Transcript Slide 1
Surviving the Nuclear Winter Presentation to MINEAfrica London December 1st 2008 Plastics – Need I say more! Metal Prices in retreat Platinum (-62.5%) Gold (-19.0%) Nickel (-81.3%) Copper (-59.0%) FTSE Mining Index plunges by 64% since July The Collapse of the Aim Market Mining Index down 80% since July The Impact upon Junior Mining Co’s • Collapse of market valuations • No access to equity capital markets • No credit available • Deterioration of project economics – Producers – Developers – Explorers • Project financings under pressure • Need to conserve cash • Consolidation trend accelerates • Exposure to predators The Impact upon Africa • Low creditworthiness shelters impacts • Exposure to commodity markets • Evaporation of inward investment • Collapse of Government revenues and employment • Effects of poor infrastructure • Heightened social disruption • China – Africa love-affair end • Contract renegotiation pressures weaken The Impact upon Africa Botswana 20% reduction of diamond production by Debswana Junior resource companies under financial pressure. DR of Congo Collapse of cobalt concentrate exports as metal price plunges Camec ceases production. Relationship with China cools. Revisitation process peters out. Madagascar $3 billion Ambatovy project shelved by Sherritt Mozambique Aluminium price fall slashes Mozal revenues Financial restructuring at Kenmare Namibia Weatherley closes mines and cuts back at Tsumeb Diamond revenues fall South Africa Misplaced optimism by Government although Rand depreciation mitigates impact. Platinum prices collapse. Ferro alloy markets trashed. Gold price holding up relatively well. Zambia Retrenchment of copper mining operations and workforce. Zimbabwe Economic and political crisis intensifies. Bindura nickel placed on care and maintenance. How bad will it get? The Kondratieff Wave •A Kondratieff Winter would extend beyond 2010 Is there any good news? • Credit crunch has speeded up adjustment – Retrenchment of production – Shelving of projects ……this could accelerate recovery • Capital and operating costs are falling and equipment lead-times are reducing • Even in Great Depression, metal prices started to recover • Long term commodity supercycle might still be intact – Resumption of growth for BRIC economies Copper S Curve – Income v Consumption 30 kg/capita Cu consumption Taiwan 25 20 S.Korea India 15 Russia Japan Malaysia 10 Australia EU/EEA China 5 USA Canada Brazil 0 0 5 10 15 20 25 30 GDP/capita (2007 000$) Source: CRU Strategies 35 40 45 Real and Nominal Cu Prices since 1970 Early 70s boom, ended by 1st oil crisis Mine capacity surge follows second oil crisis Global recovery, Bougainville crisis and Zambian decline Supply response fails to meet booming demand from China End of recession Hamanaka scandal Financial crisis Early 90s recession Data: LME, CRU Asian crisis So who will survive the Nuclear Winter? Access to cash Supportive shareholders High quality projects Strong and responsive management Likely Survivors – The Invulnerable • Impervious to radiation and cold • Inaccessible • Omnivorous Namely, private companies with an untrashed market value , sound projects and financially secure owners Likely Survivors – The Predators • • • • Top of food chain Sharp claws and teeth Reserves of fat Fur coat Namely, the cashed up, low geared, majors with operations in the lowest quartile should be able to acquire assets cheaply Predator No 1 - Rio Tinto on hearing that BHP Billiton had withdrawn its bid Predator No 2 – BHP Billiton on watching Rio Tinto’s share-price collapse after the bid was withdrawn Kopane’s Liqhobong Assets • Lesotho assets acquired in 2004 • Two adjacent kimberlite pipes Satellite Pipe – 1.0 hectare with high grade (68 cpht) but low value (~$44 per carat) placed into production 2005. Main Pipe – 8.6 hectares , with good grade (39 cpht) and value ($86 per carat), rediscovered by Kopane 2004-8 – Multiphase mineralisation – 76 million tonnes now delineated containing 29.6 million tonnes with a value of $2.54 million. – DFS currently in progress – publication mid 2009 • Recovered to date 340,000 carats and sold 292,000 carats, realising $16.1 million, equal to $55 per carat , including boart. The Liqhobong Pipes The Crisis in the Diamond Industry The Collapse in Diamond Shares • Diamond prices have fallen by 30-50% in last four weeks • Liqhobong’s small scale plant not currently economic Kopane’s Response • Small scale production placed on care and maintenance • Conservation of cash resources and reduction of overheads • Strategic focus in 2009 on advancing Main Pipe – Complete DFS – Advance grid power project – progress project financing plans • Plan for inevitable recovery of diamond prices in longer term Liqhobong’s Value Indicated Run of Mine Value $86.0 / carat* $33.6 / tonne Cash Operating Costs $28.9/ carat $11.9 / tonne Capital Costs (including contingences and working capital) $100 mn Gross Value of Recoverable Diamonds Increase of Value on 2007 PFS Gross Value $2,545 mn# 211.5% Project IRR 42% Kopane IRR 54% Capital Payback * based on a bulk sample of 12,512 carats in August 2008 # New interim KDD Resource model < 2 years Kopane’s Position Kopane’s Position