Americas Mining Presentation Australia – May 2010

The Americas:

An emerged mining and resources powerhouse Daniel Sullivan Consul General, Peru Portfolio Manager Americas – Mining and Resources

Agenda •

Follow the money

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Specialised hubs for suppliers and finance

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L6 market update – Peru, Chile, Brazil, Colombia, Argentina, Mexico

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Accessible and rich resources

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Australia has more to offer Latin America

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Austrade's strategy for deeper engagement in the Americas

Follow the money •

In 2008, Americas region was recipient of 50% of the world’s mining investment – South America receives 31% and North America 15% – Peru moved from sixth to third place in global mining investment (Canada is first) – Massive Chinese investments into Latin America over past few years

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Australian investors are large players, particularly in Latin America – BHP Billiton, Xstrata Copper, Rio Tinto, Strike Resources, Woodside – Australia is a top 3 investor in Colombia and top 4 in Chile – Australian juniors are however underrepresented relative to Africa

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Large Australian engineering services firms have a growing presence in the Americas – WorleyParsons has 15,000 people in Americas – Coffey has a presence in Brazil – Ausenco in Chile – SKM large presence in Chile – ALS Chemex in Peru – Austrade assisting companies migrate around the region

Specialised hubs for suppliers and finance

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Canada has becoming a regional hub for financing exploration in Latin America – in 2009, Australian miners raised a record $2.2 billion in equity on the TSX – hundreds of Canadian juniors exploring across Latin America – Canadian mining investors comfortable with Latin America

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Houston is a regional hub for oil and gas industry – BHP Billiton makes global oil and gas decisions out of Houston

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Chile is a hub for suppliers in Latin America – largest cluster for Australian suppliers in Americas (approx. 70) – provides familiarity – springboard for Latin America – Double Taxation Agreement is critical

Accessible and rich resources •

Extraordinary geology – due to history, Latin America is relatively unexplored

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Niche opportunities such as coal seam methane and lithium – Latin America is the world’s leading resource for lithium – The Americas is looking for Australian expertise in CSM

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Most Latin American governments highly favourable to foreign investment – Peru has non-discriminatory treatment for foreign investors enshrined in the constitution – for the most part, transparent system for concessions/titles

Stage of development •

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Observers comment that Latam is approx. 10 – 15 years behind Australia in development of mining industry across various issues: – Safety, environmental standards, community relations, indigenous rights, water resource management – Opportunity for Australia to provide leadership to Latam policy makers – Our suppliers operate at high standards and can help modernise Latam looks to Australia as a model to modernise its mining industry Variance between artesenal miners through to Multinationals

Peru       

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US$34 billion of new investments announced in September 2009 Recently moved to third place globally in global exploration from sixth Diversified mining market so relatively unaffected when certain prices fluctuate: Silver, Tellerium, Copper, Zinc, Tin, Bismuth, Lead, Molybdenum, Gold.

Underexplored and most open to foreign investment in Latam Social conflict is major barrier to development -> more brownfields Elections 2011 Lack of FTA/DTA and up to 30% with-holding tax for foreign service providers 20 Australian mining companies have offices in Peru; another 35 are active Top 5 major projects that are ‘on track’:  Toromocho (Chinalco): $2.2 bn  Las Bambas (Xstrata): $1.5 bn  Tia Maria (Southern Peru): $949 mn  Shougang expansion (Shougang Hierro): $700 mn  Toquepala expansion (Southern Peru): $600 mn

Chinalco Copper Mine - Peru

Chile    

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World’s largest copper producer (Codelco); also gold, silver, molybdenum $US7 billion estimated operational budget of Chilean mines. US$34 billion estimated new investment for 2009-2015 Strong funding programs for Innovation (CORFO approving +80 projects for +US$15 million per year) and growing collaboration with Australia Mostly hard rock & open cut operations, but underground expected to grow Double Taxation recently agreement finalised Australia’s FTA with Chile competes with FTAs with Canada, USA, EU and China A platform for Australian companies to the rest of Latin-America.

Top 5 new major projects that are ‘on track’:  Pascua-Lama (Barrick): $2.2 bn  Andina Expansion II (Codelco): $2.3 bn  Esperanza (Antofagasta): $1.5 bn  El Teniente (Codelco): $987 mn  Gaby (Codelco): US$874 mn

blah

Brazil  

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Expected mineral production value $US25bn by 2010 Diverse commodity base (all but coal). Largest exporter of iron ore & nobium, significant producer of others inc. bauxite, graphite, manganese and gold Vale is world’s biggest iron ore producer, 2nd largest mining company. Planning to invest US$12 Billion for 2010.

More than US$80 billion forecast to be invested until 2020.

9 Australian juniors in the market, many in Belo Horizonte. 16 Australian mining related companies with direct investments in Brazil.

Greatest challenge for the industry is permit delay and bureaucracy Top 5 new major projects that are ‘on track’:  Sistema Minas-Rio (AngloAmerican): $3.6 bn  Jacare (AngloAmerican): $2.2 bn  Barro Alto (AngloAmerican): $1.7 bn  Paragominas III (Vale): $487 mn  Cristalino (Vale): $475 mn

Carajas Iron Ore Mine – Para, Brazil Operated by Vale Holds 1.5 billion tons iron ore reserves

Argentina     

Mostly open pit; only 2 underground.

Copper, gold, lithium, silver, lead & tin 70% unexplored - attractive opportunities Concern over new government taxes on mineral exports may delay some projects. Political risk major challenge.

Top 5 new major projects that are ‘on track’:  Pascua-Lama (Barrick) : $3 bn  Pachon (Xstrata): $2.8 bn  Potasio Rio Col. (Vale): $2 bn  Agua Rica (Yamana): $1.8 bn  Navidad (Pan Am): $1 bn

Minera Alumbrera - Argentina Copper/Gold – Investment US$1.2billion Xstrata 50%, Wheaton River 37.5%, Northern Orion 12.5%

Colombia  

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Over next 10 years investments of $US50 billion expected Coal (largest reserves in Latin America), alluvial and underground gold, mineral sands, silver, platinum, emeralds, nickel, iron Six Australian companies have major investments in Colombia Australia top 3 investor and Cerrejon (BHP B) is largest tax-payer in Colombia Biggest challenges in Colombia are infrastructure and concessions Major projects in Colombia:  El Cerrejón, the largest open pit coal mine in the world, belongs to BHP Billiton, Anglo American and Glencore International. Annual sales volume of 22 million tons, with the potential to grow to 50 million over the next few years.  Cerro Matoso owned by BHP, one of the largest, most important low-cost ferronickel mines in the world. Produces 50 thousand tons of nickel per year, with reserves to sustain this production for 20 years

Mexico   

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Average annual mineral production $US6.9 billion (1.7% GDP) Silver, Copper, Gold, Zinc, Lead, Cadmium, Molybdenum 91% of the country is unexplored Industry dominated by 6 local consortiums accounting for 80% production Investment to 2012 $US15 bn dominated by Canadians & Americans Australia ranks third after USA and Canada for foreign mining investment. $5.4 bn invested in last eight years and $7 bn in annual production 60% open pit; 40% underground Strong opportunity to sell Australian commodities to Mexico including thermal coal, coking coal and various minerals Biggest challenge is community relations and bureaucracy Looks North for supplies Top 5 new major projects that are ‘on track’: 

El Boleo (Baja Mining) : $767 mn

Australia is a player but has more to offer •

Australian juniors bring much needed capital and expertise

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Australian capital and expertise can help with infrastructure projects, particularly in relation to mining ad resources projects

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Latin America lacks a developed local manufacturing industry dedicated to mining – suppliers are largely North American but customers looking for diversity and latest technology – Australian suppliers have a strong reputation for innovation but need to invest offshore in order to be perceived as more competitive and reliable

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Australian investors have a reputation as responsible partners – recognised community relations programs – experience building sustainable communities in remote locations

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Latin American governments need help with governance, sustainability and community relations – Australian industry and Government have a lot to offer in these areas – opportunity to help them with community relations and supplies

Austrade’s strategy for deeper engagement in the Americas Assist clusters enter supply chains • continue to organise and host Australian pavilions at large regional tradeshows • tailored business development services including mine site visits • latest intelligence and access to supply chains • facilitate deals between Australian suppliers of commodities and large customers offshore Positioning Australia as innovative and responsible • continue to promote Australia as the most innovative source of suppliers to the mining and resources industry and increase Australia’s share of the supplier market in the Americas.

• continue to brand Australia as the responsible partner in Latin America through public advocacy and media. build links with leading universities for research into benefits of sustainable mining Reducing barriers for suppliers and investors • provide input on investment and trade barriers (including double-taxation agreements, FTAs, withholding taxes on services contracts and equipment tariffs) Building capability through R&D collaboration and inwards investment • build R&D links between research organisations (e.g. CSIRO) and relevant agencies offshore • identify inwards investment opportunities and assist with investment facilitation (e.g. Brazil) • promote niche growth opportunities such as Lithium mining or coal seam methane

Globalisation of Australian mining to help juniors and mid-tiers grow • Assist exploration companies (such as Karoon Gas), large investors (such as BHP Billiton) and engineering services firms (such as Coffey) migrate around the Americas region • promote the markets that are most suitable to Australian explorers and provide intelligence about the process for acquiring titles/concessions • provide specific opportunities to acquire assets through market intelligence • assist with sourcing exploratory finance at hubs such as Toronto