NICKEL PERSPECTIVES Barry Jackson, Sept 2016 - Metal Bulletin
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NICKEL PERSPECTIVES
Barry Jackson, Sept 2016
1
CAUTIONARY STATEMENT Disclaimer: This presentation has been prepared by Anglo American plc (“Anglo American”) and comprises the written materials/slides for a presentation concerning Anglo American. By attending this presentation and/or reviewing the slides you agree to be bound by the following conditions. This presentation is for information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy shares in Anglo American. Further, it does not constitute a recommendation by Anglo American or any other party to sell or buy shares in Anglo American or any other securities. All written or oral forward-looking statements attributable to Anglo American or persons acting on their behalf are qualified in their entirety by these cautionary statements. Forward-Looking Statements This presentation includes forward-looking statements. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding Anglo American’s financial position, business and acquisition strategy, plans and objectives of management for future operations (including development plans and objectives relating to Anglo American’s products, production forecasts and reserve and resource positions), are forward-looking statements. By their nature, such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Anglo American, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Anglo American’s present and future business strategies and the environment in which Anglo American will operate in the future. Important factors that could cause Anglo American’s actual results, performance or achievements to differ materially from those in the forward- looking statements include, among others, levels of actual production during any period, levels of global demand and commodity market prices, mineral resource exploration and development capabilities, recovery rates and other operational capabilities, the availability of mining and processing equipment, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, the availability of sufficient credit, the effects of inflation, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or safety, health, environmental or other types of regulation in the countries where Anglo American operates, conflicts over land and resource ownership rights and such other risk factors identified in Anglo American’s most recent Annual Report. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward- looking statements. These forward-looking statements speak only as of the date of this presentation. Anglo American expressly disclaims any obligation or undertaking (except as required by applicable law, the City Code on Takeovers and Mergers (the “Takeover Code”), the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Conduct Authority, the Listings Requirements of the securities exchange of the JSE Limited in South Africa, the SWX Swiss Exchange, the Botswana Stock Exchange and the Namibian Stock Exchange and any other applicable regulations) to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Anglo American’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Nothing in this presentation should be interpreted to mean that future earnings per share of Anglo American will necessarily match or exceed its historical published earnings per share. Certain statistical and other information about Anglo American included in this presentation is sourced from publicly available third party sources. As such it presents the views of those third parties, but may not necessarily correspond to the views held by Anglo American. No Investment Advice This presentation has been prepared without reference to your particular investment objectives, financial situation, taxation position and particular needs. It is important that you view this presentation in its entirety. If you are in any doubt in relation to these matters, you should consult your stockbroker, bank manager, solicitor, accountant, taxation adviser or other independent financial adviser (where applicable, as authorised under the Financial Services and Markets Act 2000 in the UK, or in South Africa, under the Financial Advisory and Intermediary Services Act 37 of 2002.). 2
• About Anglo American
• Perspectives
• Conclusions
3
ANGLO AMERICAN TODAY
• We are producing:
– Diamonds
– Platinum Group Metals
– Copper
– Nickel
– Metallurgical and thermal coal
– Niobium and phosphates
– Iron ore and manganese
• More than 128,000 permanent employees
and 45 mines
• Operations and exploration
activities spanning southern Africa, South
America, Australia, North America, Asia
and Europe.
4
Source: Anglo American 2015-preliminary-results-presentation
THE NEW ANGLO
5
Source: THE NEW ANGLO AMERICAN presentation, BMO 25th Global Metals & Mining Conference, 29 February 2016
ANGLO AMERICAN PRODUCED 52,200 MT OF NICKEL IN
2015 FROM 3 OPERATING ASSETS
Rebuild of the two furnaces at Barro Alto was concluded ahead of schedule and budget
Barro Alto
Ferronickel plant
21,300 mt of nickel
contained in ferronickel
Rustenburg
Codemin Base Metals Refinery
Production Asset Ferronickel plant
Marketing Office
21,900 mt of nickel
in form of cathodes
9,000 mt of nickel (Brand: RPM Nickel)
Sources: AA Full Press Release 2015; contained in ferronickel 6
AAP Annual Results 2015
Investor Day 2015 presentation, 08.12.15, p47
• About Anglo American
• Perspectives
– Recent developments
7
CONDITIONS
LME Price LME nickel price 2016 (US$/t)
• Concerns about Chinese and world 11,000
economy in Q1 depressed LME prices 10,500
• 13 year low of LME nickel price in 10,000
February of $7,710/t 9,500
• Strong increase in the nickel price 9,000
8,500
since then:
8,000
7,500
• Strong demand – H1 Chinese 7,000
Source: LME, 01.01.16 to 02.09.16
stainless steel production up ~9% YoY 2016
• Nickel sector in deficit
Nickel supply, demand, balance 2016 (kt)
• Shortage of nickel-iron units (FeNi, Balance Production /
Usage
NPI, scrap) 5 3 180
• Increase in FeNi premiums 0 170
• Lower Chinese NPI production (impact 0
of Indonesian ore ban & lower 160
Philippines ore production/exports, -5
new government) 150
-8
• Announced supply cutbacks in -10
-10 140
response to depressed LME prices -11 -12
• Reportedly low stainless scrap -15
Jan Feb Mar Apr May Jun
130
availability and higher prices
Production Usage Balance 8
Source: International Nickel Study Group
Record high nickel demand; declining supply
Especially in China
Long term nickel supply, demand and prices
30 Peak of $54,200/t 180
Price
25 170
Production
20 Demand 160
Balance
15 150
10 140
5 130
0 120
-5 110
-10 100
-15 90
-20 80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: nickel production, demand, balance (monthly) source International Nickel Study Group, price (daily) LME 9Chinese nickel demand is strong
But nickel ore imports (needed for NPI production) are down due to supply challenges
Stainless steel production Nickel imports
% change yr-on-yr % change yr-on-yr
9.0 72
8.6
7.9 8.0
7.4 SMR
Cathodes
Custeel 46
FeNi
Antaike*
Ore
SSC
CSSM
H1 2016 -24
Source: 2016 Jan-July
• SSC = Stainless Steel Council of China Special Steel Enterprises Association
• CSSM = China Stainless Steel Institute of CAMMT
Source: International Steel Statistics Bureau
• Antaike* = Jan-July
• SMR - Steel & Metals Market Research GmbH
• Custeel 10Chinese NPI production is declining
As nickel ore imports have fallen following supply restrictions* and declining output
Chinese monthly NPI production Chinese nickel ore imports by origin
kt NPI production (kt, monthly, ni content)
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
Source: Antaike Source: ISSB
Jan-July 2016 Other
-31% Vs 2014 Philippines
-13% Vs 2015 Indonesia
11
*Indonesian nickel ore export ban; Philippines government mandated nickel mine closuresChinese NPI production accounts for ~20% of global Ni supply
China’s NPI production is wholly dependent on Ni ore imports
Philippines accounts for nearly all China’s nickel ore imports
World mined World refined
nickel production nickel production
Chinese nickel ore imports
2% 1% 1% 1% 1% 2%
22%
49% 53% 52% 58%
80% 77% 76% 77% 81%
90% 97%
76%
49% 46% 47% 42%
2010 2011 2012 2013 2014 2015
20% 23% 24% 23% 19%
10% Other Indonesia Philippines
2013 2014 2015 2013 2014 2015
Other Philippines Other
Chinese NPI
12
Source: ISSB, Wood MacKenzieChinese nickel ore imports are declining
Impact of Indonesian ore ban & lower Philippines ore production/exports
China’s nickel ore imports from the
Chinese nickel ore imports from the Philippines Philippines Jan-July (Mt)
6
Mt
2008 2011 2014 19
2009 2012 2015
17
2010 2013 2016 -24%
5
14
4
3
2
1
0
Jan Mar May Jul Sep Nov
2014 2015 2016
Source: ISSB Source: ISSB 13The Philippines has suspended mining operations
Due to environmental concerns of the new president and head of DENR
Philippines nickel production (t’s)
415,366
393,262
Sinosteel Philippines H.Y. Mining Corp.
CTP Construction & Mining Corp.
AAM-PHIL Natural Resources Exploration & Dev’t Corp
Oriental Synergy Mining Corporation
Westernshore Nickel Corporation/East Coast Mineral Resources Co. Inc.
Libjo Mining Corporation
Oriental Vision Mining Phils. Corporation/Norweah Metals and Minerals Co. Inc.
Wellex Mining Corporation
Adnama Mining Resources Incorporated
Agata Mining Ventures, Inc.
Marcventures Mining & Development Corp.
Carrascal Nickel Corporation
Rio Tuba Nickel Mng.
CTP Construction & Mining Corp.
SR Metals, Inc.
Cagdianao Mining Corp.
Platinum Group Metals Corporation
Taganito Mining Corp.
Benguet Corporation Nickel Mines Inc.
Note: a number of other mines have
Zambales Diversified Metals Corporation been suspended who are not listed in
LNl Archipelago Minerals Inc.
Suspended Eramen Minerals Inc.
the MGB data, so the impact to
27% Berong Mining Corp. production of suspensions is
16% Citinickel Mines & Development Corporation
expected to be larger than indicated.
Hinatuan Mng. Corp.
2014 2015
Source: Philippines Mines and Geosciences Bureau (MGB), nickel content of ore. 14
DENR = Department of Environment and National ResourcesPhilippines to fast-track hearings to ban ore exports
Currently less than 1% of GDP from mining, less than 0.1% from nickel
• Philippines congressmen have moved two bills in August calling
Philippines GDP
for a ban on minerals exports and greater focus on domestic
processing.
• House bill number 2165 by congressman Erlpe John Amante
revives his previous bill seeking a complete ban on the export of Agriculture and forestry
unprocessed mineral ores. "Any mineral ores extracted under the Fishing
provisions of the [revised Mining Act] shall be processed within the
Mining & Quarrying
country. "No person granted with permit for purposes of mining
operation shall be allowed to export the unprocessed mineral ores Manufacturing
to other country for the purpose of trading of mineral products."
• House bill number 2715 moved by seven congressmen seeks to Construction
"reverse the current export-orientation of mining", drawing attention Electricity, Gas and Water Supply
to the small contribution the sector makes to the country's GDP
growth and employment. The bill was moved by congressmen
Carlos Isagani Zarate, Antonio Tinio, Emmi A De Jesus, Arlene Mining accounted for
Brosas, France Castro, Ariel Casilao and Sara Jane Elago this only 0.8% of GDP in 2015
month. It calls for an act re-orienting the Philippines mining industry
towards national industralisation and ensuring the highest industry SERVICE SECTOR
development standards and for other purposes.
• In the explanatory note the bill points at the small contribution of
0.7% that the mining sector makes to the country's GDP growth
also highlighting that the sector's contribution to employment is
0.6%. The bill also adds that the government's share from mining in
taxes, royalties and fees amounted to only 1.33% of total tax
revenue.
2013 2014 2015
Data sources: the Philippine Statistics Authority http://psa.gov.ph/nap-press-release/data-charts
https://www.metalbulletin.com/Article/3581545/Nickel/Philippines-congressman-revives-call-for- 15
minerals-exports-ban-another-bill-highlights-need-for.htmlLower NPI production is good for the environment
Estimated carbon footprint of nickel output
in different regions (circles are scaled)
Finland
Norway
Russian Federation
Canada UK Ukraine
France
Greece Japan
Cuba China
Venezuela
Colombia
Brazil Australia
South Africa
16
Source: Nickel Institute 2013 study• About Anglo American
• Perspectives
– Stocks & Financing
17LME stocks are declining
Low levels of availability in Europe
500,000
t’s
LME nickel stocks – total 500,000
t’s
LME nickel stocks – available
400,000 Midde East 400,000
Midde East
America
300,000 300,000 America
Europe
Europe
200,000
Asia 200,000 Asia
100,000 100,000
0 0
2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016
t’s
200,000
t’s
LME nickel stocks – total - Europe 200,000 LME nickel stocks – available - Europe
150,000 Europe 150,000 Europe
100,000 100,000
50,000 50,000
Source:
0 0 18
LME
2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016Nickel stocks have shifted to China
“Financing” has become a large nickel “consumer”
t’s Chinese nickel stocks Financing
240,000
NPI • Financing transactions typically involve a
SHFE non-Nandalu stocks simultaneous purchase of metal for
200,000 Shanghai Nandalu stocks nearby delivery and a forward sale to take
Bonded stocks advantage of a market in contango, when
later-dated contracts cost more than
160,000 those with nearer dates.
• The contango’s size influences
120,000 profitability, along with borrowing and
storage costs.
80,000 • Financing nickel may bring a 1.5% to 2%
risk-free return, according to Macquarie.
40,000 • In China, nickel can be obtained with a
letter of credit and used as collateral
against a yuan-denominated loan.
0
2014 2015 2016
Source: AA Beijing, Macquarie, Bloomberg, http://www.bloomberg.com/news/articles/2013-03-15/nickel-financing-deals-seen-by-
macquarie-hoovering-up-stocks
19• About Anglo American
• Perspectives
– Outlook
• Conclusions
20SMR stainless steel production forecasts
Recovery in production growth forecast in 2016
Quarterly production Annual production
2.6%
3.0%
-1.0%
+9% 46,622
44,551 45,437
44,114
4,489 5,153
40,898 4,033 4,237
37,728 4,130 3,473 3,327 3,411
3,283
3,907 2,745
7,241 7,130
2,408 7,288 7,202
7,138
7,471 5,978 5,892
6,634 6,392
6,385
6,442
23,123 24,402 25,036
23,000
20,500
17,500
2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
ROW Americas Europe Other Asia China
Source: SMR - Steel & Metals Market Research GmbH 21Nickel sector shifting to deficit
Source: Wood MacKenzie
232
184 H1 2016: The International Nickel Study
142 Group put the deficit at -37kt, the World
118
Bureau of Metal Statistics estimated -81kt
49
-4
-57
Source: Wood MacKenzie -107
-136
-151
-215
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
22• About Anglo American
• Perspectives
• Conclusions
23Conclusions
• Strong nickel demand
• Consumption growth underpinned by
wide range of end use applications,
growing population and increasing
intensity of use
• Lower Chinese NPI production (impact of
Indonesian ore ban & lower Philippines
ore production/exports, new govt.)
• Announced supply cutbacks in response
to depressed LME prices
• Sector in deficit
Image source Aperam http://www.aperam.com/uploads/Sustainability%20report%202015/ASR_2015_madeforlife.pdf
24NICKEL PERSPECTIVES
Barry Jackson, Sept 2016
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