Bulks versus Base Metals Why base metals prices

Bulks versus Base Metals Why base metals prices are set to outperform bulk commodities Johnson, CEO, CRU China www. crugroup. com

Disclaimer This presentation is supplied on a private and confidential basis to the customer. It must not be disclosed in whole or in part, directly or in any other format to any other company, organisation or individual without the prior written permission of CRU International Limited. Permission is given for the disclosure of this report to a company’s majority owned subsidiaries and its parent organisation. However, where the report is supplied to a client in his capacity as a manager of a joint venture or partnership, it may not be disclosed to the other participants without further permission. CRU International Limited’s responsibility is solely to its direct client. Its liability is limited to the amount of the fees actually paid for the professional services involved in preparing this presentation. We accept no liability to third parties, howsoever arising. Although reasonable care and diligence has been used in the preparation of this presentation, we do not guarantee the accuracy of any data, assumptions, forecasts or other forward-looking statements. Source: CRU www. crugroup. com 2

Areas for discussion • Starting point, 2014 -2015 • Bulk commodities, Market outlook, Unrelenting supply • Base Metals, Market outlook, Divergence of views: • Demand, especially China • Supply • Conclusions Source: CRU www. crugroup. com 3

“CRU China 10 price” index - down 20% in last two years & poor start in 2015 100 95 90 85 80 75 ян в- 13 ма р1 ма 3 й 13 ию л 13 се н 13 но я 13 ян в 14 ма р14 ма й 1 ию 4 л 14 се н 14 но я 14 ян в 1 ма 5 р15 70 Source: CRU www. crugroup. com Index of Chinese prices for steel, coking coal, cu, ferts, stainless, gold, lead, zinc, & tin January 2012 = 100 4

The $245 Bn reasons to forget 2014 Bulk Commodities: Down 9. 9%, 232$Bn Iron Ore Cu Precious Metals: Down 10%, 15. 8$Bn Coal Au Ferts Base Metals: Up 3. 4%, 11. 5$Bn Fertilizers: Down 19%, 9. 1$Bn Includes Mined Materials: Bauxite, Met Coal, Met Coke, Iron Ore & Thermal Coal Base Metals: Al, Cu, Ni, Co, Mo, Sn, Zn, Pb Precious Metals: Gold, Silver, Palladium, Platinum Fertilizers: Phosphate Rock, Potash Source: CRU www. crugroup. com 5

2015 forecast: Strengthening economy but slow markets remain • • Lower oil prices are net positive for the outlook Modest economic growth in 2015 – US is key Slow, firm, commodity demand growth Mining margins & CEOs to remain under pressure Chinese indicators & US$ strength to drive investor sentiment A recovery in IPO, M&A activity CRU expects 7% average y/y price decline across commodity basket Source: CRU www. crugroup. com 6

China worries: CRU now expects 7% price decline across basket* CRU basket of 34 mining, metals and fertilizer commodities Hot > 15% Sulphuric Acid, Potash, Phosphate Rock Warm 5% to 15% Bauxite, Alumina Mild 0% to 5% Cool -5% to 0% Cold -15% to -5% Freezing < -15% Cobalt, Coal Tar Pitch, Palladium Calcined Pet. Coke, Met Coke, Phosphate DAP, Silicon, Aluminium, Thermal Coal, Chrome Ore, Zinc, Gold, Sulphur Lead, Ferrochrome, Copper, Platinum, Urea, Nickel Silver, Ammonia, Silico-Manganese, Met Coal, Tin, Manganese, Molybdenum, Metallics, Brent Crude, Iron Ore Source: CRU *2015 annual average price forecast over 2014 actual annual prices (30 th Apr 2015) www. crugroup. com 7

Bulk Commodities, Market outlook, Unrelenting supply Source: CRU www. crugroup. com 8

Bulk Commodity producers face multiple threats slower demand growth flexible competitors decline in market prices new, low cost, production Source: CRU cost competition www. crugroup. com 9

Base Metals, Market outlook, Divergence of views Euphoria Optimism Anxiety Market Sentiment Excitement Denial Strategy Execution Opportunity Relief Fear Capitulation Despondency Anxiety Denial Hope Source: CRU www. crugroup. com 10

Risk appetite to build or finance new base metal mines remains low Value of Indonesian Exports (1) Selected mineral ores, $ million Grades • Operating costs rise as grade falls • Ever larger project scale & capital requirements People • Easy wins achieved, incremental innovation difficult • Focus on leadership & short term performance Society • New mines open Pandora’s box on division of returns • water, energy, environment, local & central distribution Source: CRU, SEKI www. crugroup. com 11

…and medium term price upside exists. Invest now? Wks 18 Mt 0, 75 0, 50 15 0, 50 0, 25 12 0, 25 0, 00 9 0, 00 Balance (LHS) Stocks ratio (RHS) Mt 0, 50 Copper Balance (LHS) Stocks ratio (RHS) 0, 25 0, 00 -0, 25 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 -0, 50 Source: CRU 9 Lead Balance (LHS) Stocks ratio (RHS) 200 150 3 100 50 6 Wks 4 2 0 6 -0, 25 3 -0, 50 0 -0, 75 Wks 6 kt 200 5 150 25 15 15 4 100 20 10 12 3 50 15 5 9 2 0 10 0 6 5 -5 0 -10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 -0, 75 12 kt 250 Balance (LHS) Stocks ratio (RHS) 3 1 -50 0 -100 Nickel Balance (LHS) Stocks ratio (RHS) -50 1 -100 0 -150 Wks 30 klbs 20 0 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 -0, 50 Wks 15 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 -0, 25 Zinc Molybdenum Wks 18 Balance (LHS) Stocks ratio (RHS) 3 0 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 Aluminium 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 Mt 0, 75 www. crugroup. com 12

China so important for global demand - 44% of global consumption across 15 key commodities in 2014 China 's % Global Production China's % Global Consumption 80% Note the deficits in supply in these commodities 70% 60% 50% 40% 30% 20% 10% sh ta Po d ol G e or Iro n ite ux Ba pe r C op ke l N ic re U Ph os p a e ha t nc Zi st es s St ai nl um Le ad l ee n in iu Ti m l St ee Al C ok i ng co al 0% Source: CRU www. crugroup. com 13

China’s medium term demand outlook lower than GDP over next 5 years China 10 commodities y-o-y % consumption 20% 15% 10% 5% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: CRU Average annual consumption for steel, coking coal, cu, ferts, stainless, gold, lead, zinc, & tin www. crugroup. com 14

But prospects better in gold & base metals than carbon steel Commodity CAGR 2004 -2014 CAGR 2014 -2019 Gold 10. 9% 7. 2% Stainless steel/Nickel 11. 4% 6. 4% Aluminium 16. 0% Zinc 9. 3% 4. 3% Copper 10. 5% 3. 6% Lead 12. 9% 2. 0% Fertiliser 3. 4% 1. 6% Tin 5. 9% 1. 0% Steel 11. 5% 0. 3% Coking coal 11. 1% -0. 3% Total (average of China 10) 10. 7% 3. 2% Source: CRU www. crugroup. com 15

Copper still waiting for signs of a Q 2 deficit 300 Balance, LHS, '000 t 8 000 LME Cash Copper price, $/t 200 7 500 100 7 000 0 6 500 -100 6 000 25 0 -25 -50 -75 -100 -125 -150 5 500 January March Latest Cash 600 400 -200 Average period backwardation in LME Cu curve $/t 3 February April 6 9 12 15 Cumulative change in global stock position (LME, COMEX, SHFE, bonded) per year, ‘ 000 t 200 0 -300 2013 Q 1 5 000 Q 3 2014 Q 1 Q 3 2015 Q 1 -200 -400 2012 2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: CRU, LME, SHFE, Comex www. crugroup. com 16

Copper expectations deteriorate on weak start to 2015 Refined copper consumption change in 2015 (y-o-y%) E&C Europe : -14. 7% West Europe: +3. 4% North America: +2. 4% R. O. K: -1. 3% > 6% 4% – 6% China: +4. 0% 2% – 4% 0% – 2% -5% – 0% World: +2. 3% South & Central America: -2. 6% India: +5. 1% Japan +1. 2% Taiwan 0% Asia: +3. 5% < -5% Source: CRU www. crugroup. com 17

Chinese copper demand soft so far, catch-up expected from June 10% CRU China quarterly refined copper 15% 10% 5% 0% -5% -10% -15% 8% 6% 4% 2014 y-o-y 2% 2015 y-o-y 0% Q 1 Q 2 Q 3 Q 4 Q 1 2015 Destocking of air conditioners to be complete by Q 2 Residential AC market, y-o-y % change (RHS) & M units (LHS) 10 8 6 4 2 0 янв-13 Stocks (LHS) июл-13 янв-14 Output (RHS) июл-14 янв-15 China National power grid Investment growth rate y-o-y% 80% 60% 40% 20% 0% -20% -40% 2015 plan 2014 actual Home sales expected to recover soon 30% China real estate investment growth% Growth in land puchase by rdevelopers % House sales % Central gvt shows support for real estate industry 10% -30% янв-14 Source: CRU, National Energy Administration, Chinese NBS, chinaiol. com июл-14 янв-15 июл-15 www. crugroup. com 18

Copper bright spots vs. headwinds for consumption Copper usage in power generation TW 8 Copper usage per MW capacity, rhs Copper usage per MW installed. . . 6 4 2 0 1995 y-o-y% 7, 0 6, 0 5, 0 4, 0 3, 0 2, 0 1, 0 0, 0 2012 Global investment as a share of GDP t/MW % 36% 1, 4 1, 2 1, 0 0, 8 0, 6 0, 4 0, 2 - Total Advanced economies Emerging economies 31% Base case 26% 2020 21% Growth in global production of cars and commercial vehicles 16% 1995 2011 2013 2015 Source: CRU, IEA, LMC Automotive 2017 2019 1999 2003 2007 2011 2015 2019 • Global demand is still too reliant on emerging market investment, particularly Chinese investment • Trends in capital flows could damage EM investment in 2015 www. crugroup. com 19

Limited copper mine production growth in 2015, to speed up in 2016 Growth in mine output* ‘ 000 t, and % change 22 000 Positive and negative contributors to 2015 Other growth concs Possible Higher recovery rate Probable 21 000 Higher throughput Committed Projects 1. 55 Mt Projects Existing Operations 20 000 Ramp-up Recovery from disruptions 19 000 Mine closures 18 000 17 000 2014 1. 7% 2015 0. 7% 2016 6. 4% 2017 1. 9% 2018 1. 7% 2019 2. 4% * After probability adjustments and disruption allowance Source: CRU, company reports, media Ore grade decline -1. 42 Mt Expected disruption s www. crugroup. com 20

ci ro Ex pa ns ne Bu io se na Re n ow vi ga Gl li eb sta SX to ok i-P EW rz III em ys lo Si wy er ra Go rd a Sa lo Co bo I I Se ns nt ta Bu i n ne en cia l( av Es T ist rid co a - N ndid ent ) a ew Co OG P 1 nc Gr en as t be rato r rg DM LZ Bo z sh Ce ak La rro ol s Ve Ba rd m e To Ex bas m pa in sk ns To o io qu ye n ep (c a o la nc M on Ex s) yw pa ns a/ Gr Le io as Co n t p be NI a b da re CI rg un Pa CO Bl g oc na M k m isc Ca a el (P ve la et ne ou aqu illa sg ) re Yu en l on fie Ra ld g do Ka P ha m m iro o se To a Ph II m ic as Su e 1 lp h Si id er es ra II Ti Go a rd M a ar Ex ia pa ns io n Gl og se Ca or en M Weakened contribution from copper projects, especially by 2019 ’ 000 t 500 350 300 250 200 Mines that have recently started-up or are due to start-up with capacity of >100, 000 t/y 450 2014 Source: CRU, company reports, media 2015 2016 2017 2018 2019 400 Operating Firm Probable Possible 150 100 50 0 www. crugroup. com 21

Net of by-product copper cash costs do not tell the whole story Real (2014$) brownfield expansion and greenfield project costs, $/t 15 000 Net of by-product cash costs Full Cost 12 500 25% 50% 75% 10 000 7 500 5 000 2 500 0 -2 500 #, ##0 #, ##0 Cumulative production (‘ 000 t Cu) Source: CRU www. crugroup. com 22

Refined copper production growth to peak in 2016 at 4. 7%, and slow markedly from 2017 onwards Refined copper production forecast by type Annual change EW cathode Secondary electro-refined cathode Primary electro-refined cathode 4, 7% 4, 5% ‘ 000 t 25 000 20 000 Refined copper output change: 2014 -2019 ‘ 000 t China 5, 0% Other Asia Africa 4, 2% China’s share of world refined copper output 4, 0% Other N America 15 000 3, 0% E&C Europe 31% Japan 2, 6% 2, 3% 2, 1% 10 000 2014 2, 0% W Europe 2019 USA 5 000 1, 0% 0, 8% 37% Australasia S&C America 0 0, 0% 2013 Source: CRU 2014 2015 2016 2017 2018 2019 -1000 0 1000 2000 3000 www. crugroup. com 23

Recent mine project delays cement our medium-term Cu price view LME cash price and global supply/demand balance, 2013 -2019 ’ 000 t Cu 500 World balance Price Low end $/t 10 000 High end 400 9 500 300 9 000 200 8 500 100 8 000 0 7 500 -100 7 000 -200 6 500 -300 6 000 -400 5 500 -500 5 000 2013 2014 2015 2016 Source: LME, CRU. Note: Balances after accounting for SRB buying 2017 2018 2019 www. crugroup. com 24

Areas for discussion • Starting point, 2014 -2015 • Bulk commodities, Market outlook, Unrelenting supply • Base Metals, Market outlook, Divergence of views: • Demand, especially China • Supply • Conclusions Source: CRU www. crugroup. com 25

Mining & Metal prices recover strongly by 2019 whilst fertilizers lag* CRU basket of 34 mining, metals and fertilizer commodities Hot > 15% Warm 5% to 15% Mild 0% to 5% Cool -5% to 0% Cold -15% to -5% Freezing < -15% Zinc, Calcined Pet. Coke, Tin, Nickel, Coal Tar Pitch, Sulphuric Acid, Cobalt, Palladium, Bauxite, Met Coke, Met Coal, Copper, Potash, Aluminium, Alumina, Platinum, Thermal Coal, Phosphate Rock Ferrochrome, Chrome Ore, Urea, Brent Crude Lead, Silicon Manganese Phosphate DAP, Ammonia, Silico-Manganese, Gold Metallics, Molybdenum, Iron Ore, Sulphur, Silver Source: CRU *2019 annual average price forecast over 2014 actual annual prices (30 th Apr 2015) www. crugroup. com 26

Conclusions 1. 2015 forecast: Strengthening economy but slow markets remain 2. China worries: CRU expects 7% price decline across basket 3. Bulk Commodities, Market outlook, Unrelenting supply 4. Base Metals, Market outlook, Divergence of views 5. Do you have the risk appetite to invest in new base metals mines? Source: CRU www. crugroup. com 27

For more information Johnson CEO CRU China johnson@crugroup. com Tel. +86 10 6510 2208 Mob. +86 13911122605 Mr Lian Liu Business Development Executive Beijing, China Lian. Liu@crugroup. com Tel. +86 10 6510 2193 Mob. +86 158 1024 1014 Source: CRU Wan Ling Assistant Chief, China Office & Head of Asia, Base Metals & Aluminum Ling. wan@crugroup. com Tel. +86 10 65102183 www. crugroup. com 28

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