Growing the world’s largest zinc resource › dam › jcr:423619d2-743c-40a2-9752-f43c… · Market Update. Growing Chinese . supply gap § Zinc mine production in China is expected

1

Growing the world’s largest zinc resourceBrian Hearne – Chief Operating Officer Xstrata Zinc Australia

Analyst Visit April 2011

22

Agenda

Introduction

Market Update

Delivering Organic Growth – Xstrata Zinc Australia

Future Growth Options

Conclusion

33Introduction

44

Global Footprint of Xstrata Zinc Operations

Introduction

Xstrata Zinc Canada

Xstrata Zinc Europe

Xstrata Zinc Australia

55

Creating The Leading Global Zinc ProducerThrough M&A And Organic Growth§ Initial platform of European zinc smelters§ M&A growth through MIM (Mount Isa and McArthur River) and Falconbridge

(Brunswick, Kidd, CEZn and Antamina)§ Acquisitions further augmented by organic growth

Industry Ranking - 2010

Top five share: 30%

Source: Brook Hunt

Industry Ranking - 2004

Top five share: 26%

# 8

# 1

Mined Production

Mining Assets: Mount Isa, McArthur River, Brunswick, Kidd, Perseverance, Antamina

Mining assets: Mount Isa, McArthur River

Introduction

0 200 400 600 800

Teck Cominco Limited

Zinifex

Anglo American plc

Noranda

New Boliden

Xstrata

0 200 400 600 800 1000 1200

Xstrata

Vedanta

Teck

MMG

Glencore

66

0

500

1000

1500

2000

2500

0

5

10

15

20

25

30

2004 2010

LTIFRTRIFRDISR

§ Ongoing improvement in Sustainable Development targets– 57% reduction in Total

Recordable Injuries– 78% reduction in Lost Time

Injuries– 86% reduction in Disabling

Injuries

§ Strong production growth – Zn mine production:

312kt à 1.1 Mt (+255%)– Zn metal production capacity:

646kt à 825kt (+28%)

§ Vertical integration of smelting and mine production– Zn mine/Zn metal:

48% à 133% (2004-2010)

Safety

Xstrata Zinc Growth

Introduction

kt

Significant Progress Achieved In Our Strategic Goals In Past 5 Years

0

200

400

600

800

1000

1200

2004 2005 2006 2007 2008 2009 2010

Zinc in ConcentratesZinc Metal Production capacity

77-50

-

50

100

150

200

2,004 2,005 2,006 2,007 2,008 2,009 2,010

EuropeCanadaAustralia

§ Growth in Resources and reserves (2004-2010)

– Zinc mine reserves: 81Mt ore à 179Mt ore (+120%)

§ On-going cost cutting and C1 cash cost improvement (2004-2009)

– Over $600m accumulated savings in past 6 years

Reserve Growth

Real Unit Cost Savings

Mt ore

Introduction

81 (64)

+162 179

0

50

100

150

200

2004 Ore mined Increase in reserves

2010

US$m

Significant Progress Achieved In Our Strategic Goals In Past 5 Years (cont.)

88

§ Transformation of Xstrata Zinc repositioned to bottom half of cost curve– Mt Isa established as tier one asset with low cost position and long mine

life – Xstrata Zinc in first quartile position excluding McArthur River production– Although a competitive producer, McArthur River with a bulk concentrate

should be analyzed separately

Improved cost curve position

0 50th

Cas

h Cos

t

Percentile

cost position

XstrataZinc2010

XZn2006

Generic cost

curve

10th 90th

XstrataZincexcl. MRM

0 50th

Cas

h Cos

t

Percentile

cost position

Mt Isa

2006Generic

cost curve

10th 90th

Mt IsaBrunswick

Perseverance

Brunswick

McArthur River

McArthur River

2010

Significant Progress Achieved In Our Strategic Goals In Past 5 Years (cont.)

Introduction

Cost curve position of mines

99Market Update

1010

660

680

700

720

740

760

780

800

2008 2009 2010 2011850

900

950

1000

1050

1100

2008 2009 2010 2011

§ Zinc market currently in surplus – Production cuts in downturn reversed on recent higher prices

§ World zinc demand slowly catching up with production§ World lead market is now balanced

Zinc production and consumption Lead production and consumption

Zinc And Lead Market Demand RecoverySlowly Reversing Surplus Built In Downturn

Source: ILZSG Market Update

Metal production Metal consumption

kt zinc (12 month moving total) kt lead (12 month moving total)

1111Source: Brook Hunt, Xstrata Zinc

§ Global zinc demand to grow ~4% in coming years, driven by strong demand in the developing countries

– 5.8% p.a. in developing countries – 1.5% p.a. in mature economies

§ Global lead demand also set for strong growth

– Growth rate of more than 4% driven by China and other developing countries

– Strong growth in lead-acid batteries (~80% of total lead consumption) driven by by robust output of cars, e-bikes, motorbikes as well as by the large replacement sectors of these vehicles

5

10

15

20

25

1960 1970 1980 1990 2000 2010 2020

China

Rest of World

MtForecast CAGR 4%

CAGR 4%

CAGR 0.3%

CAGR 5%

Global Pb consumption

Global Zn consumption

Strong Demand Outlook For Lead And Zinc

Market Update

FORECASTCAGR 4.3%

CAGR2.7%

CAGR1.5%

2468

1012141618

1990 2000 2010 2020

China

Rest of World

1212

§ Several zinc and lead mines are expected to close as reserves become depleted – Capacity closures by 2016:

– Zinc: 1.9Mt – Lead: 0.5Mt

– New projects by 2016:– Zinc: 800kt– Lead: 150kt

Upcoming Mine Closures To Constrain Supply …

Source: Brook Hunt, Xstrata Zinc

Expected zinc and lead mine closures

Zinc Lead

Brunswick PerseveranceSnow/Trout LakeEl Mochito Lisheen

KassandraAngasMt Garnet

CenturyDuck PondGolden Grove

SkorpionMyra FallsMae SodEl ToquiMahr TunnelRauraPomorzany

CanningtonGuemassaCayeli

kt cumulative lost production

-442

-716

-1310

-1720

-1884

-81-143 -182

-228

-470

2500

2000

1500

1000

500

02012 2013 2014 2015 2016 2017

Market Update

1313

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2003

2005

2007

2009

2011

2013

2015

2017

2019

Zn ProjectsChina Zn mine prodZn mine requirement

Creating A Significant Concentrate Deficit And Difficult Conditions For Custom Smelters

Source: Brook Hunt, Xstrata Zinc Market Update

Growing Chinese

supply gap

§ Zinc mine production in China is expected grow at about 3% in coming years due to declining head grades, closure of end-of-life mines and delayed reserve replacement

§ Large resource base but development projected to lag strong demand growth

§ Characterized by many small producers with government encouraging consolidation and integration

§ China projected to be continued net importer of zinc and lead concentrates contributing to a tight concentrates market going forward

1414Source: Brook Hunt, Xstrata Zinc

Global Zinc And Lead Markets Require Significant Supply Growth To Balance Markets

Market Update

Forecast global zinc mine production and consumption

§ With expected mine closures, zinc industry will need to develop about 7Mt of new mine capacity by 2020 and about 14Mt by 2025 in order to meet expected demand

§ Projects classified as probable would cover only 2.4Mt

§ Although many other projects classified as “possible” could help cover this gap, timing and delivery remains uncertain

Zinc mine production7 Mt needed by 2020 14Mt needed by 2025

Lead mine production 2Mt needed by 20204Mt needed by 2025

0

2

4

6

8

10

12

14

16

18

20

22

2000 2005 2010 2015 2020 2025

Probable projects B

Probable projects A

Zn Mine Production

Mine prod required2025:14 Mt

2020:7 Mt

1515Delivering Organic Growth – XZn Australia

1616

§ 2,070 employees and contractors

§ Mount Isa Mines zinc, Lead and Silver production - George Fisher

underground, Black Star open pit, Handlebar Hill open pit

- Zinc-lead concentrator and lead smelter

- Lady Loretta Project

§ Bowen Coke Works

§ McArthur River Mine - Open pit mine and zinc-

lead concentrator- Bing Bong port loading

facility

Xstrata Zinc Australia

Delivering Organic Growth – XZn Australia

1717

§ Xstrata Zinc has world’s largest zinc resource base, as well as mines of industry-leading quality and scale– Mt Isa* region contains the largest zinc resource in the world at 36Mt– Mc Arthur River follows in 2nd place with 19Mt

Current Production And Future GrowthSupported By A World Class Resource Base

Source: Brook Hunt * Mt Isa includes G. Fisher and the Lady Loretta deposit

Ranking of zinc assets by resource

Mt contained zinc

0 10 20 30 40

Mt Isa

McArthur River

Red Dog

Rampura Agucha

Lanping

Shalkiya Zn

Century

Antamina

Vazante

Neves Corvo

Reserves ResourcesXstrata Mines


1818

Mount Isa Mines Zinc-Lead Operations § Commenced in 1969

§ Products: - Zinc in concentrate - Lead in bullion - Silver in bullion

§ 74% of zinc concentrate exported to Asia and Europe

§ Lead bullion shipped to UK for refining § Current Projects:

− Black Star Deeps− George Fisher Mine Expansion − George Fisher North Crushing Plant − Black Star South

§ All mining projects are planned to ensure full utilisation of the zinc-lead concentrator capacity


1919

§ Significant increase in Mine production since 2005 to above 8.5Mtpa in 2010.

MIM Zinc mining and concentrate production (kt Zn)

Mount Isa Mines Zinc Mine Production


2020

Mining infrastructure for expansion of George Fisher Mine

Crushing Station & Hoisting Shaft

L72VENTSURFACE

SOUTH NORTH4.5Mtpa

55Mt

20Mt

35Mt

Haulage

1.2 Mtpa 3.3 Mtpa

20Mt

10L

14L

19L

12L13L

§ Expand extraction capacity and ore production by 1Mtpa from 3.5 to 4.5Mtpa and access new 20Mt mining block

– Estimated capex $274m in next 3years (underground crusher, new shaft at GF North, underground mine development for new 20Mt mining block, mobile equipment, etc.)

– Production to start in early 2013

Mount Isa MinesGeorge Fisher Mine ExpansionApproved September 2010


2121

Exhaust Shaft

Fresh Air Shaft Exhaust Shaft

Decline Development

George Fisher Mine Expansion5% Complete


2222

§ Around 40% of zinc-lead ore crushing currently conducted in Mount Isa being relocated to GFM

§ $36 million development announced in December and to be complete late 2011

§ Replaces 3 mobile crushing units

§ New facility will service the GFM operations for the life of mine at expanded production rate

§ Eliminates double handling of ore, lowers operating costs, reduces diesel consumption and reduces emissions

George Fisher Mine ExpansionNew Crushing Facility


2323

Profile of Black Star Open Pit

Mount Isa MinesBlack Star Deeps ProjectApproved April 2010

§ Deepening of Black Star Open Pit

– Access to 15mt of ore @ 4.3% Zn and 2.5% Pb

– Estimated capex $113m

– Project approved in April 2010

– Production to start at the end of 2011

§ Opportunity to extend the life of mine by 3 to 4 years to 2016

§ Maintains current employment levels of 190 employees

§ Up to 100 temporary contractors employed during development phase

§ Maintains current production profile of 4.5Mtpa


2424

§ Construction progressing as scheduled on time and on budget

§ BSOC Deeps starter projects

- R67 refrigeration relocation- completed - Water management & drainage - Portal relocation- Road net work revamp- WWD waste rock dump upgrade- Equipment & labour reinforcements

§ Stage 4 Ore & Stage 5 waste stripping

§ Sustain lead and dust management

§ Maintain vigilance over Void Management process

Black Star Deeps ProjectCivil Works 95% Complete / Pre-strip 15% Complete


2525

§ Extension of Black Star to the South– 13.4Mt ore @ 5.6% Zn and

4.2%Pb– 1.5Mt ore @ 1.1% Cu– Mine Plan Variation submitted

for Queensland Government approval in February 2011

– Mine life extension to 2018

§ Black Rock Open Pit– 1st stage 9Mt copper ore– 2nd stage: 12Mt Zn ore @ 3.5% Zn,

3.1%Pb and 15Mt Cu ore @ 1.1% Cu

§ Rio Grande open pit– 6 million tonnes ore; 2.4%

Zn, 3.6%Pb

Mount Isa MinesAdditional Growth Options – Mount Isa


2626

§ Currently operates as a swing mine utilising Black Star resources and fleet

§ Proposed extension of Handlebar Hill open pit mine through a single stage cutback – approved in March

§ Extension allows access to deeper ore and ore to north-east that is outside the currently approved Stage 2 pit design

§ Additional targeted reserves generate approximately 3Mt of ore @ 6.8% zinc and 2.7% lead

§ Estimated capex: $38m


Mount Isa MinesAdditional Growth Options – Handlebar Hill

2727

§ Approx 900km south east of Darwin

§ 60km from Borroloola

§ 120km from Bing Bong port loading facility

§ 24 hour operation mining zinc, lead and silver§ One of the world’s largest zinc resources

§ Supplies 70% of world zinc bulk concentrate market.


McArthur River Mining

2828

§ Underground mine established in 1995

§ Converted to open pit operations in a project completed in 2009

§ Phase 3 Development Project announced in March 2011


McArthur River – Open Pit Conversion

2929

§ Significant increase in Mine production since 2005 to above 2.2Mtpa in 2010.


McArthur RiverMining And Concentrate Production

MRM mining and concentrate production (kt)

3030

Base caseOEFExtension

ExistingNorthOEF

PitExpansion

ExistingPit

Mill

Camp

Airstrip

McArthur River Channel

Bund

ExistingTSF

Base caseTSFUpgrade

McArthur RiverPhase 3 Development Project

§ $270 million development project

§ Increases mine production to around 5 million tonnes per annum and 800kt of bulk concentrate

§ Open pit will expand within existing bund wall

§ Approximately 110 additional personnel in operation

§ Extends mine life by 6 years to 2033.

2011:Submission of environmental assessment report.SUBJECT TO INTERNAL AND GOVERNMENT APPROVALS2012 Commence development works.2014 Commence operations at higher rate of production

3131

Xstrata’s proprietary hydrometallurgy technology offers strategic advantages for Xstrata Zinc through the recovery of base and precious

metals from refractory sulphide ores

§ Allows integrated expansion of McArthur River Mine, doubling its current production- Significant conversion of resources to reserves- Significant on-site cost reduction

§ Allows integrated expansion of Xstrata Zinc’s smelters with corresponding cost reductions

§ Facilitates improvement of Brunswick Lead smelter

McArthur RiverXstrata Zinc’s Technology Advantage

3232

ExistingProduction

§ Expansion of Xstrata Zinc European smelters would be sufficient to absorb the expanded production of McArthur River mine

– Demonstration plant commissioned in July 2010 at San Juan de Nieva and another to be commissioned in Nordenham in early 2011

§ Lead by-product from the smelters could be processed at the Brunswick lead smelter

Expanded Volume

San Juan Spain

Nordenham Germany

ExistingCustomers

(Asia, Europe)

Brunswick Pb Smelter

Bulk Zn/Pbconcentrate flow Lead by-product

flow

Mc Arthur River Mine Europe Zn Smelters Brunswick Pb Smelter

McArthur RiverXstrata Zinc’s Technology Advantage

3333

§ Xstrata’s proprietary hydrometallurgy technology will enable MRM to increase production and reduce unit costs

§ Doubling production capacity to 5mtpy will result in ~20% reduction of on-site costs

– Zinc contained would increase to 370ktpy

§ Cost reduction would give added benefit by converting large share of resources into reserves

– Mineable reserves expected to increase about 70Mt

– LOM extended about 6 years to 2033 at higher production rate

MRM Reserves (Mt)

43

115

0

20

40

60

80

100

120

At 2.5Mtpy At 5Mtpy

Enables 72Mt

increase

McArthur River - Phase 3 Development ProjectSignificantly Improving The Cost Base

3434

§ 2009 Independent Monitors’ report found no issues requiring urgent investigation

− Improvements in water management and dust mitigation− Monitoring programs appropriate− MRM acted to eliminate previously identified risks§ No adverse impact on the McArthur River or Gulf environments from mining

operations

§ Rehabilitation of McArthur River and Barney Creek Channel continuing and escalating

− 40,000 plants in 2010 equals amount planted in previous 2 years

McArthur RiverEnvironmental Performance

3535

§ MRM Community Benefits Trust formed in 2007

§ $7 million invested to date

MRM Community Benefits Trust Grant Allocations as at July 2010.

McArthur RiverCommunity Engagement

3636

§ Indigenous employment increased from 9% in 2006 to 21% in 2010

§ Effective traineeship program engaging with local youth (men and women)

§ Provides pathways to employment through on-the- job training, formal instruction and apprenticeships

§ Heavy machinery simulator popular and effective

§ New programs have improved retention rates

McArthur RiverIncreased Indigenous Employment

3737Future Growth Options

3838Future Growth Options

Other Australian Greenfield Growth Options

§ Lady Loretta (100%)- Transaction to acquire remaining 25%

from joint venture partner, Cape Lambert, settled on 1 April for $30 million

- Greenfield development subject to review

- Located 140 kilometres north-north west of Mount Isa

- 13.6Mt resource @ 17% Zn, 6% Pb- Indicative capex $460m- Investigating processing options at

Mount Isa

View of underground mine

3939Conclusion

4040Conclusion

§ Zinc supply and demand fundamentals remain attractive in the medium-long term

§ Xstrata Zinc Australia achieved significant growth in the past few years through organic growth and improved operational efficiencies

§ Xstrata Zinc Australia achieved significant year-on-year cost reductions at its operations─ Improved cost position from the upper part of the curve in the past

years to within the second quartile in 2010 ─ Continued cost improvement of all operations

§ Xstrata Zinc Australia has portfolio of projects to facilitate further organic growth and maintain group’s leading position in the Zinc industry

Conclusion

41

Questions?

Questions ?

Documents

Growing the world’s largest zinc resource › dam › jcr:423619d2-743c-40a2-9752-f43c… · Market Update. Growing Chinese . supply gap § Zinc mine production in China is expected