Market Outlook Workshop Update on the Mining Industry August 12, 2010

Transcription

1 Market Outlook Workshop Steve Ralbovsky U.S. Mining Leader PwC

2 Agenda New Investors, new strategies Political risk China! China! China! US coal goes global Information for better operations Sustainability

3 Let s start before the crash Recent history of mining investors Non-miners bought mines to assure supplies Ex. Steel companies bought coal and iron mines Not miners by trade May have overpaid May not have understood the risks May not know how to run the mines May not know what they did not know Slide 3

4 Hedge funds and private equity funds bought actual mining companies, not just invested in minerals or futures Typically not a lot of experience in the industry Relying on others to manage the business See above This is a really simple business Slide 4

5 Longer term view of alternative uses of mines Real estate company bought rock quarries Planned to mine them out Then use the hole in the ground as a lake bed for residential or office park development Slide 5

6 Aggregate mine in a major metropolitan area Civilization caught up with the mine and surrounded it Municipality wants mining company to fill the hole to make it usable land Decades in the future Carbon sequestration requires large underground spaces Will today s mines become the carbon sequestration areas of the future? Slide 6

7 The Crash... Everything fell Mining stocks fell deeper Probably because prices had been high We all looked for the dawn Slide 7

8 Section heading goes here The sun rose Commodity prices came back fairly strongly Caution remained No big deals And global economies were weakened Slide 8

9 Is political risk the single largest risk to mining companies today? Many think it is Stakes are huge Very unpredictable, more than about money... Slide 9

10 It s always about money Australian proposal to tax extractive profits at 40% Cost Kevin Rudd his job Current proposal at 30% Other countries looking at similar levies? Uncertainty as important as the high rates? Almost! Slide 10

11 Publish What You Pay Paying your fair share is now part of sustainability PWYP EITI ICMM Dodd-Frank financial reform legislation requires reporting of payments to governments in SEC filings Slide 11

12 Beyond the money Politics of mining methods Ex. Mountainstop mining Politics of safety issues Forcing new equipment Politics of use of minerals Ex. Coal for electricity generating fuel Blood diamonds Slide 12

13 Potential impact on you Politics of your valves being in an unpopular mine Politics of having local manufacturing or marketing facilities or a local partner so you can be viewed as a local supplier Slide 13

14 Need for retrofitting for additional controls on smelters, refineries, etc.? Drop in number of coal-fired power plants? 50% of US electricity is coal fired Down from 55% a few years ago Slide 14

15 Nuclear power as an alternative? Uranium production will have to increase to fuel new plants New facilities to store spent fuel? Slide 15

16 Section heading goes here US coal goes global US coal companies increasingly looking to export to China and India Met coal primarily Steam coal now as well Transportation needs changing More rail to the west coast Alternatives Slide 16

17 US coal companies expanding to Asia through acquisitions and mergers Acquiring Australian resources and reserves for coal Contracts with buyers in India and China and elsewhere throughout Asia Slide 17

18 China! China! China! Is China driving sustained mineral prices? What are they doing with the minerals? What are they doing to acquire the mineral? China goes where others are reluctant to go to acquire the mineral Safety in China is sometimes lacking opportunity to retrofit? Slide 18

19 Chinese realities Most Chinese mining companies are at least partially owned by the Chinese government Even if they are publicly listed Witness Rio Tinto execs trial regarding state secrets Chinese mining companies have tried to work with major mining companies or invest in developed countries, but it hasn t always gone well Slide 19

20 Chinese reserves of rare earth minerals What advantage will it give them? Long term strategy v. short term view of most public companies Slide 20

21 Will miners have to mine in more difficult areas to keep producing? Will remote control mining increase? Overall drop in numbers of mining personnel to cut costs and increase safety Increasing number of valves operated by remote control Slide 21

22 Increased focus on safety and reliability Need to measure usage of valves and other equipment Ability to monitor usage to predict fatigue through software Look at who s interested in mining GE SAP Slide 22

23 Country Aspects Brazil Vale Country is investment grade Pride in many successful industries Chile Rebuilding from earthquake Mining is very important industry Peru Many mines Rural areas Slide 23

24 Democratic Republic of the Congo Rich in natural resources Little to no infrastructure Kosovo Inviting miners and power generators to bid on resources Kazakhstan Seeking to develop downstream manufacturing of minerals mined in country Slide 24

25 Emerging nations Mining as a way to build an economy Iraq; Afghanistan; Nigeria, Mongolia Yes, Afghanistan Slide 25

26 Commodity prices Gold, copper and some others have remained high, despite the economic downturn Do miners have enough faith prices will remain high such that they open/reopen or expand mines? Equipment suppliers did not ramp up during the pre-2008 boom, fearing a downturn Some projects in disarray Slide 26

27 Majors In general, holding pat Working off prior deals Don t want to overpay Some have to divest to achieve better results Ex. Rio Tinto Can t avoid M&A for too long Major projects often under the radar until well along Slide 27

28 PwC publications and events Mine: Back to the Boom pwc.com/mining Total Tax Contribution pwc.com/mining 14 th Annual Americas School of Mines September 22 & 23, 2010 in Rio de Janeiro, Brazil pwc.com/schoolofmines Slide 28

29 Thank you Questions or comments? All rights reserved. refers to the network of member firms of International Limited, each of which is a separate and independent legal entity. PwC