Download - 408-2013-Lec02 03
-
8/21/2019 408-2013-Lec02 03
1/37
1/18/20
Managing in a Commodity World
Mike O’Shaughnessy, Director, Business Planning
Jim Popowich – Mining Guy at Large
January, 2013
Frontier & L421
Diversified, Low Risk,
Long Life Portfolio
• Wor ld’s 2nd largest seabornemet coal producer
• Six open-pit operations
• >25 year mine life
• >100 year resources
• Potential Quintette productionin 2014
Red Dog (100%)
• Large scale, low cost zincproduction
• ~20 year+ mine life, withpotential to increase further
• Mine life to 2026
• Potential to extend minelife by an additional 10-20 yrs
Antam ina (22.5%)
• Large, low cost copper-zincco-product mine
• Current operations to 2028
Quebrada Bl anca (76.5%)
• Current operations to 2016with cathode productionexpected to continue until2018; 40-year resource
• Plan to triple production; with$5.6b capital project
Andac oll o (90%)
• Recently completedexpansion that quadrupled
production
• >20 year mine life
Trail: Top 5 zinc/lead facility in the world
Note: References throughout to mine lives are based on Teck reserve estimates ( or where indicated resource estimates) and curre nt production rates. Actual mine lives may vary
Antamina
Quebrada Blanca
Andacollo
Relincho
Red Dog
Fort Hills
Teck Coal
Trail
Pend Oreille
Duck Pond
Highland Valley
Teck Coal (100%)
Highland Valley (97.5%)Red Dog (100%)
Antam ina (22.5%)
Quebrada Blanca (76.5%)
Andaco llo (90%)
Growth, Diversity andCost Competitive Production
Growth, Diversity andCost Competitive Production
Mine Advanced ProjectRefinery
• Fort Hills: 20%
• Frontier: 100%
• Lease 421: 50%
• 3.5b bbl contingent resource
• First production by 2017
Oil Sands
2
-
8/21/2019 408-2013-Lec02 03
2/37
1/18/20
7
Continued Improvement in Safety
- Employee and Contractor
• Teck Coal best ever year • Oct YTD Total Recordable Injury
Frequency of 1.45, 31% down onsame time last year
• Lost Time Injury Frequency of 0.23,85% down
• Frequency of High Potential Incidentsalso down
• Contractor statistics showingcontinual improvements – improvedexpectation setting and supervision,and emphasizing “all work on site atthe one standard”
• Random Drug and Alcohol testing in
place and functioning well at CardinalRiver, currently being rolled out to ElkValley mines
Outline
• Supply/Demand balance
• The macro demand picture
• Supply running to stand still
• How stable is your revenue?
o Drivers of price S/D balance
o Other factors
• Steelmaking Coal Case Study
• Ferti lizer Case Study
• The DCF4
-
8/21/2019 408-2013-Lec02 03
3/37
1/18/20
5
The Supply/Demand Balance
Commodity super-cycle
Commodity Price Increases CPI Adjusted - US$(Base Year 1960 = 100%)
6 Source: USGS Mineral Information, LME, Bloomberg
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
220%
240%
260%
1 9 6 0
1 9 6 2
1 9 6 4
1 9 6 6
1 9 6 8
1 9 7 0
1 9 7 2
1 9 7 4
1 9 7 6
1 9 7 8
1 9 8 0
1 9 8 2
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
2 0 0 6
2 0 0 8
2 0 1 0
2 0 1 2
CPI (YoY) Average
-
8/21/2019 408-2013-Lec02 03
4/37
1/18/20
Economics 101 – the supplyand demand relationship
7
P r i c e
Units
Supply Demand
P r i c e ( $ / u n i t )
Units Available
Panic Buying
Cost
Driven
Floor Price
Supply, demand and the
commodity cycle
8
U n i t s o f P r o d u c t i o n o r C o n s u m p t i o n
Time
Supply Demand
Excess Supply
SupplyShortfall
P r i c e ( $ / U n i t o f
P r o d u c t i o n )
Time
Super Cycle
Floor Price
Based on Usual Demand
and Supply Response
-
8/21/2019 408-2013-Lec02 03
5/37
1/18/20
Multi decade material change
in demand driven by…
9
• Urbanization of 1.4 billion people between 2005 – 2025
• Industrialization of emerging economies
• The move to middle class, replacement vs. additional demand
• Population growth
• BRICS (Brazil, Russia, India, China, South East Asia) expected tosustain high economic growth
World commodity demand expected to double overthe next 15 to 20 years.
Source: UN 2011
‐4.0%
‐3.0%
‐2.0%
‐1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
1 9 8 0
1 9 8 1
1 9 8 2
1 9 8 3
1 9 8 4
1 9 8 5
1 9 8 6
1 9 8 7
1 9 8 8
1 9 8 9
1 9 9 0
1 9 9 1
1 9 9 2
1 9 9 3
1 9 9 4
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
2 0 1 6
2 0 1 7
R e a l G D
P ( % C h a n g e Y e a r o v e r Y e a r )
Long Term Real GDP Forecast (YoY)
Global Developed Emerging
The driving force – global GDP
10 Source: IMF Nov/12
30%
40%
50%
60%
70%
1 9 8 0
1 9 8 3
1 9 8 6
1 9 8 9
1 9 9 2
1 9 9 5
1 9 9 8
2 0 0 1
2 0 0 4
2 0 0 7
2 0 1 0
2 0 1 3
2 0 1 6
Share of Global GDPDeveloped
Emerging
-
8/21/2019 408-2013-Lec02 03
6/37
1/18/20
Urbanization Levels
11
—
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
I n d i a
C h i n a
D e v e l o p e d
I n d i a
C h i n a
D e v e l o p e d
I n d i a
C h i n a
D e v e l o p e d
I n d i a
C h i n a
D e v e l o p e d
1990 2000 2010 2020
Population Distribution
Source UN October, 2012
URBAN
RURAL
How increases in the standard of
living affects commodity demand
12 Source Rio Tinto and World Bank
I n d i a , p o p u l a t i o n
1 , 1 7 1 M
C h i n
a , p o p u l a t i o n 1 , 3 3 8 M
A r a b
W o r l d , p o p u l a t i o n 3 5 7 M
S o u t h A m e r i c a , p o p u l a t i o n 5 8 8 M
O t h e r , p o p u l a t i o n 2 , 4 3 3 M
R u s s i a , p o p u l a t i o n 1 4 2 M
S o u
t h K o r e a , 4 9 M
E u r o p e , p o p u l a t i o n 3 3 1 M
J a p a n , p o p u l a t i o n 1 2 7 M
N o r t h A m e r i c a , p o p u l a t i o n 3 4 3 M
DEVELOPING ECONOMIES 6.15B EMERGED ECONOMIES 0.85B
-
8/21/2019 408-2013-Lec02 03
7/37
1/18/20
13
Putting the Growth into Perspective
2011 Stats China India Brazil USA Japan Korea Germany
Population (millions) 1,347 1,210 192 313 128 49 82
GDP growth rate 8.70% 7.96% 3.28% 1.82% 1.50% 4.10% 1.95%
GDP ($trillions) $6,988 $1,843 $2,518 $15,064 $5,855 $1,126 $3,628
GDP/capita $5,186 $1,523 $13,087 $48,097 $45,814 $23,169 $44,352
Auto Sales (millions) 10 2 3 13 4 2 3
Autos per 1000 people 38 17 249 810 593 346 534
Steel Production (mt) 705 78 36 86 109 65 46
Steel Intensity (kg/person) 400 50 150 250 500 1,050 450
HCC Seaborne (mt) 17 20 13 0 33 16 7
Population of emerging markets almost 5x greaterthan the developed regions shown
Based on relative statistics the BRIC(S) still have along way to go
Source: Population and GDP from IMF 2012, Auto sales from 2012 Scotia Bank report,Steel and HCC information from Wood Mackenzie 2012
14
Demand for Commodities
Source: WoddMac, IEA
0
500
1,000
1,500
2,000
2,500
2000 2010 2020
Global Steel Production
Other Germany Korea
Japan USA Brazil
India China
0
50
100
150
200
250
300
350
400
2000 2010 2020
Global Steel Making Coal Imports
Other Germany Korea
Japan USA Brazil
India China
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2000 2010 2020
Global Iron Ore Imports
Other Germany Korea
Japan USA Brazil
India China
-
8/21/2019 408-2013-Lec02 03
8/37
1/18/20
15
Demand for Commodities
Source: WoddMac, IEA
0
20
40
60
80
100
120
2000 2010 2020
Global Oil Consumption
Other Germany Korea
Japan USA Brazil
India China
0
5,000
10,000
15,000
20,000
25,000
30,000
2000 2010 2020
Global Copper Consumption
Other Germany Korea
Japan USA Brazil
India China
0
5,000
10,000
15,000
20,000
2000 2010 2020
Global Zinc Consumption
Other Germany Korea
Japan USA Brazil
India China
Challenges facing the resource sector
16
• Global financial crisis
– Has the economy recovered? Is another correction coming?
• Avai labil ity of fu tu re p ro jects
– Large easy projects already found and developed
– Lead time to project start, political risks, regional risks
• Challenges at current operations
– Resource depletion, higher strip ratios, falling head grade, longer hauls,deeper mines
• Sustainability
– Water, biodiversity, energy, community, people, product stewardship,cumulative effects, air and environment
• Cost escalation and scarce raw materials
– Energy, labour, equipment, tires, supply chain
• Protectionism
-
8/21/2019 408-2013-Lec02 03
9/37
1/18/20
Supply side struggling torespond
New projects are becoming r iskier
17
…and costlier
Source Rio Tinto Source Anglo
Supply side struggling to
respond
18
Working hard to stand stillCurrent operations are continually
falling short
Source BHP Source Xstrata
-
8/21/2019 408-2013-Lec02 03
10/37
1/18/20
Competition for finite resources
19
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
N e w H i r e s
Oil Sands Teck Coal
Engineer and Trades people shortagesare not an anomaly to Western Canada
(Australia, Chile and others)
Source: Estimates based on announced growth plans Source Rio Tinto
Not enough equipment to go around
Impact on an Industry Long Term
20 Source: Credit Suisse
An indust ry undersupplied going forward
-
8/21/2019 408-2013-Lec02 03
11/37
1/18/20
21
How stable is your revenue stream?
So how stable is your revenue stream?
(today and tomorrow)
22
• Supply / demand balances
• Substitution / demand destruction
• Diversification (regional, sector, commodity)
• Position on cost curve (capital vs operating cost… flexibility)
• Brownfield vs. Greenfield – time to market
• Competitors – changes to the market
• Going beyond the discounted cash flow to the option analysis
• Local currencies• Customers ability to pay
• Hedging
• Balance Sheet strength
-
8/21/2019 408-2013-Lec02 03
12/37
1/18/20
Commodity super-cycleCommodity Price Increases CPI Adjusted - US$(Base Year 1960 = 100%)
23 Source: USGS Mineral Information, LME, Bloomberg
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
220%
240%
260%
1 9 6 0
1 9 6 2
1 9 6 4
1 9 6 6
1 9 6 8
1 9 7 0
1 9 7 2
1 9 7 4
1 9 7 6
1 9 7 8
1 9 8 0
1 9 8 2
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
2 0 0 6
2 0 0 8
2 0 1 0
2 0 1 2
Commodity Price Increases CPI Adjusted ‐ CDN$ (Base Year 1960 = 100%)
CPI (YoY) Zinc Nickel Copper Aluminum IronPotash Oil Coking Coal Uranium Gold Average
Short Term vs Long Term
24 Source: CRU st eel, LME, EIA
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
0 1 / 0 1 / 2 0 0 9
0 1 / 0 3 / 2 0 0 9
0 1 / 0 5 / 2 0 0 9
0 1 / 0 7 / 2 0 0 9
0 1 / 0 9 / 2 0 0 9
0 1 / 1 1 / 2 0 0 9
0 1 / 0 1 / 2 0 1 0
0 1 / 0 3 / 2 0 1 0
0 1 / 0 5 / 2 0 1 0
0 1 / 0 7 / 2 0 1 0
0 1 / 0 9 / 2 0 1 0
0 1 / 1 1 / 2 0 1 0
0 1 / 0 1 / 2 0 1 1
0 1 / 0 3 / 2 0 1 1
0 1 / 0 5 / 2 0 1 1
0 1 / 0 7 / 2 0 1 1
0 1 / 0 9 / 2 0 1 1
0 1 / 1 1 / 2 0 1 1
0 1 / 0 1 / 2 0 1 2
0 1 / 0 3 / 2 0 1 2
0 1 / 0 5 / 2 0 1 2
0 1 / 0 7 / 2 0 1 2
0 1 / 0 9 / 2 0 1 2
0 1 / 1 1 / 2 0 1 2
Zinc (US$/lb)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
0 1 / 0 1 / 2 0 0 9
0 1 / 0 3 / 2 0 0 9
0 1 / 0 5 / 2 0 0 9
0 1 / 0 7 / 2 0 0 9
0 1 / 0 9 / 2 0 0 9
0 1 / 1 1 / 2 0 0 9
0 1 / 0 1 / 2 0 1 0
0 1 / 0 3 / 2 0 1 0
0 1 / 0 5 / 2 0 1 0
0 1 / 0 7 / 2 0 1 0
0 1 / 0 9 / 2 0 1 0
0 1 / 1 1 / 2 0 1 0
0 1 / 0 1 / 2 0 1 1
0 1 / 0 3 / 2 0 1 1
0 1 / 0 5 / 2 0 1 1
0 1 / 0 7 / 2 0 1 1
0 1 / 0 9 / 2 0 1 1
0 1 / 1 1 / 2 0 1 1
0 1 / 0 1 / 2 0 1 2
0 1 / 0 3 / 2 0 1 2
0 1 / 0 5 / 2 0 1 2
0 1 / 0 7 / 2 0 1 2
0 1 / 0 9 / 2 0 1 2
0 1 / 1 1 / 2 0 1 2
Copper (US$/lb)
$0
$20
$40
$60
$80
$100
$120
0 1 / 0 1 / 2 0 0 9
0 1 / 0 3 / 2 0 0 9
0 1 / 0 5 / 2 0 0 9
0 1 / 0 7 / 2 0 0 9
0 1 / 0 9 / 2 0 0 9
0 1 / 1 1 / 2 0 0 9
0 1 / 0 1 / 2 0 1 0
0 1 / 0 3 / 2 0 1 0
0 1 / 0 5 / 2 0 1 0
0 1 / 0 7 / 2 0 1 0
0 1 / 0 9 / 2 0 1 0
0 1 / 1 1 / 2 0 1 0
0 1 / 0 1 / 2 0 1 1
0 1 / 0 3 / 2 0 1 1
0 1 / 0 5 / 2 0 1 1
0 1 / 0 7 / 2 0 1 1
0 1 / 0 9 / 2 0 1 1
0 1 / 1 1 / 2 0 1 1
0 1 / 0 1 / 2 0 1 2
0 1 / 0 3 / 2 0 1 2
0 1 / 0 5 / 2 0 1 2
0 1 / 0 7 / 2 0 1 2
0 1 / 0 9 / 2 0 1 2
0 1 / 1 1 / 2 0 1 2
Oil WTI (US$/bbl)
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
0 1 / 0 1 / 2 0 0 9
0 1 / 0 3 / 2 0 0 9
0 1 / 0 5 / 2 0 0 9
0 1 / 0 7 / 2 0 0 9
0 1 / 0 9 / 2 0 0 9
0 1 / 1 1 / 2 0 0 9
0 1 / 0 1 / 2 0 1 0
0 1 / 0 3 / 2 0 1 0
0 1 / 0 5 / 2 0 1 0
0 1 / 0 7 / 2 0 1 0
0 1 / 0 9 / 2 0 1 0
0 1 / 1 1 / 2 0 1 0
0 1 / 0 1 / 2 0 1 1
0 1 / 0 3 / 2 0 1 1
0 1 / 0 5 / 2 0 1 1
0 1 / 0 7 / 2 0 1 1
0 1 / 0 9 / 2 0 1 1
0 1 / 1 1 / 2 0 1 1
0 1 / 0 1 / 2 0 1 2
0 1 / 0 3 / 2 0 1 2
0 1 / 0 5 / 2 0 1 2
0 1 / 0 7 / 2 0 1 2
0 1 / 0 9 / 2 0 1 2
0 1 / 1 1 / 2 0 1 2
Hard Coking Coal (US$/tonne)
-
8/21/2019 408-2013-Lec02 03
13/37
1/18/20
Diversification of Revenue - BHP
25
0
2
4
6
8
10
12
0 2 4 6 8 10 12 14 16 18 20
C o m m o d i t i e s
Countries
(bubble size indicates relative market capitalization)
Experts in single commodities and multiple jurisdictions
Glencore
Freeport
Antofagasta
Newmont
First Quantum
Codelco
Teck
Barrick
Anglo
Suncor
Rio Tinto
Xstrata
BHP
VALE
Fortescue
MosaicCliff Resources
Potash Corp
Diversification – how and
where to grow
26 Source: Stock market July, 2012
-
8/21/2019 408-2013-Lec02 03
14/37
1/18/20
What is your true margin?Example Chilean Mine
27 Source: Bloomberg, LME
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
0 2 / 0 1 / 2 0 …
0 2 / 0 3 / 2 0 …
0 2 / 0 5 / 2 0 …
0 2 / 0 7 / 2 0 …
0 2 / 0 9 / 2 0 …
0 2 / 1 1 / 2 0 …
0 2 / 0 1 / 2 0 …
0 2 / 0 3 / 2 0 …
0 2 / 0 5 / 2 0 …
0 2 / 0 7 / 2 0 …
0 2 / 0 9 / 2 0 …
0 2 / 1 1 / 2 0 …
0 2 / 0 1 / 2 0 …
0 2 / 0 3 / 2 0 …
0 2 / 0 5 / 2 0 …
0 2 / 0 7 / 2 0 …
0 2 / 0 9 / 2 0 …
0 2 / 1 1 / 2 0 …
0 2 / 0 1 / 2 0 …
0 2 / 0 3 / 2 0 …
0 2 / 0 5 / 2 0 …
0 2 / 0 7 / 2 0 …
0 2 / 0 9 / 2 0 …
0 2 / 1 1 / 2 0 …
0 2 / 0 1 / 2 0 …
0 2 / 0 3 / 2 0 …
0 2 / 0 5 / 2 0 …
0 2 / 0 7 / 2 0 …
0 2 / 0 9 / 2 0 …
0 2 / 1 1 / 2 0 …
Copper
Price
(US$/lb)
US$
Chilean Adjusted
What to use for pricing assumptions
28 Source: Bloomberg, LME, Bank of Canada as of 2011
• Historic perspective
• Use multiple approaches and use the most conservative or
justify otherwise
• Understand what analysts are using for forward pricing
assumptions• Short term vs long term price assumptions
• Pricing sensitivity analyses
• NPV and payback period
Zn ($/lb) Ni ($/lb) Cu ($/lb ) Al ($/t) Fe ($/t) Pot ($/t) Oil ($/bbl) HCC($/t) Au ($/oz) US/CDN
1yr Avg 0.88$ 7.94$ 3.61$ 2,137$ 135$ 550$ 95$ 192$ 1,648$ 1.00
3yr Avg 0.96$ 9.55$ 3.71$ 2,270$ 152$ 455$ 90$ 228$ 1,464$ 0.99
5yr Avg 0.91$ 9.54$ 3.40$ 2,275$ 152$ 499$ 86$ 222$ 1,165$ 0.96
10yr Avg 0.92$ 9.64$ 2.73$ 2,181$ 105$ 327$ 70$ 155$ 792$ 0.89
-
8/21/2019 408-2013-Lec02 03
15/37
1/18/20
Summary - How Stable is Your RevenueStream Today and Going Forward?
29
• Supply/demand balances
• Substitution
• Diversification (regional, sector, commodity)
• Position on cost curve
• Brownfield vs. Greenfield – time to market
• Competitors – changes to the market
• Going beyond the discounted cash flow to the option analysis
• Stakeholders and risks associated
• Local Currencies
• How many of you are dart players?
30
Steelmaking Coal a Case Study
-
8/21/2019 408-2013-Lec02 03
16/37
1/18/20
31
Per Capita Finished Steel ConsumptionRationale behind market growth projections
700kg/capita
*Source: Neil Bristow, 2010
32
Steelmaking Coal is a Vital Ingredient in
the Steelmaking Process
Iron Ore
Blast Furnace Ironmaking
Coke
Limestone
Sinter
Pellets
Blast Furnace(Ironmaking)
Coking Coal
To Converter (Steelmaking)Source : WSA, Teck
• Vast majority of global steelmade via blast furnacetechnology
• Coking coal is a key input inthe blast furnace ironmakingprocess
• Two main functions of cokingcoal (once coked) in the
furnace:
‒ Reductant
‒ Strength to hold physicalburden within the vessel
-
8/21/2019 408-2013-Lec02 03
17/37
1/18/20
33
HCC Niche MarketInfluenced by Many Moving Parts (2011)
Steel
1,542 Mt
BOF Hot Metal
1,095 Mt
Steelmaking Coal
1,095 Mt
Land Steelmaking Coal
854 Mt
Seaborne Steelmaking Coal
241 Mt
Seaborne SSCC
50 Mt
Seaborne PCI
39 Mt
Seaborne HCC
152 Mt
EAF Recycle
445 Mt
Source: Wood Mackenzie 2012
Global Car Sales
34Source: Scotiabank, Global Auto Report
16.4 19.8 19.4 19.6 19.3 18.8
15.912.7 14.0 15.2
16.7
14.3
17.1 16.7 17.0 17.3 18.317.6
16.6 16.1 16.7 16.5
0.3
0.6 1.3 2.7 4.2
5.2
5.07.3
9.4 10.0
10.9
0.3
0.6 0.6 0.8 1.0
1.2
1.31.5
1.92.0
2.1
6.3
6.6 6.77.6
7.8 8.1
8.78.9
11.2 10.5
11.6
1.6
1.9 1.72.2
2.7 3.3
3.7 3.9
4.3 4.5
4.7
0
10
20
30
40
50
60
70
1990‐99 2000 2001‐03 2004‐05 2006 2007 2008 2009 2010 2011 2012
S a l e s ( m i l l i o n s o f c a r s )
Global Auto Sales
South America Other Asia India China Europe North America
Note Europe includes Russia
-
8/21/2019 408-2013-Lec02 03
18/37
1/18/20
Impact of Global Slowdown on the SteelSector
35Source: Volkswagen, Global Insight, CRU steel, World Steel Association , IMF
3 %
0 %
‐ 7 %
‐ 1 9 %
‐ 2
1 %
‐ 1 3 %
0 %
1 6 %
2 0 %
1 1 %
6 %
1 0 %
9 %
4 %
4 %
4 %
7 %
1 1 %
6 %
5 % 6
%
2 %
‐
2 0 %
‐ 2 2 %
‐
2 0 %
‐ 4 %
2 3 %
3 4 %
2 2 %
5 %
5 % 6
% 1 0 %
1 0 %
2 %
1 . 2
%
0 . 9
%
0 . 1
% 4 %
4 %
3 %
‐ 2 5 %
‐ 3 6 %
‐ 3 3 %
‐ 1 9 %
1 5 %
4 4 %
2 6 %
1 1 %
7 %
2 %
1 1 %
6 %
3 %
‐ 0 . 1
%
0 . 0
%
‐ 0 . 7
%
‐40%
‐30%
‐20%
‐10%
0%
10%
20%
30%
40%
50%
Q1/08 Q2/08 Q3/08 Q4/08 Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12
Global Auto Global Steel Global Steel Ex China
China Projection
• China moves from an exporter toimporter of hard coking coal
• China’s steel mills getting biggerand bigger increasing therequirement for hard coking coal
• Average GDP growth projected at6%
• Large internal and land cokingcoal sources can’t keep up withsteel market• Chinese HCC production starts
trailing off after 2016
• Mongolian HCC productionpeaks in 2020
• Beyond 2026 see increasing levelsof EAF steel production
36
‐
5,000
10,000
15,000
20,000
25,000
30,000
0
10
20
30
40
50
60
70
80
G D P ( $ m i l l i o n s )
S e a b o r n e H C C I m p o r t s
China
Seaborne HCC
GDP
Source: Wood Mackenzie
-
8/21/2019 408-2013-Lec02 03
19/37
1/18/20
India Projection
• Average GDP growth projectedat 6%
• No internal or land coking coalsource
• Teck 33% freight differentialrelative to Aussie’s
• Beyond 2026 flip to a higherproportion of semisoft coal
37
‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0
10
20
30
40
50
60
G D P ( $ m i l l i o n s )
S e a b o r n e H C C I m p o r t s
India
Seaborne HCC
GDP
Source: Wood Mackenzie
China, 17
China, 69 China, 63
India, 12
India, 20
India, 45 India, 52
Japan, 36
Japan, 33
Japan, 32 Japan, 31
Korea, 11
Korea, 16
Korea, 18 Korea, 18
O Asia, 5
O Asia, 8
O Asia, 19 O Asia, 26
Brazil, 10
Brazil,
13
Brazil, 20 Brazil, 31 O America, 6
O America, 7
Europe,
35
Europe, 35
Europe, 44
Europe, 50 CIS, 10
CIS, 13
Other, 10
Other, 5
Other, 10
Other, 11
‐
50
100
150
200
250
300
350
2001 2011 2021 2031
S e a b
o r n e H a r d C o k i n g C o a l D e m a n d ( m t )
Source: World Steel Association, Wood Mackenzie
Changes in Seaborne Hard Coking Coal
Demand Growth
38
100%
China continues to play a big and complex rolein the market
• China expected to increase demand by 50mt
• China and Mongolia coal producers can’t keepup with steel growth and plateau
India and other markets set to driv e the nextdecades
• India up about 30mt
• Brazil up approximately 20mt
• Other Asia grows by a combined 20mt(Vietnam, Malaysia, Thailand among others)
• CIS more active on the seaborne market(Ukraine)
EAF steel (recycling) begins to dampendemand as markets mature and move p astindustrialization
Source: Wood Mackenzie
-
8/21/2019 408-2013-Lec02 03
20/37
1/18/20
0%
50%
100%
150%
200%
250%
The Demand Side 2000 - 2010Poised for growth
39
75%
90%
30% 22%
CrudeSteel
HotMetal SeaborneSteelmaking Coal
Seaborne HardCoking Coal
2000 – 2010 Steel growth m et with i nternal suppl y, seaborne not materially im pacted
Source: Wood Mackenzie
0%
50%
100%
150%
200%
250%
The Demand Side 2010 – 2020
Poised for growth
40
75% 90%
30% 22%
CrudeSteel
HotMetal
SeaborneSteelmaking Coal
Seaborne HardCoking Coal
75%
90%
100%
90%
2010 – 2020 Steel growth continues but local suppliers can’t keep up. India emerges
Source: Wood Mackenzie
-
8/21/2019 408-2013-Lec02 03
21/37
1/18/20
0%
50%
100%
150%
200%
250%
The Demand Side 2020 – 2030Poised for growth
41
75%
90%
30% 22%
CrudeSteel
HotMetal SeaborneSteelmaking Coal
Seaborne HardCoking Coal
75%
90%
100%
90%
40%
45%
40%
28%
2020-2030 China levels out, other emerging markets grow, but bigger pie
Source: Wood Mackenzie
Major Steelmaking Coal Basins
42
Major seaborne supply basin
Major prospective supply basin
Major domestic supply basin
Tavan Tolgoi, MongoliaHigh political risk, noinfrastructure in place, captiveto Chinese market
Shanxi, ChinaDangerous, high-cost miningconditions, costs escalatingon regulatory burden andRMB appreciation
Indonesia CentralKalimantanHigh political risk, transportlogistics uncertain
Bowen Basinlarge reserves, wide rangeof qualities, Increasingcosts, lower quality, no low-hanging fruit
Mozambique Tete/MoatizeGood mining conditions,challenging infrastructure
App alach iaIncreasing costs, regulations,declining reserves
Western CanadaHigh project development andoperating costs, particularly innorthern British Colombia, railand port constraints near term
E Siberia ElgaChallenging infrastructure,much delayed project
Russia Kuzbass Largereserves, but very longroute to coast and exportmarkets
PolandModerate reserves,deep, long route to coastand export markets
*Source: Neil Bristow, 2010
Basin Maturity
-
8/21/2019 408-2013-Lec02 03
22/37
1/18/20
Seaborne Steelmaking Coal Market
43
Other Canada, 1%Teck, 9%
BMA, 21%
Anglo, 9%
Xstrata, 6%Rio Tinto, 4%
Other Austr alia,17%
Other USA, 14%
Other World, 19%
Source: AME
The balancing act: what to do
44
• 2006 the super cycle mightbe real
• 2007 review of mines for profitabilitydue to CDN dollar appreciation
• 2008 ramping up on record prices andthen hitting the brakes with the GlobalFinancial Crisis
• 2009 25% drop in volumes, how do wekeep our people employed and stay inbusiness
• 2010 back on the growth path• 2011 stay the course
• 2012 quarterly volatility and oversupply
• 2013 back on the path?
Under supply
Over supply
-
8/21/2019 408-2013-Lec02 03
23/37
1/18/20
Cost Inflation
45
0%
100%
200%
300%
400%
500%
600%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
2004 2005 2006 2007 2008 2009 2010 2011 2012
C o s t I n f l a t i o n r e l a t i v e t o H 1 / 0 4
C o s t U S $ / t o n n e
Delivered
Cost
ChangesBHP Delivered Cost Teck Coal Delivered CostBHP cost inflation Teck Coal cost inflation
46
Teck Coal Cost Position
• Actively concentrating effortsto minimize cost inflation
• Eliminated price-participationfrom distribution agreements
• Changes in Australia royaltysystem increasing comparativecosts
• Appreciation of the Australian(and to a lesser extent
Canadian) dollar drasticallyimpacting the relative US$/tcost curve
-
8/21/2019 408-2013-Lec02 03
24/37
1/18/20
100
125
150
175
200
225
250
275
300
325
350
375
400
Platts FOB 64 Mid Vol
Platts FOB Prem Low Vol
Platts FOB Peak DownsQuarterly Contract Settlement
Source: Platts, Argus, McCloskey and Energy Publishing
Steelmaking Coal Price Assessments vs.Quarterly Benchmark Price (US$/t)
Steelmaking Coal Price Assessments vs.Quarterly Benchmark Price (US$/t)
Steelmaking Coal Spot PricesUnsustainably Low
• Hard coking benchmark priceshave declined significantly andhave impacted high cost andlow quality producers
• Escalating demand andperiodic supply disruptionshave led to volatile pricing
• Coal is not coal is not coal,therefore, margin curve isbetter gauge to assess the
market impact of lower prices
47
0 30 60 90 120 150 180 210 240 270-100
-50
0
50
100
Million tonnes
Source: Woodmac, Platts, TEX Report, AME, company reports and Teck estimates
Seaborne Steelmaking Coal
Margin Curve is What Matters
Seaborne Steel Making Coal Margin Curve(US$170/t benchmark price, FOB)
~20% of Global
ProductionUneconomic
• Margin curve highlights theimportance of coal quality
• High cost, low quality coalsshould be eliminated first
• US$170/tonne benchmarkprice could squeeze outapproximately 52-58mt ofseaborne metallurgical coal
• Total announced YTDproduction cuts hover around30mt on an annualized basis
• High quality HCC remainssupply constrained
48
-
8/21/2019 408-2013-Lec02 03
25/37
1/18/20
Not all coal is equal
49
$0
$50
$100
$150
$200
$250
$300
$350
1 9 8 6
1 9 8 7
1 9 8 8
1 9 8 9
1 9 9 0
1 9 9 1
1 9 9 2
1 9 9 3
1 9 9 4
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
Historic Coal Prices (US$/t)
Premium HCC
Semi-Soft Coking
Low Volatile PCI
Thermal
Forward Looking Benchmark Hard
Coking Coal Price (US$/t)
50
150169
160 165170
160 160
150 150 141
183189 190 190 190 190
195
190178
210 210223 225 225
230 233223
207
75
100
125
150
175
200
225
250
275
300
325
350
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 2014 2015 2016 Long Term(Nominal)
Ana lys t Pri ce For ecast ($USD/MT)
Anal yst Forec asts - Low
Anal yst Forec asts - Mid
Anal yst Forec asts - High
Source: Macquarie Bank, Wilson, HTM, RBS,ANZ, Standard Bank, BoA, Merrill Lynch, Investec, DeutscheBank, Morgan Stanley, UBS Credit Suisse, Wood MakenzieCRU, Deloitte, Access Economics, BREE
-
8/21/2019 408-2013-Lec02 03
26/37
1/18/20
Strong Global Demand Leading toRecord Coking Coal Prices…
51
$0
$50
$100
$150
$200
$250
$300
$350
1 9 6 0
1 9 6 2
1 9 6 4
1 9 6 6
1 9 6 8
1 9 7 0
1 9 7 2
1 9 7 4
1 9 7 6
1 9 7 8
1 9 8 0
1 9 8 2
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
2 0 0 6
2 0 0 8
2 0 1 0
2 0 1 2
H a r d C o k i n g C o a l P r i c e s
( U S $ / t o n n e )
Source: Teck, McCloskey
...But Inflation and Exchange Rate Impact
Revenue…
52
$0
$50
$100
$150
$200
$250
$300
$350
1 9 6 0
1 9 6 2
1 9 6 4
1 9 6 6
1 9 6 8
1 9 7 0
1 9 7 2
1 9 7 4
1 9 7 6
1 9 7 8
1 9 8 0
1 9 8 2
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
2 0 0 6
2 0 0 8
2 0 1 0
2 0 1 2
H a r d C
o k i n g C o a l P r i c e s ( $ / t o n n e ) Coal Price US$/tonne (Nominal)
Coal Price US$/tonne (Real)Coal Price CDN$/tonne (Real)
Source: Teck, McCloskey, Bank of Canada
-
8/21/2019 408-2013-Lec02 03
27/37
1/18/20
Cost Increases Also Tend to MitigateHigher Commodity Prices (Teck Coalcosts)
53
$0$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
$275
$300
$325
$350
1 9 6 0
1 9 6 2
1 9 6 4
1 9 6 6
1 9 6 8
1 9 7 0
1 9 7 2
1 9 7 4
1 9 7 6
1 9 7 8
1 9 8 0
1 9 8 2
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
2 0 0 6
2 0 0 8
2 0 1 0
H a
r d C o k i n g C o a l P r i c e s a n d C o s t s
( $ / t o n n e )
Costs (FOB) Real
Coal Price CDN$/tonne (Real)
Oil ($/bbl) Real
Source: Teck, McClosk ey, Bank of Canada, EIA
The Customer and Their Ability to Pay
54
$0
$200
$400
$600
$800
$1,000
$1,200
$0
$50
$100
$150
$200
$250
$300
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
2 0 0 6
2 0 0 8
2 0 1 0
2 0 1 2
S t e e l P r i c e ( U S $ / t o n n e )
O i l , C o a l a n d I r o n P r i c e s ( U S $ / t o n n e )
Steel HRC (US$/tonne)
Thermal (US$/tonne)
Coal HCC (US$/tonne)
Iron Ore (US$/tonne)
WTI Oil (US$/bbl)
Source: Teck, McClosk ey, EIA, Wood Mackenzie, The Steel Index
-
8/21/2019 408-2013-Lec02 03
28/37
1/18/20
Steelmaking Coal Key Takeaways
55
• The importance of infrastructure and the supply chain
• Reserve and resource base size matter
• The industry has seen significant inflation in prices and in
costs
• Volatility and uncertainty are now a part of the business
• Coal is not coal is not coal. Pricing varies based on market
condition and desirability of a specific product
• Can your customer (and their customer) afford the raw
materials
56
The Fertilizer Industry: A Case Study
-
8/21/2019 408-2013-Lec02 03
29/37
1/18/20
Nominal Prices (not adjusted for inflation)
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
$ BU Corn PricesMonthly Average of Daily Close of Front Month Futures Contract
Source: CME
0
2
4
6
8
10
12
14
16
18
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
$ BU Soybean PricesMonthly Average of Daily Close of Front Month Futures Contract
Source: CME
1
2
3
4
5
6
7
8
9
10
11
12
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
$ BUHard Red Winter Wheat Prices
Monthly Average of Daily Close of Front Month Futures Contract
Source: KCBOT
Real Prices (adjusted for inflation)
0
2
4
6
8
10
12
14
16
18
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
$ BU Corn Prices -Inflation Ad justed in 2012 DollarsMonthly Average of Daily Close of Front Month Futures Contract
Source: CME and U.S.Depar ment of Labor
0
10
20
30
40
50
60
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
$ BU Soybean Prices -Inflation Adjusted i n 2012 DollarsMonthly Average of Daily Close of Front Month Futures Contract
Source: CME and U.S. Department of Labor
0
5
10
15
20
25
30
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
$ BUHRW Wheat Prices - Inflation Adju sted in 2012 Dollars
Monthly Average of Daily Close of Front Month Futures Contract
Source: CME and U.S. Departme nt of Labor
-
8/21/2019 408-2013-Lec02 03
30/37
1/18/20
Are real prices real?
The two previous charts show the price of corn since 1970 in both nominal and real terms. Nominal valuesare not adjusted for inflation. Real values are adjusted for inflation and gauge purchasing power over time.
For example, the nominal price of corn, measured as the monthly average of the daily closing price of the frontmonth futures contract, traded at $2.97 per bushel in August 1973. The nominal value is the actual price afarmer received for a bushel of corn back then. The real or inflation-adjusted value for the August 1973 pricein 2012 dollars is $15.15 per bushel. That means a farmer would have to receive $15.15 for a bushel of corntoday in order to buy what $2.97 bought in August 1973.
The chart shows that real price of corn was higher during the bull run of the 1970s than during the price spikesof 2008. Put another way, the real price of corn has declined over time even after the sharp increases innominal prices during the last few years. But that is no surprise. Real prices change over time depending onfactors such as productivity growth or efficiency improvements and real prices of agricultural commoditieshave trended downward over time due to the tremendous increases in productivity during the last 100 years.
However, since 2007, real prices of corn and many other commodities have trended upward due to acombination of factors including the impact of rapid economic growth in China and India on food demand, theexponential growth in biofuels production and several disappointing harvests. A key question is will
productivity growth increase fast enough to keep pace with demand growth in the future. History says yes butmany analysts now project that the days of steady declines in real agricultural commodity prices are behind usand argue that one of the greatest challenges of this century will be to feed a growing and more affluentpopulation and still conserve increasingly scare land, water and other resources.
A linkage between oil and soft commodities
prices: The case of corn pricesThe Case For
• Corn demand for U.S. ethanol production sets market price
• Key drivers of corn prices are the price of oil and exchange rates
• Strong economic growth & weak dollar cause oil prices to increase
• Higher oil prices boost U.S. ethanol economics/production
• Higher ethanol production increases corn demand
• Higher corn demand increases crop nutrient demand
• Traditional drivers matter less?
The Case Against
• Prices have decoupled during the last two years
• All drivers matter – Weather – Population growth
– Income growth
– Food AND energy demand
• Agricultural fundamentals continue to look positive due to severalfundamental factors
-
8/21/2019 408-2013-Lec02 03
31/37
1/18/20
The case for: strong correlation 2008-10
y = 0.0343x + 1.671R² = 0.6361
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
20 40 60 80 100 120 140 160
Corn$ BU
Oil - $ BBL
Daily WTI Crude Oil vs. Corn Nearby Futures PricesJan 2, 2008 to Dec 31, 2010
Sourc e: NYMEX & CME
The case against: decoupling of prices since
2010
y = -0.0021x + 7.0697
R² = 0.0007
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
70.0 80.0 90.0 100.0 110.0 120.0
Corn$ BU
$ BBL
WTI Crude Oil vs. Corn Nearby Futures PricesJan 2, 2011 - Dec 28, 2012
Sourc e: NYMEX & CME
-
8/21/2019 408-2013-Lec02 03
32/37
1/18/20
Mosaic share price vs. corn price
y = 25.439x - 46.556R² = 0.7424
0
20
40
60
80
100
120
140
160
180
2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0
MOSShare Price
Corn Price -$ bu
Mosaic Stock Prices vs Nearby Corn Futures PricesDaily Closing Prices from Jan 2, 2008 to Dec 31, 2010
Source: Yahoo! and CMESource: Yahoo! and CMEy = 4.3712x + 31.089
R² = 0.0723
40
50
60
70
80
90
100
5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5
MOSShare Price
Corn Price -$ bu
Mosaic Stock Prices vs Nearby Corn Futures PricesDaily Closing Prices from Jan 3, 2011 to Dec 28, 2012
Source: Yahoo! and CME
Fertilizer Prices
50
150
250
350
450
550650
750
850
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
$ STGranular Urea Prices
NOLA Barge
Source: Green Markets
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
$ MTDAP Prices
fob Tamp a Vessel
Source: Fertecon
0
100
200
300
400
500
600
700
800
900
1000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
$ STMOP Prices
Blend Grade fob U.S. Midwest Warehouse
Source: Green Markets
0
100
200
300
400
500
600
700
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
$ LTSulphur Prices
c&f Tampa
Source: Green Markets
-
8/21/2019 408-2013-Lec02 03
33/37
1/18/20
More People, More Food,More Consumption
65
• Large sections of farm being converted into corn for fuel
• A growing population with an appetite for meats as opposed to
rice (a larger middle class)
• Same area to grow food and an increasing population means
we need ways to become more productive with the resources
we have
66
Discounted Cash Flow
-
8/21/2019 408-2013-Lec02 03
34/37
1/18/20
The importance of the DCF
67
• Provides an opportunity to assign value to future cash flows and
todays terms and compare projects with different time horizons
• DCF =
+
+
+
+ … +
• DCF = discounted value of cash flow
• CF = cash flow in each year
• r = discount rate, puts a risk or value of money today vs in a future
period as investor could put their money elsewhere
•
• r d = return on debt (loan/bond rate) , Wd = amount of debt,r e = return expected by shareholders, We = market capitalization
• Ever increasing project lead time creating focus on DCF
Simple DCF Model
68Discount rate of 10%
New Coal S1 Year
Year 0 1 2 3 4 5 6 7 8 9 10
Capital ($millions) ($100) ($100)
Production (mtonnes) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Commodity Price ($/t) $250 $250 $250 $250 $250 $250 $250 $250 $250 $250 $250
Site Costs Fixed ($millions)
Site Costs Variable ($/t) $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45
Transportation ($/t) $35 $35 $35 $35 $35 $35 $35 $35 $35 $35 $35
Operating Margin ($/t) $0 $170 $170 $170 $170 $170 $170 $170 $170 $170 $170
Profit ‐ pre tax ($millions) $100 $270 $170 $170 $170 $170 $170 $170 $170 $170 $170
Tax ($millions) $30 $81 $51 $51 $51 $51 $51 $51 $51 $51 $51
Profit ‐ post tax ($millions) $70 $189 $119 $119 $119 $119 $119 $119 $119 $119 $119
Discounted Cash Flow ( $mi ll io ns ) $ 70 $172 $98 $89 $81 $74 $67 $61 $56 $50 $46
Cash Flow
($millions) $1,330
NPV ($millions) $865
-
8/21/2019 408-2013-Lec02 03
35/37
1/18/20
DCF Scenarios
69
Summary Comparison
S1 S2 S3 S4 S5 S6
production/year 1 2 1 2 1 2
mine life 10 5 10 5 10 5
capital ($millions) 200 400 200 400 200 400
commodity price US 250 250 250 250 150 150
discount rate 10% 10% 8% 8% 10% 10%
DCF Scenarios
70
Summary Comparison
S1 S2 S3 S4 S5 S6
production/year 1 2 1 2 1 2
mine life 10 5 10 5 10 5
capital ($millions) 200 400 200 400 200 400
commodity price US 250 250 250 250 150 150
discount rate 10% 10% 8% 8% 10% 10%
Cash Flow $1,330 $1,470 $1,330 $1,470 $685 $825
NPV $865 $1,169 $933 $1,220 $469 $681
-
8/21/2019 408-2013-Lec02 03
36/37
1/18/20
Dangers of the DCF
71
• What if the project is in too early a phase for a dcf? Multiples
and industry comparables are useful
• Heavily dependent on the discount rate and your price
assumptions, do you have it right?
• What if your project misses the cycle?
• Value of management and their ability to move with the cycle
(increase or decrease capacity depending on market
conditions)
• Always need to keep an eye on the balance sheet to makesure you can pay your bills
What do we know for certain?
72
• The rules of the game have changed
• We will continue to see tremendous volatility in the
commodity sector
• You can’t control everything, but you can reduce your
risk by doing your homework
• The mining industry is going to be a very exciting
business in the years to come
-
8/21/2019 408-2013-Lec02 03
37/37
1/18/20
Thank you!
73
74
APPENDIX