation as a mine 1 Evans. 390pp. Depending on the spacing of the drillholes and hence the geological certainty. the grades of mineralisation between drill holes. indicated and measured (high certainty). Reserves are only those areas of the deposit that can be extracted economically. the resources may be classified as inferred (low certainty). with varying degrees of accuracy. Drill holes are normally spaced at regular intervals. It is important to note that it can take several years between discovery of the deposit to actually producing the first product. The spacing varies according to geological continuity of the deposit type. The difference between reserves and resources is of major importance to mining companies. but we have tried to show a stylised representation of the sort of timings associated with the process in Figure 4. A. Figure 3: Illustration of reserves and resources Total resources Geostatistics allows companies to ‘fill in the gaps’ around drill holes Differentiation between reserves and resources is important Identified Demonstrated Measured Indicated Economic Reserves Zone of economic uncertainty Inferred Sub-economic Resources Increasing degree of geological assurance Source: Evans (1993) 1 From prospect to mine The process from discovery of a deposit to the actual opening of a mine is different for every operation. projects are cash drains for companies and it is only at the end of the period that they can hope to start to make some money back. UBS Warburg 17 . 3rd edition. Using sophisticated computer software. Reserve estimations come into play when a company starts to consider actually mining a deposit. Blackwell: Oxford. (1993) Ore Geology and Industrial Minerals – An Introduction. They are subject to more engineering and technical review. which has reasonable prospects for eventual economic extraction. Broadly speaking. it is then possible to make a three-dimensional representation of the deposit. resources are defined as the material of intrinsic economic interest in a deposit. During this period. they may be widely distributed for regular deposits such as stratiform deposits and coal reefs. M. but will be much closer together for irregular deposits like shear-hosted gold deposits. There are various statistical methods that can be used to infer.Mining & Metals Primer 07 April 2003 Resources and reserves When a drilling program has been finished the resources and reserves of a prospect can be calculated using geostatistics.
Availability of workers and local labour laws. It is also the reason why many larger mining operations are JVs. laws) s s s Other risks may include: s The effect of any unforeseen political developments (remember that mine lives are often in excess of twenty years so a long-term view is necessary). climate. transported to market and sold at a profit. what is the preferred recovery method. minerals and gems to be dug up. The feasibility study is also used for funding purposes – in order to attract project finance. The cost estimates in a full feasibility study will be in the region of ±15%. Environmental issues.Mining & Metals Primer 07 April 2003 very important for mining projects. The major question when evaluating a deposit is always the same: — A feasibility study is carried out to determine the project’s viability does it contain enough recoverable and marketable metals. Figure 4: Typical timetable for mining project development Discovery * Drilling program Evaluation / pre-feasibility Feasibility study Approval / Go ahead Funding completed Construction / Pre-stripping Mining 0 1 2 3 * 4 5 6 7 Time / years Source: UBS Warburg estimates Once a mineable resource has been established. interest rates) Country risks (political stability. Metallurgy (often underestimated – how much of the metal can be recovered. are there any impurities or associated minerals that could affect this?) Economics (metal markets and their forecast behaviour. so that the investing company can share the costs and risks. Varying currency strengths. transportation costs. the company will carry out a pre-feasibility study and then a full feasibility study to determine whether a further investment and eventual development is viable. including the cost of eventual reclamation because all activity is based on a finite reserve with a finite life. The most serious risks include: s All risks must be considered Issues associated with geology (size and grade of the mineable portion of the orebody) and how the deposit can be economically mined. UBS Warburg 18 s s s . given price and market assumptions? Diverse risks must be considered by companies in these situations.
its asset (ie. As a result. and a lack of strength in the rocks can make underground and open pit development difficult. sometimes new methods have to be invented to extract metals and sometimes impurities make extraction difficult. and that is topical at the moment. This is an important distinguishing fact when considering mining projects in the context of other businesses. for instance. companies may come up against higher tax levels. projects in the undeveloped regions of Canada. even villages and towns for the miners to stay in when they are working at the mine. they will have to have samples from each geologically distinct area of the orebody. It is the role of the metallurgists to overcome these problems and in order to accomplish this. Prices for labour. Issues such as a high proportion of the workforce with illness can add extra costs to a project. local or national governments will often give a company tax breaks or incentives to base an operation in a particular area. In lower cost. less developed countries. electricity. The example of the South African mining industry is a good one. when possible. such as political instability. within a reasonable period of time. The feasibility study A mine is referred to as a wasting asset because at the end of its useful life. Companies are required to Geological issues can be a significant risk s s UBS Warburg 19 . based on their estimates for the scope of the mine and the speed of implementation of full production. Africa and Australia would demand high cost investment in building roads. it is imperative that the profits generated by the operations should be enough to pay back the initial investment. corruption of local officials. in this context. and even high security risks. Geological issues include: s Payback period is of key importance when evaluating a project Cost estimation is an important part of the feasibility study Infrastructure development is another important area General health of workforce is also an issue Orientation of the deposit: what is the best mining method to use? Awkward orientations make handling the ore underground demanding. in some cases. railways. Associated mineralisation: sometimes the mineralisation of a deposit can affect the processing methods used. One other issue that is important. which can be a moveable feast. power lines and. if not impossible. supplies and transportation must all be considered and. and generate a competitive return on this capital. For instance. Cost estimation is one of the key aspects of the feasibility study. Basically. The final estimate is only as useful as the information needed to calculate it. the payback period is of key importance. all the economically extractable minerals within it) will be gone. is the issue of workforce health. It is the job of mining engineers to estimate the payback period.Mining & Metals Primer 07 April 2003 These must be offset against any benefits of starting a mine in a particular area. Extraction issues may also be important. a company will try to lock in long-term contracts to isolate itself against volatility in these costs. Reserve estimation: infill drilling (both from surface and underground) is often required to upgrade resources to reserves. over 20% of workers are HIV positive and mining companies in South Africa are having to budget money to treat their workers. Other costs that may have to be factored in may include the construction of infrastructure.
Key features Generally high throughput but can be very small scale. which makes the operation far less profitable than it would otherwise have been. Often the reserve estimation must be audited by an outside consultant to check the data (see Bre-X). Surface deposits mining thin. and the higher the costs. open pit is every miner’s first choice for a mine. low cost operations that move over a large area. Metallurgical risks (see above). it is necessary to assess how much waste rock needs to be mined and to balance this with the mining rate. Very low cost and highly mechanised Open pit or underground is an important question Open pit is cheaper and simpler although planning is more involved than many people think Open pit or open cast Strip mining Dredging (includes use of suction pumps. and placement of support buildings must also be carefully designed so that there is space if further expansion were to take place. how high the benches can be and how wide) so that the walls don’t fall down. the characteristics of the rocks may require a company to extract a significant amount of barren rock. which costs money. Since it is cheaper. Then. orebody is excavated and overburden is replaced Low to high throughput.Mining & Metals Primer 07 April 2003 optimise the cost associated with drilling against the deposit certainty required. Applies to most metals and minerals. Also. Effect of dilution: in an open cast mine. as well as ore. but not all orebodies can support a large mine. Enjoys incremental economies of scale. the depth of the pit is determined by the diameter of the first bench. An open pit is only profitable if the value of the ore exceeds the cost of mining the waste. Also. near surface seams over a large area River beds (alluvial). low barriers to entry. etc) Source: UBS Warburg estimates UBS Warburg 20 . In all types of mine. tin and titanium mineral sands. beach sands. especially if the deposit is a large scale. diamonds. In most cases this decreases along the life of the mine. Overburden is removed. Relatively safe operationally. Other issues include: s Extraction rate: because economies of scale are particularly important in the mining industry. The deeper the open pit. the orientation and depth of the deposit can affect the rate of extraction. gold. seabed. Stripping ratio very important to profitability s s Mine development and mining methods The choice between underground or open pit mining is one of the most important. The first stage is for a rock mechanics engineer to assess a safe slope angle for the pit (ie. The amount of waste rock that must be mined for each amount of ore is called the stripping ratio. Generally capital intensive and highly mechanised Large scale. the stripping of the overburden constitutes dilution. Simple and low cost versus underground. s Complexity of mining: the costs of mining deeper and deeper can escalate and also there can be problems with ground stability and temperature at greater depths. near-surface body. The placement and diameter of the first bench of the pit. Table 5: Summary of features of surface mining techniques Surface techniques Typical setting Surface to sub surface deposits but can extend to +500m in depth. Dilution may reach as high as 20%. horizontal. the greater the waste that has to be removed to yield the ore. since each successive bench is smaller. Applies to heavy minerals eg.
life of mine stripping ratio 3 to 1 Orebody A vertical or steeply dipping orebody suffers increasing stripping ratio as the depth of the pit is extended.stripping ratio now 1. For orebodies where open pit mining is not viable (or where it has been undertaken to the greatest possible depth). The final pit depth is then more determined by the geology of the ore body and not the economics of production. The final depth of the pit is then determined by the economics of extraction rather than the geology of the orebody. The method of mining is again determined by the type of orebody. In some cases the mining will be continued using underground techniques e. wall rocks cannot support loads over large stoping heights Large. thickness and regularity. Table 6: Common underground mining methods Stoping methods Cut-and-fill stoping Suited to Irregular ore bodies. coupled with its orientation. underground mining is used. Palabora. A certain amount of pre-stripping may be required before production starts and this is often charged to capital costs. each slice is blasted to the floor and then brushed into the ore pass. steeply-dipping orebodies with competent host rock Wide.no stripping Intermediate pit . Several different underground mining methods may be used and the table below shows a summary of some of the most common. UBS Warburg UBS Warburg 21 . regularly shaped.g.Mining & Metals Primer 07 April 2003 Figure 5: Explanation of stripping ratio in open cast mines Initial pit . bulk method. Sublevels are driven through an orebody at regular intervals (20m) and a vertical raise is made to connect sublevels. It is then opened across the width of the stope to produce a slot shape.5 to 1 Final pit . Once a level has been entirely mined. South Africa Source: UBS Warburg A flat or lenticular shaped orebody lends itself to low stripping ratio. it can be backfilled and the level above is blasted Low-cost. Blastholes are drilled out in a fan-like pattern and detonated to fill into the slot Source: Northern Miner. steeply dipping orebodies (development of blasthole stoping) Description Underground mining must be used at greater depths Blasthole stoping Vertical crater retreat Room-and-pillar Shrinkage stoping Sublevel caving The stope is mined upward from below in horizontal cuts.
by-hand. conveyor belt. train. however. Table 7: Comparison of mining processes in surface and underground operations Rock Breaking Surface Explosive: drill and blast Non-explosive: rip. by-hand. Some rock types. Where explosives are used. Underground Source: UBS Warburg Rock breaking generally entails the use of explosives. In some mining situations no breaking is required at all. electric or compressed air) Transport Truck. by-hand (very rare). the cost of which makes up a meaningful portion of mining costs. back hoe. which are quite simply sucked up a large underwater ‘vacuum cleaner’. are soft and can be broken by mechanical means. holes are drilled into the rock.Mining & Metals Primer 07 April 2003 Mining – digging the holes Figure 6: The mining flow sheet Deposit Mining Rock Processing Refining Market Increasing Value Added Source: UBS Warburg Mining can be broken down into three basic processes. mechanical loader (diesel. charged with explosives and then blasted. conveyor. Drilling holes in rock uses considerable amounts of energy. water jet. The miner must therefore optimise the blasting configuration against the level of Rock breaking generally entails the use of explosives UBS Warburg 22 . Most of the world’s coal is broken in this way and the use of explosives in coal mines is restricted to specific situations. pipe Truck. as in the mining of diamonds off the seabed. suction pump Gravity. gravity (block cave method) Non-explosive: face shearers. with a fourth option: s s s s Rock breaking Loading Transport (or hauling) to process site Backfilling (optional in underground mines) The first three are summarised in the table below. load direct Explosive: drill and blast. train. shovel. road headers Loading Front-end loader. vertical shaft and any combination of the above.
In open pit mining operations. planning and control. This can be a simple process making use of gravity to feed broken rock into rail cars. Rock transport can take many forms. effective truck utilisation is critical and carefully managed. the required degree of breaking and heaving in conjunction with the rock conditions. Loading is the process of moving the broken rock into a conveyance for transport to the processing plant. and because of the capital-intensive nature. depending on the contained value. The availability of a free face in the underground situation becomes more important. the most common being the use of trucks both in underground and surface operations. Underground. and produces large amounts of gas. amongst other things. Re-handling adds expense for little or no value added and reduces the overall efficiency of the operation. have to be re-blasted. average size of the broken rock). At a development face the free face has to be created by using a ‘cut’. Explosives are also expensive and again the miner has to maximise the explosive efficiency (and safety) through design. also referred to as development. Secondary blasting occurs when large rocks that result from poor blasting. In designing a blast. In many cases the fleet is managed by a sophisticated despatch system. without the need for secondary blasting. the mining engineer has to consider. or by use of mechanical loaders to load trucks. As previously stated. the proximity of buildings and other structures. usually in barren rock (waste). appropriate explosive and initiation. whilst access to the stopes is made via tunnelling. In most cases the mining operation is only as good as the transport system and has to be diligently managed. rock is blasted in a series of benches and the broken rock is assigned to the process plant or waste rock dump.Mining & Metals Primer 07 April 2003 desired breakage (ie. broken rock has to be transferred from one system to another before arriving at the processing plant and may require that the rock is re-handled a number of times. This requires intensive drilling and use of explosives. which makes use of GPS technology. explosives are the main rock-breaking tool available to the miner. than underground bulk methods such as sub-level caving. in terms of cost per tonne broken. such as drift and fill. In many underground situations. Transport is the most critical of the three processes. Nearly all open-pit mines use a fleet of large trucks specifically designed for the purpose. Stoping methods that depend on development techniques. Transport is extremely important The rock must be moved to the processing plant UBS Warburg 23 . especially in stoping. depending on the scale of production required. therefore the cost per tonne of broken rock from development should always be more than that of stoping. ore is produced from stopes. will always be more expensive. These trucks have a capacity (payload) of 30-300 tonnes each. which propagate the fractures and heave the rock away from the face. where the free face has to be established. The explosion sets up a shock wave that fractures the rock.
Shafts vary in inclination from shallow to vertical. Other capital-intensive systems needed for underground mining include ventilation. Where this is not feasible then a hoist is employed. it may be necessary to backfill it with waste materials either so that ore adjacent to the stope can be mined out. Backfilling may take place concurrently with the mining of a stope. Some shallow mines use trucks to haul to surface up a system of underground roads or ramps. or as a further means of support. this is generally viable to a depth of around 400 metres. Hoisting is generally automated and usually takes place on a continuous basis. Backfill may be waste rock from underground. stores and drainage systems (all the water entering the mine and used in the mining process must be pumped out). tied up in the cost of the equipment and the cost of the ‘hole in the ground’. The hoisting system is usually fed by a horizontal transport system that might take the form of trucks. Again the capital-intensive nature of hoisting systems.Mining & Metals Primer 07 April 2003 Figure 7: A typical underground mining operation showing extraction. Conveyor belt systems are common in surface and underground operations and can be used as either the principal transport system or as part of a secondary system. or it may be carried out only when mining of a particular stope has totally finished. Shaft hoisting systems are critical to underground mines Stopes may need to be backfilled to prevent collapse UBS Warburg 24 . loading and transport methods Head frame or headgear belt eyo r Conv Mineral bearing ore to process plant Storage Bin Barren waste to dump Winding house = rock flow Hoist Haulage Shaft Face Mined out Stope Load1 Haul Load2 Orepass Ore Waste development Source: UBS Warburg Underground. Once a stope has been fully mined out. sand brought down from the surface or processed mill tailings. access declines. underground workshops. it generally has some cement added to it. trains or belt conveyors. requires maximum shaft and hoist utilisation. the shaft hoisting system is the critical element.
Processing plants are generally sited on surface at or near the source mine and the typical process flow is as follows: s s s Some materials such as coal can bypass the minerals processing stage Crushing and grinding Concentration Refining Some operations. the rock has to be reduced dramatically in size to liberate the target mineral or at least expose a surface on the target mineral for further processing. All mined material requires some processing to yield a marketable product. such as the mining of beach sands for titanium minerals.Mining & Metals Primer 07 April 2003 Minerals processing (beneficiation) In nature most metals.0002%. UBS Warburg 25 . no target mineral exposed Target mineral Minerals processing is the initial separation and concentration of the mineral bearing material Divide by 624 Target mineral now mostly liberated from host rock Source: UBS Warburg Naturally there are exceptions. with the notable exception of gold. In some operations. In some gold mines the concentration can be less than 2 grams per tonne (2g/t). equating to 0. For example copper is often found as a compound of copper. In a typical copper deposit the chalcopyrite is distributed within the host rock and the overall concentration of copper may be as low as 1% (10. Figure 8: Crushing and grinding – why is it needed? Rock ex-mine.000 parts per million). occur as one of the components of a compound. With such low concentrations. such as diamond mining from the seabed. only require the final steps of concentration and refining. Coal is washed and sized according to the customer requirements and rarely undergoes grinding on the mine site. the process bypasses crushing and grinding and goes straight to concentration.FeS). Gold is effectively inert and is normally found in its natural state but usually very finegrained. iron and sulphur known as chalcopyrite (Cu. and not the first steps of crushing and grinding.
Mining & Metals Primer 07 April 2003 Crushing and grinding reduce the size of mined (referred to as run-of-mine) rock to a predetermined size. so that the mineral will attach itself to air bubbles in liquid. so that the next step of concentration is effective. magnetic) Chemical Froth flotation is commonly used in copper. gravity. with the target minerals attached. usually that of fine sand. form a froth at the surface of each flotation cell and are simply skimmed off leaving the waste or gangue material behind. Figure 9: Basic features of froth flotation Compressed air Reagents Feed The nature of the surface of the sulphide grain is reconditioned by the addition of reagents to make it water-averse and attracted to air Froth Air bubble Concentrate Sulphide grains Agitator The grain will then attach itself to an air bubble which floats to the top of the cell and the froth is simply skimmed off as a concentrate Barren waste to retreatment or tailings Source: UBS Warburg UBS Warburg 26 . nickel and zinc processing Of the physical methods. flotation is the most important. These bubbles. There are two broad categories: s s Crushing and grinding is the first stage to reduce particle size Concentration starts to add value Physical (including flotation. lead. The basics of the process are shown in the diagram below. Concentration is the first real value adding stage and significantly raises the concentration of the target mineral. Crushing and grinding is expensive so there is a trade off between grinding for total liberation or accepting that some of the target mineral will be lost. In froth flotation the physical properties of the target mineral are manipulated through the addition of reagents.
Panning for gold is its simplest form. Production costs this low were unheard-of in the industry and put the established producers into a panic. PAL technology is not new. UBS Warburg 27 . The waste products from concentration are known as tailings and are dumped. Gravity and chemical methods are the next most common. Where temperature and pressure are raised. This has the effect of essentially dissolving all the components of the feed. with around 75% of mined production being derived from the process. Gravity concentration simply uses the difference in specific gravity of the target mineral and the host mineral to capture the valuable part. Further. However. the process is called autoclaving. or under specific conditions of temperature. are processed under high pressure. or as metal through electro-winning. the first proponents of the use of PAL with the dry laterites were forecasting fantastic cost savings. for the most part.00/lb of nickel produced (derived by netting the actual cash cost against the cobalt credit) were being advertised as all the deposits could be mined by inexpensive surface techniques. as it is. and the nickel and cobalt are recovered selectively. The solution is then de-pressurised. such as is used in diamond production. known as laterites. The technology was set to revolutionise the production of nickel and cobalt in the late 1990s and sent the respective markets into a spin with Australia set to become the world’s largest producer of nickel in a few short years. a by-product of lead and zinc mining. In Australia a number of nickel deposits.Mining & Metals Primer 07 April 2003 Flotation is very important in the sulphide-based metals including copper. but the important methods are: s s Dissolution Solvent extraction Hydrometallurgy is a method of chemical concentration These processes fall under the general categorisation of hydrometallurgy and some processes may include any combination of the above. known as flashing. the process was brought into sharp focus in the mid 1990s with the development of the ‘dry’ nickel laterites in Australia (dry laterites are those formed under dry weathering conditions consistent with an arid climate). and none of the original projects have been able to sustain production at the design level. Dissolution can take place either under ambient conditions. Cash costs as low as US$1. Copper. In many cases. is the product of flotation. However. heat and acidity and this process is called pressure-acid-leach or PAL. mines produce a concentrate that is then sold on to specialist refineries and smelters for final refining before going to market. Most of the world’s silver is also produced this way. pressure and acidity. Engineering the process to the scale required has proved problematic and costly. In the PAL process the feed is put into a pressure vessel where the temperature and pressure are raised and the pH is lowered (to raise the acidity). zinc sulphide nickel and lead. Chemical concentration methods are manifold. One other method of concentrating can be nothing more than physical sorting. in particular. or together as a precipitate or a mixed sulphide. all has not turned out as hoped.
50 per pound. can be achieved in this way. As such. weak cyanide solution is delivered to the stack and the gold is recovered using a combination of hydro and pyrometallurgical processes. still a hydro-metallurgical process. With the development of SX/EW in the 1980s. is then delivered to the top of the stack via drip lines or sprinklers. As the acid percolates through the stack the copper is dissolved and the solution (in the form of copper sulphate and known as a pregnant solution) is collected at the bottom of the stack. For many years very large. Electrolysis is then utilised to plate high purity copper onto stainless steel cathodes. is stacked on impervious membranes known as leach pads. steady progress is being made and the technology may yet prove to be the key source of nickel in the future. that is. those parts that have been oxidised. As a consequence many smelter/refineries make use of a combination of pyro-metallurgy and electro-winning. separate and concentrate metals. usually sulphuric acid. The target metal is then extracted from solution in an electrolytic cell. In the process the concentrate. therefore the resource base for SX/EW is far more limited. many of these low-grade copper deposits have been successfully exploited. Metals are leached to form highly concentrated solutions. In many cases the end product is acceptable for delivery to the London Metal Exchange with a purity of 99. In electro-winning. There are three important methods: s s s s SX/EW provides an economic way to treat low-grade deposits Refining is the final step in producing metals Electro-winning Pyro-metallurgy (smelting) Precipitation Physical sorting Metals may be extracted using electric currents in electrolysis Pyro-metallurgy and electro-winning are the most important. and refers to a process that bypasses many of the energy hungry steps of crushing and grinding. electrolysis is used to capture the target metal and very high levels of concentration. The solution is further purified by solvent extraction that involves the selective transfer and re-transfer of the copper solution into and out of an organic liquid. but this method is energy intensive and costly in both capital and operating cost terms. High quality SX/EW operations can produce copper cheaply.99%. It should be noted however. Acid. which generally arrives direct from the mine in the form of a UBS Warburg 28 . The stacks can be several tens of meters high. up to 99. which can then be separated using solvent extraction.40 to US$0. Refining is the final step before releasing the product to market and adds significant value. they were ignored or mined and dumped as waste to access deeper high-grade sulphide deposit. that SX/EW only applies to parts of a sulphide orebody near to its surface. Mining takes place conventionally and the ore. Pyro-metallurgy uses very high heat to melt. after minimal treatment. Instead of sulphuric acid. low-grade copper deposits were known to exist but were uneconomic using the prevailing technology.Mining & Metals Primer 07 April 2003 However. with cash costs around US$0. SX/EW stands for solvent extraction/electro-winning. A similar method known as heap leach can be used in the extraction of gold.99% copper.
This has put pressure on aluminium companies to find an alternative process and so far only Alcoa. are subject to the vagaries of climate change and poor management. However. smelting and converting. The company is currently developing a process that greatly reduces CO2 pollution based on ‘inert anode’ technology.Mining & Metals Primer 07 April 2003 sulphide.5/kwh are generally not economic). In the HallHeroult process. In the Hall-Heroult process the carbon anode takes part in the reaction and hence produces CO2. however. the anode does not take part in the Alcoa reaction and hence a substantial reduction in CO2 emission occurs. Waste rocks may contain sulphides that react with water and oxygen at the surface to produce acids such as sulphuric acid. aluminium smelting takes place in regions of traditionally low power prices. Aluminium is a good example of metal extraction using electrolytic techniques The end of the road – what’s left? All that’s left at the end is the waste from the various processes (some of which may be recycled) and the refined product. The molten matte is then cast to produce anode plates. Many smelters may recast metal to the final customer specifications. What happens to the refined product we will deal with in the following chapters. The raw material for aluminium production is alumina. has made any progress in finding a more environmentally friendly process. run-off water from mines is often run through a treatment plant to clean it. with the cryolite being recycled. undergoes three stages of processing. Harmful substances from mines are normally the waste products of processing. although sometimes the waste material from the mining process itself can be dangerous. The process is also polluting. Such power resources. Primary aluminium is produced by electrolytic techniques. In the reaction the oxygen in the alumina is driven off and molten aluminium is then tapped off. In the final refining process the anodes undergo electrolysis to produce high purity cathodes as described above. In the roasting stage the sulphur is driven off (it is generally then used to produce sulphuric acid). Disposal of waste is an important aspect of mining Waste from processing may be harmful UBS Warburg 29 . Waste rocks themselves may be used as backfill. As the name suggests. Consequently. the world’s largest aluminium company. and refining. the process is extremely power hungry and around 40% of the processing cost in aluminium production is power (conversely aluminium recycling requires only 5% of the power required to produce primary aluminium). as has been seen in the Pacific northwest of the US and in Brazil. which is refined from bauxite. usually associated with hydro-power (prices greater than US¢3. During smelting and converting more sulphur is driven off along with iron and other impurities. alumina is dissolved in molten cryolite (a complex sodium aluminium fluoride mineral) in a reduction pot and high amperage direct current is applied. although there is often much left over and all mines have to be designed with provision for a waste rock dump that will not collapse and will be insulated from the local groundwater. with large amounts of CO2 and trace fluorine being produced as the carbon anodes are consumed in the process. but what happens to the nonrecyclable waste has become of much greater interest in recent years. namely: roasting. which are collected as slag.
the solid waste from the milling process. which is designed to keep the by-products where they are and prevent them from reaching the environment. Examples of these are the arsenic commonly found in waste from gold ores and the radioactive products found in uranium waste. also often contain hazardous waste materials. either by the effect of wind or water. or pond. Tailings may be disposed of in a tailings dam. which may be capped to prevent leakage Waste gases must be scrubbed UBS Warburg 30 . the waste waters may be held in a pond where sunlight and air help to break the cyanide down. For example. Waste water from milling and other processes may contain organic and inorganic compounds. When a tailings dam gets full. smelting and refining functions can also generate waste materials. in gold extraction the weak cyanide-containing solutions must be broken down into their core elements. such as sulphur dioxide. Tailings.Mining & Metals Primer 07 April 2003 The milling. Waste gases are also an issue and the mining industry has made giant strides in recent years in scrubbing waste gases. However. which is then usually seeded to allow plants to grow on the surface and help to prevent erosion of the cap. which also must be disposed of. it must be capped with an impermeable material to prevent leakage. Solid waste may be stored in a dam or pond. there is still some way to go in fixing this problem (it is estimated that some 60% of all sulphur emissions in the atmosphere come from smelting and other industrial activity). or using a cyanide destruction process.
Coking coal: Coking coal has specific physical properties. Iron ore. allowing the production of construction steels and alloying with chrome and nickel produced stainless steel. coking coal and scrap are the major steel making raw materials UBS Warburg 31 . scrap steel also started to become important. the introduction of manganese strengthened the mix. South Korea and Europe tend to use ore imported from Latin America and Australia. The process was modified at various times later in the century by introducing small amounts of other metals into the mix. is hard and resistant to corrosion. The development of the industry progressed further during the twentieth century with more attention being paid to the forming process. which oxidised the carbon to form CO2. the age of steel began with the invention of the Bessemer process in 1856.000 years There are three main raw materials for steel. Raw materials used for steel manufacture Iron usage dates back 6. forging. Iron ore: The US has large quantities of medium-grade domestic ore. During the mid-nineteenth century. metals packaging and many consumer goods. multi-functional and adaptable materials in use today. Iron became the dominant material for the industrial revolution and enjoyed a dominant position for over 200 years. power lines. Bessemer’s breakthrough was based on getting carbon out of cheap carbon-rich cast iron. some of the most important are in cars. Saugus. Among a myriad of uses. hardening and tempering the iron. In early times. as a support material in construction. now it can take as little as eight hours. allowing massive blocks of metal to be broken down into ribbons and then coiled. was founded in America.Mining & Metals Primer 07 April 2003 Steel – a major subset of the metals industry Steel is one of the most important. although Southern Africa also has some good deposits. while Japan. It was slow to catch on initially because of the difficulty of smelting. iron ore. Steel is one of the most important metals Steel manufacture History Iron was first used to replace bronze in early tools and weapons and has been in use for over 6. This innovation gave birth to the automobile age. For instance. wear and heat. This he accomplished by blasting oxygen through the iron mix. coking coal and scrap.000 years. With the establishment of a volume steel economy. rather than getting carbon into low carbon wrought iron. the steelmaking process grew faster and faster – 50 years ago to reach strip form from raw materials took over a week. Electric arc steelmaking became one of the most significant recycling processes. iron was smelted with charcoal made from wood. pipelines and containers. and is about US$15-20/ton more expensive than steaming coal. but later coal was adapted since it was a more efficient source of heat. In 1646. weldable. Properties that allow this multifunctionality include the fact that it is hot and cold formable. which allowed large-scale production of steel at reasonable cost. has good machinability. the first successful iron works. The Hot Strip mill was invented in America. As more developments were made.
etc. This is injected with hot air and the coke burns to produce carbon dioxide. The bulk of steel is made in blast furnaces (65-70%). prompt or obsolete. The mixture is sintered and then fed. It is estimated that some 367 million tonnes of scrap (44% of total output) were consumed in the steel industry in 2000 (International Iron and Steel Institute) with China and the EU being the largest net importers and the former USSR being the largest net exporter. while EAFs represent c30% Scrap Source: UBS Warburg estimates There are then two major methods of steel manufacture. which are integrated. while approximately 30-35% comes from electric arc furnaces (also called EAF or UBS Warburg 32 . Prompt scrap is from steel product manufacture. reducing the iron oxide to produce pig iron (94-96% iron. Figure 10: The iron cycle in steel production Lump (60-68% Fe) Blast Furnace Hot Bricketed Iron (HBI) (93% Fe) Flat products BOC Slab casting HRC Iron ore Fines (60-68% Fe) Sinter Plant Pelletising Plant Direct Reduced Iron (DRI) (93% Fe) Blast Furnace CRC Coated steel EAF Long products Blast furnaces account for c70% of steel production. consumer products. large-scale operations (that have to be sized at 3-4 million tonnes per annum to be economic). Home and prompt scrap are of low quality and are low in residuals. 3-4% carbon and 1-2% non-ferrous elements).Mining & Metals Primer 07 April 2003 Scrap: Scrap is classified as home. homogenised and mixed with limestone and coke. Obsolete scrap is most people’s idea of scrap – it is post-consumer scrap such as shredded cars. while obsolete scrap is high in residuals and cannot be used in large quantities for production of high quality steels. into a blast furnace. Steel production Scrap or recycled material is an important constituent Iron ore is crushed. in alternating layers with coke. and the supply of this is also waning. Home scrap is generated in the plant. but supply has decreased in recent years owing to the advent of continuous casting.
At this point. which are normally much smaller operations of 200-300. — — It is worth noting however. that most new projects. s Flat products better quality. for example sheets. In the EAF. However. which may be converted into hot rolled or cold rolled coils and/or coated. are likely to be EAFs. Long products are used for construction-type applications (I-beams. They are usually of lower quality and are generally produced by EAF plants. it was hoped that they could be built closer to the source of steel demand. and latterly the availability and price of scrap. the inability of EAFs to manufacture some flat products.000 tonnes per annum. it is not a competitive production method for high purity flat carbon steel products. long products used for construction. rebars). BOC) and combined with additional products such as limestone and scrap.Mining & Metals Primer 07 April 2003 mini-mills). it is important to make the distinction between flat and long products. Flat rolled products are usually made by integrated producers. Generally the scrap-based process is advantageous with respect to investment cost and the flexibility of operations. as they are significantly cheaper to build and to run. except in those areas such as China and Latin America. Electric Arc Furnaces were seen as a great hope for the steel industry in the 1970s/80s. s UBS Warburg 33 . they have not caught on as much as had been hoped for a number of reasons: — EAFs are smaller scale but have yet to replace blast furnaces the large capacity overhang in the global steel industry which has cut down on the amount of new capacity being built. tin plate. Additions of other metals such as manganese occur at this stage for specific alloying characteristics. as they were smaller scale. which has risen significantly in recent years. Heat is supplied from electricity that arcs between graphite electrodes and a metal bath. steel is recycled from scrap. However. They are used primarily in manufacturing industries. This process is suitable for almost all stainless steel and other alloyed steel products. such as white goods and autos. leaving crude steel as the end product. and for most long carbon steel products. pig iron from the blast furnace is purified in an oxygen converter (basic oxygen converter. and rely less on the mining industry for raw materials (a larger proportion of feedstock being based on scrap). Flat products are those products such as slabs. which burn off most of the unwanted metals and other contaminants. normally made by EAF plants In the basic oxygen furnace. where bulk steel production is possible. In addition.
Mining & Metals Primer 07 April 2003
Chart 6: Crude steel production by process, 2001
250 Mt 200 150 100 50 0 Other Europe Former USSR Rest of Asia N. America Latin America Japan China RoW EU OBC EF Other
Chart 7: Crude steel production by process, 1992-2001
900 800 700 600 500 400 300 200 100 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 OBC Source: IISI EF Other Mt
The molten steel then undergoes continuous casting, whereby it is converted to semi-finished products. The molten steel is poured and solidified to produce either blooms or billets (which may be transformed into long products), or into slabs (used for flat products). All semi-finished products are then rolled at high temperatures, a process known as hot rolling. They are drawn and flattened through rollers to give the metal the desired dimensions and metallurgical properties. Some steel products go through an additional step of rolling at ambient temperatures (a process known as cold rolling). For cold rolled applications, coils are placed in the annealing furnace and heated to 1,300 degrees Fahrenheit, then gradually cooled to room temperature over a four-day period. This softens and stress relieves the metal to give it uniform properties for future fabrication. Oil may be applied to the surfaces for protection from rust. A final operation, such as coating with zinc (hot dip or electro-galvanised sheet for the automobile industry) or tin (tin plate for tin and beverage cans) may then be carried out.
Coating (where applicable) is the final process Products rolled at high temperatures are known as hot rolled (HR)
When they are cooled and then rolled, they are called cold rolled (CR)
UBS Warburg 34
Mining & Metals Primer 07 April 2003
Figure 11: Manufacture of steel
Source: Nippon Steel Corporation
Modification of steel properties
Properties of steel may be modified by the addition of small amounts of other metals or metal oxides into the structure of the steel. Stainless steel is an example of this process, where the addition of nickel and chromium makes the steel more rust resistant. This should not be confused with the process of galvanising, whereby steel is coated in zinc after processing. The table overleaf lists a number of trace elements that are present in alloy steels, their properties, and the resultant uses of the new alloys.
Properties may be modified by including a variety of trace elements
UBS Warburg 35
Mining & Metals Primer 07 April 2003
Table 8: Trace elements used in alloy steels
Trace element Manganese Proportion 0.3-0.8% <1.8% 1.3-1.6% <2% Nickel 0.5% >10% 2-5% Ni, 0.1% C 2-5% Ni, 0.25-0.4% C Chromium NiCr 4.5% Ni, 1.25% Cr, 0.35% C Low Ni-Cr Molybdenum Ni-Cr-Mo Vanadium Cr-V Tungsten Silicon Si-Mn Si-Cr Copper Cobalt Boron B-Mo Source: www.key-to-steel.com, UBS Warburg estimates 0.003-0.005% 4.3% Si, 0.1% C, 0.1% Mn 1.5% Si, 0.8% Mn, 0.5% C 3.5% Si, 8% Mn, 0.4% C Lowers critical points and provides more resistance to atmosphere Decreases hardenability but sustains hardness during tempering Increases hardenability Gas turbines, magnets Hard facing alloys, nuclear control rods High tensile steels 0.15% V Raises critical points in steel 0.5% Increased hardness, resistance to wear Combination of Ni and Cr properties Hardened simply by cooling in air Heat treated to give desired properties Increased strength at boiler temperatures; although mainly used in combination with other elements Less brittleness Oxide scavenger Auto axles, coil springs Hot-working tool steels and magnet-, corrosion- and heat-resistant steels Electrical purposes, eg transformer coils Springs Automobile valves Construction High speed steels, magnet alloys, heat and corrosion-resistant steels Ordnance, turbine rotors Higher strength than carbon steel Higher tensile strength, greater hardness, but more brittle Case hardening Crankshafts, axles and connecting rods Contained in stainless steel, easier to machine than nickel steels Effect Reduces oxide formation and counteracts the influence of iron sulphide Increasing Mn content gives improved ductability for equal tensile strength Substituting for 3% Ni (with 0.3-0.4% C, and 0.3% Mo) Non-shrinking tool steel Uses All commercial steels
Uses of steel
Steel has a myriad of uses. Its main end markets are listed below:
Table 9: End uses of steel
General use Manufacturing Appliances Containers Oil and gas Construction Transport systems Source: UBS Warburg Food cans Pipe systems, ships I-beams, rebars Rails Specific use Autos, white goods Flat or long? Flat Flat Flat Flat Long Long Competitors Aluminium and its composites are major competitors Plastic liners Aluminium, plastics, paper products NA Wood and concrete NA Other points
Strong market position Lost out on the lucrative beverage can market but has a foothold in food cans Since 1982 the number of drilling rigs and pipelines has fallen High growth industry; in 1991, 1 million new homes were built in the US, in 2002 it was 1.7 million
UBS Warburg 36
Mining & Metals Primer 07 April 2003 Section 2: Metals and commodities markets UBS Warburg 37 .
Other producers sell onto an established terminal market. Treatment charges can move independently from metals prices UBS Warburg 38 . are sold under longer-term contracts. Some treatment charges also include a direct component of price sharing. Some miners are fully integrated and process the material they mine internally. UBS Warburg estimates Spot and contract pricing important in the industry Intermediate pricing (TC/RCs) arises between mines and smelters Copper Mine revenue share (% ) The treatment charges can move independently from metal prices and reflect the supply/demand balances between mines and smelters. There is also a series of intermediate pricing within metals industries. The chart above illustrates the share of revenue between mines and respective smelters for copper and zinc.Mining & Metals Primer 07 April 2003 The next leg The next leg for mining companies is what to do with their product once they have mined and processed it. These benchmark prices are often concluded between suppliers and consumers and then are referenced throughout the industry. The sale of concentrate to custom smelters is determined by treatment charges. normally negotiated annually. What happens to the material once it has been processed? Prices There are two types of pricing prevailing in the metals industry. while some commodities are priced and sold by individual producers. Spot pricing in most metal industries is based on exchangetraded pricing. The copper mines get a relatively higher share because of the higher inherent value of the metal and the cheaper smelting regime compared to the zinc industry. often expressed as a flat charge with rise and fall provisions for changing metals prices and penalties. spot and contract pricing. coal and alumina. for instance an exchange. With the rise of electronic exchanges. Many other commodities such as bulk materials like iron ore. some of these bulk materials. selling it on to industrial consumers. such as steaming coal. Chart 8: Revenue share between mining and smelting for copper and zinc producers 90 80 70 60 50 40 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Zinc Mine revenue share (% ) Source: AME. Their recent share increase is due to a significant fall in treatment charges caused by a build up in Chinese smelting capacity and a fall in Chinese mine output. are increasingly being priced in a spot market. Zinc miners struggle with only approximately 50% of the inherent metal value returning to the mine after the deduction of treatment charges. and bonuses for trace metals.
In recent years. The alumina contract is priced at approximately 13% of the aluminium price. CIF (cost. coking and steaming coal are annual Freight issues Most metal pricing is covered by two forms of selling conditions. the European steel producer Arcelor (the world’s biggest steel company) has played a greater role as the European negotiations become more important than the Japanese. the annual contracts have traditionally been set between Japanese power utilities and Australian producers. insurance and freight) pricing includes the additional seaborne freight and handling. as well as insurance costs. CVRD and Rio Tinto. and port handling charges. leads the negotiations. but they are also referenced back to the aluminium price. s FOB (free on board) pricing includes freight costs from the mine/smelter to the port. In coking coal. Freight prices can be especially significant for bulk pricing s Freight prices are particularly significant in bulk materials. Alumina benchmark prices have generally been set by the largest suppliers. UBS Warburg estimates UBS Warburg 39 . coking and steaming coal. Chart 9: Iron ore (capesize) differential between Australia and Brazil 10 8 6 4 2 0 -2 -4 -6 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 to Asia Jan-95 Jan-96 to Europe Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Source: Datastream. The chart below illustrates the variation in freight rates to key markets such as Europe and Asia from Brazil for iron ore. BHP Billiton. the world’s largest producer. BHP Billiton. In steaming coal. where the differential freight costs from key suppliers to key markets can be as high as 80% of the inherent value of the cargo. Iron ore and coking coal contract negotiations have historically been held independently between Japanese steel mills and the three major iron ore producers. Bulk contract negotiations for iron ore.Mining & Metals Primer 07 April 2003 Bulk contract prices Key bulk contract pricing negotaitions occur annually for iron ore. with or without freight and insurance included in the price. although recently both Korean power utilities and Chinese producers have been influential.
but eventually the LME was formed to bring order to this activity by establishing a single market place. It is a 24-hour market through inter-office trading. its official prices are the basis for metal price contracts History Metal traders first met in the Royal Exchange. but also because prices could vary between when the material was paid for and when it arrived in the country. and precious metals. not only because transportation was hazardous. Forward contracts were used by merchants in the nineteenth century to protect from risk Trading Trading takes place electronically around the clock at the LME. the London Metal Market and Exchange Company was opened officially as a result of Britain’s large increase in metal consumption following the industrial revolution. but also has defined periods of open-outcry trading between ring-dealing members. silver and gold. reflecting the current supply/demand situation.30: Another open outcry period. which was founded in London in 1571. more and more advanced products began to be traded by more parts of the industry.45: The day’s first open outcry period with five minutes per contract (eight contracts altogether).Mining & Metals Primer 07 April 2003 Metal exchanges There are three major exchanges. LME is the premier base metals exchange. announced daily. 12. offering both spot and futures contracts. This resulted in the birth of hedging. while COMEX is more of a speculative market. Initially they met in coffee houses.10: Second floor trading session. but there are also several important open outcry periods. then repeated as above (no official prices are produced in the afternoon). However. COMEX/NYMEX and TOCOM London Metal Exchange (LME) The LME is the world’s premier non-ferrous metals market. The LME functions as a clearing market for metals. This is the focal point of day as it gives rise to settlement and official prices. investors were exposed to not insignificant risk from this process. recognised trading times and standardised specifications for contracts. This demand required large imports from abroad. Precious metals are also traded on the Tokyo Commodity Exchange (TOCOM). Merchants began trading forward contracts to try to protect themselves from this latter risk. while New York’s Commodity Exchange (COMEX) is a major market for copper. are used by the global industry as the basis for contracts for the movement of physical metal. The LME’s official prices. Three major metal exchanges. In 1877. timed as below s There are three major open outcry trading periods 11. s s UBS Warburg 40 . attracting a higher proportion of individual investors than the LME. the London Metal Exchange (LME) is the world’s most important market for base metals. As the exchange developed. Five minutes for each contract. The open-outcry periods are highly transparent. 15. LME. with an annual turnover value of some US$2.000 billion.
00 Online trading days Monday-Thursday Sunday Monday-Thursday Sunday Hours 15. which entitle the bearer to take possession of one lot of metal at a specific LME approved warehouse. each offering trading in their respective futures and options contracts.50-13. NYMEX merged with the Commodity Exchange (COMEX).00 19.20-13. As the product base broadened.00-08. silver and copper for COMEX (aluminium has since been added). conforming to the specifications covering quality.00 08. Only a small percentage of LME contracts actually result in delivery.30 08. energy.Mining & Metals Primer 07 April 2003 Contracts and warehousing The LME futures and options are described opposite.00 19. shape and weight. In 1994. Futures and options based on an index (LMEX) of six primary base metals are also available.30-13. copper and aluminium TOCOM The Tokyo Commodity Exchange (Tokyo Kogyohin Torihikijo).00-08.00 19.10-13.25-13. originally launched by the Precious metals and aluminium UBS Warburg 41 . and gold.00 15.10 Monday-Thursday Sunday Monday-Thursday Sunday Monday-Thursday Sunday Monday-Thursday Sunday Source: NYMEX.15-08. as defined by the specific contract rules at the LME.00-08.00 19. the Tokyo Rubber Exchange and the Tokyo Textile Commodities Exchange. Table 11: NYMEX/COMEX commodities and trading hours Commodity NYMEX NYMEX NYMEX COMEX COMEX COMEX COMEX Platinum Palladium futures Coal futures Gold Silver Copper Aluminium Open Outcry trading 08. Table 10: LME contracts LME contracts Copper grade A Primary high grade aluminium Standard lead Special high grade zinc Primary nickel Tin Aluminium alloy North American Special Aluminium Alloy Source: LME COMEX/NYMEX The New York Mercantile Exchange (NYMEX) was founded in 1872 as the Butter and Cheese Exchange of New York. To meet this need.05 08.00 07.00-08. All LME contracts assume delivery of physical metal.00 15. Metal stored in LME warehouses must be of an LME-approved brand or production of an LMEapproved producer.15-08. was created on 1 November 1984 by consolidating the Tokyo Gold Exchange.00 19. There are more than 350 approved warehouses in 42 locations in 12 different countries. platinum and palladium for the NYMEX division. precious metals. The trading operations continued as two divisions.15-08.30-14.00-08.00-08.20-13.25 08.com 15. It took over the gold futures contract.00 10. the vast majority being hedged or sold back before falling due.00 A major exchange for energy.15-08.00 15. large stocks of metal are held in warehouses approved. Delivery of these contracts is in the form of warrants. by the LME at selected locations around the world.00 19. priced in yen. or TOCOM.15-08. but not owned.00 15. it became NYMEX 10 years later.15-08.
The contract traded is for 1kg of 99. aluminium. with many small speculators building up long positions. strategies and hedging. platinum. The appendix contains some information on metals trading. oil Morning session Afternoon session Source: TOCOM 09. silver. gold).30 The only other major exchange is China’s Shanghai Futures exchange (copper.99% gold. Systems trading has been used for precious metals since 1991.30-15.00-11. UBS Warburg 42 . A further waiving of membership charges in 1994 pushed volume to over 10 million contracts annually. Commodities traded on TOCOM include gold. Initially the exchange attracted only local business because of the difficulty of foreign dealers becoming members and relatively high charges compared with COMEX. Table 12: Precious metals trading on TOCOM Precious metals. aluminium.Mining & Metals Primer 07 April 2003 Tokyo Gold Exchange in March 1982. palladium and aluminium.00 12. but from 1987 volume exceeded two million contracts annually and the exchange attracted more international participation by offering associate membership for foreign dealers.
Most of those producers that are expanding aluminium capacity are producers that are short of alumina. and in our view.. However. aiding the image of good supply discipline But oversupply from China threatens that. Alumina Ltd) are long-alumina.. The key emerging constraint we see for primary aluminium producers is the availability of raw materials. making some operations less profitable. If supply of raw materials are controlled. which generally means Today’s industry is dominated by worries over weak demand and oversupply Formation of the big three producers in mid-1990s suggested a period of stability for the industry Power costs have led to shutdowns. and further capacity addition announcements are not positive One potential upside is the supply tightness in alumina. but a few (eg. as Alcoa has successfully managed in the past. although remaining volatile thereby allowing some idled capacity to come back into production. RusAl has a considerable net short position. As previously mentioned. The supply was aided by the fact that power prices in the US Pacific northwest (PNW) had reached record levels due to shortages. meaning that they have to buy their raw materials from other sources. Aluminium smelters are generally built in areas of cheap power supply. industry consolidation led to the formation of a ‘Big Three’ following the merger of Alcan with Algroup. and prices rise. This region represented some 7% of world aluminium supply. As China has moved to a net exporter of aluminium. RusAl has identified over one million tonnes of net capacity additions that it hopes to carry out in the next three to five years. and as a result much of the aluminium industry in this area had to be idled. the acquisition of Reynolds by Alcoa and the emergence of Russky Aluminy (RusAl). the supply discipline seems to be cracking. The one possible upside is supply tightness in alumina. In the mid to late-1990s. . and at the height of the emergency we estimate up to 25% of capacity was temporarily shut down. the Chinese industry cannot be counted on to exhibit supply discipline either. BHP Billiton has also identified further expansion at its smelter in Mozambique.Mining & Metals Primer 07 April 2003 Aluminium Today’s aluminium industry is troubled by poor demand and the ongoing threat of oversupply from China. which could constrain aluminium production Power costs may also help to keep production down UBS Warburg 43 . and Alcoa is planning to add further capacity (to try to move itself down the cost curve). Chalco) are alumina-short. and power prices in the US PNW have started to draw back.. Alcoa. depending on the price of power. then production costs will increase. The story does not seem to be getting better. Many of the major producers in the world (RusAl. Many of the world’s largest alumina producers are integrated aluminium producers themselves. We estimate power contributes 30-40% of the cost of aluminium manufacture. Pechiney is keen to develop new capacity and is considering a smelter project in South Africa. Another possible constraint is power costs. and China is also a significant importer of alumina. the aluminium market has moved into oversupply.. an area with access to cheap power supply. with the emergence of China as a major aluminium producer in recent years. It had been hoped that pricing power would emerge with Alcoa providing good leadership in the alumina market when alumina threatened to move into oversupply. there are planned and ongoing capacity expansions in the Middle East. power costs have been important in the past and have contributed to large amounts of production being idled.
The cause of this remarkable rise has been the Chinese government’s wish to modernise its aluminium industry. and aluminium consumption in passenger and light vehicles is increasing. UBS Warburg estimates Key facts: China aluminium – why the big fuss? s China has stormed into the aluminium market in recent years. Asia. China represents over 21% of the world’s primary aluminium production. However. This has helped push the aluminium market into a considerable surplus. construction and the power sectors. China has swung from being a net importer of some 700. The major jumps occurred in 1997 and 2000.Mining & Metals Primer 07 April 2003 hydroelectric power (HEP). At the current time. We estimate that global demand for aluminium fell by 4% in 2001. power and construction industries continue to expand.000 tonnes per annum before that) to being a net exporter of 200. Table 13: Changes to supply/demand balance – major planned smelter changes Region Ukraine Argentina Australia Russia Iceland Project Pervomaisky Puerto Madryn Aldoga Sayansk Company RusAl Aluar Aldoga Consortium RusAl Alcoa Date 2004 2005 2005 2006 Details new 230Ktpy smelter 150Ktpy capacity expansion new 500Ktpy smelter 190Ktpy capacity expansion new 295Ktpy smelter Demand not helped by the slump in the aerospace and auto industries Source: AME. driven by transport. we believe the power supply situation in China. and the newly-empowered major producers (including Chalco) will force through some rationalisation in the industry causing some less profitable operations to close. These power stations may be affected by unusually high or low rainfall. Brook Hunt. but it is also a significant consumer with 16% of consumption. China has quadrupled its production between1990-2002 Industry modernisation is the root cause.000 tonnes of aluminium in 2002. and if the water level in their catchment areas falls below a certain level. may cap further aluminium expansions. which we do not expect to improve until 2005 at the earliest. Many commentators believe that these exports will continue. China is showing strongly increasing demand. We expect this to continue to grow as China’s autos. notably Alcoa. and growing. The slump in the aerospace industry has not been positive for some producers. this has not occurred. power generation becomes more difficult. more modern technology was opened. The aim was for the Soderberg capacity to be closed once the larger-scale. However. We also believe central government. and China especially. represent a beacon of light. However. and probably get worse. inefficient and environmentally unfriendly Soderberg technology upon which the industry was based. As a result. with the government trying to close ageing Soderberg technology s s But older capacity has not been closed s We believe power supply will be a constraint in the future s China is 16% of world consumption and growing UBS Warburg 44 . nearly quadrupling its production between 1990-2002.000 tonnes of aluminium in 2000 (an average of 200-300. the packaging sector is a relatively defensive industry. The government has given loans for producers to develop more modern pre-baked anode technology to replace the ageing. On the demand side. by 5% per annum in the US and in Europe by 60% by 2008 (AME estimates). the story is hardly better.
200 1.0 8. .200 2. With the emergence of Russky Aluminy (RusAl) in 2000 consolidating major Russian smelter interests.0 6. . .000 1988 LME aluminium. (Na.One tonne of alumina normally requires two to three tonnes of bauxite.56Mtpa) China 15% Others 47% RusAl 9% BHP Billiton 4% Next 5 13% Pechiney 4% North America 22% Other 16% Source: UBS Warburg estimates Chart: Aluminium production costs Deprec'n 7% Other costs 12% Labour 12% Alumina 33% Source: UBS Warburg estimates Chart: End uses of aluminium Cons.000 1. . so most smelters are located in areas with a plentiful supply of cheap power.0 Alcan EBIT margin 2003E Source: UBS Warburg estimates ROIC 2003E Source: Datastream. but was not produced commercially until 1854. Aluminium is manufactured by passing an electric current through dissolved alumina.200 1.It had been hoped that this consolidation would give producers pricing power and help to keep prices steady.Aluminium is smelted in graphite-lined steel containers known as "pots".600 1. 2002E Alcoa 14% Alcan 9% Asia (excl.600 2. Pechiney was consigned to the second division of producers. . UBS Warburg estimates Key technical facts . . UBS Warburg estimates Source: Datastream.800 1.000 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 2004E Jan-02 1990 1992 1994 1996 1998 2000 2002 LME aluminium. Source: AME. UBS Warburg estimates Demand Chart: World aluminium consumption 30 25 20 15 10 2002E 1970 1974 1978 1982 1986 1990 1994 1998 Mt Source: UBS Warburg estimates Source: UBS Warburg estimates History of aluminium .45Mtpa). with Alcan merging with Algroup and Alcoa acquiring Reynolds. Wagerup (2. but the emergence of China as a major producer in the late 1990s.400 1.000 1.800 2. China) 20% Source: Brook Hunt. UBS Warburg 45 Pechiney Alcoa .Two tonnes of alumina are required to produce one tonne of aluminium.Aluminium smelting can use up to 15MWh per tonne of metal produced. . Kt RHS Chart: Profitability and returns of key producers 1.K)AlSiO4) Chart: Aluminium production by region.200 1. US$/t LHS LME aluminium stocks. China) 9% Latin America 8% Major mining/production operations RusAl has the world's two largest smelters: Bratsk (920Ktpa). US$/t Chart: Pricing and inventories 2.China remains one of the key factors determining the medium term outlook for aluminium.Smelting is energy intensive.800 1.0 10.0 2.400 2.In 1886 the Hall-Héroult process was invented which is the basis for aluminium production today.0 4. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 2.In 1889 Freidrich Bayer invented the Bayer Process for large-scale manufacture of alumina from bauxite.400 1. 2002E Western Europe 15% Eastern Europe 15% Key facts Chart: Major producers of aluminium. .0 0. & equipment 9% Pack'g 17% Building 18% Other 10% Transport 31% Chart: Geographic consumption of aluminium Other 4% North America 24% China 17% Eastern Europe 7% Latin America 4% Power 24% Other raw materials 12% Western Europe 24% Asia (excl.600 1.Aluminium was discovered in 1808. has led to price weakness.000 800 600 400 200 0 12. Krasnoyarsk (860Ktpa) Alcoa has the largest alumina operations: Pinjarra (3.200 2. durables 6% Electrical 9% Mach. .400 1. but production discipline by the "Big Three" will also be of vital importance in the coming years.Mining & Metals Primer 07 April 2003 Aluminium Aluminium supply Common ore minerals: Bauxite (Al2O3) Nepheline (Russia.In 1999 consolidation in the industry really began in earnest. and its subsequent move from a net importer to a net exporter of aluminium.
As with many other materials. however. in 2002. as mine production cuts start to bite. but China’s growing need for copper concentrates a positive Construction industry and electronic applications are the main uses of copper China is a key player in the industry Source: AME. when they leave the market prices weaken. only the pace of Chinese consumption growth is keeping the copper market out of surplus. has started to build stocks up to 500. be it in the construction industry (think about how much wiring is used in a new office building – not only the lights and air conditioning. Copper is also used to make pipes because of its unreactive nature – in China it has found growing applications in water pipes. prices are strong. such as Codelco and BHP Billiton. In our view. the top five producers now control nearly 50% of world supply. this could act as a buffer on global copper prices. following the surging demand seen during the high tech boom years. However. allowing the Chinese to move out of the market if prices rise too high. but also the intranet). with the possibility that Grupo Mexico will also announce cuts. which gives them the opportunity to influence supply for the first time. especially into the Chinese market. helping to keep supply in control. for the first time we saw significant production cuts announced by major producers. With the Escondida Phase IV expansion. we have seen the first signs of production discipline. electronic products. Wiring is the main use for copper. We believe this should have a positive effect. BHP Billiton and Rio Tinto will significantly expand their market share. Indeed. China’s copper imports are well correlated with copper prices – when Chinese buyers are in the market. there has been a tightness in global concentrate supply. One potential worry is that China has identified copper as a key strategic metal and. With the BHP Billiton merger. Much of the growth has been in imports of copper concentrates following a rapid growth in smelter capacity. One other positive factor on supply is that there are few new large mines planned for the next few years and that average grades have been falling by approximately 3% per annum over the past few years. The demand situation has not helped the market since the end of the high tech boom. UBS Warburg estimates UBS Warburg 46 . industry consolidation has started to tighten control by producers and. there is still some way to go until we see the levels of supply discipline shown in other sectors. through its Strategic Metals Bureau. only the increasing demand for copper concentrates and metal from China has helped keep the market close to balance. In 2002. This has had a small positive effect on the copper market balance. In 2002. machinery or transport. Nevertheless.000 tonnes.Mining & Metals Primer 07 April 2003 Copper The copper industry has also been hit by falling demand in 2002. Table 14: Changes to supply/demand balance – major planned mine changes Region Chile Chile Peru Brazil Chile Project Escondida Phase IV Andina Quellaveco Sossego El Teniente Company BHP Billiton/Rio Tinto Codelco Anglo American CVRD/Phelps Dodge Codelco Date 2002-03 2004-05 2004-05 2004-06 2004-05 Details 334Ktpy expansion 270Ktpy expansion 190Ktpy project 150Ktpy project 140Ktpy expansion Experiencing a lull in demand after the high tech boom The BHP-Billiton merger gives the top five producers a market share of nearly 50% Some nascent signs of supply discipline in the market Demand in a lull.
.The discovery of copper dates back to prehistoric times. US$/t LHS LME copper stocks. Its malleability and resistance to corrosion make it useful for use in water pipes. 80% Cu). are all open pit.000 800 600 400 200 0 35 30 25 20 15 10 5 0 -5 Freeport Grupo Mexico Phelps Dodge EBIT margin 2003E Source: UBS Warburg estimates ROIC 2003E Source: Datastream. 20% Electrical 61% Maint.Often "waste" copper may be further treated by leaching (the SX-EW method). produces North China America Other 8% 800Kt per annum (2002E) 15% 5% Others 27% Key facts Chart: Major producers of copper. US$/t Chart: Pricing and inventories 3.Open pits produce around 70% of mined copper and the world's top five copper mines . . . superceded copper as a material used to make tools by 3000 BC.Some mines may report revenue net of treatment/refining charges (TC/RCs). UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 3.The high tech boom of the late-1990s stimulated demand.400 1. 57% Cu) Major mining/production operations Eastern Latin America Escondida. & Consumm. UBS Warburg estimates Source: AME. chalcopyrite (CuFeS2. Source: AME. jointly owned by BHP Billiton and Rio Tinto. there are reports of copper use dating back to 9000 BC in Iraq.500 2.Mining & Metals Primer 07 April 2003 Copper Copper supply Chart: Copper production by region. malachite (Cu2[(OH) 2/CO3]. 21% Energy 21% Western Europe 27% Asia (excl.000 2. Western Native copper (Cu) China) Europe 27% 13% bornite (Cu5FeS4. China) 20% Source: Brook Hunt.Harder copper alloys. such as bronze.400 900 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 LME copper. 35% Cu). covellite (CuS.05Mt per annum (2002) 17% Grasberg. UBS Warburg estimates Key technical facts .000 1. 63% Cu).900 2. .400 2.The major issue for the market now is the magnitude of demand shown by China. Europe 15% produces 1. UBS Warburg 47 Antofagasta . UBS Warburg estimates Chart: Copper production costs Deprec'n 19% Source: AME. chalcocite (Cu2S. UBS Warburg estimates Chart: End uses of copper Structural Aesthetic 2% 6% Heat transfer 11% Chart: Geographic consumption of copper China 14% Eastern Europe 4% Other 4% North America 22% Labour 26% Other costs 13% Japan 9% Corrosion res. UBS Warburg estimates History of copper . UBS Warburg estimates Source: Datastream. things reversed and the market has moved back into surplus. .500 1. 67% Cu).900 1.000 2003E 1987 1989 1991 1993 1995 1997 1999 2001 LME copper.Copper's properties of electrical and heat conduction make it attractive to use for electrical wiring applications as well as for home heating systems. owned by Freeport and Rio Tinto. and the willingness to participate in supply discipline by the larger producers. 2002E Common ore minerals: Asia (excl. However in 2001. UBS Warburg estimates Demand Chart: World copper consumption 18 16 14 12 10 8 2005E 1981 1985 1989 1993 1997 2001 Mt Source: AME.500 3. 2002E Codelco 15% Phelps Dodge 10% BHP Billiton 9% Next 5 24% Grupo Mexico 7% Rio Tinto 8% Source: AME. Kt RHS Chart: Profitability and returns of key producers 1. swinging the copper market from surplus in 1996-99 to deficit in 2000.
Recent moves by Inco and Norilsk Nickel in limiting available material through summer shutdowns and loan collateral suggests more conscious use of their pricing influence. which. UBS Warburg estimates UBS Warburg 48 . Cawse and Bulong. with a combined initial production capacity of 64. we believe lack of supply is the main problem for the nickel market. The outlook for the metal in the shorter term is affected by possible cuts in stainless production in Japan in 2003. in our opinion. nickel production is dominated by the Russian producer Norilsk Nickel. which consumes some 70% of world nickel demand. is likely to add more demand for primary nickel in coming years. so far. is the next-largest producer with some 20% of world supply.5Ktpy project 54Ktpy project Stainless steel dominates nickel usage Norilsk Nickel is the world’s dominant producer Lack of supply expansion is the dominant theme going forward China is a major factor in nickel demand Source: AME.500 tonnes in 1999. Murrin Murrin. intended production capacity: 50. has been limited. With Chinese stainless steel production expected to grow significantly over the short to medium term. the prospects for nickel prices look good. Three projects were planned to come into production in 1999. produced in the region of 44. Looking to the future.000 tonnes. Inco. The development of pressure-acid-leach laterite projects in western Australia has fallen well below expectation.Mining & Metals Primer 07 April 2003 Nickel Usage of nickel is dominated by the stainless steel market. The top five producers control over 65% of world capacity. In addition. As such. which is by far the largest producer from its operations in northern Russia.000 tonnes per annum) and Voisey’s Bay (sulphide. It produces some 23% of world nickel supply. Recent years have seen its share of stainless steel feed fall to 45%. which makes up approximately 50% of stainless steel raw materials feed. the market has been affected in recent times by cuts in stainless steel production in western Europe. They produced only 8.000 tonnes of refined nickel. intended production capacity: 55. prices may spike. in 2002. which. appears to be becoming tighter. Inco’s large development projects at Goro in New Caledonia (laterite. The Canadian producer. which should give them a fair amount of pricing power.000 tonnes per annum) have run into problems and cost over-runs and their start-up has been pushed out. In terms of supply. Nickel scrap. and. Table 15: Changes to supply/demand balance – major planned mine changes Region Australia Canada New Caledonia Project Mt Margaret Voisey's Bay Goro Company Anaconda Inco Inco Date 2005 2005 2004-05? Details 100Ktpy project 122. although with such a deficit of supply possible in the 2003-04 period.
.Nickel was discovered in 1751 by Baron Axel Frederik Cronstedt in a mineral called niccolite. .000 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 2004E Jan-02 1997 1999 2001 160 140 120 100 80 60 40 20 0 Chart: Profitability and returns of key producers 20. sulphides and laterites.000 5. 1989 1991 1993 1995 EBIT margin 2003E Source: UBS Warburg estimates ROIC 2003E Source: Datastream. the availability of nickel resources has grown more relevant.000 3. Nickel has found uses as an anti-corrosive covering in steel and as a component of alloys. UBS Warburg estimates Key technical facts . US$/t Chart: Pricing and inventories 11. Sudbury). UBS Warburg 49 .Ni)9S8.000 6. predominantly. proposed laterite deposits as the future of nickel production. Source: AME. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 19.There are two major types of economic nickel deposits.000 13. China) 34% Eastern Europe 3% Western Europe 39% Source: UBS Warburg estimates Chart: End uses of nickel Foundry Other 5% 3% Chart: Geographic consumption of nickel China 8% Other 3% North America 11% Latin America 2% Plating 5% Non-ferrous alloys 13% Alloy steel 4% Cash costs* Refining Other costs Mining Credits Smelting Depreciation *Norilsk only Stainless steel 70% Source: AME.Demand for nickel really started to take off from the 1960s onwards as it became an important component of the growing stainless steel business.000 9.0 15. UBS Warburg estimates Source: Datastream. 35% Ni) Also less common nickel sulphides and arsenides Chart: Nickel production by region. So far operating issues have limited the productivity of these deposits.000 7.0 10. Brook Hunt. With Inco's well-publicised problems developing its Goro and Voisey's Bay deposits. .0 WMC Res. 2002E Others 5% Norilsk 23% Major mining/production operations Norilsk Nickel's operation is one of the world's largest with an output of over 200Kt per annum Inco's Indonesian operations. PT Inco.000 1987 LME nickel. US$/t LHS 10.000 LME nickel.000 17. but laterite deposits are of growing importance (eg Goro).As Chinese consumption of stainless steel has been of growing importance in recent years.Mining & Metals Primer 07 April 2003 Nickel Nickel supply Common ore minerals: Pentlandite ((Fe. produce in excess of 60Kt per annum Latin America 16% North America 18% WMC Resources 6% Anglo American 7% Inco 20% Falconbridge 11% Source: UBS Warburg estimates Chart: Nickel production costs 3 2 1 0 Sulphide prods Average -1 US$/lb Norilsk Laterite prods Asia (excl. UBS Warburg estimates Demand Chart: World nickel consumption 1500 1300 1100 900 700 500 2002E 1974 1978 1982 1986 1990 1994 1998 Kt Source: UBS Warburg estimates Source: UBS Warburg estimates History of nickel . 2002E Asia (excl.000 8.Since that time. the market looks likely to be in deficit over the next several years. Kt RHS 4. China) 8% Austr'sia 24% Next 5 28% Eastern Europe 21% China Other 4% 9% Key facts Chart: Major producers of nickel. .0 Inco Ltd Falconbridge Norilsk Nickel 0.000 15.000 1.000 LME nickel stocks.000 11. .In the late-1990s Australian producers.000 7.000 5.000 9.As recently as 100 years ago nickel was still considered a worthless variety of copper! .Since the early-1990s consumption has nearly doubled. Sulphides have historically been the major source of nickel (eg Norilsk.000 3.0 5.
Zinc is also used to produce a variety of alloys. depreciating by 37% during that period. which has taken its toll on the industry. It is used because it is resistant to atmospheric corrosion and provides a physical barrier that prevents air and moisture from corroding steel. zinc finds its primary use in construction and transport. until recently. which led to a shortage of concentrates. zinc consumption has risen relatively rapidly over the past few years and this is forecast to continue. and on a total zinc basis. As a result. However. Much of the reason for the slightly improving zinc profile is that the improved outlook for refined zinc production over the next two to three years is less than 3% growth. then there could be a beneficial impact on the zinc price in the next year. In our view. which accounts for 47% of production. If China continues to shrink as a net exporter of zinc metal. in mid-2002. galvanised steel has also become an important material in industrial development. As galvanised steel. suggesting better market balance in the future. there was little possibility of that situation improving. following periods of greater than 4% in 1999/2000. recently China has become a positive as opposed to negative talking point in the zinc industry. forcing several European smelters to close. with only a net export level of 14Kt in 2002. China began to import zinc metal as well. However. The major reasons were a poor safety record in the Chinese mining industry. which led to governmentenforced mine closures. including brass and bronze (34%). However. is close to balance. It started in 2001 when China switched from being a net exporter of zinc concentrate to being a net importer with a 350Kt swing. This is due to the period of poor pricing (the zinc industry has a history of very volatile and unexpected price movements). as well as a strong uptick in zinc production. zinc producers have been under considerable margin pressure. UBS Warburg estimates UBS Warburg 50 . Table 16: Changes to supply/demand balance – major planned capacity changes Region Mines Namibia Bolivia Refineries Namibia Project Skorpion San Cristobal Skorpion Company Anglo American Apex Silver Mines Anglo American Date 2003 2005 2003 Details 150Ktpa new mine 260Ktpa new mine 150Ktpa over 2003/04 Market struggling with oversupply due to Chinese exports One of the most unfancied markets but China could prove to be a point of inflection in 2003 China has moved to be a net importer of zinc concentrate… …but has also started to import small quantities of metal Refined zinc production growth is slowing while consumption is growing much more rapidly Galvanised steel accounts for 47% of production and is used substantially in construction China is the major maker or breaker for the zinc industry Source: AME. Zinc’s primary first use is in galvanising steel.Mining & Metals Primer 07 April 2003 Zinc The refined zinc market has been struggling with oversupply since 2000 when zinc metal exports from China peaked at 575Kt for the year. Zinc prices fell steadily between mid-2000 and late 2001. The zinc market is currently one of the most unfancied in the global mining and metals arena and. the major issues for zinc in future are whether China’s net exports will continue to shrink and whether production growth will remain low.
20% Transport 23% Source: Brook Hunt.600 1.In 1971.The first large-scale production of zinc was undertaken in India in the fourteenth century and China in the 1600s. UBS Warburg estimates Consumption Refined production Source: AME.Zinc may be refined using smelting or an electrolytic process (80% of zinc metal association with lead.200 1. 48% Maint.000 800 600 400 200 0 10 8 6 4 2 Umicore Teck Cominco ROIC 2003E 0 EBIT margin 2003E Source: UBS Warburg estimates Source: Datastream. This allowed the US to attain its position as the major global zinc producer. The export trade to Europe from Asia flourished during the seventeenth and eighteenth centuries. UBS Warburg estimates Source: AME.. Kt RHS 2005E 1985 1989 1993 1997 2001 History of zinc .600 1.5 6. UBS Warburg estimates Chart: Zinc production costs Deprec'n 13% Source: AME. US$/t Chart: Pricing and inventories 1.Zinc sulphide ore is concentrated by a process called flotation.Zinc often occurs in association with lead in ore deposits.0 6. UBS Warburg estimates Demand Chart: World zinc production and consumption 10. 2002E Eastern Europe 9% Asia (excl. Undisciplined production by Chinese producers in recent years has led to a crash in the zinc price.400 1.0 7. 2002E Teck Pasminco Cominco 9% 8% Noranda 7% MIM Holdings 4% Volcan 4% Major mining/production operations Teck Cominco's Red Dog mine in the US produces 615Kt per annum of contained zinc Pasminco's Century mine in Australia produces over 300Kt per annum Next 5 17% Source: AME. US$/t LHS LME zinc stocks. The first evidence of zinc smelting technology is in the form of seventh century Chinese coins and mirrors. . China) 16% China 23% Western Europe 25% Latin America 5% North America 15% Others 51% Other 7% Key facts Chart: Major producers of zinc conc. refining is carried out using one of these methods). UBS Warburg estimates Chart: End uses of zinc Infrastr.200 1. UBS Warburg 51 . UBS Warburg estimates Source: Datastream. 41-67% zinc) Chart: Zinc production by region. Japan surpassed the US as the world's largest zinc metal producer but in 1993 China overtook Japan.Development of the froth flotation process in the twentieth century enabled recovery from more complex ores in the US. although the consumption rise in China may represent an inflection point.Mining & Metals Primer 07 April 2003 Zinc Zinc supply Common ore minerals: Sphalerite (ZnS.5 9.Large scale commercial smelting began in Europe in the early-1800s and in the US in the 1850s.0 8.200 1.5 7. 85% of WW zinc is mined in .0 9. & equipm't 10% Other costs 9% Construc. 9% Chart: Geographic consumption of zinc China 18% Other 4% North America 18% Latin America 4% Energy 34% Eastern Europe 6% Western Europe 26% Labour 24% Asia (excl. & Consumm. UBS Warburg estimates Key technical facts . .0 1981 Mt Source: AME. . durables 10% Mach. making higher grade concentrates.800 1.China is moving towards being a net importer of zinc concentrate.Zinc has been used in the form of alloys for more than 2000 years.000 800 600 2003E 1987 1989 1991 1993 1995 1997 1999 2001 LME zinc. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 1. . China) 24% Cons.000 800 600 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 LME zinc. Chart: Profitability and returns of key producers 1.800 1.400 1. . .5 8.
Mining & Metals Primer 07 April 2003 Lead Lead is generally produced as a by-product of zinc mining and generally the zinc/lead output of mined production is rising. While we think the outlook for lead looks quite bullish. despite predictions to the contrary. is still going strong. Despite its demise being predicted for several years. of the next four largest producers. making the installation of new facilities in the developed markets highly unlikely. finding a producer with significant exposure to lead to invest in remains difficult. lead is a tiny percentage of their earnings. which should lead to strengthening lead prices. We foresee a market deficit developing by 2004 if no new production capacity comes on line. closure of 9% of the world’s mine capacity and increased concentrate imports by China. The world’s largest producer. In 2000. is unlisted and. up from 50% in the early 1990s. Lead concentrate availability is quite tight following production cuts by Doe Run. UBS Warburg estimates UBS Warburg 52 . Despite the fact that mined lead production has been flat/declining over the last 20 years. 60% of western world production was from secondary materials. However. The lead-acid battery market accounts for 75% of lead demand and. Doe Run. this has been made up by the rise in importance of recycled material. The lead industry is also being shadowed by environmental and health concerns. Table 17: Changes to supply/demand balance – major planned mine/refinery changes Region Mine production Canada Australia Refineries India Project Sullivan Broken Hill Company Teck Cominco Pasminco Binani Industries Date 2002 by 2006 2004? Details closure of 60Kt closing 135Kt of production 125Kt pa primary smelter Lead is normally a by product of zinc mining Batteries account for 75% of demand It is a balanced market and closures rather than additions are most common Tight concentrate availability is also a positive There are not too many listed producers with significant exposure to zinc Source: AME. putting more pressure on lead mine supply. demand for lead continues to grow along with the automotive and industrial battery markets. although 85% of the demand is due to replacement batteries and only 15% is from original equipment. At present the lead market is close to balance and the absence of new lead mine developments over the next several years means that some investment is needed by lead producers if a market deficit is not to develop. lead has had an unfavourable price history over the last 20 years following a loss of market share caused by substitution of other metals.
UBS Warburg estimates Demand Chart: World lead production and consumption 8.Consumption remained low until the mid-1800s when production increased to cater for cable sheathing and containers for storing corrosive materials. US$/t Chart: Pricing and inventories 900 800 700 600 500 400 300 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 LME lead. 77% Pb).5 7. UBS Warburg estimates Chart: Lead production costs Deprec'n 8% Cost of conc. including the still-operating Rio Tinto mine in Spain.In recent years. UBS Warburg estimates Source: AME. If the .2 6. prices could spike. China) 13% China 17% Other 6% Latin America 4% North America 28% Others 42% Key facts Chart: Major producers of lead conc. and by the 1400s was used as ammunition.0 6. . It is known to have been used by the Egyptians in 4000 BC and by the Chinese to mint coins in 3000 BC. RHS 6. 32% Source: AME.8 Source: Datastream. Mines throughout Europe were worked from 2300 BC. 87% Pb) is the major ore mineral Minerals such as cerussite (PbCO3. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 750 700 650 600 550 500 450 400 2003E 1993 1995 1997 1999 2001 LME lead.0 5..Lead is one of the oldest metals known to man. Kt RHS 2005E 1985 1989 1993 1997 2001 Chart: Sources of lead. Source: AME. although many commentators believe usage in this area will fall off. . . This could be set to continue if no new production capacity is added. anglesite (PbSO4. lead water pipes and barrel hoops were ubiquitous throughout the Roman Empire. lead was used as a construction material. UBS Warburg estimates Source: AME.By 100 BC. This extra demand resulted in the discovery of the Missouri Lead Belt in 1867 and the Broken Hill orebody in Australia in 1883. USA Chart: Lead production by region. UBS Warburg estimates Key technical facts . the market is in balance. 56% Pb) occur where galena has been weathered Major mining/production operations Doe Run is the US's largest producer with significant operations in Missouri. 2002E Eastern Europe 8% Western Europe 24% Asia (excl. LHS 2002E 2003E 1997 1998 1999 2000 2001 total refined prod. .0 5.Mining & Metals Primer 07 April 2003 Lead Lead supply Common ore minerals: Galena (PbS. sources to some extent.5 5.At present. lead has been used extensively in batteries. US$/t LHS LME lead stocks. 6% Eastern Europe 5% Freight 6% North America 30% Smelter charges 49% Western Europe 28% Latin America 3% Batteries 75% Source: Brook Hunt.5 6. China) 21% China 10% Other 3% Other costs 5% Credits 0% Chemicals 10% Alloys 3% Semimanufact.6 6. 68% Pb) and wulfenite (PbMoO4.There are few potential production projects in the pipeline. UBS Warburg estimates Consumption Refined production History of lead . UBS Warburg estimates Source: Datastream.0 1981 Mt Source: AME.0 7.8 6. with a history dating back to 5000 BC. 1996-2003E 350 300 250 200 150 100 50 0 35% 33% 31% 29% 27% 25% 1996 primary / total refined prod. UBS Warburg estimates Chart: End uses of lead Other 6% Chart: Geographic consumption of lead Asia (excl. except in China. 2002E Doe Run 10% BHP Billiton 10% Pasminco 6% MIM Holdings 6% Teck Cominco 5% Next 5 21% Source: AME.4 6. but more production capacity needs to be added to prevent prices spiking. the source of lead production has changed from primary to scrap market moves into deficit. UBS Warburg 53 . In medieval times.In recent years.
and while consumption continues to grow. implying that pricing will be steady to strong. This would suggest that the market would be in deficit in 2003. although the largest tin producer. World tin production peaked in 2000 and has been falling since with mine production falling about 3% in 2002 and refined production down 7%. we see China as a significant importer of concentrates. it has a market capitalisation of less than US$50 million. which makes it difficult for most global investors to play. PT Timah. is listed. or at least equities with high leverage to the tin market.Mining & Metals Primer 07 April 2003 Tin The tin market is in very good condition compared to many commodities markets. although it will probably remain a net exporter of refined metal. None of the larger mining stocks have much exposure to tin and. The only problem with this is that it is very difficult to invest in tin equities. Both are large producers and refiners of tin and both have anecdotally seen a fall in concentrate production in recent years. As a result the outlook for Chinese mine production is not very favourable. A good market with falling production and relatively steady pricing China and Indonesia the most significant players Reserve depletion an issue in China Very difficult to get equities with tin exposure UBS Warburg 54 . The imposition of an export ban by the Indonesian government has meant that it is increasingly difficult for Chinese smelters to source sufficient tin and therefore we expect that refined tin output may fall in 2003. The regions which most influence the tin market are also the most opaque markets: China and Indonesia. Chinese producers have suffered a depletion of their reserves due to ‘disordered’ mining since the mid-1990s.
000 6.000 4. canfieldite and teallite. UBS Warburg estimates Demand Chart: World tin production and consumption* 290 270 250 230 210 190 170 1980 1984 1988 1992 1996 2000 Kt Source: CRU. China. stanite.It was extracted during the bronze age (2100 BC) by mining alluvial placer deposits.500 5. UBS Warburg estimates Key technical facts .000 5. . UBS Warburg estimates History of tin .500 3. Pricing and inventories Chart: Long term pricing trends 7. 2002E Others 19% PT Timah 16% Source: CRU.000 5. and food stores. Jpn) 18% Source: CRU.000 3. .500 3. Kt RHS Feb-95 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 1992 1994 China Malaysia Indonesia Peru Other Source: Datastream.Small quantities of tin may be recovered from complex sulphide minerals such as compared with 63ppm for Cu. and Indonesia has been of growing importance in recent years. 1993-2002 45 40 35 30 25 20 15 10 5 0 300 250 200 150 100 50 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 LME tin stocks. Bolivia and Brazil have declined in relative importance. 79% tin) Chart: Tin production by region. electrically conductive coatings and glass.000 6.500 5. UBS Warburg estimates Chart: Geographic consumption of tin* China 20% Other 8% North America 15% Asia (excl..000 1990 LME tin.000 4. . UBS Warburg estimates.Tin is produced by reducing the ore with coal in a reverberatory furnace. China. Indonesia and Malaysia began to be of greater importance.Mining & Metals Primer 07 April 2003 Tin Tin supply Common ore minerals: Cassiterite (SnO2.000 2004E 1996 1998 2000 2002 LME tin.500 4.Secondary sources are of growing importance to tin supply. UBS Warburg estimates Chart: End uses of tin in the US Others 16% Solders 34% Next 5 21% Minsur 14% Thaisarco 7% Malaysia Smelting Yunnan Tin Corp. 2002E Minsur 15% PT Koba 9% Paranapanema 3% Murch-ison Utd 2% Major mining/production operations PT Timah's operations in Indonesia are the largest mining operations Other Latam 8% Malaysia 12% China 30% Other 6% Others 47% Next 5 3% *Refined tin Chart: Major producers of refined tin.Tin is a relatively scarce mineral in the Earth's crust with an abundance of only 2ppm . UBS Warburg estimates Source: CRU.500 7. . . 2002E* Indonesia 23% Peru 14% Thailand 7% PT Timah 21% Key facts Chart: Major producers of tin conc.500 6. UBS Warburg 55 . 94ppm for Zn and 12ppm for Pb.000 3. Consumption Refined production Source: CRU. US$/t LHS Chart: Sources of tin production. .Europe (and Britain in particular) dominated tin production by the 19th century when other countries such as Bolivia.China's tin production peaked in 2001. US$/t Chart: Pricing and inventories 7. especially in the United States. UBS Warburg estimates Source: USGS.*refined. to encompass its use in superconductive magnets. frankeite.500 6. while Peru is also a large producer.500 4.Tin is one of the oldest metals to be known and used. UBS Warburg estimates Source: Datastream. 11% 12% Japan 10% Western Europe 25% Tinplate 26% Chemicals 24% Eastern Europe 4% Source: Brook Hunt.In recent years. tin's uses have grown from its original use in alloys such as pewter. cylindrite.
which have resulted in the market being oversupplied. in recent years. Following the massive palladium price spikes seen in 2000 following uncertainty over Russian supplies. are likely to lead to substantial deficits in the platinum market in the medium term. The relative concentration of platinum or palladium used has varied according to the relative prices of the two metals as well as the level of technological advancement. These areas account for 87% of the world’s platinum and palladium production. many autos producers switched over to platinum. Despite active supply management by Norilsk Nickel. Platinum and palladium consumption has risen extremely rapidly since the late 1980s as PGMs have started to be used in autocatalysts and as platinum has taken off in the jewellery industry. China has almost no known resources of PGMs. and the largest palladium producer in the world. At present (early 2003). which at that time was more attractively priced. following palladium price spikes. which forced consumers away Oversupply of palladium as a result of falling consumption China a major consumer but no source of its own UBS Warburg 56 . PGMs have been included to a varying degree. we forecast continued torrid times for palladium over the shorter term. Chinese demand for platinum has increased and demand for diesel autocatalysts (which use exclusively platinum) has also picked up. We would expect China to continue to be a major user of PGMs. whose operations are centred on the Bushveld igneous complex. but in all automobiles since emission restrictions were introduced in the mid-1980s. yet is a major consumer of platinum for use in jewellery. platinum is used in the highest concentration. All of these. and a growing PGM consumer for use in the autos sector and other industrial applications. Platinum production dominated by South Africa and Russia Consumption takeoff due to growing importance of autocatalysts and popularity of platinum jewellery Platinum is the most intensively used PGM. China has again been a major player in these markets. However. based in Russia. at the beginning of the 1990s.Mining & Metals Primer 07 April 2003 Platinum group metals (PGMs) The platinum group metals industry is dominated by the major South African platinum producers. Norilsk Nickel. coupled with delayed production capacity additions in South Africa. South African producers have oriented their production profiles more towards palladium production. substantially more PGM was needed than is used today. The outlook for the palladium price is not so good following the production shifts described above. The properties of PGMs that make them useful for autocatalysts are discussed overleaf. which could cause platinum prices to spike.
61 2% 0% 1. platinum and rhodium in various ratios depending on economic availability. s The amount of PGMs used (also called loading) varies according to what type/size of vehicle is being built and the level of legislation the vehicle has to comply with. Table 18: Comparison of emissions with and without autocatalysts g/km 1.9L diesel No catalyst With catalyst Source: Johnson Matthey 1.8L petrol engine No catalyst With catalyst 1.42 0.54 0.05 0.2 0. converting over 90% of hydrocarbons and carbon monoxide and 30-40% of particulate into carbon dioxide and water vapour.17 0. They also work for diesel engines. Autocatalysts convert over 90% of hydrocarbons (HC). There are various important points to remember about the composition of autocatalysts: s PGMs help to oxidise the carbon monoxide and reduce the nitrogen oxides Petrol engines use catalysts made of an assortment of palladium.38 0.04 5.99 0.07 0. and that all the nitrogen oxides are fully reduced to make nitrogen gas. Table 19: PGM in autocatalyst loading for a range of vehicles Vehicle size Small passenger vehicle Large US-style SUV Heavy trucks Loading 2-3g 8-12g 20g 30-50g Source: UBS Warburg estimates Under revised US Tier II 2004 legislation If retrofitted with a catalyst New vehicle fitted to Tier II legislation standard (by 2007) Notes UBS Warburg 57 . Diesel engines can use only platinum. It is mounted inside a stainless steel canister (the whole assembly is called a catalytic converter) and is installed in the exhaust line of the vehicle between the engine and the silencer (muffler).04 0. nitrogen and water vapour.04 Carbon monoxide Hydrocarbons Nitrogen oxides Particulate An autocatalyst is a cylinder formed into a honeycomb that is coated with chemicals and PGMs Autocatalysts reduce emissions by 90% The PGMs are important because they can assume a variety of oxidation states and can therefore ensure that all the carbon monoxide and hydrocarbons are fully burned (oxidised) to make carbon dioxide and water. carbon monoxide (CO) and nitrogen oxides (NOx) into less harmful carbon dioxide.Mining & Metals Primer 07 April 2003 Key facts: autocatalysts – how do they work? An autocatalyst is a cylinder of circular or elliptical cross section made from ceramic or metal formed into a fine honeycomb and coated with a solution of chemicals and PGMs.
000 0 2003E 1975 1979 1983 1987 1991 1995 1999 000 oz Source: Johnson Matthey.000 4.Mining & Metals Primer 07 April 2003 Platinum Platinum supply Common ore minerals: Native platinum (chemical symbol: Pt) Sperrylite (platinum arsenide) Normally occurs associated with mantle rocks Major mining/production operations Anglo American Platinum is the world's biggest producer with several major operations on South Africa's Bushveld Chart: Platinum production by region.0 200.In 1924. UBS Warburg estimates Demand Chart: World platinum consumption 8. . UBS Warburg estimates Key technical facts .0 Angloplats 0. Source: Johnson Matthey. . UBS Warburg estimates Source: Swiss Customs Service. . . UBS Warburg 58 .In 1912.0 150. UBS Warburg estimates Chart: End uses of platinum Inv.Latter 1990s. UBS Warburg estimates Chart: Platinum price premium over palladium 400 300 200 100 0 -100 -200 -300 -400 -500 Chart: Geographic consumption of platinum Rest of the World 12% North America 16% Source: Johnson Matthey. known as the American Eagle. 2002 Others 7% Angloplat 36% Norilsk 15% Implats 18% Source: Johnson Matthey.In 1997. t RHS Chart: Profitability and returns of key producers 60 50 40 30 250. .0 100.During the war years the US restricts platinum for any use except the war effort.000 6. the US government mints the first platinum coin. China grows in importance as a consumer of platinum with CAGR of 74%. the horizon is later called the Merensky reef. .In 1824 substantial platinum deposits were discovered in the Ural mountains of Russia. promoting the greater burning of exhaust gases. UBS Warburg estimates Source: Johnson Matthey. It was named platina "little silver" by Spanish conquistadors in 1590. 2002 Other 2% Recycling 9% North America 4% Russian Sales 15% South Africa 70% Next 5 9% Inco 3% Lonmin 12% Key facts Chart: Major producers of platinum. in an attempt to provide a substitute for increasingly rare platinum.PGMs are useful for autocatalysts because they can exist in multiple oxidation states for extraction and refining is extremely complex. white gold is invented. .0 Lonmin ROIC 2001 Impala LME platinum. UBS Warburg estimates Total Autocatalyst Jewellery History of platinum .Platinum is often used in concert with other PGMs for industrial applications. US$/oz LHS 20 10 0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 1990 1992 1994 1996 EBIT margin 2001 Source: UBS Warburg estimates Source: Datastream.0 50. the geologist Hans Merensky discovers the largest platinum deposits ever found in the Bushveld complex of South Africa. .During the 1990s platinum group metals (PGMs) gain further application as autocatalysts. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 700 650 600 550 500 450 400 350 300 1988 LME platinum. the procedure .000 2.Platinum was used by the Egyptians prior to 700 BC. 1% Other 9% China 24% Japan 21% Glass 4% Chemical 4% Electrical 6% Jewellery 40% US$/oz Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Europe 27% Autocats 36% Source: Datastream. 1995-2001. and also they adsorb gases to their surfaces.10 tonnes of ore and eight weeks is needed to produce 1 oz of metal. US$/oz Chart: Pricing and inventories 650 600 550 500 450 400 350 300 2004E 1998 2000 2002 Swiss Pt stocks.
UBS Warburg estimates Source: UBS Warburg estimates Key technical facts . It was named after the asteroid Pallas. and also they adsorb gases to their surfaces.000 2.Mining & Metals Primer 07 April 2003 Palladium Palladium supply Common ore minerals: Native palladium (chemical symbol: Pd) Alloys with copper and nickel.000 6. .0 Angloplats EBIT margin 2001 ROIC 2001 Source: Datastream.1935. . has caused prices to fall back. H. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 800 700 600 500 400 300 200 100 0 1988 LME palladium. UBS Warburg estimates Chart: End uses of palladium Chemical 5% Jewellery 5% Dental 14% Autocats 60% Other 2% Europe 33% Japan 27% Electrical 14% Source: Johnson Matthey.000 800 600 400 200 0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jul-98 Jul-99 Jul-00 Jul-01 2004E Jul-02 1990 1992 1994 1996 1998 2000 2002 Swiss Pd stocks.000 500 0 -500 -1. UBS Warburg estimates Source: Johnson Matthey. in turn named for the Greek goddess of wisdom.0 100.PGMs are useful for autocatalysts because they can exist in multiple oxidation states usually occurs with other PGMs. 2002 Other 3% North America 18% Recycling 7% Next 5 11% Lonmin 5% Stillwater 7% Implats 8% Russian Sales 30% Angloplat 19% Key facts Chart: Major producers of palladium. UBS Warburg estimates Total Autocatalyst History of palladium .Use of palladium really took off in the 1970s when demand for catalytic converters increased as auto emission standards were introduced. nickel and chromite ores and . causing supply deficits which resulted in prices rocketing in the late-1990s. complexes Normally occurs associated with mantle rocks Major mining/production operations Norilsk Nickel's operations in the Kola Peninsula produce 3Moz/year as a by-product of nickel mining Chart: Palladium production by region. oversupply.000 2002E 2004E 1990 1992 1994 1996 1998 2000 average price US$/oz RHS surplus / deficit 000 oz LHS 800 700 600 500 400 300 200 100 0 Chart: Geographic consumption of palladium. . . Wollaston discovered palladium in 1803.With the collapse of the USSR in the early-1990s. t RHS Palladium. US$/oz Chart: Pricing and inventories 1. PGM sales to the West and Japan became more irregular.Palladium can be mixed with gold to produce white gold. building of Norilsk Combine began.0 80.200 1.000 8. UBS Warburg estimates Source: Swiss Customs Statistics.000 1.000 0 2004E 1980 1984 1988 1992 1996 2000 000 oz Source: Johnson Matthey. and then an eventual switch from platinum to palladium as the major metal. UBS Warburg estimates Demand Chart: World palladium consumption 10. This initially caused "thrifting" of palladium in autocatalysts.000 4.Palladium is generally found in association with copper. US$/oz LHS Chart: Profitability and returns of key producers 120 100 80 60 40 20 0 120. coupled with switching and thrifting. 2002 Rest of the World 20% North America 20% Source: Johnson Matthey.500 1. UBS Warburg estimates Chart: Palladium market balance and price 2.0 0. Norilsk Nickel UBS Warburg 59 . .0 60.W. . 2002 Others 2% South Africa 42% Norilsk 48% Source: Johnson Matthey. Production began in 1939 and the operation rapidly grew to represent some 90% of the USSR's PGM production.0 20.In recent years.0 40.Ancient Egyptians and pre-Columbian Indian civilisations used PGM alloys. Source: Johnson Matthey.
together with its high value. Gold has different sources of supply to most of the other commodities Recycling. Such changes are small compared to the swings from producer hedging. made up 19% of supply while accelerated supply from hedging made up 4% of the total. that of the liquid and long dated repo market for gold. Low gold ‘lease rates’ (as this interest is known) and higher US dollar interest rates resulted in a high ‘contango’. until 1972 all major currencies were underpinned or ‘backed’ by gold.).200 tonnes – being carefully hoarded. Central banks retain large gold holdings. another factor very specific to gold. gold’s inertness. made up 10% of supply. While paper currency has circulated for hundreds of years. considered a commodity for the purposes of this document. Although mine production remains the largest single component of supply. although the final segregation took place in 2000 when the legal backing of the Swiss franc was abandoned. central banks enthusiastically joined this market in the 1980s and 1990s. No other commodity (with the possible exception of silver) has had such a widespread use as money due to its indestructibility and relative rarity. most of which are relics of the old monetary role of gold. differs from most other metals for a number of reasons. Disposals from central banks.Mining & Metals Primer 07 April 2003 Gold Gold. have led to the total stock of mined gold – 145. it is the least volatile. facilitating the growth in producer hedging. hedging and mine production are all sources of gold Gold may be hoarded. unlike other commodities Gold has been used as money and indeed remains as a store of value Borrowing. a trend that we expect to continue at least while US interest rates are low. and have been steady sellers of gold since the mid-1980s. Ample liquidity in the forward market led to a low cost to borrow gold. The first differentiating factor is the different sources of supply to the gold market: Over the last 10 years. important for many metals. Whilst technically every tonne of copper or nickel that has ever been produced is also available in one form or another. lending and trading of gold are common UBS Warburg 60 . The second differentiating factor is that almost all the gold ever mined is available to the market (although in many cases. scrap supply or central bank sales. This encouraged gold miners to lock in attractive forward gold prices. In fact in many respects the money that we use today is a descendant (some would say a markedly inferior descendant) of gold coinage. Extensive hoards of monetary gold led to the fourth unusual feature of the gold market. especially once the gold price began to fall sharply in the late 1990s. central bank disposals. Borrowing and lending of gold is extremely common: initially restricted to private investment holdings. Recycling. mine production has made up only 67% of total demand. Gold mine supply has been relatively static over the past five years as falling dollar gold prices have cut exploration budgets and resulted in few projects under development. where the forward price of gold exceeded the current (spot) gold price by as much as 6% per annum. re-refining would be necessary before the gold could be sold in either the OTC market or stand as delivery under a futures contract. Rapid growth or contraction in mine supply could see perhaps a 4% or about 100 tonne change in gold supply. Falling US interest rates and improving prospects for the gold price have seen gold producers reducing their outstanding forward sold positions over the past two years.
Apart from some very rare coins. responsible for about 80% of identified gold demand. gold is probably the most attractive of all distress assets due to its high value-density. is extremely important and is the fifth special property of gold.Mining & Metals Primer 07 April 2003 The jewellery market. Investor interest in gold represents the sixth and final special characteristic of gold. three years of consecutive declines in major equity markets together with high property prices and a weakening US dollar have led to an increase in investor interest. Cultural affinity leads India to be the largest market for gold jewellery and. in a wider sense. leading to a greater degree of price elasticity of consumption from gold compared to other metals. taking the price materially higher. While the gold price has been largely determined by conventional demand and supply. The emerging market crisis in 1998 hit gold demand particularly hard. and led to a surge in scrap supply as beleaguered economies organised collections of gold jewellery. little gold is consumed or produced in countries that use the US dollar. The other important point about jewellery demand is that almost all of this demand is discretionary and can be theoretically deferred or downsized in a rising price environment. While investment in gold has been a small component of the bullion market over the past two decades. unlike diamonds. the price of gold in consumer and producer currencies is more important to determining supply and demand. US dollar gold prices are negatively correlated with the US dollar. portability and fungibility. While the prices of many real assets increase during inflationary times or other periods of financial instability. On a broader scale. India is the largest market for jewellery Investor interest another differentiating factor for gold UBS Warburg 61 . investment gold tracks the ‘real’ gold price and coins or bars are easily weighed and assayed to determine the ‘right’ price. The geographical distribution of gold jewellery demand differs from that of other commodities quite dramatically. there is an increasing chance that investment demand for gold could break gold from its jewellery-demand prison. Although gold is most widely traded in US dollars. Jewellery market responsible for 80% of gold demand. fine paintings or collectable stamps. Asian developing countries are particularly important for gold demand.
. gold discovered in Australia in 1850 and in South Africa in 1886. US$/oz Chart: Pricing and inventories 450 400 350 300 250 2004E 1990 1992 1994 1996 1998 2000 2002 200 01/95 01/96 01/97 01/98 01/99 01/00 01/01 01/02 Gold price US$/oz LHS Total traders posn (futures) Moz RHS Chart: Profitability and returns of key producers 15 10 5 0 -5 -10 -15 30.The nature of gold mines have changed from predominantly deep level underground .0 Barrick EBIT margin 2003E Source: UBS Warburg estimates Newmont ROIC 2003E Source: Datastream. . 8% Industrial 9% Europe 10% Jewellery 78% Source: AME. 2002 Newmont 9% Ang'Gold 7% Barrick 7% Latin America 13% Others 53% Gold Fields 6% Rio Tinto 4% Europe 13% Asia 15% Next 5 14% Source: UBS Warburg estimates Chart: Gold production costs for key producers.1961: modern-day mining began in Nevada's Carlin trend. UBS Warburg 62 Newcrest . 14% North America 20% Key facts Chart: Major producers of Gold.1944: the Bretton Woods agreement sets an international gold exchange standard.Gold rush in California in 1848. UBS Warburg estimates Chart: End uses of gold Dental Other 2% 3% Chart: Geographic consumption of gold Other 19% Americas 18% US$/oz Retail inv. as shearhosted and in alluvial deposits Major mining/production operations Gold Fields Ltd's Driefontein operation in South Africa Rio Tinto and Freeport's Grasberg copper mine in Indonesia Newmont's Nevada Complex in the US Chart: Gold production by region.1896: last gold rush of the nineteenth century with gold discovery in the Klondike river. 2002 300 250 200 150 100 50 AngloGold Goldfields Newmont Goldcorp Barrick 0 Harmony Middle East 15% Asia (excl.1887: gold extraction using cyanide is discovered.0 15. UBS Warburg estimates Demand Chart: World gold consumption 4500 4000 3500 3000 2500 2000 2003E 2005E 1987 1989 1991 1993 1995 1997 1999 2001 t Source: UBS Warburg estimates Source: UBS Warburg estimates History of gold . SA) 9% Australas.Mining & Metals Primer 07 April 2003 Gold Gold supply Common ore minerals: Native metal (chemical symnbol: Au) Found in association with conglomerates. heap for low cast chemical extraction. creating the IMF and World Bank. UBS Warburg estimates Key technical facts . .Gold peaks at US$870 per ounce on 21 January 1980.0 20. .0 0. It reaches a US$120 per ounce peak. 2002 South Africa 16% Africa (excl. China) 14% China 9% India 15% Source: AME.Low grade open pit mining became economic due to higher gold prices and the South African mines in the 1970s to large low grade open pit operations throughout the commercialisation of heap leach technology where ore is crushed and then piled in a world.1973: US dollar is removed from the gold standard and gold prices are allowed to float free.0 25. .0 10. making it the US's largest gold mining state. . Source: GFMS.The oldest gold objects are Egyptian. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 430 410 390 370 350 330 310 290 270 250 1988 LME gold bullion. UBS Warburg estimates Source: Datastream.0 5. . Canada. dating back to 5000 BC although gold only began to be used as money in 3000 BC.
are showing higher incremental growth as the European and Japanese markets mature. Japan and China have been the major consumption centres. in recent years India has been gaining market share. such as we have seen in late 2002/early 2003. Iron ore demand rose in 2002 on the back of expansion in China and the FSU One of the most interesting changes in the next few years could be a re-weighting of the established key centres of the iron ore market. with long lead times for new production. The major reasons for this are productivity improvements. AME estimates the average cost in 2001 at US$7. which cost less to ship. In terms of supply. China’s rapidly expanding steel industry is increasingly dependent on imported iron ore since its domestic supply is of limited quality and is only capable of supporting 80 million tonnes of steel production. which can make up as much as 40-80% of total costs. compared to Brazil and Australia with over 60%). Traditionally Europe. With the increasing demand from China and other Asian countries. particularly South Korea and Thailand. it bounced back in 2002 with China and the former Soviet Union showing significant increases in demand.08/tonne FOB for non-agglomerated ore. coupled with currency depreciation in major producing countries.Mining & Metals Primer 07 April 2003 Iron ore The iron ore industry is currently one of the most attractive among the mining segments. Over the next two to three years we would look to Australia to increase production significantly. Australia and Brazil have been the largest producers in terms of iron content (China produces a lot of tonnage. Very consolidated s China’s rapid steel expansion soaking up material s Not enough expansion projects to meet demand While the economic slowdown caused iron ore demand to fall in 2001. major mining companies will be hard pressed to produce enough iron ore over the next couple of years to match demand despite recent developments: iron ore mining is capital and infrastructure intensive. There are three major reasons for this: s One of the most attractive segments The seaborne iron ore trade is extremely consolidated with CVRD (28%). but areas such as the CIS and the new Asian powerhouses. but CVRD is undertaking extensive de-bottlenecking to improve efficiencies and allow greater amounts of ore to be carried. mean that Brazilian ore being exported to China is not as attractive as Australian and Indian ore. particularly in the Chinese market. Rio Tinto (24%) and BHP Billiton (15%) controlling nearly 70%. With costs so low. However. Maturation of established European and Japanese markets should see Asia and the FSU assume more importance as consumers Australia and Brazil the key producers… …with production increases planned for Australia Falling production costs a key feature of increasing profitability Freight rates one of the major constraints on profitability UBS Warburg 63 . but its ore is around 30-35% iron. out of a total of 180 million tonnes of production in 2002. while Brazilian production is close to its limits. Rising freight rates. Falling production costs have been a key aspect of the increasing profitability of the market. which is 27% below the average 1997 cost. one of the major cost constraints continues to be freight rates. We expect demand to continue to grow in 2003 and 2004 as steel production increases in these regions.
usually with less than 20% fines. More recently. In recent years iron ore has allegedly been sold into China at a discount to the JBM price as producers fight for market share. They are the most common form of iron ore. making up over 50% of ore produced. negotiations have been conducted first in Europe. the larger producers negotiate prices with Japanese steel mills to arrive at an agreed price for JBM (Japanese Benchmark) iron ore and then the European mills will usually adopt that price. UBS Warburg estimates UBS Warburg 64 . Lump ore is unbeneficiated ore. Lump generally has a higher iron content than fines. Since only a few sources worldwide produce ore with these properties. which is undertaken at the expense of the producer. It is often the preferred feed for blast furnaces as it allows gases to percolate more easily. Iron ore prices are often quoted for lump and fines. Historically. as Japanese buyers have had less of a strong position to negotiate from. may be mined or separated from coarser material by screening.5Mtpy expansion One-year price contracts are normally negotiated in the first quarter Lump iron ores are the preferred feed for blast furnaces Fines are smaller grained and may need to be pelletised (agglomerated) before iron making Source: AME. it is generally more valuable.Mining & Metals Primer 07 April 2003 Price contracts for iron ore usually run for one year and are generally negotiated in the first quarter of the calendar year. ports. generally 6-30mm in diameter. Table 20: Changes to supply/demand balance – major planned mine changes Region Australia Australia Brazil South Africa India Project Mining Area C West Angelas Northern System expansion Expansion Expansion Company BHP Billiton Rio Tinto CVRD Kumba NMDC Date 2004 2002-03 2005 Unknown Unknown Details 10Mtpy expansion 10Mtpy expansion Investment in rail. Lump ore and pellets each make up 20-25% of total production. These are terms for size cutoffs. whose particle size is less than 6mm diameter. mines. Fines normally need to be agglomerated (made into pellets or sintered) before iron making. Fines. will add 10-14Mtpy 5Mtpy expansion 3.
UBS Warburg estimates History of iron ore . but freight rates are important in terms of break-even production. .100 1. UBS Warburg 65 . UBS Warburg estimates Chart: FOB cash costs Royalties 8% Source: AME. 70% Fe). Brazil and India. towards the large scale. 2002E CVRD 14% Rio Tinto 11% Others 54% BHP Billiton 7% Caemi 3% Next 5 8% Kumba 3% Major mining/production operations The Rio Doce valley in Brazil is one of the world's major ore provinces (operated by CVRD) The Hammersley province in Australia (Rio Tinto) is another. the major production of iron ore has moved away from Europe and North America.The earliest iron implements date from about 3000 BC and iron ornaments date from even earlier. UBS Warburg estimates Source: AME.In recent years. . siderite (FeCO3. 1990-2000 1.Production costs are falling. 48% Fe). Chart: Iron ore ore production by region.050 1. Kt LHS Iron ore production.Alloys made of wrought iron were produced up until the 14th century after which blast furnaces grew in size and steel manufacturing really took off.Iron ore demand is driven by crude steel production which in turn reflects industrial . .As China becomes a major importer of iron ore to feed its steel production growth. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 45 40 35 US¢/LTU 30 25 20 15 10 1988 1990 1992 1994 1996 1998 2000 2002 Iron ore fine (JBM) Iron ore lump (JBM) Chart: World steel and iron ore production 850 800 750 700 650 600 550 1970 Steel production. and since then the steel making process has been larger in scale. The more advanced technique of hardening iron weapons using heat was known to the Greeks in 1000 BC. 72% Fe).100 1.The top three producers now account for over 60% of global seabourne trade.150 1. 2002E Eastern Europe 16% Asia (excl. UBS Warburg estimates 2000 Source: AME.000 950 900 2002E 1990 1994 1998 Mt Source: AME. China) 9% China 21% Key facts Chart: Major producers of iron ore.000 900 800 700 600 500 100% 80% 60% 40% 20% 0% 1990 2000 Oceania Other Latin America North America Europe 1975 1980 1985 1990 1995 Source: UBS Warburg estimates Source: Datastream.The process of refining molten iron with blasts of air was designed by Sir Henry Bessemer in 1855. Mt RHS Chart: Origin of iron ore exports. UBS Warburg estimates Key technical facts . low cost operations of Australia. UBS Warburg estimates Chart: Global seaborne trade in iron ore. China) 22% North America 9% Latin America 6% Eastern Europe 13% Western Europe 17% Mining 22% Others 33% CVRD 28% Transport & ports 48% Process'g 22% BHP Billiton 15% Rio Tinto 24% Source: Brook Hunt.Mining & Metals Primer 07 April 2003 Iron ore Iron ore supply Common ore minerals: Haematite (Fe2O3. 2002 Chart: Geographic consumption of iron ore China 28% Other 5% Asia (excl. Australia's iron ore resources have become more important. Source: AME. levels on some routes. . Austr'sia 17% Latin America 21% Other 7% North America 9% Source: AME. magnetite (Fe3O4. UBS Warburg estimates Demand Chart: World iron ore consumption 1. .
Canada and the US. The top four export coal producers – Rio Tinto. This has been the first time since 1981-82 that the market has lasted more than one year in balance. Steaming coal is used in electricity generation while coking coal is used to manufacture coke for use in steel manufacture and other metallurgical applications. buyers are fragmenting due to deregulation and privatisation. has not grown as fast as overall steel production. but in recent years concerns about associated greenhouse gases have constrained new generating development in favour of natural gas. China is the world’s largest steaming coal producer. In the 1980s. steaming (thermal) coal and coking (metallurgical) coal. natural gas is cleaner but more expensive UBS Warburg 66 . the competition came from nuclear power. Approximately 500-600kg of coking coal is used per tonne of steel produced. Market consolidation has continued apace in recent years with significant ownership concentration as oil companies and other non-mining companies have left the sector. which is what gives it the coking and other physical characteristics needed for blast furnace operations. China is the next largest. One relevant point is that it is important to differentiate between the export coal business and total production. but is still the world’s primary and cheapest source of power. The coking coal market is finely balanced at present. It has suffered competition from alternate sources of energy in recent years.Mining & Metals Primer 07 April 2003 Coal There are two principal types of coal. Despite the forecast growth in steel production. BHP Billiton. The largest exporters are Australia (55%). On the other side. This gives the industry much greater pricing power than ever before. PCI uses cheaper steaming and semi-soft coking coal to cut down total costs. The relative consolidation of the market has meant that there have been fewer capacity increase announcements during the period following price increases than following other such periods. Most commentators look only at the export market for coal. but Australia is the world’s largest exporter. This finely balanced market is dominated by Australia and North America Steaming coal Steaming coal is basically any coal other than that used in the metallurgical industry. which drives coking coal demand. ‘Dirtiness’ of coal is an issue. with the top ten controlling 60%. coking coal demand is not expected to grow so quickly since blast furnace iron production. These companies are now as large if not larger than the companies they are selling to. Hard coking coal is supplemented by the direct injection of pulverised coal (PCI) at rates of 100-200kg per tonne of steel. For instance. Steaming coal (for power) and coking coal (for steel manufacture) are the two major types In the coal market it is important to differentiate between the total market and the export market There has been significant consolidation of the coal market while buyers have been fragmenting Coking coal Coking coal is harder than steaming coal and it also has the ability to swell. Anglo American and Xstrata – now supply 40-45% of the total traded coal market.
Mining & Metals Primer 07 April 2003 When pure carbon is burnt to give power. Coal is still the cheapest energy source and reduction in mining costs in recent years has meant that margins have expanded. lowering the carbon dioxide emissions per unit of power generated. This is particularly important to the market given China’s preeminent position as a producer of steaming coal. 80% of power comes from steaming coal while hydro power accounts for nearly 20%. Consequently these waste gases have to be cleaned. Growth is still positive in Europe with Germany accounting for much of it. Table 21: Changes to supply/demand balance – major planned mine changes Region Australia Australia Australia Australia Project Hail Creek Mt Arthur North Mt Pleasant Rolleston Company Rio Tinto Rio Tinto Rio Tinto MIM Holdings Date 2003 2004 2006 2008 Details A$400m invested in new project A$500m invested in new project A$250m invested in new project 6Mtpy project Chart 10: Electricity supply by source 100% 80% 60% 40% 20% 0% 1971 Coal Nuclear Source: AME 1997 Oil Hy dro 2010 Gas Other Coal is still important. However. North Africa and Russia have reduced coal consumption in Europe. a greenhouse gas. which should be positive for the other export coal producers. many countries do not clean their waste gases and these go into the atmosphere as pollutants. Supply remains relatively tight in the market. While China’s power consumption grows above planned levels. particularly for inland locations. Unfortunately. it gives off carbon dioxide. Even though the demand outlook for steaming coal is strong. Despite overall consumption for thermal coal stagnating in many countries. New generating technology has continued to lift the thermal efficiency from 30% to beyond 45%. China is the major wildcard in the industry. In recent years natural gas has gained in popularity as an energy source. China the major wildcard Source: UBS Warburg estimates UBS Warburg 67 . we not expect its net exports to continue to grow significantly. It has gained share off oil. steaming coal is still extremely important. and electricity deregulation in Asia is creating more buyers for coal. Pipeline natural gas is normally competitive with coal. The bonus with natural gas (which is predominantly methane) is that it burns to produce water and smaller amounts of carbon dioxide. supply remains tight. However. discoveries of natural gas in the North Sea. particularly in countries with low reserves of hydrocarbon-based fuels such as China and much of Asia. although it now seems China’s steaming coal net exports peaked in 2001 with domestic consumption lowering exports in 2002 and actually causing some coal to be imported to coastal regions. In China. demand for export coal continues to increase as domestic production falls off in many countries. Potential systems for sequestering (locking carbon dioxide in solid form) may also allow the coal power industry to regain ground lost to other forms of energy. so is very clean. particularly in Asia… …but of less importance in Europe. except Germany Globally. coal and nuclear in recent years. coal is not pure carbon and often contains impurities such as sulphur which burn to produce acidic gases like sulphur dioxide.
Columbia: Cerrejon Norte Others 53% Americas 13% Other 10% *equity share Source: UBS Warburg estimates Source: UBS Warburg estimates Chart: Steaming coal production costs 30 20 10 0 South AusIndoUSA Av'ge Africa tralia nesia Mine labour Other onsite Royalty Freight Loading Source: AME. Mt LHS 56 54 52 50 48 46 44 42 40 2005E 45 40 35 30 Steaming coal price. low moisture content. As the coal is compressed.Mining & Metals Primer 07 April 2003 Coal Coking coal Properties: Hardness and ability to swell (supports structure of blast furnace). Australia: Hunter Valley. . 2002 BHP Billiton 10% South Africa 15% Eastern Europe 10% Australia 21% Major mining/production operations Higher quality operations are in US: Powder River Basin. it has the greatest calorific value (gives out most heat when burnt). UBS Warburg estimates Key technical facts . 5 major BHP Billiton operations Largest is Peak Downs mine (7Mt per annum production) Chart: Coking coal exports by region Other 19% United States 13% Canada 13% Others 52% Key facts Chart: Major producers of export coking coal*. sub-bituminous and lignite. semi-bituminous. description covers all coal not specifically designated as coking coal. Major mining/production operations Australia: Bowum Basin. South Africa: Karoo Basin. ash and sulphur contents. Good coking characteristics (ie strength under high temperature conditions). US$/t RHS 2003E 1987 1989 1991 1993 1995 1997 1999 2001 25 Chart: Coking coal imports by region Asia (excl. UBS Warburg estimates Steaming coal Properties: Coal practically devoid of coking properties. Mt LHS US$/t Source: UBS Warburg estimates Source: UBS Warburg estimates Chart: Profitability and returns of key producers 40 30 20 10 0 Peabody Energy Cameco 2001 EBIT margin 2003E Source: UBS Warburg estimates ROIC 2003E UBS Warburg 68 Yanzhou Coal . Eastern Europe 5% Western Europe 32% Chart: Steaming coal imports by region Asia 53% Other 1% North America 7% Latin America 2% Chart: Steaming coal consumption and pricing 450 400 350 300 250 200 150 100 consumption. lowest percentage of volatiles and highest carbon content (92-94%). UBS Warburg estimates Chart: Coking coal consumption and pricing 900 850 800 750 700 650 600 550 500 1987 Consumption. Other grades in order of decreasing quality are: semi anthracite. Source: UBS Warburg estimates Chart: Major producers of export steaming coal*. China) 55% Other 3% North America 3% Latin America 7% US$/t Hard coking coal price.Coal is classified into different types. depending on its carbon.Anthracite is the highest quality coal. . chemical and physical reactions cause the concentration of these key components. 2002 BHP Billiton Mitsubishi 11% 9% Fording 6% Anglo American 4% Consol Energy 4% Australia 55% *Equity share Next 5 14% Source: UBS Warburg estimates Chart: Hard coking coal export costs 40 30 20 10 0 Australia Mine labour Freight Canada USA Av'ge Royalty Source: UBS Warburg estimates Chart: Steaming coal exports by region Indonesia 14% China 17% Western Europe 32% Source: AME. US$/t RHS 2003E Xstrata 9% Anglo American 8% Rio Tinto 8% Drumm-ond 3% 1989 1991 1993 1995 1997 1999 Next 5 9% Other onsite Loading Source: Brook Hunt.Coal is a carbonaceous rock that forms when organic material (decomposing plant life) is compressed at great depth in the Earth's crust.
the steel industry still remains fragmented. As steel production started to grow exponentially in the late-nineteenth century. and national governments saw their steel industries as a strategic asset and a key component of industrial policy. the three major steel-producing regions have been Europe. as opposed to mining segments. steel industries sprang up in many countries. many steel producers have ended up in Chapter 11 bankruptcy because of high labour and pension costs. UBS Warburg estimates In the past two years.02 1870 0. UBS Warburg estimates Source: Company data. In the US. the world’s largest steel company. Arbed and Aceralia in Europe.5 1900 28 1950 I SG 1 6% 193 1970 US St eel 20% N ucor 1 7% Source: IISI. 2002 Ot her 33% Ni n sshi St eel 4% Kobe St eel Sum i 6% t o om 1% 1 Chart 14: US market shares. Steel was seen as the cornerstone of industrialisation. As a rule. and uses increased.Mining & Metals Primer 07 April 2003 Steel Steel has developed into a material that is a backbone of industrial development. In 2002 there have been signs of consolidation in the US market. 2002 Ot her 35% Ni ppon St eel 25% Ot her 39% Sal zgit t er R i va 7% 9% C or us 1% 1 Thyssen Kr upp 1 0% JFE H ol ngs di 21 % W eit r on St eel A K St eel 2% 6% Source: Company data. In recent years there has been significant consolidation in the steel industry. the top five producers control more of the capacity. Latin America and China are of growing importance to steel production UBS Warburg 69 1990 770 . Chart 12: European market shares. UBS Warburg estimates State subsidisation has been an issue for the industry Although there has begun to be some regional consolidation. state-owned businesses are less concerned with supply discipline than privately owned ones that are focused on shareholder returns. with Nucor acquiring Birmingham Steel and ISG acquiring Acme and Bethlehem Steel. but as a segment it still lies some way behind mining. globally the sector is still well behind mining Chart 13: Japanese market shares. we have seen the formation of Arcelor. This has been a limiting factor for the industry in recent years. and in the three major producing regions. and the formation of JFE Holdings in Japan from Kawasaki Steel and NKK. 2002 A r or cel 28% Chart 11: Steel production growth 1000 900 800 700 600 500 400 300 200 100 0 848 2000 Mt 595 1867 0. and the legacy of that historical development still hangs over the global steel industry today. UBS Warburg estimates Source: Company data. It should be noted that steel is more of a regional market. China is now the largest single producer of steel (180 million tonnes in 2002) as well as the largest consumer (200 million tonnes). from the merger of Usinor. a factor which has historically been a negative in oversupply. The EU (19%) and the US (13%) were the second. As consolidation has swept through the other basic industries during the 1990s. companies often find themselves in trouble with costs when these subsidies are rescinded. where the top five producers generally control some 30-40% of the market. where there has been significant state subsidisation. North America and Japan. Historically. and latterly China have grown in importance in the past decade. Formation of Arcelor and JFE Holdings: good examples of consolidation FSU. but initially the former Soviet Union and Latin America. Consequently every country had a steel industry. with the top five companies controlling only 18% of global capacity. Also.and third-largest consumers.
Chart 15: Split between long and flat products 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% EU US LatAm Flat Source: IISI. Protectionism by the US. beams for use in the construction industry) as opposed to flat products such as sheets and coils.Mining & Metals Primer 07 April 2003 China’s growth as a producer and consumer has been sudden. with the US Section 201 filing to protect its domestic steel producers from foreign exports causing the EU to adopt protectionist policies in retaliation. Europe and China is a feature of the industry UBS Warburg 70 . UBS Warburg estimates China’s steel output is still weighted towards construction rather than manufacturing China World Long Protectionism has become an important feature of the steel markets in 2002. which are the more predominant products in the rest of the world. China has also implemented a tariff system to protect against dumping in its fledgling steel industry. Investors remain concerned that a sudden removal of these tariffs could add downward pressure to global prices. One major aspect of China’s steel industry is that it is dominated by long products (ie.
Trace elements are added to steel to make alloys. . discovered stainless steel. Europe and Japan control over 60% of capacity. China) 16% Public constr'n 10% Private constr'n 35% Source: UBS Warburg estimates Demand Chart: World steel consumption 900 850 800 750 700 650 600 1987 1989 1991 1993 1995 1997 1999 2001 Mt Source: IISI. 2001 Other 14% North America 15% Auto-motive 25% Other 50% Coking coal 16% China 22% Energy 2% Labour 15% Western Europe 19% Eastern Europe 9% Goods & Pckg 20% Asia (excl.Hot strip mills were invented in the 1920s. . UBS Warburg estimates Key technical facts . finding that steel with over 12% chromium was extremely resistant to corrosion.In the 1960s Basic Oxygen Furnaces began to cut melt times from 9-10 hours to 45 minutes for high-phosphorous iron ores.In 1989. . and while it is unconsolidated on a global scale. it wasn't effective for high-phosphorous iron ore. Germany Riva's 13Mt Taranto operation. while vanadium.In 1878 Siemens started to build Electric Arc Furnaces which were initially used to produce high grade alloy steel. UBS Warburg estimates Pricing and inventories Chart: Longer term pricing trends 480 430 380 330 280 230 180 1989 US$/t Chart: Pricing and production 500 400 300 200 100 1995 1996 1997 1998 1999 2000 2001 2002 US$/t Mt Chart: Profitability and returns of key producers 80 70 60 50 40 40 35 30 25 20 15 10 5 0 POSCO EU Export HRC Japan export HRC US HRC wld stl prod EU export HRC price LHS China stl prod EBIT margin 2003E Source: UBS Warburg estimates ROIC 2003E Source: Metal Bulletin. a British scientist. altering its properties. but have since been used for more and more production.The Bessemer process was the first efficient steelmaking process and was invented in 1856. China) North 8% America 12% China 18% Other 15% Source: IISI.The industry was extremely fragmented as steel was seen as a strategic industry by national governments. . 2001 Eastern Europe 16% EU 19% Key facts Chart: Major producers of steel. Source: IISI. followed by cold-rolling mills in the 1930s. Korea ThyssenKrupp's 14Mt Duisburg site. .Steel is a very regional industry. speeding mill throughput times to 34 hours. UBS Warburg estimates Source: IISI.Mining & Metals Primer 07 April 2003 Steel Steel supply Manufactured using Iron ore Steel scrap Coke Major production operations Posco's 16Mt Kwangyang operation. UBS Warburg 71 Severstal Arcelor Nucor 1991 1993 1995 1997 1999 2001 CSN . North America. For instance the top 5 producers in and molybdenum may be added to create other alloys. 2002 Arcelor LNM 5% 4% POSCO 3% Nippon Steel 3% JFE Holdings 3% Next 5 9% Others 73% Japan 12% Asia (excl.Nickel and chromium are added to make stainless steel. thin-slab casting increased productivity to less than 1 man hour per ton. it is . manganese more consolidated from a regional perspective. Italy Chart: Steel production by region. UBS Warburg estimates Chart: Steel production costs Iron ore & scrap 17% Source: UBS Warburg estimates Chart: End uses of steel Other 10% Latin America 5% Chart: Geographic consumption of steel. . UBS Warburg estimates Source: UBS Warburg estimates History of steel . . However.In 1913 Harry Brearley.
prices are not very volatile. China is not such an issue in this industry. Feedstock producers sell rutile. who then use either a sulphate. Feedstock producers are involved with mining the material. Table 22: Changes to supply/demand balance – major planned feedstock changes Region Mozambique Mozambique Project Moma Corridor Sands Company Kenmare Res. rutile and zircon. feedstock producers and pigment producers. This is possible because it has excellent technology. synthetic rutile and ilmenite. Feedstock producers sell their product on to pigment producers. WMC Res. The industry is almost entirely non-integrated. The major minerals are ilmenite. The Richard’s Bay operation (the world’s largest) has been particularly affected by this. Price contracts are long term (three to five years) and are solely between the supplier and buyer. based on low-cost ilmenite. Dupont is the pre-eminent producer of pigment and is also the lowest-cost producer. with end-uses being construction. plastics and paper. with the only major integrated producers being Dupont and Kerr McGee. There are two principal areas of the industry. As such China is a still a net importer of titanium dioxide. UBS Warburg estimates UBS Warburg 72 . perhaps at a faster rate than demand growth out to 2006. Significantly. The trend going forward seems to be further capacity additions. whereas most other producers end up paying considerably more for waste disposal.or chloridebased method to extract the titanium dioxide from the raw material.Mining & Metals Primer 07 April 2003 TiO2 (Titanium feedstock) TiO2 or titanium dioxide is used primarily as a pigment. as the technological requirements of the process provide a high barrier to entry and producers have not fallen over themselves to give us this advantage. which has caused operating rates to fall. zircon and small quantities of ilmenite directly to pigment producers while ilmenite is normally upgraded to higher quality synthetic rutile. The major grades are rutile. running at operating rates as low as 65%. Feedstock plants have been suffering from overcapacity in recent years. autos and infrastructure. The major first uses are in paints. Its properties of high refractive index and good light scattering make it good for this and its chemical and thermal stability. biological inertness and non-toxicity have allowed it to win market share off lead-based pigments. As a result of the duration of contracts. Date 2003-04 2003-05 Details 324Ktpy TiO2 units 315Ktpy TiO2 units Primarily used as a pigment Long-term price contracts result in low price volatility Industry is not very integrated Dupont is the pre-eminent pigment producer in a better-positioned upstream industry Further capacity additions in feedstock not positive for operating rates China is a net importer Source: AME. and also because the US government allows the company to bury its waste products.
pigment. UBS Warburg estimates US$/t 120 100 80 60 40 Syn.000 2.000 3.It did not find a commercial use until the early twentieth century when it was included in iron and steel alloys because of its hardness.000 4.500 2002E 2004E 1994 1996 1998 2000 90% 85% 80% 75% 70% 65% Chart: Profitability and returns of key producers 25 20 15 10 5 0 Iluka EBIT margin 2003E Source: UBS Warburg estimates ROIC 2003E Ticor Feedstock Production Feedstock op rate TiO2 Demand Source: AME.000 0 2004E 1994 1996 1998 2000 2002 Source: AME.Titanium was discovered in 1791 by the chemist William Gregor. 44% TiO 2). UBS Warburg 73 .In recent years.TiO2's high refractive index and light scattering capability make it attractive for use as a and hence they are more acceptable than lead-based pigments. . capacity additions have become a major issue in the industry. Leucoxene (altered ilmenite) are the most economically significant minerals Major mining/production operations Rio Tinto's Allard Lake operation in Canada (1. UBS Warburg estimates Source: AME. rutile LHS Chart: Market balance 4. UBS Warburg estimates Chart: TiO2 production by feedstock type Natural rutile 10% Ilmenite 30% Synthetic rutile 19% Asia 22% Source: AME. 2002 Australia 27% US 12% Asia (excl. .1Mtpa) Iluka's Eneaba and Yoganup operations in Australia Chart: TiO2 production by region. UBS Warburg estimates Key technical facts .000 2. UBS Warburg estimates Chart: End uses of TiO2 Other 9% Paper 20% Chart: Geographic consumption of TiO2.500 4. .Mining & Metals Primer 07 April 2003 TiO2 TiO2 supply Common ore minerals: Rutile (TiO2. UBS Warburg estimates Demand Chart: World TiO2 consumption 5. Coating Paper Plastic Other Source: AME. but it was not until 1795 that it was re-discovered by the German chemist Martin Heinrich Klaproth and named. 2002 Other 13% North America 34% SP slag 13% Western Europe 31% Coating 50% Plastic 21% CP slag 28% Source: AME.000 3. 2002 Next 5 17% BHP Billiton 10% Iluka 13% Rio Tinto 32% Others 17% Source: AME. biologically inert and non-toxic.000 1. with operating rates falling as more and more capacity is added. . . ilmenite (FeTiO3.Titanium pigments are chemically and thermally stable.Titanium pigment was produced for the first time in 1918. 93-6% TiO2).Further capacity increases are likely to put operating rates under further pressure. UBS Warburg estimates Pricing and inventories Chart: Long term pricing trends 900 700 500 300 100 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Rutile LHS Ilmenite RHS Source: AME.500 3. China) 7% South Africa 22% China 4% Other 10% Canada 18% Anglo American 6% KMCC 5% Key facts Chart: Major producers of TiO2 feedstock. UBS Warburg estimates History of TiO2 .
Demand is heavily influenced by general economic conditions and demand from those industries that consume large amounts of cobalt. 2 Data and some information sourced from USGS. Cobalt is produced mainly as a by-product of copper and nickel production. It is used in solders and a variety of alloys. Bismuth (Bi) Bismuth is mainly a by-product of lead processing. although export controls imposed in the last few years have led to a dearth of antimony. 95% of the world’s chromite resources are based in southern Africa. catalysts and surface treatments. Australia (18%). It is also used to make magnets. It is used in iron. medications and in atomic research. steel and non-ferrous alloys to enhance hardenability and resistance to corrosion and oxidation. and has a variety of chemical applications. World production of cobalt has been increasing steadily since 1993. pigments. metal plating. The largest producers of cobalt include Zambia (21%). diamond tools and catalysts. China is the world’s major producer with 89% of world mine production in 2002. UBS Warburg 74 . corrosion. South Africa is the largest producer of chromite ore (45% of world production) while Kazakhstan has 18% and India 15% of world production. Other applications include alloy steel. particularly for flame-retardant applications. It is also used as a non-toxic substitute for lead.and wear-resistant alloys. Chromium (Cr) Chromium has a multitude of uses. so production increases or decreases dependent on production of these metals. used to make parts of gas turbines and aircraft engines. additives. Cobalt (Co) Cobalt: The largest use of cobalt is in superalloys. while the Democratic Republic of the Congo has the highest reserve base. Its main ore mineral is stibnite. which has resulted in significant price increases. while China has by far the world’s largest reserves.Mining & Metals Primer 07 April 2003 Other materials2 Metals Antimony (Sb) Antimony may be used as a hardener for lead in storage batteries and also as a solder and in other alloys. Canada (14%) and Russia (12%). It is the heaviest of the socalled ‘heavy’ metals and is the only one that is non-toxic. The world’s largest producers are China (38%) and Mexico (26%).
automobiles and machinery. animal feed and colorants for brick. UBS Warburg 75 . Korea and Russia are also significant producers. manganese. machinery and transportation. lubricants and pigments. niobium. Magnesium compounds. with South Africa having the largest reserve base. Manganese compounds may be used as fertilisers. It may also be used in chemical applications such as catalysts. Australia and Russia. in dry cell batteries. cast iron and superalloys to enhance hardenability. toughness and corrosion resistance. Manganese may also be used in aluminium alloys and. The largest producers are Brazil (20% of world production) and South Africa (17%). glass and primary aluminium production as well as in batteries. nickel and tungsten.Mining & Metals Primer 07 April 2003 Lithium (Li) Lithium is used in ceramics. while China and the US have the largest resource bases. carnallite and olivine. It may also be used to remove sulphur from iron and steel. are used as refractory materials in furnace linings. Molybdenum (Mo) Molybdenum is used primarily as an alloying agent in steel. The principal producers of molybdenum are Chile (27%). These manganese steels are used primarily for construction. as manganese oxide. magnesite. deoxidising and alloying properties. Manganese (Mn) Manganese is an essential component of iron and steel production because of its sulphur-fixing. Steelmaking accounts for 85-90% of manganese use – the manganese of the form of ferroalloys. strength. Magnesium metal is primarily used in association with aluminium in alloys in beverage cans. China is the largest producer of magnesium compounds (magnesite) with 25% of world production. China. The larger producers are Chile (45% of production). and magnesium oxide in particular. Magnesium (Mg) Magnesium is an extremely abundant element in the earth’s crust (about 2%) and the third most plentiful in seawater. brucite. while Turkey (19%). with 50% of world production. the US (25%) and China (22%). Commercially significant magnesium minerals include: dolomite. Russia and China have the largest reserves. China is by far the largest producer of magnesium metal. It is frequently used in conjunction with chromium.
Tungsten metal may be used for wires. electrodes. photography. It accounts for about 80% of world production while Russia. inorganic pigments and high temperature lubricants. China has been the dominant producer in recent years (and will continue to be so as it has the largest reserve base). China is the world’s largest producer with 88% of production. metallurgical alloys and phosphors for lighting. lead and zinc mining. monazite and loparite and some clays. and as a catalyst. which are wear-resistant materials used in the metalworking. Tungsten (W) Tungsten’s largest use is as tungsten carbide in cemented carbides.Mining & Metals Primer 07 April 2003 Rare earth elements (REEs) Table 23: The rare earth elements and their uses Symbol Name Use Symbol Name Use Sc Scandium Stadium lighting Gd Gadolinium Computer memory chips Y Yttrium Colour TV screens Tb Terbium Fluorescent lamps La Lanthanum Camera lenses Dy Dysprosium Colour TV tubes Ce Cerium Lighter flints Ho Holmium Eye-safe lasers Pr Praeseodymi um Ceramic colouring Er Erbium Coating sunglasses Nd Neodymium High strength magnets for disk drives Tm Thulium Lasers Pm Promethium Nuclear batteries Yb Ytterbium Dentures Sm Samarium Lasers Lu Lutetium Dentures Eu Europium Colour TV tubes Source: Los Alamos National Laboratory. China also has by far the world’s largest reserve base. India and the FSU also producing fair amounts of rare earths. superalloys for turbine blades and wear-resistant alloys. UBS Warburg 76 . such as glass polishing. It may be used in mirrors. mining and construction industries. as well as for money. heat sinks and high-density applications. They have unique properties making them important for a wide variety of uses. The major economic sources are the minerals bastnaesite. UBS Warburg estimates The rare earths are a relatively abundant group of 17 elements including scandium. Silver is often produced as a by-product of copper. Tungsten composites may be used as a substitute for lead in bullets while chemical compounds are used in catalysts. Canada and Austria also produce fair amounts. The largest producing countries are Mexico (15% of world production). yttrium and the lanthanides. electrical and electronic products. petroleum refining catalysts. Peru (12%) and Australia (12%). heavy metal alloys used for armaments. Silver (Ag) Silver has been used for thousands of years for ornaments and utensils. with the US. catalytic converters. It also has significant industrial applications due to the photosensitivity of silver halides. TVs monitors and radar. China is also a producer and has the largest reserves. with its cheap exports killing off mining in many other countries. gold. The advent of digital imaging has posed a serious threat to the use of silver for photographic applications. Silver is traded on Comex and TOCOM.
Its common ore minerals are pitchblende. tremolite asbestos and actinolite asbestos. It is of major importance to every sector of the world’s industrial and fertiliser businesses to such an extent that sulphuric acid consumption is regarded as one of the best indicators of a country’s industrial development. The largest producers are the US and Canada. amosite. uraninite and branerite. low conductivity and large surface area. flexibility.5%). is one of the most important industrial raw materials. Australia and Canada are the largest producers of uranium. one of sulphur’s derivatives. These are chrysotile. with chrysotile being produced in the largest quantities. The principal producers are China (58%) and South Africa (27%). which also dominate the reserve base. Georgia-Pacific and Gencore have been affected by asbestos litigation and the resulting share price volatility. but Kazakhstan and the US also produce significant amounts. and which allow international inspection to verify that it is only used for peaceful purposes. UBS Warburg 77 . anthophyllit asbestos. Major end uses are roofing products. The properties that make asbestos useful are its high tensile strength.Mining & Metals Primer 07 April 2003 Uranium (U) Uranium is primarily used in the nuclear industry although it has other applications making use of its high density such as in counterweights. Vanadium (V) Vanadium is used in small amounts in ferrous alloys to improve toughness and resistance. Sulphur may be produced as a by-product at petroleum refineries as well as from pyrites and native sulphur mining. coupled with high chemical and thermal stability. gaskets and friction products. The asbestos industry has been affected by health liabilities and public opposition to the use of asbestos and it is no longer widely used. Uranium may only be sold to countries which are signatories of the nuclear non-proliferation treaty. crocidolite. Many basic materials companies such as Dow Chemical. each with 16% of world production. Russia (11%) and China (9. Non metals Sulphur (S) Sulphuric acid. Industrial minerals Asbestos Asbestos is the generic name given to six fibrous minerals that are used in commercial products.
These three dominate the reserve base. and as a soil conditioner. Coarse barite grains may be used in ‘heavy’ cement. UBS Warburg 78 . A typical new home contains seven tonnes of gypsum alone. followed by India with 15%. It is also used in concrete for roads. Historically. while Iran with 11% and Canada with 8% are also large producing regions. this is a high value segment when volumes are taken into account. Calcite/limestone Limestone (made up of the mineral calcite or calcium carbonate. Borates Boron compounds are used primarily in the glass and ceramics industries. which has been baked and pressurised at depth in the Earth’s crust to form a fine-grained. as an addition to industrial products or a weighting agent in well drilling. but it has been of less importance in recent years. in soaps and detergents. agriculture and fire retardants. with the US (25%) and Russia (21%) also producing significant amounts. as well as varying amounts of silica) is one of the most important and accessible natural resources for the cement. hard material suitable for decorative use. Kaolin Kaolin or China clay is a fine-grained. which is also sometimes known as barytes. while fine barite may be used as a filler or extender. offices and commercial buildings. oil well drilling has been a driving force in barite demand. Marble Marble is a metamorphosed form of calcium carbonate. steel and agriculture industries. Gypsum Gypsum is one of the most widely used minerals in the world due to its use in making plasterboard (wallboard) for homes.Mining & Metals Primer 07 April 2003 Barite Barite is the mineralogical name for barium sulphate. Turkey is the world’s largest producer (31% of production). with 50% of world production. These two countries also dominate the reserve base. Demand for gypsum depends very much on the well being of the construction industry. white material that is used as a dye and a filling agent in paper and refractory markets. The US is the largest producer with 16% of world production. although it should be noted that China also has extensive reserves. and to a lesser extent. Despite the low value of its basic products. The largest producer of barite is China. bridges and buildings.
Zircon is a by-product of the mining and processing of heavy mineral sands and is the primary economic source for zirconium. a chemical refined from the mineral trona or sodium carbonate-bearing brines. Chlorine may then be used to make plastics such as PVC. Potash Potash. Most phosphorous is consumed as a component of nitrogen-phosphorous-potassium (NPK) fertilisers used for arable crops. The US is the world’s largest producer with 20% of production. chemicals. while China (16%) is also a large producer. Major producers are Canada (32% of world production). chemical piping in corrosive environments. Zirconium Zircon (zirconium silicate) is used for refractories. Other major producers are Morocco (18% of world production) and China (16%). Zirconium is used in nuclear fuel cladding. Potash consumption in has been declining in recent years. Russia (16%) and Belarus (15%). Zircon itself may also be used as a natural gemstone. which may be used to simulate diamonds. an essential element for animal and plant nutrition. Australia (44% of world production) and South Africa (29%) are the world’s largest producing regions. heat exchangers and speciality alloys. Soda ash Soda ash is the trade name for sodium carbonate. It is an essential raw material for glass. while paper-pulping chemicals may be manufactured from caustic soda. UBS Warburg 79 . or on roads and walkways to remove ice.Mining & Metals Primer 07 April 2003 Phosphate Phosphate minerals are the only significant global resources of phosphorous. Salt Salt (rock salt or sodium chloride) may be used as a flavour enhancer in food. The US is the world’s leading producer and consumer of phosphate rock. while its oxide is also used to produce cubic zirconia. detergents and other major industrial products. foundry sands and ceramic opacification. is used primarily as an agricultural fertiliser. like phosphorous. The name potash denotes a variety of mined and manufactured salts containing potassium in water-soluble form. It is also used as a feedstock for chlorine and caustic soda manufacture.
although there is increasing demand for synthetics over natural diamond material. they tend to be scattered sparsely through a large body of rock. they are used in industrial applications. aquamarine). South Africa has historically dominated the industry but Russia. where they cut faster and last longer than competing materials. pink. green. white-yellow or reddish to bluish grey Orange. Synthetic diamonds are of growing importance for industrial applications. Australia and Canada are of growing importance UBS Warburg 80 . onyx. porcelain-like Reddish or orange Purple Yellow or amber Smokey grey or brown Translucent pink Many colours and combinations. this is likely to lower production and increase costs in the short term. to have crystallised as small aggregates or to fill veins and/or small cavities. Diamond. corundum (ruby. agate Wine yellow. yellow or brown Colourless or pink to red Mineral Nephrite/Jadeite (calcium/sodium aluminium silicate) Lazurite/pyrite rock Opal (hydrated silica) Quartz (silicon dioxide) Common gems Jade Description White.Mining & Metals Primer 07 April 2003 Gemstones These are minerals. other gemstones are usually classified as semi-precious. Russia and other African countries have gained importance and market share and there is now significant mine development in Canada. stream gravels (as placer deposits) and metamorphic rocks. Industrial and gemstone applications Synthetic diamonds used increasingly for industrial applications South Africa has historically dominated mine production of diamonds. deep green.to purple-red Colourless. The industrial diamond market has been healthy and we expect it to stay healthy over the next few years. pale blue. but are most common in pegmatites. orange. topaz and opal are classified as precious stones. Includes sub divisions . They occur in most geologic environments. the largest market for industrial diamonds. sapphire).bloodstone. When present at all. beryl (emerald. creamy brown Lapis lazuli Black opal White opal Fire opal Amethyst Citrine Smoky quartz Rose quartz Deep. principally as abrasives. The Russian industry is experiencing structural changes as mining operations move underground. accounting for up to 90% of industrial diamond usage in the US. If diamonds do not meet gem quality standards. jasper. polished or otherwise treated for use in jewellery or other ornaments. orange. Gemstones are not common in nature and do not form ore deposits in the normal sense. iridescent or transparent stones in yellow. red or green Colourless. but in recent years Australia. violet or red Silica Topaz Chalcedony Topaz Diamonds Diamonds could equally well be classified as an industrial mineral as they are one of the world’s most versatile engineering materials as well as the most famous gemstone. UBS Warburg Description Intense green or bluish green Greenish blue or light blue Raspberry red Yellowish or greenish Intense red Blue Colourless to faint yellowish tinge Colourful. stones or organic matter that can be cut. azure blue Flashes and speckles on a black background Opaque. Table 24: Common gemstones Mineral Beryl (beryllium aluminium silicate) Chrysoberyl (beryllium aluminium oxide) Corundum (aluminium oxide) Carbon Feldspar (alumino silicates) Garnet (silicate mineral group) Common gems Emerald Aquamarine Red beryl Cat's eye Ruby Sapphire Diamond Labradorite Moonstone Almandine Grossular Pyrope Source: USGS. Diamond is the strongest and hardest known material and has the highest thermal conductivity of any material at room temperature.
2002 Canada 4% S.5% per annum. cut. UBS Warburg 81 . De Beers' Orapa Mine in Botswana accounts for nearly half of Botswana's diamond production.The Diamond Trading Company (formerly the CSO) is the sales and marketing arm of De Beers for rough diamonds and markets some two thirds of global supply. clarity and carat weight.De Beers Consolidated Mines was formed in 1888 and in 1890 signed a contract to market all its production through the London Diamond Syndicate. also in alluvial deposits. .Synthetic diamonds contribute some 90% of industrial diamond consumption. . . colour.The 1950s saw exploration in Botswana. . Diamonds less than 1 carat in weight are called "pointers". .There are various classifications of diamonds according to colour. 2002 Others 8% Australia 35% Chart: Gem diamond production by region. UBS Warburg estimates Source: USGS. .The growth rate for diamond production 1970-2001 is 4. In 1959. Source: Company data. the British East India company had consolidated the export of India's entire production via London. . . Africa 6% Angola 7% Congo 10% Others 8% Botswana 29% Rio Tinto 7% Alrosa 14% De Beers 46% *Equity share Major mines prod'n value: US$4. diamonds are not unbreakable.2g. Key facts History of Diamonds . Major mining developments Rio Tinto's 60%-owned Diavik mine in Canada enters production in 2003 and is expected to produce 6m carats per year.5% per annum.3bn years ago when diamonds were formed in the Earth's mantle at extreme temperatures and pressures. It has additional purchasing agreements with Alrosa. UBS Warburg estimates.Contrary to popular belief. . but with relatively low quality stones. Found in metamorphic deposits called kimberlites. .First Bruges.The market for industrial diamonds is much smaller in value. . . . most diamonds are produced synthetically.3bn Others 24% BHP Billiton 9% S.Mining & Metals Primer 07 April 2003 Diamonds Diamonds supply Occurrence Formed from carbon compressed at high pressure.1979 saw the discovery of significant diamond deposits in Western Australia. the first marketing agreement between the CSO and the Soviet government was signed.The Diamond Corporation (later the Central Selling Organisation CSO) was formed in 1930 as a producers' cooperative to maintain the stability of the diamond trade.In 1859. Major mining/production operations Rio Tinto's Argyle operation in Australia accounts for one third of world volumes. Vasco de Gama's discovery of the sea lane from India to Europe in 1498 ended this. Russia's diamond mining company and BHP Billiton.A carat is the unit of measurement used to determine the weight of a diamond.Anglo American's 45% associate De Beers controls some 45% by value of the world's diamond production. Between 1866 and 1869 further diamonds were discovered and the great diamond rush began. .Quality of diamonds is measured by the 4C's. according to Rio Tinto. Sierra Leone and Siberia. Key facts Source: USGS.By 1650. for production from the Ekati mine in Canada. anecdotal reports emerged of the discovery of a diamond on the Vaal River in South Africa. . 2000* Total world prod'n value: US$7.Diamonds were first used as early as the Stone Age.Venice established an early pre-eminence in the diamond trade as stones from India were carried overland to Europe. . diamond production by region. One carat is 0.Geological evidence suggests that diamonds were formed some 3.8bn Congo 25% Botswana 14% Russia 18% Australia 18% Source: Mining Journal. Amsterdam and London established positions as diamond centres. for 1991-2001 is 1. . UBS Warburg estimates . they have "hard" and "soft" directions and blows of sufficient force can break them. UBS Warburg estimates Chart: Prod'n value at the world's major mines. then Antwerp. Africa 18% Chart: Ind.
Mining & Metals Primer 07 April 2003 Geographic distribution of mineral reserves and resources Iron ore Chart 16: Reserves of crude iron ore Other 13% Kazakhstan 6% N. Europe 3% South Africa 1% India 2% Australia 13% Russia 15% China 16% Total: 303.6bn tonnes Source: AME Chart 18: Reserves of crude iron ore by iron content Other 15% Kazakhstan 6% N. Europe 3% South Africa 1% India 2% Australia 13% Russia 15% China 17% Chart 17: Resources of crude iron ore Other 13% Kazakhstan 6% N. America Brazil 9% 6% W.7bn tonnes Source: AME Ukraine 15% Ukraine 16% Total: 137. Europe 3% South Africa 1% India 3% Chart 19: Resources of crude iron ore by iron content Other 15% Kazakhstan 6% N.25bn tonnes Source: AME Total: 157.9bn tonnes Source: AME Bauxite Chart 20: Reserves of bauxite Other Venezuela 15% Suriname 1% 3% Russia 1% Jamaica 9% India 3% Guy ana 3% Chart 21: Resources of bauxite Venezuela Other 15% Suriname 1% 2% Russia 1% Jamaica 7% India 4% Guy ana 3% Guinea 26% Australia 20% Australia 25% Brazil 8% China 3% Brazil 9% China 7% Total: 33bn tonnes Guinea 34% Total: 22bn tonnes Source: USGS Source: USGS UBS Warburg 82 . America Brazil 6% 7% W. America Brazil 6% 7% W. America Brazil 9% 6% W. Europe 3% South Africa 1% India 2% Ukraine 16% China 11% Australia 16% Russia 16% Ukraine 19% Russia 16% China 9% Australia 16% Total: 70.
Mining & Metals Primer 07 April 2003
Chart 22: Reserves of coal
Australia 9% India 8% China 12% South Africa 6% FSU (ex cl. Russia) 7% Source: AME, BP
Latin America 2% Germany 7%
Rest of Europe 6% Total: 984.2bn tonnes
Chart 23: Reserves of copper (contained metal)
Other 14% Zambia 4% CIS 13% Peru 7% Mex ico 5% Chile 32% Total: 480m tonnes Source: USGS US Canada 7% 2% Australia 5% China 5% Indonesia 6%
Chart 24: Resources of copper (contained metal)
Other 15% Zambia 4% CIS 10% Peru 6% Mex ico 4% Chile 38% Total: 950m tonnes Source: USGS US Canada 7% 2% Australia 4% China 6% Indonesia 4%
Chart 25: Reserves of lead (contained metal)
US 12% Other 30%
Chart 26: Resources of lead (contained metal)
US 14% Canada 6%
Canada 3% South Africa 2% Peru 3% Mex ico 1%
South Africa 3% Peru 5% Mex ico 2% Kazakhstan 7% Source: USGS China 16%
Australia 20% China 27%
Kazakhstan 5% Total: 68m tonnes Source: USGS
Total: 140m tonnes
UBS Warburg 83
Mining & Metals Primer 07 April 2003
Chart 27: Reserves of nickel (contained metal)
Other 5% Canada Latin America 9% 5% Cuba 9% Europe 1% China 6% Indonesia 5% Australia 36% South Africa 6% Total: 61m tonnes Source: AME, USGS
Chart 28: Resources of nickel (contained metal)
Russia 7% New Caledonia 9% Other 6% Canada 11% Latin America 6% Cuba 16% Europe 3% Indonesia 9% China 5% Total: 140m tonnes
Russia 11% New Caledonia 7%
Australia 19% South Africa 9%
Source: AME, USGS
Chart 29: Reserves of tin (contained metal)
Thailand 3% Russia 5% Peru 12% China 28% Indonesia 13% Other Australia 5% 2% Boliv ia 7% Brazil 9%
Chart 30: Resources of tin (contained metal)
Peru Russia Thailand Other 3% 9% 2% 1% Australia 3% Boliv ia 8%
Malay sia 11% Indonesia 8%
Malay sia 16%
Brazil 23% China 32%
Total: 6.1m tonnes Source: USGS
Total: 11m tonnes
Chart 31: Reserves of titanium (contained TiO2)
South Africa 18% Brazil 5% US 3% Norw ay 10% India 9% China 8% Canada 8% Total: 394m tonnes Australia 31% Other 8%
Chart 32: Resources of titanium (contained TiO2 )
South Africa 11% Other 11%
US 9% Norw ay 6% India 7% China 6% Canada 5% Total: 661m tonnes
UBS Warburg 84
Mining & Metals Primer 07 April 2003
Chart 33: Reserves of zinc (contained metal)
US 15% Other 34% Canada 6%
Chart 34: Resources of zinc (contained metal)
Australia 16% Peru 8% Mex ico 4% Source: USGS
Peru 4% Mex ico 6% China 20%
Australia 18% Total: 450m tonnes
Total: 200m tonnes Source: USGS
Chart 35: Reserves of industrial diamonds
Other 16% Australia 16%
Chart 36: Resources of industrial diamonds
South Africa 12% Russia 7% Congo 25% China 2%
South Africa 13% Russia 5% Botsw ana 17% China 2% Total: 1.2bn carats
Total: 580m carats Source: USGS
UBS Warburg 85
Mining & Metals Primer 07 April 2003 Gold Chart 37: Reserves of gold US 13% Other 39% Chart 38: Resources of gold US Canada 7% 4% Australia 7% China 5% Indonesia 3% Russia 4% South Africa 40% Canada 3% Australia 12% China 3% Indonesia 4% Other 30% South Africa 19% Russia 7% Total: 43K tonnes Source: USGS Total: 89K tonnes Source: USGS Platinum Group Metals Chart 39: Reserves of PGMs (contained metal) Other 1% US 1% Canada 0% Russia 9% South Africa 89% Chart 40: Resources of PGM (contained metal) Other 1% US 3% Canada 0% Russia 8% South Africa 88% Total: 71K tonnes Source: USGS Source: USGS Total: 80K tonnes Silver Chart 41: Reserves of silver (contained metal) US 9% Chart 42: Resources of silver (contained metal US 15% Other 34% Canada 7% Australia 7% Peru 7% Mex ico 8% Canada 6% Australia 11% Other 37% China 10% Peru 13% Mex ico 14% Total: 270K tonnes Source: USGS Source: USGS China 22% Total: 520K tonnes UBS Warburg 86 .
Mining & Metals Primer 07 April 2003 Section 3: Major indicators UBS Warburg 87 .
multiplied by volume. We have devoted a page to each of the major lead indicators. listed below. we look to macro and industry variables to frame our view on valuation. Major lead indicators: s s s s s s s s s s s s Industrial production US Institute of Supply Management (ISM) Manufacturing index Metals prices – MGMI Gold price Commitment of Traders Report (COTR) Ten-year bond yields US Fed funds rate US$ exchange rates Baltic freight rate US auto and business inventories Chinese trade statistics Other useful indicators In the next section. anything that impacts one of these variables will have an impact on share prices. UBS Warburg 88 . pricing power. In this sense. consolidation. we look at some of the leading indicators that have historically been useful for predicting equity performance of the mining sector. we examine in more detail what we perceive to be the sector’s most important drivers. such as cyclicality.Mining & Metals Primer 07 April 2003 Profits are the single most important driver of share prices. exchange rates. demand and uses of materials. cost structures. We also focus briefly on commonly used valuation methodologies. In this section. As such. and the effects of China’s growth on the resources industry. Profits are the difference between price and cost. and we also examine several other indicators that we think are important for specific commodities.
and have resorted to using a number of lead indicators of IP. to try to anticipate an upturn in IP and hence buy into the sector before prices start to lift. UBS Warburg 89 . 1992-2002 145 135 125 115 105 95 85 75 Mar-92 Source: Datastream OECD IP y/y % (rhs) 8.0% 2. the US ISM or a metals price index will be used as an industrial production proxy. Future – still useful? This is one of the most important lead indicators for mining and metals stock performance. so does the use of metals. metals stocks experienced a recovery as investors rotated into value stocks after shunning them for the past several years. This aids profitability. A plot of year/year change in metal prices versus year/year change in IP shows a good correlation.0% 0.0% -6. but more often than not.0% DJ W orld Mining & Metals abs (lhs) Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 -4.0% -2. In recent years. Other related indicators Regional industrial production.0% 4. we believe that investors have started to anticipate an improving trend in industrial production earlier and earlier. Key periods The IP decline in January 1996 heralded a period of underperformance by mining and metals producers that lasted nearly five years. When not to use it? When the tech boom busted in late 2000/early 2001. driving operating rates and prices up. particularly US and European. as data is generally not released until three months after the date represented. Hence the equity indices outperformed despite falling industrial production.0% Explanation Demand for metals. As industrial production grows. and hence their prices. and hence results in investors moving into the mining sector. such as the US ISM index. Freight rates are also another useful indicator.Mining & Metals Primer 07 April 2003 Industrial production (IP) Chart 43: OECD IP versus DJ World Mining and Metals perf rel to DJ World. are driven by industrial production.0% 6.
equities fell more than would have been predicted from the fall in the ISM. ISM reports are usually released in the first week of each month. Manufacturing new orders and employment indices. European PMI. 1992-2002 65 60 55 50 45 ISM manufacturing index (lhs) 40 Jan-92 Source: Datastream DJ W orld Mining & Metals abs (rhs) 150 140 130 120 110 100 90 80 70 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Explanation The US ISM (Institute of Supply Management. Other related indicators ISM Non-Manufacturing index. US durable goods orders and Philadelphia Fed indices are used to anticipate the relative strength of the ISM. but the tip up in 1999 led a rise in equities in absolute terms. Key periods The ISM’s drop in mid-1997 preceded a significant drop in equities. and the downturn in May 2002 was a precursor to an extremely sharp drop in the equity index.Mining & Metals Primer 07 April 2003 US ISM Manufacturing Index Chart 44: ISM Manufacturing index versus DJ World Mining & Metals Index. The ISM has become an extremely important indicator. Also. The Chicago PMI. during the downturn in the latter part of 2002. The ISM also issues data making up current production and new orders indices. a key user of raw basic materials. the correlation broke down. National Association of Purchasing Managers) monitors economic activity in the manufacturing sector. not just for the mining sector but also for the basic materials sector as a whole in recent years. allowing some indication of future movements. and we expect this to continue. formerly NAPM. Future – still useful? This is one of the most widely followed indicators by equity investors worldwide. When not to use it? During the volatile 1995-96 period. One important point to note: the ISM leads the MGMI. There has been a very close correlation between absolute equity performance and the ISM since late 2001. UBS Warburg 90 .
a significant dip in metal prices did not presage a fall in mining equities. then cash flow and hence profits increase.4%).6%). Hence this is a widely monitored index and usually moves in line with mining equities. moving up before they actually increased. Other related indicators Gold price. When not to use it? In early 1993. nickel (1.0%). Future – still useful? Definitely. Key periods The fall in metal prices in early 1996 and again in mid-1997 heralded large-scale declines in stock prices. lead (13. We reiterate that the mining sector is a complicated sector and suggest that no single driver of equity prices exists. metal inventories. The weighting of each metal – aluminium (42. UBS Warburg 91 . In the last 10 years it has not predicted every rise and fall in stock prices. copper (25.Mining & Metals Primer 07 April 2003 Metals prices (MGMI) Chart 45: MGMI versus DJ World Mining & Metals index. zinc (16.9%) and tin (0.6%). if prices go down the opposite occurs. The price of metals is directly linked to the profitability of mining companies – if prices go up. but when used in conjunction with other leading indicators. and the turning point in 1999 and the small upturn in prices in early 2002 led to strong performance for metals equities. It is priced in US dollars. 1985. other price indices such as Reuters CRB Index. In early 1996.5%) – was calculated by comparing each metal’s consumption in the western world with the total consumption of all six metals in the base year. the equity indices appear to have second-guessed an improvement in metal prices. it has provided a good indication of the direction and timing of changes in prices. 1992-2002 150 140 130 120 110 100 90 80 70 Jan-92 Source: Datastream DJ World Mining & Metals abs (lhs) MGMI (rhs) 200 190 180 170 160 150 140 130 120 110 100 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Explanation The Metallgesellschaft Metals Index (MGMI) covers six base metals traded on the LME.
5 7. When not to use it? It is generally a good indicator of the direction of movement.5 4. Key periods In 1994-95 and 1999-2000. Bond yields are well correlated with inflation expectations.0 5. UBS Warburg 92 .0 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Source: Datastream US 10 yr bond rate (lhs) 150 140 DJ World Mining & Metals abs (rhs) 130 120 110 100 90 80 70 Explanation Ten-year bond prices have been well correlated with metals and stock price performance.. Future – still useful? Yes. Inflection points generally show a change in direction of metals prices.0 4.5 5. bond prices were a good lead indicator.0 7. Other related indicators US Fed funds rate.5 6. The bond price tends to be a good lead indicator of materials prices and hence stock performance. if not the magnitude.0 6.Mining & Metals Primer 07 April 2003 10-year bond prices Chart 46: US 10-year bond rate versus DJ World Mining & Metals Index. 1992-2002 8.
as above. when the Fed’s bias shifted. and again in early 1999. metals consumption rises and the sector starts to outperform as a result. UBS Warburg estimates Bias DJ Mining & Metals Explanation As growth is stimulated. Future – still useful? Yes. Other related indicators US 10-year bond yields. When not to use it? Good for inflection points. Key periods In early 1994. UBS Warburg 93 .Mining & Metals Primer 07 April 2003 Fed funds rate Chart 47: US Fed funds target rate and DJ Mining & Metals absolute performance 10% 8% 6% 4% 2% 0% -2% -4% Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 easing bias Fed rates tightening bias 150 140 130 120 neutral bias 110 100 90 80 Fed Rate Source: Datastream. and the Fed shifts to a tightening bias. The shift in bias in January 1998 heralded a deep trough in the equity market. the sector outperformed. but not so effective outside of these times.
gold seems more attractive as an investable asset. COTR for copper and gold. UBS Warburg 94 . Future – still useful? As companies decouple their hedging positions. Normally the gold price is the first metal price to improve in a recovery. 1993-February 2003 145 135 125 115 105 95 85 DJ World Mining & Metals abs (lhs) Feb-95 Feb-97 Feb-99 Feb-01 Gold price US$/t (rhs) 430 410 390 370 350 330 310 290 270 250 Feb-03 75 Feb-93 Source: Datastream Explanation Gold is one of the most early-cycle materials. Other related indicators MGMI. Key periods The price is well correlated with stock performance. boosting its stock price. When not to use it? During the tech boom the gold price decoupled from equity performance. it is unclear whether this will affect the correlation with equity performance.Mining & Metals Primer 07 April 2003 Gold price Chart 48: Gold price versus DJ World Mining & Metals index. The opposite is also true – the chart above shows that gold is a good lead indicator of a declining market as well. As metal prices improve. often due to the actions of speculators. It moved before share price appreciation in 1993 and in mid-2001. other metals prices. particularly in the late 1995 downturn and also during the downturn of 2000. earnings increase and buyers are more likely to buy into a company.
1990-2002 600 400 200 2200 0 1700 3200 Thousands of Short Tons 2700 US$/t -200 -400 Jan-90 1200 Dec-92 Jun-94 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Net Speculativ e Open Interest (LHS) Copper Price. When not to use it? Not so useful in the 1994/95 period. copper prices fell significantly. and vice versa with short positions. as long interest began to bleed off. Basically it records the net speculative positions held by traders on that exchange in those commodities. Datastream Explanation COMEX provides the Commitment of Traders Report (COTR) for copper. Three-month LME (RHS) Source: COMEX. UBS Warburg 95 . Future – still useful? It is useful. palladium and platinum. One other problem is that in times of tight supply. trading positions can promote substantial price volatility.Mining & Metals Primer 07 April 2003 COTR (Commitment of Traders Report) Chart 49: COMEX copper speculative interest versus LME 3-month copper. Key periods In late 2001. gold. traders reversed a significant net short and prices increased on the back of that and also in June 1997. it generally means they are positive on the outlook for metal prices. except as mentioned above when supply is tight and prices are very volatile. When traders hold long positions.
In times of a weakening US dollar.5 0. When not to use it? In the 1998 period. operations outside the US become less profitable and can be forced to close in some cases.1 1.3 1. sector performance has turned up. Real/US dollar. A weaker dollar boosts demand in non-US dollar denominated currencies.2 1. since materials prices in those regions are relatively weaker. As the dollar weakens.6 0. rand/US dollar.8 0. the relationship broke down.2 1. This is more likely to stimulate overproduction and can result in lower metal prices. Other related indicators Australian/US dollar. Australian dollar.0 DJ World Mining & Metals rel (lhs) 0. UBS Warburg 96 . As a result. Future – still useful? Yes. s Key periods The strengthening US dollar in the 1997-2001 period was concurrent with terrible performance in the mining and metals sector. 1993-March 2003 1. local currency denominated costs and dollar revenues. but since the dollar started to weaken in mid-2002.7 0. there is support for price rises and stock performance can improve. mining performance tends to suffer.3 Mar-93 Source: Datastream 1.9 0.8 Mar-03 Mar-95 Mar-97 Mar-99 Mar-01 Explanation During periods of a strengthening or strong US dollar.9 0. performance is generally better. rand and Real mean that producers based in countries outside the US have lower relative costs and higher margins.4 US$/euro (rhs) 1. There are several reasons for this: s Weak commodity currencies such as the euro.1 1 0.Mining & Metals Primer 07 April 2003 Exchange rates Chart 50: US dollar/euro rate versus DJ World Mining & Metals rel perf.4 0. ie.
changes to freight shipping regulations could cause performance to vary. it is important to make sure that it is metals cargo that is causing the step up or down. China’s booming demand for iron ore and alumina in particular was seen as a driver for the high freight rates. Also. but be aware that cargoes other than metals are carried (for example. grain). Freight rates are seen as a broad index of trade volumes and by inference industrial activity. UBS Warburg 97 . Future – still useful? Yes. Other related indicators There are many different freight routes used and they can be indicators of the strength of trade flow to and from different regions. The measure was also a useful indicator of an inflection point in early 1997 and late 2001. coal and iron ore. When not to use it? Since it is not possible to tell just from the freight rate what cargo is being carried. Key periods The upturn in freight rates in late 2002 tipped investors off that the China demand story was going into overdrive. 1992-March 2003 150 140 130 120 110 100 90 80 70 Mar-92 Source: Datastream Baltic Freight Index (rhs) 2400 2200 2000 1800 1600 1400 1200 1000 800 DJ Mining & Metals abs (lhs) Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Explanation High freight rates are an indication that large quantities of material are being moved around.Mining & Metals Primer 07 April 2003 Freight rates Chart 51: Baltic dry freight rate versus DJ World Mining & Metals Index. but may also be due to demand for bulk materials such as alumina. This can be due to cargoes such as grain. The fact that global IP was falling but freight rates were rising helped to tip analysts off to the fact that China was a new player.
and that demand is improving. Future – still useful? Yes Other related indicators N/A UBS Warburg 98 . it is an indication that suppliers are more comfortable with the market situation. This suggests that if inventories do start to rise. As auto inventories improve. which has a knock-on effect on prices. Key periods The dip in business inventories in the 2001-2002 period suggests that suppliers are using a ‘just in time’ inventory strategy during the downturn. Generally. When not to use it? Not overly useful except at points of inflection. 1992-2002 1300 1200 Total US inventory US$bn LH scale 1100 1000 900 800 Jan-92 Source: Datastream 200 180 160 140 US Auto inventoryUS$bn RH scale 120 100 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Explanation Changes in US auto inventories have shown a good correlation with metal prices in the past. a rising inventory of autos means that demand for metals is increasing. it will be interesting to see whether metals prices improve as well.Mining & Metals Primer 07 April 2003 Auto and business inventories Chart 52: US auto and business inventories. unless it is used as a monitor of health of demand.
crude oil. when overproduction in China led to it becoming a net exporter of aluminium in 2002. iron ore. As imports ticked up in late 2002. copper and pulp. Key periods From January 2001 onwards. When not to use it? In some materials such as zinc. aluminium prices started to suffer. oversupply in other regions is also relevant to the price behaviour. Other related indicators This relationship is relevant for materials such as alumina. 1997-Jan 2003 100 80 60 40 20 0 -20 Net imports Aluminium price Kt US$/t 1800 1700 1600 1500 1400 1300 1200 -40 1100 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Source: Chinese Customs Statistics. coal. Datastream Explanation In recent years.Mining & Metals Primer 07 April 2003 Chinese import/export statistics Chart 53: Net imports of aluminium to China versus LME aluminium price. the rise of Chinese industry and the incredible production and consumption growth story in China has had a profound effect on metals and materials prices. UBS Warburg 99 . Future – still useful? China will be of growing importance to materials prices in the future. so did prices. NB: There is further discussion of China in the next section. The chart above looks at aluminium – the correlation between Chinese net imports/exports and price behaviour has been quite strong since late 1999. nickel.
Brent Oil price . we also pay attention to the following relationships: Table 25: Other relevant indicators for the Metals and Mining sector Economic indices Auto registrations Japanese construction US consumer confidence US consumer spending US CPI US durable goods orders US housing starts US inventory to sales ratio US manufacturing capacity utilisation US unemployment Source: UBS Warburg Other industry sectors Chemicals Paper Steel Cement/aggregates TMT Industrials Commodity and price indices CRB index Economist metals index HRC steel JOC index Oil price .West Texas UBS Warburg 100 .Mining & Metals Primer 07 April 2003 Other important indicators In addition to the indicators on the previous pages.
Mining & Metals Primer 07 April 2003 Section 4: Sector drivers and valuation UBS Warburg 101 .
DM/tonne) 900 850 800 750 700 650 600 550 500 450 400 Apr-84 Apr-86 Apr-88 Apr-90 Apr-92 Apr-94 Apr-96 Apr-98 Apr-00 Apr-02 Source: MEPS Cy cle 1: 1987-1992 Cy cle 2: 1992-1996 Cy cle 3: 1996-1998 Cy cle 4: 1999-2001 Valuation is related to the cyclicality of sectors. This means that it peaks and troughs in line with the peaks and troughs of the global industrial production cycle. Chart 54: Gold price and MGMI cycles. The restocking phase drives the amplitude of the cycle. which is amplified by supply issues to varying degrees. For instance. the perceived wisdom is that the best time to buy the steel sector is as pricing nears trough levels.Mining & Metals Primer 07 April 2003 Cyclicality The mining sector. materials have different cyclical behaviours. The condition of supply often determines cycle duration. in line with all the basic materials sectors. Jan-03 Valuation trends are related to the cyclicality of sectors UBS Warburg 102 . 1984-2003 (German HRC price. steel cycles have been shortening in recent years. gold out of the blocks. because of the tightness of supply expected over the next few years. since investors have clear ideas about when is the best time to start buying certain sectors. for instance we believe that the current upcycle could last longer than previously. Cycles are driven by different variables. metals to follow ? Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Source: Datastream. 1989-March 2003 430 410 390 370 350 330 310 290 270 250 Jan-89 Gold US$/oz LHS 1993 Gold price moves up before MGMI The mining sector has peaks and troughs in line with the IP cycle Materials may peak at different times in the cycle and their cycles may last for different amounts of time 240 MGMI RHS 220 200 180 160 140 120 100 2003. and the best time to sell is when pricing nears its peak. is a cyclical sector. mainly demand. Cycles for different materials may be of different lengths. Because of their different uses. for example. UBS Warburg Chart 55: Steel pricing cycles. For instance. gold is generally an early-cycle material.
low er v olatility 40% 35% 30% 25% 20% 1000 15% Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Source: AME. and – as with many basic material sectors – it is perceived that the mining industry has been getting less cyclical due to the effects of consolidation. Chart 57: M&A in Basic Materials sectors and as a percentage of market capitalisation 120 100 80 60 40 20 0 Paper Chemicals M&A Source: UBS Warburg estimates Mining Market Cap Steel Cement US$bn % of Market capitalisation 100% 80% 60% 40% 20% 0% Mining has seen a significant amount of restructuring and consolidation RTZ and CRA and Anglo American led the way UBS Warburg 103 . and several other companies such as Rio Tinto and BHP Billiton have shed non-core activities. which has helped to give the producers pricing power and mitigate the volatility of prices. high volatility The sector has behaved less cyclically in recent years due to the effects of consolidation and pricing power 55% 50% 45% High consolidation. UBS Warburg estimates Consolidation The mining sector has seen some of the most consolidation among the basic materials sectors in recent years. For example. The table overleaf shows some of the major deals that have taken place in the mining industry since 1999. Datastream. Anglo American restructured throughout the 1990s. but mining companies have also focused their operations. later to be known as Rio Tinto. Anglo American has shed its industrial and financial services operations. Not only has the mining sector seen consolidation.Mining & Metals Primer 07 April 2003 Behaviour in the mining sector differs. Chart 56: Aluminium pricing versus consolidation of the industry. The mining industry has consolidated throughout its history but has actively consolidated since the mid-1990s. and the formation of BHP Billiton by the merger of BHP and Billiton in 2001 capped off five years of active consolidation. 1993-2003 2200 LME aluminium price US$/t LHS 2000 1800 1600 1400 1200 Mkt share of top 10 producers RHS Low consolidation. disposing of non-core assets. however. The first move was the merger of the UK’s RTZ and Australia’s CRA to form the largest mining company in the world.
0 0. Venetia Shell Coal Comalco Chalco interest/IPO Geita.5 0. The figure overleaf shows the deals that have gone into the formation of the ‘Big Three’ during the 1990-2002 period.7 1.8 0.4 0.9 0.3 2. Billiton etc.3 2.9 0.2 2.5 0.5 3.0 2.5 1.3 0.5 0.6 2.0 3.2 82.6 0.Mining & Metals Primer 07 April 2003 Table 26: Major deals in the mining sector. BHP Billiton and Rio Tinto – have formed a group that is far in front of the others both in terms of market capitalisation and production capacity. which is out on its own in front of the other second division players.4 0. The ‘Big Three’ are clear market leaders UBS Warburg 104 .0 4.2 1. The ‘Big Three’ – Anglo American.8 This consolidation has led to the formation of market leaders.0 2.5 1.2 1.6 0.3 0.1 1.0 1.8 2.5 0. Rio Tinto CVRD Barrick Xstrata BHP/Mitsubishi BHP Rio Tinto Delta Rio Tinto Goldfields Total Source: UBS Warburg estimates Target De Beers Billiton Reynolds Algroup Cordant VAW assets Franco Nevada Glencore coal Homestake Normandy Normandy North Disputada et al Echo Bay/TVX Gold Tarmac CVRD 31% Cyprus Amax Asarco Caemi/Ferteco Alcoa's Worsley Euro Nevada Rio Algom Gold Fields (SA) AurionGold Winspear.6 0.8 2.6 0.9 1.0 12. Acacia Exxon Columbian assets Peabody Coal Samitri Sutton Resources Asturiana QCT Diamet Ashton Goldfields Lemington WMC Gold Commodity Diamonds Diversified Aluminium Aluminium Aluminium Aluminium Gold Coal Gold Gold Gold Iron Ore Diversifieds Gold Industrial Diversifieds Copper Copper Iron ore Alumina Gold Copper et al Gold Gold Diamonds Coal Aluminium Alumina Gold Coal Coal Iron Ore Gold Zinc Coal Diamonds Diamonds Gold Coal Gold Size (US$bn) 16. 1999-2003 Bidder Anglo consortium BHP Alcoa Alcan Alcoa Norsk Hydro Newmont Xstrata Barrick Newmont Newmont Rio Tinto Anglo American Kinross Anglo American Public IPO Phelps Dodge Grupo Mexico CVRD Billiton Franco Nevada Billiton Driefontein Placer Dome De Beers Anglo American Rio Tinto Alcoa AngloGold Anglo.0 2.8 1. The chasing pack is represented by Alcoa.9 1.
Billiton takes base metal and coal assets Sells interests in JCI & Johnnic in restructuring deal Combines Pt assets in Amplats Acquires 50% of Gencore’s Columbian coal assets Anglo & Minorco recombine and list in London Buys mins in Amcoal and Amic Sells BHP Hawaii Acquisition of Caballo Rojo and Fort Union coal mines 1998 1999 2000 2001 2002 Increases to 52% holding in CQCA Acquires minorities of QNI and Ingwe Buys Jacobs Ranch coal mine Buys additional 3% of Comalco Unbundles SAB holding Buys 23% of Anaconda Nickel Spins out OneSteel Buys La Granja deposit. coal holdings JV with Billiton & Glencore in Columbian coal Restructures eliminating De Beers crossholding Buys additional 2% of Comalco. Peru Buys minority holding in Freeport. takes 40% interest in Grasberg Sale of remaining 10% interest in Pasmino 1996 1997 RTZ and CRA merge to form RTZ-CRA (latterly Rio Tinto) Acquires Magma. Gencor restructured. acquisitions and divestments among the ‘Big Three’. Anglo takes African assets Gencor buys Shell’s mining interests to form Ingwe Sells RTZ Pillar Acquires Nerco & Cordero coal ops in US Increased holding in Coal & Allied to 71% Acquires Tintaya copper mine. coal assets. 1990-2002* BHP Billiton Anglo American RTZ CRA 1990 1991 1992 1993 1994 1995 BHP Gold merges with Newmont Aus. Ashton Mining Sells North Forest Prods De-merger of BHP Steel Buys Disputada copper deposit Buys 20% of Kumba Source: Company data. 80% of Kestrel coal mine Acquisition of North Buys outstanding Comalco shares BHP and Billiton merge to form BHP BILLITON Buys Peabody Aus. to form Newcrest Acquires Supracote. Rio Algom and 56% in Worsley Buys Shell’s Aus. UBS Warburg 105 . merges assets to form BHP Copper Buys remaining 56% of Alusaf. renames it BHP Coated Steel Acquires further 50% in NZ Steel Sells 52% stake in Rio Algom Acquisition of 37% of Coal & Allied Sells holding in Newcrest Minorco takes non-African assets.Mining & Metals Primer 07 April 2003 Figure 12: Major merger. UBS Warburg *Excluding acquisitions outside the mining sector. Buys Coal Mines of Aus.
The attraction of having a diversified portfolio is that while one commodity is not doing well.000 0 2. or stockpile metal out of the market to avoid flooding the market and causing prices to fall.000 The second division of companies represent some of the market leaders in their own fields. others may be performing strongly and can keep your profits up. Pricing power is possible because top producers have more market share UBS Warburg 106 . good performance from its coal. then its earnings are likely to be that much more volatile. As such. and Barrick. An example would be that in the previous two years. However.000 20.000 32.000 Market cap. namely pricing power. UBS Warburg estimates Alcoa Next area for M&A? Up and comings Alcan Anglo American BHP Billiton "Big 3" Rio Tinto 22. Angloplats the largest platinum player. which has changed the structure of the industry for the better. The extensive consolidation of the past five years has given the producers something else. resulting in less metalliferous concentrate being produced). PGM and diamond holdings have kept its profit up. Newmont and Goldfields some of the largest gold producers. To do this a miner might ‘low grade’ a deposit (ie. Asset and geographical diversification has been important in keeping profits less volatile Pricing power Pricing power has come about because the M&A that has gone on in the industry has significantly increased the market share of the top producers.000 8.000 Norilsk Nickel Angloplats CVRD Barrick Gold New mont GoldFields Ltd. 7. US$m Source: Company data. If a company is only exposed to one commodity. these producers have been able to better control supply of concentrate and metal to the industry.000 12. while Anglo American’s base metal division has not been performing as planned.000 Revenues 2001 US$m 16.000 27. 2001 24.000 12.Mining & Metals Primer 07 April 2003 Chart 58: Largest 30 companies (by market capitalisation) in the mining sector. Alcoa and Alcan dominate the world’s aluminium industry.000 4. for instance CVRD is the largest iron ore producer in the world. mine areas that are of a lower grade than elsewhere. Norilsk the largest producer of nickel and palladium. these are mostly one or two commodity companies and are unable to challenge the ‘Big Three’ in terms of the diversification of their assets. Metal producers may decided to take downtime at smelters and refineries. helping to control prices.000 17.
1995-2003E 48% Mkt share of top 10 iron 47% ore producers LHS 46% 45% 44% 43% 42% 41% 40% 39% 38% 1995 1996 1997 1998 Source: AME. we have seen this behaviour most particularly in the copper industry. moving companies down the cost curve. UBS Warburg estimates Copper and steel are two segments showing nascent supply discipline Longer-term supply management is also important 1999 2000 50% 45% 40% 35% 30% 25% 20% 15% CVRD ROIC RHS 10% 5% 0% 2001 2002 2003 Exchange rate effects Pricing power has not been the only reason for rising returns in the mining industry during the late 1990s. Arbed and Aceralia in 2001 to form Arcelor. these industries were considerably less consolidated. In the longer term. Pricing power is made possible by two tactics: supply discipline in a downturn and supply management. For instance. When JFE Holdings announced that it would further rationalise its steel capacity in 2003. Often the effect of this can be twofold: in the long term. where both BHP Billiton and Codelco have shown some willingness. Company data. Chart 59: Market share of top 10 iron ore producers versus CVRD ROIC. and in the steel industry. outperformed on the TSE for several days. The European producer. has indicated that it will do the same. UBS Warburg 107 . it and its peer Nippon Steel. The steel industry has not been well known for its supply discipline in past cycles. it is improving the profitability of the company. and Kawasaki Steel and NKK in 2002 to form JFE Holdings. Alcoa has shut many of its less profitable aluminium smelters in the US Pacific northwest (PNW) because of the high cost of power and labour which made them unprofitable. The chart below examines the improving profitability of CVRD. Arcelor. these tactics are more profitable as well. Examples of this have come in a variety of industries. but in this cycle we have seen the Japanese steel producers rationalising capacity and matching supply with demand.Mining & Metals Primer 07 April 2003 In the current cycle. Before the merger of Usinor. having been responsible for overproducing and contributing to some deep troughs in the past. but in the short term. It is important not to ignore the impact of currencies on mining company profitability. This is the rationalisation of supply whereby companies will close less profitable operations in order to focus on more profitable ones. capacity rationalisation announcements are often greeted with good share price performance for that company and often for its peers. as the consolidation of the iron ore industry increases.
while aluminium has the most in US dollars. UBS Warburg estimates As the US dollar strengthened costs began to fall significantly for producers and profits soared. but many mines are located in regions whose currencies were weakening against the dollar in the late-1990s. It plots the US dollar exchange rate against two major commodity currencies. Chart 61 illustrates this. copper and iron ore have some of the lowest percentages of production in US dollar denominations. The chart below shows the magnitude of this split. 25% by 2002. the Brazilian real and the Australian dollar and against the average cash costs for three commodities shown in Chart 60. for these companies costs were relatively low. but local currency costs are a major aspect of financial structures US$ non-US$ Source: Datastream. 1996-2003E 100 90 80 70 60 50 40 30 1996 1997 1998 1999 2000 2001 2002 2003E Al Cash costs in real. Chart 61: Mining cash costs and exchange rates. In Chart 61. UBS Warburg estimates A$/US$ Iron ore Cash costs US$/t UBS Warburg 108 .Mining & Metals Primer 07 April 2003 This is a significant issue. particularly so because of the fact that metals are generally traded in US dollars. As a result. Chart 60: Material production split by producer currencies 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% al Go ld um er re Oi l St ee l Et hy len e Co no Iro Co um ini Pu pp lp US dollar revenues. while aluminium cash costs (35% US dollar-denominated costs) fall at most by 6%. aluminium. rand and Australian dollars fall with a strengthening US dollar BRL/US$ Copper Cash costs US¢/lb Aluminium smelter Cash costs Source: AME. In the chart. the cash costs of production for copper and iron ore (22% and 6% of US dollar-denominated costs) fall the most. copper and iron ore. a good indication that exchange rates play an important role in profitability.
Mining & Metals Primer 07 April 2003 Another indication of this can be seen in the charts below. The dashed lines show the trends. Chart 62: ROIC versus proxy WACC for emerging markets 50 45 40 35 30 25 20 15 10 5 1995 1996 Profitability can be enhanced by these exchange rate effects Chart 63: ROIC versus proxy WACC for North America 50 45 40 35 30 25 20 15 10 5 0 1995 1996 % 1997 1998 1999 2000 2001 2002 2003E 2004E Mining Sector Prox y WACC % 1997 1998 1999 2000 2001 2002 2003E 2004E Prox y WACC Chemicals Sector Steel Sector Source: Company data. They show that the ROIC for emerging market producers is not only higher. but also above the WACC compared to North American producers over this time period. While this would squeeze their margins in the shorter term. .. we think it is also a positive for the industry in the longer term since. UBS Warburg estimates Mining Sector Paper Sector Source: Company data. The future also looks brighter for metal buyers in non-US dollar denominated countries.5%) against the ROIC for various basic material sectors.. which should further help the industry. Chart 64: MGMI* versus euro/US dollar rate 200 MGMI (lhs) 190 180 170 160 150 140 130 120 110 100 Mar-93 Mar-95 1. representing base metal prices. UBS Warburg estimates Looking to the future.. Chart 64 looks at the correlation between the MGMI. In addition.1 1 0. because of the cost squeeze. the weakening US dollar is likely to make production costs increase again for the non-US dollar denominated producers.9 0.4 1. *Metals prices in US dollars.. and the US dollar euro rate. but in the long term may also help metals prices increase Mar-97 Mar-99 Mar-01 Source: Datastream.8 Mar-03 A weakening US dollar would squeeze margins of non-US producers in the short term. which plot proxy WACC (regional average 10-year bond yield plus 2. with higher costs in emerging market regions. fewer new marginal projects will be started.2 1.3 US$/euro (rhs) 1. UBS Warburg 109 . many producers will have to look hard at their operations and may have to rationalise a few.
In the mining industry. miners who extract their own material from the ground. so have base metal prices. as well as any credits. they are willing to pay more and metal prices are rising. Transport costs s These are generally known as cash costs. It then receives a credit on its cost structure for the revenue from that commodity against its production costs. non-US buyers of metals are now able to pay out less money in their own currency for metal. In general for mining. the structure is slightly different. such as by-product credits 3). 2002 100% 80% 60% 40% 20% 0% Aluminium Copper mine smelting Raw materials Power Other Depreciation Iron ore Labour Interest Coal Consumables Freight Nickel Source: AME. For smelters there will be a raw material cost as well. treat it and smelt it to produce metal) and for smelters. As such. One of the reasons for this is that with the weakening dollar. UBS Warburg estimates By product credits occur where a company mines more than one commodity at a particular site. labour. non cash costs such as: — — Capex and Depreciation Interest. so have base metal prices. The chart below shows industry cost structures for various segments of the mining sector. s To these may be added other. Cost structures Cost structures are of great importance to an industry. and that as the dollar has weakened over the past six months. Chart 65: Cost comparisons for various commodities. Brook Hunt. For instance Norilsk Nickel receives a credit due to its PGM production and the Grasberg copper mine receives a credit from its gold production. costs may be broken up into three main components: s Cost structures in the mining industry are much more transparent than in other basic industries Mining costs (includes energy. 3 UBS Warburg 110 . cost structures are quite transparent relative to other basic materials industries and there is much information available.Mining & Metals Primer 07 April 2003 The chart shows that as the dollar has strengthened. For integrated producers (ie. mining as well as crushing and concentrating.
Mining & Metals Primer 07 April 2003
One often-used method to compare mining projects, and often companies, is looking at the cost curve. This is a chart that graphically depicts the magnitude of production of a particular company/project along the x-axis, with the company/project’s cost of production on the y-axis. Using this method it is possible to compare individual companies/projects with each other and with the industry.
Chart 66: Copper mine cost curve, 2000
80 70 C1 Cash Cost (c/lb paid Cu) 60 50 40 30 20 10 0 0 5000 10000 15000 20000 Cum ulative Pr oduction (Mlbs Paid Cu) Freeport Indonesia Escondida
Cost curves are used to plot the magnitude of production against costs
Source: Brook Hunt
In terms of valuation, the three most common multiples used in the mining sector are EV/EBITDA, P/NPV and PE. In the steel sector, the most common multiple is EV/IC. As a result of the good cash flows seen for many mining companies, multiples such as EV/OpFCF and P/CF may also be used and, when comparing with other basic materials sectors, P/BV also may be used. The appendix contains definitions of UBS Warburg’s core EV multiple calculations.
Chart 67: EV/EBITDA and P/BV for the global mining sector, 1992-2002 14 13 12 11 10 9 8 7 6 5 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 EV/EBITDA, P/NPV and PE are the most common valuation multiples in mining
Source: IBES, Worldscope, UBS Warburg estimates
As Chart 68 shows, the market does not necessarily reward the sector for higher returns.
UBS Warburg 111
Mining & Metals Primer 07 April 2003
Chart 68: EV/EBITDA and ROIC for Global Mining sector, 1992-2002 14 13 12 11 10 9 8 7 6 5 4 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 30 25 20 15 10 5 ROIC remains high despite the downturn in 2002, as valuations plummet
Source: IBES, Worldscope, UBS Warburg estimates
One of the other ways to look at company valuations is to plot P/NPV for specific companies as in Chart 69.
Chart 69: Rio Tinto P/NPV, 1998-February 2003 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 Jul-98 Jul-99 Jul-00 Jul-01 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jul-02 Jan-03
Source: Datastream, UBS Warburg estimates
Another way to look at valuations that is of some interest at the moment is comparing peak and trough valuation multiples.
UBS Warburg 112
Mining & Metals Primer 07 April 2003
Chart 70: EV/EBITDA 2004E versus 5-year forward EV/EBITDA range for major segments 20 18 16 14 12 10 8 6 4 2 0
5 year peak Current level
5 year trough Aluminium avge Copper avge Global avge Diversified avge Gold avge Nickel avge Coal avge
Source: UBS Warburg estimates
Many North American investors prefer to look at PE ratios. While this is a reasonable comparison for stocks within one particular country, global comparisons of PE ratios are made less valid because of the different tax regimes and accounting treatments in countries that are applied to the P&L to generate EPS. In addition, for many cyclical stocks, PE ratios can swing wildly because of low or even negative earnings in particular years, especially for single commodity stocks.
Chart 71: PE (1 yr forward) for the mining sector versus key stocks, 1992-2003E 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 01/92 01/93 01/94 01/95 01/96 01/97 01/98 01/99 01/00 01/01 01/02 01/03 Mining sector
Source: UBS Warburg estimates
North American investors look at PEs, which is not as effective as a global comparator because of its volatility and the effect of different tax regimes
Alcoa has negativ e earnings; comparison not meaningful Alcoa has v ery low earnings; comparison not meaningful
Demand and uses of metals
Many commentators, when looking at metal price behaviour, will only look at the supply side of the equation and do not focus closely on demand. We believe that demand trends, and end-use markets for metals and commodities are just as important for metal behaviour. Demand for metals and hence commodity prices are driven by industrial production. A rough rule of thumb is that a 1% change in IP impacts metals prices by around 10%, which would affect a diversified by 5-10% and a pure play by as much as 30%.
Demand trends and end use markets are at least as important as supply
1% change in IP can affect earnings for a diversified by 10%, and 30% for a single commodity company
UBS Warburg 113
Therefore. it is also important to look at regions. For instance. such as Alcoa. bridges. and indeed countries. such as Alcan. which are less likely to be as badly affected in a downturn and are much more defensive industries. As a rule. Aluminium may also be used in the building and packaging industries. consumer applications as a whole tend to be more defensive than industrial applications during a downturn. in developed countries. Different regions. It shows that at an early stage of a country’s development. all of these sectors are likely to be hit by a downturn in industrial production. the absolute usage of materials such as steel is less than for countries that are not so far along in their industrial development. Company data. would be less exposed to earnings risk than other players. For instance. Brook Hunt. Table 27: Summary of uses of materials Industrial applications Material Aluminium Copper Gold Lead Nickel Palladium Platinum Steel Tin Zinc 57% 23% 45% 60% 36% 25% 34% 10% 26% 24% 14% 6% 75% 3% 92% 5% 4% 10% Building/ constr’n 18% 6% Transport 31% Electrical 9% 61% Machinery & equip’t 9% 20% Alloys* Chemicals Others 16% 13% 12% 12% 8% 2% 13% 10% 16% 10% End uses are important to determine demand trends Consumer applications can be more defensive during a downturn Consumer applications Packaging 17% Jewellery Investment Other 78% 8% 2% 5% 40% 20% 1% 14% Source: AME. with higher exposure to Aerospace and Defence. When discussing demand for materials. in aerospace. are at different stages of their development cycle and this can influence the amounts of material they require. it consumes much more steel than later on. A stylised view of per capita consumption for steel and its relationship to GDP per capita can be seen in Chart 72. We have used China as an example of a country that is developing rapidly. *including plating. UBS Warburg estimates. This is logical since at the beginning of a country’s development it is building a much larger amount of roads. The splits by end use for many common metals are shown in the table below. we believe that companies with much more exposure to consumer sectors. aluminium may be used in the manufacture of autos. in electrical applications and in machinery and equipment. UBS Warburg 114 . railways and buildings. However. particularly for specific stocks.Mining & Metals Primer 07 April 2003 The end uses of metallic products are also of importance.
20 0. Europe E.50 1.0 E.0 Platinum/g RH scale GDP/Capita US$K Gold/g LH scale Source: AME. which has been the biggest demand story in commodities over the past five years.30 0.00 40.0 0.0 Aluminium 20.0 14.0 20. Table 28 shows Chinese demand for a variety of metals in the 1995-2002E period.0 China 2.0 16.Mining & Metals Primer 07 April 2003 Chart 72: Steel consumption curve for developing countries Steel consumption/capita kgs 900 800 700 600 500 400 300 200 100 0 China 2002E Ex pected c onsum ption curv e for China Av erage consumption curv e for dev eloped countries 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 GDP/capita US$k Source: IMF. UBS Warburg estimates Source: GFMS.25 0.com.05 0.0 6. China’s consumption growth has been key for many segments UBS Warburg 115 . IISI. UBS Warburg estimates China Looking at demand leads into a look at China. and shows a CAGR for the demand growth during this period.0 0.0 10.10 0. Europe North America Japan North America Japan Chart 74: Metal consumption trends 2.00 W. GeoHive.40 0.0 40.00 0. Europe Latin Asia* America Africa 10.0 Copper 30. OECD. UBS Warburg estimates We also include per capita data for consumption of other metals to give a comparison for the main regions and countries of the world. Europe Australasia W.15 0.0 0.35 0.0 12.0 4. Chart 73: Metal consumption trends 18.0 8.0 GDP/Capita US$K Australasia Kg/capita W.0 10.0 30. Brook Hunt. Johnson Matthey. GeoHive.50 China North America 0.00 1.com. OECD. Europe g/capita North America Japan 0.
0 105.9 140.0 222.0 CAGR 1998-2002 14% 15% 26% 15% 8% 14% -9% 26% Source: AME.545 2. WBMS.422 36.0 2001 3.100.2 1. ILZSG. pulp.0 1999 2. ILZSG. GFMS.0 195. and has occurred for many other China raw materials such as crude oil. which show China’s percentage of world supply and demand in 1995 and 2002. UBS Warburg estimates As can be seen from the table. BP Amoco.926 1. Johnson Matthey. GFMS.6 950.0 2002E 4.548 91.269 42.0 141.7 750 109.0 116.0 108. 1995-2002E Demand growth in China has been over 10% per annum for most materials in the last five years China represents more than 15% of global consumption in eight major basic materials Aluminium Ethylene 1995 2002E Source: AME. Chart 75: China’s consumption as a percentage of the world.450 141.200 117. Tex report.499 1. 1995-2002E Unit Aluminium Copper Nickel Zinc Iron ore Steel Gold Platinum Kt Kt Kt Kt Mt Mt t 000 oz 1995 1.0 920 116.0 829 110.113 2. IISI.9 1.Mining & Metals Primer 07 April 2003 Table 28: Chinese metals demand.560.0 2000 3.235 70. Johnson Matthey.0 1997 2. This trend is not confined to metals. CEM Bureau.152 36.0 202.8 1. China’s contribution to the world’s consumption has also grown considerably. and in the high teens/twenties for the other commodities.611 157. WGC.0 1. the sheer size of the numbers makes that necessary.0 1.260 1. WGC. UBS Warburg estimates It is however important to look at the situation in terms of China’s supply as well.0 170. Tex report.0 213.276 42.506 45.8 47. paper and cement. RISI. SRI.2 620.0 285. IISI.0 830 123.8 202.0 290.879 60.942 1.9 365. ethylene.0 305.0 1.350 124. CRH Metals.300. CRH Metals. The industry has identified China as a key inflection point. demand growth over the past five years has been over 10% per annum in all but two of the materials. WBMS.0 132.425 1. and we would suggest that the story is better illustrated in the following charts. Platinum Cement Nickel 40% 35% 30% 25% 20% 15% 10% 5% 0% Steel Pulp Zinc Iron ore Copper Gold UBS Warburg 116 .0 1998 2.0 1996 2.6 1.0 409.0 98.135 1.
2002-03E 180 160 140 120 100 80 60 40 20 0 Aluminium Zinc Nickel Lead Copper Iron Ore* 2002 China/Global % Source: AME. China has contributed a substantial amount to materials demand growth in 2002. based on China’s rocketing consumption story. Chart 78: China’s contribution to world consumption growth. iron ore. Brook Hunt. 2002 40% 35% 30% 25% 20% 15% 10% 5% 0% Steel Copper Alumina Iron ore Gold Pulp Aluminium Ethylene Platinum Cement Nickel Zinc % of w orld supply % of w orld demand % of w orld supply % of w orld demand Source: Source: AME. ILZSG. UBS Warburg estimates Positive influence for platinum. copper. UBS Warburg estimates Those materials in which China is a positive for the mining industry are those in which it has less domestic production than consumption. Johnson Matthey. However. IISI. and we would expect it to continue to do so in 2003 (Chart 78). and in 2003. 1995 40% 35% 30% 25% 20% 15% 10% 5% 0% Steel Copper Alumina Iron ore Gold Pulp Platinum Cement Zinc Nickel Aluminium Ethylene Chart 77: China’s percentage of world supply and demand. zinc. nickel and steel A turning point for zinc and steaming coal percent 2003E China/Global % In 2002. Tex report. CEM Bureau. SRI. steaming coal where its massive export position has depressed prices in recent years). namely platinum. CRH Metals. what is interesting is that in materials where China is a major producer. To put this story into context. GFMS. China could contribute 30-70% of world consumption growth in 2003 in these materials UBS Warburg 117 . the gap between supply and demand is starting to narrow. while we do not expect growth to continue at the same rate. We suggest that steaming coal and zinc could also be nearing a point of inflection. alumina.Mining & Metals Primer 07 April 2003 Chart 76: China’s percentage of world supply and demand. WGC. iron ore. RISI. alumina. and where it has historically been a negative influence on the industry. we still expect it to contribute 30-70% of world consumption growth. nickel and steel. China contributed between 40% and 160% of global consumption growth in materials. WBMS. copper. (ie. BP Amoco.
zinc. Risks: We would tend to be less positive on upstream industries such as aluminium. resources). which we believe give a good idea of industrial production. We believe companies specialising in selling concentrate.Mining & Metals Primer 07 April 2003 To give some idea of how Chinese consumption is relative to the price of metals. alumina and iron ore should benefit more from China in the long term than metal refiners and steel producers. Datastream Bottom line: China’s consumption story shows few signs of abating in 2003. Datastream Source: Chinese Customs Statistics. we monitor Chinese monthly import and export statistics. alumina and concentrates. it is a market of great importance to mining and steel companies and should be monitored closely. We include some charts below showing the correlation between Chinese imports/exports and metal prices. Chart 79: Chinese copper imports and LME price 300 250 200 150 100 50 Copper imports Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jul-02 Jan-03 0 Copper price US$/t Chinese import/exports statistics are a good indicator of China’s IP Chart 80: Chinese aluminium net imports and LME price 2800 2600 2400 2200 2000 1800 1600 1400 1200 100 80 60 40 20 0 -20 -40 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jul-02 Jan-03 3MMA Net imports Kt US$/t Aluminium price 1800 1700 1600 1500 1400 1300 1200 1100 Kt Source: Chinese Customs Statistics. refined copper. but cannot make up for what it doesn’t have (ie. UBS Warburg 118 . tin and steel than we are on raw materials such as iron ore. lead. China has the capacity to build and operate processing industries at low cost. China has already grown to be a substantial user of world materials and. although it is likely to slow down to some degree. as such.
1998 2001 1999 2002 Source: Chinese Customs Statistics Source: Chinese Customs Statistics Source: Chinese Customs Statistics Chart 87: Zinc metal net exports 600 500 400 300 200 100 0 Zinc metal 1998 1999 2000 2001 2002 Kt Chart 88: Steaming coal net exports 80 70 60 50 40 30 20 10 0 Steaming coal 1999 2000 2001 2002 Mt Source: Chinese Customs Statistics Source: Chinese Customs Statistics UBS Warburg 119 .000 2.500 1.500 2.000 Kt 4.000 0 1997 2000 Alumina 1998 2001 1999 2002 Chart 82: Aluminium net imports 800 600 400 200 0 -200 -400 Aluminium 1997 2000 1998 2001 1999 2002 Kt Chart 83: Copper imports 3.Mining & Metals Primer 07 April 2003 Summary of China’s imports and exports of key materials Chart 81: Alumina imports 5.000 1.000 2.000 500 0 Copper 1997 2000 1998 2001 1999 2002 Kt Source: Chinese Customs Statistics Source: Chinese Customs Statistics Source: Chinese Customs Statistics Chart 84: Iron ore imports 120 100 80 60 40 20 0 Iron ore 1997 2000 1998 2001 1999 2002 Mt Chart 85: Nickel imports 35 30 25 20 15 10 5 0 -5 -10 -15 Kt Chart 86: Zinc in concentrate imports 500 400 300 200 100 0 -100 -200 Kt Nickel 1997 2000 1998 2001 1999 2002 1997 2000 Zinc in conc.000 3.000 1.
Mining & Metals Primer 07 April 2003 This page is left intentionally blank. UBS Warburg 120 .
Mining & Metals Primer 07 April 2003 Section 5: Major mining companies UBS Warburg 121 .
4% 6% Southern Africa 34% Other Africa 10% Australasia 6% Recent acquisitions/disposals 2002/2003 . base and ferrous metals. whether listed or not. Bloomberg code: AAL LN. 35% in Avmin for US$159m. Anglo American plc has been active in disposing of ‘non core’ assets other (principally most of its industrial and financial services interests) .4% America Oppenheimer NF 5. 2002 Anglo American was formed through the combination of Anglo American Corporation of South Africa (AACSA) and Gold Base Minorco in 1998. coal. have emerged as the three largest companies. diamonds.181m* Company profile Chart: Earnings by commodity. The process of transferring the primary listing to London was the culmination of a frenetic period of 11% Metals & restructuring. Europe.angloamerican.raising some US$4 billion in the process . The Group has operations and developments in Southern Africa. The ‘Big Three’. Black Mountain (zinc). RSA Palabora copper mine. 26 years of resources Source: Company data. They have also undergone significant internal growth and their focus on long life and low cost projects has also resulted in them reaching this position.Purchased: 20.9m and of Salobo for US$50. QLD Australia Begins copper prod'n at Escondida. platinum. additional 3.and Platinum 10% acquiring some US$10 billion of new ‘core’ businesses. Australia Gregory coal mine. 100% of Disputada for US$1.uk Projects in the pipeline Buxton Cement (industrial Minerals). completion: CY 03 Skorpion. following a period of prolonged consolidation in the mining industry. Chile Ekati diamond mine. Source: UBS Warburg estimates UBS Warburg 122 . BHP Billiton and Rio Tinto.L. 2002 Chairman: Sir M Moody-Stuart South CEO: AJ Trahar America CFO: AW Lea 7% Major shareholders: (94% free float*) North Old Mutual 6.Mining & Metals Primer 07 April 2003 This section contains half-page summaries of some of the world’s major listed mining companies. UBS Warburg estimates Anglo American UK/South Africa Analysts: Paul Galloway +44-20-7568 4117 / Andrew Snowdowne +44-20-7568 1823 Market cap: £14. Figure 12 in the previous chapter illustrates the sort of changes undergone by these companies. Coal Minerals South and North America and Australia. Canada Diavik diamond mine Future Going underground. Anglo American. as well as additional sections on other major mining companies not under coverage. It has significant and focused interests in gold.O. completion: CY03 & CY04 Platinum development projects at AngloPlats Source: UBS Warburg estimates Company structure Chart: Turnover by origin. both in terms of market capitalisation and size.3bn. joint ventures and associates is a global leader in the mining and natural 18% 17% resources sectors. sale of Tati Nickel for US$75. as a result not only of M&A.9% of Gold Fields for US$210m. a definite two-tier structure has formed.9m Source: UBS Warburg estimates Europe 37% *As at: 21-Mar-03. In the period since its listing.195m / US$22. another 10+ years 20+ years Another 5+ years New underground mine development has a further 20 year mine life A further five years' mine life Projected 20 year mine life 10 years worth of reserves. RSA Mt Tom Price iron ore mine. Internet address: http://www. The ‘Big Three’ As described previously. ADR: AAUK. 1957-present Company Anglo American Rio Tinto Rio Tinto BHP Billiton BHP Billiton/Rio Tinto BHP Billiton Rio Tinto Project started 1957 1965 1966 1980 1990 1998 2003 Project Western Deep Levels gold mine. Table 29: A representative sample of organic development projects by the ‘Big Three’. Industrial industrial minerals and forest products. which have seen them become the pre-eminent stocks in the sector.increased stake in Anglo Platinum (70% interest as of Dec 2002) 2002 . 14% 12% Reuters code: AAL. but also of organic development. Forest 18% Products Diamond Anglo American plc with its subsidiaries.co.1% in Kumba for US$242m.
Q3 03 Atlantis. Bloomberg code: RIO AU Projects in the pipeline Diavik (diamonds) completion scheduled for CY 03 Hail Creek (coking coal). US Borax. completion: CY 05 Steam.7% M&G 3. aluminium. mins 15% 14% Gold & Rio Tinto is one of the world's largest mining conglomerates with major interests in copper. Bloomberg code: BHP AU. aluminium. These include the Mozal II aluminium expansion. QIT/RBM TiO2 feedstock. energy coal. NWS train 4 expansion. Indonesia. diamond mineral sands and borax. Major operations are world-class. It is dual listed in London and Australia.667m / US$34. Europe and Southern Africa. Q1 04 Mt Arthur North. In 1997. 2002 BHP Billiton is the world's largest diversified resources company. A zero hedging policy for commodities is maintained. RTZ became Rio Tinto plc and CRA became Rio Tinto Ltd. BHP Billiton has a number of projects in Coal ium the pipeline that will aid its growth in CY 04 onwards. 40% of the Freeport/Grasberg expansion and a major investment in US domestic steaming coal in the Powder River basin. and with lesser exposure to diamonds and gold.3% Africa 8% Indonesia 9% Europe & other 6% Recent acquisitions/disposals 2000 . Alumin. 2006 Recent acquisitions/disposals 2002 . completion: CY 04 Comalco Alumina Refinery (alumina). Reuters code: RIO. Key operations include Hamersley Iron. ADR: RTP. Mining Area C in iron ore.N. Leigh Clifford 5% Aus/NZ CFO: Guy Elliott 42% Major shareholders: (100% free float*) Legal & General 3. in our view. Internet address: http://www. gas. 13% 19% Escondida Phase IV. The Energy 6% AluminPetroleum division's major assets are Bass Strait and NW Shelf in Australia. Q2 03 Hillside. aluminium.N. coal. BHP.BHP Steel demerger 2002 .exit from Ok Tedi copper mine.827m* Company profile Chart: Sales by commodity. Internet address: http://www. Ind. aluminium. ADR: BHP. Bloomberg code: BLT UK Projects in the pipeline Mozal 2.8 billion Source: UBS Warburg estimates N.AX.bhp. iron ore. Australia. Steel eum Materials 19% Key businesses are coal (coking and thermal). in 2001.328m / US$27. Q4 03 Ohanet.Acquired Peabody (coal) for US$550 million 2000 . 30% *As at: 21-Mar-03.Acquired North (iron ore producer) for US$2 billion 2000 .Acquired Comalco (aluminium) minorities for US$0. Base Steel Metals Materials 12% 22% Reuters code: BHP. Source: UBS Warburg estimates UBS Warburg 123 . oil/gas.sale of interest in PT Arutmin Indonesia energy coal operations 2000 .AX. the Mount Arthur North steam coal project Carbon and the Ohanet gas project in Algeria. 30% of Escondida copper.acquisition of 50% interest in Cerrejon Zona Norte energy coal mine Source: UBS Warburg estimates Source: UBS Warburg estimates Company structure Chart: Turnover by region.L.112m* Company profile Chart: Earnings by commodity. coal 17% Gold 8% Source: UBS Warburg estimates Steel making mats 23% Company structure Chart: Turnover by region.riotinto. Papua New Guinea 2001 . 2003E Rio Tinto was formed by the merger of RTZ Corporation of the UK and CRA of Australia to form a dual-listed company Copper in December 1995. 2002 Chairman: Donald Argus Other North 11% CEO: Charles Goodyear America Aust-ralia CFO: Chris Lynch 15% 10% Major shareholders: (100% free float*) Other JP Morgan (BHPB Ltd) 15% Asia Capital (BHPB plc) 8% 13% South Korea 7% Japan 14% *As at: 20-Mar-03. mostly 12% 11% lowest-cost quartile and located in North and South America.L. stainless steel and petroleum. 2002E Chairman: Sir Robert Wilson LatAm CEO: R. formed by the merger of the UK-listed South African Stainless Other Petrol9% miner Billiton plc and the Australian mining company. Bloomberg code: RIO LN.au Reuters code: BLT. Source: UBS Warburg estimates Europe 30% Rio Tinto UK/Australia Analysts: Paul Galloway +44-20-7568 4117 / Glyn Lawcock +61-2-9324 3675 Market cap: £17. Am. iron ore. completion: CY 03 Freeport DOZ (copper). base metals.com.com Reuters code: RIO.Mining & Metals Primer 07 April 2003 BHP Billiton Australia/UK Analysts: Glyn Lawcock +61-2-9324 3675 / Paul Galloway +44-20-7568 4117 Market cap: A$58.
N. resulting in lower gas consumption. Source: UBS Warburg estimates UBS Warburg 124 . Reuters code: AGU. but construction of the new Penna shaft was recently completed to provide access to deep reserves after depletion of reserves at Shafts No. Gold In addition to considering a project to access the deep development ounces at LaRonde.Rasmussen Ridge (Idaho) Phosphate Mine acquired 1996 . Reuters code: AEM. Its principal asset is its LaRonde mine in northern Quebec. at the Phossame time. It produces gold and silver dore bars on site as well as copper and zinc concentrates. It is the largest North American nitrogen producer and owns three of the most modern plants.386m* Company profile Chart: Sales by commodity. two LaRonde satellite deposits.agnico-eagle. acquired Source: UBS Warburg estimates US 67% *As at: 21-Mar-03. Bloomberg code: AGU US. 2001 Agrium's history dates back to 1931 when Cominco Ltd. Silver 14% The LaRonde underground mine located in the Cadillac Belt of Quebec is Agnico-Eagle's flagship asset. A large portion of Agrium's sales are in the higher-priced US Pacfific north west and western Canadian markets leading to even better margins. an IPO for Cominco 33% 0% Fertlizer Ltd. phate Agrium is a major North American fertiliser producer with nine nitrogen plants. 2002 Chairman: James D.com Projects in the pipeline LaRonde expansion Goldex (LaRonde satellite deposit) Lapa (LaRonde satellite deposit) Source: UBS Warburg estimates Company structure Chart: Sales by region. Nasso CEO: Sean Boyd CFO: David Garofalo Major shareholders: (100% free float*) Fidelity 18% TD Asset Mgmt 3% Recent acquisitions/disposals None Canada 100% Source: UBS Warburg estimates *As at: 20-Mar-03. results in Agrium having some of the world's lowest-cost ammonia and urea plants. Their efficiency. 2002 Agnico-Eagle is an intermediate gold producer headquartered in Toronto with common share listings on the TSE and Copper Zinc NYSE. Internet address: http://www. 2001 Chairman: Frank W. installed facilities to transform sulphur dioxide emissions from Nitrogen Other its smelting operations into commercial fertilisers. Waterman 6% Major shareholders: (100% free float*) State Street 5% T Rowe Price 5% Canada 19% Recent acquisitions/disposals 2000 . shareholders approved the name change to Agrium Inc.com Projects in the pipeline 1% Potash 11% Sulphate & other 3% Retail 52% Source: UBS Warburg estimates Company structure Chart: sales by region. was made on the TSE. In 1995.Viridian Inc. two phosphate plants and one potash mine. Bloomberg code: AEM US.N. Mining has been under way since 1988. and. Source: UBS Warburg estimates Agrium North America Analysts: Brian MacArthur +1-416-350 2229 / Mary Ellen Thorburn +1-416-814 3694 Market cap: US$1.Mining & Metals Primer 07 April 2003 Other companies (alphabetical order) Agnico-Eagle Mines North America Analysts: Brian MacArthur +1-416-350 2229 / Jaret Anderson +1-416-814 3689 Market cap: US$984m* Company profile Chart: Sales by commodity. Pronto Other CEO: John M. Internet address: http://www. in 1993. Agnico-Eagle management 77% is also analysing the potential of Goldex and Lapa. Van Brunt 8% Argent-ina CFO: Bruce G. 1 and 2.Unocal agricultural products division acquired 1998 . The operations expanded and. the stock began trading in the US. combined with their favourable location in Alberta where gas costs are typically lower than those of competitors. Agnico-Eagle has a non-hedging policy and 6% 3% consequently does not sell any of its gold in the forward market.agrium.
automobiles. Alouette and we also expect growth in packaging through acquisitions. Alma and Alouette Source: UBS Warburg estimates Aluminium 100% Company structure Chart: Sales by region.N. Merszei Pacific Major shareholders: (100% free float*) 14% Fidelity 5% US Other BZ Group 5% 36% Europe Recent acquisitions/disposals 20% 2003 .N.alcan. 2001 Alcan began as a subsidiary of Alcoa in 1902 but was divested in 1925. The company grew through acquisition in the 1980s and in 2000 merged with algroup to form one of the world's major aluminium producers. Alcan is a global aluminium player with some low-cost alumina assets.alcoa. The company is one of the most effectively managed 9% eered mining companies in the world.Mining & Metals Primer 07 April 2003 Alcan North America Analysts: Brian MacArthur +1-416-350 2229 / Daniel Brebner +1-416-814 3688 Market cap: US$9. Internet address: http://www. Pack'g 14% Primary Metals 16% Reuters code: AA. In addition. 2002 Chairman: Alain Belda CEO: Alain Belda Other CFO: Richard Kelson Amer-icas Major shareholders: (100% free float*) 8% Wellington 7% Fidelity 6% Pacific 8% Europe 21% *As at: 20-Mar-03. while also seeking profitable growth opportunities (internally and externally) to maximise shareholder value. and compelling processing technology potential (inert anode). Reuters code: AL. expected to be completed in mid-2003 2002 . and its automotive business is well positioned to take advantage of a sector that is one of the fastest-growing end-users of aluminium products. 2002 Formed in 1894 as the Pittsburg Reduction Company and renamed in 1907 as the Aluminium Corporation of America.acquired Ivex Packaging for US$790m 2002 . Bloomberg code: AA US. Alcan has a strong specialty packaging business.acquisition of 40% of the low-cost Alouette smelter in Quebec Germ-any UK 2000 . a competitive primary metal business and a significant fabricated aluminium business. 2001 Chairman: John R. Alumina EnginAlcoa is the world's largest integrated aluminium producer. We believe that Alcan will continue to realise synergies and restructuring savings through its cost reduction initiatives.com Projects in the pipeline Potential brownfield expansions at Gove. including aircraft. Alcoa's aluminium products are used 14% 24% in a wide variety of applications. Some examples of growth in alumina/aluminium include expansions at Gove.Alcan-algroup merger 11% 8% Source: UBS Warburg estimates *As at: 21-Mar-03. Internet address: http://www.acquired Fairchild Fasteners for US$657m Company structure Chart: Turnover by region. diversified downstream Other Prods product portfolio.944m* Company profile Chart: Turnover by segment.465m* Company profile Chart: Sales by commodity. Evans Other Asia & CEO: Travis Engen 6% Canada Other 5% CFO: Geoffery E. buildings and packaging. Source: UBS Warburg estimates Alcoa North America Analysts: Daniel Brebner +1-416-814 3688 / Brian MacArthur +1-416-350 2229 Market cap: US$17. Source: UBS Warburg estimates US 63% Source: UBS Warburg estimates UBS Warburg 125 .acquisition of VAW Packaging (FlexPac). Alma.com Projects in the pipeline Fjaroaal smelter completion scheduled for CY 2005 Baie-Comeau smelter expansion completion scheduled for CY 2010 Deschambault smelter expansion completion scheduled for CY 2013 Source: UBS Warburg estimates Flat Rolled Prods 23% Recent acquisitions/disposals 2002 . . with a highly competitive position in the alumina market. Bloomberg code: AL US.
J.com.Mining & Metals Primer 07 April 2003 Alumina Ltd Australia Analysts: Glyn Lawcock +61-2-9324 3675 / Fleur Grose +61-2-9324 2834 Market cap: A$5. Gold 100% Reuters code: ANGJ. alumina chemicals and two aluminium smelters. 2.awc.250ktpa (2003) Suralco .038m* Company profile Chart: EBIT by commodity.au Projects in the pipeline AWAC's announced brownfield expansions: Jamalco . Bloomberg code: AWC AU. mining. and icals is the world's largest producer and third-party seller of alumina. CEO: Bobby Godsell America CFO: Jonathan Best 7% Major shareholders: (47% free float*) N. ADR: AU.N.acquired Australia's Acacia for US$443m Source: UBS Warburg estimates *As at: 20-Mar-03. Since that time it has started to diversify out of southern Africa.8m oz.purchased 40% stake in Morila mine from Randgold Resources for US$132m 12% 1999 .za Projects in the pipeline US$160m Mponeng projected to increase production by 2. Source: UBS Warburg estimates S. Anglo American 51% America SCMB Custody 18% 7% Recent acquisitions/disposals Australia 9% 2002 .316m / US$3. ADR: WMC. It has been moving its operational costs down the cost curve and improving its operating profit. with 20 operations in eight countries worldwide. although half of its mining activities take place in South Africa.sold Free State gold assets to harmony and African Rainbow Minerals E. Internet address: http://www.N. Source: UBS Warburg estimates AngloGold South Africa Analyst: NA Market cap: ZAR27. 5% Aluminium 19% Alumina 76% Reuters code: AWC.111m / US$3. to commence in 2007 US$91m Tau Tona project. 2002 Anglogold was formed in 1998 when the gold interests of the Anglo American group's South African operations were combined into one company to form the world's largest gold producer. Internet address: http://www. alumina refining. 2000 . acquiring operations in North and South America and Australia. 2002 Formed in 2002 when WMC Ltd spun out it out. Africa 65% UBS Warburg 126 . & W.7m oz increase scheduled for 2005 US$240m Moab Phase 2 expansion scheduled for start up in 2012 Source: UBS Warburg estimates Company structure Chart: Mine reserves by region.co.250ktpa (2004) Source: UBS Warburg estimates Recent acquisitions/disposals Company structure Chart: Turnover by region. 2002 Chairman: Russell Edey S. Bloomberg code: ANG SJ. Alumina Ltd (AWC) holds a 40% interest in Alcoa Worldwide Alumina Chem(AWAC) which has interests in bauxite. 2002 Chairman: Donald Morley Other CEO: John Marlay 15% CFO: Bob Davies Major shareholders: (100% free float*) China 10% Chase Manhattan 19% National Nominees 16% Australia 10% Europe 10% Nth America 40% Middle East 15% Source: UBS Warburg estimates *As at: 20-Mar-03.343m* Company profile Chart: Earnings by commodity.purchased 50% stake in Geita mine from Ashanti Goldfields for US$205m Africa 2000 .AX. It is still among the world's largest gold producers.anglogold.
0bn Twickenham Platinum Mine scheduled for completion in July 2004 Source: UBS Warburg estimates Recent acquisitions/disposals Company structure Chart: Turnover by region.antofagasta.J.910m* Company profile Chart: EBIT by commodity.SN). Source: UBS Warburg estimates UK 2% Rest of Europe 28% Recent acquisitions/disposals Nil Source: UBS Warburg estimates UBS Warburg 127 .500 tonnes per day.000 tonnes per day. Although platinum group metals are the primary products of these operations.908m / US$7. In addition. copper and cobalt sulphate are important by-products. Company structure Chart: Sales by region. are situated metals in the Northern and North West provinces of South Africa.co. known as the Bushveld Complex. 15% CEO: Dorian Emmett America 8% CFO: Roeland van Kerckhoven Major shareholders: (38% free float*) Anglo American 58% Standard Bank Nominees 17% Asia Europe 32% 45% Source: UBS Warburg estimates *As at: 20-Mar-03.61% 8% stake in Chilean conglomerate Quiñenco S.L. Internet address: http://www.PK. increasing daily ore throughput to 115.43 cents/lb. 2002 Antofagasta Plc is a UK-listed copper mining group with operations based in Chile.A. The company also holds a 33.000 Mo 2% tonnes in 2003/2004 at an average cash cast of just below US$0.Mining & Metals Primer 07 April 2003 Angloplat South Africa Analyst: NA Market cap: ZAR57.uk Source: UBS Warburg estimates Projects in the pipeline We expect Los Pelambres to complete its plant upgrade in 2003. comprising six mines. Ltd (also known as Anglo Platinum and Angloplat) was formed in 1997 by the Other restructuring of Anglo American's and JCI's platinum assets in the Bushveld complex of South Africa. Bloomberg code: AMS SJ. 2002E Chairman: Barry Davison Africa N. Trans-port 9% Copper 81% Reuters code: ANTO. which was commissioned in the second quarter of 2000.amplats. Bloomberg code: ANTO LN. 2002 Chairman: Andronico Luksic Asia CEO: Jean-Paul Luksic Pacific/ CFO: Hussein Barma Other Major shareholders: (36% free float*) 43% Luksic family 64% Capital 7% N. 2002E Anglo American Platinum Corp. ADR: ANFGF. 1% Base Its operations. The operations exploit the world's richest reserve of 6% platinum group metals. America 6% Rest of Chile LatAm 14% 7% *As at: 21-Mar-03. two smelters. (QNN. Precious metals 93% Reuters code: AMSJ.000 tonnes per day in 2003 from 110. base metals such as nickel.3% of the outstanding shares. Antofagasta is controlled by the Luksic group. The company's largest asset is the Gold and Los Pelambres copper mine. Source: UBS Warburg estimates Antofagasta LatAm Analysts: Tom Meyer +1-212-713 4259 / Marisa Hernandez +1-212-713 4086 / Timna Tanners +1-212-713 2927 Market cap: £1. The start-up of its El Tesoro silver mine in the autumn of 2001 brings the company's beneficial share of copper production to approximately 300.218m / US$1.za Projects in the pipeline R2. which owns 64. a base metals refinery and a precious metals refinery. Internet address: http://www.co.7bn Styldrift (Bafokeng Rasimone mine expansion) scheduled for completion in 2006 R3.081m* Company profile Chart: Earnings by commodity. the mine plans to submit an environmental study for a possible expansion to 175.
the Bulyanhulu mine in Tanzania.com Projects in the pipeline Alto Chicama startup scheduled for 2005 Cowal startup scheduled for 2005 Veladero startup scheduled for 2006 Pascua-Lama startup scheduled for 2008 Company structure Chart: Sales by region. Sokalsky Canada 4% Major shareholders: (100% free float*) 8% Capital 6% Trizechahn Corp. Anglo 5% 3% American has acquired a 34. Source: UBS Warburg estimates *As at: 20-Mar-03. given production problems and the poor cobalt price. Internet address: http://www.265m / US$517m* Company profile Chart: Earnings by commodity.9% stake in Avmin with the view to extracting the iron ore assets and consolidating the South African iron ore industry. the company has structured its hedge book so that hedge earnings are taxed efficiently. and the Kalgoorlie mine and Yilgarn operations in Australia. gold. In essence. Ferrous 63% Reuters code: AINJ. 6% Australia Recent acquisitions/disposals 10% In December 2001. Nkomati nickel expansion Two Rivers platinum project.152m* Company profile Chart: Sales by commodity. The go-ahead of the Nkomati expansion project could also see Avmin increase its nickel profile 29% over time. The Chambishi cobalt project in Zambia remains the company's biggest challenge. In addition. Source: UBS Warburg estimates Company structure Chart: Turnover by region. The company’s major properties 3% are the Goldstrike and Round Mountain mines in Nevada. while at 12% the same time reducing geopolitical risk and maintaining a strong balance sheet and increasing its market capitalisation. 2002 Chairman: Peter Munk CEO: Greg Wilkins Tan-zania CFO: Jamie C.za Projects in the pipeline Nchwaning III manganese mine. nickel and cobalt. Sold ETC gold mine to Black Economic Empowerment consortium for R300m. Barrick's premium gold sales (hedging) programme continues to manage risk by ensuring stable margins while maintaining upside to the gold price. managenese ore. 2002E Avmin is a small South Africa listed mining company exposed to a broad range of commodities. ferro-chrome and ferro-manganese). It has exposure to Gold Other ferrous metals (iron ore. the Pierina mine in Peru. The company also has a pipeline of projects that provides leverage to a rising gold price.co.avmin. South Africa 86% *As at: 21-Mar-03. Source: UBS Warburg estimates US 66% UBS Warburg 128 .J. Barrick issued 140 million shares (a Peru 35% increase) for about 50% more gold production at cash costs similar to those for its existing operations. 2002 Barrick is among the largest gold producers globally with operations throughout the world and a significant forward Silver sales programme in place to act as a hedge against lower prices for the yellow metal. Bloomberg code: AIN SJ.N. We expect Avmin's gold exposure to rise as its Target gold mine ramps up production Nickel over the next year. Barrick and Homestake completed their merger. 2002E Chairman: Rick Menell Rest of CEO: Dave Murray Africa CFO: Doug Campbell 14% Major shareholders: (60% free float*) Anglo American 35% Recent acquisitions/disposals Sold 25% stake in Two Rivers platinum project to Black Economic Empowerment consortium. the Eskay Creek mine in Canada. Internet address: http://www. Bloomberg code: ABX US.Mining & Metals Primer 07 April 2003 Avmin South Africa Analyst: James Bennett +27-11-322 7302 Market cap: ZAR4. Source: UBS Warburg estimates Source: UBS Warburg estimates Barrick Gold North America Analysts: Brian MacArthur +1-416-350 2229 / Jaret Anderson +1-416-814 3689 Market cap: US$8.barrick. Gold 97% Source: UBS Warburg estimates Reuters code: ABX. high performance alloys plant Paradise gold deposit.
The restructuring will dilute Caemi's interest in the company. Bloomberg code: CMET4 BS. Caemi also participates in the rail business (33% ownership of MRS via MBR (Caemi's share 28%)) and has exposure to kaolin (CADAM 61% stake) and refractory bauxite production via MSL (85% stake).caemi. Internet address: http://www.86g/ton silver proven. Asia 24% Source: UBS Warburg estimates *As at: 21-Mar-03.803m / US$525m* Company profile Chart: Sales by commodity.10.97g/ton silver plus mineral resource estimated 11.4 million tonnes with 0. ADR: BVN.SA. Buenaventura is a low-cost gold producer with an 7% equity stake in gold production of approximately 1. with expected production beginning in the second half of 2003. .LM. which is South America's largest.4 million tonnes of mineable reserves with 0. Because of 17% antitrust concerns. 2001 Chairman: Tsutomu Nakamura Others CEO: ar Augusto de Camargo Filho Japan 4% 12% CFO: Wanderlei Vicoso Fagundes Major shareholders: (40% free float*) Amer-icas CVRD 17% 13% Mitsui 43% Brazil 15% Europe 32% Recent acquisitions/disposals Caemi announced the restructuring of QCM. Source: UBS Warburg estimates UBS Warburg 129 .com Projects in the pipeline La Zanja . Bloomberg code: CMB/C PE. 2002 Bauxite Caemi is a Brazilian holding company with shareholdings in the iron ore business through a controlling stake (85%) in Logistics 2% MBR.com. 17.N.8 million tonnes with 0. the European Commission ruled that Caemi divest its stake in Canadian iron ore producer QCM (annual capacity 16 million tonnes per annum).574m* Company profile Chart: Sales by commodity.65% equity stake Zinc 2% 2% in the Yanacocha gold mine.br Projects in the pipeline Caemi's MBR approved a R$263 million (US$88 mln) investment at the Capao Xavier mine. The company has a 43. Brazil's second-largest producer of iron ore (annual capacity of 34 million tonnes per annum). and consequently Caemi removed QCM's results from its 2002 consolidated results.89g/ton gold and 3. The company has an extensive exploration project portfolio in Peru. It operates four mines and has controlling interests in five others. in which it has had a 50% stake.Mining & Metals Primer 07 April 2003 Buenaventura LatAm Analysts: Tom Meyer +1-212-713 4259 / Marisa Hernandez +1-212-713 4086 / Timna Tanners +1-212-713 3927 Market cap: NS5. Kaolin 14% Iron Ore 67% Reuters code: CMET4.76g/ton gold.buenaventura.0g/ton of silver. Source: UBS Warburg estimates Caemi LatAm Analysts: Tom Meyer +1-212-713 4259 / Marisa Hernandez +1-212-713 4086 / Timna Tanners +1-212-713 2927 Market cap: R$1.482m / US$1. Source: UBS Warburg estimates Company structure Chart: Sales by region.2 million ounces per year at a cash cost below US$150 per ounce. Recent acquisitions/disposals Nil Company structure Chairman: Alberto Benavides CEO: Roque Benavides CFO: Carlos Galvez Major shareholders: (69% free float*) Benavides family 28% Cia Minera Condesa 8% Source: UBS Warburg estimates Source: UBS Warburg estimates *As at: 21-Mar-03. Silver 11% Gold 78% Reuters code: BUEv. Internet address: http://www.97g/ton gold and 7. 2002E Buenaventura is a Peru-based precious metal producer engaged primarily in the exploration and production of gold Copper Lead and silver. Tantahuatay: Deposit with mineable reserve in leachable oxides 11.
expected to be in full operation by 2006 Yichang project . Source: UBS Warburg estimates Company structure Chart: Sales by region.cameco. 2002E Chairman: Guo Shengkun CEO: Liang Zhongxiu/Xiong Weiping CFO: Chen Jihua Major shareholders: (25% free float*) Chinalco 44% China Cinda 15% China 100% Source: UBS Warburg estimates *As at: 21-Mar-03.signed MOU.Mining & Metals Primer 07 April 2003 Cameco North America Analysts: Brian MacArthur +1-416-350 2229 / Mary Ellen Thorburn +1-416-814 3694 Market cap: C$2.expanding production capacity for aluminum by 500Kt per annum Guangxi project (seventh alumina refinery in the PRC) . highgrade reserves and low-cost operations.Uranerz and 6% of ERA.6% interest in Bruce Power. 2002E Chalco is the dominant producer of alumina and primary aluminium in China. 2001 Chairman: N/A Central CEO: Gerald W.806m* Company profile Chart: Earnings by commodity. Chalco becomes the dominant producer and supplier of alumina and primary Alumina aluminium in China. Internet address: http://www. In 1991.Cameco acquires an additional 16. Post-restructuring.000 oz pa) The two Bruce A reactor start-ups projected for April and summer 2003 Source: UBS Warburg estimates Nuclear 84% Recent acquisitions/disposals 2003 . 65% Reuters code: 2600. In April 1998. bringing its total interest to 31. Source: UBS Warburg estimates UBS Warburg 130 . Cameco was created by the merger of two Crown corporations. Cameco’s uranium products are used to generate clean electricity in nuclear power plants around the world including Ontario where the company has an interest in a partnership which generates nuclear electricity.229m / US$1. The company also mines gold and explores for uranium and gold in North America. ADR: CCJ.Cameco acquires a 15% interest in Bruce Power 1998 . Cameco is the world’s largest producer of uranium and the largest supplier of combined uranium and conversion services.6% 2001 . CNNC was dissolved and the State Non-Ferrous Metals Industry Bureau (SNFMIB) was 35% established.HK. two alumina refineries. Chalco was formed in September 2001 and took over Chinalco’s key operating assets including four integrated alumina and primary aluminium production plants. capex = US$63 million with production to begin in 2004 (~150. Cameco completed its IPO and shares began trading on the TSE 16% and MSE. Chalco was incorporated in September Alumin2001.com Projects in the pipeline Cameco and the Kyrgyz government negotiating increase in Cameco's stake of Kumtor Gold to 100% Boroo gold deposit . Grandey Asia CFO: David Petroff 16% Major shareholders: (100% free float*) Jarislowsky 14% US McLean Budden 8% 17% Canada 67% *As at: 18-Mar-03. Prior to 1998. Bloomberg code: CCO CN. 2001 In 1988. once concluded the project is expected to be completed in 2005 Recent acquisitions/disposals Nil Source: UBS Warburg estimates Company structure Chart: Turnover by region.508m* Company profile Chart: Sales by commodity.under construction. Australia and Asia. The company's activities include refining bauxite into alumina and smelting alumina to produce primary aluminum.N.TO. Source: UBS Warburg estimates Chalco China Analysts: Joe Zhang +852-2971 6107 / Jenny Wong +852-2971 8171 Market cap: HK$14. Chalco was part of the state-owned China National Non-Ferrous Metals Industry Corporation ium (CNNC). Saskatchewan Mining Development Gold Corporation and Eldorado Nuclear Limited. The company’s competitive position is based upon its controlling ownership of the world’s largest. Bloomberg code: 2600 HK Projects in the pipeline Shanxi project . Reuters code: CCO.081m / US$1. a primary aluminium smelter and a research institute.
Internet address: http://www. Balogh Other Canada CEO: Aaron W.Lomas Bayas copper mine in Chile 1999 .com Projects in the pipeline Collahuasi concentrator expansion project Kidd Creek Mine D. steel and ferro-alloys. CVRD also plans to expand capacity 42% at its Taquari potassium mine by 2005.divested its pulp and paper assets for approximately US$1 billion 2000/01 . and it also has significant copper exposure. 2002 Chairman: Luiz Sardinha Other Others CEO: Roger Agnelli 12% Asia CFO: Fabio Barbosa 6% Major shareholders: (60% free float*) China Valepar 34% 8% BNDESPar 5% Japan Recent acquisitions/disposals 9% 2003 .br Projects in the pipeline CVRD has US$1. While Pd Other Nickel nickel remains a focus of Falconbridge. Bloomberg code: VALE5 BZ. bauxite. Logistics spending is emphasised. Source: UBS Warburg estimates Falconbridge North America Analysts: Brian MacArthur +1-416-350 2229 / Mary Ellen Thorburn +1-416-814 3694 Market cap: C$3. 2002 CVRD is a Brazil-based diversified mining company.3m tonnes of reserves.SA.cvrd.bought large iron ore producers: Samitri for US$710. expanding Kidd Creek deposit by 10. Alloys Iron Ore alumina. expected in production Development of Koniambo nicekl deposit in New Caledonia.1 million) projected for start up in 2004. Internet address: http://www. CVRD is the world's largest iron ore producer. Bloomberg code: FL CN. Source: UBS Warburg estimates Pellets 18% Company structure Chart: Turnover by region. Elkem Rana for US$17. potash. 2001 Falconbridge is one of the Western world's largest nickel producers. aluminium.Mining & Metals Primer 07 April 2003 CVRD LatAm Analysts: Tom Meyer +1-212-713 4259 / Marisa Hernandez +1-212-713 4086 / Timna Tanners +1-212-713 2927 Market cap: R$35. Source: UBS Warburg estimates Source: UBS Warburg estimates UBS Warburg 131 .44% interest in the Collahuasi copper mine in Chile Source: UBS Warburg estimates Company structure Chart: sales by region. 30% Cobalt 4% Zinc 10% Ferronickel 11% Copper 36% Reuters code: FL. 2002 . Also notable is the Sossego copper mine project (US$253. CVRD generates about 83% of its sales in US 7% 40% dollars (about 17% of its costs are in US dollars). ADR: RIO_p. kaolin.495m* Company profile Chart: Sales by commodity.8 billion projected for 2003 capital expenditures.6 million in February.7 million. Source: UBS Warburg estimates US 13% Europe 29% Brazil 23% *As at: 21-Mar-03.bought Norwegian ferro-alloy company. with consolidated iron ore capacity of approximately 166 3% Ferromillion tonnes per annum and representing about 30% of seaborne trade. It also has exposure to gold. of which 61% are for new projects. Ferteco for US$523 million and 50% of Caemi for US$278. Regent 19% 9% CFO: Michael Doolan Major shareholders: (43% free float*) Noranda 56% US Fidelity 4% 32% Europe 40% *As at: 21-Mar-03. Iron ore and logistics sales account for about 40% and 9% of gross Logistics revenues.083m / US$2. Core businesses also include cargo transportation and power Other Mn and generation. could earn 49% interest Development of 100% owned nickel-copper mine in Ontario Recent acquisitions/disposals 2001 .5 million.N. the company has become a significant copper producer with the 3% 6% commissioning of the giant Collahuasi mine in Chile in early 1999 and the acquisition of Lomas Bayas in 2001. manganese.064m* Company profile Chart: Sales by commodity.falconbridge.TO.774m / US$10. 9% Steel prods Alumin11% ium 12% Reuters code: VALE5. 2001 Chairman: Alex G.com. respectively.
Moffett 26% CFO: Richard C. Indonesia. Bloomberg code: FCX US. and Minerals Saskatchewan Minerals.fcx. Adkerson Major shareholders: (84% free float*) Rio Tinto 17% Fidelity 11% US 8% Switzerland 12% Japan 15% Spain 19% Source: UBS Warburg estimates *As at: 21-Mar-03. It has Industrial 100% ownership interests in the Red Lake mine in northwestern Ontario. Source: UBS Warburg estimates Goldcorp North America Analysts: Brian MacArthur +1-416-350 2229 / Jaret Anderson +1-416-814 3689 Market cap: US$1. It has been operating since 1948. The Red Lake underground mine in Ontario is Goldcorp's flagship asset. but a major capital investment and development program was started in 1995 to explore and develop the mine. Internet address: http://www. In addition.com Projects in the pipeline Source: UBS Warburg estimates Indonesia 20% Recent acquisitions/disposals 2002 . 41% Copper 59% Reuters code: FCX. a producer of sodium sulphate in Saskatchewan.N. 2001 Other FCX produces copper and gold from the Grasberg mine.534m* Company profile Chart: Sales by commodity. and 0% associated properties in Indonesia. FCX owns a 25% interest in a smelter and refinery complex Silver in Gresik. 2002E Goldcorp is an intermediate gold producer headquartered in Toronto and is listed on both the TSE and NYSE. Development started in 1999. Source: UBS Warburg estimates UBS Warburg 132 .N.com Projects in the pipeline Red Lake expansion Company structure Chart: Sales by region. FCX operates one of the world’s Gold & lowest-cost smelter and refining complexes. 7% and has a strong policy to this effect. Bloomberg code: GG US.9% to 90. In Spain.6% Company structure Chart: Sales by region. Goldcorp hedges none of its gold output. the first gold was poured at the new modernised high grade mine in August 2000 and commercial production was started on 1 January 2001. one of the largest copper and gold mines in the world. Boland Major shareholders: (100% free float*) Fidelity 16% Mgmt 4% Recent acquisitions/disposals Goldcorp has acquired numerous small stakes in gold exploration companies in Canada recently Canada 86% Source: UBS Warburg estimates *As at: 20-Mar-03.859m* Company profile Chart: Sales by commodity. Internet address: http://www. 2001 Chairman: James R.Increased interest in Grasberg from 85. Gold 93% Source: UBS Warburg estimates Reuters code: GG.goldcorp. Moffett Others CEO: James R. 2002E Chairman: Rob McEwan USA CEO: Rob McEwan 14% CFO: Brad J.Mining & Metals Primer 07 April 2003 Freeport Copper North America Analysts: Brian MacArthur +1-416-350 2229 / Mary Ellen Thorburn +1-416-814 3694 Market cap: US$2. FCX also has an interest in two smelters that are strategically important as they provide a meaningful outlet for FCX’s copper concentrate production. the Wharf mine in South Dakota.
a large Mexican railroad that contributed Silver 18% of revenues in 2001.completed acquisition of Basin Minerals Source: UBS Warburg estimates *As at: 21-Mar-03. Source: UBS Warburg estimates Iluka Resources Australia Analyst: Shaun Giacomo +61-2-9324 3627 Market cap: A$924m / US$549m* Company profile Chart: Earnings by commodity. through which it owns 54. most notably in copper.MX. anticipates initial earnings during 2004. 6% Copper Zinc 61% 6% Trans-port 19% Reuters code: GMEXICOB. 2001 Chairman: German Larrea Mota-Velasco Latin CEO: German Larrea Mota-Velasco America CFO: Daniel Tellechea 1% Major shareholders: (37% free float*) Asia 3% Larrea family >50% Europe Inbursa 2% 12% Mexico 32% US 52% Source: UBS Warburg estimates *As at: 21-Mar-03. Source: UBS Warburg estimates UBS Warburg 133 . It also owns a 100% interest in US mining subsidiary Asarco. Internet address: http://www. with operations 1% 6% in Western Australia.06 million tonnes.348m / US$774m* Company profile Chart: Sales by commodity.com. Bloomberg code: ILU AU. Grupo Mexico holds a 74% stake in Ferromex. Source: UBS Warburg estimates Company structure Chart: Turnover by region. Company structure Chart: Sales by region. The company also Coal owns 50% of the Narama domestic steaming coal mine in the Hunter Valley but is not expected to be a long-term 4% holder of this asset. and railroads. Gold 2% 4% zinc. Titanium and Zircon 89% Reuters code: ILU. lead. 60% of consolidated revenues. Iluka is now a major producer of titanium minerals and zircon. Bloomberg code: GMEXICOB MM. gold.gmexico.Mining & Metals Primer 07 April 2003 Grupo Mexico LatAm Analysts: Tom Meyer +1-212-713 4259 / Marisa Hernandez +1-212-713 4086 / Timna Tanners +1-212-713 2927 Market cap: P8. 2002E In December 1998.iluka. It has not disposed of any facilities recently. and silver. Titanium minerals represent 90% of the asset base. which mines. 2001 Grupo Mexico is a Mexico-based holding company with interests in mining.AX. Iluka Resources (formerly Westralian Sands) increased in capitalisation from A$300m to A$900m Other Tin through a merger with RGC (unlisted).com Projects in the pipeline Source: UBS Warburg estimates Recent acquisitions/disposals The company is moving to acquire Southern Peru Copper from its Asarco subsidiary.au Projects in the pipeline Development of the Murray Basin Mineral Sands project. Internet address: http://www. processes. but has halted production at several US sites that were not profitable at current metal prices. Its Mo Other mining division holds a 100% interest in Grupo Minero Mexico (GMM). and markets copper. Total copper sales in 2001 were 1.3% 2% of Southern Peru Copper. The recent purchase of Basin Minerals provides an additional platform for organic growth. 2002E Chairman: Ian Mackenzie IndoCEO: Keith Folwell nesia CFO: Mark Hughes 6% Major shareholders: (100% free float*) US CBA 12% 12% Perpetual 6% Aust-ralia 82% Recent acquisitions/disposals 2002 . Queensland and the US.
Mining & Metals Primer 07 April 2003 Impala Platinum South Africa Analyst: NA Market cap: ZAR28. In the 1990s. Internet address: http://www.N. currently on hold.445m* Company profile Chart: Sales by commodity. America 32% Recent acquisitions/disposals Source: UBS Warburg estimates *As at: 20-Mar-03. Inco grew organically with Cobalt Other nickel projects around the Sudbury area and by acquisition. 2002 Chairman: Scott M.J. In addition. Inco Nickel Copper is developing the large Goro nickel-cobalt project in New Caledonia as well as the Voisey's Bay nickel deposit on 76% 9% Canada's east coast. Hakimi Major shareholders: (100% free float*) Tal Global 3% Japan 12% Bankmont Financial 3% Indonesia 17% *As at: 21-Mar-03. precious metals. Internet address: http://www. It is also involved in the secondary sourcing of platinum group 6% 6% metals where the company's core refining competencies offer a competitive advantage.Potential acquisition of 15% interest in Goro from BGRM . cobalt and makes high-nickel alloys in various forms. supplying about 20% of global nickel demand. 2002 Impala Platinum Holdings Limited .7%-owned PT Inco subsidiary.4 million tonnes of platinum per annum (25% of global production) through its major operation asset. copper and cobalt.is in the business of mining. The 11% company also produces copper. expanding into Indonesia with its subsidiary PT Inco in the 3% 1% 1970s. Impala Rhodium Platinum Ltd.Implats .Potential sale of up to 30% interest in Goro UK 17% Source: UBS Warburg estimates UBS Warburg 134 . currently developing five decline shafts Source: UBS Warburg estimates Company structure Chart: Sales by region. Jones 24% CFO: Farokh S. Hand Other CEO: Peter C. Africa CEO: Keith Rumble 25% CFO: David Brown Major shareholders: (53% free float*) Gencor 46% Fidelity 2% Europe 15% Asia 28% N.incoltd. Source: UBS Warburg estimates Canada 3% US 27% Recent acquisitions/disposals . Precious metals Inco is now the western world's largest producer of nickel. Scheduled for completion in 2007. Bloomberg code: N US. 15% Platinum 51% Palladium 22% Reuters code: IMPJ. Bloomberg code: IMP SJ.617m* Company profile Chart: Sales by commodity.za Projects in the pipeline Initiated a long term shaft-life extension program in 1993.114m / US$3. Inco's major producing assets are located in Canada and Indonesia through its 58. 2002 Inco was formed in Canada in 1902 and listed as International Nickel Company in 1915.implats.9bn Goro nickel project.co. 2002 Chairman: Peter Joubert S. Reuters code: N. projected production: 40Kt per annum) Source: UBS Warburg estimates Company structure Chart: Sales by region. refining and marketing platinum group Other Nickel metals (PGM) as well as nickel. Implats currently produces around 1.com Projects in the pipeline US$700m Voisey's Bay nickel project under development. projected production: 60Kt per annum) US$1. Inco began exploration in New Caledonia and bought into the Voisey's Bay project in Canada. and its concentrating and smelting operations. Source: UBS Warburg estimates Inco North America Analysts: Brian MacArthur +1-416-350 2229 / Daniel Brebner +1-416-814 3688 Market cap: US$3.
Internet address: http://www. Madero). It anticipates a total US$192 million investment and 2005 startup. Peñoles is also reconsidering two gold projects it had put on hold in 2000. Source: UBS Warburg estimates US 56% Kumba Resources South Africa Analyst: James Bennett +27-11-322 7302 Market cap: ZAR8. The 15% Zinc 6% prize remains the consolidation of the South African iron ore industry. given that Anglo American has taken a 20% stake with an option over a further 10%.J. Silver 4% Peñoles also owns the fourth largest non-ferrous metallurgical complex in the world and the largest in Latin America. Company structure Chart: Turnover by region.com Projects in the pipeline Sishen South and Hope Downs Source: UBS Warburg estimates Company structure Chart: Turnover by region. The company Sodium Other operates one of the world's richest silver mines (Fresnillo). 2001 Chairman: Albero Baillares Canada Other CEO: Jaime Lomelin 11% 3% CFO: Mario Arreguin Peru Major shareholders: (35% free float*) 3% Grupo Bal 65% India 4% Recent acquisitions/disposals UK 11% 2003 .kumbaresources. and largest underground zinc mine (Francisco I.MX.31 per pound. given Kumba's world class iron ore assets.459m / US$693m* Company profile Chart: Sales by commodity. largest open-pit gold mine (La Herradura). It also produces coal and zinc and is currently ramping up its heavy minerals project in South Africa. 2002E Chairman: Dawn Marole CEO: Con Fauconnier CFO: Dirk van Staden Major shareholders: (61% free float*) Anglo American 20% IDC 14% South Africa 100% *As at: 21-Mar-03. with an estimated 55.238m / US$999m* Company profile Chart: Earnings by commodity. Heavy minerals 3% Industrial minerals 1% Iron ore 75% Reuters code: KMBJ. is in the exploration stages. 32% Lead 6% Zinc 16% Gold 31% Reuters code: PENOLES.shut its El Monte zinc mine effective March 2003 due to exhaustion of its resources Japan 2001 .000 tonnes per year of copper cathode. Target cash cost for Milpillas is US$0. metallic bismuth. Internet address: http://www. 2002E Kumba is a South African listed mining company producing mainly iron ore for the domestic and export markets. and it operates Mexico's richest underground gold mine Sulphate 11% (La Ciénega). and sodium sulfate.000 MT/year concentrate capacity) after less than a year of operations in 12% December Source: UBS Warburg estimates *As at: 21-Mar-03. Source: UBS Warburg estimates Recent acquisitions/disposals Small zinc refinery in China Source: UBS Warburg estimates UBS Warburg 135 . Kumba has been a Coal target of corporate activity. ADR: IPOAF.shut its Rey de Plata zinc mine (50. Bloomberg code: KMB SJ.penoles Source: UBS Warburg estimates Projects in the pipeline Peñoles' Milpillas copper project.PK. 2002 Industrias Peñoles is the world's largest producer of refined silver. Bloomberg code: PE&OLES* MM.Mining & Metals Primer 07 April 2003 Industrias Peñoles LatAm Analysts: Tom Meyer +1-212-713 4259 / Marisa Hernandez +1-212-713 4086 / Timna Tanners +1-212-713 2927 Market cap: P7.
Disposal of gold mining assets in Zimbabwe (£10 million) Company structure Chart: Turnover by region. Gold 100% Reuters code: LHG. 2002 Chairman: Ross Garnaut CEO: Neil Swan CFO: Rod Antal Major shareholders: (100% free float*) Rio Tinto Metals Ltd. 2002 Lonmin is one of the world's largest platinum producers. (2) development of prospective exploration leases in Australia.Mining & Metals Primer 07 April 2003 Lihir Australia Analyst: Shaun Giacomo +61-2-9324 3627 Market cap: A$1. 14% Colonial First State 5% Recent acquisitions/disposals Lihir remains a focussed single mine company. and (3) exploiting potential acquisition opportunities. The first gold production occurred in Q2 97 from the processing of oxide ore. The project is based on the milling of ~4. ADR: LIHRY. K4 Shaft project. Bloomberg code: LHG AU. M&G Group 8% South Newton 6% Africa 92% Zimbabwe 8% Source: UBS Warburg estimates *As at: 21-Mar-03.073m / US$1. ADR: LNMIY.O. Lonplats. Bloomberg code: LMI LN. which it has stated that it plans to divest. using conventional whole ore autoclaving. Canada and Tanzania. PNG 100% Source: UBS Warburg estimates *As at: 21-Mar-03. Higher grade milling in 2004-2006 should see production rates peak in the 700-800Koz range. Installation of heat recovery in late 2001 and a pebble crusher in early 2002 should allow production rates to achieve 650-670Koz per annum steady state.com. 2002 Lihir controls one of the world's most significant gold operations based on an open pittable deposit with reserves of 15.pg Projects in the pipeline Successful installation of heat recovery is to be followed by identification of additional low capital expansion opportunities and potentially a new look at the large expansion potential costing US$200-250 million to expand production to upwards of 1Moz per annum. Internet address: http://www. It also owns a 32% stake in the Ghanaian-listed Ashanti Gold Gold. Pandora project Source: UBS Warburg estimates Recent acquisitions/disposals 2002 .L.6Moz. It owns 73% of South Africa's third-largest platinum producer.1Moz and resources of 34.PK. 2002 Chairman: Sir J Craven CEO: GE Haslam CFO: J Robinson Major shareholders: (100% free float*) Prudential.5Mt per annum of refractory sulphide ore.lihir. Lonmin is looking to expand its core PGM interests via: (1) organic 8% growth of the South African mines . Platinum 92% Reuters code: LMI.519m / US$900m* Company profile Chart: Earnings by commodity.lonmin. Hossy Shaft project.com Projects in the pipeline Platinum mines: Saffy Shaft project. Source: UBS Warburg estimates Company structure Chart: Turnover by region. Internet address: http://www.677m* Company profile Chart: Earnings by commodity. Source: UBS Warburg estimates UBS Warburg 136 .target is 1Moz of platinum by 2008. Source: UBS Warburg estimates Lonmin UK Analysts: Paul Galloway +44-20-7568 4117 / Andrew Snowdowne +44-20-7568 1823 Market cap: £1.AX. which contributes 100% of group operating profits.
South America 2% *As at: 21-Mar-03.PK. located near the port city of Antofagasta in Northern Chile.meridiangold. approximately 10km south of the town of Esquel. ADR: MIMOY.917m / US$1. Bloomberg code: MIM AU. El Peñón is an underground gold/silver mine (with limited open pit operations) that has been in operation since Q4 99. Source: UBS Warburg estimates Europe 38% Source: UBS Warburg estimates UBS Warburg 137 .mim.088m* Company profile Chart: Sales by commodity.has agreed to sell its 30% interest in the Jerritt Canyon mine (expected to close in Q1 03) 2002 . is Meridian’s key producing asset. El Peñón is among the lowest cost gold mines in the world. gold 49% Coal 28% Reuters code: MIM. Ernest Henry copper-gold. Dougherty USA Major shareholders: (100% free float*) 36% RBC Global Investors 26% Fidelity 16% Chile 64% Recent acquisitions/disposals 2003 .com Projects in the pipeline Esquel startup is planned for 2004/2005 Source: UBS Warburg estimates Gold 85% Company structure Chart: Sales by region. 2002E Chairman: Leo Trutt CEO: Vincent Gauci Asia CFO: James Lusk 51% Major shareholders: (45% free float*) National Nominees 18% Westpac Custodian Nominees 16% Other 2% Australia 7% Recent acquisitions/disposals MIM is in the process of finalising the sale/closure of its loss-making European smelter division. Kennedy CFO: Peter C. The company operates the McArthur River zinc mine. The company annually produces c20 million tonnes of coal from its 75%-owned steaming coal mines at Collinsville Copperand Newlands and its Oaky Creek coking coal operation. which are in the final stages of sale/closure.N. The El Peñón mine. The Esquel property includes an 1.acquired the Esquel property in its takeover of Brancote Holdings PLC in July for US$297 million Source: UBS Warburg estimates *As at: 21-Mar-03.com. Internet address: http://www. Zinc concentrate is treated at the Avonmouth and Duisburg smelters in Europe.731m* Company profile Chart: Earnings by commodity. a 100% interest in the Esquel property and a 40% interest in the Rossi property. 2002 Meridian Gold is a Canadian-incorporated intermediate gold producer with 100% ownership interests in the El Peñón property. Internet address: http://www. Source: UBS Warburg estimates Company structure Chart: Turnover by region. Reuters code: MDG. Source: UBS Warburg estimates MIM Holdings Australia Analyst: Shaun Giacomo +61-2-9324 3627 Market cap: A$2.au Projects in the pipeline MIM is investigating opportunities to increase production at the Mt Isa operation by evaluating a large pit. 2002 Chairman: Dr.800 square kilometre land package located in Argentina. David S. Meridian acquired the Esquel property in its takeover of Brancote Holdings PLC in July 2002 for US$297 million. Meridian has been active in Silver the gold business since 1981 and was reincorporated in Canada in 1996 (prior to 1996 the company was known as 15% FMC Gold).Mining & Metals Primer 07 April 2003 Meridian Gold North America Analysts: Brian MacArthur +1-416-350 2229 / Jaret Anderson +1-416-814 3689 Market cap: US$1. and the 23% 50%-owned Alumbrera copper/gold joint venture. MIM's best performing business is its Queensland coal operation. Bloomberg code: MDG US. The group has a stated aim of doubling its coal production within 5 years and is bench scale testing Albion hydrometallurgy to test if it can be utilised in processing zinc ores. Robertson CEO: Brian J. 2002E MIM's core copper and zinc operations remain at Mount Isa.AX. Lead production from Mount Isa is treated Lead-zinc at the Northfleet refinery. The company expects Esquel to produce 300K+ ozs per year upon startup.
providing virtually all of the current organic growth options. its 56. 2002 Newcrest is Australia's largest pure gold producer. Newmont's key assets are the Nevada operations. Newmont offers significant leverage to movements in the gold price. Reuters code: NEM. Newmont has interests in 19 mines throughout North America. the Yandal operations in Australia. Hanson Major shareholders: (100% free float*) Fidelity 10% Capital 8% South America 18% Australia 22% *As at: 20-Mar-03.45% interest in the Tanami operations in Australia. Bloomberg code: NCM AU. Australia.4 billion. Murdy 20% CFO: Bruce D.com.N. We expect the first earnings contribution in 2005. ADR: NCMGY. with two world-class assets. In total. Europe and Asia. creating the world's Copper largest gold producer.acquisition of Normandy Mining of Australia 2002 . As the largest gold producer in the world with an undeveloped land package equal in area to that of the United Kingdom. Source: UBS Warburg estimates *As at: 21-Mar-03. Internet address: http://www. it is working to reduce the acquired Normandy positions to zero over the coming years.PK. Source: UBS Warburg estimates Company structure Chart: Turnover by region.au Projects in the pipeline Newcrest has commited to redeveloping the Telfer project in North Western Australia.Westside (Australia) Martabe (Indonesia) Source: UBS Warburg estimates Gold 89% Recent acquisitions/disposals 2003 . South America. Gold and copper 100% Reuters code: NCM.acquisition of Franco Nevada of Canada 2002 .922m* Company profile Chart: Sales by commodity. its 50% interest in the Kalgoorlie mine in Australia. It has a 22% interest in the Boddington gold-copper project which may be viewed as non-core. Murdy Other CEO: Wayne W. 2002 In February 2002. and the Midas mine in Nevada. It has a policy of active exploration and partnerships with juniors rather than outright acquisition. While Newmont acquired a significant hedge book in its acquisition of Normandy in 2002. Cadia-Ridgeway and Telfer. requiring capital of c. The company is pinning its hopes on the redevelopment of Telfer.Mining & Metals Primer 07 April 2003 Newcrest Australia Analyst: Shaun Giacomo +61-2-9324 3627 Market cap: A$1. Source: UBS Warburg estimates Newmont North America Analysts: Brian MacArthur +1-416-350 2229 / Jaret Anderson +1-416-814 3689 Market cap: US$9.newcrest. Peak production rate is expected to be in the order of 1Mozpa with first production from the open pit mine in 2004 and from the underground mine in 2005. Internet address: http://www. 2002 Chairman: Ian Johnson IndoCEO: Anthony Palmer nesia CFO: Jeff Smith 5% Major shareholders: (100% free float*) JP Morgan Nominees 19% National Nominees 18% Australia 95% Recent acquisitions/disposals Newcrest has an enviable track record of having its exploration team discover all its key operating mines.newmont.com Projects in the pipeline Yamfo-Sefwi(Ghana) Akim (Ghana) Jundee . Cash operating costs have moved into the lower quartile.sale of TVX Newmont Americas to Kinross 2002 . 2002 Chairman: Wayne W. Source: UBS Warburg estimates North America 40% UBS Warburg 138 .sale of stake in Aber Resources Source: UBS Warburg estimates Company structure Chart: Sales by region.673m / US$993m* Company profile Chart: Earnings by commodity.AX. its 87.25% current interest in the copper-gold mine Batu Hijau in Indonesia. Bloomberg code: NEM US. Newmont completed the acquisition of Franco-Nevada and Normandy Mining.35% interest in Minera Yanacocha in 11% Peru. The exploration team has a strong track record of discovery. A$1. its 51.
Norilsk Nickel’s estimated complex sulphide ore reserves equal 40 years of production without additional exploration.8% platinum and 45% of palladium production.the Taimyr Peninsula and the Kola Peninsula.TO. value-added and manufactured products to its customers throughout the world.acquisition of a 51% stake in US palladium producer Stillwater Mining October 2002 . Recycle & Complx Mats 29% Nickel 20% Source: UBS Warburg estimates Copper 23% Reuters code: NRD. Noranda sells commodity.Monetisation of 51% of CEZinc processing facility via an income fund 2001 . Bloomberg code: NRD CN.147m* Company profile Chart: Sales by commodity. The company is also a major recycler of secondary copper. The company exports roughly 90% of its production and accounts for 22% of world nickel. Source: UBS Warburg estimates UBS Warburg 139 . 2002E Chairman: Andrei Klishas Russia CEO: Mikhail Prokhorov 11% CFO: Igor Komarov Major shareholders: (35% free float*) Interros 62% NLMK 5% Recent acquisitions/disposals November 2002 .207m / US$2. producing base and platinum-group Other metals (PGMs).Mining & Metals Primer 07 April 2003 Noranda North America Analysts: Brian MacArthur +1-416-350 2229 / Mary Ellen Thorburn +1-416-814 3694 Market cap: C$3. gold. Internet address: http://www. Noranda started to refocus on mining. and only PGM refining is outsourced. and ore grades are generally higher than those of its competitors. Kerr Other CEO: Derek G.sale of a minority stake in Russian metal company NLMK for US$178 million Source: UBS Warburg estimates Exports 89% *As at: 21-Mar-03. 2002E Norilsk Nickel is one of the world’s major integrated mining and metal companies. 2001 AluminNoranda Mines was founded in northern Quebec to mine gold and copper and was incorporated in 1922.nornik. Bloomberg code: GMKN RU. a range of data such as reserves.Acquired the El Pachon copper deposit Continuing to increase ownership in Falconbridge Source: UBS Warburg estimates Company structure Chart: Sales by region. ore grades and production volumes remain classified as a state secret under Russian law. Over the Zinc Other ium 1% next 50 years Noranda diversified in the metals industry. However.acquistion of 100% stake in Russia's largest gold producer Polyus for US$226 million March 2002 . Following its acquisition of a 46% share of Falconbridge in 1994.com Projects in the pipeline Collahuasi concentrator expansion (through Falconbridge) Project Alumysa (aluminum) in southern Chile Perseverance zinc deposit El Pachon copper mine in Argentina El Morro copper-gold project in Chile Recent acquisitions/disposals 2002 . lead. Now Noranda is one of the world's largest producers of zinc and nickel and a significant producer of copper. 2001 Chairman: David W. limiting the transparency of Norilsk Nickel’s operations. ium 17% Nickel Production is located at two sites .noranda. divesting its forest products and oil and gas businesses in 1998. sulphuric acid and cobalt.ru Projects in the pipeline The company is yet to announce its development plan which will shed more light on new projects Company structure Chart: Turnover by region. Platinum 16% Copper 16% Source: UBS Warburg estimates Reuters code: GMKN. nickel and precious metals. primary and fabricated aluminum. Pannell Peru 3% CFO: Lars-Eric Johansson 1% Chile Major shareholders: (61% free float*) 11% Brascan 40% UK Bankmont Financial 2% 11% Canada 50% US 24% *As at: 21-Mar-03.390m* Company profile Chart: Earnings by commodity.RTS. silver. 14% of Pallad. as well as expanding into paper and forest products and oil 11% 16% and gas. with the former accounting for 90% 43% of the group’s revenues. Internet address: http://www. Source: UBS Warburg estimates Norilsk Nickel Russia Analyst: Fedor Tregubenko +7-501-258 5234 Market cap: US$5.
Soplaril (packaging) EUR200m.5m 1999 . expected to begin operating first half 2003 Source: UBS Warburg estimates Company structure Chart: Turnover by region. Internet address: http://www. Source: UBS Warburg estimates Phelps Dodge North America Analysts: Daniel Brebner +1-416-814 3688 / Brian MacArthur +1-416-350 2229 Market cap: US$3.148m / US$2. It is one of Int.sold Sossego copper project to CVRD for US$42. Phelps Dodge is also one of the world's largest producers of carbon black (used in rubber applications such as tyres) through its Columbian Chemicals Company.86bn Source: UBS Warburg estimates *As at: 20-Mar-03. Its aluminium technology is recognised as among the most 15% efficient in the world. particularly aluminium.029m* Company profile Chart: Turnover by segment.Mining & Metals Primer 07 April 2003 Pechiney Europe Analyst: Paul Galloway +44-20-7568 4117 Market cap: EUR2. Tomago (primary aluminium) US$212m (all eastimates).pechiney. Source: UBS Warburg estimates UBS Warburg 140 . It is among the world's leading companies in both of these areas. Steven Whisler 15% CFO: Ramiro Peru Major shareholders: (100% free float*) LatAm Fidelity 8% 17% Capital 7% US 68% Recent acquisitions/disposals 2001 . 2002 Founded in 1834. Internet address: http://www. electrical. 2002 Pechiney operates two core businesses: the production of aluminium metal and aluminium products.com Projects in the pipeline Development of AP50 smelting technology Deployment of continuous improvement programme Source: UBS Warburg estimates Company structure Chart: Turnover by region.Acquired Phoenix Healthcare (packaging) US$15m. Phelps Dodge is now the second largest producer of copper in the world and also represents one of Wire and the most highly leveraged tradeable mining companies in the global mining sector.N. Eurofoil (conversion) EUR50m. Steven Whisler Other CEO: J. Bloomberg code: PD US.acquired Cyprus Amax for US$1. 18% and transport sectors. Pack'g Primary Al 26% 56% Al conversion 3% Reuters code: PECH. 2001 Chairman: JP Rodier CEO: JP Rodier Other CFO: O Mallet 7% Major shareholders: (100% free float*) North Capital Group 8% America 33% Electricite de France 8% Rest of Europe 17% France 43% Recent acquisitions/disposals 2001 . It also produces ferroalloys and engages in the international trade of metals. Chems 15% Copper Min.N. and the production of packaging materials. Spec. ADR: PY.com Projects in the pipeline Concentrate leaching demonstration plant at Bagdad operations (Arizona).261m* Company profile Chart: EBIT by commodity. which manufactures products for the telecommunications. Bloomberg code: PEC FP. The company is integrated in the Cable copper market via its Wire and Cable division. . It is one of the world's largest packaging producers for the food. 67% Reuters code: PD. Luxfer (conversion) EUR50m. Trade Europe's largest producers of aluminium rolled products. healthcare and beauty industries. Source: UBS Warburg estimates *As at: 21-Mar-03.phelpsdodge.PA. 2002E Chairman: J.
Potash It is the world's largest and lowest-cost publicly traded potash producer.com Projects in the pipeline Expansion of the Aurora purified phosphoric acid plant Source: UBS Warburg estimates Company structure Chart: Sales by region. Franklin Africa Canada 5% CEO: Jay K. the company has used its free cash flow to consolidate its position through acquisitions. Source: UBS Warburg estimates UBS Warburg 141 . 2002 Launched by the Province of Saskatchewan in 1975 as a Crown Corporation. Bloomberg code: POT US. the United States. Placer acquired a significant hedge position in its acquisition of Auriongold in 2002. Copper the South Deep mine in South Africa. Bloomberg code: PDG US.Purchased an interest in SQM (Sociedad Quimica y Minera de Chile) US 60% Source: UBS Warburg estimates *As at: 21-Mar-03.384m* Company profile Chart: Sales by commodity. US$910 million in consideration including US103 million in net debt).7 million ozs of reserves. Internet address: http://www. Brownlee Major shareholders: (100% free float*) Primecap Mgmt 8% Lord Abbett 8% Canada 27% Recent acquisitions/disposals 2001 . Source: UBS Warburg estimates *As at: 20-Mar-03. Talyor 15% CFO: Rex J. Its potash reserves are sufficient for over 100 years of production. Donlin Creek and Pueblo Viejo). Nitrogen 39% 28% Phosphate Reuters code: POT. South Africa and Chile. Placer issued a total of 77 million shares and approximately US$70 million in cash to Auriongold shareholders (approx.N. 2002 Chairman: Donald Phillips Trinidad Other 2% CEO: William J.acquired AurionGold of Australia. Doyle 11% CFO: Wayne R. PCS is also the world's third-largest phosphate producer. Gold 75% Reuters code: PDG. Current phosphate reserves should last more than 50 years.potashcorp. the Granny Smith mine in Australia 25% and the Zaldivar copper/gold mine in Chile. Over time. Internet address: http://www. gaining about 1 million ozs per year of production and 7. The company also has a number of projects that provide leverage to a rising gold price (Getchell. Source: UBS Warburg estimates Australia/ PNG 32% US 26% Potash Corp North America Analysts: Brian MacArthur +1-416-350 2229 / Mary Ellen Thorburn +1-416-814 3694 Market cap: US$3. the Porgera mine in Papua New Guinea.placerdome. The company’s major properties are the Cortez/Pipeline mine in Nevada. Potash Corporation of Saskatchewan (PCS) became a publicly traded company in November 1989.N. 2002 Placer Dome is among the largest gold producers globally with operations in Canada. Australia. Papua New Guinea.com Projects in the pipeline Getchell Donlin Creek Pueblo Viejo Source: UBS Warburg estimates Company structure Chart: Sales by region.663m* Company profile Chart: Sales by commodity. The company controls about 40% of the world's excess capacity and has always followed a price leadership strategy whereby it has matched production to sales. 2002 Chairman: Robert M.Mining & Metals Primer 07 April 2003 Placer Dome North America Analysts: Brian MacArthur +1-416-350 2229 / Jaret Anderson +1-416-814 3689 Market cap: US$3. McLennan Major shareholders: (100% free float*) Capital 5% TD Asset Mgmt 2% Chile Recent acquisitions/disposals 22% 2002 .
Mining & Metals Primer 07 April 2003
Sons of Gwalia
Analyst: Shaun Giacomo +61-2-9324 3627 Market cap: A$230m / US$137m* Company profile Chart: Earnings by commodity, 2002 SGW is a top-three Australian gold producer that has diversified into the industrial minerals business. It has the Other world's largest resource of tantalum, a specialty metal used in a range of electronic and industrial applications. SGW 3% has market share of c40%. The Minerals division has generated ROE of +20% and is leveraged to the global economic cycle. Reduced demand for tantalum has meant that the production rate has been scaled back to ~2mlbs in Minerals 2002-03E. The group's gold division has suffered considerable margin squeeze, placing pressure on cash flow and 35% the balance sheet. Gold 62%
Reuters code: SGW.AX, Bloomberg code: SGW AU, ADR: SOGAY.PK, Internet address: http://www.sog.com.au Projects in the pipeline The company has the ability to rapidly expand tantalum production by recommissioning the Greenbushes underground and increasing utilisation rates in its processing circuits.
Source: UBS Warburg estimates
Company structure Chart: Turnover by region, 2002 Chairman: Peter Lalor CEO: Peter Lalor CFO: Stephen Pearce Major shareholders: (100% free float*) Teck Cominco 10% National Nominees Ltd. 9% Australia 100%
Recent acquisitions/disposals Sons of Gwalia has been divesting non-core assets in the Murray Basin, and smaller equity holdings.
Source: UBS Warburg estimates
*As at: 21-Mar-03. Source: UBS Warburg estimates
Southern Peru Copper
Analysts: Tom Meyer +1-212-713 4259 / Marisa Hernandez +1-212-713 4086 / Timna Tanners +1-212-713 2927 Market cap: US$1,228m* Company profile Chart: Sales by commodity, 2002E SPCC is an integrated copper producer that operates two copper mines (Toquepala and Cuajone), a smelter and refining facilities in southern Peru. SPCC sold 365,000 tonnes of copper production in 2002. The company is Other embarking on a significant upgrade of the Ilo smelter to comply with environmental regulations in Peru. Control of the 4% company passed to Grupo Mexico on 15 November 1999, when Grupo Mexico successfully bid for US mining Sulphur-ic company Asarco which owns 54.3% of SPCC. Phelps Dodge owns 14% of SPCC, Cerro Trading Company owns Copper Acid 14.2%, and 17.6% is widely held. Asarco has been in the process of attempting to sell its stake in SPCC to Grupo 85% 1% Mexico. Silver 3% Mo 7% Reuters code: PCU.N, Bloomberg code: PCU US, , Internet address: http://www.asarco.com Projects in the pipeline SPCC plans to spend US$194 million on capital expenditures in 2003, of which US$50 million is allocated to the Ilo Smelter expansion and environmental project. Company structure Chairman: German Larrea Mota-Velasco CEO: German Larrea Mota-Velasco CFO: Daniel Tellechea Major shareholders: (18% free float*) Grupo Mexico 54% Cerro Trading Co. 14% Source: UBS Warburg estimates
Recent acquisitions/disposals Nil
Source: UBS Warburg estimates
*As at: 21-Mar-03. Source: UBS Warburg estimates
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Mining & Metals Primer 07 April 2003
Analysts: Brian MacArthur +1-416-350 2229 / Mary Ellen Thorburn +1-416-814 3694 Market cap: C$2,133m / US$1,428m* Company profile Chart: Sales by commodity, 2001 Other Cominco started in 1906 as the The Consolidated Mining & Smelting Company of Canada, formed by the Coal 1% amalgamation of several units controlled by the Canadian Pacific Railway. It changed its name to Cominco in 1966. 17% Meanwhile, Teck began as Teck-Hughes Gold Mines Ltd in 1913. In 1986 Teck and two other companies acquired a shareholding in Cominco, resulting in a full merger in July 2001. Gold Teck Cominco is a diversified mining company with exposure to gold, zinc, copper and coal, and operations/projects 10% in several countries including Canada, the United States, Australia, Peru and Mexico. Teck Cominco's principal base Zinc metal exposure is the huge Antamina copper-zinc project in Peru, in which Teck has a 22.5% interest. It is exposed to Copper 59% metallurgical coal through its indirect and direct ownership in the Fording Canadian Coal Partnership. 13%
Reuters code: TEKb.TO, Bloomberg code: TEK/B CN, Internet address: http://www.teckcominco.com Projects in the pipeline Pogo gold project, Alaska is being explored. Teck is in the process of earning a 40% interest Cajamarquilla zinc refinery expansion Pend Oreille lead zinc project in Washington, US
Source: UBS Warburg estimates
Recent acquisitions/disposals 2001 - Disposal of PacMin gold assets for Sons of Gwalia shares 2001 - Minority interest in Cominco
Company structure Chart: Sales by region, 2001 Chairman: Norman B. Keevil Other Europe 1% CEO: David A. Thompson 15% CFO: John G. Taylor Major shareholders: (94% free float*) CDP Capital 2% RBC 1% Asia 30%
Canada 16% Australia 4% Latin America 8% US 26%
Source: UBS Warburg estimates
*As at: 21-Mar-03. Source: UBS Warburg estimates
Analyst: Shaun Giacomo +61-2-9324 3627 Market cap: A$413m / US$245m* Company profile Chart: Earnings by commodity, 2002 Ticor's main asset is a 50% interest in the Western Australia based Tiwest joint venture with Kerr McGee. Tiwest Other produces ilmenite, rutile, zircon and leucoxene, upgrades ilmenite to synthetic rutile and converts synthetic rutile into 3% titanium dioxide pigment. In 2001, Ticor acquired a 40% interest and operating control of Kumba Resources' heavy Chems minerals project at Richards Bay in South Africa. Ticor sold investments in coal operations to fund the Ticor South 20% Africa project. Ticor also owns a 28Kt per annum sodium cyanide plant at Gladstone in Queensland. Ticor is 50% owned by Kumba Resources. Industrial Minerals 77%
Reuters code: TOR.AX, Bloomberg code: TOR AU, Internet address: http://www.ticor.com.au Projects in the pipeline Commissioning of the 40% owned South African project is underway. Furnace 1 is expected to arc up within a matter of weeks. Furnace 2 is in construction and could be commissioned in mid-late CY 2002 if markets require product.
Source: UBS Warburg estimates
Recent acquisitions/disposals 2003 - Ticor is completing the purchase of Magnetic Minerals 2001 - Acquired 40% of Ticor South Africa 2001 - Sold its 26% share in the German Creek coal mine and 20% holding in the Warkworth Mining JV Source: UBS Warburg estimates
Company structure Chart: Turnover by region, 2002 Chairman: Richard Carter Europe Other CEO: Rodney Ruston 10% 2% CFO: Bruce Arnold Asia Major shareholders: (100% free float*) 11% Kumba 50% Axa 28% Amer-icas 12% Africa 13%
*As at: 21-Mar-03. Source: UBS Warburg estimates
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Mining & Metals Primer 07 April 2003
Analysts: Andrew Snowdowne +44-20-7568 1823 / Paul Galloway +44-20-7568 4117 Market cap: EUR878m / US$925m* Company profile Chart: EBIT by commodity, 2002 Umicore (UMI) is an international metals and materials group. Its activities are centred on four business areas Copper advanced materials, copper, precious metals and zinc. Each business area is divided into market-focused business Precious 8% units. Industrial operations are based in Europe, North America, Asia and Africa, with an international sales network Synth. Metals covering more than 25 countries. Zinc has historically been the most profitable division, but the precious metals and Diamond 42% advanced materials divisions are now also contributing strongly to the company's profitability. 12% Advanced Materials 14%
Reuters code: ACUMt.BR, Bloomberg code: UMI BB, Internet address: http://www.umicore.com Projects in the pipeline - Pirdop (copper) modernisation completed - Hoboken (Precious Metals) elctrowinning plant on stream in 2003 - Zinc powder capacity to double in China
Source: UBS Warburg estimates
Company structure Chart: Turnover by origin, 2001 Chairman: K Vinck CEO: T Leysen America Africa CFO: M Grynberg 10% 2% Major shareholders: (67% free float*) Suez 29% Templeton 5% Asia/ Europe Recent acquisitions/disposals Oceania/ 74% 2002 - 4 zinc acquistions: Value added - Strub (Switzerland), Fuhong (China); Recycling - GM Metal (France), Rezinal M. East (Belgium); 3 acquisitions in Advanced Materials: New thin film products - Unaxis (Lie), Arcomium (US); Cobalt - PRM 14% (Philippines) Source: UBS Warburg estimates *As at: 21-Mar-03. Source: UBS Warburg estimates
Analysts: Glyn Lawcock +61-2-9324 3675 / Fleur Grose +61-2-9324 2834 Market cap: A$4,344m / US$2,582m* Company profile Chart: Sales by commodity, 2002 WMC Resources (WMR) was formed by the de-merger of WMC Ltd, one of Australia's most respected mining Fertiliser companies, to form WMR and Alumina Ltd. 17% WMR is the third largest producer of nickel in the world and operates three nickel mines, a smelter and a refinery in Western Australia. WMR has become a significant producer of copper and uranium following expansion of Olympic Dam in South Australia. In addition, WMR recently completed the ramp-up of its high analysis fertiliser plant in Queensland. The company has development and exploration interests within Australia and internationally.
Reuters code: WMR.AX, Bloomberg code: WMR AU, Internet address: http://www.wmc.co.au Projects in the pipeline Olympic Dam expansion, prefeasibility Extraction Plant Enhancement (SX Rebuild), end 2003 Yakabindie Nickel, prefeasibility Corridor Sands, feasibility completed
Source: UBS Warburg estimates
Company structure Chart: Turnover by region, 2002 Chairman: Ian Burgess Other CEO: Andrew Michelmore 24% CFO: Bruce Brook Major shareholders: (100% free float*) Capital Group 12% Taiwan 4% Nth America 10% Japan 12% *As at: 20-Mar-03. Source: UBS Warburg estimates
Source: UBS Warburg estimates
UBS Warburg 144
Nantun. coal and Dongtan. The company mainly produces prime quality.acquisition of Glencore coal assets (EV of US$2.053m* Company profile Chart: Operational EBIT by commodity.1Mtpa increase in SA coal exports . 537Ktpa target by 2005 .Acquired the railway assets from its parentfor Rmb1. 2002 In March 2002. As part of this deal Xstrata AG merged with a new company.San Juan (zinc) expansion to add 25Ktpa by 2003. and Zinc moved its primary listing to the London Stock Exchange. 67% Reuters code: XTA.increased stake in Oakbridge coal group to 78% (US$58m) 2002 . Japan and 57% Taiwan in 2001.6 billion. 12 in Australia and 14 in South Africa. with Ferro interests in 26 operating coal mines.102Ktpa of idle ferrochrome capacity on stream by end-2003 Recent acquisitions/disposals 2002 . Swiss listed Xstrata AG acquired the Australian and South African coal assets of parent company Other Glencore (a privately-owned Swiss-based commodity and trading company.com. and (3) the ferroalloys 10% Coal business. The enlarged Xstrata group comprises three major businesses. Yanzhou sells 53% of its output in the domestic market and 47% to Korea. namely the Xinglongzhuang.cn Projects in the pipeline Nil Source: UBS Warburg estimates Company structure Chart: Turnover by region.xstrata.159m* Company profile Chart: Earnings by commodity. all of which have a significant global share of their respective markets: (1) the coal businesses. smelting and refining operation in Spain.com Projects in the pipeline . which then owned 38. 2002 Chairman: W Strothotte Europe CEO: M Davis 25% CFO: T Reid Major shareholders: (60% free float*) Glencore 40% Capital Group 15% Southern Africa 45% Australia 30% *As at: 21-Mar-03.Acquired Jining III coal mine for Rmb2.5% of Xstrata) for 7% an enterprise value of US$2.RBCT expansion to provide 2. Source: UBS Warburg estimates Americas 0% Yanzhou Coal China Analysts: Joe Zhang +852-2971 6107 / Jenny Wong +852-2971 8171 Market cap: HK$9.Increase conso. low sulphur coal. This deal effectively transformed Xstrata from a highly 16% cyclical small cap miner into one of the world’s largest coal producers. Internet address: http://www. comprising the chrome and vanadium operations. (2) the zinc business: zinc mining. Screen'd raw coal 37% Reuters code: 1171.2 billion 2001 .yanzhoucoal. Australia coal production by 4Mtpa by 2005 . Following the Clean others acquisition of railway assets from its parent in January 2002. based in Shandong Province. Bloomberg code: 1171 HK.6bn) Source: UBS Warburg estimates Source: UBS Warburg estimates Company structure Chart: Turnover by origin. the company is also engaged in the coal railway Coal 6% transportation business.314m / US$2. will be the world's fourth largest export alloys coal producer. Xstrata plc.acqustion of Nordenham zinc (US$100m) 2002 .L.N. Jining II and Jining III.041m / US$1.Mining & Metals Primer 07 April 2003 Xstrata Europe Analysts: Andrew Snowdowne +44-20-7568 1823 / Paul Galloway +44-20-7568 4117 Market cap: £1. Source: UBS Warburg estimates UBS Warburg 145 . 2002E Yanzhou Coal is the largest Chinese coal-mining company. 2002E Chairman: Zhao Jingche CEO: Yang Deyu CFO: Xiao Lifang Major shareholders: (36% free float*) Export Yankuang Group 58% 44% Capital 3% Recent acquisitions/disposals 2002 . ADR: YZC. Internet address: http://www. Baodian.HK. The company is principally Mixed engaged in the coal mining business with operations at six coal mines. Bloomberg code: XTA LN.5 billion China 56% Source: UBS Warburg estimates *As at: 21-Mar-03.
processing and trading of metals and minerals. Codelco Codelco. Breakwater Resources Breakwater is involved in the acquisition. It has five mining divisions (including the Chuquicamata and El Teniente mines) and a metal-mechanical division. lead. The company mines over 98% of Russia’s diamond output from seven hard rock and three alluvial operations. and an agreement with the Namibian government regarding co-operation on a deal covering marketing. Its operations are situated on the ore-rich Viburnum trend complex and it has primary smelting and refining. is the world’s largest copper producer. exploration and production. silver and gold. Consol Energy Consol Energy is among the US’s top energy producers and is a domestic leader in underground coal mining. and interests in Angola. It has shares in the following companies: Anaconda Nickel (34%). and has a large market share of the world’s gem diamond production. The company has experienced problems with its hedge book in the last few years. Ashanti Goldfields Ashanti is an African-based producer with six producing operations in Ghana. Guinea. as well as recycling operations. accounting for over 18% of the country’s exports and 4% of GDP. Doe Run Doe Run is North America’s largest lead producer. It has a trade agreement with De Beers out to 2006. energy products and agricultural products.Mining & Metals Primer 07 April 2003 Companies not covered by UBS Warburg Alrosa (Almazy Roskii-Sakha) Alrosa is the major Russian diamond mining company. smelting. based in Missouri. Asturiana de Zinc SA. two Canadian provinces and Australia. It has 25 bituminous coal mining complexes in seven US states. It is a leading diversified natural resources group with worldwide activity in the mining. Tanzania and Zimbabwe. Glencore Ltd Glencore International is a privately owned company. It has four operating zinc mines and also produces copper. refining. with mining and marketing operations throughout Russia. Xstrata (39%). It has substantially restructured the hedge book and is continuing to do so. Russia accounts for 21% of all diamonds produced globally. development and mining of base and precious metal deposits in the Americas and North Africa. exploration. cutting and polishing. It is one of the world’s lowest cost copper producers. Chile’s state-owned mining company. and shares in the following operations: Carbones del UBS Warburg 146 .
Europe. The company produces zinc. North and South America. cobalt. Government of India and is the only integrated producer of primary copper in India. and is also a producer of lead. In recent years. is a state-owned Chinese enterprise. cobalt and precious metals in China. It is one of the world’s largest precious metals producers. Gold Fields Ltd Gold Fields Ltd was formed in 1998 by the combination of the gold assets of Gold Fields of South Africa Limited and Gencor Limited. 75%). 46%). Ltd. 40%). the company has listed H-shares in Hong Kong and London. It is the world’s sixth largest producer of copper and among the top four silver producers. 33%). the company now conducts underground mining operations across the whole of the Wits Basin and has interests in operations in Australia. It is the leader in world refined zinc production. It has the largest domestic copper production base and also has some sulphur.. with operations in South Africa. Hindustan Zinc Hindustan Zinc. Iscaycruz (zinc mine. Nkana (copper mine. accounting for 88% of China’s total nickel production and 90% of PGMs. 46%). and sulphuric acid. precious metals. Jinchuan Nickel Jinchuan Group Ltd (JNMC) is the largest producer of nickel. Cerrejon Zona Norte (33%). sulphuric acid and phosphate. incorporated in 1974. gold. It is a Public Sector Enterprise under the Ministry of Mines. Jiangxi Copper Jiangxi Copper Corp. PGM and silver production. Australia and Ghana. bismuth. lead. is a world-class non-ferrous metals company. Its owners are the Gansu provincial government and the Chinese State Development bank. UBS Warburg 147 . From humble beginnings in the Free State gold field. cadmium. It is a public company. KGHM KGHM is a Polish company specialising in the refined production of copper and silver. Mufulira (copper mine. founded in 1979. was incorporated on 9 November 1967. cadmium. copper. Harmony Harmony is the third largest South African based gold mining company. is one of India’s leading zinc producers. Hindustan Copper Hindustan Copper Ltd. silver. Korea Zinc Korea Zinc Co. Murrin Murrin (nickel mine. and gold and PGM exploration projects in Africa Australia.Mining & Metals Primer 07 April 2003 Cerrejon (coal. incorporated in 1996. gold and other by-products such as copper.
The company is still in operation. US. and has 18 consolidated subsidiaries. It is the world’s largest integrated zinc and lead producer and the third largest silver producer. and Big River Zinc Corporation in Sauget. It also has interests in petroleum and other fuel products. the company maintains investments in several mines around the world. It is primarily a processor. building materials and other industries. It also has operations in precious metals and rare earth elements. specialising in zinc and lead. as well as in recycling. Sun Metals Corporation Pty. copper and zinc metal production.Mining & Metals Primer 07 April 2003 The company's three zinc production facilities are Korea Zinc Co. fabricated copper products. using 60% copper concentrates and 40% scrap. It is an international company with more than 90% of its net sales generated outside its home country of Finland. currently producing 15. Illinois. (MMC) MMC is a global leader in non-ferrous metals refining. formed in 1958. It also produces diamonds.6 million tonnes per annum from three mines. According to AME. Pasminco Formed in 1988. Australia. Korea. Ltd Mitsui Mining Co Ltd was established in 1911 and is the largest coal mining company in Japan. UBS Warburg 148 . Mitsui Mining Co. is fully owned by the Indian government. Outokumpu Outokumpu is a metals and technology producer. It is India’s largest single iron ore producer and exporter.5 million tonnes per annum of concentrate. NMDC (National Mineral Development Corporation) This iron ore producer. Ltd in Townsville. and a three million tonne per annum pellet plant. It went into receivership due to a sustained period of weak metal prices and unfortunate hedging positions taken out when it bought the Century mine from Rio Tinto. In order to secure reliable supplies of ore. specialising in stainless steel. Pasminco is an Australian-based miner/smelter. Germany. Kudremukh Iron Ore Co Ltd (KIOCL) Kudremukh is run by the Indian government and operates a mine that produces 7. all based in Japan. preferably to a strategic partner that would take over management. Ltd in Onsan. the Department of Disinvestment has recommended to the government that it sell 74% of the company. Mitsubishi Materials Corp. Norddeutsche Affinerie (NA) NA is a custom-refined copper producer based in Hamburg.
low cost producer with access to inexpensive energy resources. UBS Warburg 149 . with projects in western Australia and good growth prospects.Mining & Metals Primer 07 April 2003 Peabody Energy Peabody produces steaming coal primarily for use by electric utilities. coalbed methane production and transportation related services. It is vertically integrated with a complete production cycle from mining ore to production of semi-products and aluminium-based end products. It is a vertically integrated. Peabody is also involved in related energy businesses including coal trading. Its principal property is the Stillwater mine. Sherritt International Sherritt International is a Canadian company that holds a 50% interest in Luscar. at Bratsk and Krasnoyarsk. Canada’s largest coal producer. fuelling more than 9% of America’s power and some 2% of the world’s energy. which is currently being considered by competition authorities. Russian Aluminium (RusAl) RusAl was formed in March 2000 from a merger of Russia’s major aluminium producers. Through Sherritt Coal Partnership II. It produces 75% palladium and 25% platinum. Portman Ltd Portman is an Australian-based international iron ore group. a 50% indirect interest in a vertically integrated nickel/cobalt metals business. it has acquired a 50% interest in Fording Inc’s thermal coal assets. SUAL SUAL Holding is Russia’s second largest aluminium producer and one of the world’s top 10 aluminium companies. It was created in 2000 by the merger of several Russian aluminium assets. It accounts for 75% of Russia’s primary aluminium output and 10% of the world’s. but it is also developing the East Boulder mine. Stillwater Mining Stillwater Mining is one of the world’s leading producers of PGMs (notably platinum) and is the only significant PGM producer in the western hemisphere. The company is currently privately held. It is one of the top three primary aluminium producers in the world. It is one of China’s largest producers and its third largest exporter. It operates both of the world’s largest smelters. and investments in power generation and other industries. Shenhua Coal Shenhua Coal is a high quality steaming coal producer whose primary production operations are located in Inner Mongolia. Norilsk Nickel made a bid to acquire 50% of the company in 2002.
Volcan Compañia Minera Volcan is a Peruvian-based metal producer specialising in zinc mining. Its history dates back to 1590. where it is the largest producer domestically and the world’s fifth largest. Timah PT Timah Tbk is an Indonesian company. Timah also has 25% of PT Koba Tin. It is also a significant producer of lead and silver.Mining & Metals Primer 07 April 2003 Sumitomo Metal Mining Sumitomo Metal Mining includes the mining operations of Japan’s Sumitomo Group. It is the holding company for PT Tambang Timah. Some 44% of production is derived from offshore dredging methods. Other significant group companies are Sumitomo Light Metal Industries Ltd. gold and cobalt. which is a leader in the aluminium rolling industry and Sumitomo Coal Mining Ltd. the largest tin producer in Indonesia and the world. UBS Warburg 150 . nickel. Today it is a significant producer of copper.
Mining & Metals Primer 07 April 2003 Appendix UBS Warburg 151 .
Milder and more localised than metamorphism A light. bauxite A mixture of different elements or substances. The other electrode that completes the circuit in an electrolysis reaction A hard. a mixture used as a blasting agent in many mines The positive electrode at which oxidisation occurs. streams. causing the balls to cascade and grind the ore (it is the most common method of grinding ore) A bedded deposit of iron minerals UBS Warburg 152 Ball mill Banded iron formation (BIF) . such as an alloy of mercury with another metal A metamorphic rock largely made up of amphibole and plagioclase minerals Acronym for ammonium nitrate and fuel oil. Also refers to ground water pumped to the surface from mines A tunnel driven horizontally into a hillside to provide access to a mineral deposit An instrument used to measure magnetic field strength from an aeroplane A geophysical survey using a magnetometer aboard. or towed behind. an aircraft In metallurgy. black coal containing a high percentage of fixed carbon and a low percentage of volatile matter An arch or fold in layers of rock shaped like the crest of a wave A water-bearing bed of porous rock. sometimes accomplished by the introduction of compressed air A compound of two or more metals Gravels that have been transported and deposited by flowing waters. depositing placer gold and other valuable minerals. The ball mill is rotated. Commonly found in nature in oxidised form. etc. the act or state of being stirred or shaken mechanically.Mining & Metals Primer 07 April 2003 Definitions of common terms Acid mine drainage Adit Aerial magnetometer Aeromagnetic survey Agitation Alloy Alluvial placer Alteration Aluminium Amalgam Amphibolite ANFO Anode Anthracite Anticline Aquifer Asbestos Ash Assay Autogenous grinding Back Backfill Backwardation Acidic run-off water from mine waste dumps and mill tailings ponds containing sulphide minerals. often sandstone One of the characteristics of this fibrous mineral is its high resistance to heat The inorganic residue remaining after ignition of coal A chemical test performed on a sample of ores or minerals to determine the amount of valuable metals contained The process of grinding ore in a rotating cylinder using large pieces of the ore as a grinding medium instead of conventional steel balls or rods The ceiling or roof of an underground opening Waste material used to fill the space in an underground mine created by mining an orebody A situation when the cash or spot price of a metal stands at a premium over the price of the metal for delivery at a forward date. creeks. Caused by a shortage of metal deliverable to the exchange in days or weeks rather than months A steel cylinder filled with steel balls into which crushed ore is fed. malleable metal that is a good conductor of electricity. Also called an ‘alluvial deposit’ Any physical or chemical change in a rock or mineral subsequent to its formation.
It is normally dark in colour A subset of non-precious metals (for example. which requires further refining before being used for industrial purposes A cheaper method of mining in which large blocks of ore are undercut. had a profound effect on the industry. fluxes and fuels are blown with a continuous blast of hot air and oxygen-enriched air for the chemical reduction of metals to their metallic state A drill hole in a mine that is filled with explosives in order to blast loose a quantity of rock Technique to break ore in an underground or open-pit mine A crude form of copper (assaying about 99%) produced in a smelter. mechanised method of mining involving many thousands of tonnes of ore being brought to surface per day (see block caving) Large-scale sampling of mineralised rock. basalt A large mass of igneous rock extending to great depth with its upper portion dome-like in shape. the dissolution being aided by bacterial action The cutting end of a drill frequently made of an extremely hard material such as industrial diamonds or tungsten carbide A reaction vessel in which mixed charges of oxide ores. Similar. often applied to the preparation of iron ore for smelting A process for recovering metals from low-grade ores by dissolving them in solution. zinc) Igneous rocks that are relatively low in silica and composed mostly of dark-coloured minerals. Used to determine metallurgical characteristics Metal formed into bars or ingots. typically 10 million in height and 5 million to 6 million in width. pyroxene and some olivine. causing the ore to break or cave under its own weight An ore mineral of copper. which broke in March 1997. To concentrate or enrich. silver or lead A metal used in metal-protecting alloys. copper. for example. selected in such a manner as to be representative of the potential orebody being sampled. A rock in which coarse angular fragments are surrounded by a mass of fine-grained minerals The ore in a mine which has been broken by blasting but which has not yet been transported to surface Any large-scale. gold. lead.Mining & Metals Primer 07 April 2003 Bank Basalt Base metal Basic rocks Batholith Bauxite Bedding Bench Beneficiate Bio-leaching Bit Blast furnace Top of the shaft in an underground mine An extrusive volcanic rock composed primarily of plagioclase. Its presence often indicates high grades of Cu This mining fraud. which suddenly found it very difficult to raise money. the most common aluminium ore The arrangement of sedimentary rocks in layers Vertical mining component in an open pit. particular for junior Canadian exploration companies like Bre-X. frequently hundreds of tonnes. smaller masses of igneous rocks are known as bosses or plugs A rock made up of hydrous aluminium oxides. for example. often produced as a by-product of zinc refining Blasthole Blasting Blister copper Block caving Bornite Bre-X Breccia Broken reserves Bulk mining Bulk sampling Bullion Cadmium UBS Warburg 153 .
the most important ore mineral of copper The primary ore mineral of chromium An underground opening. truncated cone known as a bowl A sedimentary rock consisting of rounded. whereby valuable minerals float due to their greater wetability than gangue minerals An ore containing a number of minerals of economic value. commercial grades are often used as a paper filler The tendency of a mineral to split along crystallographic planes A carbonaceous rock mined for use as a fuel Bituminous coal used in the production of steel via basic oxygen furnace (BOF) route. usually 99. absorbing the gold. together with all administration expenses at the joint venture level A rectangular metal sheet. the underground equivalent of an elevator A metallurgical process very similar to the carbon-in-pulp gold extraction method. royalties. Loaded carbon is removed by screening. carried out in a tall cylindrical column. the leaching and absorbing of gold onto carbon take place in the same tank rather than different tanks as in C-I-P (carbon-in-pulp) A process to recover gold from a cyanide leach slurry. water-worn pebbles or boulders cemented into a solid mass A geological term used to describe the line or plane along which two different rock formations meet Carbon-in-pulp Cash cost Cathode Chalcocite Chalcopyrite Chromite Chute Cinnabar Classifier Clay Cleavage Coal Coking coal Collar Column flotation Complex ore Concentrate Cone crusher Conglomerate Contact UBS Warburg 154 . generally low in sulphur and phosphorous. also used to describe the top of a mill hole A separation process.9% pure in the case of cathode copper and deliverable to the LME A sulphide mineral of copper common in the zone of secondary enrichment A sulphide mineral of copper and iron. and the gold is recovered from the carbon by stripping in a caustic cyanide solution followed by electrolysis or by zinc precipitation Includes production costs.Mining & Metals Primer 07 April 2003 Cage Carbon-in-leach The conveyance used to transport people and equipment between the surface and the levels in an underground mine. through which broken ore is drawn from a stope into mine cars A vermilion-coloured ore mineral of mercury A mineral-processing machine which separates minerals according to size and density A fine-grained material composed of hydrous aluminium silicates. usually constructed of timber and equipped with a gate. Coarse. More scarce than thermal coal and thus priced at a premium The term applied to the timbering or concrete around the mouth of a shaft. activated carbon particles are moved counter-current to the slurry. In the carbon-in-leach process. produced by electrolytic refining. powdery intermediate product of the milling process formed by separating a valuable metal from waste A machine which crushes ore between a gyrating cone or crushing head and an inverted. marketing and refining charges. The term often implies that there are metallurgical difficulties in liberating and separating the valuable metals A fine.
used in the calculation of the ore reserves for a given deposit A method of extracting gold grains from crushed or ground ore by dissolving them in a weak solution of sodium or calcium cyanide: also known as leaching A sloping underground opening for machine access from level to level or from surface. and then the excavation is filled with rock or other waste material (backfill). to gain access to the orebody The hardest known mineral. or as containing ore reserves. until final legal. composed of pure carbon. distinct from massive ore. 2cm or more in diameter The process by which rock removed along with the ore in the mining process. brought to surface by diamond drilling Loosely used to describe the general mass of rock adjacent to an orebody. low-quality diamonds are used to make bits for diamond drilling in rock Rotary rock drilling that cuts a core of rock that is recovered in long cylindrical sections. a furnace used to separate copper metal from matte Very malleable and ductile red metal that is a good conductor of electricity The continuous chain of mountain ranges on the western margin of North and South America The long cylindrical piece of rock. structure or rock bed is inclined from the horizontal. before the subsequent slice is extracted The lowest grade of mineralised material considered economic. or lifts. technical. wherein the valuable minerals occur in almost solid form with very little waste mineral included Development Diamond Diamond drilling Dilution Dip Disseminated ore UBS Warburg 155 . Also known as the host rock A horizontal opening driven from a shaft and (or near) right angles to the strike of a vein or other orebody The outermost layer of the Earth.Mining & Metals Primer 07 April 2003 Contact metamorphism Contango Continuous miner Converter Copper Cordillera Core Country rock Cross-cut Crust Cut-and-fill Cut-off grade Cyanidation Decline Deposit Metamorphism of country rocks adjacent to an intrusion. measured at right angles to the strike Ore carrying small particles of valuable minerals. Such a deposit does not qualify as a commercially mineable ore body. about an inch in diameter. also called a ramp A mineralised body which has been physically delineated by sufficient drilling. caused by heat from the intrusion A situation in which the price of a metal for forward or future delivery stands at a premium over the cash or spot price of the metal A piece of mining equipment which produces a continuous flow of ore from the working face In copper smelting. and/or underground work and found to contain a sufficient average grade of metal or metals to warrant further exploration and/or development expenditures. trenching. lowers the grade of the ore The angle at which a vein. includes both continental and oceanic crust A method of stoping in which ore is removed in slices. and economic factors have been resolved In an underground mine the process of tunnelling etc. spread more or less uniformly through the gangue matter.
intruded a fissure in older rocks An electric current is passed through a solution containing dissolved metals. a financial and technical investigation to determine whether an investment is sound A pile of broken rock or ore on surface A long and relatively thin body of igneous rock that. crosscut or stope in which work is taking place A break in the Earth’s crust caused by tectonic forces which have moved the rock on one side with respect to the other A group of common rock-forming minerals that includes microcline. mapping. either as mined or separated from coarser material by screening. causing the metals to be deposited onto a cathode The process of purifying metal ingots that are suspended as anodes in an electrolytic bath.Mining & Metals Primer 07 April 2003 DRI Direct Reduced Iron. while in the molten state. rain. that examines the effects proposed mining activities will have on the natural surroundings Orebodies formed by hydrothermal fluids and gases that were introduced into the host rocks from elsewhere. compiled prior to a production decision. freezing and thawing and other processes Sedimentary rock formed by precipitation from water of soluble minerals due to evaporation Prospecting. diamond drilling and other work involved in searching for ore Commercial explosives used for breaking rock underground or in surface operations. wave action. sampling. Marketable fines meet various specifications regarding iron ore content and impurities and normally require agglomeration before use in steel manufacture A term often used among miners and geologists. The term is used broadly to include the product of several processes that produce primary iron similar to pig iron without exceeding the melting temperature A horizontal underground opening that follows along the length of a vein or rock formation as opposed to a crosscut which crosses the rock formation The degree of care and caution required before making a decision. or have been separated from the parent vein by weathering agencies UBS Warburg 156 Float . plagioclase and others (1) The sand or other small-sized components of a placer deposit (2) The material passing through a screen during washing or other processing steps of a mining operation Drift Due diligence Dump Dyke Electrolysis Electrolytic refining EM survey Environmental impact study (EIS) Epigenetic Epithermal Era Erosion Evaporite Exploration Explosive Face Fault Feldspar Fines Fines (iron ore) Particles generally of less than 6mm diameter. filling cavities in the host rock Hydrothermal deposits formed at low temperature and pressure A large amount of geological time The breaking down and subsequent removal of either rock or surface material by wind. orthoclase. loosely. Generally ammonium nitrate based. or strata. refers to iron produced from ore without melting. for pieces of ore or rock that have fallen from veins. but can by nitro-glycerine based The end of a drift. alternated with refined sheets of the same metal which act as starters or cathodes A geophysical survey method which measures the electromagnetic properties of rocks A written report.
the most common ore mineral of lead Rock surrounding a mineral or precious gem in its natural state The study of the chemical properties of rocks The science concerned with the study of the rocks which compose the Earth The study of the physical properties of rocks and minerals which include magnetism. sells the gold on the open market. Usually diesel powered and articulated. uses the cash for mine development. by changing the surface characteristics of the target mineral and separating using air bubbles. then pays back the gold from actual mine production The rust-coloured capping or staining of a mineral deposit. When the right chemicals are added to a frothy water bath of ore that has been ground to a fine powder. which are liquid at furnace temperature and low enough in density to float on the molten bath of metal or matte Any bending or wrinkling of rock strata The rock on the underside of a vein or ore structure A pyrometallurgical plant where the concentrate is chemically reduced in order to extract the metal or metals it contains Used to describe gold and silver ores from which the precious metals can be recovered by concentrating methods without resorting to pressure leaching or other chemical treatment Loader with bucket at the front. A grab sample is not intended to be representative of the deposit. capacity up to 20 cubic metres. usually from bore hole data Heat from the Earth’s interior A very ductile and malleable brilliant yellow precious metal that is resistant to air and water corrosion A form of debt financing whereby a potential gold producer borrows gold from a lending institution. the minerals will float to the surface. The metal-rich flotation concentrate is then skimmed off the surface A chemical substance that reacts with gangue minerals to form slags.Mining & Metals Primer 07 April 2003 Flotation A process for concentrating materials based on the selective adhesion of certain minerals to air bubbles in a mixture of water and ground-up ore. gravitational attraction varies with the density of the rocks in the vicinity Recovery of gold from crushed rock or gravel using gold’s high specific gravity to separate it from lighter material Flux Fold Footwall Foundry/smelter Free milling Front end loader Froth flotation Galena Gangue Geochemistry Geology Geophysics Geostatistics Geothermal Gold Gold loan Gossan Grab sample Grade Granite Gravity meter. and usually the best-looking material is selected The relative value or tenor of an ore or of a mineral product A coarse-grained intrusive igneous rock consisting of quartz. specific gravity. gravimeter Gravity separation UBS Warburg 157 . feldspar and mica An instrument for measuring the gravitational attraction of the earth. electrical conductivity and radioactivity Statistical methods used to estimate ore reserves and resources. Very common method of concentrating. Lead sulphide. generally formed by the oxidation or alteration of iron sulphides A sample from a rock outcrop that is assayed to determine if valuable elements are contained in the rock. especially sulphide based ores.
Different types of grinders are used in the processing plant to obtain the desired dimension A grating. it refers to selective mining of the best ore in a deposit The machine used for raising and lowering the cage or other conveyance in a shaft The rock surrounding an ore deposit The treatment of ore by wet processes. Usually by truck but often by train or conveyor Underground.Mining & Metals Primer 07 April 2003 Grinding Grizzly Means of reducing ore into very small particles by means of pressure or impact. Typically has a higher capacity than a jaw crusher An oxide of iron. Examples are asbestos. non-fuel minerals used in the chemical and manufacturing industries. or pad.47 acres Rich ore. from solution Gypsum Gyratory crusher Haematite Halite Hanging wall Hanging wall Haul Haulage Head grade Heap leaching Heavy minerals Hectare High grade Hoist Host rock Hydrometallurgy Hydrothermal Igneous rocks Ilmenite Induced polarisation (IP) Industrial minerals In-fill drilling Intrusive Ion exchange UBS Warburg 158 . such as leaching. such as uranium. Can be called a mantle A sedimentary rock consisting of hydrated calcium sulphate A machine that crushes ore between an eccentrically mounted crushing cone and a fixed crushing throat. are leached from a heap. usually gold and silver. generally runs from the cross cut to the shaft tips The average grade of ore fed into a mill The process whereby valuable metals. which are extruded upon the surface An exchange of ions in a crystal with irons in a solution. gravel. salt. of crushed ore by leaching solutions percolating down through the heap and collected from a sloping. impermeable liner below the pad The accessory detrital minerals of a sedimentary rock with a high specific gravity An area of land equivalent to 10. a tunnel which constitutes the main horizontal transport conduit. usually constructed of steel rails. an iron-titanium oxide A method of ground geophysical surveying employing an electrical current to determine indications of mineralisation Non-metallic.000 square meters or 2. or along shallow inclines (generally less than 1 in 6) out of an underground or open pit mine. resulting in the solution of a metal and its subsequent recovery Relating to hot fluids circulating in the earth’s crust Rocks formed by the intrusion of molten matter from far below the earth’s surface An ore mineral of titanium. As a verb. placed over the top of a chute or ore pass for the purpose of stopping large pieces of rock or ore that may hang up in the pass. graphite. Used as a method for recovering valuable metals. in contrast to lavas. mica. building stone and talc Drilling within a group of previously drilled holes to provide a closer spaced pattern to define more accurately the parameters of the orebody A body of igneous rock formed by the consolidation of magma intruded into other rocks. gypsum. and one of that metal’s most common ore minerals Rock salt The mass of rock overlying a geological structure such as an orebody or fault The rock on the upper side of a vein or ore deposit Process of moving rock horizontally.
low profile. perpendicular to bedding A variety of mantle rock. A soft. low-rank brownish black coal A bedded. fix. and shields against radioactivity Generally used to describe a body of ore that is thick in the middle and tapers towards the ends A horizontal opening in a mine. solder. the most common host rock for diamonds Planks or small timbers placed between steel ribs along the roof of a stope or drift to prevent rocks from falling. water or powdered ore in a mill Extractable by chemical solvents A chemical process by which a soluble metallic compound is extracted from ore by dissolving the metals in a solvent. There are also daily London fixes to set the prices of other precious metals The most active of the gold markets. the p. articulated loader capable of short transporting distances. Lens Level LHD Lignite Limestone Limonite Lode Logging London fix London Bullion Market Association (LBMA) London Metal Exchange (LME) A major bidding market for base metals. often remotely controlled in dangerous unsupported areas. which operates daily in London Long ton Lump (ore) Magma Magmatic segregation Magnesium 2. based in London. an underground. hydrous iron oxide A mineral deposit in solid rock The process of recording geological observations of drill Core either on paper or on computer disk The twice-daily bidding session held by five dealing companies to set the gold price. sedimentary deposit consisting chiefly of calcium carbonate A brown. usually 50 metres or more apart Acronym for load haul dump. see cyanidation A heavy soft malleable ductile but inelastic bluish white metallic element found mostly in combination and used in pipes. which is 2. levels are usually established at regular intervals. generally diesel powered but can be electric. cable sheaths. and 15h00.Mining & Metals Primer 07 April 2003 Iron Jaw crusher Jig Joint Kimberlite Lagging Launder Leachable Leaching Lead A ductile and malleable greyish white metal used in making steel A machine in which rock is broken by the action of steel plates A piece of milling equipment used to concentrate ore on a screen submerged in water. rather than to support the main weight of the overlying rocks A chute or trough for conveying pulp.240 lbs.m. batteries. type metal. either by the reciprocating motion of the screen or by the pulsation of water through it Naturally occurring parting in rock. avoirdupois (compared with a short ton. the a. sets indicator prices for gold twice a day at 10h30.000 lbs) Unbeneficiated marketable iron ore particles of 6-30mm diameter and usually with less than 15-20% accompanying fines The molten material deep in the Earth from which rocks are formed An ore-forming process whereby valuable minerals are concentrated by settling out of a cooling magma A malleable and ductile silvery white metal that is used in alloys UBS Warburg 159 . fix.m.
specifically. a definite crystal form Extraction and concentration of economic minerals contained in ore. magnetic iron ore. It includes various procedures that rely on the mineral's gravimetric. on reagents to make target particles float to the surface (flotation) An element often found in copper porphyry deposits. #40. Also referred to as an open-cut or open-cast mine UBS Warburg 160 Metallurgical coal Metallurgy Metamorphic rocks Mill Millivolts Mineable reserves Mineral Mineral processing Molybdenum Muck Native metals Net smelter return Net smelter royalty Nickel Niobium Nugget Open pit . The most common sizes for screens used with concentrates in mining are: #20. ores of iron are commonly treated in this way A measure of the degree to which a rock is attracted to a magnet Black. and #100 mesh size Coal used in steel manufacture The study of extracting metals from their ores Rocks which have undergone a change in texture or composition as the result of heat and/or pressure A plant in which ore is treated and metals are recovered or prepared for smelting. It is yellow/brown in colour and friable A product of a smelter. an iron oxide A metamorphic rock formed by the recrystallisation of limestone under intense heat and pressure An orebody of minimal profitability A mixture of haematite and goethite that is low in the silica and alumina impurities normally associated with the Brockman Formation. uncombined with other elements An interest in a mining property held by the vendor on the net revenue generated from the sale of metal produced by the mine Royalty based on metal poured at the smelter based on a fixed percentage. #60. #30. one-thousandth of a volt Ore reserves that are known to be extractable using a given mining plan A naturally occurring homogeneous substance having definite physical properties and chemical composition and. #80. typically 15%. containing metal and some sulphur. It is used extensively in steels particularly grinding steels and as a filament material Ore or rock that has been broken by blasting Metals occurring in nature in pure form. and the prevailing metal price A silvery white metal that is very resistant and stable at ambient temperatures A rare brilliant white metal always found in combination with tantalum A small mass of precious metal.Mining & Metals Primer 07 April 2003 Magnetic gradient survey Magnetic separation Magnetic susceptibility Magnetite Marble Marginal deposit Marra Mamba iron ore Matte Mesh size A geophysical survey using a pair of magnetometers a fixed distance apart. which must be refined further to obtain pure metal The number of openings within a 1 inch square of screen in which materials are sifted. on its colour. to measure the difference in the magnetic field with height above the ground A process in which a magnetically susceptible mineral is separated from gangue minerals by applying a strong magnetic field. also a revolving drum used for the grinding of ores in preparation for treatment A measure of the voltage of an electric current. and magnetic characteristics. found free in nature A mine that is entirely on the surface. if formed under favourable conditions.
rub up against and spread out from one another Orebody Organic maturation Ounce Outcrop Overburden Oxidation Pan Pegmatite Pellet Pentlandite Phyllite Piesolitic Pig iron Pillar Pitchblende Placer deposit Plate tectonics Platinum Group Metals (PGMs) Metals in the platinum group as defined by the periodic table.1034 grams An exposure of rock or mineral deposit that can be seen on surface. the most common nickel ore Scaly minerals. are set in a fine-grained groundmass A deposit of disseminated copper minerals in or around a large body of intrusive rock Potassium compounds mined for fertiliser and for use in the chemical industry UBS Warburg 161 . probable and proven according to the level of confidence that can be placed in the data A natural concentration of valuable material that can be extracted and sold at a profit The process whereby peat is converted into coal Unit of mass. and similar to a granite in composition. tin or diamonds A geological theory which postulates that the Earth's crust is made up of a number of rigid plates which collide. chlorites and clays A term applied to iron ores which contain large nodules (ooliths) about the size of a pea Crude iron produced by a blast furnace A block of solid ore or other rock left in place to structurally support the shaft. not covered by soil or water Worthless or low-grade surface material covering a body of useful mineralisation The alteration of a mineral by weathering and the action of surface waters resulting in conversion. usually occurs in dykes or veins and sometimes contains valuable minerals Iron ore fines agglomerated by heat treatment with clay into a roughly spherical shape. equal to 31. includes platinum. It is black in colour. sand or crushed rock samples in order to isolate gold or other valuable metals by their higher density A coarse-grained. partly or wholly.Mining & Metals Primer 07 April 2003 Operating cost Ore Ore pass Ore reserves Cash cost plus depreciation and amortisation A mixture of ore minerals and gangue from which at least one of the metals can be extracted at a profit Vertical or inclined passage for the downward transfer of ore connecting a level with the hoisting shaft or a lower level The calculated tonnage and grade of mineralisation which can be extracted profitably. called phenocrysts. micas. classified as possible. palladium and rhodium Plutonic Porphyry Porphyry copper Potash Refers to rocks of igneous origin that have come from great depth Any igneous rock in which relatively large crystals. igneous rock. Nickel iron sulphide. that is. but irregular in texture. possesses a characteristic greasy lustre and is highly radioactive A deposit of sand and gravel containing valuable metals such as gold. walls or roof of a mine An important uranium ore mineral. carbonates and sulphates To wash gravel. to oxides. generally coarse.
In underground mines. rock and construction materials are extracted Common rock-forming mineral consisting of silicon and oxygen. normally of little value. indicated or inferred. chemical attack and rapid temperature changes Ore that resists the action of chemical reagents in the normal treatment processes and which may require pressure leaching or other means to effect the full recovery of the valuable minerals Metamorphism caused by both the heat of igneous processes and tectonic pressure over a long period of time Ore formed by a process during which certain minerals have passed into solution and have been carried away. magnetic iron sulphide mineral Open-pit operation where stone. the primary crusher is often located underground. excessive pressures. while valuable minerals from the solution have been deposited in the place of those removed That part of a mineral resource that can be mined profitably A geophysical technique used to measure the resistance of a rock formation to an electric current The calculated amount of material in a mineral deposit. It is sometimes referred to as ‘fool's gold’ A bronze-coloured. as opposed to those deposited as a result of alteration or weathering (called secondary deposits) Pulverised or ground ore in solution A yellow iron sulphide mineral. or at the entrance to the processing plant Valuable minerals deposited during the original period or periods of mineralisation. beta or gamma rays by the decay of the nuclei of atoms A vertical or inclined underground working that has been excavated from the bottom upward Underground or open pit road access Relatively scarce minerals such as niobium. based on the density of drill hole data used Primary deposits Pulp Pyrite Pyrrhotite Quarry Quartz Radioactivity Raise Ramp Rare earth elements Reclamation Recovery Refining Refractory material Refractory ore Regional metamorphism Replacement ore Reserves Resistivity survey Resources UBS Warburg 162 . platinum and palladium A mixture of mineral particles filtered from solutions as a result of a chemical reaction Process of reducing blasted ore into smaller fragments so that it can be transported to the processing plant. silver. They are also used for resistance to abrasion. When coloured with impurities it can form a variety of semi-precious gems The property of spontaneously emitting alpha. It can be classified as measured.Mining & Metals Primer 07 April 2003 Precious metals Precipitate Primary crushing High value metals including gold. yttrium and the lanthanides The restoration of a site after mining or exploration activity is completed The percentage of valuable metal in the ore that is recovered by metallurgical treatment Purifying the matte or impure metal undertaken to obtain a pure metal or mixture with specific properties A material with a very high melting point used for applications such as furnace linings and kilns.
Done either by accident or with the intent of defrauding the public A small portion of rock or a mineral deposit taken so that the metal content can be determined by assaying Selecting a fractional but representative part of a mineral deposit for analysis An instrument used to detect and measure radioactivity by detecting gamma rays. more sensitive than a Geiger counter Use of explosives to break large rocks as the result of primary. which recognises and measures the minute electric currents generated by sulphide deposits A method of grinding rock into fine powder whereby the grinding media consist of larger chunks of rocks and steel balls A mill in which rock is reduced to smaller particles partially by grinding against other pieces of rock Rockbolting Rockburst Rod mill Room-and-pillar mining Rotary drill Royalty Run of mine ore Run-of-mine Salting Sample Sampling Scintillation counter Secondary blasting Secondary enrichment Sedimentary rocks Seismic prospecting Self-potential Semi-autogenous grinding (SAG) Semi-autogenous mill UBS Warburg 163 .Mining & Metals Primer 07 April 2003 Resuing Rock Rock mechanics A method of stoping in narrow-vein deposits whereby the wallrock on one side of the vein is blasted first and then the ore A mass containing a combination of minerals The study of the mechanical properties of rocks. tubular string of drill rods to which is attached a bit. Also. are separated by pillars of approximately the same size A machine that drills holes by rotating a rigid. shale and sandstone A geophysical method of prospecting. resulting in false assays. the fee paid for the right to use a patented process Uncrushed ore in its natural state just as it is when blasted A term used loosely to describe ore of average grade The act of introducing metals or minerals into a deposit or samples. caused by the weight or pressure of the surrounding rocks A rotating steel cylinder that uses steel rods as a means of grinding ore A method of mining flat-lying ore deposits in which the mined-out area. which includes stress conditions around mine openings and the ability of rocks and underground structures to withstand these stresses The act of supporting openings in rock with steel bolts anchored in holes drilled especially for this purpose A violent release of energy resulting in the sudden failure of walls or pillars in a mine. Commonly used for drilling large-diameter blastholes in open-pit mines An amount of money paid at regular intervals by the lessee or operator of an exploration or mining property to the owner of the ground. or rooms. Generally based on a certain amount per tonne or a percentage of the total production or profits. Examples are limestone. used in geophysical prospecting. utilising knowledge of the speed of reflected sound waves in rock A technique. production blasting Enrichment of a vein or mineral deposit by minerals that have been taken into solution from one part of the vein or adjacent rocks and re-deposited in another Secondary rocks formed from material derived from other rocks and laid down under water.
The specific gravity of a mineral or metal greatly determines its susceptibility to recovery in simple gravity concentrators such as sluice boxes The zinc of commerce. which lowers and raises a conveyance for handling workers and materials Sedimentary rock formed by the consolidation of mud or silt A zone in which shearing has occurred on a large scale The deformation of rocks by lateral movement along innumerable parallel planes. in which metal is dissolved from the rock by organic solvents and recovered from solution by electrolysis In blasting. that part of a vein or zone carrying values of ore grade A stoping method which uses part of the broken ore as a working platform and as support for the walls of the stope Iron carbonate. more or less impure. cast from molten metal into slabs or ingots A zinc sulphide mineral. generally resulting from pressure and producing such metamorphic structures as cleavage and schistocity A concentration of mineral values. the distance from blast hole to blast hole. sometimes used for assaying A chemical used in the milling of gold ores to dissolve gold and silver A metallurgical technique. the most common ore mineral of zinc Current delivery price of a commodity traded in the spot market. which when pure. the metamorphic equivalent of shale Rock cuttings from a diamond drill hole. so far applied only to copper ores. as compared with the weight of an equal bulk of pure water. perpendicular to burden The specific gravity of a substance is its weight. contains 48. must be roasted to drive off carbon dioxide before it can be used in a blast furnace.2% iron. Roasted product is called sinter Silicon dioxide. Usually equipped with a hoist at the top. Quartz is a common example A rock containing an abundance of silica An intrusive sheet of igneous rock of roughly uniform thickness that has been forced between the bedding planes of existing rock Muddy deposits of fine sediment usually found on the bottoms of lakes A very malleable metal found naturally in an uncombined state or with other metals Fine particles of iron ore that have been treated by heat to produce blast furnace feed The metamorphic rocks surrounding an igneous intrusive where the latter has come in contact with limestone or dolomite rocks A self-dumping bucket used in a shaft for hoisting ore or rock The vitreous mass separated from the fused metals in the smelting process A fine-grained metamorphic rock.Mining & Metals Primer 07 April 2003 Shaft A vertical or inclined excavation in rock for the purpose of providing access to an orebody. also called the cash price An enlargement of a shaft made for the storage and handling of equipment and for driving drifts at that elevation Bituminous coal suitable for thermal power stations. also known as thermal coal Holes drilled to intersect a mineralisation horizon or structure along strike or down dip UBS Warburg 164 Shale Shear zone Shear/shearing Shoot Shrinkage stoping Siderite Silica Siliceous Sill Silt Silver Sinter Skarn Skip Slag Slate Sludge Sodium cyanide Solvent extraction electrowinning (SX-EW) Spacing Specific gravity Spelter Sphalerite Spot price Station Steaming coal Step-out drilling .
intermediate between lignite and bituminous Rock that contains a target mineral but in insufficient concentration to be profitable. either converted into sulphuric acid or released into the atmosphere in the form of a gas An underground excavation where water accumulates before being pumped to surface A mineral deposition process in which near-surface oxidation produces acidic solutions that leach metals. the description of bedded rock sequences. can be active that is. or passive.Mining & Metals Primer 07 April 2003 Stockpile Stope Stratigraphy Strike Stringer Strip Strip mine Stripping ratio Sub-bituminous Sub-economic Sub-level Sulphides Sulphur Sulphur dioxide Sump Supergene enrichment Broken ore heaped on surface. the prime function of which is to allow enough time for heavy metals to settle out or for cyanide to be destroyed before water is discharged into the local watershed A chemical compound consisting of the element tellurium and another element. that is. and re-precipitate them. carry them downward. operated by removing overburden. excavating the coal seam. (The opposite is epigenetic. the mineralisation was formed at the same time as the host rocks. A level or working horizon in a mine between main working levels Compounds of sulphur (without oxygen) with other elements Element that occurs in a nature state or in compounds such as sulphides A gas liberated during the smelting of most sulphide ores. used loosely. often gold or silver Measurement unit for magnetic fields Support Sustainable development Sylvite Syncline Syngenetic Taconite Tailings Tailings dam (pond) Telluride Tesla UBS Warburg 165 . thus enriching minerals already present Physical means of keeping workings open and safe underground. then returning the overburden The ratio of the amount of waste material which must be removed in an open pit to allow one ton of ore to be mined A black coal. of a particular sheet of rock measured on a level surface A narrow vein or irregular filament of a mineral or minerals traversing a rock mass To remove the overburden or waste rock overlying an orebody in preparation for mining by open pit methods An open-pit mine.) A highly abrasive iron ore Material rejected from a mill after the valuable minerals have been recovered A low-lying depression used to confine tailings. usually a coal mine. or course or bearing. the principal ore of potassium mined for fertiliser manufacturing A down-arching fold in bedded rocks A term used to describe when mineralisation in a deposit was formed relative to the host rocks in which it is found. In this case. reacts with compression Industrial development that does not detract from the potential of the natural environment to provide benefits to future generations Potassium chloride. pending treatment or shipment The working area in a mine from which ore is extracted Strictly. effective on installation. the sequence of bedded rocks in a particular area The direction.
The hanging wall and foot wall rocks of an orebody An internal shaft Bluish-white hard metal. such as an ore zone. lead and zinc.185kg A unit of mass equivalent to 2204. where broken rock is dumped often near the shaft system A brilliant white metal found in most igneous or sedimentary rocks A unit of mass equivalent to 2000 pounds or 907. metallic element A fissure. fault or crack in a rock filled by minerals that have travelled upwards from some deep source Homogenous or largely homogenous sulphide rock mass derived from volcanic action.102 short tons Treatment and refining charges Charges levied by smelter/refineries for the treatment of concentrate from mines. Some mines report revenue net of TC/RCs Trend Troy ounce Tube mill Umpire sample or assay Uncut value Uraninite Uranium Vein Volcanic Massive Sulphide (VMS) Volcanic rocks Volcanogenic Vug Wall rocks Winze Zinc The direction. silvery-white. such as sphalerite UBS Warburg 166 . in the horizontal plane.105 grams An apparatus consisting of a revolving cylinder about half-filled with steel rods or balls and into which crushed ore is fed for fine grinding An assay made by a third party to provide a basis for settling disputes between buyers and sellers of ore The actual assay value of a core sample as opposed to a cut value which has been reduced by some arbitrary formula A uranium mineral with a high uranium oxide content. Amethyst commonly forms in these cavities Rock units on either side of an orebody.6 pounds or 1. important source of lead and zinc Igneous rocks formed from magma that has flowed out or has been violently ejected from a volcano A term used to describe the volcanic origin of mineralisation A small cavity in a rock. frequently lined with well-formed crystals.Mining & Metals Primer 07 April 2003 Thermal coal Tip Titanium Ton (short ton) Tonne (metric tonne) See steaming coal Top of a vertical or sub-vertical ore pass. measured from true north Universal unit measure of weight for precious metals equal to 31. of a linear geological feature. Frequently found in pegmatite dykes A radioactive. (TC/RC) Particularly applicable to copper. occurring in various minerals.
An open pit. it has been operated since 1910 and also produces by product molybdenum and selenium WMC Resources' 100% owned titanium dioxide project which is currently under development Rio Tinto's major new diamond mine in the North West Territories. higher grade than BHP Billiton's Ekati deposit Underground and open pit operation. run by MIM A US$2. projects. this is one of the world's premier copper mines. chromite Iron ore Lead. low cost zinc mine owned and operated by Pasminco which is set to become the second largest producer of zinc in the world Large operation owned by a JV between Anglo American. containing some of the world's deepest level gold mines A JV between Anglogold and Ashanti. owned by Rio Tinto Alcoa Worldwide Aluminium Corp.2 billion development owned by Noranda (34%). owned by BHP Billiton. It has a portfolio of mining. 40% by Alumina Ltd. It was opened in 1990 Open cast operation producing hard coking coal.000 men. is 60% owned by Alcoa. gold What? An open pit ilmenite mine controlled by Rio Tinto Argentina's first and only copper operation. Mitsubishi Corp. zinc. gold Coal Gold Gold Nickel Copper. it spawned the Broken Hill Proprietary Company Ltd (later BHP) and Rio Tinto and at its peak employed over 9. owned by Fording Coal A gold province south of Johannesburg.Mining & Metals Primer 07 April 2003 Where’s where in mining? Table 30: Important places in the global mining industry (mines. zinc Coal Copper TiO2 Diamonds Coal Gold Diamonds Coal Copper Copper. approaching the end of its life South Africa's Bushveld complex is one of the richest orebodies in the world in terms of PGMs. located in Russia and operated by RusAl The cradle of Australia's mining industry. silver PGMs. BHP Billiton (34%). this open pit mine consists of five planned pits Huge planned nickel development project for Inco that is suffering development trouble and is likely to be pushed out further Freeport-McMoran and Rio Tinto's open pit JV is the world's fifth cheapest copper mine and a significant gold producer in Iran Jaya Operator Rio Tinto MIM Holdings JV Rio Tinto Alcoa Angloplats NMDC Barrick Gold Rio Tinto Rio Tinto BHP Billiton RusAl Perilya Mining N/A CVRD Pasminco JV Codelco WMC Resources Rio Tinto BHP Billiton Goldfields Ltd BHP Billiton N/A Codelco BHP Billiton Fording N/A Ashanti Goldfields Inco Freeport-McMoran UBS Warburg 167 . aluminium Platinum Iron ore Gold Copper Coal Coal Aluminium smelter Lead. Teck Cominco (23%) and Mitsubishi Corp. but also contains some 80% of the world's chrome reserves One of the richest iron ore mining operations in the world. Norwich Park The largest aluminium smelter in the world. zinc Diamonds Alumina. high quality steaming coal Owned by Codelco. Glencore and BHP Billiton. refining and smelting assets This mine in South Africa's North West Province is currently under development by Angloplats One of India's largest iron ore producers. includes Goonyella. controlled by the Indian government Barrick's open pit operation on the Goldstrike property on the Carlin Trend in northcentral Nevada Owned and operated by Rio Tinto. Nippon Mining & Metals. producing high volatility bituminous thermal coal The largest producing gold mine in the Goldfields group. (10%) The largest source of industrial diamonds in the world. Peak Downs. it is over 100 years old and is one of the largest open pits in the world. it is owned by Codelco This open pit operation is the world's largest copper mine and is owned by BHP Billiton. Gold Copper. It also produces gold and silver Thick seam steaming coal resource. an underground operation BHP Billiton's major new diamond mine in the North West Territories Major coal field located in the north east of the country which includes the Cerrejon Norte and Carbones del Cerrejon mines The world's largest underground mine. provinces) Name Allard Lake Alumbrera Antamina Argyle AWAC Bafokeng Rasimone Bailadila Betze-Post Bingham Canyon Blair Athol Bowen Basin Bratsk Broken Hill Bushveld Carajas Century Cerrejon Norte Chuquicamata Corridor Sands Diavik Douglas Driefontein Ekati El Cerrejon El Teniente Escondida Fording River Free State Geita Goro Grasberg Where? Canada Argentina Peru Australia Global South Africa India US US Australia Australia Russia Australia South Africa Brazil Australia Colombia Chile Mozambique Canada South Africa South Africa Canada Colombia Chile Chile Canada South Africa Tanzania New Caledonia Indonesia Commodities TiO2 Copper. operated by Rio Tinto World's richest and most extensive coking coal deposits. part of the Northern system A large. Rio Tinto.
Zinc Gold Copper Iron ore TiO2 Copper. this orebody is a major producer of copper and zinc The cradle of South Africa's diamond mining industry and the birthplace of De Beers. lead. this is China's largest producer Site of many of South Africa's first gold mines and still a centre for mining finance in South Africa despite the fact that most of the gold mining has moved south Major gold mining town in Western Australia dating back to 1880 Large open cast steaming coal operation owned by Rio Tinto (50%) and the Indonesian government Produces over 45% of South Africa's coal production. uranium Copper Iron ore Iron ore Alumina. cost competitive producer which started in 1984. zinc Diamonds Gold Aluminium smelter Coal Lead. this underground mine is one of Australia's largest This open pit and now underground mine has been running since 1965 and is well known for the technical innovations pioneered at it. BHP Billiton had expressed an interest but has backed away due to concerns over local artisanal mining Large open pit deposit with very large reserves.Mining & Metals Primer 07 April 2003 Name Where? Commodities Nickel Gold Gold Coal Coal Copper. including Tom Price. It is operated by Rio Tinto Second major iron ore mine operated by Rio Tinto Iron ore region in Western Australia which includes a number of world class operations. zinc Nickel Iron ore Nickel. Artisanal Lihir Gold Antofagasta plc BHP Billiton Kenmare Resources MIM Holdings WMC Resources Rio Tinto Norilsk Nickel CVRD Jinchuan Nickel China Johannesburg Kalgoorlie Kaltim Prima Karoo Kidd Creek Kimberley Kloof Krasnoyarsk La Loma Lanping Lihir Los Pelambres Mining Area C Moma Mount Isa Mount Keith Mount Tom Price Norilsk Northern System Ok Tedi Olympic Dam Palabora Paraburdoo Pilbara Pingguo Polaris Potgietersrus Red Dog Richards Bay Robe River South Africa Australia Indonesia South Africa Canada South Africa South Africa Russia Colombia China PNG Chile Australia Mozambique Australia Australia Australia Russia Brazil PNG Australia South Africa Australia Australia China Canada South Africa US South Africa Australia Copper Copper. zinc TiO2 Iron ore Local Government WMC Resources Rio Tinto Rio Tinto N/A JV Teck Cominco Angloplats Teck Cominco BHP Billiton/Rio Tinto Rio Tinto UBS Warburg 168 . the mine is a major copper producer A new mining development project by BHP Billiton which is part of the Yandi iron ore province Owned by Kenmare Resources. although now operating below sea level Operated by Antofagasta plc. located in Alaska and owned by Teck Cominco BHP Billiton and Rio Tinto 50/50 titanium dioxide JV Also there is a major 60Mt/yr coal terminal operated by Rio Tinto located at Richards Bay Piesolitic iron ore body Operator Jinchuan Nickel N/A N/A Rio Tinto N/A Falconbridge Anglo American (De Beers) Goldfields Ltd RusAl Drummond Co. De Beers still has operations there but most production has shifted to lower cost mines A high grade underground mine owned by Goldfields The second largest aluminium smelter in the world. silver. including the massive Carajas mine A large scale. from the Witbank. copper. Kimberley was established in 1871. In latter years it has been beset with environmental problems Owned and operated by WMC Resources. over 60% of the mine's ore has been mined. PGMs Iron ore What? Located in Gansu province. producing high quality steaming coal One of China's largest lead/zinc deposits. located in Russia and operated by RusAl The second largest coal mining operation in Colombia. and one of the world's. hard lump ore (Brockman ore) The world's largest nickel and palladium ore province with operations in the Kola Peninsular on one huge orebody Northern area of iron ore deposits. Highveld and Sasolburg coalfields With production starting in 1966. this open pit operation is one of the largest nickel mines outside Russia and Canada Rio Tinto's main iron ore operation. Inc. this is one of the largest titanium projects worldwide and is currenty under development MIM Holdings' 100%-owned operation is Australia's. aluminium Zinc Platinum Lead. largest underground mine Owned and operated by WMC Resources. an open pit mining good quality. Paraburdoo. Channar (the Chinese-Rio Tinto JV) and Yandi A proposed alumina and aluminium JV between Alcoa and Chalco Arctic underground mine operated by Teck Cominco Located on the eastern limb of the Bushveld complex. Potgietersrus is an open cast operation mining the PlatReef The world's largest zinc mine.
a 50/50 JV between Western Areas and Placer Dome Complex of iron ore deposits which were the original iron ore workings in Brazil. It mines the Merensky Reef and the UG2 and is one of South Africa's oldest and largest platinum mines.Mining & Metals Primer 07 April 2003 Name Where? Commodities What? The Rustenberg underground mine. Falconbridge and other significant Canadian miners Venetia is one of De Beers' newest mines and its open pit operations are one of the world's largest producers of gem quality diamonds One of the world's largest lead mines. part of the Robe River operations BHP Billiton's major iron ore mine. production planned to commence in 2005 A new development by Rio Tinto mining Marra Mamba ore which is different in quality than the Brockman lump ore. PGMs Diamonds Lead. mainly for use in power generation Richest iron ore field in Africa renowned for its high grade lump ore Anglo American's new zinc project The extension of the Western Areas mine. is one of the richest platinum mines in the world. Buenaventura (44%) and IFC (5%). this is one of the richest gold mines in the world and South America's largest Piesolitic iron ore province where BHP Billiton and Rio Tinto have operations. hard lump ore (Brockman ore) A JV between Newmont (51%). nickel. zinc. an open pit mining good quality. CVRD operates 12 mines here The Sudbury area is home to several operations operated by Inco. located in Missouri and operated by Doe Run Nickel project under development by Inco. copper Nickel Iron ore Iron ore Gold Iron ore N/A Kumba Anglo American Western Areas CVRD N/A Anglo American (De Beers) Doe Run Inco Rio Tinto BHP Billiton Newmont BHP Billiton/Rio Tinto UBS Warburg 169 . owned by Angloplats. very low mining costs and attractive (cheap) iron feed Operator Rustenberg South Africa Platinum Angloplats Shanxi Sishen Skorpion South Deep Southern System Sudbury Venetia Viburnum Trend Voisey's Bay West Angelas Whaleback Yanacocha Yandi China South Africa Namibia South Africa Brazil Canada South Africa US Canada Australia Australia Peru Australia Coal Iron ore Zinc Gold Iron ore Copper. located on the Bushveld complex. Northern province producing around 25% of total Chinese coal production.
a contract for coal and iron ore negotiations Japan fiscal year (April to March) kilocalories (unit of energy) kilogram thousand tonnes pound London Bullion Market Association load haul dump London Metal Exchange Long ton unit of iron equivalent to 1% Fe content J JBM JFY kcal kg Kt lb LBMA LHD LME LTU UBS Warburg 170 . freight Commodity Research Bureau estimated data environmental impact study free alongside ship free on board Gross Domestic Product induced polarisation Institute of Supply Management (formerly NAPM) joule (unit of energy) Japanese benchmark. insurance. bbl BIF Btu cif CRB E EIS FAS FOB GDP IP ISM ammonium nitrate and fuel oil (explosive) avoirdupois barrel banded iron formation British thermal unit cost.Mining & Metals Primer 07 April 2003 Common abbreviations ABARE Australian Bureau of Resource Economics Agricultural and m MBtu Mcf MMcf Mt MW NAPM NSR oz Pa PCI PGM REE SAG SOE st SX/EW T TC/RC tce toe V VMS metre million British thermal units thousand cubic feet million cubic feet million tonnes megawatts see ISM net smelter royalty ounce pascal (unit of pressure) coals for pulverised injection platinum group metals rare earth elements semi-autogenous grinding state-owned enterprise short ton solvent extraction/electrowinning tesla (unit of magnetic induction) treatment and refining charges tonnes of coal equivalent tonnes of oil equivalent volt volcanogenic massive sulphide ANFO av.
borrows gold (directly or indirectly) from a central bank. sells that gold into the spot market and invests the proceeds in the US dollar interest rate market. the forward price for gold is higher than the spot price. the US interest rate. thus ending the borrowing agreement. the producer delivers gold to the bullion bank. Holders of gold. Precious metals markets are the largest and most sophisticated derivative markets. and we will explain how producers and consumers can manage their gold price risk using derivatives.000 tonnes. Precious metals forward prices are calculated using four parameters: the spot metal price. Because the stock of central bank gold is vast at around 30. Consequently. Other traded metals are explained in a later section. and the Gold interest rate. interest rates are normally low and almost always lower than US dollar interest rates. John Reade john.com +44 20 7567 6758 Vanilla forwards Arguably the simplest form of metal price management is the forward sale (or purchase). A producer enters into an agreement to deliver gold to a commercial or investment bank (known as a ‘bullion bank’) at some future date at a pre-determined price. or about 12 years of annual gold production. which is another way of saying that gold is always in contango. either intermediately or directly with each other. The forward gold price is calculated as follows: Forward = spot price + (spot price x (US dollar price interest rate .reade@ubsw. the producer has little ability to negotiate its selling price and the consumer tends to buy metal with reference to a benchmark price. Where the metal trades on an exchange. The bullion bank.Mining & Metals Primer 07 April 2003 Metals price management – an introduction Producers and consumers of metals are subject to the vagaries of the metal price cycle. The mechanism of a forward sale is very simple. lend the metal via an OTC market. The vanilla forward has the following important characteristics: (1) Producers that enter into a forward sales agreement cause supply to come to the gold spot market before (in some cases years before) the gold is produced. or in a well established over the counter (OTC) market. UBS Warburg 171 . in order to hedge its risk. the tenor of the agreement. from the formula above. the interest rate of gold is an unusual concept to the uninitiated. Producers and consumers do have the ability to manage their metal price through the use of derivative contracts. At maturity. with little ability to negotiate a discount. predominantly central banks. and while US dollar interest rates are easily understood. which returns the gold (plus interest) to the central bank.Gold interest rate) x days 360 Both US dollar and gold interest rates are available from market data sources such as Reuters and Bloomberg.
from overnight to one year or longer. therefore.Mining & Metals Primer 07 April 2003 (2) Although described as producer selling. Consequently. giving the producer a more attractive contango (swap rate) to lock in until maturity. The bullion bank has no metal price risk. then the gold mining company receives that lower price and takes an opportunity loss. UBS Warburg 172 . as it will deliver dollars to the producer at maturity and return the gold to the central bank. gold producers would experience only opportunity losses rather than any actual loss. Since the final maturity date is unknown. bullion-banking operations tend to be undertaken by highly rated commercial banks. the gold mining company does not sell any gold. As each shorter-dated forward matures. the bullion bank. no settlement is required until the customer’s chosen maturity date. Spot-deferred forwards A deferred forward is a forward contract without a pre-defined delivery date. If the spot price is lower. neither party has any metal price risk as a result of this transaction. While the pricing of a plain forward will be based on the known gold swap rate to maturity. The central bank has the risk that the bullion bank will not return its gold at the end of the contract. it is rolled for a further period. such instruments are used by producers who believe that dollar interest rates are expected to rise in the future. the deferred forward will be calculated on a rolling basis using the shorter-date requested by the client. it is not possible to fix the interest components until maturity. Using deferred forwards introduces an extra element of market risk. the gold mining company receives a premium to what it would have received. The bullion bank has the risk that the gold producer will not deliver the gold. If the spot price is higher than the contracted forward price. ie. (3) In the forward sales agreement described above. Similarly. sells gold to hedge its risk. (5) This transaction results in large credit risks. bullion banks often require that their producer clients restrict their hedging operations to a maximum percentage of ore reserves and/or a maximum multiple of years of production. The gold mining company has reduced its risk by guaranteeing the gold price that it will receive for some of its gold. So even if the gold price were to go to US$1000/oz. These rates can be of varying tenors. The central bank’s metal price risk does not change as a result of this transaction. (4) At maturity the gold price will very probably be different from the forward price agreed. The gold producer does not take an actual loss because of a higher spot price – it still receives the price that it contracted to receive. minimising the central bank’s credit risk. which should have been high enough when it entered into the forward contract. This gives rise to an exposure to floating dollar and gold lease interest rates. Often. rather the producer’s counterparty. The producer will roll spot sales on a deferred (floating) basis until dollar rates have risen.
on the other hand. the gold producer will deliver his 10koz of gold into the spot market and tear up his now-worthless gold put option. If gold goes up. the chances of the put option being exercised falls and thus the bank can reduce its hedge and can buy some of the gold back. depending on the strategy. If. the gold price falls.000 ounces of gold into the spot market. While in certain cases. If the gold price moves. the option is a ‘40 delta’ option and the bullion banks would have to borrow and sell 4. if a producer wants to sell forward gold for five years. For example: A gold producer buys a US$330/oz gold put option in 10. options can add tremendous risk to producers or consumers. s The bullion bank that sells the put option has to hedge this position. introduce risk into the trade. If the gold price is lower than US$330/oz. Two simple strategies that producers might use are described below. corresponds to the percentage chance of the option being exercised. they do not allow much flexibility. but the treasurer thinks that the cost of borrowing gold for five years is high. For example. this trade has historically paid off – the cost of borrowing gold by the producer has been lower if he floats his gold lease rate (ie. Because three-month gold interest rates are almost always lower than five-year gold interest rates. the bullion bank must keep a careful eye on its options hedging. In the case of the option described above. (1) Producer buys a put option If a gold producer wants to ensure that the price of gold that he receives does not fall beneath a certain level he can buy a put option. producers can also initiate trades to take advantage of movements in gold lease rates or to exploit the shape of the gold lease rate curve. Each quarter. the producer can decide that it would rather pay ‘floating gold’ for the duration of the five-year trade. options have less risk than the vanilla forwards do. The quantity of gold to be sold is referred to as the ‘delta’ and. Unlike in the case of a vanilla forward above.Mining & Metals Primer 07 April 2003 Lease rate exposure In a similar way to the spot-deferred example. At maturity. then the chances that the gold price will be below Source: UBS Warburg estimates UBS Warburg 173 . past behaviour is no guarantee of future performance. borrows short term to fund a longer-term requirement). however. as a proportion of the face amount of the option.000 ounces of gold for expiry 31 March 2004 for US$17/oz from a bullion bank. in some cases for no cost and no extra risk. selling 10koz of gold to the bullion bank at US$330/oz. It can do so by buying a put option of the same tenor and size in the market or it can do so by selling a proportion of gold into the spot market immediately. The use of options allows more flexible strategies to be constructed. on March 31 2004. there are two scenarios: s Chart 89: Pay out diagram 375 Price Received (US$/oz) 350 325 300 275 275 300 325 350 Market Price at Ex piry (US$/oz) 375 Long $330 put No protection If the gold price is higher than US$330/oz. the producer borrows gold for three months in the market. It does. the chances of the put option being eventually exercised changes. Options While vanilla forwards are simple. the gold producer exercises the put option.
In order to finance the purchase of a put option. this strategy is ‘zero cost’. Price Received (US$/oz) The cost of the put option described above can be prohibitive from a gold producer’s perspective. If the gold price is below US$330/oz at expiry. The characteristics of this strategy are as follows: — Source: UBS Warburg estimates At expiry if the gold price is between the two strikes. as the owner of the option. At expiry if gold is higher than the strike price of the option then the producer will deliver into the spot price and the original cost of the option will have proved to be wasted (like an insurance premium). As the owner of the option.000 ounces of gold for expiry 31 March 2004. The transaction results in credit risk to the producer but not the bullion bank. the producer will receive only US$345/oz because the bullion bank will exercise its call option and buy gold at US$345/oz. — — — UBS Warburg 174 . then the gold producer will receive the spot gold price. The important points of the put option strategy are: — It costs the producer money. From the producer’s perspective. If the gold price is above US$345/oz at expiry. the maximum loss that the producer can incur is the cost of the option. and the bullion bank must sell more gold to hedge its position. — — — (2) Producer sells a call option to finance the purchase of a put option (zero cost collar or risk reversal) s The gold producer buys US$330/oz gold put option in 10.Mining & Metals Primer 07 April 2003 US$330/oz at maturity increases. ie. short $345 call 350 s 325 No protection 300 300 325 350 Market Price at Ex piry (US$/oz) 375 In this example. the producer makes all the decisions whether to exercise the option or not. The credit risk profile is similar to that of a forward. US$330 and US$345/oz.000 ounces of gold for expiry 31 March 2004. at the time of purchasing the put option that must be paid in any outcome. The gold producer sells US$345/oz gold call option in 10. the producer will receive US$330/oz because the producer will exercise its put option and sell gold at US$330/oz. the strike prices have been calculated such that the revenue gained from the sale of the call option exactly offsets the cost of the purchased put option and as such. producers often sell a call option. The structure is described below: Chart 90: Pay out diagram 375 Long $330 put.
less liquid forward markets and wider bid-offer spreads make the more sophisticated option trades described above less attractive.000 ounces of gold for expiry 31 March 2004. Discounted put options: kick-out puts The price of a put option falls if it disappears (or is ‘knocked out’) under certain circumstances. As far as the options market is concerned. By accepting this rather dangerous provision. Either of these strategies generates more premiums for the gold producer. the cost of the put option falls by roughly 41%. The gold producer buys US$330/oz gold put option with a kick out at US$260/oz in 10. short $345 call The gold producer buys US$330/oz gold put option in 10. however. higher volatility of metal prices. Such stocks as do exist are much smaller in proportion to annual production. or can be paid in cash to the customer. and the cost of borrowing (leasing) this metal is often very high. Unlike gold that is almost always in contango. which can then be spent in lifting the strike prices of put options. For example. The extra seven dollars can be used to increase the strike of the put to US$342/oz. producer against consumer) has to be found by the intermediary in order to lay reduce risk.Mining & Metals Primer 07 April 2003 More sophisticated strategies A detailed description of more sophisticated products is beyond the scope of this document. in the case above. volatile borrowing costs for base metals mean that they are sometimes in contango but often in steep backwardation. Base and platinum group metals While all of the products described are theoretically available to other metals producers.000 ounces of gold for expiry 31 March 2004 for a cost of US$17/oz. This is the exotic put option. namely the availability of above ground metal supplies to lease. This is the vanilla put option. UBS Warburg 175 . the producer can sell a larger volume of call options or sell call options with longer tenors. the cost of the option can be reduced as follows: s Chart 91: Pay out diagram 400 Price Received (US$/oz) 350 300 250 200 200 250 300 350 Market Price at Ex piry (US$/oz) Source: UBS Warburg estimates Long $330 put w ith $260 kick out. there is one important difference between the gold and other metals. Long-dated forwards are possible to transact but most of the time an offsetting deal (ie. There is no base or PGM market equivalent to the vast store of central bank gold. the following broad points apply: Additional leverage or increased tenor If the gold producer wants to increase the strike of the put option without paying out any cash. at a cost of US$10/oz. No protection 400 s The kick out at US$260/oz means that the option ceases to exist if the gold price trades at US$260/oz or below at any time between the time of trade and expiry.
we have tried to show some of the more sophisticated strategies that gold mining companies have used to increase their received gold price. We have attempted to show some very basic strategies that gold mining companies use to lock in future prices. if constrained by market depth and liquidity. Other metals markets have not been discussed in any detail due to brevity but the principles of trading are the same. UBS Warburg 176 .Mining & Metals Primer 07 April 2003 Conclusion This has been a very brief introduction to the gold derivative strategies that can be used by mining companies to manage their metal price risks. In addition.
of equity shares at a date Operating profit + Depreciation & amortisation . = Gains and losses deriving from activities outside a companies' ordinary activities. of shares in a period CEPS Exceptional items Extraordinary items EPS adjusted EPS BVPS = EPS excluding exceptional items = year/end shareholders' equity basic no. The definition of this item varies by country. Usually reported post tax but may sometimes included as a component of pre-tax profit. = = Earnings Ave no. They are normally included in operating income.Changes in net WC (including other non-cash operating income) (also called ROCE) Operational free cash = flow (opFCF) ROIC (EBIT) = Intangible Fixed Assets ROE = EBIT + Tangible Fixed Assets + Net WC Net income average shareholders' funds Net Debt Total equity (sum of shareholders' funds .Mining & Metals Primer 07 April 2003 Accounting and valuation definitions Definitions of common accountancy and valuation terms and ratios Core sales Core EBITDA Core EBITDA Core EV = Revenues from core assets = EBITDA from core assets = EBIT from core assets = Market capitalisation + Core net debt (cash) Peripheral assets Pension provisions (-ve) Buy out of minorities Net Debt = All interest-bearing finance Cash and (long and short term marketable securities = Cash earnings per share = Items which result from ordinary activities but which are disclosed separately due to their size or incidence in order to give a true and fair view.Sum(all non-interest bearing current liabilities) (effectively EBIT less tax attributable to EBIT) (book value of net assets attributable to the shareholders or parent company) Net Debt/Equity = Net WC = NOPLAT Shareholders' funds Source: UBS Warburg = = UBS Warburg 177 . either disclosed on the face of the income statement or within a note.minority interests) Sum(all non-interest bearing current assets) Normal operating profit Share capital + Adjusted taxes Group's reserves .
EBIT multiples are more comparable than those based upon EBITDA where capital intensity differs but are affected by accounting policy differences for depreciation and amortisation. denoted by 1 or 2. The NOPLAT multiple is effectively an unlevered P/E. Neutral and Reduce depending on the difference between the return implied by the price target and the local bond yield.Mining & Metals Primer 07 April 2003 Explanation of multiples and ratings used UBS Warburg stock rating Covers a 12-month horizon and varies between Buy. Derived by the analyst in absolute terms using a 12-month horizon. it is a Buy rating. If the return implied by the target price is at least 15% above the local bond yield. Important in sectors where tangible asset value is key. EV divided by NOPLAT. In UBS Warburg data this multiple is based upon core EV and core EBITDA. (effectively it is a post tax EBIT). this is more comparable and less susceptible to accounting distortions and therefore a more suitable basis for valuation multiples. If it is at least 15% below the local bond yield then it is a Reduce rating. EV divided by sales (core sales are total sales less non-core activity sales). EV divided by EBIT. If stocks are within this 15% range of the local bond yield then they are a Neutral rating. If the company were all equity financed NOPLAT would equal earnings. NOPLAT is normal operating profit less adjusted taxed. OpFCF is a normalised and more comparable version of EBIT. is the degree of confidence that the analyst has in their ability to accurately predict the range of possibilities in proximity to the price target that the stock will move. Useful for cross border valuation where accounting practices differ. EV divided by invested capital. Allows for differences in tax efficiency and effective tax rates. UBS Warburg price target - EV - EV/EBIT - EV/EBITDA - EV/Invested Capital - EV/NOPLAT - EV/OpFCF - EV/Sales - Source: UBS Warburg UBS Warburg 178 . A crude measure but the least susceptible to accounting differences. It does not focus on profitability or cash generation. 1 denotes higher predictability and 2 lower. Do not use to compare companies with different products where margins naturally differ. EV divided by core operating free cash flow. Useful for identifying restructuring potential. The Predictability level of the price target. Targets will normally be derived from a range of valuation techniques and ratios ranging from equity or enterprise value multiples to absolute measures such as discounted cash flow. The cost of buying the right to the whole of the enterprise's core cash flow. Commonly used for intra sector relative comparisons where capital intensity is similar. This is the estimated value of the operations of the enterprise as represented by the value of the various claims on cash flow and profit. EV divided by EBITDA.
Mining & Metals Primer 07 April 2003 Key chemical symbols Table 31: Important chemical element symbols Major elements Symbol Ag Al Ar As At Au B Ba Be Bi C Ca Cd Cl Co Cr Cs Cu F Fe H He Hg K Li Name Silver Aluminum Argon Arsenic Astatine Gold Boron Barium Beryllium Bismuth Carbon Calcium Cadmium Chlorine Cobalt Chromium Caesium Copper Fluorine Iron Hydrogen Helium Mercury Potassium Lithium Symbol Mg Mn Mo N Na Ni O P Pb Pd Pt Pu Ra Rh Rn S Si Sn Th Ti U V W Zn Zr Name Magnesium Manganese Molybdenum Nitrogen Sodium Nickel Oxygen Phosphorus Lead Palladium Platinum Plutonium Radium Rhodium Radon Sulphur Silicon Tin Thorium Titanium Uranium Vanadium Tungsten Zinc Zirconium Rare Earth Elements Symbol La Ce Pr Nd Pm Sm Eu Gd Tb Dy Ho Er Tm Yb Lu Sc Y Name Lanthanum Cerium Praseodymium Neodymian Promethium Samarium Europium Gadolinium Terbium Dysprosium Holmium Erbium Thulium Ytterbium Lutetium Scandium Yttrium Source: UBS Warburg UBS Warburg 179 .
65 barrels 7.0419 megajoule 0. IEA.765 m3 4. foot 1 cu.264 gal.37224 kg 0. yard 1 gallon (imperial) 1 gallon (US) 0. ft 0.103 g 0.8229 av lb 12 oz 16 oz 100 kg US crude oil 1 US barrel 1 short ton 1 tonne 42 US gallons 6.151 US$/t 0.6 megajoule 1MBtu 1megajoule 1 megajoule 1 megajoule 1. foot 1 sq.59 lb 1.0031 USc/oz 32.471 acres 0.102 short tons 0.0311 US$/kg 1 US$/tonne 1 US$/tonne 1 US$/kg 0.204.7 toe 0. miles 0.76 x 10-8 Mtce 23. (Imp.0454 USc/lb 0.185 kg 0.546 litres 3.984 long tons Volume Imperial to Metric 1 cu. 0.097 av oz 0.Mining & Metals Primer 07 April 2003 Useful conversion factors Mass Imperial to Metric 1 troy ounce 1 troy pound 1 lb 1 short ton 1 short ton 1 long ton Others 1 troy oz 1 troy lb 1 troy lb 31.155 sq.590 km2 258.893 m2 2. yard 1 sq.7 Mtce 0.205 lb 2.88 Mtoe 16. (US) 1.764 sq.308 cu. yd 0.151 US$/oz Energy 1 tce 1 Mtoe 1Mtce 1 KWh 0.315 cu.405 ha 0. UBS Warburg estimates UBS Warburg 180 . miles Costs/prices 1 USc/lb 1USc/oz 1 US$/oz 2.785 litres Metric to Imperial 1 m3 1 m3 1 litre 1 litre 35.028 m3 0. ft 1.093 m2 0.2778 KWh Sources: CRB.032 troy oz 32.151 troy oz 2. mile 0. mile 1 sq.33 barrels Area Imperial to Metric 1 acre 1 sq.016 tonnes Metric to Imperial 1g 1 kg 1 kg 1 tonne 1 tonne 1 tonne Others 1 av lb 1 quintal 0.386 sq.999 ha Metric to Imperial 1 ha 1 ha 1 cm2 1m2 1 km2 2.004 sq.205 US$/t 32. in 10.454 kg 907.907 tonnes 1.220 gal.0293 megajoule 3.
Ag Mo. Corporate 15% Pb. Mg. other Chemicals Other Gold Zinc Oil Mining & Metals Primer 07 April 2003 Agnico-Eagle Sales 6% Agrium Sales Alcan EBIT 100% Alcoa Sales 91% Alumina Ltd EBIT 19% Anglo American Earnings 2% Anglogold Earnings Antofagasta EBIT 94% Avmin Earnings Barrick EBIT BHP Billiton EBIT 8% 12% Buenaventura Sales 21% Caemi Sales Cameco EBIT Chalco Earnings 49% CVRD Sales Falconbridge Sales 40% Freeport McMoran Sales 65% Goldcorp Sales Grupo Mexico Sales 80% Iluka Resources Earnings Impala Platinum Sales Inco Sales 8% Kumba Resources Earnings Lihir Gold Earnings Lonmin EBIT Meridian Gold Sales MIM Holdings EBIT 63% Newmont EBIT 7% Noranda EBIT 40% 9% Norilsk Nickel Sales 16% Penoles Sales 2% Phelps Dodge Sales 67% Placer Dome EBIT 24% Potash Corp.Earnings splits for key mining companies (2003E) Steam Coal Ferroalloys Aggregates Aluminium Platinum & Palladium Sales/EBIT Diamonds Industrial Minerals Uranium Alumina Iron ore Copper Coking Coal Pulp & paper Nickel Silver Notes Chemicals Pb. chems. Mo Sn Co. UBS Warburg estimates 3% 77% 14% 100% 9% 76% 2% -9% 2% 6% 21% 14% 100% 5% 100% 11% 41% 75% 12% 50% 79% 46% 7% 3% 2% 0% 34% 93% 1% 4% 0% 7% 9% 4% 6% 81% 6% 75% 100% 100% 85% -11% 41% 42% -ve 24% 15% 23% 76% 24% 2% 9% 62% 3% 54% 22% 53% 7% 18% 75% 100% 20% 31% 17% 0% 7% 77% 7% 18% 100% 14% 35% 3% 36% 9% 30% 93% 15% 18% 88% 6% 1% 15% 4% 89% 88% 11% 25% 4% 15% 2% 17% 12% 20% 5% -4% 6% 3% 5% 33% 14% 1% 15% 4% 29% 3% 3% 6% 4% 13% 14% 59% 2% 5% 1% 4% 7% 6% 4% 10% Zn. Sales Rio Tinto Earnings 16% 13% Sons of Gwalia Earnings Southern Peru Copper Sales 88% Teck Cominco Sales 19% Ticor Earnings Umicore EBIT 10% WMC Resources EBIT 30% Xstrata EBIT Yanzhou Coal Earnings Source: Company data. wire 1% 3% 9% 23% 30% 0% UBS Warburg 181 . Rh. other 33% Spec. Ag Pb. Bi.
J 986 KMBJ.178 1171.651 LMI.J GFI.N 21.PA PY.788 RIO.AX NCMGY.AX 1.com tom.656 BLT.040 XTA.email@example.com phonse.com firstname.lastname@example.org MDG.N 1.246 PECH.N GMEXICOB.PK 145 SGW.J HMY.394 BTU.859 ANTO. * as at 24 March 2003.N 2.432 TEKb.com james.fernley@ubsw.@ubsw.L RTP.HK YZC.J 2.145 RIO.TO 1.N 518 CMET4.N 6.TO 2.brewster@ubsw.N 1.817 GG.email@example.com@ubsw.976 AWC.PK 31.com fleur.002 NCM.O 1.SA 10.N 1.687 NEM.kendall@ubsw.N firstname.lastname@example.org NRD.623 AMSJ.243 AAL.AX BHP.BR 2.N 18.chan@ubsw.AX LIHRY.PK 1.O 1.PK 1.LM BVN.com andrew.N 34.507 VALE5.159 ANGJ.541 PDG.390 GMKN.com mathew.N 3.reade@ubsw.N 964 AEM.N 3.macarthur@ubsw.N 3.669 GFIJ.com jaret.488 CCO.169 PD.AX WMC.465 AL.email@example.com AGU.com maryellen.L firstname.lastname@example.org POT.474 WMR.307 IMPJ.com peter.244 PCU.com paul.AX MIMOY.lawcock@ubsw.N 1.com vanessa.L ANFGF.com shaun.N 9.N 2.MX 779 696 PENOLES.N 1.HK ACH. Harmony Implats Kumba Resources Alumina Ltd BHP Billiton Ltd Iluka Lihir MIM Holdings Newcrest Rio Tinto Ltd Sons of Gwalia Ticor WMC Resources Chalco Yanzhou Coal Anglo American Antofagasta BHP Billiton plc Lonmin Norilsk Nickel Pechiney Rio Tinto plc Umicore Xstrata Buenaventura Caemi CVRD Grupo Mexico Industrias Penoles Southern Peru Copper Agnico-Eagle Mines Agrium Alcan Alcoa Barrick Gold Cameco Falconbridge Fording Freeport McMoran Goldcorp Inco Meridian Gold Newmont Noranda Peabody Energy Phelps Dodge Placer Dome Potash Corp Teck Cominco Precious metals Platinum Diversified Precious metals Precious metals Platinum Diversified Aluminium Diversified Coal & Energy Precious metals Copper Precious metals Diversified Precious metals Coal & Energy Diversified Aluminium Coal & Energy Diversified Copper Diversified Platinum Nickel Aluminium Diversified Diversified Coal & Energy Precious metals Diversified Diversified Copper Diversified Copper Precious metals Chemicals Aluminium Aluminium Precious metals Coal & Energy Nickel Coal & Energy Copper Precious metals Nickel Precious metals Precious metals Diversified Coal & Energy Copper Precious metals Chemicals Diversified Region Africa Africa Africa Africa Africa Africa Africa Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia China China Europe Europe Europe Europe Europe Europe Europe Europe Europe Latin America Latin America Latin America Latin America Latin America Latin America North America North America North America North America North America North America North America North America North America North America North America North America North America North America North America North America North America North America North America Mkt cap US$m email@example.com@ubsw.AX 2.com john.com daniel.PK 233 TOR.994 HARJ.N 1.giacomo@ubsw.AX SOGAY.com joe.AX 907 LHG.com simon.RTS 2.L BHPAY.729 MIM.firstname.lastname@example.org FL.grose@ubsw.J 4.L AAUK.J AU.com North America Brian MacArthur Daniel Brebner Mary Ellen Thorburn Jaret Anderson Australia Glyn Lawcock Shaun Giacomo Max Brewster Fleur Grose Asia Joe Zhang Jenny Wong South Africa James Bennett Simon Kendall Willem Venter +1-416-350 2229 +1-416-814 3688 +1-416-814 3694 +1-416-814 3689 +61-2-9324 3675 +61-2-9324 3627 +61-2-9324 6655 +61-2-9324 2834 +85-2-2971 6107 +85-2-2971 8171 +27-11-322 7302 +27-11-322 7319 +27-11-322 7304 brian.com timna.com UBS Warburg 182 .N 3.TO 908 FDG_u.N 9.522 BUEv.515 BHP.L LNMIY.N 3.com email@example.com michael.hickson@ubsw.N 537 ILU.com glyn.476 AA.com fedor.SA RIO_p.MX 1.N 8.tregubenko@bubsw.AX RTOLY.N 938 ACUMt.J 548 AINJ. UBS Warburg global mining analysts Global Mining & Commodity Research Peter Hickson Peter Blight Matt Fernley Vanessa Chan John Reade Europe Paul Galloway Andrew Snowdowne Fedor Tregubenko Latin America Tom Meyer Marisa Hernandez Timna Tanners Specialist sales Michael Cook Phonse Gangitano +44-20-7568 4165 +44-20-7568 3451 +44-20-7568 8327 +44-20-7568 5267 +44-20-7567 6758 +44-20-7568 4117 +44-20-7568 1823 +7-501-258 5234 +1-212-713 4259 +1-212-821 2393 +1-212-713 2927 +44-20-7568 0481 +61-3-9242 6449 peter.bennett@ubsw.Mining & Metals Primer 07 April 2003 UBS Warburg global mining sector stock coverage Sub-sector AngloGold Angloplats Avmin GoldFields Ltd.PK 5.brebner@ubsw.PK 26.534 FCX.032 ABX.tanners@ubsw.TO Reuters code ADR Analyst 1 Analyst 2 James Bennett (+27-11-322 7302) James Bennett (+27-11-322 7302) Glyn Lawcock (+61-2-9324 3675) Glyn Lawcock (+61-2-9324 3675) Shaun Giacomo (+61-2-9324 3627) Shaun Giacomo (+61-2-9324 3627) Shaun Giacomo (+61-2-9324 3627) Shaun Giacomo (+61-2-9324 3627) Glyn Lawcock (+61-2-9324 3675) Shaun Giacomo (+61-2-9324 3627) Shaun Giacomo (+61-2-9324 3627) Glyn Lawcock (+61-2-9324 3675) Joe Zhang (+852-2971 6107) Joe Zhang (+852-2971 6107) Paul Galloway (+44-20-7568 4117) Tom Meyer (+1-212-713 4259) Paul Galloway (+44-20-7568 4117) Paul Galloway (+44-20-7568 4117) Fedor Tregubenko (+7-501-258 5234) Paul Galloway (+44-20-7568 4117) Paul Galloway (+44-20-7568 4117) Andrew Snowdowne (+44-20-7568 1823) Andrew Snowdowne (+44-20-7568 1823) Tom Meyer (+1-212-713 4259) Tom Meyer (+1-212-713 4259) Tom Meyer (+1-212-713 4259) Tom Meyer (+1-212-713 4259) Tom Meyer (+1-212-713 4259) Tom Meyer (+1-212-713 4259) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Ronald Barone (+1-212-713 3848) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Brian MacArthur (+1-416-350 2229) Fleur Grose (+61-2-9324 2834) Fleur Grose (+61-2-9324 2834) Fleur Grose (+61-2-9324 2834) Fleur Grose (+61-2-9324 2834) Jenny Wong (+852-2971 8171) Jenny Wong (+852-2971 8171) Andrew Snowdowne (+44-20-7568 1823) Marisa Hernandez / Timna Tanners Andrew Snowdowne (+44-20-7568 1823) Andrew Snowdowne (+44-20-7568 1823) Andrew Snowdowne (+44-20-7568 1823) Andrew Snowdowne (+44-20-7568 1823) Paul Galloway (+44-20-7568 4117) Paul Galloway (+44-20-7568 4117) Marisa Hernandez / Timna Tanners Marisa Hernandez / Timna Tanners Marisa Hernandez / Timna Tanners Marisa Hernandez / Timna Tanners Marisa Hernandez / Timna Tanners Marisa Hernandez / Timna Tanners Jaret Anderson (+1-416-814 3689) Mary Ellen Thorburn (+1-416-814 3694) Mary Ellen Thorburn (+1-416-814 3694) Mary Ellen Thorburn (+1-416-814 3694) Jaret Anderson (+1-416-814 3689) Mary Ellen Thorburn (+1-416-814 3694) Mary Ellen Thorburn (+1-416-814 3694) Jaret Anderson (+1-416-814 3689) Mary Ellen Thorburn (+1-416-814 3694) Jaret Anderson (+1-416-814 3689) Mary Ellen Thorburn (+1-416-814 3694) Jaret Anderson (+1-416-814 3689) Jaret Anderson (+1-416-814 3689) Mary Ellen Thorburn (+1-416-814 3694) Mary Ellen Thorburn (+1-416-814 3694) Jaret Anderson (+1-416-814 3689) Mary Ellen Thorburn (+1-416-814 3694) Mary Ellen Thorburn (+1-416-814 3694) Source: UBS Warburg.com jenny-c.TO CCJ.617 N.N 27.859 2600.com marisa.
com United States Geological Survey (USGS): http://minerals.com. CLSA. zinc. coal and steel. 432p. UBS Warburg 183 .brookhunt. nickel.usgs. the investors. gold. nickel. base metals.worldsteel. T. 432p. Data sources World Bureau of Metal Statistics Further reading on gold and/or precious metals trading Jameson. iron ore.uk/ Websites International Iron & Steel Institute (IISI): http://www. J. (1997) Managing Metals Price Risk. copper. titanium minerals. 150p.Mining & Metals Primer 07 April 2003 Other useful information sources Mining industry consultants AME Mineral Economics: monthly and annual reports on the industry and in depth cost studies.uk/ Gold Fields Mineral Services (GFMS): good source of data on gold and silver. (2002) Tomorrow’s Gold. steel and ferroalloys. the politics. http://www.matthey. P.gfms. Cover: aluminium. lead. The Northern Miner..com CRU Group: monthly and ad hoc reports on aluminium. UBS. V.co.gov/minerals/pubs/commodity/ World Gold Council: http://www. John Wiley & Sons.cru. copper. gold. Walker & Co.au Brook Hunt: monthly reports and annual cost studies on aluminium.org/ Introduction to mining Whyte. precious metals industries. Green. http://www.org/ Johnson Matthey (PGMs site): http://www. and Danielson. (1984) The New World of Gold: the inside story of the mines.platinum. Faber. M. (1998) Mining Explained: A Layman’s Guide. lead and zinc. Risk Publications Bernstein. (2001) The Power of Gold: the History of an Obsession. the markets.er.thebulliondesk.com/ The Bullion Desk (information on precious metals markets): http://www. stainless steel. R.ame. 324p. http://www. http://www.gold.co.
each of which have the potential to significantly impact company/industry performance. but not limited to. the volatile nature of commodity prices and currencies. financial and operational risks. which may differ materially from expectations. UBS Warburg 184 . Furthermore the sector is exposed to political.Mining & Metals Primer 07 April 2003 s Statement of Risk We point out to investors the potential risks inherent in the mining sector. including.
26 694p 10a.N Inc.12a a Anglovaal Mining Ltd Antofagasta plc10a Arcelor10a.L AMSJ.45 HK$1.58 335p A$3.58 US$10.520 796p PLN12.50 NS42.AX Limited Lonmin LMI.1 FCX.900 620p €8. larger range around price target Rating category 1 Coverage 2 Buy 47% IB services3 35% Neutral 1 Neutral 2 Hold/Neutral 47% 32% Reduce 1 Reduce 2 Sell 6% 26% Excess return: Target price / current price .N McMoRan 0a. Angloplat Anglogold8.10b.12-month interest rate.L CELR.HK AAL.27 R$445.AX 2600. 3: Percentage of companies within this rating category for which investment banking (IB) services were provided within the past 12 months. larger range around price target Excess return potential < -15%.T Holdings Johnson JMAT.L Matthey KGHM8 KGHM.060 A$3. Companies mentioned Company Name AgnicoEagle Mines Agrium Inc.43 P16.L BSL.12b Alcoa Inc.75 A$1. UBS Reduce 1/Reduce 2 = Sell.1 + gross dividend yield .L UBS Warburg 185 .M Penoles X JFE 5411.08 A$9.8.10a IMPJ.TO Freeport3a. stability of dividend.98 RCnt42.10a BHP Steel Limited Caemi Metalurgia12a Goldcorp GG. Neutral: Potential loss of principal.12a Alumina Limited10a Chalco10a Anglo American1.TO Corporation Buenaventur BUEV.N AL.98 ¥1.LM a CVRD VALE5.78 US$20.AX BLT. smaller range around price target Excess return potential < -15%.AX CMET4.12a Ashanti Goldfields Barrick Gold Corp8.J Implats INCO Ltd.3a.J ANGJ.SA Rating Neutral 2 Neutral 2 Neutral 2 Neutral 2 Neutral 2 Neutral 2 Neutral 1 Not rated Not rated Neutral 2 Buy 2 Buy 1 Not rated Buy 2 Neutral 2 Neutral 2 Neutral 2 Buy 2 Price * US$10.528 RCnt22.607 RCnt3. 4: Closed-end funds ratings and definitions are: Buy: Higher stability of principal and higher stability of dividends.90 R$83. Mexico MX Harmony 7 HARJ.J AINJ.N BHP. UBS Neutral 1/Neutral 2 = Hold/Neutral.10a. 1: UBS Buy 1/Buy 2 = Buy.04 A$4.J Ltd Grupo GMEXICOB.7.10a. smaller range around price target UBS rating Buy 2 Definition Excess return potential > 15%. smaller range around price target Excess return potential between -15% and 15%.J ANTO. The 12-month interest rate used is that of the company's country of incorporation. its subsidiaries and affiliates.32 RCnt8.15 RCnt9.N AGU.Mining & Metals Primer 07 April 2003 Global ratings: Definitions and allocations UBS rating Buy 1 Definition Excess return potential > 15%. Source: UBS AG. larger range around price target Excess return potential between -15% and 15%.N AA.L ABX.30 US$5.N AWC.00 Company Name Reuters Cameco CCO. N.25 US$15. as of 31 March 2003.8.41 US$10. Reduce: High potential for loss of principal and dividend risk.12b BHP Billiton Limited10a BHP Billiton Plc3a. 2: Percentage of companies under coverage globally within this rating category. in the same currency as the predicted return.7.96 US$28.340 US$18.WA Lihir Gold LHG.N Industrias PENOLES.SA Fording FDGP_U.50 US$17.PA ASHGQ.45 940p RCnt23.12a Rating Buy 2 Buy 2 Buy 2 Not rated Buy 2 Buy 2 Not rated Not rated Not rated Buy 2 Not rated Buy 2 Not rated Not rated Neutral 1 Suspended Buy 2 Neutral 2 (under review) Price * C$39.7.AX Resources 1.J Iluka ILU.017 P13.10 8 Reuters AEM. GoldFields GFIJ. Alcan Inc.
or an affiliate has received compensation for investment banking services from this company.N RIO. or an affiliate expect to receive or intend to seek compensation for investment banking services from this company within the next three months. its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end). 12b.80 US$27.HE BTU.42 C$11. 3b.N PECH. please refer to the Valuation and Risk sections within the body of this report. 8.58 ¥146 C$11.BR WMR. UBS Bunting Warburg Inc.AX POT.7 Placer Dome Inc. UBS Warburg 186 . Norilsk Nickel9. UBS Warburg LLC is acting as adviser to Norilsk Nickel in relation to its announced offer to acquire a majority interest in Stillwater Mining Company. UBS AG. Reuters MDG.N PDG.AX NEM. Within the past 12 months.26 1.AX XTA. its affiliates or subsidiaries has received compensation for investment banking services from this company.AX PCU.RTS NHY.L 1171.07 A$1. UBS AG.TO GMKN. Unless otherwise indicated.05 A$33.T NRD. 1. its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company within the next three months.33 US$9.88 A$4.HK Rating Neutral 2 Neutral 2 Buy 2 Buy 2 (under review) Neutral 2 Neutral 2 (under review) Not rated Not rated Buy 2 Buy 1 Reduce 2 Buy 2 Buy 2 (under review) Buy 2 Buy 1 Price * A$1.00 €7.16 US$62.25 MIM.N 5401.98 US$24. 10a. UBS Limited acts as broker to this company.83 €23.10a Corp.12a Norsk Hydro10a Outokumpu Peabody Energy Corp. 10b.00 NKr280. its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company or one of its affiliates within the past 12 months. UBS AG.N SWC.AX RIO. its subsidiaries and affiliates.TO TOR. Source: UBS AG.73 US$14.Mining & Metals Primer 07 April 2003 Company Name Meridian Gold Inc. MIM Holdings Limited Newcrest Mining Newmont Mining 3b.N A$1. 7.59 US$32.56 Company Name Portman Limited Potash Corporation Rio Tinto Limited10a Rio Tinto Plc10a Sherritt Int'l Corp Sons of Gwalia Southern Peru Copper Stillwater 9 Mining Teck Cominco Limited Ticor Limited Timah 7 Umicore WMC Resources Ltd12a Xstrata Plc Yanzhou Coal Mine Reuters PMM.N TEKB.58 A$1. 9.AX NCM. Nippon Steel12a Noranda Inc.46 US$2.10 US$25. UBS Warburg LLC makes a market in the securities and/or ADRs of this company. UBS AG.60 Rp600 €40. 3a.03 487p HK$3.AX TINS. UBS Bunting Warburg Inc.TO SGW. Within the past 12 months.N Rating Neutral 2 (under review) Neutral 2 Buy 2 (under review) Buy 2 Not rated Neutral 2 Neutral 1 Buy 2 Not rated Neutral 2 Buy 2 (under review) Neutral 2 Buy 2 Price * US$9.243p C$4.OL OUT1V.3a Pechiney 10a Phelps Dodge Corp.L S. its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company or one of its affiliates within the past three years.JK ACUMT.10a.60 A$6. UBS AG. 12a.PA PD.13 * As of 07 April 2003.
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In certain countries UBS AG is referred to as UBS SA." to control the flow of information contained in one or more areas within UBS. Italy: Should persons receiving this research in Italy require additional information or wish to effect transactions in the relevant securities. employees or agents accepts any liability for an y loss or damage arising out of the use of all or any part of this report. and should not be relied upon by. private customers. Japan: This report is being distributed in Japan by UBS Warburg (Japan) Limited to institutional investors only. The information contained herein does not apply to. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. nor any of UBS' or any of its affiliates. ©2003 UBS. The report should not be regarded by recipients as a substitute for the exercise of their own judgement. and trading in these instruments is considered risky. its directors.D. 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It has no regard to the specific investment objectives.) is a member of the JSE Securities Exchange SA. they should contact Giubergia UBS Warburg SIM Sp A. this material is communicated by UBS Limited.Mining & Metals Primer 07 April 2003 This report was produced by: UBS Warburg Head Office : UBS Warburg. to persons who are market counterparties or intermediate customers (as detailed in the FSA Rules) and is only available to such persons. trade execution or other enquiries. without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. is provided in relation to the accuracy.
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