The Case for Investing in Canadian Iron Ore Sandy Chim, President & CEO, Century Iron Mines. September 26, 2014, Dalian, China

Transcription

1 The Case for Investing in Canadian Iron Ore Sandy Chim, President & CEO, Century Iron Mines September 26, 2014, Dalian, China

2 The trajectory of iron ore economics: a capital-intensive industry with a long development cycle in the context of its relation to China s gigantic economic fire power and policies Global financial crisis China s US$600B stimulus A stronger Iron Chinese Ore Price real estate Trend sector China deepens economic reform with quality Decisions and start of major expansions Major expansions start to ship US$/t years Iron Ore Spot Price (TSI (CFR China) Fe62% spot since ~2009) Iron Ore Spot Price Trend Source: TSI, World Bank, Century 2

3 Mpta 1,900 1,700 1,500 1,300 1, (100) Beginning a new phase of over-supply (~100Mtpa) before fully absorbing production from major expansions Previous expansion decisions = Big Four 435Mpta, >50% in ~5-6 years, and market share from ~68% (2012) to 73% (2018) China Import ROW (seaborne) China Domestic Rio (Aust) BHP (Aust) Vale FMG (Aust) Big Four Total Seaborne Demand Total Seaborn Supply Source: Crédit Suisse, World Steel Association, Century 3

4 Low-cost major expansions are flattening the cost curve, driving down the spot market and squeezing out marginal-cost producers before the market can fully absorb the new supply Operating cost Operating cost 2013 Total seaborne demand: 1236Mtpa Supply: 1260Mtpa 4 Majors = 856Mtpa (2013) Cumulative production 4 Majors = 1214Mtpa (2018) Cumulative production Squeeze out 2018 Total seaborne demand: 1659Mtpa Supply: 1690Mtpa Major producers = Big Four Lower-cost emerging producers High-cost emerging producers China SOEs/large private mines China, small private mines Conceptual cost curve Some high- cost producers (~ Mtpa) will be squeezed out Conceptual cost curve Source: Crédit Suisse, World Steel Association, CRU, Century 4

5 Industry dynamics in this new phase of the Cycle Challenges: The world, including China, is increasingly reliant on a shrinking number of supplier jurisdictions As a result, oligopoly power will strengthen Diversification of supply will become more difficult Emerging projects will have trouble raising development capital Jurisdictions with a vested interest will become more protectionist Opportunities The current expansion by majors should end in a couple of years China is still growing; other economies will recover to absorb new supplies Lack of capital for new projects will cause a shortage of new supply in the future opportunity for welltimed, disciplined new projects Consensus points to a supply/demand inflection point and price recovery around 2017 Singapore Exchange s futures trading prices September 5, 2014 Contract Month Avg DSP (US$) Sep Q Q Q Q Q Q Q Cal Cal Cal

6 The case for Canada Diversity of supply = healthier market Stable government + stable supply = stable return on investment Decent grade and quality Competitive costs compensate for distance: Water and power for beneficiation Existing logistical infrastructure Iron ore is a non-homogenous commodity product niches do exist..... e.g. pellets Infrastructure New multi-user wharf at Sept Iles, Canada Quality Grade Pellets major export products from Canada 6

7 Comparative Canadian cost competitiveness 60-year stable and continuing operation Canadian suppliers Other suppliers Mining Mining Processing (water/power) Abundant fresh water supply for beneficiation Low hydro power cost Processing (water/power) Land transport Existing rail available New cape-sized wharf to be completed in 2014 Land transport G&A G&A Ocean freight Farther away from China But new wharf can handle Chinamax Ocean freight 7

8 Multi-user rail/port shipping Canadian iron ore export since 1954 Schefferville Labrador City Port-Cartier Multi-user Rail Ross Bay Junction Port of Sept-Îles New multi-user port to be completed in 2014 Port of Sept-Îles October 2013 May km 8

9 Pellet/Pellet Feed: A 400Mtpa market becoming 700Mtpa Mpta Positioned to grow by >300Mtpa over the next 20 years Half that growth will come from China World Pellet Demand ROW's pellet/feed (excl. China) Pellet import to China Pellet feed import to China China's pellet/feed Mtpa 2012 Chinese Pellet Demand Pellet import to China 2024 Pellet feed import to China China's pellet/feed Source: CRU, Century

10 Export Import Fewer players in the pellet global market Even fewer in the seaborne market Canada is a key player Mtpa Exports (+ve) / Import (-ve) of Pellets by Country Africa Middle East India Asia-Pacific, developing China CIS Latin America Asia-Pacific, advanced Europe North America Source: CRU, Century

11 A faster-growing pellet feed market China is a major buyer Pellet Feed Import by Country Africa Middle East India Asia-Pacific, developing China CIS Latin America Asia-Pacific, advanced Europe 0.00 Mpta North America 11 Source: CRU, Century

12 Conclusion Canada has a decent grade and quality of ore Abundant water and low-cost hydro power Equipped with operating multi-user rail and port infrastructure Canada is competitive in specific product classes As it has been over the last 60 years How bright will Canada s future be? Like everyone else, it depends on how well the largest consumer of iron China performs 12

13 China has achieved unprecedented historical performance, emerging as the second largest economy, contributing greatly to the Super Cycle and sustaining the commodity markets during the IFC. World (without China) 28Mt 102Mt 100 years 73 years 720Mt (2013: 803Mt) Western Industrialization China 1900 World War I 1927 In Million Tonnes (Mt) per year Source: World Steel Association, CRU, CISA, Century World War II Baby Boom 1978 ~30Mt Economic Reform in China began Chinese Industrialization 101Mt 34 years 16 years 709Mt (2013: 779Mt) 13

14 GDP % 100% 90% 80% 70% The 21 st century will belong to China because.. 18 of the last 20 centuries saw China as, by some margin, the largest in the world. Niall Ferguson Centuries of dynastic change and reform 2000 Years of Global Economic Development Opium Wars Foreign invasions Economic Reform China China India 60% 50% 40% 30% 20% 10% 0% Indian Peninsular Civilization Other Ancient Civilizations Roman Empire Colonialism Other ITA RUS JPN GER UK FRA ESP USA Source: Historical Statistics of the World Economy: AD, by Angus Maddison, Century Niall Ferguson: Laurence A. Tisch Professor of History at Harvard and Senior Research Fellow of Oxford and Standard