The Low Carbon Economy & The Mining Industry · industry sectors. 22 Industries Fitch Solutions provides analysis on 204 individual country markets, globally. 204 Countries Fitch

The Low Carbon Economy & The Mining Industry

Monday 10 December 2018

Michelle Karavias, Deputy Head of Industry Research, Fitch Solutions

fitchsolutions.com | fitchconnect.com 2

Disclaimer

THIS PRESENTATION IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any text or data included are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.


1 Intro

2 Low Carbon Economy Impact on Operations

3 Mining Company Sustainability Drive

4 Low Carbon Economy Impact on Commodities Demand

5 EVs and Metals Demand & Power Sector Coal Demand

Agenda


Fitch Solutions covers 22 different industry sectors.

22 Industries

Fitch Solutions provides analysis on 204 individual country markets, globally.

204 Countries

Fitch Solutions Introduction

13

2CountryRisk• PoliticalCountryRisk• MacroeconomicCountryRisk• BusinessEnvironment

OperationalRisk• EducationRisk• LabourMarketRiskAssessment• LogisticRiskEvaluation• TradeandInvestmentRiskAnalysis• CrimeandSecurityRisk

IndustryResearch• Agribusiness• Automotives• Banking&Financial• Consumer&Retail• CommodityPrices• Defence&Security• Food&Drink• FreightTransport&Shipping• InformationTechnology• Infrastructure• Insurance• MedicalDevices

• Metals• Mining• Oil&Gas• Petrochemicals• Pharmaceuticals&Healthcare• Power• RealEstate• Renewables• Telecommunications• Tourism

Offering insights across the Emerging, Frontier and Developed Markets

Global Insights

Low Carbon Economy & Operations1


Mining & The Low Carbon Economy

• Integration of renewable electricity to power mining operations.

• Sustainable/reduced water usage.

• Use of energy-efficient equipment during development and extraction at mines, alternative fuels for transportation.

• Technology integration to increase efficiencies throughout the lifecycle of the mine.

• Adjustment of asset portfolios to target low carbon associated commodities and decrease exposure to significant pollutants such as coal and emissions-intense steel production.


• Cost reduction potential

• Reliability of supply and cost consistency

• Regulatory pressures e.g. carbon taxes

• ESG credentials and shifting client demands

Integrating Renewable EnergyEMEA - LCOE by technology, USD/MWh

50

100

150

200

Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17

Solar PV c-Si Solar PV c-Si (With Tracking)Onshore Wind Offshore WindBiomass & Waste NuclearNatural Gas Coal

Source: BNEF, Fitch Solutions


Integrating Renewable Energy

Higher score = more attractive market, Source: Fitch Solutions Renewables Risk/Reward Index


• Sustainable/reduced water usage• Dry processing• Desalination

• Use of energy-efficient equipment during development and extraction at mines, alternative fuels for transportation.

• Technology integration to increase efficiencies throughout the lifecycle of the mine.

Reducing Emissions Through The Cycle

0 100 200 300 400 500 600

Iron ore for steel

Coal for electricity & steel

Third party transport

Rio Tinto Indirect Emissions, 2017

Exploration

Development- Sustainable materials- Water conservation

Extraction- Alternative energy- Efficient equipment

Processing- Reducing water usage- Alternative energy

Transport & Storage- Alternative fuel transportation

Closure- Minimize environmental impact- Reclamation

Sustainability Through The Cycle Of A Mine

Low Carbon Economy & Metals Demand

2


Low Carbon Commodities Demand

Battery Metals 1

Shifting Power Mix2


Electric Vehicles Outlook

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

China Europe United States Rest of the World

Electric Vehicles Sales, Units

NB: Based on 53 countries. 2018-2027 = forecast, Source: Fitch Solutions


e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions

Chemistries Dictate Metals Demand• Globally, NMC cathodes will dominate

among new EV sales moving forward

• Lower cost LFP cathodes will continue to have a significant presence in Chinese market

NMC (Nickel, Manganese, Cobalt)

NCA (Nickel, Cobalt,

Aluminium)

LFP(Lithium, Iron,

Phosphate)

AdvantagesThermal stability Highest energy density Long cycle life

High Energy Density High range Low cost

Low Cost Lower Cobalt content Thermal stability

DisadvantagesEthical and reputational risk Low thermal stability Low energy density

Price volatility High Cost Low range

Elevated self-discharge 0102030405060708090

100

2018e 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f

LFP NMC NCA LMO-NMC LMO

China– BatteryElectricVehicleSalesByCathodeType(%)

Lithium-ion Batteries: Cathodes Factbox – Pros & Cons

e/f = Fitch Solutions estimate/forecast. Source: Fitch Solutions


Nickel• NMC cathode chemistry of choice:• High energy density, thermal

stability and low cost.• Switch from LFP to NMC expected

in China due to regulatory changes.• 57% of total cathodes in china will

be NMC by 2027.

• Efforts to increase nickel content to reduce reliance on cobalt:

• NMC 811 cathodes to account for 80% of all new NMC battery sales 2027

0

20

40

60

80

100

120

140Lithium Nickel CobaltManganese Aluminium IronPhosphate

Global – Metals Demand From EV Battery Manufacturing (tonnes)



Cobalt & Lithium• Cobalt demand upside limited:• Unpopular due to high/volatile price

and sustainability questions• Shift to NMC 811 underway• Cobalt will see lower cumulative

demand over the next 10 years than lithium and manganese

• Lithium demand will remain strong due to its presence in all battery cathode chemistries.

• Manganese benefit from use in NMC.

0

5

10

15

20

25

30

35 Lithium Cobalt Manganese

Aluminium Iron Phosphate

Global – Metals Demand From EV Battery Manufacturing (tonnes)



Iron• Chinese LFP batteries to support

iron demand - low cost & reliability.• Cumulative iron demand second

only to nickel over ten year horizon.• Upside support to a bearish outlook

for iron ore - offset declining demand from China and steel production.

0

500

1000

1500

2000

2500

0

20

40

60

80

100

120

140

160

2018e 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f

Nickel Lithium Iron Manganese

Cobalt Phosphorus Aluminium Chinese EV Sales 0

5,000

10,000

15,000

20,000

25,000

0.020.040.060.080.0

100.0120.0140.0160.0180.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

Iron Ore Price, USD/tonne, ave (LHS)

Nickel Price, USD/tonne, ave (RHS)

China: Direct Metals Demand From EV Battery Manufacturing (tonnes ‘000s) (LHS) & EV Sales (volume 000s) (RHS)



• Coal key to emerging markets, but will lose power mix share due to decarbonisation drive

• Asia to remain primary source of demand for coal.

• BRI driving investment in coal fired power plants.

• Non-Hydro Renewable Energywill increase its share in the global power mix the most, driving additional demand for batteries

Coal: Power Mix Shifts Demand

Coal38%

Natural Gas23%

Oil 3%

Hydropower16%

Non-Hydro Renewables

9%

Nuclear11%

2018f

Coal34%

Natural Gas25%

Oil 2%

Hydropower17%

Non-Hydro Renewables

13%

Nuclear9%

2027f


Global Power Generation Mix By Year

Thank You

Monday 10 December 2018

Michelle Karavias, Deputy Head of Industry Research, Fitch Solutions

Documents

The Low Carbon Economy & The Mining Industry · industry sectors. 22 Industries Fitch Solutions provides analysis on 204 individual country markets, globally. 204 Countries Fitch