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Surviving the Nuclear Winter Presentation to MINEAfrica London December 1st 2008
Metal Prices in retreat Platinum (-62.5%) Nickel (-81.3%) Gold (-19.0%) Copper (-59.0%)
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
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 Taiwan S.Korea India kg/capita Cu consumption Russia Japan Malaysia Australia EU/EEA China USA Canada Brazil Source: CRU Strategies GDP/capita (2007 000$)
Real and Nominal Cu Prices since 1970 Early 70s boom, ended by 1st oil crisis Global recovery, Bougainville crisis and Zambian decline Supply response fails to meet booming demand from China Mine capacity surge follows second oil crisis End of recession Hamanaka scandal Financial crisis Early 90s recession Asian crisis Data: LME, CRU
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Predator No 1 - Rio Tinto on hearing that BHP Billiton had withdrawn its bid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 Crisis in the Diamond Industry Alrosa cuts rough supplies to market by 40% De Beers Canada to Cut Production Diamond prices plunge by 40-50% India calls for 1 month freeze on diamond rough imports Indian diamantaire to lay-off 300 cutters Gem Diamonds closes capacity in DRC Debswana Plans 20% Cut in Diamond Production in 2009
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 $2,545 mn# Increase of Value on 2007 PFS Gross Value 211.5% Project IRR 42% Kopane IRR 54% Capital Payback < 2 years * based on a bulk sample of 12,512 carats in August 2008 # New interim KDD Resource model