estado actual niquel 2010

MINDORO NICKEL DEFINITIVE FEASIBILITY STUDY

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Section 17 - Market & Marketing - February 2010.doc of 83

Section 17 Market and Marketing


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SECTION 17

MARKET AND MARKETING

Table of Contents

17. MARKET AND MARKETING.......................................................................................7

17.1 Summary ......................................................................................................................7

17.2 Nickel Industry Market Review .....................................................................................8

17.2.1 Summary ..........................................................................................................8

17.2.2 Nickel Demand .................................................................................................9

17.2.3 Nickel Supply ..................................................................................................11

17.2.4 Market Balances and Price Forecast..............................................................13

17.2.5 Nickel Industry and Production Costs.............................................................17

17.2.6 Nickel Price Direction......................................................................................22

17.2.7 Commercial Nickel LME Contracts and Market Premiums.............................24

17.3 Cobalt Industry Market Review...................................................................................27

17.3.1 Summary ........................................................................................................27

17.3.2 Cobalt Demand...............................................................................................29

17.3.3 Cobalt Supply .................................................................................................36

17.3.4 The Market for Cobalt Sulphate......................................................................39

17.3.5 Overall Cobalt Sulphate Demand ...................................................................44

17.3.6 Cobalt Price Direction .....................................................................................45

17.3.7 Long Term Forecast of Cobalt Prices .............................................................47

17.4 Ammonium Sulphate Industry Market Review............................................................49

17.4.1 Summary ........................................................................................................49

17.4.2 Ammonium Sulphate Demand........................................................................50


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17.4.3 Ammonium Sulphate Supply ..........................................................................52

17.4.4 Ammonium Sulphate Processes.....................................................................53

17.4.5 Major Companies in the Ammonium Sulphate Market....................................54

17.4.6 Ammonium Sulphate Supply Outlook to 2020 ................................................55

17.4.7 Demand Outlook to 2020................................................................................58

17.4.8 International Trade Flows of Ammonium Sulphate.........................................59

17.4.9 Ammonium Sulphate Price Forecast ..............................................................60

17.5 Chromite Industry Market Review ..............................................................................62

17.5.1 Summary ........................................................................................................62

17.5.2 Chromite Demand...........................................................................................63

17.5.3 Chromite Supply .............................................................................................64

17.5.4 Chromite Ore Price Direction..........................................................................66

17.6 Zinc Industry Market Review ......................................................................................68

17.6.1 Summary ........................................................................................................68

17.6.2 Zinc Demand ..................................................................................................69

17.6.3 Zinc Supply .....................................................................................................70

17.6.4 Zinc Market Balance and Price Forecast........................................................73

17.6.5 Zinc Sulphide Concentrate Trade ...................................................................79

17.6.6 Zinc Sulphide Price Forecast..........................................................................82


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List of Figures

Figure 17-1 Global Consumption by First-Use, 2008 ...............................................................9 Figure 17-2 Global Mine Production (2008 = 1,522 kt) ..........................................................11 Figure 17-3 Nickel Price History.............................................................................................13 Figure 17-4 LME Monthly Nickel Prices and LME Stocks ......................................................14 Figure 17-5 Global Metal Balances and LME Nickel Price.....................................................15 Figure 17-6 Nickel Industry Cost – All Operations .................................................................17 Figure 17-7 Nickel Industry Cost – Sulphide Operations .......................................................18 Figure 17-8 Nickel Industry Cost – Laterite Operations .........................................................18 Figure 17-9 Additional Refined Nickel Production..................................................................20 Figure 17-10 Nickel Industry Incentive Price..........................................................................21 Figure 17-11 GDP Real Growth Rates by Region..................................................................22 Figure 17-12 Global Industrial Production, 2009 – 2020 (% Change)....................................23 Figure 17-13 Stainless Steel Production Quarterly Change (%) ............................................24 Figure 17-14 Nickel Premiums ...............................................................................................27 Figure 17-15 2008 Cobalt Consumption by Sector ................................................................29 Figure 17-16 Rechargeable Batteries ....................................................................................30 Figure 17-17 Hybrid Vehicles and Cobalt...............................................................................34 Figure 17-18 Cobalt in HEV Motor Magnets ..........................................................................35 Figure 17-19 Cobalt Demand End Use (1995 vs. 2005) ........................................................35 Figure 17-20 World Cobalt Mining Map..................................................................................36 Figure 17-21 World Cobalt Resources ...................................................................................37 Figure 17-22 Refined Cobalt Availability ................................................................................39 Figure 17-23 Cobalt Sulphate Granules.................................................................................40 Figure 17-24 Cobalt Sulphate Prices .....................................................................................43 Figure 17-25 Annual Cobalt Average Prices ..........................................................................46 Figure 17-26 Regional Structure of Ammonium Sulphate Consumption in 2007...................50 Figure 17-27 Ammonium Sulphate Prices..............................................................................52 Figure 17-28 Global Ammonium Sulphate Capacity by Source, 2007 ...................................53 Figure 17-29 Key Producers by Ammonium Sulphate Capacity, 2008 (in kt) ........................54 Figure 17-30 Regional Ammonium Sulphate Capacity, 2007 and 2020 (in kt) ......................55 Figure 17-31 Regional Ammonium Sulphate Demand, 2007 and 2020 (in kt) .......................58 Figure 17-32 Major Ammonium Sulphate Trade Flow, 2007..................................................59 Figure 17-33 Ammonium Sulphate and Urea Price Forecast, FOB Black Sea ......................61 Figure 17-34 Global Chromite Demand by End-Use, 2008....................................................63 Figure 17-35 World Chromium Ore and Concentrates Production, 2007 ..............................64 Figure 17-36 Global High-Carbon Ferrochrome Production, 2008 ........................................66 Figure 17-37 Chrome Ore Import Prices, China.....................................................................66 Figure 17-38 Projected Chinese Stainless Steel Consumption..............................................68 Figure 17-39 Global Zinc Demand by End-Use, 2008 ...........................................................69 Figure 17-40 Global Zinc Demand by Industry Sector, 2008 .................................................70 Figure 17-41 Zinc Commercial Shapes..................................................................................71 Figure 17-42 Global Zinc Mine Production, 2008...................................................................72 Figure 17-43 Zinc 20-Year Monthly Average Cash Price.......................................................73 Figure 17-44 Global Zinc Supply/Demand Balance ...............................................................74 Figure 17-45 Projected Zinc Mine by Source 2008 – 2020 ....................................................75 Figure 17-46 World Zinc Smelting Production, 2009(e) .........................................................76


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Figure 17-47 Global Zinc Concentrate Balance .....................................................................78 Figure 17-48 Zinc Production and Consumption....................................................................79 Figure 17-49 Zinc Trade Patterns ..........................................................................................79 Figure 17-50 Typical Zinc Invoice ..........................................................................................81 Figure 17-51 Typical Zinc Payment........................................................................................82


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List of Tables

Table 17-1 Nickel Price Forecast .............................................................................................8 Table 17-2 Global Nickel Consumption in Stainless Steel .....................................................10 Table 17-3 Global Mine Production of Nickel .........................................................................12 Table 17-4 Nickel Price Forecast, 2010 to 2020 ....................................................................16 Table 17-5 Additional Nickel Projects Analysed by Brook Hunt .............................................20 Table 17-6 Nickel Price Forecast ...........................................................................................22 Table 17-7 Quarterly Global Stainless Steel Production (kt)..................................................23 Table 17-8 Nickel Products Classification by International Nickel Study Group (INSG) ........24 Table 17-9 LME Nickel Contract Specification .......................................................................25 Table 17-10 LME Nickel Deliverable Brands..........................................................................26 Table 17-11 Long Term Forecast of Cobalt Prices ................................................................28 Table 17-12 Cobalt Sulphate Demand ...................................................................................28 Table 17-13 Demand Drivers .................................................................................................29 Table 17-14 Metals in Hybrid Engineering .............................................................................34 Table 17-15 Refined Cobalt Availability (t) .............................................................................38 Table 17-16 Intex Production of Cobalt Sulphate...................................................................40 Table 17-17 Cobalt Compounds in Pigments.........................................................................41 Table 17-18 Typical Electrolytes in Cobalt/Nickel Plating ......................................................42 Table 17-19 Indicative Cobalt Sulphate Commercial Terms. .................................................44 Table 17-20 Cobalt Sulphate Demand ...................................................................................44 Table 17-21 Main Sources of Cobalt Ores .............................................................................45 Table 17-22 Cobalt Sources...................................................................................................45 Table 17-23 Reduction of Cobalt Production Announcements ..............................................46 Table 17-24 Long Term Forecast of Cobalt Prices ................................................................47 Table 17-25 World Cobalt Refinery Capacity (contained cobalt in tonnes)............................48 Table 17-26 World Cobalt Demand (tonnes)..........................................................................48 Table 17-27 Ammonium Sulphate Price Forecast, FOB Black Sea .......................................49 Table 17-28 Long Term Forecast for Ammonium Sulphate ...................................................50 Table 17-29 Ammonium Sulphate Consumption by Regions 2002 and 2007........................51 Table 17-30 Ammonium Sulphate Production by Regions, 2002 and 2007...........................55 Table 17-31 Ammonium Sulphate Capacity Expansions .......................................................56 Table 17-32 Change in Ammonium Sulphate Demand..........................................................58 Table 17-33 Ammonium Sulphate Price Forecast, FOB Black Sea .......................................60 Table 17-34 Long Term Forecast for Ammonium Sulphate Price ..........................................61 Table 17-35 Chromite Price Forecast ....................................................................................62 Table 17-36 Global Chromium Ore and Concentrates Production (kt) ..................................65 Table 17-37 Chrome Ore Imports, China (kt).........................................................................67 Table 17-38 Recommended Chromite Price Forecast ...........................................................68 Table 17-39 Zinc Price Forecast ............................................................................................69 Table 17-40 Zinc Concentrate Terms.....................................................................................69 Table 17-41 Zinc Demand Changes ......................................................................................74 Table 17-42 Zinc Expansion Projects.....................................................................................76 Table 17-43 Zinc Price Forecast ............................................................................................77 Table 17-44 Zinc Consumption Growth..................................................................................78 Table 17-45 Zinc Historical Terms and Conditions ................................................................80 Table 17-46 Recommended Terms & Conditions for ZnS Contract.......................................83


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17. MARKET AND MARKETING

17.1 Summary

The marketing report was produced by Minercon International Inc, a Philippine based consultancy firm specialising in mining, minerals and energy technology. The results of their report are reproduced in this section.

Nickel demand is controlled by the primary consumption in stainless steel products that comprises 60.5% of global first-use. Nickel production during the period, 2010 to 2020, will keep in step with global demand. The long term Ni price forecast is US$ 8.0 – 8.5/lb. The main basis of this is the Brook Hunt forecast of recovery in global GDP and industrial production plus the anticipated re-stocking of industrial raw materials such as stainless steel products.

Demand for cobalt and its intermediates is governed by underlying consumption in battery chemicals, superalloys, hard metals, pigments, catalysts, magnets, tyre adhesives, paint driers, and electroplating. The range of the forecasts for cobalt is US$ 16-18/lb. This forecast takes the view that the world (western economies in particular) financial markets will return to normal and that the recession in the world economy will be brief. Demand will be generated mainly from the development of hybrid electric vehicle (HEVs) sales where cobalt plays a key role in battery systems.

Demand for ammonium sulphate will be characterised by a steady increase in consumption as fertiliser in the agricultural sector. Ammonium sulphate is a relatively inexpensive fertiliser preferred for rice and sugar cane particularly in tropical environments and preferred along with urea in many parts of the Philippines. Global production is projected to roughly balance with expected demand through the forecast period. The long term outlook forecast for ammonium sulphate prices is US$ 168/t.

Demand for chromite is driven by the demand for stainless steel. More than 90% of chromite ores are smelted into ferrochrome, the precursor to stainless steel. Production of chromite ore is dominated by four countries: South Africa, India, Kazakhstan, and Turkey. The long term price forecast for metallurgical grade chromite concentrate is US$ 250/t.

Over 95% of the world’s zinc is sourced from zinc sulphide (ZnS) concentrates. Zinc metal finds major application in the galvanising of steel where it is applied as a coating to prevent corrosion. The long term price forecast for zinc is US$ 2,370/t. The price forecast assumes a supply-side bottleneck where mine production may be restricted by a lack of investment in new zinc projects.


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17.2 Nickel Industry Market Review

17.2.1 Summary

17.2.1.1 Nickel Supply Demand

Nickel demand will be driven by the primary consumption in stainless steel products that comprises 60.5% of global first-use. Brook Hunt, a leading authority in market research, predicts that nickel demand will recover in 2010 and continue growing through 2020.

Nickel production in Brook Hunt’s projection period, 2010 to 2020, will keep in step with global demand, and may even show periods of surpluses and deficits over the forecast period depending on demand recovery and possible delays in start or ramp-up of major nickel projects, both sulphide and laterite.

17.2.1.2 Nickel Price Forecast

Brook Hunt 2010 to 2020

Range (US$/lb) Average (US$/lb)

Market Balance Approach 5.47 – 10.70 7.84

Incentive Price Approach 8.00 – 8.50 8.25

Table 17-1 Nickel Price Forecast

For the Resources Philippines Inc. (Intex) Definitive Feasibility Study (DFS) Minercon recommends that the higher ranges of the Brook Hunt forecasts (US$ 8.0 – 8.5 /lb) be utilised for projection purposes. The main basis of this is the Brook Hunt forecast of recovery in global GDP and Industrial Production plus the anticipated re-stocking of industrial raw materials such as stainless steel products.

17.2.1.3 Nickel Briquette Premiums

LME-registered nickel brands typically obtain premiums when delivered to end users. Historical records suggest that the premium range can be 1.5%-3.5% over the LME cash price of nickel metal.


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17.2.2 Nickel Demand

Stainless Steel60.5%

Alloy Steel5.4%

N-F Alloys14.0%

Plating8.1%

Foundry3.9%

Other8.0%

Figure 17-1 Global Consumption by First-Use, 2008

17.2.2.1 Stainless Steels

Nickel demand fundamentals have always been driven by consumption of stainless steel products. The stainless steel sector is the biggest end-user of nickel accounting for 60.5% of all nickel consumed in 2008.

The stainless steel market is divided into two main classes: Austenitic and the Ferritic stainless steel groups.

Austenitic stainless steels (also known as Series 300) are non-magnetic, contain about 8-10.5% nickel and 18-20% chromium. These alloying metals create properties that enhance the steel’s corrosion resistance and strength. Austenitic grades represent around 70-75% of total world stainless steel production.

Ferritic stainless steels (also known as Series 400) are magnetic, and have little or no nickel content. Typically, chromium is the main alloying element and the most common grade contains 13-18% chromium. Ferritics have fairly good corrosion resistance for most requirements where appearance is not important. Ferritic stainless steels account for 25-30% of total stainless steel production.


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Parameter 2003 2004 2005 2006 2007 2008 2009 (e)

Stainless melt output (kt) 22,417 24,439 24,397 28,318 28,922 26,334 22,869

Year-on-Year % Change 9.4% 9.0% -0.2% 16.1% 2.1% -8.9% -13.2%

Austenitic (kt) 17,751 19,067 18,377 21,379 20,872 18,813 16,743

Austenic ratio (%) 79.2% 78.0% 75.3% 75.5% 72.2% 71.4% 73.2%

Nickel units content (kt) 1,522 1,614 1,549 1,752 1,599 1,456 1,286

Nickel content (%) 8.6% 8.5% 8.4% 8.2% 7.7% 7.7% 7.7%

Nickel in scrap (kt) 675 742 744 842 729 659 557

Scrap ratio (%) 44.6% 45.7% 48.3% 48.7% 46.0% 45.3% 42.9%

Primary nickel in stainless (kt) 847 872 805 909 870 796 728

Total primary nickel demand (kt) 1,229 1,279 1,258 1,396 1,372 1,315 1,218

Primary nickel in non-stainless (kt) 383 407 454 486 502 519 490

Table 17-2 Global Nickel Consumption in Stainless Steel

17.2.2.2 Superalloys

Nickel also finds application in superalloys which is defined as those alloys combining iron, nickel, cobalt, and chromium that are developed for use at high temperatures (650oC or higher) and severe mechanical stress environments. Nickel imparts both corrosion resistance and high temperature strength to these superalloys. Typical applications for superalloys include aircraft engines, gas turbines, waste incinerators, chemical processing equipment, offshore oil and gas machinery, and desulphurisation facilities. Gas turbine engines for aircraft and power generation use nickel-based superalloys for components like turbine blades, vanes, and rotor disks. Around 80% of world superalloys is accounted for by aerospace applications. The remaining 20% is used in land-based gas turbine and in the chemicals and process industries. A typical land-based gas turbine can weigh approximately 4,000 kg of which 1,000 kg will be superalloys.

17.2.2.3 Castings/Foundry

Nickel is also used as an alloying element in various nickel-chromium, molybdenum and maraging steels. Nickel-chromium engineering steels are low-alloy, case hardening steels with medium core strength that are suitable for machining. These are mainly used in vehicle cog wheels, chain wheels, camshafts, and gear wells for standard stress applications. When case hardened, these steels have good shock resistance and can be used in heavy-duty gears and pinions. The nickel content of these alloy steels ranges from 0.35% to 4.3%.


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Maraging steels contain normally 18% nickel and because of exceptional metallurgical strength, these are used in high performance areas where safety is critical, such as in the aerospace and mining industries.

17.2.2.4 Plating

Plain carbon steel can be plated with both nickel and chromium to obtain a bright finish and increased corrosion resistance. These nickel or chromium plate items are found mostly in cars and appliances although lesser plating is used on cars nowadays. Today, there are still applications in nickel-plating logos or vehicle interior parts. A recent growth area for nickel plating is its use as an additive to the zinc bath in the production of galvanised steel. The addition of around 11% nickel can improve the corrosion resistance of galvanised steel by five to six times.

17.2.2.5 Other Applications

Nickel and some of its salts are used as catalysts, mainly in the hydrogenation of fats and oils. The metal is also used in carbides and hard-facing materials. Applications are also found in ceramics where nickel compounds form a bond between iron and enamel. The other most important use of nickel is in battery manufacture.

17.2.3 Nickel Supply

Europe4.1%

Africa5.3%

Asia16.6%

Americas25.8%

Oceania20.0%

CIS17.5%

China5.3%

Cuba5.4%

Figure 17-2 Global Mine Production (2008 = 1,522 kt)


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Region/Country 2003 2004 2005 2006 2007 2008 2009(e)

Europe 30 31 40 45 50 63 44

Africa 86 82 80 83 87 80 87

Asia 166 159 178 226 301 253 198

America 322 353 371 408 425 392 298

Oceania 307 309 312 298 296 304 279

CIS 253 264 271 289 280 266 247

China 63 68 78 80 77 81 81

Cuba 88 87 90 87 89 82 78

Total World 1,315 1,353 1,419 1,516 1,606 1,522 1,313

Table 17-3 Global Mine Production of Nickel

(kt nickel contained in ores and concentrates)

17.2.3.1 Europe

Mine production from Europe comprised 4.1% of global nickel output. Main producers were Greece (Larco), Macedonia (Kavardaci), and Finland (Talavivaara). Overall, european mines produced 63,000 t of contained nickel in 2008.

17.2.3.2 Africa

African mined production is dominated by South Africa, producing 38,000 t of nickel, representing 47.5% of the region’s output for 2008. Significant production also came out of Botswana from two of its operating mines.

17.2.3.3 Asia

Asia produced 253,000 t of contained nickel, lead by Indonesia’s PT Aneka Tambang and PT Inco. The affiliated Philippine companies of Coral Bay and Rio Tuba were the second largest country source of nickel in Asia, combining for 84,000 t in output.

17.2.3.4 Americas

North America’s main producer was Canada, accounting for 64% of the region’s output. South American production from Brazil, Columbia, Dominican Republic, and Venezuela rounded up the rest with a total of 141,000 t of nickel distributed among these southern hemisphere countries.


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17.2.3.5 Oceania

Australia and New Caledonia, comprising Oceania, contributed 304,000 t to world mined nickel production. The region accounted for 20.0% of world output.

17.2.3.6 Eastern Bloc and China

Russia was the main producer in the CIS, turning out 266,000 t of nickel. China and Cuba contributed around 80,000 t each. Total Eastern Bloc production accounted for 28.2% of the world’s mined nickel supply.

17.2.4 Market Balances and Price Forecast

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

0 2,205 4,410 6,615 8,820

11,025 13,230 15,435 17,640 19,845 22,050 24,255 26,460 28,665 30,870 33,075 35,280 37,485 39,690 41,895 44,100 46,305 48,510 50,715 52,920 55,125

Ni price 20-yr averageUS$/t US$/lb

Figure 17-3 Nickel Price History

Figure 17-3 represents a historical picture of nickel price behaviour over 20 years. The 20-year average is indicated at about US $5/lb but is largely affected by the price record during the 2004 to 2008 period. The price peaks in 2007 to 2008 were unprecedented and were dubbed a period of “supercycles” where not only nickel, but all the prices of the metals complex moved drastically upwards.


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By late 2008, this price bubble or euphoria was deflated by the unthinkable, a global financial crisis that developed into a widespread recession. All commodity prices crashed, nickel included. By the end of 2008, a large number of mines, mostly laterite, and nickel pig-iron producers announced slowdowns and closures.

0

20

40

60

80

100

120

0

10,000

20,000

30,000

40,000

50,000

60,000

Jan-06 Jan-07 Jan-08 Jan-09

US$/t kt

Figure 17-4 LME Monthly Nickel Prices and LME Stocks

Figure 17-4 shows classical correlation between nickel prices (blue line) and the reported stocks in LME warehouses.


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17.2.4.1 Brook Hunt Forecast

0

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14

16

18

-60

-40

-20

0

20

40

60

80

Market Balance LME Nickel Price

US$/lbkt

Figure 17-5 Global Metal Balances and LME Nickel Price

For the following forecast, Brook Hunt used a “market-balanced” approach, a method that takes into consideration likely demand conditions and predicted changes to supply. The Brook Hunt method considers the following:

1. Base case production capability

2. Highly probable projects

3. Production adjustments.

“Base case capacity” comprises existing operations, along with expansion or greenfield projects which have received board approval and have been financed.

“Highly probable projects” are those which are deemed highly probable to proceed even though approvals and financing are still not finalised.

“Production adjustments” take into account the interplay of prices, industry cost structure and metals stock levels, among others.

In the “Long Term Outlook for Nickel (2nd Quarter 2009)”, Brook Hunt forecasts the long term nickel price for 2010 to 2020 at US$ 7.84/lb (US$ 17,289/t), based on assumptions of key factors affecting demand and supply.


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Projection Year US$/lb US$/t

2010 5.90 12,998

2011 5.47 12,052

2012 5.70 12,566

2013 6.35 13,999

2014 7.35 16,204

2015 7.10 15,653

2016 7.60 16,755

2017 8.80 19,401

2018 11.50 25,353

2019 9.80 21,605

2020 10.70 23,589

Average: 7.84 17,289

Table 17-4 Nickel Price Forecast, 2010 to 2020

Brook Hunt expects that 2010 will see a 5.6% increase in nickel demand while recent closures will limit growth in refined nickel production. A deficit for 2010 is anticipated in the level of 29,000 t, which would tend to support prices.

The world nickel market is likely to remain well supplied through 2013, with small surpluses accumulating in 2011, 2012, and 2013. The increase in global nickel demand during this period should support prices together with the gradual erosion of nickel stocks to an estimated 86 days of consumption in 2013.

From 2014 to 2020, Brook Hunt’s assessment is that periods of deficits may be the norm and prices are forecasted to continue rising up to an average of US$ 10.70/lb by 2020.


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17.2.5 Nickel Industry and Production Costs

(1.00)0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

LME Price-C3 C1 Cost C3 Cost LME Price

US$/lb

Figure 17-6 Nickel Industry Cost – All Operations


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(1.00)0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

LME Price-C3 C1 C3 LME Price

US$/lb

Figure 17-7 Nickel Industry Cost – Sulphide Operations

(1.00)0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

LME Price-C3 C1 C3 LME Price

US$/lb

Figure 17-8 Nickel Industry Cost – Laterite Operations


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17.2.5.1 Definitions

Unique to the Brook Hunt methodology of analyzing industry costs is the concept of C1, C2, and C3.

C1 costs are the “Net Direct Cash Costs”, representing the cash costs at each processing stage and covers expenses for mining, milling, ore purchase, freight, administration, smelter TCRC and marketing, less by-product credits. The M1 margin is defined as the LME nickel price received minus C1.

C2 costs are the “Production Costs”, representing the sum of the net direct cash costs (C1) and depreciation, depletion, and amortisation. The M2 margin is defined as the LME nickel price received minus C2.

C3 costs are the “Fully Allocated Costs”, representing the sum of the production costs (C2) and the indirect costs plus net interest charges. The M3 margin is defined as the LME nickel price received minus C3.

17.2.5.2 Recent Cost Trends

Weighted average C1 costs for all operations rose by 32% in 2007 to US$ 4.41/lb. Laterite producers recorded a 30% increase in average C1 costs in 2007 to US$ 5.49/lb. This rise in costs resulted from increases in energy or fuel prices and higher cost of ore purchases due to the rise of the underlying nickel price. In particular, the prices of consumables (tyres, explosives, reagents) and labour also displayed steep increases over prior operating periods.

Brook Hunt reports that except for a brief period in 1998, nickel operations generally made positive margins at the C1 level over the 1994 to 2007 time frame.

17.2.5.3 Industry Incentive Price

A second way to estimate long term nickel prices is the “Industry Incentive Price” methodology. In this approach, Brook Hunt determines the comfortable price scenario that makes projects viable. Factored into the analysis is an estimate of the new production required to satisfy estimated future demand. This incentive price may be considered an approximation of the nickel market long term equilibrium price.


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Sulphide Projects Laterite Projects

Uncommitted Uncommitted Uncommitted

Committed Uncommitted Committed (PAL) (Acid Leach) (Other)

Bucko Lake BanPhuc Ambatovy Gag Island Lucky Break Fenix

Eagle Kabanga Barro Alto Gladstone NiWest Laterite Las Camariocas

Santa Rita Kevitsa Caldag Halmahera Nornico

Kenbridge Goro Kalgoorie Nickel Wingelina

Kun Manie Koniambo Mindoro Wowo Gap

Lynn Lake Niquelandia San Felipe - Ipora Yerilla

Maskwa Onca Puma Syerston

Minago Ramu Vermelho

Northmet

Nunavik

Premier Ridge

Shakespeare

Sheba Ridge

Turnagain

Yakabindle

Table 17-5 Additional Nickel Projects Analysed by Brook Hunt

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300

350

400

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Ba

se C

ase

Ad

diti

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al P

rod

uct

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(ktN

i)

Sulphide Laterite

Figure 17-9 Additional Refined Nickel Production


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New production from base case committed projects during the 2009–2020 period can provide an additional 360,000 t of nickel per year. This is in addition to an estimated 1.4 Mt produced in 2008. Brook Hunt presumes an optimistic scenario where the greenfield or brownfield capacity additions undergo a reasonable ramp-up without major operational problems.

Figure 17-10 Nickel Industry Incentive Price

In calculating for the nickel incentive price, Brook Hunt tabulated all the financial performance of nickel producers (42 companies) classified under base case projects, including committed and uncommitted projects. These were assessed using discounted cash flow (DCF) analysis and the corresponding NPV’s and IRR’s were obtained on an all-equity, pre-tax basis. The projects were then ranked on the basis of their IRR using a preliminary nickel price of US$ 7/lb, a copper price of US$ 2/lb and cobalt prices at US$ 10, 15, and 20/lb.

Ranking the projects (excluding the base case) based on the price of nickel that will result in a pre-tax IRR rate of 15%, would enable the determination of an indicative long-term nickel price that will be necessary for viability at this investment criterion.

The conclusion of the above exercise is that: Brook Hunt states that the range of cobalt by-product prices evaluated, a long-term nickel price of US$ 8.00-8.50/lb would be the “Incentive Price” necessary to ensure sufficient nickel projects are developed to meet increasing demand up to 2020.


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17.2.6 Nickel Price Direction

Brook Hunt 2010 to 2020

Range (US$/lb) Average (US$/lb)

Market Balance Approach 5.47 – 10.70 7.84

Incentive Price Approach 8.00 – 8.50 8.25

Table 17-6 Nickel Price Forecast

For the DFS; Minercon takes the position that the higher ranges of the Brook Hunt average price can be used for the financial projections. This is based on the following justifications:

a) Global GDP – This is forecasted by Brook Hunt to grow at an annual rate of 3.2% from 2009 – 2020. In the near term, growth will be slow as countries take time to de-leverage, rebuild battered balance sheets, and rebuild confidence in the banking system and regulatory structures.

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2007 2008 2009 2010 2011 2012 2013 2015 2020

North America

Europe

Latin America

FSU

Middle East

Africa

Asia Pacific

Figure 17-11 GDP Real Growth Rates by Region

b) Industrial Production (IP) – as of mid-June 2009, the latest leading indicators show slower contraction in industrial output during the preceding quarter of the year. Exceptions are China and India where IP growth rates remained positive. There is some uncertainty in the developed and emerging economies that the manufacturing sectors may still be lagging. Data suggests that global inventory levels of raw materials and finished goods are still falling, thereby indicating that stocks rebuild has not yet commenced. Thus, over the short term, IP is forecasted to show a deep fall


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in 2009 but is expected to recover by 2010 by about 1.7%. Longer term, annual global industrial growth is predicted to grow by an average of 3.1% over the period 2009 – 2020.

-8

-6

-4

-2

0

2

4

6

Figure 17-12 Global Industrial Production, 2009 – 2020 (% Change)

c) Cyclical Stainless Steel Business – Stainless Steel is the primary driver of nickel demand. Historical quarterly world stainless steel production shows pronounced stocking and de-stocking cycles. The fall in the last quarter of 2008 coincided with the 2008 financial crisis. Despite this, Brook Hunt’s view is that GDP and Industrial Production (IP) will recover eventually by 2010. Re-stocking should be seen by then.

Year Q1 Q2 Q3 Q4 Year Total

2001 4,845 4,858 4,731 4,746 19,180

2002 5,001 5,249 5,112 5,278 20,640

2003 5,729 5,848 5,423 5,841 22,841

2004 6,065 6,204 5,907 6,389 24,565

2005 6,585 6,442 5,418 5,884 24,329

2006 6,612 7,165 7,061 7,520 28,358

2007 7,584 7,462 5,878 6,913 27,837

2008 7,376 7,421 6,277 4,856 25,930

2009 4,832

Table 17-7 Quarterly Global Stainless Steel Production (kt)


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-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009

% Change Quarterly moving average

Figure 17-13 Stainless Steel Production Quarterly Change (%)

17.2.7 Commercial Nickel LME Contracts and Market Premiums

Class I Refined Nickel Class II (Charge Nickel) Chemicals

Electrolytic Nickel Ferronickel Chemical Nickel Oxide

Pellets Nickel Oxide Sinter Nickel Sulphate

Granules Utility Nickel Nickel Chloride

Rondelles Nickel Pig Iron Nickel Carbonate

Powder/Flakes Nickel Acetate

Nickel Hydroxide

Other Salts

Table 17-8 Nickel Products Classification by International Nickel Study Group (INSG)

Class I nickel products are produced as electrolytic nickel cathodes, either uncut or sheared, usually into 25 mm x 25 mm (1 x 1 inch) or 102 mm x 102 mm (4 x 4 inch) squares. Apart from electrolytic nickel cathodes, class I products include granules for the foundry industry, pellets, rondelles, and powder for the battery manufacturing sector. Class I nickel are used also in the superalloy and plating businesses where purity requirements are more stringent.

Class II products are used almost exclusively by the stainless steel industry and have a wider consumption pattern.


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17.2.7.1 LME Nickel Contract Specifications

Nickel is traded in the London Metal Exchange and brands deliverable to an LME warehouse conform to the following ASTM B39-79 (2004) chemical specifications:

Element Composition, weight %

Nickel 99.80 minimum

Cobalt 0.15 maximum

Copper 0.02 maximum

Carbon 0.03 maximum

Iron 0.02 maximum

Sulphur 0.01 maximum

Phosphorus 0.005 less than

Manganese 0.005 less than

Silicon 0.005 less than

Arsenic 0.005 less than

Lead 0.005 less than

Antimony 0.005 less than

Bismuth 0.005 less than

Tin 0.005 less than

Zinc 0.005 less than

Table 17-9 LME Nickel Contract Specification

17.2.7.2 LME Nickel Futures

Contract/Quality : 99.80% minimum ASTM B39-79 (2004) Lot Size (Warrant) : 6 t (±2% tolerance) Form/Shape : Full Plate Cathode Cut Cathodes Pellets Briquettes Quotation : US Dollars per tonne


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17.2.7.3 LME Nickel Brands

Country Brand Producer Deliverable Shape

Australia BHP Billiton Nickel Briquettes BHP Nickel West Pty Ltd Briquettes

Bagged Briquettes

Minara High Grade Nickel Briquettes Minara Resources Limited Briquettes

Bagged Briquettes

Brazil Tocantins Votorantim Metals Niquel S.A. Cut Cathodes

Full Plate Cathodes

Canada INCO Electrolytic Nickel Inco Ltd Cut Cathodes

INCO Nickel Pellets Inco Ltd Pellets

Sherritt Nickel Briquettes The Cobalt Refinery Company Inc Briquettes

China Jintuo Grade 1 Jinchuan Group Limited Cut Cathodes

Full Plate Cathodes

Finland Norilsk Nickel Harjavalta Cathodes Norilsk Nickel Harjavalta Oy Cut Cathodes

Full Plate Cathodes

Norilsk Nickel Harjavalta Briquettes Norilsk Nickel Harjavalta Oy Briquettes

France Nickel HP Eramet S.A. Cut Cathodes

Full Plate Cathodes

Japan Sumitomo Metal Mining Co. Ltd Sumitomo Metal Mining Co. Ltd Cut Cathodes

Norway Falconbridge Electrolytic Nickel * Falconbridge Ltd (Kristiansand) Cut Cathodes

Full Plate Cathodes

NikkelverkI Nickel Xstrata Nickel Cut Cathodes

Full Plate Cathodes

Russia Norilsk Combine H-1 JSC "MMC "Norilsk Nickel" Cut Cathodes

Full Plate Cathodes

Norilsk Combine H-1Y JSC "MMC "Norilsk Nickel" Cut Cathodes

Full Plate Cathodes

Severonickel Combine H-1 JSC "Kola GMK" Cut Cathodes

Full Plate Cathodes

Severonickel Combine H-1y JSC "Kola GMK" Cut Cathodes

Full Plate Cathodes

South Africa Impala Nickel Impala Platinum Ltd Briquettes

Rustenberg Nickel Rustenburg Platinum Mines Ltd Cut Cathodes

Full Plate Cathodes

UK INCO Nickel Pellets Inco Ltd Pellets

Zimbabwe TROJAN Nickel Bindura Nickel Corporation Ltd Cut Cathodes

BCL Empress RioZm Limited Cut Cathodes

Full Plate Cathodes

Table 17-10 LME Nickel Deliverable Brands

Out of the 17 companies (in 12 countries) that produce LME-deliverable nickel brands, only 5 manufacture nickel in briquette form.


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17.2.7.4 Nickel Briquette Premiums

0

500

1,000

1,500

2,000

2,500

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

99.7% uncut cathode 4*4 cathode Briquettes US melting premium

US$/t

Figure 17-14 Nickel Premiums

LME-registered nickel brands typically obtain premiums when delivered to end users. Historical records suggest that the premium range can be 1.5%-3.5% over the LME cash price of nickel metal. Over the period 2005-2008, nickel briquette premiums fetched anywhere from US$ 150/t to US$ 1,800/t.

17.3 Cobalt Industry Market Review

17.3.1 Summary

17.3.1.1 Cobalt Metal Supply-Demand and Price Forecast

Demand for cobalt and its intermediates will be driven by underlying consumption in battery chemicals, superalloys, hard metals, pigments, catalysts, magnets, tyre adhesives, paint driers, and electroplating. As the world economies recover from the global financial crisis, cobalt usage in battery chemicals and superalloys will continue to dominate and will be given impetus by increased demand for hybrid or fully electric vehicles.

Cobalt supply can be met by existing and prospective refining capacity in industrialised countries but can be constrained by political and economic issues in major cobalt mining areas such as Africa, where a large portion of cobalt ores and concentrates originate. Cobalt prices in the future may display the same volatility seen over the past few years considering that it is sensitive to potential and real supply disruptions.


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Pricing Parameter Price US$/lb

Historical Long Term Average 15

Implied Price Floor 6-10

Minercon Forecast (2009 – 2015) (low average) 12-14

Minercon Forecast (2009 – 2015) (high average) 16-18

Table 17-11 Long Term Forecast of Cobalt Prices

17.3.1.2 Market for Cobalt Sulphate

Cobalt sulphate is one of the cobalt salts used in battery manufacture, pigments, adhesives, plating, recording materials, and agricultural feed.

The cobalt sulphate trade is a “niche market” and very consolidated between producers and end-users.

The market is relatively small, with major refineries capable of producing the material tailor-fit or as needed by customer specifications.

Market Annual Demand, t/a

Plating 1,000

Animal Feed 700

Magnetic Tapes 500

Tyre Adhesives 500

Overall Demand 2,700

Table 17-12 Cobalt Sulphate Demand

Indicative terms for the cobalt content in cobalt sulphate is 100% payable but may be subject to discounts in an oversupplied market.


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17.3.2 Cobalt Demand

17.3.2.1 Cobalt Consumption by Sector 2008

Battery Chemicals

27%

Superalloys21%

Hard Metals12%

Pigments10%

Catalysts9%

Magnets7%

Tyres/Paint Driers

6%

Others8%

Figure 17-15 2008 Cobalt Consumption by Sector

Data for the year 2008 show that the global consumption was largely coming out from demand from battery chemicals and super-alloys (48% combined). This was followed by consumption from the industry sectors in hard metals, pigments, catalysts, magnets, and tyre adhesives.

17.3.2.2 Demand Drivers

On a sector basis, the demand for cobalt in all forms is driven by:

Industry Sector Market Share Uses

Battery Chemicals 27% Rechargeable batteries

Superalloys 21% Aerospace, Land based turbines

Automotive

Hard Metals 12% Co as binding material in cemented carbides/diamond tools

Cutting and Mining tools

Pigments 10% Pigment/Decolorisr for ceramics and glass

Catalysts 9% Oxidation

Hydrotreating/Desulfurisation

Magnets 7% Permanent magnets (AlNiCo,SmCo)

Tyres/Paint Driers 6% Rubber adhesion promoter

Paint and ink driers

Others 8% Prosthetics, electroplating, special steels, agriculture

Table 17-13 Demand Drivers


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17.3.2.3 Battery Chemicals

Of the global consumption, batteries and its chemical applications comprise 27% of total usage.

17.3.2.4 Rechargeable Batteries

Figure 17-16 Rechargeable Batteries

Batteries are electrochemical devices that convert chemical energy into electrical energy. Their major components include an anode and a cathode that are separated by a non-conductive separator that will allow the flow of ions but not the flow of electrons, a case and an electrode. In battery terminology, the cathode is the electrode through which the electrons enter a cell and the anode is the electrode through which they leave the cell. When the battery is discharged, electrons move from the anode to the cathode as ions move from the cathode to the anode.

Batteries can be divided into two types – primary and secondary. In primary batteries, the chemical energy of its constituents is changed when the current is allowed to flow and this type cannot be recharged because the chemical reactions are irreversible.

In secondary batteries, the application of an electrical current brings about chemical changes which are reversed as the cell discharges. Such batteries can be recharged hundreds of times before degradation occurs.

Since the mid 1980’s, the reduced size and portable nature of electronic devices such as camcorders, portable telephones and laptop computers has generated enormous demand for high capacity, rechargeable batteries to power these devices. For instance, in the developing countries, there has been little interest in establishing a hard-wired communication infrastructure and portable telephones are being used to meet communication needs.

This trend has been particularly advantageous to cobalt in that the three high energy density batteries best suited to portable devices use substantial amounts of cobalt.


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In the last few years, demand for portable rechargeable electronic devices has grown rapidly, such that the use of cobalt in these applications has more than doubled. Basically, there are three technologies which are in order of increasing cobalt content and growth opportunity:

Nickel-Cadmium (Ni-Cd)

Nickel-Metal Hydride (Ni-MH)

Lithium ion (Li-ion).

17.3.2.5 Nickel-Cadmium Batteries

In the late 1980s and early 1990s, Ni-Cd batteries were the most common rechargeable batteries used in portable electronic devices as a result of their low cost, ready availability and established technology. In Ni-Cd cells, cobalt is used only in the positive electrode (cathode) where it enhances performance.

The amount of cobalt used is usually about 1% by weight of the nickel hydroxide but can be up to 5% in high performance batteries. The cathode is either a nickel foam filled with spherical nickel hydroxide or a sintered nickel substrate impregnated with nickel hydroxide. Cobalt, in the form of fine powder, oxide or hydroxide, is used as additive in these electrodes for the following reasons:

It drastically improves the conductivity of the nickel electrode

It mechanically stabilises the electrode by inhibiting the formation of y-NiOOH and reduces the rigidity of the nickel hydroxide deposit

It increases the potential for electrolyte decomposition.

The ability to deliver high currents makes them particularly suitable for portable power tools. However, there are a number of problems associated with these batteries which means that little future growth is anticipated. The major problems are:

The so-called memory effect whereby loss of battery capacity occurs as a result of recharging the battery before it is fully discharged

Over-discharging which causes cells to develop internal short circuits and cause the battery to run down prematurely and eventually take no charge at all.

The specific energy output is about 50% less than the nickel-metal hydride and lithium ion cells.


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17.3.2.6 Nickel-Metal Hydride Batteries

The advent of Ni-MH rechargeable batteries can be attributed to Phillips Electronics in 1969 which was carrying out research to develop improved powerful magnets based on SmCo5. Related studies showed that the compound LaNi5 could store large amounts of hydrogen in a highly reversible manner at room temperature. The significance of this discovery led their use as rechargeable battery negative electrodes. Since 1988, metal hydride (MH) the so-called “hydrogen storage alloys” has been commercialised in several applications.

Early alloys used were of the CaCu5 type, most notable LaNi5. Such alloys suffered from poor cycle life, internal cell pressure and corrosion as a result of the simple single-phase natures of these hydride alloys. The development of multi-component multiphase alloys overcame the problems. It was also found that the addition of cobalt to these rare-earth/Ni alloys substantially enhanced the cells’ cycle life. The addition of cobalt also tends to increase hydride thermodynamic stability and inhibits corrosion. Today’s alloys from the LaNi5 family are generally complex materials containing six to eight elements with complex phase structures.

Cobalt-containing alloys are of the type V-Ti-Zr-Ni and contain up to 15% cobalt. However, alloy development continues and new magnesium based hydrogen storage alloys are currently under development for a generation of cheaper lighter nickel-metal hydride cells.

The first Ni-MH batteries used the same nickel electrode as that of the positive electrode in Ni-Cd cells.

The addition of fine cobalt powder or cobalt oxide to the pasted nickel hydroxide electrode serves to provide some reserve capacity in these electrodes (to prevent gas evolution). The fine cobalt is oxidised to CoOOH during charge and remains in the cobalt (III) form during discharge thus providing reserve capacity to the MH electrode.

The combination of a rechargeable nickel electrode and a metal hydride electrode results in a battery system that is superior to Ni-Cd. It has greater specific energy – i.e. a lighter battery, greater volumetric energy density – i.e. a smaller battery with less environmental impact because of the absence of cadmium and it does not exhibit the memory effect which can reduce the life of Ni-Cd batteries.

Ni-MH batteries operate at 1.2 volts, the same as Ni-Cd types, but possess a much higher capacity. They are used extensively in portable computers, mobile phones and camcorders and have largely displaced Ni-Cd batteries in these applications.


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17.3.2.7 Lithium-Ion Batteries

Rechargeable batteries based on a metallic lithium anode have many theoretical advantages over other systems but early designs failed commercially as a result of the reactivity of lithium metal which resulted in a number of battery fires. The problem has been overcome by replacing the lithium anode with a non-metal such as LiC6 which is capable of storing and reversibly exchanging a large quantity of lithium ions.

In this way, rather than lithium plating and stripping as in conventional lithium batteries, the electro-chemical process at the anode is the uptake of lithium ions during charge and their release during discharge. If the cathode is also non-metallic such as LiCoO2, capable of reversibly exchanging lithium ions, the entire battery process involves the shifting of lithium ions back and forth between electrodes. The lithium-ion rechargeable battery is also called the swing cell because of this action.

The Li-ion battery is the most advanced of the three systems. Unlike the 1.2V Ni electrode systems, Li-ion cells operate at about 3.7V and rely on lithium ions moving through organic solvents rather than protons in water to balance external charge transfer. A single lithium-ion cell replaces three Ni-Cd or Ni-MH cells in most applications. The much higher voltage and very light negative electrode (LiC6) explain why this is the most advanced rechargeable system and the one preferred for high power applications such as portable computers which often use more cells per device.

Of the three systems, the Li-ion battery contains by far the greatest amount of cobalt per cell. The cathode active material contains 60% cobalt rather than the 5-15% of Ni electrode cells and accounts for about 50% of the weight of the cathode.

LiCoO2 is the preferred materials but both LiNiO2 and LiMn2O4 can also be used. All three systems have advantages and disadvantages and all have been used in commercial applications.


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17.3.2.8 Hybrid Vehicles and Cobalt

Figure 17-17 Hybrid Vehicles and Cobalt

Hybrid electric vehicles (HEVs) are now considered an emerging sector contributing to a major source of cobalt demand. By definition, a hybrid electric vehicle is a transport mode that uses two or more distinct sources of power for locomotion, usually combining an internal combustion engine and one or more electric motors. Fuel source can be normal gasoline, augmented by a battery pack supplying electricity to drive motors.

The major metals used in hybrid engineering are:

Vehicle Component Metal Approximate

Metal Content, kg

1. Battery Nickel 14

Cobalt 1.5

Rare Earths 0.5

2. Motor/Generator Cobalt 0.1

3. Wiring Harness Copper 45

Table 17-14 Metals in Hybrid Engineering

In 2004, 98% of the HEV batteries were of the nickel metal hydride (N1MH) type and were manufactured by only two (2) companies: Panasonic EV Energy and Sanyo. Full and mild-hybrids use nickel metal hydride batteries since this type provided the optimum trade-off between power density, weight, cost and safety. In high quality N1MH batteries, the cobalt content can account for 4-6% by weight. Typical battery packs such as those mounted on the Toyota Prius HEV,


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weigh about 28 kg each and contains an estimated average of 1.3 to 1.5 kg of cobalt.

Motors and generators of an HEV would contain about 1 kg of neodymium-iron-boron (NdFeB) in its magnets. These are extremely strong and relatively light magnets that are alloyed with cobalt up to 10% by weight. Thus, HEVs would use about 0.75 to 100 grams of cobalt for this purpose.

Nickel

Iron (Fe)

Cobalt (Co)

Rare Earths (Sm etc.)

Electrolite (KOH)

Plastics

Others

Figure 17-18 Cobalt in HEV Motor Magnets

The demand patterns in terms of cobalt end-use have changed over the past 15 years. In 1995, the demand for came largely from metallurgical uses in superalloys, hard metals and magnets. By 2008, chemical applications and battery manufacturing dominated cobalt consumption. Rechargeable batteries alone accounted for this shift in demand.

3%

6.5%

10.3%

10.2%

12%

10%

7%

15%

26%

27%

2%

6%

9%

10%

7%

6%

12%

21%

0% 5% 10% 15% 20% 25% 30%

Batteries

Recording Materials

Tire Adhesives, Driers

Catalysts

Pigments

Magnets

Hardfacing & Other Alloys

Hard Materials (Carbides)

Super Alloys (Ni/Co/Fe)

2008 1995

Figure 17-19 Cobalt Demand End Use (1995 vs. 2005)


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17.3.2.9 Superalloys

Following battery chemicals, the second most dominant use of cobalt is the superalloy sector. In 2008, this accounted for 21% of global cobalt consumption.

Cobalt is used in a wide range of high performance alloys requiring particular properties of stability, strength, toughness, and corrosion resistance. Superalloys are essentially developed for high temperature service, severe mechanical stress environment and high surface stability requirements.

Cobalt-based and nickel-based superalloys are used in aerospace applications, industrial land-based turbines, oil industry, nuclear energy, and medical prosthetics. Typically, these superalloys are found as components of turbine blades, turbine wheels and engine compressor disks for extreme rotational stresses and high operating temperatures are encountered.

17.3.3 Cobalt Supply

17.3.3.1 World Cobalt Mining Map

Figure 17-20 World Cobalt Mining Map

Approximately 16 countries have exploitable primary cobalt reserves. Figure 5 shows a world map where most mined cobalt supply originates. It shows that about 50% of cobalt supply comes from two African countries: The Democratic Republic of Congo (DRC) and Zambia. Minor tonnages are mined in South Africa, Botswana, and Zimbabwe. Canada, Russia, and Australia follow the African region in mined production.


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-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

-500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

Reserves Reserve Base ktkt

Figure 17-21 World Cobalt Resources

Known global cobalt resources are estimated at about 13 Mt, enough metal material for more than 200 years at current rates of consumption. The DRC dominates the cobalt supply picture with over 36% share of global reserves. The vast majority of these cobalt resources are in nickel-bearing laterite deposits and the rest occurring in the copper-nickel ore-bodies in Australia, Canada, and Russia. The deposits in DRC and Zambia are of the sedimentary copper type. There are also vast cobalt resources associated with manganese nodules scattered on the ocean floor. However, present mining technology is still inadequate to economically mine these manganese nodules.


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17.3.3.2 Refined Cobalt Availability

CDI Member Companies 2001 2002 2003 2004 2005 2006 2007 2008(e)

BHP Billiton, Australia 1,818 1,863 1,800 1,900 1,400 1,600 1,800 1,600

CTT, Morocco 1,200 1,354 1,431 1,593 1,613 1,405 1,591 1,711

Eramet, France 199 176 181 199 280 256 305 311

Gecamines, DRC 3,199 2,149 1,200 735 600 550 606 300

ICCI/Sherritt, Canada 2,943 3,065 3,141 3,225 3,391 3,312 3,573 3,428

Norilsk, Russia 4,600 4,200 4,654 4,524 4,748 4,759 3,587 2,502

OMG, Finland 8,100 8,200 7,990 7,893 8,170 8,580 9,100 8,950

Sumitomo, Japan 350 354 379 429 471 920 1,084 1,071

Umicore, Belgium 1,090 1,135 1,704 2,947 3,298 2,840 2,825 3,020

Vale Inco, Canada 1,450 1,480 1,000 1,562 1,563 1,711 2,033 2,200

Xstrata, Norway 3,314 3,993 4,556 4,670 5,021 4,927 3,939 3,719

Zambia 2,789 4,344 4,570 3,769 3,648 3,227 2,635 2,591

Total 31,052 32,313 32,606 33,446 34,203 34,087 33,078 31,403

Non-Member Companies 2001 2002 2003 2004 2005 2006 2007 2008(e)

Bulong 203 200 - - - - - -

China 1,470 1,842 4,576 8,000 12,700 12,700 13,245 18,239

India 250 270 255 545 1,220 1,184 980 858

Kasese, Uganda 634 450 2,039 457 638 674 698 663

Minara, Australia 1,452 1,838 1,979 1,750 2,096 1,884 2,018

Mopani Copper, Zambia 1,876 1,800 2,050 2,022 1,774 1,438 1,700 1,250

South Africa 252 256 285 300 214 257 307 244

Votorantim, Brazil 889 960 1,097 1,155 1,136 902 1,148 994

Total 7,026 7,616 10,302 14,458 19,432 19,251 19,962 24,266

Other Sources of Supply

DLA Deliveries 1,896 1,284 1,987 1,632 1,199 294 617 203

Total Supply 39,974 41,213 44,895 49,536 54,834 53,632 53,657 55,872

Table 17-15 Refined Cobalt Availability (t)


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-

10,000

20,000

30,000

40,000

50,000

60,000 DLA Deliveries

Others

Mopani Copper, Zambia

Minara, Australia

China

Zambia

Xstrata, Norway

Vale Inco, Canada

Umicore, Belgium

OMG, Finland

Norilsk, Russia

ICCI/Sherritt, Canada

Gecamines, DRC

Eramet, France

CTT, Morocco

BHP Billiton, Australia

mt

Figure 17-22 Refined Cobalt Availability

Based on data collected by the Cobalt Development Institute (CDI), refined cobalt production from its member companies dropped by 1,675 t in 2008, relative to the previous year, 2007. This was largely due to reductions in output by Norilsk, Xstrata, Sherritt, and BHP Billiton. This was offset by production increases by non-CDI member countries, principally China.

During the period 2001 to 2005, refined cobalt availability grew by roughly 10% per annum and was primarily driven by the rapid growth of Chinese refining production.

DLA deliveries refer to cobalt sold by the US Government (Defence Logistical Agency) from its strategic stockpile.

17.3.4 The Market for Cobalt Sulphate

17.3.4.1 Overall Parameters

The Intex Project plans to produce approximately 16,000 t/a of chemical grade cobalt sulphate. The effective cobalt content would be in the region of 3,000 t/a.


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Product Parameter Annual Project Features

Cobalt Sulphate 16,000 t

Cobalt content at 20.96% Co 3,111 t

6.6 million lb

Intrinsic Cobalt Value @ US$ 14/lb US$ 92 M

Table 17-16 Intex Production of Cobalt Sulphate

Valued at US$ 14/lb, the cobalt content of the Intex cobalt sulphate would be about US$ 92 million per production year.

17.3.4.2 Cobalt Sulphate Industry Usage

Cobalt sulphate is an inorganic salt of divalent cobalt commonly used in the electroplating and electrochemical industries. It is also used as a colouring and drying agent. Cobalt sulphate is formed by the chemical reaction of cobalt hydroxide, oxide or carbonate with sulphuric acid.

Figure 17-23 Cobalt Sulphate Granules

Cobalt sulphate is available commercially in three (3) forms:

1 Heptahydrate CaSO4 7H2O 20-21% Co

2 Monohydrate CaSO4 H2O 33% Co

3 Solution

17.3.4.3 Cobalt Sulphate in Battery Manufacture

Cobalt sulphate is used as a raw material to produce cobalt precursors and cobalt-based cathode materials (LiCoO2) for lithium-ion and lithium polymer rechargeable batteries. In simple chemical terms, LiCoO2 is prepared from a basic cobalt carbonate through a reaction between cobalt sulphate and ammonia solutions. Lithium-based batteries typically contain 10-15% by weight cobalt.


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17.3.4.4 Cobalt Sulphate in Pigments and Ceramics

Cobalt-containing materials have been used to impart colour to glass, porcelain, ceramics, paints, inks, and enamel ware. In general, the pigments are prepared by mixing ingredients such as oxides and cobalt sulphate followed by calcining the mixture at 1,100oC to 1,900oC and grinding back to powder.

Colour Compounds

Purple Blue CoO/SiO2/K2O

Blue CoO/Al2O3

Violet CoO/P2O5

Green CoO/ZnO

Light Blue CoO/SnO2/SiO2

Turquoise CoO/Cr2O3/Al2O2

Pink CoO/MgO

Brown CoO/FeO

Yellow K3Co(NO2)6

Table 17-17 Cobalt Compounds in Pigments

Cobalt-based compounds are also widely used as a “drier metal” in coatings and inks. It is primarily an oxidation catalyst that acts as a “surface” or “top drier”. Cobalt salts of the higher carboxylic acids (the Cobalt Soaps) accelerate the drying of oil-based paints, varnishes, and printing inks. These cobalt salts are:

Cobalt Oleate [Co(C10H33O2)2]

Cobalt Ethylhexanoate [Co(C8H15O2)2]

Cobalt Naphthenate [Co(Cu11H10O2)2]

Cobalt Linoleate [Co(C10H31O2)2]

17.3.4.5 Cobalt Sulphate in Tyre Adhesives

Cobalt is used in radial tyre and conveyor belt manufacturing mainly as an adhesive in bonding rubber and brass-plated steel cable. Previously in the old cross-ply tyres, debonding of the rubber from the steel occurred and was manifested by bulges or bubbles along the tyre walls. Complex cobalt adhesives cured this problem and later tyre models had increased sidewall strength. The early cobalt compounds used were cobalt naphthenate and stearate. Later, cobalt hydroxides were used. Alternative bonding materials are cobalt chloride, cobalt nitrate and cobalt sulphate.


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17.3.4.6 Cobalt Sulphate in Electrochemicals

Cobalt can easily be deposited from a number of electrolytes. It can be deposited from a bath containing non-metallics (such as alumina, SiC, CrC) and produce a hard, wear-resistant coating that is suitable even at elevated temperatures. These find applications in the aerospace, aircraft and automobile industries.

Among the electrolytes used in plating is cobalt sulphate. Adding cobalt sulphate to the bath, increases the brightness or sheen of the resulting metal coating.

Compound Formula Usage

1. Cobalt Sulphate CoSO4 7H2O 3-5 g/L

2. Nickel Sulphate NiSO4 7H2O 240 g/L

3. Nickel Chloride NiCl2 6H2O 45 g/L

4. Boric Acid H2BO3 30 g/L

5. Sodium Formate NaCHO2 35 g/L

Table 17-18 Typical Electrolytes in Cobalt/Nickel Plating

As seen, cobalt sulphate has the least amount of typical usage in the electroplating industry.

17.3.4.7 Cobalt Sulphate in Agriculture and Medicine

Cobalt, in the form of Vitamin B12, is important to humans and animals alike. For cattle, sheep, swine and other ruminants, vitamin B12 deficiency can be augmented by cobalt sulphate intake. Cobalt can be given to ruminants in various ways:

a) By adding cobalt sulphate to the soil/pasture land at 2 kg/ha (good for 3-5 years)

b) By providing “licks” of 0.1% cobalt oxide or sulphate

c) By cobalt bullets introduced into the oesophagus of the animal.

The cobalt salts used in animal feeds eventually find their way into man (also as vitamin B12) through animal meat, dairy products or vegetables.


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17.3.4.8 Cobalt Sulphate Prices and Commercial Terms

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Figure 17-24 Cobalt Sulphate Prices

The preceding chart is a summary of cobalt sulphate prices and its cobalt metal price equivalent (Aug. 27, 2008 to Aug. 14, 2009) published in Asian Metals, an information company based in Beijing, China. Asian Metals provides metal prices, industry news and analysis of commodity markets.

The above price chart was calibrated by requesting a quotation directly from a Chinese supplier, Jiangsu Xiongfeng Technology Co., Ltd. The quotation was for 10 t of cobalt sulphate at US$ 9.50/kg CIF Manila Port. Adjusting for the freight and insurance, this translates into an effective price for cobalt equivalent of US$ 20.91/lb. On the surface, it seems that Intex cobalt sulphate, if absorbed by the market, can be offered at or near the price of cobalt metal.

Since the request for a quote was for indicative cobalt sulphate prices only (without any intention of completing the transaction), the Chinese supplier was no longer probed further for a discount. Considering the fact that the Chinese cobalt refineries have an overcapacity relative to present market demand, there was a reasonably good chance that Jiangsu would accept discounts to its material.


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Co SO4 7H2O : 20.5% Co

Price : US$ 9.50 per kg CIF Manila

Minimum Order Quantity : 10 t

Payment : 30% advance via T/T

Balance against B/L copy

Delivery : 30 days from advance payment

Packaging : 25 kg/bag knitted plastic

Port of Origin : Shanghai, China

Shipper : Jiangsu Xiongfeng Technology Co. Ltd.

Table 17-19 Indicative Cobalt Sulphate Commercial Terms.

17.3.5 Overall Cobalt Sulphate Demand

Anecdotal reports from a major Western metals trader revealed that the international cobalt sulphate trade is a “niche” market and very consolidated on both sides of supply and demand. Existing relationships between major producers (OMG, Umicore, Shepherd Chemicals, Kansai) and end-users are very close. The impression is that the end-user market for cobalt sulphate is very small relative to the capacity of cobalt refineries to tailor-produce this material. Involuntary producers like an HPAL processing facility may find themselves in a situation where the CoSO4 market may become flooded because of the magnitude of their by-product capability.

Market Annual Demand, t/a

Plating 1,000

Animal Feed 700

Magnetic Tapes 500

Tyre Adhesives 500

Overall Demand 2,700

Table 17-20 Cobalt Sulphate Demand

Implied market demand for cobalt sulphate is only about 2,500-3,000 t/a. At this point of the market study, an emerging HPAL processing facility may have to explore tie-ups or off-take relationships directly with industrial receivers for the cobalt sulphate by-product.


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17.3.6 Cobalt Price Direction

17.3.6.1 Geographical Supply Sources of Cobalt and Production Costs

Cobalt production is mainly derived as the by-product of mining and processing of copper and nickel ores. However, advances in hydrometallurgical extraction technology, particularly HPAL, have spurred the development of more cobalt-related projects. Ores of gold, silver, lead, and zinc may also contain cobalt but processing of these materials does not always translate into the recovery of the cobalt portions. The main sources of cobalt ores can be classified into:

Nature of Source Countries of Origin

1. Copper-copper deposits DRC and Zambia

2. Nickel sulphide ore bodies Australia, Canada, Finland, Russia

3. Nickel oxide deposits Cuba, New Caledonia, Australia,

Philippines, Indonesia

4. Mixed ores, tailings, slag DRC and Zambia

Table 17-21 Main Sources of Cobalt Ores

Further classification of cobalt sources can be shown as:

Sector Percentage Share

1. Nickel Industry 48%

2. Copper Industry 37%

3. Primary Cobalt Operations 15%

Table 17-22 Cobalt Sources

The recent global financial crisis affected key areas of supply sources and resulted in a meltdown in metal prices, cobalt included. From highs in the region of US$ 50/lb in 2008, cobalt prices collapsed to around US$ 9-10/lb by the last quarter of the year. Understandably, high cost producers immediately announced cutbacks or suspension of operations. Notably, most announcements came from major Africa-based cobalt operators:


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Company Production Announcement Location

1. Gecamines cutback DRC, Africa

2. CAMEC stoppage DRC, Africa

3. Katanga Mining suspension DRC, Africa

4. Geovic Mining delayed Cameroon, Africa

5. Sherritt slow down Madagascar

6. Baja Mining delayed Boleo, Mexico

7. FNX Mining suspension Sudbury, Canada

8. Freeport McMoran deferral DRC, Africa

9. Chambishi suspension Zambia, Africa

10. CMSK stoppage DRC, Africa

11. Mopani slow down Zambia, Africa

12. Ravensthorpe suspension Australia

Table 17-23 Reduction of Cobalt Production Announcements

The above are just a summary of the high-profile developments affecting the cobalt supply situation as prices neared the US$ 10/lb level and most likely implies that this is the price level where high cost producers cannot continue operating indefinitely. Operating costs of these mainly African-based projects are probably at or a little above this price level.

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Figure 17-25 Annual Cobalt Average Prices


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Like the other metals, cobalt has seen dramatic increases and declines over the past few years. The recent spot price levels exceeding US$ 50/lb in 2008 indicated a perceived tight supply environment and reflected some of the uncertainty of the ultimate timing of new cobalt projects. 75% to 85% of cobalt production is derived from other minerals such as copper and nickel. To an extent, prices and the attendant economics for the two other metals will influence cobalt supply and its pricing; and as affected by the political and economic conditions where major cobalt ores are sourced, mainly Africa.

The first huge spike in cobalt prices occurred in the late 1970’s when rebels invaded the Katanga Province of the Zaire, now known as the Democratic Republic of Congo. Cobalt supply sources were threatened.

The second major price spike occurred during 1994 to 1996 where prices moved above US$30/lb.

The third huge price surge was seen during the period 2006-2008 where demand was tight and mining companies were hard-pressed to ramp up output. Prior to the global financial crisis, cobalt prices exceeded US$ 50/lb.

All three price spikes were followed by a collapse in prices. Market reactions to these price collapses were seen in the supply side where producers stopped or curtailed operations. It seems that price levels in the region of US$ 6 to10/lb is not economical and is a natural “long-term” floor.

17.3.7 Long Term Forecast of Cobalt Prices

Pricing Parameter Price US$/lb

Historical Long Term Average 15

Implied Price Floor 6-10

Minercon Forecast (2009 – 2015) (low average) 12-14

Minercon Forecast (2009 – 2015) (high average) 16-18

Table 17-24 Long Term Forecast of Cobalt Prices

The low forecast (Co prices US$ 12-14/lb) takes the view that the global financial crisis will take longer to resolve and that industrial demand will not be as robust compared to the pre-2008 period. It also presumes that all nickel/cobalt projects will come on stream in the next 3-5 years such that recovery in cobalt demand will be sufficiently met by expansions of existing operations and new projects. Note also that despite the surge in cobalt demand during the price surge in 2006-2008, the growth in world refinery capacity is more than enough to meet cobalt demand during the same period.

In terms of refined metal production, China is the dominant major producer, followed by Finland, Norway, Canada, Zambia, and Russia. China does not have


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relatively substantial cobalt resources and imports more that 90% of its cobalt raw materials from Africa, mostly in the form of concentrates.

Country 2003 2004 2005 2006 2007

Australia 4,950 4,950 4,500 4,500 6,000

Belgium 1,200 1,200 1,800 1,500 1,500

Brazil 1,100 1,200 1,200 1,200 1,420

Canada 5,200 5,300 5,300 5,900 5,980

China 5,900 15,000 25,000 25,000 30,000

Congo (DRC) 17,600 17,600 15,000 15,000 15,000

Finland 10,000 10,000 10,000 10,000 10,000

France 600 600 600 600 500

India 370 550 1,560 1,560 1,560

Japan 600 600 600 1,000 1,100

Morocco 1,350 1,600 1,650 1,650 1,650

Norway 4,600 4,800 5,200 5,200 5,200

Russia 8,000 8,000 6,000 6,000 6,000

South Africa 1,000 1,000 750 750 750

Uganda 720 720 720 720 720

Zambia 9,700 9,700 8,200 8,200 8,200

Total 72,900 82,800 88,100 88,800 95,600

Table 17-25 World Cobalt Refinery Capacity (contained cobalt in tonnes)

2003 2004 2005 2006 2007

World Total 46,000 50,000 53,400 55,700 56,250

Table 17-26 World Cobalt Demand (tonnes)

The high forecast (Co prices US$ 16-18/lb) takes the optimistic view that the world (Western economies in particular) financial markets will return to normal and that the recession in the world economy will be brief. Demand will be generated mainly from the development of HEV or hybrid vehicle sales where cobalt plays a key role in battery systems. It also assumes that, despite funding commitments, new projects may take longer to go online. This is coupled also with potential market apprehensions on whether political and economic disruptions may occur from major cobalt mining regions in Africa, DRC and the other countries in the region. Cobalt shipments from the DRC pass through road and railway systems that traverse countries with potential political unrest.


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17.4 Ammonium Sulphate Industry Market Review

17.4.1 Summary

17.4.1.1 Ammonium Sulphate Supply-Demand

Demand for ammonium sulphate will be characterised by a steady increase in consumption as fertiliser in the agricultural sector. Forecasts by a leading market research firm, British Sulphur Consultants predict that global growth rates will average between 2.0% to 2.6% in specific consuming regions. By 2020, consumption is expected to reach about 23.8 Mt worldwide.

Global production is projected to reach 24.3 Mt by 2020 and will roughly balance with expected demand through the forecast period. New capacity will be installed mainly through the caprolactam production process and from major nickel projects from Australia, Madagascar, and the Philippines.

17.4.1.2 Ammonium Sulphate Price Forecast

Year

Ammonium Sulphate

Standard

US$/t

Ammonium Sulphate

White

US$/t

2007 123 162

2008 201 260

2009 139 158

2010 148 165

2011 140 155

2012 140 155

2013 145 162

2014 152 170

2015 164 183

2016 180 200

2017 193 214

2018 216 238

2019 207 231

2020 200 226

Table 17-27 Ammonium Sulphate Price Forecast, FOB Black Sea


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Long Term Forecast for Ammonium Sulphate Price US$/t

Forecast 2009 – 2020

(Ammonium Sulphate, Standard)

168


(Ammonium Sulphate, White)

191

Table 17-28 Long Term Forecast for Ammonium Sulphate

17.4.2 Ammonium Sulphate Demand

Figure 17-26 Regional Structure of Ammonium Sulphate Consumption in 2007

Ammonium Sulphate is described as a brownish-grey to white crystalline salt with chemical formula of (NH4)2 SO4. It is used mainly in fertilisers.

As a fertiliser product, ammonium sulphate is characterised by certain advantages such as high sulphur content in sulphate form, which is readily absorbed by plants; it has low pH making it suitable for alkaline soils. As a nitrogenous fertiliser, ammonium sulphate competes with products like urea and ammonium nitrate (AN). With a sulphur (S) content of 24%, ammonium sulphate is the only significant S-containing nitrogen fertiliser.

Sulphur has been increasingly recognised as an essential nutrient for plant growth since it is important in the synthesis of amino acids, proteins, enzymes, vitamins and is a key ingredient in the formation of chlorophyll. Sulphur deficiency in plants can result in stunted growth, yellowing of younger leaves and reduced


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seed set. Ammonium sulphate is found to be beneficial to a variety of crops like canola, alfalfa, corn, potatoes, rice, vegetables, and wheat. Global consumption of ammonium sulphate has been increasing year-on-year and in 2007 stood at 20.5 Mt, an increase of 2.69 Mt compared to 2002 with Southeast Asia, West Europe, South America, and North America the biggest regional consumers.

Region 2002 2002 2007 2007 +/- 02/07 +/- 02/07

share,% share,% volume %

West Europe 2,907 16% 3,188 16% 281 10%

Central Europe 301 2% 405 2% 104 34%

FSU 798 4% 756 4% -42 -5%

Africa 535 3% 484 2% -51 -10%

North America 2,937 16% 2,794 14% -143 -5%

Central America 1,184 7% 1,302 6% 118 10%

South America 1,783 10% 2,720 13% 937 53%

Middle East 1,114 6% 1,236 6% 122 11%

South Asia 680 4% 539 3% -141 -21%

Southeast Asia 2,981 17% 4,025 20% 1,044 35%

East Asia 2,105 12% 2,484 12% 379 18%

Oceania 452 3% 535 3% 83 18%

TOTAL 17,881 20,470 2,691 15%

Table 17-29 Ammonium Sulphate Consumption by Regions 2002 and 2007


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Figure 17-27 Ammonium Sulphate Prices

Historical prices for ammonium sulphate displayed erratic movements during 2008. Ammonium sulphate prices generally followed the prices of other nitrogen fertilisers such as urea and ammonium nitrate (AN). The increased volatility and upward price development throng in 2007-2008 led to record differentials of nearly US$ 100/t between the two types of ammonium sulphate, white and standard.

17.4.3 Ammonium Sulphate Supply

Most ammonium sulphate is produced involuntarily as a co-product or by-product of other industrial processes. More that half of global ammonium sulphate output originates from caprolactam manufacture. Caprolactam is an organic compound with chemical formula of (CH2)5C(O)NH. It a colorless solid that is a precursor to Nylon 6, a type of raw material used in the textile and plastic industries.


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caprolactam55%

COG15%

emissions1%

gypsum2%

MMA2%

Ni-PAL3%

synthetic21%

acrylonitrile1%

Figure 17-28 Global Ammonium Sulphate Capacity by Source, 2007

17.4.4 Ammonium Sulphate Processes

These are a number of processes that can produce ammonium sulphate:

The Coke Oven Gas Process

Caprolactam Process

Ammonium Carbonate – Gypsum Process

The Synthetic Method

Nickel Processing

Emissions Scrubbing Processes.


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Apart from caprolactam manufacture, ammonium sulphate can be produced also as a by-product of methyl methacryalate (MMA), acrylonitrile (ACN), uranium processing, catalytic oxidation, melamine production, and nickel HPAL operations. However, these represent only a small percentage of global ammonium sulphate output.

17.4.5 Major Companies in the Ammonium Sulphate Market

1,630 1,624 1,475

1,156

855 720

548

750 700 650

CPL route

Other routes

Total: 10.1 million tonnes

Figure 17-29 Key Producers by Ammonium Sulphate Capacity, 2008 (in kt)

The above figure shows the major global companies producing ammonium sulphate. Five (5) industry players dominate the market and own a large proportion of the global ammonium sulphate capacity. These companies include BASF, Honeywell, UBE, DSM, and LANXESS.


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Region 2002 2002 2007 2007 ± 02/07 ± 02/07

share,% share,% volume %

West Europe 3,950 22% 4,119 20% 169 4%

Central Europe 863 5% 785 4% -78 -9%

FSU 2,203 12% 2,570 13% 367 17%

Africa 276 2% 145 1% -131 -47%

North America 3,683 21% 3,795 19% 112 3%

Central America 950 5% 1,015 5% 65 7%

South America 395 2% 416 2% 21 5%

Middle East 210 1% 272 1% 62 29%

South Asia 578 3% 480 2% -98 -17%

Southeast Asia 909 5% 1,211 6% 302 33%

East Asia 3,460 19% 5,210 25% 1,750 51%

Oceania 406 2% 497 2% 91 22%

TOTAL 17,882 20,514 2,632 15%

Table 17-30 Ammonium Sulphate Production by Regions, 2002 and 2007

17.4.6 Ammonium Sulphate Supply Outlook to 2020

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

East Asia

West Europe

North America

FSU

Central America

South East Asia

Central Europe

South Asia

South America

Oceania

Middle East

Africa

2020 2007

Figure 17-30 Regional Ammonium Sulphate Capacity, 2007 and 2020 (in kt)


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Country Company Location New AS Capacity Grade

On-stream Manufacturing Previous Possibility of

Addition Route Capacity Project

t/a t/a Going Ahead

The Netherlands DSM Geleen n/a Crystalline & n/a CPL 610,000 Low

granular

Belgium LANXESS Antwerp 85,000 Crystalline & 2010 CPL 855,000 Medium

granular

Poland ZA Pulawy Pulawy 12,000 Crystalline 2011 CPL 156,000 High

Egypt SCFP Suez 150,000 Crystalline 2009 synthetic 150,000 High

South Africa Sasol Sasolburg 100,000 80k crystalline 2011 synthetic 0 Commissioning

20k granular Q4 2008

Madagascar Sherritt Ambatovy 190,000 Crystalline 2011 Ni-PAL High

USA Honeywell Hopewell 111,000 Crystalline & 2008 CPL 1,512,000 Already

granular on-stream

Venezuela Pequiven Puerto 90,000 n/a 2011 synthetic 75,000 High

Nutrias

Thailand Thai Corp. Rayong 80,000 Crystalline 2010 CPL 440,000 High

Public Co. Ltd

China Zhenjiang Zhenjiang 300,000 n/a 2009 CPL 0 High

Henyi Group Province

China DSM/Sinopec Nanjing 100,000 Crystalline 2009-2010 CPL 252,000 High

China Sinopec Beijing Yueyang, 84,000 Crystalline 2009 CPL 200,000 Medium

Petrochemical Hunan

Taiwan Taiwan China n/a 50,000-100,000 Crystalline 2009 CPL 285,000 High

Petrochemical

Development

Australia Gladstone Central 170,000 Stage 1 Crystalline 2010 Ni-PAL 0 High

Pacific Nickel Queensland 150,000 Stage 2

Ltd. (GPNL)

Table 17-31 Ammonium Sulphate Capacity Expansions


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New ammonium sulphate capacity is coming on stream. South Africa has just completed a new Sasol plant. Africa is currently the region with the smallest ammonium sulphate capacity in the world but will show the biggest rate of capacity growth during the forecast period.

In the USA, high ammonium sulphate production in 2007 was driven by high caprolactam operating rates to satisfy demand for nylon producers in China. Apart from the 10% capacity expansion completed in 2008 of the Hopewell facility owned by Honeywell International, no other caprolactam expansion is foreseen in the USA. However, ammonium sulphate capacity is likely to increase due to application of emission scrubbing technology to electric power plants. North America will continue to produce high volumes of ammonium sulphate to meet the high demands of the internal markets, especially of the USA, and as well as to capitalise on the strong demand from Brazil. Mexico is the only producer in Central America and most of the capacity is for synthetic ammonium sulphate. Venezuela’s capacity is due to increase in 2012 with the new ammonium sulphate plant at Puerto Nutrias, owned by Pequiven. It will not only satisfy domestic demand but will also feed the Latin American market.

In South Asia, the Indian company FACT is producing ammonium sulphate via the synthetic route. In 2008, ammonium sulphate was included in a subsidy scheme that is expected to increase ammonium sulphate demand in India.

In South East Asia, one of the few regions where the majority of ammonium sulphate is produced synthetically, Thai Caprolactam Public Co., will expand capacity by 20% in 2010. China has seen rapid growth in the last few years due to the expansion of the caprolactam and metallurgical coke industries. More caprolactam and therefore more ammonium sulphate capacity is due to come on stream by expansion of existing facilities and greenfield projects.

In Australia, the Gladstone Pacific Nickel Ltd., is establishing a new HPAL project expected to be completed by 2012 and will be producing 170,000 t/a of ammonium sulphate when the refinery will be operating at full capacity.

The Ambatovy project in Madagascar is another HPAL project expected to produce 190,000 t/a of ammonium sulphate. The Intex HPAL facility in Mindoro island, Philippines is planned to turn out 145,000 t/a of ammonium sulphate.

British Sulphur Consultants forecasts global ammonium sulphate capacity to increase from 24.4 Mt in 2007 to 27.6 Mt by the end of the forecast period.


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17.4.7 Demand Outlook to 2020

0 1,000 2,000 3,000 4,000 5,000

South East Asia

West Europe

South America

North America

East Asia

Central America

Middle East

FSU

South Asia

Oceania

Africa

Central Europe

2020 2007

Figure 17-31 Regional Ammonium Sulphate Demand, 2007 and 2020 (in kt)

British Sulphur Consultants (BSC) forecasts that the biggest changes in demand will occur in:

Region Growth

1. Central Europe 2.4%

2. Central America 2.6%

3. South Asia 2.4%

4. South East Asia 3.1%

5. Western Europe (0.1)%

6. Others 2.0%

Table 17-32 Change in Ammonium Sulphate Demand


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17.4.8 International Trade Flows of Ammonium Sulphate

Figure 17-32 Major Ammonium Sulphate Trade Flow, 2007

In 2007, East Asia and West Europe accounted for more than half of the globally exported ammonium sulphate, with the Former Soviet Union (FSU) and North America making up a further 34% between them. China emerged as the third biggest exporter on a country basis in 2007 representing a 10% share of the total market. This is a big increase compared to 2003 when Chinese exports accounted for only 1% of the total volume. The largest importers of ammonium sulphate in 2007 were South East Asia, South America, and West Europe, each with more than or close to 2 Mt of imports. In South America, the major importer is Brazil, accounting for about 80% to 90% of regional imports of ammonium sulphate.


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17.4.9 Ammonium Sulphate Price Forecast

Year Ammonium

Sulphate Ammonium

Sulphate Ammonium

Sulphate Ammonium

Sulphate

(standard) (standard) (white) (white)

US$/t US$/tN US$/t US$/tN

2007 123 584 162 770

2008 201 957 260 1,236

2009 139 662 158 752

2010 148 707 165 787

2011 140 667 155 737

2012 140 667 155 737

2013 145 691 162 771

2014 152 723 170 808

2015 164 780 183 870

2016 180 856 200 951

2017 193 921 214 1,021

2018 216 1,030 238 1,135

2019 207 987 231 1,102

2020 200 954 226 1,074

Table 17-33 Ammonium Sulphate Price Forecast, FOB Black Sea


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Figure 17-33 Ammonium Sulphate and Urea Price Forecast, FOB Black Sea

The forecast for ammonium sulphate is constructed by analyzing the Nitrogen (ammonia), Urea, and Sulphur price markets since these are the key ingredients that make up ammonium sulphate. Ammonium sulphate can also substitute for urea.

Ammonium sulphate prices follow a very similar trend to the other fertilisers. Prices increased through 2007 and hit record highs in 2008 before falling sharply during the global economic downturn in the final quarter of that year.

The British Sulphur outlook forecasts ammonium sulphate prices declining in 2009 from 2008 peaks but is expected to rebound starting 2010. Prices may then retreat during 2011 at which point, a stable scenario is predicted during 2011 to 2012. Beyond this, a recovery is expected, signalling the onset of the next cyclical price upturn. The price improvement is expected to last until 2018 with prices starting to retreat again by 2019.

Long Term Forecast for Ammonium Sulphate Price US$/t


(Ammonium Sulphate, Standard)

168


(Ammonium Sulphate, White)

191

Table 17-34 Long Term Forecast for Ammonium Sulphate Price


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17.5 Chromite Industry Market Review

17.5.1 Summary

17.5.1.1 Chromite Demand

Demand for chromite is driven by the demand for stainless steel. More than 90% of chromite ores are smelted into ferrochrome, the precursor to stainless steel.

Production of chromite ores is dominated by four countries: South Africa, India, Kazakhstan, and Turkey. In 2008, approximately 24 Mt of chromium ores and concentrates were produced.

17.5.1.2 Chromite Price Forecast

For the Mindoro Nickel Definitive Feasibility Study, Minercon recommends the following price forecast:

Period Minercon Forecast

2010 – 2020 US$ 250/t

Table 17-35 Chromite Price Forecast

Demand for stainless steel, the underlying driver of chromite demand has been growing for the last decade. While the stainless steel market has softened recently in line with the global economic slowdown, its long-term fundamentals still underpin the market. Demand for ferrochrome is also given further impetus as the stainless steel industry shifts from the austenitic 300 series in favour of the chrome rich ferritic 400 series.


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17.5.2 Chromite Demand

Metallurgical92.0%

Refractory and Foundry Sands

4.5%

Chemical3.5%

Figure 17-34 Global Chromite Demand by End-Use, 2008

17.5.2.1 Stainless Steels

The major demand for chromite is in the form of metallurgical grade, composed typically of more than 46% chromic oxide or Cr2O3. More than 90% of chromite produced of this quality finds intermediate use as ferrochrome. Ferrochrome in turn is used as the raw material in the manufacture of stainless steel. Chromium usually in alloy with nickel, imparts to stainless steels the ability to resist corrosion and oxidation.

17.5.2.2 Refractory Applications

The balance of demand (8%) is either refractory grade or chemical grade chromite.

Chromite has been used in foundry and refractory industries for more than 100 years due to its ability to be chemically inert and retain its properties at high temperatures. It is applied in various refractory bricks, motors, castables, ramming and gunning mixes. Most of these compositions are blends of magnesia (MgO) and chromite. These are used in the steel and base metal pyrometallurgical operations as furnace linings. In the cement industry, chrome-magnesite bricks are used in lining the burning zones of rotary kilns.

Chromite foundry moulding sands are used to take advantage of their increased heat conductivity that improves the integrity of casting products.


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17.5.2.3 Chemical Applications

Chromium-based chemicals find a variety of end-uses in leather tanning, pigment materials, and plating of reactive metals.

In pure form, chromium is used as a key ingredient in alloys for aircraft engines and land-based turbines. In addition, chromium metal powders are used in the production of welding electrodes and cored wires.

17.5.3 Chromite Supply

South Africa38.7%

India19.4%

Kazakhstan14.8%

Turkey6.7%

Rest of the World20.3%

24,900 kt

Figure 17-35 World Chromium Ore and Concentrates Production, 2007

From the year 2000 onwards, world chromium production (in ores and concentrates) increased from 15 Mt to 25 Mt in 2007. This substantial increase was due to the rapidly rising global stainless steel demand, particularly in China, where domestic ferro-alloy plants consumed large volumes of imported chromite ore.

Worldwide, 82% of chromite production came from four (4) countries: South Africa, India, Kazakhstan, and Turkey. South Africa is the largest producer and accounts for about 40% of chromite output.

Chromium ores are sold in three principal forms:

a) Lumpy Ore – Direct shipping ore is referred to as “lumpy ore” and is defined as “greater than” 6 mm size fraction

b) Fines – Fines are defined as “less than” 6 mm size fraction

c) Concentrates or Beneficiated Ore – Fine-grained chromite ores that are not amenable to direct smelting and need to be pelletised or briquetted.


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Country 2000 2001 2002 2003 2004 2005 2006 2007

Albania 120 86 73 98 160 170 201 324

Finland 628 575 566 549 580 572 549 556

Russia 79 118 71 169 447 772 1,059 1,679

Madagascar 131 61 11 45 77 93 116 122

Sudan 29 21 14 37 26 22 24 38

Zimbabwe 668 780 726 573 668 614 700 664

Cuba 56 50 20 28 42 15 5 0

Brazil 600 419 284 377 594 617 563 628

Afghanistan 5 6 6 6 7 7 7 7

China 208 182 164 198 230 220 220 220

Iran 145 178 232 150 135 225 245 186

Myanmar 3 3 0 0 0 0 0 0

Oman 15 30 27 14 29 34 67 338

Pakistan 24 22 17 31 29 56 65 104

Philippines 21 28 22 34 42 36 47 32

U.A.E. 30 10 0 0 7 0 0 19

Vietnam 76 80 66 91 82 6 3 3

Australia 74 16 57 67 110 90 107 99

Turkey 546 455 326 229 506 859 1,060 1,679

Kazakhstan 2,607 2,046 2,370 2,928 3,287 3,581 3,366 3,687

India 1,972 1,549 3,069 2,905 3,621 3,714 4,096 4,821

South Africa 6,662 5,502 6,436 7,405 7,677 7,503 7,418 9,647

World Total 14,700 12,200 14,600 15,900 18,400 19,200 19,900 24,900

Table 17-36 Global Chromium Ore and Concentrates Production (kt)

However the bulk of global trade in chromite products is in the form of “ferrochrome.” Most ferrochrome is produced by vertically-integrated mining, pelletizing, and smelting operations that produce the ferrochrome on site or near the mine. The dominant source of ferrochrome in the world market is South Africa, which accounted for 45% of global output in 2008.


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South Africa45%

China18%

Kazakhstan13%

India10%

Others14%

Figure 17-36 Global High-Carbon Ferrochrome Production, 2008

17.5.4 Chromite Ore Price Direction

0

100

200

300

400

500

600

700

800

900

2005 2006 2007 2008 2009

Turkey (47%) India (50%) South Africa (33%)

$/t

Figure 17-37 Chrome Ore Import Prices, China


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Country 2005 2006 2007 2008

South Africa 329.2 868.4 1,964.3 2,603.5

Turkey 619.4 740.9 1,082.9 1,179.8

India 975.3 1,339.6 984.2 550.5

Kazakhstan 72.1 144.2 198.1 203.9

Oman 50.4 70.6 338.0 813.7

Pakistan 152.0 196.6 295.3 379.4

Australia 203.6 224.4 220.0 69.3

Others 418.3 515.7 788.0 979.2

Total 2,820.3 4,100.4 5,870.8 6,779.3

Table 17-37 Chrome Ore Imports, China (kt)

Demand for stainless steel, the underlying driver of chromite demand has been growing for the last decade. While the stainless steel market has softened recently in line with the global economic slowdown, its long-term fundamentals still underpin the market. Demand for ferrochrome is also given further impetus as the stainless steel industry shifts from the austenitic 300 series in favour of the chrome rich ferritic 400 series.

China is still the main market mover for metals. Despite an economic slowdown in the rest of the world, China’s announced stimulus package of $586 billion appears to be taking effect. A large percentage of this stimulus has been allocated for new airports, railroads, housing, and reconstruction which are all expected to increase demand for stainless steel and other base metals.


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-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

Volume Y-o-Y Change

kt Y-o-Y

Figure 17-38 Projected Chinese Stainless Steel Consumption

Based on the preceding considerations, the Minercon forecast for chromite ore prices will be:

Period Minercon Forecast

2010 – 2020 US$ 250/t

Table 17-38 Recommended Chromite Price Forecast

Long-term price records indicated that prior to the 2005-2008 run-up, prices fluctuated between a band of US$ 50/t – US$ 200/t. Considering future production cost structure of chromite producers, an average forecast of US$ 250/t can be reasonable.

17.6 Zinc Industry Market Review

17.6.1 Summary

17.6.1.1 Zinc Metal Supply-Demand

Zinc metal finds major application in the galvanizing of steel where it is applied as a coating to prevent corrosion. In 2008, demand for zinc in refined form was approximately 11.49 Mt.

Over 95% of the world’s zinc is sourced from zinc sulphide (ZnS) concentrates. Global mine production at 2008 levels was about 11.76 Mt of contained zinc.


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17.6.1.2 Zinc Price Forecast

Projected Period Minercon Price Forecast

2010 – 2020 US$ 2,370/t

Table 17-39 Zinc Price Forecast

The Minercon price forecast assumes a supply-side bottleneck where mine production may be restricted by a lack of investment in new zinc projects.

17.6.1.3 Projected Zinc Sulphide Concentrate Terms

Contract Parameter Smelter Terms

Payable Metal 85%

Treatment Charge US$ 300/t

Basis Price US$ 2,000/t

Escalator 10%

De-escalator 6%

Table 17-40 Zinc Concentrate Terms

As a conservative stance, Minercon recommends the use of the above commercial terms for the sale of zinc sulphide concentrates.

17.6.2 Zinc Demand

Galvanizing50%

Brass/Bronze17%

Die-Cast Alloys17%

Chemicals6%

Semi-Manufactures

6%

Others4%

Figure 17-39 Global Zinc Demand by End-Use, 2008


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Construction45%

Transport25%

Consumer Goods23%

General Engineering

7%

Figure 17-40 Global Zinc Demand by Industry Sector, 2008

The predominant use of zinc is in the galvanizing of steel where it is applied as a coating to prevent corrosion. Galvanised steel is used extensively in infrastructure (bridges, electricity transmission and distribution), in construction (commercial and residential), and in the manufacturing and automotive sectors. Galvanizing represents 50% of global zinc consumption and the underlying measure of demand is determined also by developments in the galvanised steel markets.

The second most important use of zinc for the manufacture of bronze and brass products, wherein this industry sector accounts for 17% of global demand for metal. The use of brass and bronze is highly dependent on the level of activity in the construction industry, since these alloys are used for plumbing fittings, heating, and air-conditioning components.

The third most important use of zinc, accounting for another 17% of total demand, is in zinc-based alloys for die-cast parts such as builder’s hardware and automotive components. Zinc in chemicals, representing 6% of total usage, is used for the treatment of rubber, anti-corrosion agents for lubricants and paint.

Zinc semi-manufacturing, accounting for 6%, includes applications in roofing, dry-cell batteries and coinage. Other uses for zinc are found in agricultural, cosmetic, and medicinal products.

17.6.3 Zinc Supply

Zinc (chemical symbol: Zn), in its pure refined form, is a bluish-white metallic element. In commercial shapes, it usually has a dull finish and melts at 420oC.


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Figure 17-41 Zinc Commercial Shapes

Over 95% of the world’s zinc is produced from zinc sulphides (ZnS) or concentrates that contain 25-60% of the metal. Zinc ores are usually associated with sulphur, lead, copper, gold, silver, and other metals. To recover zinc, its ores may be subjected to hydrometallurgical and pyrometallurgical processes or a combination of both.

17.6.3.1 Typical Zinc Smelter and Refinery

The most common process in zinc extractive metallurgy is to roast or sinter the zinc concentrates to temperature around 900 oC where ZnS is converted into the more reactive zinc oxide (ZnO). At the same time, sulphur reacts with oxygen which is subsequently converted to sulphuric acid, a by-product of a typical zinc smelter operation.

The intermediate material, ZnO, is leached with sulphuric acid where zinc (together with any lead and silver) dissolves in solution. After a series of purification steps, the zinc-rich solution is electrolyzed between lead alloy anodes and aluminium cathodes. The deposited zinc is periodically stripped off, dried, melted and cast into commercial shapes known as slabs, or ingots of various weight specifications. The zinc slabs or ingots may have different grades such as High Grade (HG) 99.95% Zn and Special High Grade (SHG) 99.99% Zn.

17.6.3.2 Specialised Imperial Smelting Process

An alternative zinc extraction method is the Imperial Smelting Process (ISP). The ISP is based on the principle of reducing zinc and lead into metal with carbon in a specially designed blast furnace. In an Imperial Smelting furnace, pre-heated air is blown from below the shaft of the furnace. The sintered charge, containing the zinc-laden ore or concentrate, is fed together with pre-heated coke at the top of the furnace.

The coke is converted into carbon monoxide gas and reduces the charge into metallic zinc and lead. The lead is melted and flows down to the bottom of the


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furnace and carries copper, gold, and silver along with it. Zinc evaporates and combines with the stack gases. The vaporised zinc is captured in crude form in a series of retorts and cooling chambers.

The ISP is an energy-intensive process and has become an expensive operation following the rise of energy prices. Today, Imperial Smelting furnaces are found only in Japan, China, India, and Poland.

Europe9% Africa

2%Oceania

13%

Americas36%

Asia40%

11,755 kt

Figure 17-42 Global Zinc Mine Production, 2008

Global mine production was 11,755 kt in 2008 while refined metal output was 11,683 kt. Asia, principally China was the largest producer of the refined metal. The Asian region is also the largest consumer of zinc.


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17.6.4 Zinc Market Balance and Price Forecast

0

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800

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1,400

0

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1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Zinc LME Stocks Zinc LME Cash Price

US$/t kt

Figure 17-43 Zinc 20-Year Monthly Average Cash Price

World zinc cash prices averaged US$ 1,529.20/t during the first 10 months of 2009, which is around 18% lower than the average for the whole year of 2008.

During the last quarter of 2008, mine closures and smelter production cutbacks were accelerated due to deteriorating demand conditions precipitated by the global financial crisis. By year end, zinc prices were at US$ 1,100/t. However, during the first half of 2009, prices started to improve, supported mainly by Chinese purposes for its strategic stockpile and speculative investment demand.


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17.6.4.1 Market Balance and Zinc Price Direction

(600)

(400)

(200)

0

200

400

600 kt

Figure 17-44 Global Zinc Supply/Demand Balance

In the October 2009 meetings of the International Lead and Zinc Study Group (ILZSG) in Lisbon, Portugal, the following supply demand parameters were forecasted for the year 2010:

Global Parameter Percent Change from Previous Year

2009 2010

Mine Production (5.4) 8.1

Refined Production (4.7) 10.1

Refined Consumption (5.6) 11.9

Table 17-41 Zinc Demand Changes

For 2009, ILZSG predicts that mine production would drop by 5.4% from 2008 levels. Estimated losses in 2009 output were in excess of 1.0 Mt of contained zinc. However due to the pick-up in apparent demand during the first half of 2009, these mine cutbacks and suspensions have been observed to have started to reverse. New capacity is also foreseen from Finland, Spain, and Mexico. As such, mine production for 2010 is estimated to rebound by 8.1% over 2009 output.

On the refined production front, 2009 metal output has been curtailed due to closures and reduced operations in Germany, Romania, Belgium, Kazakhstan, Canada, Japan, South Korea, Russia, and the U.S. Overall, ILZSG predicts a fall of 4.7% in refined production during 2009. In line with the general perception of world economic recovery, ILZSG takes the position that zinc metal output will rise by 10.1% in 2010. Principally, new metal production is expected out of Peru, India, and China.


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Consumption of zinc metal is also predicted to recover by 11.9% in 2010, after falling by 5.6% in 2009. General demand momentum is expected to be originating from China, where its economic stimulus is forecasted to generate metals demand in housing, railways, roads, airports, and post-earthquake reconstruction. Economic recovery in other regions in Europe, Japan, and the U.S. is likewise anticipated.

17.6.4.2 Mine Supply Outlook

Brook Hunt forecasts a future mine output scenario showing declining zinc mine production up to 2020. If no significant mine opening occurs after the 2010-2014 period, mine capacity may be insufficient to meet projected demand. Using 2008 mine output of 11,755 kt as the base year, Brook Hunt’s projection indicates substantial production decline due to closure and decreasing head grades despite known new projects and expansions. By 2020, annual zinc mine production may just be about 8,555 kt or 27% below 2008 levels.

11,755

600 1,300

(4,000)

(1,100)

(3,200)

8,555

(6,000)

(4,000)

(2,000)

0

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4,000

6,000

8,000

10,000

12,000

14,000

Production 2008

New Projects

Expansions Closures Attrition TOTAL Production 2020

kt

Figure 17-45 Projected Zinc Mine by Source 2008 – 2020

The lack of new mine production is attributed to the difficulty in financing and permitting of new mines. Brook Hunt states that this situation continues and the addition of new mines is likely to be very slow and therefore the outlook for a chronic supply deficiency by 2012 is very strong.


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17.6.4.3 Zinc Smelter Capacities and Refined Metal Outlook

China38%

Western Europe14%

North America8%

FSU7%

Latin America7%

India6%

Korea6%

Japan5%

Australia5%

Africa3%

Other Asia1%

11,240 kt

Figure 17-46 World Zinc Smelting Production, 2009(e)

The zinc smelting industry is fragmented and consists of about 220 smelters and refineries. Of these total, 138 plants are in China which accounts for about 38% of world smelting capacity in 2009 (Brook Hunt 2009). Smelter capacity utilisation is estimated to be at 77.2% in 2009, down from 83% in 2008. These smelter cutbacks were mainly due to reduced profitability as a result of falling treatment and refining charges, collapse in by-product sulphuric acid prices and loss of price participation revenues as zinc prices hit low levels.

Although, approximately 1.2 Mt of zinc smelting capacity was shutdown during 2009 due to the collapse in zinc demand, Brook Hunt estimates that further smelter additions, expansions and debottlenecking are planned over the next 3 years to 2012.

Addition

kt

Expansion

kt

Debottlenecking

kt

Total

kt

Latin America 160 160

South Korea 25 25

India 210 20 230

Japan 40 40

Europe 110 110

China 460 1,240 1,700

Total 670 1,465 130 2,265

Table 17-42 Zinc Expansion Projects


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Seventy-five percent (75%) of this incremental new production comes from China. However, the full impact of this new Chinese smelter production will be partially offset by the closure of about 400,000 t of capacity that are deemed inefficient and pollutive.

Taking into account the 2009 capacity utilisation and the projected incremental capacity increase, nominal zinc smelting capacity for the whole world is calculated to be about 16,400 kt. From 2009, this capability appears to be more than enough to meet refined zinc metal consumption over the next three years.

17.6.4.4 Zinc Price Forecast

Projection Year Brook Hunt

US$/t

Minercon

US$/t

2010 1,445 1,600

2011 1,900 1,800

2012 3,125 2,200

2013 4,750 2,400

2014 4,775 2,500

2015 4,020 2,600

2016 2,150 2,600

2017 n/a 2,600

2018 n/a 2,600

2019 n/a 2,600

2020 n/a 2,600

Average: 2,370

Table 17-43 Zinc Price Forecast

Brook Hunt projects a very aggressive price scenario, mainly for the 5-year period starting 2012 when a supply crunch is predicted. Essentially, Brook Hunt considers the outlook for zinc prices as very bright and rewarding to miners. Based on this Brook Hunt outlook, a number of zinc producers take a bold view that this potential supply problem can cause a repeat of the run-up in zinc prices similar to that which occurred during 2004-2007.

The Minercon forecast is a moderate and conservative view compared to the Brook Hunt price projection. It still assumes similar supply-side restrictions as the Brook Hunt scenario but the initial period (2010 to 2011) is tempered by the


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calculated overhang of LME and producer stocks of over 1.0 Mt in 2009 and the potential slow demand-side recovery of the world economy from the global economic crisis. Overall, the Minercon forecast is still higher than the demonstrated 20-year average of zinc prices.

The Minercon price forecast is based on the following considerations:

a) Mine Production – Base year is 2010 when overall industry parameters are projected to improve as the world recovers from the financial downturn. However, due to the lack of investments for new zinc projects and the depletion of existing mine operations, mine supply is expected to display decreasing growth over the 2010-2015 period. This will be the period with an increased potential for price strength, assuming all other aspects of refined production and consumption exhibit low to moderate growth.

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600 kt

Figure 17-47 Global Zinc Concentrate Balance

b) Refined Consumption (Usage) – Global zinc consumption is projected at a 2.6% growth rate over the period 2011-2020 (Brook Hunt). This is slower than the 3.4% rate prior to the major run-up of zinc prices in 2005-2007.

Period Zinc Consumption Growth Rate (%)

1960 – 1973 5.4

1974 – 1990 0.7

1991 – 2005 3.4

2006 – 2020 2.6 Forecast

Table 17-44 Zinc Consumption Growth


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c) Refined Production – Smelting production capacity has generally been higher than refined consumption and has historically demonstrated its ability to meet industrial zinc demand.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Refined Production Refined Consumption

kt

Figure 17-48 Zinc Production and Consumption

17.6.5 Zinc Sulphide Concentrate Trade

To Asia

To Europe

Figure 17-49 Zinc Trade Patterns


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17.6.5.1 Zinc Sulphide Smelter Contract

Typical contracts for zinc sulphide concentrates would involve the following commercial terms:

a) Duration and Quantity – For long term contracts, duration is normally one year or linked to the life of the mine. Spot contracts would be material offered as these are available or accumulated by a producer.

b) Payable Metals – Percentage payment by the receiving smelter reflects existing trade practice and is related to the metal recoveries by the particular smelter facilities. Typical payable terms can be:

Zinc (Zn) 85% payable subject to a minimum deduction of 8 units, whichever is lower.

Silver (Ag) 65% payable after deduction of 3.0 – 3.5 ounces per dry metric tonne.

Gold (Au) 60% payable after deduction of 1.0 – 1.5 grams per dry metric tonne; not all smelters offer gold credits.

c) Penalties – Certain elements harmful to the specific smelting process may be penalised based on a graduated scale, usually in dollars per dry metric tonne of concentrate. Excess iron (Fe) and magnesia (MgO) can be charged penalties.

d) Treatment Charge – Basic treatment charges (TC) are levied by a smelter to process zinc concentrates and is the major source of a smelter’s revenue. TC is expressed in US$ per metric tonne and is negotiated annually or mid-year for long term contracts or on a spot basis. Treatment charges are the biggest single cost for zinc mine producers. Historical zinc TC’s are shown:

US$/t 2004 2005 2006 2007 2008

LME Zinc Price 1,048 1.383 3,275 3,249 1,875

Basis Price 1,000 1,000 1,400 3,500 2,000

TC 140 126 128 300 300

Escalator 16% 16% 14% 8% 10%

De-escalator 14% 14% 12% 6% 6%

Table 17-45 Zinc Historical Terms and Conditions

e) Escalators/De-escalators – Escalators are a feature of zinc concentrate contract that enable a smelter to participate in an increase in metal prices above an agreed trigger level. Above this negotiated basis price, the TC may be increased by a certain percentage. Conversely, de-escalators work in reverse, reducing TC.


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17.6.5.2 Sample Zinc Concentrate Commercial Invoice

PROVISIONAL INVOICEShipment from: Philippine Portto: Chinese Port

DELIVERY: Chinese Zinc Smelter

CONTRACT:

QP: ZnAu and Ag

Provisional Price: April 23 -29, 2008

INVOICE NO: 001 DATE: April 30, 2008

PHILIPPINE Zinc Concentrates shipped perMV from Philippine Port to Chinese Port

US DOLLARS

Wet wt: 5,000.000 wmtMoisture 7.50000% 375.000 mtDry Wt: 4,625.000 dmt

ZINC 60.00% percentMin Ded 8.00% percent unit deduction% Payable 85.00% percentZn Payable 51.00% percent x 2,224.40 $1,134.44

GOLD 0.000 grams/dmt1.500 unit deduction

60.00% percent payable0.000 grams/dmt0.000 ounces/dmt

Au Payable 0.000 ounces x 893.475 $0.00

SILVER 0.000 grams/dmt3.500 unit deduction

65.00% percent payable0.000 grams/dmt0.000 ounces/dmt

Ag Payable 0.000 ounces x 17.01 $0.00

TOTAL METAL VALUE $1,134.44

Figure 17-50 Typical Zinc Invoice


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Deductions T/C: 300.00 $/dmt $300.00R/C Au: 5.000 $/oz x 0.000 $0.00R/C Ag: 0.350 $/oz x 0.000 $0.00

PP/RPP: Basis Price QP Price

+$0.10>$2000/mt 2,000.00 2,224.40 $22.44-$0.06<$2000/mt

Penalties:Cu 2.75% /dmt - 1.50% = 1.25%

1.25% @ $2.00 per 1.00% $2.50Fe 0.00% /dmt - 8.00% = 0.00%

0.00% @ $1.75 per 1.00% $0.00As 0.00% /dmt - 0.10% = 0.00%

0.00% @ $2.00 per 0.10% $0.00Hg 0.00% /dmt - 0.30% = 0.00%

0.00% @ $0.30 per 0.01% $0.00MgO 0.00% /dmt - 0.03% = 0.00%

0.00% @ $1.50 per 0.01% $0.00

Subtotal Deductions for 1 dmt $324.94

TOTAL DEDUCTIONS FOR 1 dmt $809.50

VALUE FOR: 4,625.000 dmt $3,743,956.00

PROVISIONAL VALUE: 90% $3,369,560.40

AMOUNT DUE MINING COMPANY $3,369,560.40

Authorized Signatory

MINING COMPANY

Figure 17-51 Typical Zinc Payment

In principle, the net payment to a producer of a zinc sulphide concentrate will be the payable metal multiplied by the metal price, less treatment charges, penalties, and as affected by the escalators or de-escalators.

17.6.6 Zinc Sulphide Price Forecast

As a conservative stance, Minercon recommends the use of the 2008 zinc concentrate commercial terms:


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Contract Parameter Smelter Terms

Payable Metal 85%

Treatment Charge US$ 300/t

Basis Price US$ 2,000/t

Escalator 10%

De-escalator 6%

Table 17-46 Recommended Terms & Conditions for ZnS Contract

estado actual niquel 2010

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