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Picture: Henan Chine Continuous Mining Operation, Guinea, March 2018 (CM)

Evolution of the Aluminium Supply ChainA presentation prepared by CM Group for the Australian Stewardship Initiative (ASI)

Annual Conference May 2018

The views expressed herein contain information derived from publiclyavailable sources that have not been independently verified. Norepresentation or warranty is made as to the accuracy, completenessor reliability of the information. Any forward-looking information in thispresentation has been prepared on the basis of a number ofassumptions which may prove to be incorrect.

This presentation must not be relied upon as a recommendation orforecast by CM.

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The CM Group

A privately owned, independent, global non-ferrous metals research boutique. CM specialises across a range of base and other non-ferrous metals industries, including Al, Zn, Cu, Mo, W, Ni, Mg, Mn and mineral sands.

CM is the developer and publisher of the CBIX Value-in-use bauxite price index.

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0102

0304

The Bauxite Revolution

Environmental Perspectives

Shifts in Alumina Supply Industry Outlook

* SSSR - Structural Supply-Side Reform

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Bauxite is plentiful, although recently bauxite mining andexport patterns have shifted significantly withavailability.

Historically, refineries have been designed to treat specificbauxites. More recently, a new model has emergedwhereby refiners have some choice between bauxites,based mostly on availability and processing costs. Gradeand distance are the key cost drivers.

Bauxite Industry - Summary

Picture: Bauxite Loading Facility Construction, Guinea, March 2018

Over the past three years, Guinea has emerged as amajor bauxite exporting country. Capacity has tripledand is forecast to double again to over 100 MTPY by end2020.

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Bauxite – main mineral from which alumina is extracted

Indonesian Bauxite Indian BauxiteNorth Chinese Bauxite

• Bauxite is plentiful in the earth’s crust.

Bauxite mining (~5 tonnes)

Alumina refining (2 tonnes)

Al smelting

(1 tonne)

7Source: CM Group

Global Bauxite Reserves and Resources By Country

11

18

7

10

3

4

5

2

6

15

9

17

19

0

20

40

60

80

100

120

140

0

1,000

2,000

3,000

4,000

5,000

6,000

1 Guin

ea

2 Ch

ina

3 Br

azil

4 In

done

sia

5 Viet

nam

6 Aus

trali

a

7 Guya

na

8 Ca

mer

oon

9 In

dia

10 Ja

maic

a

11 G

hana

12 V

enez

uela

13 La

o PDR

14 Sa

udi A

rabia

15 M

alays

ia

16 R

ussia

17 G

reec

e

18 Ph

ilippi

nes

19 M

adag

asca

r

20 C

ambod

ia

21 Tu

rkey

22 Ir

an

23 M

onten

egro

24 D

omin

ican…

25 Fi

ji

26 So

lom

on Is

lands

27 Si

erra

Leon

e

28 Ir

aq

29 Su

rinam

e

Production2016(m

lntonne)

Res

ou

rce

and

Res

erve

(mln

ton

ne)

Resources Reserves Production 2016

36,950

12,000

8,000

23

26

12

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Major changes are underway in the global bauxite supply chain….

• 2017 global bauxite production of 350Mt.

• Forecast 2020 - 430Mtpa.

• 2014 – Indonesian ban removed 30Mt from supply.

• Replaced by Malaysia until 2016 when local mining ban introduced.

• Guinea has been the source of growth since 2016. 0

50

100

150

200

250

300

350

400

450

500

2013 2014 2015 2016 2017 2018 2019 2020

Bau

xite

Mt

Europe South America Middle East Asia (excl. China) China Australasia Africa

In 2020 bauxite production is forecast to be dominated by China (100Mt), Australia (110Mt) and Guinea (100Mt) accounting for >70% of global production.

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Emergence of Guinea as a major bauxite supplier to China

• In 2017, Guinea overtook Australia to became China’s largest supplier of bauxite.

• Investments in Guinea are likely to see imports grow significantly over the next five years.

• Malaysia is likely to re-enter the market in H2 2018, as the mining ban in Kuantan is lifted.

• Indonesia is also likely to return in 2018, as the minerals export ban is relaxed.

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41%

23%

15%

12%

9%

0%

37%

40%

7%

11%3%

2%

Australia

Guinea

Malaysia

Other

India

Indonesia

Bauxite Market Update 2017

Source: CM, China Customs

• Some bauxite mines in Northern China are forced to shut down given stricter environmental audits, resulting in tightening supply and prop prices. Refiners start to purchase from South of China or import the material since September

• Bauxite imports increased 32% YOY in 2017. Guinea has become the largest bauxite exporter to China and Indonesia bauxite has returned to the Chinese market

• Given tight supply outlook for domestic bauxite, new alumina capacity will be reliant on imported bauxite and is distributed along the Chinese coastline, such as Chalco Fangcheng project, Bosai Yingkou project and Jin’gang Aluminium Jinzhou project

52 mt importin 2016

69 mt importin 2017

China’s Bauxite Imports by Country

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

60.0

Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17

US$

/dm

t

CBIX Bauxite Prices

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0102

0304

The Bauxite Revolution

Environmental Perspectives

Shifts in Alumina Supply Industry Outlook

* SSSR - Structural Supply-Side Reform

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Global Alumina Capacity Growth – China vs World (%, MTPY)

56 58 59 62

64 68

80

90

98 98

105

116 127

132 134 137

143 150 161

8%4.2

8%4.7

9%5.2

11%6.5

12%7.7

13%8.9

23%18.7

30%27.3

35%34.2

37%36.3

40%42.3

45%51.7

47%59.9

49%64.3

51%68.3

52%71.8

54%76.5

55.5%82.7

55.9%89.9

0%

10%

20%

30%

40%

50%

60%

70%

80%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

World Total Aa Capacity (mln t) China's Aa Capacity (mln t)

• China added the world’s cumulative refining capacity to 2005 in less than a decade.

• In 2018, we forecast a further 7.2 MTPY (5% world capacity) to come onstream in China.

• From 2019 to 2023, we forecast another 25 MTPY (15% world capacity) to come onstream in China.

Source: IAI, CM Group

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Global Alumina Production 1974 to 2016

Source: ROW - IAI, China - CM Group

1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Alu

min

a P

rod

uct

ion

KTP

Y

ROW Estimated Unreported

China Estimated Unreported

China

Oceania

East & Central Europe

West Europe

South America

North America

Africa & Asia (ex China)

Since 2006

• Strong China Al growth emerged

• China developed its own ‘home-

grown’ refining technology

• Build times were as low as 9

months

• China’s proportion in world alumina

production jumped from 13% in

2005 to 50% in 2015

• On a full-cost basis, low-cost

Chinese refineries are globally

competitive

• New alumina refineries are likely to

be built either in China or outside

of China by the Chinese

• China’s CAGR 2005-2015 estimated at

21%, ROW at 5.8%

• China’s alumina production in 2015

reached 57.2 Mt, eclipsing the ROW

total production for the first time.

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Global Primary Al Production by Region 1975 to 2016

• China became the world’s largest

smelting region in 2003.

• China’s primary Al capacity CAGR 2005-

2015 was 14% compared with ROW at

0.6%.

• China now represents around 60% of

global primary Al capacity..

• China is forecast to produce around

30.8Mt of primary Al in 2016.

• More capacity is currently under

construction (2.5 MTPY) and we expect

more projects to be announced over the

next two years.

Source: ROW - IAI, China - CM Group

0

10,000

20,000

30,000

40,000

50,000

60,000

Pri

mar

y A

l Pro

du

ctio

nkt

ROW Estimated Unreported

China

GCC

Oceania

East & Central Europe

West Europe

Asia (ex China)

South America

North America

Africa

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Refinery Capital Costs Falling – China the #1 Location for New Capacity Addition

• Alumina refineries in the future are likely to be built in China, but how will they be operated?• Capital costs are significantly lower, but operating costs are increasing with higher bauxite costs

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0102

0304

The Bauxite Revolution

Environmental Perspectives

Shifts in Alumina Supply Industry Outlook

* SSSR - Structural Supply-Side Reform

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Environmental - Summary

Picture: Bauxite Loading Facility Construction, Guinea, March 2018

Global bauxite market is undergoing transformationalchange, driven by strong Chinese Al demand growth andits depleting domestic reserves.

China initially targeted Indonesia and Malaysia forbauxite supply, but both countries imposed bans and/orrestrictions, citing poor mining practices and a need toadd value in-country.

No matter where bauxite mining occurs in the future, itmust be conducted responsibly and sustainably. The eyesof the world are increasingly focused on mining practices,especially those who use the end products.

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Bauxite mining bans: lessons for other countries?

Thursday, 31 May 2018Source:, CM

• Kuantan (Malaysia) mining ban extended five times, to mid 2018, mining resumption likely H2 2018

• Requirement to fully clear stocks and review mining operations

• Environmental, safety: water pollution from wash plants, dust, overloading, heavy traffic, poor rehabilitation

• Illegal mining – licensing issues, royalty gaps

• Lessons if Indonesia resumes (or Vietnam starts) exports?

West Kalimantan, Indonesia Kuantan, Malaysia

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1st Jan. 2018

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11th FYPSet mandatory energy-saving and emissions-reduction targets for the first time

17th National CongressPromote environmental conservation and energy & resource efficiency as a requirement for economic development

12th FYPEnhance law enforcement in environmental protection, raise environmental entry barrier, implement environmental accountability system, and to institute social supervisions

Air pollution 10 ArticlesA five year plan (2013~2017) to improve air quality nationwide: urban PM 10 down by 10%;PM 2.5 down by 25% in Jingjinji, 20% Yangtze Delta and 15% in Pearl River Delta

13th FYPUpgrade industries that fail to meet national environmental standards, phase out heavily polluted projects

“2+26” Cities 2017 Plan of Air Pollution Prevention and Controlling in Beijing, Tianjin, Hebei and Surrounding Areas

Environmental Protection Tax Law Environmental Protection Law and Environmental Protection Tax came into force on 1st January 2018

Source: State Council, MIIT

Xi elected as general secretary of CPC

Nov.2012

Xi strengthens his position in the CPC meeting

Evolution of China’s Environmental Policy

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China will Continue to Reduce Pollution Medium-term

Critical bottlenecks in the ‘clean-up’ process can be: ◦ Local government’s involvement◦ Negotiation power of large producers◦ Policy consistency - replacing coal with gas,

clean fuel of heating

• Slogan of “lucid waters and lush mountains are valuable assets” widely recognized

• More press and resident reports of environmental violations• Increased transparency in government environmental

administration• Aiming to achieve the goal of innovative, coordinated, green and

open development for everyone

Source: CM

Increasing public awareness regarding environmental issues

January 2018, CCTV, the largest national TV station reporting Shandong Xinfa’s misconduct: non-compliant primary Al capacity goes unreported and associated environmental issues.

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Winter Heating Season Cuts – why and what do they mean?

• Winter heating cuts policy was introduced to reduce air pollution around Beijing during the winter months.

• Cuts were wider and deeper than under the original ‘2+26 Cities’ program.

• Additional 12MTPY refining capacity (mainly in Shanxi) was also caught up in the cuts.

• Some plants (e.g. Chalco) commenced cutting earlier than the mid November date (i.e. from end Oct).

• Has the policy been successful?

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The Policy Appears to be Working….

Excellent

Good

Slightly Polluted

Moderately Polluted

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Heating Normal Heating Normal Heating Normal Heating Normal Heating

Beijing Air Quality Index (AQI)

2015 2017Source: www.aqistudy.cn, CM Group

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China’s Carbon Exchange - Price History (RMB/t CO2e)

• Subdued commodity markets over the past few years means many producers have cut production. As historic emission is a key measure for carbon quota allocation, emission quotas are in oversupply, which has lead to recentprice softness for carbon credits.

Source: CM, Carbon K

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0102

0304

The Bauxite Revolution

Environmental Perspectives

Shifts in Alumina Supply Industry Outlook

* SSSR - Structural Supply-Side Reform

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Strong Outlook for Global Primary Al Growth

Source: CM, RT, Alcoa

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China in 2018 by the numbers…..another remarkable year

• Bauxite Mining

– From 20 to 40 MTPY mining and export capability in Guinea, West Africa, by Chinese consortium

– Domestic bauxite mining in China up by 4% to 94 million tonnes.

– Imported bauxite up 20 million tonnes in 2017 to 70 million tonnes

• Alumina Refining

– 6.9 MTPY domestic refining capacity built.

– 1.0 MTPY refining capacity under construction outside China (Indonesia)

– 1.7 MTPY refining capacity acquired by Chinese interests (Alpart, Jamaica)

– 11.5 MTPY domestic refining capacity currently under construction (with more planned)

• Primary Al Smelting

– 2.4 MTPY new domestic smelting capacity built

– 2.5 MTPY domestic smelting capacity currently under construction (with more planned)

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5-Year Outlook: Stronger Manufacturing and a Greener Environment

Implication for industries

“Made in China 2025” plan:From general consumer goods to satisfy domestic demand for high-end equipment and industrial products, focusing on: • Large aircraft• Integrated circuit• New materials• Engines for aircrafts• 5G• NEV( new energy vehicles)

Source: State Council, MIIT, Xinhua

• Low-end manufacturers under pressure as China shifts to higher value-added products and services

• A general lift in commodities prices as demand for high-end products grows

• Demand for high-end equipment and industrial products to boost usage of Cu, Li, Co, Ni

• Demand for light-weigh vehicles and aircrafts to boost usage of Al and Mg

• Clean and efficient usage of coal• Smart power grids• Space, air, ground sensor networks (SAGSN)• Big data• AI and robots• R&D of new material

• Renewable Energy & nuclear power• 60GW regular hydro-power • Wind-power and photovoltaic power generation in middle-east and southern China• Installed nuclear power capacity: 58GW; with 30 GW under construction• AP1000 project at Sanmen and Haiyang; other projects at Fuqing, Fangchenggang, Rongcheng(CAP1400)• Ensure supply system of nuclear fuel

13th 5 Five Year Plan (2016~2020): Innovative projects and Energy projects

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13th FYP Impact already being felt….

• Greater industry consolidation, led by larger, rejuvenated SOEs• Higher CAPEX for new projects? Longer project lead times due to the need for valid approvals and

environmentally compliant equipment – a move offshore?• Higher OPEX for new and existing producers.• Higher industry utilization rates driven by forced closures, leading to tighter supply and the likelihood of

higher cost marginal domestic production.

Primary Al Production Line, ChongqingQineng Group, China – 2017

Establishment of BaoWu Group - 2016

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Industry Outlook - Summary

The aluminium supply chain is set to grow strongly overthe next decade, particularly bauxite mining. In that time,the world will require at least another 5 mines the size ofHuntly and 10 refineries the size of Pinjarra.

Where they are built and how they are operated will bedriven by industry players and governments and theregulations and guidelines that drive their behaviour.

Picture: Paving on SMB Katougouma Port Haul Road, March 2018

It’s changing quickly, so strap in for the ride.Picture: Bauxite Mining Site, Guinea, March 2018

Demand surges, supply-chain shocks and, seemingly moreso than in other markets, skittish policy making byunstable governments, are all likely to play critical roles.

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-May

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End of Presentation

The views expressed herein contain information derived from publiclyavailable sources that have not been independently verified. Norepresentation or warranty is made as to the accuracy, completenessor reliability of the information. Any forward-looking information in thispresentation has been prepared on the basis of a number ofassumptions which may prove to be incorrect.

This presentation must not be relied upon as a recommendation orforecast by CM.

A Confidential Presentation Thursday, 31 May 2018 Prepared by CM Group