Miners Prepare for a Period of

Weak Commodity Pricing

By Steve Fiscor, Editor-in-Chief, E&MJ and Coal Age

Keynote Presentation for the Mining Electrical Maintenance & Safety Association Annual Meeting in Clearwater, Fla., June 11, 2015

Engineering & Mining Journal (E&MJ)

• Readership consists mostly of mining engineers and metallurgists actively involved in hardrock mining and minerals processing;

• Distributed monthly to more than 20,000 readers in 120 countries;

• Readers in every major mining, consulting, and mining engineering company;

• In-depth news coverage and technical information that assists readers in doing their jobs more safely and cost effectively;

• It covers threes areas: surface mining, underground mining, and mineral processing; and

• Next year, it will celebrate 150 years.

Coal Age • Readership consists of mostly mining

engineers, and mine managers and plant managers, involved primarily in mining and processing coal;

• Distributed monthly to more than 16,000 readers, most located in the U.S.;

• Offers in-depth news coverage along with technical articles that provide information on how to mine and process coal more safely and cost effectively;

• It covers surface mining, underground mining, and coal preparation;

• In 2012, it celebrated 100 years.

Mining Industry Trends Challenges remain the same as the mining business

advances past the trough; Responsible resource development: Safety, environmental

compliance, and continuous improvement; Major assets being sold as multinationals return to the

Americas (the devil you know); Profit margins have become increasingly important as most

mining operations look at optimization plans; Miners use more discipline in decision regarding future

capital allocations; and The long-term outlook for most commodities, excluding

coal, is positive, despite short-term headwinds.

Three years ago… In 2012, prices (and demand) for minerals were

beginning to fall from a historic surge;

Miners were abandoning a expand-production-at-all-cost mind-set to preserve profit margins;

The pipeline for new projects was full and miners were scaling back new projects and exploration initiatives;

EPA Train Wreck regarding coal-fired power plants regulation had cast doubt on the future of the sector;

Near term fundamentals did not look good for mining;

Today’s discussion Hardrock mining worldwide, specifically copper, gold,

and iron ore miners;

Describe some of the fundamentals shaping those markets;

Shrinking coal production and consumption worldwide;

Brief discussion of aggregates; and

Offer some thoughts on what could happen in the next few years.

What has changed? Growth levels for Chinese demand for raw materials

has slowed;

Prices for all mined commodities have dropped in an over-supplied market;

Resource nationalism and excessive taxation;

Russian aggression and subsequent sanctions;

Environmental and shareholder activism;

Safety has improved with no high profile incidents;

Increasing regulatory burden as far as safety and environmental concerns.

Precious & Base Metals Prices for metals have declined steadily since 2012;

The chief executives for the top five mining companies, who overpaid for many projects, have been replaced;

Lowest cost per ton rules and mining companies that enjoy economies of scale will profit from that investment;

Operating costs continue to climb, increased costs for water and electricity offset declines in petroleum, which may or may not have passed through fully;

A strong dollar has influenced balance sheets;

Increasing trends toward resource nationalization; and

Severe productivity issues in certain regions;

Top 20 mining companies

Source: Mine 2015: PwC’s 12th annual review of the top trends in the global mining industry.

Where are the mining companies investing?

Latin America maintained its top position in 2013, with its share of the total investment pipeline increasing to 29%. This share is lower than the 32% recorded in 2010. North America’s share of the total is growing strongly, up from 15% in 2010 to 20% in 2013.

Iron ore, copper, and gold…

World’s Top Iron Ore Miners

Recent iron ore prices

Chinese Iron Imports (2014)

Iron Ore Situation The seaborne iron ore trade is fiercely competitive.

On a regional basis, Brazilian iron ore miners are competing against miners in Western Australian (WA) for the Chinese business.

Together the Big 3—Vale (Brazil), BHP Billiton (WA) and Rio Tinto (WA)—control 38% of the market.

Expansion plans that all three put in place during a period of much higher prices have come to fruition.

Prices for iron ore in the seaborne market (CFR north China) have plummeted from $159/metric ton (mt) in February 2013 to less than $60/mt this year.

Top 10 Gold Mining Companies Company 2013 output 2014e output Change Y/Y

1 Barrick Gold 222.9 194.4 -13%

2 Newmont 157.5 151.2 -4%

3 AngloGold 127.7 136.9 +7%

4 Goldcorp 82.9 89.3 +8%

5 Kinross 77.7 80.4 +3%

6 Navoi (Uzbek) 70.5 73.0 +4%

7 Newcrest 73.5 72.0 -2%

8 Gold Fields 58.1 62.6 +8%

9 Polyus Gold 51.3 50.8 -1%

10 Sibanye Gold 44.5 50.1 +13%

Source: GFMS

Gold’s bull run

Gold Mining Costs (2014)

Source: Barrick Gold Corp.

Gold Situation (2014) Gold seems to have settled in the $1,100/oz range;

China is the largest producer and consumer, but the market is very fractious;

Gold miners striking deals with Chinese, e.g., the recent cooperative agreement between Barrick and Zijin on Porgera in PNG;

Gold miners repatriating to North America, Newmont sells operations abroad and buys Cripple Creek & Victor Gold mines in Colorado.

Copper (2014, ‘000 mt) Country Production

1. Chile 5,745

2. China 1,614

3. USA 1,368

4. Peru 1,339

5. Australia 961

6. DR Congo 905

7. Russia 753

8. Zambia 725

9. Canada 688

10. Mexico 522

Global Total 18,270

Company Production

1. Codelco 1,841

2. Freeport McMoran 1,470

3. Glencore 1,296

4. BHP Billiton 1,203

5. Southern Copper 665

6. Rio Tinto 636

7. KGHM 506

8. Anglo American 504

9. Antofagasta 455

10. First Quantum 380

Source: Thomson Reuters, GFMS

Copper is a leading indicator

Copper Demand Fundamentals

The Situation with Chilean Copper Over the next five years, Codelco will invest on average

$5 billion per year just to maintain an average production of 1.7 million mt/yr of copper as copper grades decline.

During next 10 years energy demand will increase by 80%.

From 2004-2013, the average ore grade decreased by 30% and production increased by 7%, which meant that the amount of rock mined increased 49% and the amount of ore processed increased 32%. During that same period, the Chilean workforce increased 74%.

The Largest Miners Are Saying: They planning to manage more projects in-house

rather than working EPCMs.

The pipeline is full as far as major new mining operation, but expansion projects are moving forward;

Capital and operating costs are increasing along with royalties and more onerous regulatory burdens;

They are confident in long-term fundamentals, but will now focus more attention on fewer projects; and

They are rebuilding-maintaining existing equipment, not buying new equipment.

Short-term Outlook for Metals Safety, compliance and continuous improvement will

remain important;

The mines will optimize to improve margins;

Decrease in grades mean the mines will move more rock to produce more metal;

Any sign of economic turmoil will only push precious metal prices higher;

As more people around the world seek to improve their lifestyles, the demand for raw materials will only grow.

Unfortunately, the U.S. and many other countries are regulating themselves out of business.

World Coal Production (2014, ‘000 mt) 2014 2012 2010 2000 1995

China 3,874 3,945 3,428 1,384 1,361

U.S. 907 922 984 974 937

India 644 607 574 335 289

Russia 558 589 532 436 459

Australia 492 445 433 314 248

Indonesia 458 386 275 77 42

South Africa 261 259 255 224 200

Germany 186 197 183 203 248

Poland 137 144 133 163 201

Colombia 89 89 74 38 26

Canada 69 68 68 69 75

Total 8,165 8,187 7,473 4,722 4,642

Source: BP Energy Review 2015

Coal Consumption by Region

Source: BP Energy Review 2015

Coal & natural gas approach parity

Planned Coal Capacity Conversion and Retirements 2015-2022

Source: SNL Energy

Ohio Valley Inset

Source: SNL Energy

Companies with Exposure to Retirements

Current U.S. coal production

Top U.S. Coal Producers (2014)

2005 2011 2014 Peabody Energy 194 Peabody Energy 204 Peabody Energy 184.7 Arch Coal 149 Arch Coal * 152 Arch Coal 137.5 Kennecott 130 Alpha Nat. Res.** 102 Cloud Peak Energy 87.6 CONSOL Energy 68 Cloud Peak 97 Alpha Natural Res. 85.5 Foundation Coal 61 CONSOL Energy 63 Murray Energy 58.2 Massey Energy 42 Luminant 32 Alliance 38.8 North American 34 Alliance 31 North American 29.9 Kiewit Mining 31 Kiewit 30 Luminant 28.6 Westmoreland 29 Patriot Coal 29 CONSOL Energy 28.5 TXU Mining 24 North American 28 Westmoreland 24.9

Murray Energy acquired several CONSOL Energy longwall mines

Alpha Natural Resources has acquired Foundation Coal and Massey Energy; and

Kennecott became Rio Tinto Energy America (RTEA) and now Cloud Peak

Energy.

Current Situation for U.S. Coal Coal operators are idling production and laying off

hourly and salary personnel;

In June, Coal Age will report nearly 4,000 job losses in one month.

In the last two years, two major coal companies have filed for bankruptcy: James River and Patriot (twice).

More are considering it right now.

Some regions are doing O.K., but others are not.

The future for coal… Ultimately, the U.S. Supreme Court ruled that CO2 was

a pollutant;

U.S. exports could help offset domestic production losses;

Cost per ton and coal quality with be determining factors;

The 2016 U.S. presidential election will be important;

Increasing supplies of cheap natural gas will have a much greater impact;

The U.S. will still burn nearly 1 billion tons of coal.

Aggregate Production in the U.S. Annually the U.S. produces about 2 billion tons of

aggregate; All they need is that highway bill, but Congress keeps

kicking the can done the road with short-term extensions; Growth has been steady for the last couple of years 4%-5%; Q1 2015 figures showed an 8% increase nationally, which

surprised many with the weather; Martin Marrietta gave up on its bid for Vulcan and has

since taken over TXI; Vulcan, Martin Marrieta, and Cemex have a large presence

in Florida, all three appear to be doing well; and Florida is the third largest aggregate producers and it was

down 4.7% in Q1-2015

Near Term Outlook Aggregates will improve with the economy;

The coal business will see a massive shake-out;

Iron ore prices will remain relatively low, but stable, and higher cost producers will disappear;

Copper prices will rise to match recent highs, but operating costs will squeeze profit margins; and

An interest rate hike by the Federal Reserve could create economic turmoil, which could be good for those holding long positions in gold.

Steve Fiscor

Editor-in-Chief

E&MJ and Coal Age, Mining Media International

13555 Central Parkway, Suite 401

Jacksonville, FL 32224

Tel: 904-721-2925

sfiscor@mining-media.com