GLOBAL SUMMARY MINING - Week Commencing 21st October OCT 2019 - Fitch Solutions
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OCT 2019 GLOBAL SUMMARY MINING Week Commencing 21st October
Global Summary Mining | 20191021
Contents
Global ................................................................................................................................................................................................. 4
Mining - Weekly Projects Round-Up And Developments ............................................................................................................................................. 4
Africa................................................................................................................................................................................................10
Africa Mining: Resource Nationalism To Remain A Key Challenge.........................................................................................................................10
Asia...................................................................................................................................................................................................14
India Iron Ore: Production To Fall In 2020 ........................................................................................................................................................................14
Mongolia Mining: Industry Growth Soon To Surpass Australia And China...........................................................................................................16
Australian Gold Mining: Solid Project Pipeline And Increasing Prices Promote Positive Outlook.............................................................19
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2019
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THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 3
Global Summary Mining | 20191021
Global
Mining - Weekly Projects Round-Up And Developments
In this week's mining round-up we explore the challenge of resource nationalism in Africa, highlight the impact of disruptions in
Chile on copper prices and explore our growth forecast for the Mongolian mining industry.
Africa Mining: Resource Nationalism To Remain A Key Challenge
Resource nationalism will continue to pose challenges to existing operations and discourage new investments within the mining
sector in Africa. While we expect most metal prices to remain subdued over 2020, a string of upcoming elections is likely to maintain
or cause new tensions between a number of SSA governments and mining companies in the near term. We highlight Ghana,
Guinea, Burkina Faso and Côte d'Ivoire as potential risk hotspots in 2020 due to upcoming elections. A new mining code in Mali and
mining license suspensions in Sierra Leone in recent months will put current operations and future mining investments at risk.
Restrictive mining legislation introduced between 2017 and 2019 in Zambia, Tanzania and the Democratic Republic of Congo look
set to remain in place, driving out existing miners due to higher costs and expropriation risks.
Commodities Price Movements To Steady In Coming Years
Global - Gold, Copper and Iron Ore price, ave, % y-o-y
f = Fitch Solutions forecast. Source: USGS, Fitch Solutions
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 4Global Summary Mining | 20191021
Weekly Commodities Strategy: Copper Prices To Receive Short Term Boost From Chile Disruptions
Supply-side disruptions at major copper producers due to widespread protests and strikes in Chile will support copper prices in the
short term. While these actions are providing some immediate support to prices it is too early to say whether this will have a longer
term impact, given the thus far limited impact and temporary nature of the strikes. Our Country Risk team is expecting the upheaval
to continue in the short term and as such, we will be monitoring the reaction of local mining and port unions as well as firm
announcements to gauge further production and price risk ahead. For now we retain our neutral to bearish outlook on copper
prices over the remainder of 2019 (USD5,900/tonne annual average) and into 2020 (USD5,700/tonne annual average) as
sentiment remains weak.
Supply Disruptions Supporting Prices In October
LME Three-Month Copper Price (USD/tonne)
Source: Bloomberg, Fitch Solutions
Mongolia Mining: Industry Growth To Surpass Australia And China
Mongolia will register the fastest mining industry value growth in Asia with high-grade reserves of gold, copper and coal, and a
strong pipeline of large projects. Mongolia will surpass Australia as the top coking coal exporter to China, aided by new rail
infrastructure and consequent increase in cost competitiveness. Mongolian gold and copper production will increase in coming
years as new projects comes online and additional exploration initiatives remain strong. Considerable delays, declining ore grades
and increased financing needs will impact the feasibility and timeline of the Oyu Tolgoi copper-gold project, posing downside risks
to our positive outlook for Mongolian copper production.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 5Global Summary Mining | 20191021
Mongolia Mining Growth to Surpass Regional Peers
Select Countries - Mining Industry Value, USbn, % y-o-y
f = Fitch Solutions forecast. Source: National Sources, Fitch Solutions
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 6Global Summary Mining | 20191021
PROJECT DEVELOPMENT - MINING PROJECT UPDATES: 16 OCTOBER - 22 OCTOBER 2019
Country Company Mine Commodity Update
Australia Panther Metals Marrakai Gold Has secured an exploration license for the project
A scoping study has reported that the project will deliver
Australia Aeon Metals Walford Creek Copper
42kt/yr of copper over a mine life of 11years
Mitsubishi Corporation, Mitsubishi Corporation has handed over the full
Australia Jack Hills Iron Ore
Sinosteel Corporation ownership of the project to Sinosteel Corporation
A prefeasibility study has reported that the project will
Brazil Horizonte Minerals Vermelho Nickel
deliver 25kt/yr of nickel over a mine life of 38years
Canada Puma Exploration Jonpol Gold Has signed an agreement to acquire the project
Canada Pembridge Resources Minto Copper, Gold Has resumed operations at the mine
Pershimex Resources Pershing-
Canada Gold Has reported positive gold recovery tests at the project
Corporation Manitou
Has discovered large high-grade polymetallic zone at the
Canada Goliath Resources Golddigger Gold
project
Canada Osisko Mining Windfall Gold Has intersected three high-grade zones at the project
Scottie Resources
Canada Bow Gold Has completed a drilling program at the project
Corporation
Scottie Resources
Canada Scottie Gold Has completed a drilling program at the project
Corporation
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 7Global Summary Mining | 20191021
Country Company Mine Commodity Update
Canada Goldstar Minerals Lake George Gold Has completed diamond drilling program at the project
Has reported positive results from the ongoing infill
Canada Marathon Gold Corporation Valentine Gold
drilling campaign at Marathon deposit of the project
Has announced results from the first 2019 drill hole at
Canada Fireweed Zinc Macmillan Pass Lead, Zinc
the project
Finland Nordic Gold Laiva Gold Has finalised a drilling programme for the project
Copper, Lead, Has applied for an additional exploration license at the
Greenland Bluejay Mining Kangerluarsuk
Zinc project
Has reported positive metallurgical testwork results at
Mali Cora Gold Sanankoro Gold
the project
African Gold Group has contracted Epoch Resources to
African Gold Group, Epoch
Mali Kobada Gold undertake the feasibility study of tailings storage facility
Resources
at the project
Anglo American, Mitsubishi
ThyssenKrupp has employed Siemens’ new gearless
Peru Corporation, Siemens, Quellaveco Copper
drive technology for conveyor to access the mine
ThyssenKrupp
Has reported that the mine is expected to reach its
Proyecto
Spain Atalaya Mining Copper expanded throughput rate of 15mnt/yr by the end of
Riotinto
2019
Copper,
Sweden Sienna Resources Slattberg Has completed a drilling program at the project
Nickel
Taseko Mines has awarded the basic engineering
United States Stantec, Taseko Mines Florence Copper
contract for the project to Stantec
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 8Global Summary Mining | 20191021
Country Company Mine Commodity Update
Millrock Resources, Northern Cobalt has struck an agreement with Millrock
United States Goodpaster Gold
Northern Cobalt Resources to acquire 80% interest in the project
United States Revival Gold Arnett Gold Has completed 2019 drilling program at the project
United States Revival Gold Beartrack Gold Has completed 2019 drilling program at the project
Has announced results from the first hole drilled at the
United States Allegiant Gold Bolo Gold
project
United States Otis Gold Corporation Kilgore Gold Has commenced a drilling program at the project
Gold,
Zimbabwe Great Dyke Investments Darwendale Palladium, Is expected to start construction at the project in Q120
Platinum
Source: Company announcements, Fitch Solutions
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 9Global Summary Mining | 20191021 Africa Africa Mining: Resource Nationalism To Remain A Key Challenge Key View: • Resource nationalism will continue to pose challenges to existing operations and discourage new investments within the mining sector in Africa. • We highlight Ghana, Guinea, Burkina Faso and Côte d'Ivoire as potential risk hotspots in 2020 due to upcoming elections. • A new mining code in Mali and mining license suspensions in Sierra Leone in recent months will put current operations and future mining investments at risk. • Restrictive mining legislation introduced between 2017 and 2019 in Zambia, Tanzania and the Democratic Republic of Congo look set to remain in place, driving out existing miners due to higher costs and expropriation risks. Resource Nationalism will remain an obstacle facing Africa's mining sector over the coming quarters. Trends of resource nationalism have historically coincided with commodity cycle booms that prompt governments to shift their focus to correcting outstanding fiscal deficits through higher taxes and royalties on the resource sector. Additionally, election cycles can contribute to the trend, as incumbents often attempt to drive campaign support by promoting a resource nationalism platform to appeal to voters. For example, in February 2019, Ghanaian president, Nana Akufo-Addo motioned for African governments to stop employing fiscal incentives to attract foreign investment in the mining sector. Akufo-Addo, who is running for re-election in 2020, stated that foreign mining companies should not expect to make monumental profits off of Africa's resources. While we expect most metal prices to remain subdued over 2020, a string of upcoming elections is likely to maintain or cause new tensions between a number of SSA governments and mining companies in the near term. Ghana, Guinea, Burkina Faso and Côte d'Ivoire will all hold general elections in 2020, and Zambia is scheduled to hold its next presidential election in 2021. Of the nations mentioned, Côte d'Ivoire has the most investor-friendly mining code in place. In regards to commodity prices, we forecast iron ore prices to embark on a downtrend in the long term as ample supply from major producers combines with poor demand from China's steel sector. On the other hand, we expect higher gold prices to be sustained over the medium term due to remaining policy-induced volatility, suggesting countries with a high reliance on gold exports and a less stable political environment such as Tanzania, may witness ongoing tensions over the coming year. THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research. fitchsolutions.com 10
Global Summary Mining | 20191021
Commodities Price Movements To Steady In Coming Years
Global - Gold, Copper and Iron Ore price, ave, % y-o-y
f = Fitch Solutions forecast. Source: USGS, Fitch Solutions
We also note rising risks in Sierra Leone and Mali, where the operating environment for mining companies has
become significantly more challenging in recent months. In Sierra Leone, a series of mining license suspensions will call the
sustainability of the nation's iron ore production into question. In October 2019, the government of Sierra Leone revoked the
mining license of SL Mining, a subsidiary of Gerald Group. The company previously suspended operations at the Marampa mine
in September due to a legal dispute with the government following a temporary, government ban on Marampa exports imposed
in July 2019. SL Mining had acquired the license two years prior, in March 2017, on the basis of a 25 year term. A bearish outlook on
iron ore prices, coupled with the high risk of mining license cancellations will harm domestic iron ore production in Sierra Leone, as
current producers have left the sector and regulatory and market conditions deter new investment.
Sierra Leone Production Growth To Suffer
Sierra Leone- Iron Ore Mine Production
e/f = Fitch Solutions estimate/forecast. Source: USGS, Fitch Solutions
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 11Global Summary Mining | 20191021
As the iron ore production outlook in Sierra Leone dampens, firms may shift their investment focus to Guinea where
the government displays a stronger willingness to cooperate with foreign firms. In October 2019, the governments of
Guinea and Liberia signed an agreement that will permit mines in Guinea to export through Liberia. Miners in Guinea have
previously struggled with attempting to transport materials between domestic ports and remote mine sites. Guinea's Minister of
Mines and Geology, Abdoulaye Magassouba, demonstrates an increasingly cooperative attitude towards miners, stating that the
mines in question would be unable to profit if limited to exporting through Guinea when asked about the recent agreement. Despite
the government's continued insistence that the eventual developer of the Simandou Iron Ore project export through Guinea via a
"Transguineen" railway, the international agreement is a positive sign for miners who are hesitant to explore investing in Guinea.
Narrowing Growth Gap Between Guinea and Sierra Leone
Sierra Leone and Guinea - Iron Ore Mine Production Volumes, % y-o-y
f = Fitch Solutions forecast. Source: USGS, Fitch Solutions
A new mining code in Mali will pose threats to current and future exploration initiatives, as firms reevaluate future
investments. In August 2019, the mines ministry in Mali announced a new mining code that removes the previous value-added
tax (VAT) exemption enjoyed during mine production. In addition to eliminating the exemption, miners will now face a shorter
regulatory stability period during which firms are protected from changes to financial and customs regulations. Although the new
stability period is not yet defined, it is expected to fall from 30 years to the duration of the mine life, a change which may adversely
impact smaller miners with assets holding shorter mine lives. This could in turn dissuade new investment from junior miners who
are less likely to be able to bear the increased tax burden or weather unexpected regulatory changes. The changes are less likely
to heavily impact major players, whose production costs usually benefit from efficient economies of scale, however it may cause
them to rethink making additional investments as they are no longer as insulated from future changes.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 12Global Summary Mining | 20191021
Mali Emerges Above Regional Average
SSA - Mining Risk Reward Regulatory Scores
Scores out of 100, higher score = More attractive market. Source: Fitch Solutions Mining Risk Reward Index
Restrictive regulations in Zambia, Tanzania and the Democratic Republic of Congo look set to remain in place, posing
threats to existing miners due to high costs and expropriation risks. In June 2019, the Zambian government sought to
liquidate Vedanta Resources' subsidiary Konkola Copper Mines (KCM) following an accusation that the firm had breached its
mining license. In recent years the Zambian government has adopted a more aggressive tax collection policy, including a 5% import
tax on concentrates and replacing the VAT with a non-refundable sales tax, while inflicting harsher penalties on the mining sector. In
March 2018, Zambia assigned First Quantum Minerals a tax bill estimated at around USD7.9bn.
The current mining code in Tanzania, introduced in 2018, requires foreign firms to maintain a bank account in a Tanzanian-owned
bank. In 2017, Tanzania also imposed an export ban on copper and gold which greatly impacted production of Acacia Mining,
leading to a substantial decline in output at the Bulyanhulu and Buzwagi mines. Furthermore, the government fined Acacia
USD2.4mn over alleged pollution at the firms North Mara operations in addition to a USD190bn tax bill.
Lastly, the Congolese government enacted a new mining code in June 2018 which raised copper royalties from 2.0% to 3.5% and
gold royalties from 2.5% to 3.5%, in addition to doubling the government's stake in new developments from 5% to 10%. In August
2019, China Molybdenum reported the company was losing money at its Tenke Fungurume operations in the DRC, crediting the
unfavourable mining code and lower copper prices. China Molybdenum bought a USD2.7bn majority stake in
Tenke Fungurume back in 2018 from international miner Freeport McMoRan. Glencore also announced in August that it would
be shutting down operations at the Mutanda copper-cobalt mine in the DRC, with management stating it is disputing the new
mining code with the Congolese government. As one of the largest mining companies in the world by revenue, Glencore's actions
could set a precedent for other mining firms to follow.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 13Global Summary Mining | 20191021
Asia
India Iron Ore: Production To Fall In 2020
Key View:
• Delays in the auctions of iron ore mining leases set to expire in March 2020 will disrupt domestic iron ore production in India, and
could turn the country into a net iron ore importer.
• The recovery of supply in high-grade markets such as Brazil and Australia, will weaken Chinese demand for lower-grade Indian
ore.
• Despite a recent cut to corporate tax rates, high royalties and taxes will continue to challenge India's mining sector as a whole.
The auctioning of 48 mining leases set to expire by March 2020 will cause considerable disruptions in the domestic
supply of Indian iron ore, raising the possibility of India becoming a net importer of iron ore over the coming
year. Incorporated in 2015 as a means to restrict corruption concerning mine allocations, competitive auctions in India are subject
to slow proceedings as well as additional delays in securing regulatory permits. Delays relating to auctions and subsequent
regulatory procedures therefore tend to disrupt iron ore production, and concerns over production uncertainty in the next year
have already prompted producers to ramp up current production. Reports alleging that the Indian government's mining
department is negotiating with the nation's environmental ministry to prevent supply disruptions will nevertheless present upside
potential to our negative growth outlook for Indian iron ore production. The possible amendment to present mining policy would
grant auction winners permission to begin mining operations immediately, contingent on the mine possessing valid environmental
and forest approvals. We forecast Indian iron ore production to contract 5.0% in 2020, a stark decline from our forecasted growth of
15% in 2019, underpinned by the present ramp up.
India Iron Ore Production To Witness Sharp Decline In 2020
India - Iron Ore Mine Production
e/f = Fitch Solutions estimate/forecast. Source: USGS, Fitch Solutions
The recovery of iron ore supply in Brazil and Australia will lead to a weakening of demand for Indian iron ore as steel
mills in China switch back to higher-grade sources of ore. The global iron ore market witnessed considerable supply
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 14Global Summary Mining | 20191021
disruptions earlier this year stemming from the collapse of a tailings dam at a Vale mine in Brazil and weather-related port
closures in Australia. Consequently, Indian producers of lower grade iron ore pellets observed a surge in exports to China, as supply
constraints and a need to replenish declining stocks gave rise to Chinese demand for lower grade ore. A continuing recovery in
supply, and renewed access to high grade ore in both Australia and Brazil, will likely shift Chinese purchases back to higher grade
ores in order to comply with increasingly strict environmental standards. High grade Indian iron ore exports, those with iron content
exceeding 58%, are also subject to a 30% export duty making them less cost competitive, especially as the iron ore price rally
subsides. Furthermore, a temporary softening of Chinese import demand for iron ore, as a weaker yuan makes the ore more
expensive, will also decrease the attractiveness of Indian iron ore exports.
India Iron Ore Production To Echo Chinese Steel Consumption
Select Countries - Crude Steel Consumption and Iron Ore Mine Production
e/f = Fitch Solutions estimate/forecast. Source: National Sources, Fitch Solutions
High taxes and royalties will remain a barrier to Indian iron ore production growth by constraining firms' financial
capacities and reducing foreign investment. Despite the recent lowering of the corporate income tax rate, miners in India are
still subject to one of the highest effective tax rates of 58% and 54% for existing and new mines respectively. In September 2019,
India's Finance Minister, Nirmala Sitharaman, announced the lowering of the corporate tax rate from 30% to 22% for companies that
do not seek exemptions. Corporations filing for exemptions will witness a tax rate cut from 35% to 25%. Still, mining firms must pay
additional royalties to the District Mineral Fund and National Mineral Exploration Trust established in a 2015 amendment to
the MMDR Act. The amendment requires miners to pay an additional royalty of up to 100% to the original MMDR royalty,
considerably impacting firms' finances. The reduction in the effective tax rate is not likely to have a significant impact on operating
firms, and high royalty and tax payments will continue to weigh on India's overall competitiveness in attracting foreign investment
into the mining sector as a whole.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 15Global Summary Mining | 20191021
Mongolia Mining: Industry Growth Soon To Surpass Australia And China
Key View:
• Mongolia will register the fastest mining industry value growth in Asia with high-grade reserves of gold, copper and coal, and a
strong pipeline of large projects.
• Mongolia will surpass Australia as the top coking coal exporter to China, aided by new rail infrastructure and consequent increase
in cost competitiveness.
• Mongolian gold and copper production will increase in coming years as new projects comes online and additional exploration
initiatives remain strong.
• Considerable delays, declining ore grades and increased financing needs will impact the feasibility and timeline of the Oyu
Tolgoi copper-gold project, posing downside risks to our positive outlook for Mongolian copper production.
Mongolia's mining industry will witness fast growth over the coming years, underpinned by expanding trade
relations with China and a series of project developments. We forecast Mongolia's mining industry value to rise from
USD3.22bn in 2019 to USD15.14bn in 2028, registering an average annual growth rate of 19.5% y-o-y. In the coming years we
forecast Mongolia's mining industry growth to surpass prominent regional producers Australia and China. Chinese support in
advancing Mongolian infrastructure development will be of large benefit to the mining sector, as a lack of sufficient supportive
infrastructure is one of the major impediments to mining sector growth in the country. In April 2019, China and Mongolia signed an
agreement to synergize China's Belt and Road Initiative (BRI) with Mongolia's Development Road through the construction of the
China-Mongolia-Russia economic corridor. Additionally, in the medium term, production at Turquoise Resources', a subsidiary of Rio
Tinto, Oyu Tolgoi copper-gold project will greatly boost the value of the Mongolian mining industry.
Mongolia Mining Growth to Surpass Regional Peers
Select Countries - Mining Industry Value, USbn, % y-o-y
e/f = Fitch Solutions estimate/forecast. Source: USGS, Fitch Solutions
The country's coal industry stands to benefit from increasing exports to China, underpinned by increasing
infrastructure projects and continued trade tensions between the US and China. In September 2019, the 1800km
Haoji Railway commenced operations. The railway links China to Mongolia via China's Inner Mongolia autonomous region and will
subsequently decrease transportation costs, improving the competitiveness of Mongolian exports to China vis-à-vis Australia.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 16Global Summary Mining | 20191021
Chinese coking coal imports from Mongolia have already witnessed a substantial rise this year, reaching an all-time high of 3.74mnt
in August 2019, while imports from the US faced a considerable monthly decline of 89% due to continuing US-China trade
tensions. In August 2018, China imposed a 25% retaliatory tariff on US goods including coking coal, bringing the total coking coal
tariff to 28%. In terms of production, South Gobi Resources will continue to drive coal production through its flagship Ovoot
Tolgoi mine and through the expansion of other domestic resource opportunities in 2020. Aspire Mining is also scheduled to
complete the definitive feasibility study for the Ovoot coking coal project in May 2020, with the potential to begin pre-stripping
activities in Q220. The mine will produce 4.0Mtpa of fat coking coal over its 12.5 year mine life, supporting production growth in the
medium to long term.
Mongolian Imports on Steady Rise In China
China - Coking Coal Imports From Mongolia
Source: Bloomberg, Fitch Solutions
We also hold a positive outlook for Mongolian gold and copper production in the country as the Oyu Tolgoi copper-
gold project and additional mines come online and miners continue to evaluate exploration and expansion
initiatives. The Oyu Tolgoi copper-gold project is one of the largest global copper-gold deposits, and with a mine life of fifty years,
the project stands to impact the long term production capacity of Mongolia's copper and gold sectors as well as the nation's
economy as a whole. According to some reports, Oyu Tolgoi will average an annual production of 430kt of copper and 425koz of
gold annually for 20 years. Construction began in 2011, however the project has since been subject to considerable delays and
obstacles. Other projects that will further support our positive production outlook include Steppe Gold's Altan Tsagaan Ovoo (ATO)
gold-silver mine. In July 2019, Steppe Gold completed the heap leach development at the ATO mine in Eastern Mongolia. The mine
has measured and indicated resources of 587koz of gold and SG plans to provide a resource update in 2020, highlighting upside
potential to the sustainability of the gold sector. Furthermore, Erdene Resource Development (ERD) announced a USD5mn
funding agreement with the European Bank for Reconstruction and Development (EBRD) in October 2019 which will assist the
firm's development of the Khundii gold project in Southwestern Mongolia. The two deposits, Bayan Khundii and Altan Nar, will
contribute a cumulative average annual production of 109koz of high-grade gold, and Erdene plans to commence production in
late 2021. Additionally, Xanadu Mines reported significant oxide mineralisation results at the Copper Hill deposit within the firm's
Kharmagtai Project in Southern Mongolia. The project represents one of Asia's largest undeveloped copper projects, containing an
open-cut mineral resource estimate of 1.9Mt of copper and 4.3Moz of gold.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 17Global Summary Mining | 20191021
Mongolia Gold Production Slated To Rise
Mongolia - Gold Mine Production (RHC) & Growth (LHC)
e/f = Fitch Solutions estimate/forecast. Source: USGS, Fitch Solutions
Nevertheless, we highlight that challenges at Rio Tinto's Oyu Tolgoi copper-gold project will pose downside risks to
our positive outlook for Mongolian copper and gold production. In July 2019, the firm revealed project costs would increase
to USD6.5-7.2bn, excluding additional financing for the mine's power station. Rio Tinto also reported in July that the underground
mine would need to be redesigned due to suggested stability risks with the design implemented in the 2016 feasibility study, further
delaying production by 16 to 30 months. Moreover, declining copper and gold ore grades constrain the project's current cash
generation , as the company will need to wait until the underground mine reaches sustainable production in approximately 2022 or
2023. In July 2019, Rio Tinto reported a USD0.8bn impairment charge related to the project.
It is highly likely that the project will proceed, however the benefits to Mongolia's copper and gold sectors will not be
realized in the near term. Additionally, the firm did assure that it was making substantial progress on key mine infrastructure that
will not be obstructed by redesign changes. The commissioning of the underground primary production shaft, scheduled for
October 2019, further contributes to the likelihood of project progression. Until then, lower ore grades will strain present production
as the project has already extracted the majority of higher grade ores from the open pit.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 18Global Summary Mining | 20191021 Australian Gold Mining: Solid Project Pipeline And Increasing Prices Promote Positive Outlook Key View: • Australian gold production will remain strong in 2020, underpinned by improving gold prices. • A strong project pipeline will also support our continued positive production forecasts for the coming years. • Nevertheless, a possible gold royalty imposed by the Victorian Government could deter regional sector development in the state, thus presenting downside risk to our positive outlook. We at Fitch Solutions forecast Australian gold production to grow 6% y-o-y in 2019 and 3% in 2020, to reach 10.9 million ounces (moz) in 2020 on the back of unprecedented production figures. Australian gold production reached a record high of 10.3moz in FY2019 (year ended June 2019), with the June 2019 production quarter alone contributing 2.6moz of gold. Strong production drivers include Newcrest Mining’s Cadia Valley operations and Newmont Goldcorp’s Boddington and Tanami operations, accounting for nearly 15% of gold production in FY2019. In April 2019, an USD10bn merger between Newmont Mining and Goldcorp created Newmont Goldcorp and established the newly-formed entity as the world’s largest gold producer. The firm’s position as a market leader affords it the resource capacity to commit to investing in the longevity of its mines that are essential to Australian gold production. GOLD PRODUCTION FORECAST (AUSTRALIA 2017-2022) Indicator 2017 2018 2019f 2020f 2021f 2022f Gold Mine Production, moz 9.68 9.97 10.57 10.88 11.21 11.54 Gold Mine Production Volumes, % y-o-y 3.79 3.00 6.00 3.00 3.00 3.00 f = Fitch Solutions forecast. Source: USGS, Fitch Solutions GOLD PRODUCTION FORECAST (AUSTRALIA 2023-2028) Indicator 2023f 2024f 2025f 2026f 2027f 2028f Gold Mine Production, moz 11.78 12.01 12.25 12.50 12.75 13.00 Gold Mine Production Volumes, % y-o-y 2.00 2.00 2.00 2.00 2.00 2.00 f = Fitch Solutions forecast. Source: USGS, Fitch Solutions A solid project pipeline will buoy Australian gold production in the coming years which we expect to average 2.3% annual growth from 2020-2028. In regards to this, in May 2019, Anglogold Ashanti commenced the Boston Shaker Underground Project at its Tropicana joint venture with Independence Group, a development that will enable the operation to achieve a steady, annual gold production of 480koz for the next five years. Furthermore, autonomous drilling trials at Tropicana could boost production efficiency by reducing the number of necessary operators and drills as early as 2020. In June 2019, Gold Fields also reported pouring the first gold at its Gruyere joint venture with Gold Road Resources which is expected to produce approximately 250koz per annum when operating at full capacity, further supporting our long term growth forecast. THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research. fitchsolutions.com 19
Global Summary Mining | 20191021
Gold Production To Grow Steadily
Australia - Gold Mine Production & Growth
f = Fitch Solutions forecast. Source: USGS, Fitch Solutions
Upward momentum in gold prices, supported by a shift in interest rate expectations and policy-induced volatility,
will incentivise project investment in the Australian gold sector. We at Fitch Solutions forecast gold prices to average
USD1,375/oz for 2019. High gold prices translate into an Australian gold output valued at nearly USD23bn for FY2019, leading to
high returns for miners. Gold prices will be sustained in the coming years by the demand for safe haven assets as geopolitical
tensions ensue with the US-China trade dispute, Brexit negotiations and US-Iran military confrontation. Sustained gold prices will
encourage new investment and protect current projects underway, as evidenced by Northern Star Resources’ AUD76mn
exploration budget and AUD116mn capital budget for FY2020.
A proposed 2.75% gold royalty in the state of Victoria could increase costs for miners, posing some downside risks to
our production outlook. In May 2019, the Victorian government proposed to impose a 2.75% mining royalty on the state's gold
sector that would negatively impact the region's already lackluster mining competitiveness. Kirkland Lake's Fosterville mine is
Victoria's top gold producer following a significant ramp up initiative which enabled the company to raise FY2019 guidance from
390-430koz to 550-610koz in February of this year. The largely unexpected royalty, effective January 1 2020, would raise costs
across the sector, reducing exploration investment and in turn risking both the longevity of operating mines and the feasibility of
marginal mines. For instance, the Fosterville mine has remaining reserves lasting up to five years. The inability to fund exploration
activities essential to extend its mine life would result in a sizeable loss for future Australian gold production.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
fitchsolutions.com 20Global Summary Mining | 20191021
Victoria Lags Regional Peers In Mining Attractiveness
Australia and Oceania - Mining Investment Attractiveness Index
Note: Scores out of 100, with higher scores indicating higher attractiveness. Source: The Fraser Institute, Fitch Solutions
Additionally, a lack of exploration projects due to high costs of developing greenfield assets could potentially
hamper the sector's long term growth. The Minerals Council of Australia has called for the Victorian government to consider
subtracting exploration costs from the royalty to curtail adverse effects. Nonetheless, if Victorian gold production experiences
substantial cuts for which other Australian states are unable to compensate, we would revise our positive production outlook.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.
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