BUSINESS OPPORTUNITIES WITHIN THE MINING SECTOR IN LATIN AMERICA. September 23, 2014

Transcription

1 BUSINESS OPPORTUNITIES WITHIN THE MINING SECTOR IN LATIN AMERICA September 23, 2014

2 TOC 1. LATAM OVERVIEW 2. COMMIDITIES UPDATE 3. ARGENTINA 4. BRAZIL 5. PERU 6. MEXICO 7. COLOMBIA 8. CHILE 9. CHALLENGES

3 01 LATAM OVERVIEW

4 LATAM MINING INDUSTRY POSITIONED FOR GROWTH Investments within the mining industry in Latin America are positioned to increase due to growing global demand for metals such as Iron ore and Copper. Source: AQM Copper Inc. 4

5 RANKING OF MINING PRODUCTION 5

6 MINING REVENUE EVOLUTION In 2012, total mining revenue was approximately USD 150B. Two-thirds of the revenue came from Iron ore and Copper. 6

7 DRIVERS AND RESTRAINTS Drivers World economic conditions stabilizing Improved sovereign credit profile* Improving institutional and regulatory framework Restraints Uneven monetary policy among countries Asset re-allocation away from emerging markets Economies are highly dependent on commodities prices * with the exception of Venezuela and Argentina 7

8 GDP Latin America real GDP (annual % change) Country F Change Argentina 3.0% 0.0% -3.0% Brazil 2.5% 1.5% -1.0% Chile 4.1% 3,2%* -0.9% Colombia 4.3% 3.3%* -1.0% Peru 5.8% 3.4%* -2.4% Mexico 1.1% 3.0% +1.9% Source: Wold Bank, IMF,* 8

9 FINANCIAL MARKET METRICS Uneven trend among countries with respect to monetary policy. Some economies will favor currency devaluation in order to spark growth. 9

10 FINANCIAL MARKET METRICS (CONT.) 10

11 DEALS More investment is expected in the region as companies target opportunities for low cost, high growth projects. 11

12 TOP GLOBAL INVESTMENTS Serra Sul Iron Ore Projects Constancia Copper Deposits El Mutan Iron Ore Deposits Pascua-Lama Gold Mine Ministro Hales Copper Deposits Minas Rio Iron Ore Deposit Salobo Copper Mine Vermelho Nickel Mine Caserones Copper Deposits 12

13 RESERVES IN EMERGING MARKETS Venezuela: Bauxite, Iron Ore Guyana: Bauxite Suriname: Bauxite Bolivia: Lithium 13

14 SNAPSHOT OF COUNTRIES UNDER ANALYSIS - Brazil is the world s 5 th largest mineral producer - Brazil s largest installed mining operations are for iron ore, representing nearly 17% of the world s total - Brazil is one of the largest importers of metallurgical coal - Argentina is the world's second producer of lithium and the third world exporter of potash. - Mining production has become Argentina's third most important export item behind grains, oilseed and food produce. - Peru is the 2nd largest silver global producer - Gold 6th largest global producer - Copper 2nd largest known reserves in the world 14

15 MAIN INVESTMENTS IN BRAZIL Source: IBRAM (instituto brasileiro de mineração) 15

16 MAIN INVESTMENTS IN ARGENTINA Source: Frost & Sullivan 16

17 02 COMMODITIES UPDATE

18 THE END OF THE COMMODITIES SUPER CYCLE Tapering of US quantitative easing combined with China slowdown/rebalancing will be bearish for prices Prices have fallen across the minerals space since 2013 Supply abundance will temper price spikes in the event of rising demand and political or weather related supply disruptions. Major new projects will come online in across the minerals spectrum. Some shuttering of marginal operations offset by new supply. BUT companies will continue to face political risk and resource nationalism that could impact project margins Source: PWC (prepared by Eurasia Group) 18

19 PRECIOUS METALS - The price of GOLD fell -1.2% in the last month. - Demand fell (-16% a/a) and supply rose (+10% a/a) in 2T14.* - Demand contractions are a result of dwindling demand in the jewelry sector (-30% a/a), and physical gold as an investment (-56% a/a). - The price of PALLADIUM rose +26% since February, reaching 2001 maximums. - Price increase was a result of concerns regarding the worlds principle producers: South Africa and Russia. - South Africa: 5 months of strikes have impacted average production. - Russia: concerns of possible commercial sanctions from Europe. * Source: Word Gold Council 19

20 BASIC METALS - The price of COPPER rose +11% since mid march k ton deficit in the first 5 months of In the same period, global demand rose +15% a/a, led by China (+29% a/a), EU (+18% a/a), and Japan (+13% a/a). - From the supply side, global production rose +5% a/a, led by Chile, Peru, and USA (+6% a/a the three). - The price of ALUMINIUM rose +14% since mid May, reaching August 2013 maximums. - The increase in Price was a result of lower production from Brazil (third largest aluminum reserve in the world) and an increase in imports from Japan (+18% a/a). - Price will stabilize in the 2H of 2014 due to excess supply in China. 20

21 03 ARGENTINA

22 ARGENTINA: A MONETARY OVERHANG BY 4Q14 Despite an expected expansion in real balances fueled by money supply, we expect a reduction in money demand towards year-end, along weaker activity and higher inflation/depreciation expectations, leading to a money overhang. Without a monetary contraction, a larger wedge will imply larger expected upswings in the exchange rate and the domestic price level. We expect an inflation rate of at least 45%yoy in 2015 and an exchange rate of at least 10ARS/USD by January as result. An exchange rate of 10ARS/USD could close the current money overhang. 22

23 ARGENTINA: POLITICAL OUTLOOK Current President Party Assumed office Term ends 2015 Term (conditions)* Strongest Opposition Highlights * Source: Wikipedia Cristina Fernández de Kirchner Justicialist / Frente Para la Victoria (FPV) December 10, 2007 (second term) Under the 1994 constitutional amendment, the President serves for four years, with a possibility of immediate reelection for one more term. A person may be reelected again after serving for two terms, and staying out of office for the following term. Mauricio Macri (PRO) Sergio Massa (Frente Renovador) As the Constitution of Argentina does not allow for three consecutive terms, President Fernández de Kirchner can not run again. It is unclear who will be Cristina s candidate for the FPV in

24 ARGENTINA: MINING OVERVIEW Approximately 25% of Argentina s territory has been geographically explored. There are about 100-odd mining projects currently running in Argentina related to silver or gold. Gold, Silver, Copper and other Base Metals Industrial Minerals Coal 24

25 ARGENTINA: MAJOR MINING COMPANIES Source: Frost & Sullivan 25

26 ARGENTINA: IMPORT EXPORT SCENARIO Imports of metals and minerals are growing at a faster rate than exports. 26

27 04 BRAZIL

28 BRAZIL: POLITICAL OUTLOOK Current President Dilma Rousseff Party Partido dos Trabalhadores (PT) Assumed office January 1st, 2011 Term ends 2015 Term (conditions)* Strongest Opposition Highlights Terms last four years with the possibility of being reelected once. Aécio Neves (PSDB) Marina Silva (PSB) First round elections start October 5 th, Presdent Dilma Rousseff in running for reelection, and is slightly ahead in preliminary poles. 28

29 BRAZIL: MAJOR MINING COMPANIES Source: Frost & Sullivan 29

30 BRAZIL: IMPORT EXPORT SCENARIO Iron ore represents 80% of Brazils mining exports. The country has a positive trade balance. 30

31 05 PERU

32 PERU: A BRAKE FROM INFLATION: TIME FOR A CUT? We expect the BCRP to deliver a rate cut before year-end, as we expect lower GDP growth for 2014 we expect a growth rate near 3.5%, below the 4% expected by officials Investors are currently pricing a rate cut at some point during the next three months, but lower growth is not priced-in. We expect lower growth of private consumption on less optimistic private we estimate a 4%yoy growth in private consumption. The deceleration in internal sales tax collection, with year-to-date real growth of 3.75%, also points to a deceleration in private consumption. We find that the recent update in official estimations suggests no extra fiscal expansion revision on public consumption from a growth of 5.5% yoy to 9.6% yoy, implying a higher expenditure of PEN2.5bn. Our calculations on exports and investments take into account delays in mining and infrastructure projects. 32

33 PERU: POLITICAL OUTLOOK Current President Party Assumed office July 28, 2011 Term ends 2016 Term (conditions)* Strongest Opposition Highlights * Source: Political Constitution of Peru, Article 112 Ollanta Moisés Humala Tasso Partido Nacionalista Peruano Five years, with no immediate reelection. After an interim 5 period out of office, a former president may run for president again. There is no limit to the number of times a person may serve as president. Alan Garcia (APRA) Keiko Fujimori (Fuerza Popular) As the Constitution of Peru does not allow for two consecutive terms, President Humala is unable to run for reelection. It is widely considered that his spouse, Nadine Heredia, will run for the Presidency in

34 PERU: MAIN MINERAL DEOPOSIT MAP Source: PWC 34

35 06 MEXICO

36 MEXICO: POLITICAL OUTLOOK Current President Enrique Peña Nieto Party Institutional Revolutionary Party (PRI) Assumed office December 1, 2012 Term ends 2018 Term (conditions)* Six years single term Strongest Opposition Highlights * Source: Wikipedia Andrés Manuel López Obrador (PRD) Josefina Vázquez Mota (PAN) President Enrique Peña Nieto s election marked the return of the PRI after a twelve-year hiatus. The PRI had governed Mexico uninterrupted for 71 years until it was defeated by the National Action Party (PAN) in 2000.* 36

37 MEXICO: FUTURE MINING PROJECTS Gold, Silver and Copper account for 75% of total mining exports. 37

38 MEXICO: FUTURE MINING PROJECTS Project Company Started Angagngueo Grupo Mexico 2014 Buenavista del Cobre Grupo Mexico NA Camino Rojo Goldcorp 2015 Cerro del Gallo Primero Mining/Goldcorp 2016 Concherflo Minera Frisco 2015 El Arco Minera Frisco NA El Coronel Grupo Mexico

39 07 COLOMBIA

40 COLOMBIA: POLITICAL OUTLOOK Current President Juan Manuel Santos Party Partido Social de Unidad Nacional Assumed office August 7 th, 2010 Term ends 2018 (second term) Term (conditions)* 4 year term with possibility of reelection. Strongest Opposition Óscar Iván Zuluaga (Centro Democrático) Highlights Juan Manuel Santos was reelected in June 2014 with 50.95% of popular vote. 40

41 COLOMBIA: MINING OVERVIEW Coal and Gold production is expected to more than double by 2019 (compared to 2009 levels). Historical Mining production of Colombia ( ) Source: Ingeominas 41

42 08 CHILE

43 CHILE: POLITICAL OUTLOOK Current President Michelle Bachelet Party Socialista Assumed office March 11, 2014 Term ends 2018 Term (conditions)* Four years, with immediate re-election being prohibited. Strongest Opposition Evelyn Matthei (UDI) Highlights President Michelle Bachelet was reelected for a second time ( , first term). 43

44 CHILE: MINING OVERVIEW Source: KPMG 44

45 09 CHALLENGES

46 PERU: CHALLENGES Source: PWC 46

47 MEXICO: CHALLENGES 1. Energy Costs Mining requires intensive consumption of electricity which is expensive in Mexico 2. Security Companies seek to protect their workers and mining operations from organized crime, but measures taken have proven insufficient. 3. Sustainability Negative environmental impacts as a result of mining companies lacking technical operations, has been a point of ontention for many organizations and agencies, opposing the development of the sector. 4. Profitability Imposition of new taxes is impacting company investment decisions. Source: PWC 47

48 COLOMBIA: CHALLENGES 1. Infrastructure Current roads and railways are not sufficient to import the needed machinery for mining and exploring 2. License to Operate The pace at which the government approves exploration and construction permits is limiting investment in the country. 3. Illegal Mines Increasingly there are a number of mines operating without government permission Source: PWC 48

49 CHILE: CHALLENGES 1. Energy & Water Chilean mining companies are conscious about high energy costs and a scarcity of water resources. Some have initiated construction of solar plants to provide the energy needed to their operations. 2. Infrastructure Chile s geographical landscape contains over 4,000 km of coast with port terminals located relatively close to mineral deposits, in which major ports remain in state hands. 3. Workforce Students lack interest to become part of the mining workforce, due to geographic mobility, labour activities, and the necessity for specialization.. 4. Government Policy The new government is to enact policies that are speculated to negatively impact mining. Source: PWC 49