chile water infraestructure · •independent market analysis •short, medium and long-term market...

La industria minera post pandemia: un motor de la recuperación en Sudamérica?

Webinar – Panorama Minero

17 Junio 2020

Víctor Rodríguez

Principal Consultant, CRU Consulting

[email protected]

mailto:[email protected]

This presentation is private and confidential. It must not be disclosed in whole or in part, directly or indirectly or

in any other format without the prior written permission of CRU International Limited.

CRU International Limited’s responsibility is solely to its clients and its liability is limited to the amount of the fees

actually paid for professional services.

Although reasonable care and diligence has been used in the preparation of this presentation, we do not

guarantee the accuracy of any data, assumptions, forecasts or other forward-looking statements. We accept no

liability to third parties, howsoever arising.

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Copyright CRU International Limited 2020. All rights reserved.

Legal notice

2


http://www.crugroup.com/privacy/

Content

3

Introduction to CRU1

Overview of the commodities markets2

Mining in South America: relevance and perspectives3

Conclusions4


Content

4




Conclusions4


About CRU

Analysis

• Subscriptions for regular publications and news

• Independent market analysis

• Short, medium and long-term market outlooks

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Prices

• Regular price assessments

• Robust and transparent methodology

• Unbiased and accurate assessments

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• Advice tailored to the needs of our clients

• Strategy development

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CRU specialises in mining, metal, and fertilizer commodities deliveringbusiness intelligence through analysis, consulting, and events

Events

• Both commercial and technical events

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5


CRU have regular and specialised coverage of a wide range of commodities, and through

our Consulting team are able to undertake research into more niche sectors.

12

Mg

4

Be

20

Ca

38

Sr

56

Ba

88

Ra

11

Na

3

Li

19

K

37

Rb

55

Cs

87

Fr

1

H

57-70

*

89-102

**

71

Lu

103

Lr

21

Sc

39

Y

72

Hf

104

Rf

22

Ti

40

Zr

73

Ta

105

Db

23

V

41

Nb

74

W

106

Sg

24

Cr

42

Mo

75

Re

107

Bh

25

Mn

43

Tc

76

Os

108

Hs

26

Fe

44

Ru

77

Ir

109

Mt

27

Co

45

Rh

78

Pt

110

Ds

28

Ni

46

Pd

79

Au

111

Rg

29

Cu

47

Ag

80

Hg

112

Cn

30

Zn

48

Cd

31

Ga

49

In

5

B

13

AI

81

Ti

113

Uut

32

Ge

50

Sn

6

C

14

Si

82

Pb

114

Uuq

33

As

51

Sb

7

N

15

P

83

Bi

115

Uup

34

Se

52

Te

8

O

16

S

84

Po

116

Uuh

35

Br

53

I

9

F

17

CI

85

At

117

Uus

18

Ar

36

Kr

2

He

10

Ne

54

Xe

86

Rn

118

Uuo

57

La

89

Ac

58

Ce

90

Th

59

Pr

91

Pa

60

Nd

92

U

61

Pm

93

Np

62

Sm

94

Pu

63

Eu

95

Am

64

Eu

96

Am

65

Tb

97

Bk

66

Dy

98

Cf

67

Ho

99

Es

68

Er

100

Fm

69

Tm

101

Md

70

Yb

102

No

Regular CRU product coverage

Specialised CRU product coverage

* Lanthanide series

** Actinide series

Some of CRU’s multi commodity expertise

6


Content

7




Conclusions4


80

90

100

110

120

130

140

150

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Pre-Covid19 output trend V-shaped

2% annual growth rate

Level of output,

illustrative scale

80

90

100

110

120

130

140

150

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Pre-Covid19 output trend V-shaped U-shaped


Level of output,

illustrative scale

Level of output loss

80

90

100

110

120

130

140

150

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Pre-Covid19 output trend V-shaped

U-shaped L-shaped


Level of output,

illustrative scale


Level of output loss

Macroeconomics for all: demystifying recession shapes (V, U and L)

8

Two factors help differentiate the three types of recession:

1. Whether the recession causes a permanent loss in the

level of output

2. Whether the growth rate of output returns when the crisis

is over

Type of recession Permanent loss of

output

Persistent loss in

growth rate

V-shaped NO NO

U-shaped YES NO

L-shaped YES YES

A haircut missed in March is unlikely to be followed by two

haircuts in April (lost output)… but can continue at the usual

frequency once the pandemic is behind us

Simple example of U-shape: haircuts


Our base case (so far): a U-shaped recession

9

What does this mean for mining and metals?

Global economy is expected to see U-shaped

recession from Covid-19 but not long-term GDP

growth rate impact

90

95

100

105

110

2019 2020 2021 2022 2023 2024

USGDP level, 2019=100

90

95

100

105

110

2019 2020 2021 2022 2023 2024

EurozoneGDP level, 2019=100

90

100

110

120

130

140

2019 2020 2021 2022 2023 2024

China GDP level, 2019=100

90

100

110

120

130

140

2019 2020 2021 2022 2023 2024

IndiaGDP level, 2019=100

January 2020 forecast May 2020 forecast

How much does lockdown and social distancing

hurt growth?1

How do economies fare as lockdowns end?2

How will high unemployment affect the outlook?3

Three main uncertainties


Covid-19 has completely changed the outlook for 2020

10

Looking back

• Both supply and demand have been lowered but demand

has been harder hit and will be slower to recover.

• Macroeconomic uncertainty: LME prices have declined and

safe-haven assets such as gold have flourished.

• Iron ore price remain high due to supply losses and low

shipping costs. But steel demand is extremely weak.

Looking forward

• Short-term: affected all markets and made double-digit year-

on-year commodity price falls the new reality.

• Covid-19 could have potentially long-lasting effects on

economic growth.Cu

Zn

Ni

Au

62% Fe

Li

70

85

100

115

Jan Feb Mar Apr May Jun

CRU’s commodity price basket indexed to 100 on 3 January 2020


Demand destruction and supply disruption driven by Covid-19

11

-8.8% 1.0% No -27.7 Mt -8.0%

-4.0% -1.7% No -4.8 Mt -3.9%

-6.9% -1.3% No -728 kt -5.3%

-4.6% 0.9% No -1.6 Mt -2.3%

-0.7%* 1.6% No -203 t -1.6%

7.5% -10.5% No 72 kt LCE 3.1%

2.0% 2.2%Yes – Low

stocks-9.9 Mt -0.1%

All prices in $/t. Iron Ore is 62% CFR China. Cu, Ni, Al & Zn are LME 3M. *Fabrication demand **Gross apparent consumption.

Pre-Covid forecasts correspond to 2019Q4 editions, except for iron ore which corresponds to 2020Q1.

Recession in 2020 will cause prices for many commodities to reach bottom

DeficitDemand

growth

Supply

growth2020 Price

forecast

Cu

Al

Ni

Li

Zn

Au

Fe

Pre vs Post Covid-19 : 5Y

Cumulative demand forecast


Content

12




Conclusions4


Mining commodity exports as share of total (by value), 2019

Mining commodities are revelant for South America as a source of export dollars…

• Mining commodities are an important source of exports in

South America; some countries (Chile, Peru, Bolivia) are

particularly reliant on this industry.

• Copper, iron ore and gold account for ~80% of the total.

• But exports are not income and income is not wealth. The

contribution of the mining industry is far reaching.

55%

- 10,000 20,000 30,000 40,000 50,000

Chile

Brazil

Peru

Colombia

Bolivia

Argentina

Ecuador

Paraguay

Uruguay

Venezuela

Mining commodity exports, 2019

US$ billion

Copper Iron Ore Gold Coal Molybdenum Ferroalloys Zinc Others


Source: CRU, IHS Markit GTA. ‘Others’ category includes: silver, various fertilizers, lithium, lead, manganese, tin, PGMs chrome, cobalt and nickel 13

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

$-

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

$10.0

Chile’s Host Country Cash Flow from selected copper mines

US$ billion (nominal)

Taxes OPEX Investment Copper Price (LME Cash), US$/t

… and of sustained cash flows to the host countries

14

No taxes paid in 2016 but $3.4 bn

flowing to Chile from local share of

OPEX and CAPEX

• The cashflow to the host country from mining and mineral

processing can be calculated at the level of asset.

• Host country NPV of cashflow is larger than that to the mine

owner. This is mainly because development capital

expenditure (FDI) can be positive for host country, while it is

a negative for the owner.

• Cash flows from operating costs and sustaining capital tend

to be more stable than taxes.

• The impact of the mining sector on the wider economy

largely exceeds the tax bill.

Taxes

Host country cash flow (US$)

Local share of

operating cost

Local share of

capital

investment

Source: CRU. The analysis includes: Escondida, Collahuasi, Los Pelambres, Anglo American, El Abra, Candelaria Complex, Mantos Copper, Zaldivar, Cerro Colorado and Quebrada Blanca.Taxes include Specific Mining Tax and Corporate Tax


Cost competitiveness is critical when the tide is low

Copper

Iron ore

Zinc

Source: CRU. Cost = Site cost; Prices = 2019 average

South American assets are well positioned to weather a

weak price environment

• The mining industry is price taker. Having a strong (i.e. low) cost

position is a key success factor.

• Broadly speaking, South American mines are cost competitive.

Several world class assets are located in the region (think of copper,

iron ore, lithium...).

• Very limited volumes would be at risk due to sustained low prices.

Extraordinary margins in 2019!


15

South American operations

The impact of Covid-19 on supply has been limited so far though there are differences by country


March 17, 2020

May 25, 2020

June 6, 2020

16

Disruption at a glance – copper and lithium cases


1%

8%

3%

23%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

2020 Cu production loss Share of 2020 forecasted production

Copper mine production Covid-19 disruptions and cutbacks

LHS: '000t Cu, RHS:%

16%

1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

2

4

6

8

10

12

14

Argentina Australia China Chile NorthAmerica

ROW

2020 Li production loss Share of 2020 forecasted production

Lithium mine production Covid-19 disruptions and cutbacks

LHS: '000t LCE, RHS:%

17

What’s next? South America is a key destination of mining investments…

… but the size of investments is highly correlated with commodity prices

0

20

40

60

80

100

120

140

160

180

0

20,000

40,000

60,000

80,000

100,000

120,000

2011 2012 2013 2014 2015 2016 2017 2018 2019

South America ROW IMF Base and Precious Metals Price Index

Total development and sustaining CAPEX (Cu-Au-Fe-Li-PbZn)

LHS: US$M, RHS: Index (2016=100)

46%

18%

32%

18% 21%

0%

20%

40%

60%

80%

100%

Copper Gold Iron ore Lithium PbZn

South America % Rest of the world %

Aggregated share of CAPEX (2011-2019)

% of total

Source: CRU

Weak price environment in 2020

CAPEX will be reduced


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Content

19




Conclusions4


Key takeaways


Covid-19 uncertainties will continue into 2021.

U-shape recovery expected.

Weak outlook for commodity prices in

2020.

Covid-19 may have long-lasting effects.

Mining is important for South America from

exports and cash flow perspectives.

Regional assets are cost competitive.

Limited short-term disruptions so far.

South America is an important investment destination but the

outlook is challenging.

How to defend market share?

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chile water infraestructure · •independent market analysis •short, medium and long-term market...

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