nickel production and supply: market implications · nickel production and supply: market ......
TRANSCRIPT
Nickel Production and Supply: Market Implications
Metal Bulletin 5th International Nickel Conference
Mark Selby, President & CEO
RNC Minerals
April 24, 2017
www.royalnickel.com
2
Disclaimer
Cautionary Statements Concerning Forward-Looking Statements This presentation contains "forward-looking information" including without limitation statements relating to the future price and supply and demand and the implications the Indonesian ore export ban will have on the outlook for nickel; and statements relating to construction and production at the Dumont Nickel Project. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual outcome, events, results, performance or achievements of RNC to be materially different from any future outcome, events, results, performance or achievements expressed or implied by the forward-looking statements. Factors that could affect the outcome include, among others: future actions taken by the Indonesian government as well as mining companies operating in Indonesia; general business, economic, political and social uncertainties; availability of alternative nickel sources or substitutes; and financing to complete construction and achieve production at Dumont. For a more detailed discussion of such risks and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, refer to RNC's filings with Canadian securities regulators available on SEDAR at www.sedar.com. Although RNC has attempted to identify important factors that could cause actual outcome, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause outcome, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this presentation and RNC disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws.
www.royalnickel.com
3
Nickel market supply/demand has performed better than other base metals over the past 3 years
Nickel market will need another 400-500kt to meet trend nickel demand by 2021 (and significantly more if forecasts for batteries come anywhere close to expectations!) Equivalent to doubling Chinese NPI industry at its peak
Very little visibility into future supply - extended period of low prices has resulted in very few opportunities for new supply and more dependence on future growth from higher political risk areas Underinvestment led to flat to declining production at most large nickel operations
Old, deep operations take several years and hundreds of millions of dollars to ramp-up
Nickel supply becoming highly dependent on higher political risk countries (Indonesia, Philippines)
Remaining ramp-up from new large HPAL projects uncertain Indonesian developments create massive uncertainty for the most active source of
new supply Project cupboard outside Indonesia largely empty
Relaxation of Indonesian ban has hurt nickel market in near-term but setting stage for very robust long-term nickel market outlook
Overview
www.royalnickel.com
Nickel- Favourable Supply / Demand Trends
Nickel supply / demand trends very favourable versus other base metals
4
0%
1%
2%
3%
4%
5%
6%
Demand Growth 2013-2016 (CAGR%)
-1%
0%
1%
2%
3%
4%
5%
6%
Refined Supply Growth 2013-2016 (CAGR%)
Source: Macquarie, RNC analysis
www.royalnickel.com 5
Source: Macquarie, RNC analysis
World Nickel Consumption (2000 – 2016, Mt)
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
400-500 kt additional annual demand by 2021
5yr CAGR 4.8%
10yr CAGR 3.5%
2,024
2,402
Nickel demand growth remains robust – will require 400-500kt of new supply by 2021 – much more if battery forecasts are realized
378
536
@ 3.5 % @ 4.8 %
Incremental Supply Required (kt)
Annual Growth Rate (CAGR %)
Nickel Demand – A Robust Future
www.royalnickel.com
Nickel Supply Shifting from the “Old Guard” to “Higher Risk”
6
2016 (2.0 Mt)
Nickel supply increasingly dependent on higher political risk countries as “Old Guard” has declined from 50% of global supply in 2006 to less than a third today
Source: CRU
11% 10%
7% 10% 4%
21% 21%
11% 16%
12%
12% 8%
5% 2% 5% 5% 4% 2%
15% 18%
Indonesia
New Caledonia
Philippines
Russia
Canada
Australia
China Colombia
Other
2006 (1.4 Mt)
Cuba
“Old Guard”
“Higher Risk”
Mined Nickel Production by Country — 2006 vs 2016
www.royalnickel.com
7
24%
76%
2016
40%
60%
2005
Other
Other
“The Big Six” Sulphide
“Big Six” Nickel Production (% of Total Supply)
Source: Company, Reports, Macquarie Research, Wood Mackenzie, RNC Analysis
“Big Six” Nickel Production (% of Total Supply)
“The Big Six” Sulphide
Nickel Supply Continued Decline of the “Big Six”
Nickel supply from the six largest sulphide producers was still 40% of global supply as late as 2005 – their influence continues to decline
www.royalnickel.com
8
Nickel Supply Decline of the “Big Six”
0102030405060708090
100
Mount Keith + Leinster Ni Production (kt)
0
20
40
60
80
100
Voisey’s Bay Ni Production (kt)
0
20
40
60
80
100
Vale Sudbury Ni Production (kt)
Source: Company reports, CRU, Wood Mackenzie
0
20
40
60
80
100
Vale Manitoba Ni Production (kt)
0102030405060708090
100
Jinchuan Ni Production (kt)
-6%
-32%
-17%
* 2017 guidance is 206-211 kt
180190200210220230240
Norilsk Ni Production (Polar + Kola, kt)
*
-1%
+14%
Nickel decline from the 6 largest sulphide operations has declined over the last decade (excluding Vosiey`s Bay ramp-up) as low nickel prices deterred investment
www.royalnickel.com
Nickel Supply – HPAL/FeNi Billion Dollar Ramp-ups
9
Source: Company reports
0
10
20
30
40
50
2012 2013 2014 2015 2016
Ambatovy
0
10
20
30
40
50
2012 2013 2014 2015 2016
Vale New Caledonia (Goro)
0
10
20
30
40
50
2012 2013 2014 2015 2016
Koniambo
0
10
20
30
40
50
2012 2013 2014 2015 2016
Ramu
The amount of additional nickel supply from the billion dollar laterite projects of the last decade is relatively uncertain…
www.royalnickel.com
Nickel Supply – Established HPAL Producers
10
Source: Company reports
0
10
20
30
40
2012 2013 2014 2015 2016
Murrin Murrin
0
10
20
30
40
2012 2013 2014 2015 2016
Ravensthorpe
05
10152025303540
2012 2013 2014 2015 2016
Moa Bay
…While established HPAL producers are facing challenges to maintain existing production levels
www.royalnickel.com
11
Nickel Supply – China Production Leveling Out
Source: Antaike, RNC analysis
Chinese nickel supply of both NPI and non-NPI metal has leveled out in recent years - cost pressures and lower ore grades will limit future growth
Chinese Nickel Pig Iron Production (Annualized Monthly Production, Kt)
0
100
200
300
400
500
600
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
0
100
200
300
400
500
600
2012 2013 2014 2015 2016
Chinese Nickel Production (ex-NPI) (Kt)
www.royalnickel.com
Nickel Supply One-Time Benefits from Oil/Currency Largely Exhausted
12
Source: Thompson Reuters, Bloomberg
$0.60
$0.70
$0.80
$0.90
$1.00
$1.10
2012 2013 2014 2015 2016
Canadian $
$0.60
$0.70
$0.80
$0.90
$1.00
$1.10
2012 2013 2014 2015 2016
Australian $
6.0
6.2
6.4
6.6
6.8
7.0
2012 2013 2014 2015 2016
Chinese Yuan
20
40
60
80
2012 2013 2014 2015 2016
Russian Rouble
Nickel supply / costs benefited greatly from the decline in currency/oil prices over the last five years sustaining production as nickel prices fell
$40
$60
$80
$100
$120
2012 2013 2014 2015 2016
Oil WTI (US$)
www.royalnickel.com
Where is new project supply going to come from?
13
Nickel Supply - Little Momentum in Existing Supply & “Project Cupboard” Largely Empty
Source: CRU, RNC Analysis
By 2021, 400-500 kt of new supply is required, but “project cupboard” is empty — few projects in pipeline and 35+ years of inertia to overcome
TSX: RNX
Laterites – HPAL?
Laterites – FeNi?
NPI?
Sulphides?
400-500+ kt New
Supply Required
www.royalnickel.com
New Nickel Supply: Laterites – HPAL? Too High Cost, Too Much Risk?
HPAL projects not expected to play a major role in nickel supply going forward
HPAL projects have faced large capital overruns, delays, and commissioning issues. Industry will have little appetite for new projects
Improved Cobalt prices will help economics to some extent
Operating costs for many HPAL operations remain high
Operating costs are much higher than many other companies are indicating for their projects
Many jurisdictions with the most attractive resources for HPAL continue to be among the more difficult jurisdictions globally
Indonesian change in ban and domestic investment rules will not help investment case
14
Source: CRU, RNC analysis
www.royalnickel.com
New Nickel Supply: Laterites – FeNi? Little High Grade Left to Be Developed?
FeNi also not expected to play a major role in nickel supply going forward as the highest grade resources are already being developed and no new high grade discoveries have been made
The current set of projects have now developed ALL known saprolite deposits with large resource of 2%+ average grade or higher (Koniambo, Onca Puma, Barro Alto, Tagaung Taung)
NO NEW HIGH GRADE LATERITE DISCOVERIES HAVE BEEN MADE IN MORE THAN 30 YEARS TO REPLACE THESE PROJECTS IN THE PROJECT PIPELINE
Tagaung Taung was discovered in early 1980s, Onca Puma in the 1970s, Barro Alto in the 1960s and Koniambo in the 1900s
With several projects with grades 2%+ incurring multi-billion dollar price tags, what will capital cost of next generation of projects be ?
15
Source: CRU, RNC analysis
www.royalnickel.com
New Nickel Supply Sulphides — A Potential Answer, But Few Projects in Pipeline
Nickel sulphides are an attractive source of nickel production, but the pipeline is largely empty as there have been few new large scale discoveries. RNC’s Dumont project and First Quantum’s Enterprise projects are among the few large scale projects that could be in production with next few years
Over last several decades, the only large greenfield discoveries have occurred when exploration was occurring for other metals: Voisey’s Bay (diamonds), Kabanga (gold), Enterprise (copper)
Sirius Resources Nova-Bollinger discovery in Australia and Anglo American’s Sakatti discovery in northern Finland are the only large greenfield nickel discoveries made during a nickel-focused exploration program in recent decades
Sulphides have a number of inherent advantages over laterites
Typically use standard mine/mill facilities utilizing commonly used technology
Inherently less energy intensive to refine
Less capital intensive as smelting/refining facilities don’t typically need to be constructed
In the mid-1990s, Mt. Keith showed that large scale, lower grade, ultramafic nickel deposits could be profitably developed
Further growth in sulphide nickel production will likely come from large scale, lower grade deposits (following similar moves in both the copper and gold industries) such as RNC’s Dumont project, one of few large scale projects that could be in production by 2020
16
www.royalnickel.com
17
Ferro-nickel puck produced from
Dumont concentrate
Significant potential benefits to producers of suitable nickel sulphide concentrate feed such as RNC’s Dumont Project:
Lower costs due to simpler processing compared to traditional smelting and refining
Higher payabilities than traditional smelting and refining
Greater flexibility for more potential partners and customers
Roasted nickel concentrate is effectively a very high grade laterite ore feed – creates new source of demand for nickel sulphide concentrate, notably at a time when many NPI and ferronickel producers face feed shortages as a result of Indonesia’s nickel ore export ban
RNC’s strategic alliance with Tsingshan led to the development of the first integrated nickel pig iron (“NPI”) plant to directly utilize nickel sulphide concentrate as part of the stainless steel production process through concentrate roasting
Nickel Supply – RNC’s NiCal Roasting Process - A Significant Breakthrough
www.royalnickel.com
RNC foresaw significant growth in NPI and stainless production; however, recent Indonesian moves jeopardize future growth in the one area of nickel supply seeing active investment
The ban achieved many objectives with substantial investment in nickel capacity and downstream stainless steel production
Indonesian nickel production was expanding rapidly and it had became a global scale stainless steel producer
The relaxation of the ban and further changes to investment rules cause substantial investment uncertainty
18
Source: Company reports
Nickel Supply Indonesian Moves Create Significant Uncertainty
www.royalnickel.com
Nickel Supply —
Little Project Development for 35+ Years Today’s “empty cupboard” is a result of inertia from 35 years of relatively little project development after “nickel boom” in late 1960s (which discovered or advanced the development of many of the projects sitting in cupboard in 2001)
19
5.2%
1.4% 1.6% 1.4%
1.3%
1.7% 1.2%
2.8%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1965-75 1975-90 1990-00 2000-10
Global Nickel Supply Growth “Traditional” vs. Alternative
1965–2010 (% CAGR)
< 2% growth for 35 years!
1965–75 saw a burst of new projects driven by inability of existing operations to meet global demand
1975–90 saw significant project rationalization
Collapse of former Soviet Union demand (20% of world total) provided supply during 1990s
Ni pig iron and demand destruction in 2000–10 closed gap caused by lack of new supply from weak project pipeline development
Stainless
Demand
Destruction
NPI
FSU
Collapse
Japan
FeNi
Source: Wood Mackenzie, Macquarie, RNC Analysis
www.royalnickel.com
Nickel Supply Many Projects Sitting in “Cupboard” For Decades
The bulk of the current wave of projects developed during last cycle were known for many decades: either discovered/developed too late during the 1965–75 period or inferior to other projects that were developed
Most of current project wave has sat “in the cupboard” for many decades (even back to the beginning of the last century)
20
Project Discovery
Koniambo Early 1900s
Goro Early 1900s
Ramu Early 1960s
Ambatovy Early 1960s
Barro Alto Early 1960s
Onca Puma Mid 1970s
Talvivaara Early 1980s
www.royalnickel.com
Nickel Supply Project Pipeline Largely Empty
21
The fundamental issue facing the nickel industry in 2017 is an empty “project cupboard” outside Indonesia At the beginning of the last decade prior to the significant run-up in nickel prices, the
“project cupboard” was very full with many projects known for decades Today’s picture is very, very different – few large scale feasibility study stage projects
Project Cupboard 2001 (20+kt)
TOTAL: 500+ kt
Project Cupboard 2017 (20+kt) TOTAL: ???
Barro Alto
Koniambo
Onca Puma
Tagaung Taung
Ambatovy
Goro
Ramu
Ravensthorpe
Weda Bay
Talvivaara*
Kabanga
Voisey’s Bay Sulphide
Laterite (HPAL)
Laterite (ferronickel)
• Nova Bollinger ramping up
• Terrafame (Talvivaara) ramping up
• Enterprise built, but capacity used for copper
• Dumont one of few construction ready projects
• Indonesia – new projects future ?
www.royalnickel.com
22
Nickel market supply/demand has performed better than other base metals over the past 3 years
Nickel market will need another 400-500kt to meet trend nickel demand by 2021 (and significantly more if forecasts for batteries come anywhere close to expectations!) Equivalent to doubling Chinese NPI industry at its peak
Very little visibility into future supply - extended period of low prices has resulted in very few opportunities for new supply and more dependence on future growth from higher political risk areas Underinvestment led to flat to declining production at most large nickel operations
Old, deep operations take several years and hundreds of millions of dollars to ramp-up
Nickel supply becoming highly dependent on higher political risk countries (Indonesia, Philippines)
Remaining ramp-up from new large HPAL projects uncertain Indonesian developments create massive uncertainty for the most active source of
new supply Project cupboard outside Indonesia largely empty
Relaxation of Indonesian ban has hurt nickel market in near-term but setting stage for very robust long-term nickel market outlook
Overview