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Canadian Minerals and Materials


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Title: Canadian Minerals and Materials

Canadian Minerals and Materials
  • Presented on November 2, 2006 by
  • Christopher Diaz
  • Simon Zhang
  • Eddie Mo
  • Cordelia Zeng

Industry Analysis
Industry Overview
  • Canadian Minerals and Materials
  • Mining for base and precious metals is a highly
    capital intensive business
  • Large sums to explore for deposits and construct
    mines once deposits are discovered.
  • Since the early 20th century, mining costs have
    risen dramatically.
  • Risks in mining are numerous, and long-term
    survival and profitability require deep pockets.

Industry Overview
  • The global mining industry is consolidating
  • Increase in demand for base metals
  • Rising demand for durable goods from China and
    India along with less rapid increases in the
    supply of base metals should support generally
    higher prices, sales and profits.

Uses of minerals and metals
Coal for energy Metallurgical coal in steelmaking
Uranium for energy
Zinc in steel-making (prevents corrosion)
Copper for wiring
Gold for satellites and sophisticated electronic
Silver as a precious metal and for photography
and electronic components
Global Supply (2006)
Supply The Mining Process
  • Mining is digging into the earth to extract
    naturally occurring minerals.
  • 2 kinds
  • Surface mining, a.k.a. open-pit mining or strip
  • Used if the mineral is near the earth's surface.
  • Usually more cost-effective and requires fewer
    workers than underground mining.
  • Underground mining
  • Used when the mineral deposit lies deep below the
    surface of the earth

Surface mining
  • After engineering the mine, construction starts
    by clearing the site and drilling blast holes.
    After blasting with explosives, workers use huge
    earthmoving equipment, such as power shovels or
    draglines, to scoop off the layers of soil and
    rock covering the mineral bed. Once the mineral
    is exposed, smaller shovels are used to lift it
    from the ground and load it into trucks or it
    can also can be broken up using explosives or
    crus, if necessary. The mineral is then crushed
    into ore.

Natural Resources Canada website http//www.nrcan.
Underground mining
  • After engineering the mine, miners first must dig
    two or more openings, or tunnels, deep into the
    earth near the place where they believe coal or
    minerals are located. Depending on where the vein
    of ore is in relation to the surface, tunnels
    interconnect with a network of passageways going
    in many directions. Long steel bolts and pillars
    of unmined ore support the roof of the tunnel.
    One opening allows the miners to move in and out
    of the mine and also serves as a path for
    transporting the mined rock by small railroad
    cars or by conveyor belts to the surface. The
    other opening is used for ventilation.

Natural Resources Canada website http//www.nrcan.
Concentrator facility
  • Mineral concentrator facilities contain
    connected buildings with the equipment to recover
    the minerals. The recovery processes would
    involve grinding, flotation, thickening,
    filtering, and concentrate storage and loading.

Natural Resources Canada website http//www.nrcan.
Smelting and Refining
  • Smelting is transforming mineral concentrates
    into usable metals and alloys. Once concentrates
    are transported from the mines and concentrators
    to a smelter, they are sent through the sintering
    process, which uses a sinter machine to burn
    sulfur from the ore and then conveyed into a
    blast furnace where it reaches molten-liquid form
    at approximately 3,000 degrees Fahrenheit. The
    refineries are used to extract undesirable
    minerals still remaining.

Natural Resources Canada website http//www.nrcan.
Reclamation of land following mining
  • The mine and surrounding environment must be
    restored to the condition that existed before
    mining began.
  • Highly regulated by government and reclamation
    plans must be approved before mining permits will
    be granted.
  • In surface mining, the layers of topsoil, or
    overburden, that were removed in order to reach
    the mineral are used to fill in the mine and
    reshape the land.
  • Underground mining reclamation is not as
    extensive however, companies must ensure that
    ground water remains uncontaminated and that
    abandoned mines will not collapse.

Technology and Labour
  • Required labour declined significantly as new and
    more sophisticated mining techniques increased
  • Growth in output while employing less workers
  • Most mining machines and control rooms are now
    automatic or computer-controlled
  • Many mines also operate lasers and robotics,
    which further decrease the number of workers
    needed to mine materials.

Industry Consolidation
May 16, 2006
Consolidation in Canada's mining industry
  • Inco, with Arizona-based Phelps Dodge, were
    planning to merge with Falconbridge and form the
    world's largest nickel producer and publicly
    traded copper producer. The megadeal, announced
    on June 26, 2006, would be worth 56 billion US
    and would represent the biggest merger in
    Canadian history.
  • Falconbridge shareholders chose a richer offer
    from Xstrata, which already owned almost 25 per
    cent of Falconbridge.
  • Inco was already fending off an unwanted takeover
    bid from Vancouver-based Teck Cominco Ltd. So it
    positioned itself to accept a friendly merger
    with Phelps Dodge, through a share swap that was
    valued at 20.1 billion.

Consolidation in Canada's mining industry
  • But then on Aug. 11 Brazil mining giant Companhia
    Vale do Rio Doce (CVRD) stepped up with a
    19.4-billion, all-cash offer for Inco. And Teck
    dramatically stepped up its bid, leading to a
    high-stakes showdown.
  • Teck's 20-billion bid was based on it being able
    to quickly raise 5.7 billion in a new share
    offering, which did not happen soTeck withdrew
    its takeover bid.
  • Then, in early September, Inco cancelled its
    attempt to merge with Phelps Dodge after it
    became clear that Inco shareholders would not
    support the deal. That left only Brazil's CVRD in
    the running.
  • In late September, Inco told its shareholders to
    tender their shares to CVRD's 86-a-share offer.

Demand for minerals and metals
  • Mined materials used as inputs for consumer
    goods, processes, and services provided by all
    other industries
  • agriculture, manufacturing, transportation,
    utilities, communication, and construction.

Tilting towards Excess Supply
BMO Nesbitt Burns Capital Markets Report on
Commodities - September 26, 2006 http//www.bmones
Demand from US and China
  • If the U.S. economy slumps, the impact on base
    metals will be felt. Copper is particularly at
    risk, as residential construction is
    copper-intensive with over 30 of total copper
    usage earmarked for home construction, a decline
    in housing starts next year would carry the
    market deeper into oversupply territory.
  • While a significant correction for most
    commodities is likely owing to an improvement in
    the supply/demand balance, because of Chinas
    ferocious appetite for everything from oil to
    zinc will keep demand growing at a healthy rate
    and supply will only grow modestly, the commodity
    downtrend will be less shorter than normal.
  • Given the growing importance of the developing
    world to the global economy (all very intensive
    consumers of commodities), and relatively modest
    capacity increases, commodity prices should trend
    higher after the current patch.

BMO Nesbitt Burns Capital Markets Report on
Commodities - September 26, 2006 http//www.bmones
Supply and Demand Balance
  • From Sep05 to Sep06, all the metals in the Metals
    Minerals Index enjoyed large gains advancing
    55 overall.
  • Prices for zinc and nickel more than doubling and
    copper close to doubling.
  • Latest data
  • The Index slipped (-1.1) in Sep06 as prices
    retreated on concerns that moderating US and
    global economic growth and a weakening US housing
    market were seen as reducing demand for
    industrial metals, and as receding Middle East
    tensions reduced the safe-haven appeal of
    precious metals.
  • Low inventories, limited production growth, the
    potential for further industrial disputes, and
    solid demand are expected to keep prices at
    relatively high levels through 2007.

BMO Financial Group Economics Department Commodity
Price Report October 2006 http//
  • Copper is used in a variety of industries,
    including construction, electric and electronic
    products, transportation equipment, consumer and
    general products, and industrial machinery and
  • From 1996 through 2005, refined copper
    consumption increased at a compound annual growth
    rate (CAGR) of 3.4, while refined production
    increased at a CAGR of 3.0. The market for
    refined copper was in deficit in 2003, 2004 and
  • Major companies in the copper market Teck
    Cominco, Chile's state-owned copper company,
    Corporacion Nacional del Cobre de Chile
    (Coldelco), Phelps Dodge, Grupo Mexico, BHP
    Billiton, Rio Tinto and Southern Peru Copper.
  • The copper price in 2006 was unusually high as a
    result of strike activity along with investment
    fund demand.

Copper Price
BMO Nesbitt Burns Capital Markets Report on
Commodities - September 26, 2006 http//www.bmones
Copper Supply and Demand
Copper Price
  • Tight market conditions have kept prices high,
    facilitating a near doubling over the past year.
  • Several factors including strikes at mines in
    Chile and Mexico, some possible short covering,
    and purchases by commodity investment funds
    contributed to the record high prices.
  • However, we believe that supply/demand
    fundamentals will not support a copper price at
    the current 3.37 level. We anticipate that
    resolution of strike-related disruptions and a
    moderation in demand will cause the price to
    decline in late 2006.
  • However, with inventories at low levels, demand
    still strong, labour unrest a persistent threat,
    and supply growth lethargic, prices should remain
    high over 2007.

  • Zinc's primary use is for corrosion protection in
    the galvanized steel industry.
  • Zinc is also used to die cast components in the
    auto, construction, battery, brass and chemical
  • From 1996 through 2005, refined zinc production
    increased at a CAGR of 3.4, while refined
    consumption rose at a CAGR of 3.4. In 2004 and
    2005, the market for refined zinc was in deficit.
  • Major companies in the zinc market are Teck
    Cominco, Anglo American, Grupo Mexico, Xstrata
    and Penoles.

Zinc Supply and Demand
Zinc Price
BMO Nesbitt Burns Capital Markets Report on
Commodities - September 26, 2006 http//www.bmones
Zinc Price
  • Tight market conditions have kept prices high,
    facilitating a near doubling over the past year.
  • With inventories at low levels, demand still
    strong, labour unrest a persistent threat, and
    supply growth lethargic, prices should remain
    high over 2007.

Gold and Silver
BMO Nesbitt Burns Capital Markets Report on
Commodities - September 26, 2006 http//www.bmones
Uranium market
  • Past history of uranium consumption by nuclear
  • Uranium outlook

Uranium Supply and Demand Balance
Uranium market
  • Uranium market price has increased more than
    sixfold in the past five years, fuelled by
    growing demand for nuclear power and an already
    large gap between demand and supply.
  • Average uranium spot price USD/lb.
  • Source The Ux Consulting Company, LLC
  • Volatility - Possible factors
  • Political risk due to peoples fear of nuclear
    disasters Chernobyl-style

Uranium market
  • Uranium production
  • By country
  • Top world producers

Sectoral Outlook
  • Mineral prices soared to record-high levels in
    2006 in the face of voracious demand from China
    and very low inventory levels.
  • Yet output in the sector is down from 2005
  • In part, Canadian mining operations have been
    slowed by strikes.
  • Capacity at existing mines is stretched and while
    high prices have boosted exploration and
    development, production from these expansions has
    not yet come on line.

Sectoral Outlook
  • Output in the mineral extraction sector is
    expected to rebound in 2007.
  • Prices for industrial and precious metals are
  • anticipated to ease somewhat, yet remain
  • high for the remainder of 2006 and in 2007.
  • The recent resolution of a strike at Voiseys Bay
    should boost
  • mineral production during the final quarter of
    2006 and
  • in 2007.
  • Uranium production is expected to get underway at
    Cigar Lake in 2007 after recent flood.

Sectoral Outlook bottom line
  • Commodity prices have retreated from their spring
    record highs. However, metals prices are expected
    to remain sufficiently attractive to stimulate
    significant investment and output growth in
    resource development, extraction, and related
  • Longer term, we are positive on regular demand
    for copper and other base metals, and uranium.
  • In our view, the industrialization of China and
    India will lead to greater demand. At the same
    time, we believe production of copper and zinc
    will increase less rapidly than demand, as output
    at existing mines is exhausted and fewer new
    mines come into production.
  • Another positive development is that minerals
    companies are generating greater free cash flow
    than in the previous cycle. We think this will
    enable them to fund expansion internally and
    still have funds to buy back shares or increase

  • SP/TSX Capped Diversified Metals Mining Index
  • Compared against our three stocks and the SP500

Inc. 2 EZM EuroZinc Mining Corporation 3 FM First
Quantum Minerals Ltd. 4 FNX FNX Mining Company
Inc. 5 FDG.UN Fording Canadian Coal
Trust 6 HBM HudBay Minerals Inc. 7 N Inco
Limited 8 IMN Inmet Mining Corporation 9 IVN Ivanh
oe Mines Limited 10 LIM Lionore Mining
International Ltd. 11 NNO Northern Orion
Resources Inc. 12 S Sherritt International
Corporation 13 TCK.B Teck Cominco Ltd.
Sector Trends
  • Year to date through October 2006, the SP
    Diversified Metals Mining Index (in which
    copper companies dominate) rose 13.5, compared
    with a 7.7 gain for the SP 1500.

(No Transcript)
Cameco Corp.
Cameco Corp
Camecos profile and business
Financial Statements
Stock price analysis
Conclusion and recommendation
Cameco Corp. Stock
  • Last  C 38.150
  • Net Change   C -1.350
  •  Change   -3.42
  • Ask   38.150 Bid   38.120
  • High  39.590 Market Cap 13.336 billion
  • Low  37.670 EPS   1.22
  • Volume  3,484,525 P/E   31.30
  • Yield  0.41 Indicated Annual Div.  0.16
  • 52-Week High  49.950
  • 52-Week Low  28.000
  • Shares outstanding

Cameco Stock price
Cameco Corp.
  • Cameco is the worlds largest, low-cost uranium
  • Account for 20 of the worlds uranium production
  • It has more than 500 million pounds of proven and
    probable reserves to sustain decade development.
  • Also involved in the business segments of Fuel
    services, Nuclear electricity generation, and
  • Based in Saskatoon, Saskatchewan
  • Listings
  • Common Stock TSX (CCO)
  • NYSE (CCJ)
  • Convertible debentures CCO.DB

Management team
  • Victor J. Zaleschuk, Chair
  • Gerald W. Grandey, President CEO
  • Terry V. Rogers, Sr-VP COO

Business strategy
  • Remain the low-cost producer
  • Protect and expand market position
  • Maintain supply flexibility

Camecos business
Commercial use of uranium
Electricity generation
Camecos business
Description Cameco
Mining Uranium ore is mined and milled to U3O8 Worlds largest uranium producer, 20 of world production
Conversion U3O8 are purified and converted to UF6 One of only three western conversion suppliers, control 40 of world capacity.
Enrichment UF6 is enriched to prepare it for use as fuel in light water reactors UF6 is enriched to prepare it for use as fuel in light water reactors
Electricity generation 440 nuclear reactors, 31 countries, 16 of worlds electricity Own 31.6 of a nuclear power plant in Ontario, supplied gt 34M pounds of uranium in 2005
Nuclear Energy
  • Energy crisis argument
  • Natural resources in a bull market trend
  • Nuclear power
  • Astonishing development in 2005
  • Major possible breakthrough in 2006
  • Some negative trends
  • Uranium market

Nuclear energy
  • Increasing demand for nuclear power
  • Currently, nuclear is the worlds third largest
    source of electricity (16)
  • Increase energy demand
  • Need for cleaner baseload generating technology

Conversion outlook
  • As with uranium, conversion capacity falls short
    of demand
  • In 2005, demand for UF6 conversion services 55
    million kilograms of uranium
  • Suppliers have combined capacity of 47 million
  • Shortfall made up from secondary supplies

Conversion outlook (cont )
  • Average conversion spot price (US/kgU as UF6 in
    North America)
  • In the last 24 months, increased 66 in N.A.
    markets and 45 in Europe.
  • In 2005 alone, increased 28.

Camecos Uranium Projects
  • MacArthur River
  • Cigar Lake
  • Key Lake
  • Rabbit Lake
  • Crowe Butte
  • Smith Ranch Highland
  • Inkai

Uranium Reserves
Camecos projects McArthur River Mine
McArthur River Mine
  • Located 620 km north of Saskatoon, 70 owned by
  • The worlds largest, low-cost uranium producer. (
    accounting for 17 of world uranium production. )
  • The proven and probable reserves are 389 million
    pounds U3O8 and average grade is 24 U3O8.

Key Lake Mill
  • Key Lake Mill Located 570 km north of Saskatoon,
    83 owned by Cameco.
  • Milling support for MacArthur and Cigar Lake

Camecos projects Cigar Lake and Rabbit Lake
Cigar Lake
  • Cigar Lake Mine located 660 km north of
  • Joint venture 50 owned by Cameco. Proven and
    probable reserves are 232 million pounds of U3O8.
  • The worlds second largest high-grade uranium
    deposit. The average uranium grade is 19, nearly
    100 times the world average.
  • Estimated to hold as much as 17 of the worlds

Cigar Lake
  • Production is expected in early 2008 (growth
    opportunity). When at full capacity, will provide
    enough ore to produce 18 million pounds of U3O8
  • But, on October 23, 2006

Cigar Lake Flood inflow
  • Uranium price soared 7 in a week
  • Stocks of other uranium companies shot up
  • Construction is expected to be delayed by at
    least one year
  • Capital expenditure to be significantly higher
  • Ability to meet contractual obligations
  • - right to reduce
  • - supply interruption in the contract

Rabbit Lake
  • Rabbit Lake Mine located 700 km north of
    Saskatoon, 100 owned by Cameco. Annual milling
    capacity is 12 million pounds U3O8. Proven and
    probable reserves are 11 million pounds U3O8.
  • Now milling ore form the Eagle Point mine. The
    operation 6 million pounds U3O8 annually.
  • Prospects for additional reserves have been
    identified near the site and exploration work

Centerra Gold
  • A sub traded in TSX starting June 2004
  • Canadian-based gold producer focused on
    acquiring, exploring and developing gold
    properties in Central Asia, the former SU and
    other emerging markets.
  • Cameco owns 52.7 interest
  • Transferred all its gold assets to Centerra
  • Strategy to unlock the value of these assets
  • Not doing very well as per 2006 Q3 F/S (published
    on Oct 30, 2006)

Financial Information
  • 2005 Annual Report
  • Income Statement
  • Balance Sheet
  • CFS
  • 2006 Q3 report
  • 5 year comparative data

Financial information
  • Uranium business key performance drivers
  • Price spot and long-term
  • Volume sales, production and purchases
  • Costs production and purchase
  • Exchange rate

Performance drivers Price
  • Uranium price is volatile
  • Camecos contract mix
  • 60 long-term contract, 40 sold at fixed prices
    (adjusted for inflation)
  • Does not sell uranium in the spot market
  • As a result, camecos average realized price was
    15.45/pound, compared to an average spot price
    of 28.67 (US).
  • It hedges unfavorable exchange rate movement.
    Average realized selling price rose by 20 in US
    dollars, but only 12 in Canadian dollars

Performance drivers Price
  • Cameco has benefited from the rising uranium
    price, which is expected to continuously grow,
    especially after flood inflow to the Cigar Lake.
  • Camecos growth in revenue is highly correlated
    with the arising price of uranium.

Performance drivers volume
  • Sales volume
  • In 2005, sold 34.2 million pounds of uranium, a
    6 increase from 2004 sales of 32.3 million.
  • Cameco sells more than it produced. The
    contractual delivery commitments are met through
    mine production, long-term purchase arrangements,
    and inventory.

Performance drivers costs
  • Production cost
  • Primarily fixed, 1/3 to labour
  • Other variable costs production supplies,
    maintenance materials
  • Production costs are driven mostly by the
    complexity of the operation.
  • The grade and size of reserves
  • Purchase costs under long-term, fixed
  • Significantly lower than the current spot price
  • Total commitment 661 million (US), see note 21

Performance drivers volume
  • Production volume

Performance drivers FX
  • Sales in US and uranium production (costs) in
  • During 2005, C/US increased from 1.17 to 1.20.
  • A primary reason for decreasing 2006 Q3 profit.
  • Cameco provided FX hedge to shelter revenue
    against decline in the US dollar in the shorter

2005 Income statements
Analysis 2005 F/S
  • I/S by business segment

Financial Highlights
Analysis 2005 F/S
  • Significant increase in cash, CFS
  • Largely due to restructuring Burce Power (Note
    16) and sale of investment in Energy Resources of
    Australia Ltd.
  • New debt issue (297,750M, but no debt before).
    It is wise to use some debt financing to take
    advantage of Camecos favourable credit rating
  • Debt to capitalization ratio is 9 in 2005
    decreased from 13 in 2004 and 22 in 2003

Analysis 2005 F/S
  • Increase in long-term investments
  • Change accounting method to account for the
    interest in BPLP (note 5) as a result of BPLPs

2006 Q3 interim F/S
  • 2006 Q3 interim available on Oct 31, 2006

Analysis 2006 Q3
  • Adjusted net income 42M (or 0.11/share), vs.
    78M (or 0.21/share in 2005 Q3).
  • Lower earnings in electricity and global business
  • Reduced sales volume of uranium 26 decline in
    volume. Uranium business revenue decreased by 12
    to 136M.
  • 30 increase in realized selling price, but
    offset by a lower sales volume in the Q.
  • Exchange rate effect stronger C, but sales are
    in US.

Stock price
Stock price analysis
  • Appreciated by gt 200 in the past three years.
  • Mostly correlated with the increase of uranium
    price, but at times with energy and precious
    metal prices.
  • Is the stock over-valued?

Stock price analysis
  • Is how valuation of Camecos shares justified?
  • Reflected a robust nuclear future
  • high quality of asset value low-cost,
    geographically diversified suite of production
    assets in both uranium refining and conversion.
    They are long-lived and supporting a portfolio of
    contracts which now reflect much improved market

  • High valuation of Camecos shares is justified
  • Decrease in the stock price is expected and this
    will continue until Cigar Lake has been fully
  • The company is in good health and their shares
    are appropriately priced

Teck Cominco

Company Snap Shot
Symbol TCK.B
Last Trade Nov 01, 2006 1651 EST
Last  C 79.900 Net Change   C -2.760  Change   -3.34
Open  84.000 Bid  79.800
High  84.050 Ask  80.790
Low  79.610 EPS  9.98
Volume  939,716 P/E  8.00
52-Week High  87.750 IndicatedAnnual Div.  2.00
52-Week Low  49.010 Yield  2.42
215,500,000 shares outstanding
Stock Performance(5 years monthly)
Company Snapshot

  Dec 31, 2005 12 MonthsC Dec 31, 200412 MonthsC Dec 31, 200312 MonthsC 3Yr.Growth Change
Total Revenue (000) 4,570,000 3,452,000 2,229,000 27.48
Earnings before Interest Tax (000) 1,989,000 960,000 172,000 208.08
Profit/Loss (000) 1,345,000 617,000 134,000 255.21
Earnings per Share 6.62 3.18 0.71 253.35
Total Assets (000) 8,809,000 6,059,000 5,375,000 21.12
Dividends Per Share 0.80 0.30 0.20  
Return on Com. Equity 35.38 21.85 5.42  
Employees 6,710 6,710 N/A  
Company Snapshot
  • Shares outstanding
  • Market Cap
  • 17,813M
  • Base on share price of 82.66 as of 09/30/2006
  • Trade on TSE (TCK.B TCK.B) and NYSE (TCK)
  • A member of the SP/TSX Composite Index

Section Agenda
  • Corporate Profile
  • Management
  • Business Strategy
  • Mineral Reserves
  • Financial Performance
  • Recommendation

Corporate Profile
  • Teck Cominco was formed by the merger of the two
    company Teck Cominco in July, 2001
  • Teck Cominco is a diversified mining company,
    headquartered in Vancouver, Canada
  • TCK is a world leader in the production of
  • zinc
  • metallurgical coal
  • TCK is also a significant producer of
  • copper, gold, indium, germanium and other
    specialty minerals
  • TCK also a significant participant in Canadian
    Oil Sands drilling

  • Norman B. KeevilNon-executive Chairman of the
  • Donald R. LindsayPresident Chief Executive

Norman B. Keevil
  • Director Since 1963
  • Background
  • University of Toronto (B.A. Sc.)University of
    California, Berkeley (Ph. D.)University of
    British Columbia (Honourary LL.D) P.Eng
  • Vice-President Exploration at Teck Corporation
    from 1962 to 1968
  • Executive Vice-President from 1968, President
  • Chief Executive Officer from 1981 to 2001 and is
    presently Chairman of the Board of Teck Cominco
  • He is a a Lifetime Director of the Mining
    Association of Canada

Donald R. Lindsay
  • Director Since 2005
  • Background
  • Queens University (B.Sc., Mining Engineering,
  • Harvard Business School (M.B.A.)
  • Employed by CIBC World Markets Inc. (investment
    banking) from 1985 to 2004
  • President of CIBC World Markets Inc.
  • Head of Investment and Corporate Banking
  • Head of the Asia Pacific Region.
  • Joined Teck Cominco Limited as President in
    January 2005,
  • Appointed Director in February, 2005 and Chief
    Executive Officer in April, 2005
  • He is a Director of Fording  (GP) ULC. 

Business Strategy
  • Committed into diversification
  • Differentiate from competitors
  • Reduce volatility and maintain stable earning
  • Open to any profitable acquisition or partnership
  • Utilizing core mining skill to reduce operation
  • Strive to increase profit margin

Business Portfolio
  • Business Strategy
  • Maintain high margin through cost minimizing
  • Diversification in business portfolio to reduce
  • Core operations

Business Portfolio
  • Surplus Power Sale (Trail)
  • Waneta hydroelectric power plant
  • Sell surplus power to Canada U.S.
  • Generated 69M operating profit in 2005
  • Sales of other by product mineral during
  • indium, germanium and other specialty minerals

Major Mining Operation
  • Major Mining operation across North and South
  • Copper and Molybdenum
  • 97.5 ownership in the Highland Valley Mine (BC,
  • 22.5 interest in the Antanina Mine (Peru)
  • Coal
  • 45.2 ownership in the Elk Valley Coal
    Partnership (Second largest seaborne exporter of
    the Metallurgical Coal in the Word)
  • Zinc
  • 100 owned Red Dog (Alaska, US) and Pend Oreille
    (Washington, US) mines
  • Gold
  • 50-owned mines in the Hemlo district of Ontario
  • 40-owned Pogo mine in Alaska
  • Oil Sand
  • acquired a 15 interest in the Fort Hills Energy
    Limited Partnership, which is developing the Fort
    Hills oil sands project in northern Alberta

America Focused Operation
Red Dog (Alaska, US)
Pogo (Alaska, US)
Fort Hills (Alberta, Canada)
Elk Valley (BC, Canada)
Hemlo (Ontario, Canada)
Highland Valley (BC, Canada)
Pend Oreille (Washington, US)
Trail (BC, Canada)
Copper Mine Zinc Ref. Zinc Gold Coal Oil Sands
Antamina (Peru)
Red Dog Mine (Alaska, US)
Red Dog Mine (Alaska, US)
  • The Red Dog mine in northwest Alaska is the
    largest zinc mine in the world
  • Expected life of the mine
  • Main Pit 7 yrs at current rate
  • Extendible up to 23 yrs due to additional
    discovery of reserves
  • Total Reserves 72.2M tonnes (Ore grade 17.7)
  • Proven 19.5M tonnes
  • Probable 52.7M tonnes
  • 100 owned by TCK

Antamina Mine (Peru)
Antamina Mine (Peru)cont
  • Antamina is the worlds third largest mine and
    the leading combined copper-zinc mine
  • Total reserves 450 million tonnes (Ore grade
  • Proven 76M tonnes
  • Probable 37.4M tonnes
  • 22.5 interest owned by TCK in the Join-Venture

Highland Valley Mine (BC)
Highland Valley Minecont
  • The Highland Valley Copper mine is the largest
    copper mine in Canada and one of the largest
    copper mining operations in the world
  • Total reserves 318.7 million tonnes (Ore grade
  • Proven 260.2M tonnes
  • Probable 58.5M tonnes
  • Expected to close 7 yrs from now (2013)
  • 97.5 owned by Teck Cominco

Elk Valley Coal Partnership
Elk Valley Coal Partnershipcont
  • The second largest shipper of seaborne hard
    coking coal in the world
  • Operates six coal mines in western Canada
  • Total Reserves 686 million tonnes
  • Proven 483M tonnes
  • Probable 203M tonnes
  • Teck Cominco holds an effective 45.2 interest in
    the partnership and is managing partner

Pend Oreille Mine (Washington, US)
Pend Oreille Mine (Washington, US)
  • Underground zinc mine completed in 2004
  • A proven and probable reserve of 4.7 million
    tonnes grading 7.0 zinc and 1.2 lead
  • expected mine life of 7 years with some potential
    for extension.
  • Total Reserves 4.7 million tonnes
  • TCK 100 Owned

Hemlo district (Ontario, Canada)
Hemlo district (Ontario, Canada)
  • Williams and David Bell gold mines in the Hemlo
    area of Ontario
  • Co-owned by TCK and Barrick Gold Corporation
  • Total Reserves 18.83 million oz (Grade
    1.8210.97 g/t)
  • Proven 12.82M oz
  • Probable 6.01M oz
  • Williams mine is expected to close in 2010 and
    David Bell mine is expected to close in 2009
  • 50 owned by TCK

Pogo mine (Alaska)
Pogo mine (Alaska)
  • A 40 interest Join-Venture Project
  • Facilities and Mine completed in end of 2005
    (Start production in 2006)
  • Probable Reserves 7 million tones (Ore grade
    16.12 g/t)
  • Est Production Capacity 350-500 thousand oz gold
    over a 10 yrs life of project

Zinc Operation
Production (000s tonnes) Production (000s tonnes) Production (000s tonnes) Production (000s tonnes)
Year 2004 2005 2006F
Red Dog, Alaska 100 554 568 560
Antamina, Peru 22.5 43 41 37
Pend Orellie, Washington 100 17 45 43
Other 5 3 -
Total 619 657 640
Red Dog
Highland Valley
Pend Oreille
Zinc Refineries
Production (000s tonnes) Production (000s tonnes) Production (000s tonnes) Production (000s tonnes)
Year 2004 2005 2006F
Trail 296 223 295
Trail (Zinc Ref.)
Metallurgical Coal Operation
Production (000s tonnes) Production (000s tonnes) Production (000s tonnes) Production (000s tonnes)
Year 2004 2005 2006F
Elk Valley, BC 45.2 9277 9948 11.0
Elk Valley
Copper Operation
Production (000s tonnes) Production (000s tonnes) Production (000s tonnes) Production (000s tonnes)
Year 2004 2005 2006F
Highland Valley, BC 97.5 158 175 175
Antamina, Peru 22.5 82 84 84
Other 8 4 -
Total 248 263 259
Highland Valley
Molybdenum Operation
Production (000s pounds) Production (000s pounds) Production (000s pounds) Production (000s pounds)
Year 2004 2005 2006F
Highland Valley, BC 97.5 9853 6149 N/A
Antamina, Peru 22.5 1778 3333 N/A
Total 11631 9482 N/A
Highland Valley
Gold Operation
Production (000s oz) Production (000s oz) Production (000s oz) Production (000s oz)
Year 2004 2005 2006F
Hemlo, Ontario 50 261 245 N/A
Financial Performance( in million)
CF from Operation Vs CapEx
Company Financial
  • Year 2004
  • Year 2005
  • Year 2006 Second Quarter

Revenue and Profit Boom
  • What contributed to the profit boom in 2004
  • Increasing commodity price in minerals since 2002
  • Increased sales volume
  • Efficient control of operation expenses

  • What is going on with a huge amount of cash
    sitting in the bank?
  • Obligation fulfillment on the Fort Hills Oils
    Sand project (850M, 34 of the first 2.5
    billion project expenditure)
  • Takeover bid for Inco (did not succeed in 2006)

Potential Growth
  • Increasing expenditure in exploration
  • Put life extension on mines by discovering
    additional reserves
  • Future return on Fort Hill Oils Sands project
  • Possible Acquisition
  • Backup by huge liquid assets (3084M sitting in
    the bank)
  • Ex. New acquisition of an option to purchase 100
    interest in new Carrapatenna copper-gold mine
    (South Australia)

Hudbay Minerals Inc
  • Vertically Integrated Mines to Metals

Stock Quotes
Essential Info
  • Outstanding shares 124,796,513
  • Market capitalization C2.327 billion (based on
    the share price of 18.65 as of November 2nd,
  • Ticker HBM (TSX)
  • A member of the SP/TSX Composite Index

Section Agenda
  • Corporate profile history
  • Corporate Management
  • Business segments and Business strategy
  • Competitive advantages limitations
  • Financial statements
  • Recommendation conclusion

Corporate Profile
  • Fully integrated Canadian mining and smelting
  • Producing zinc, zinc oxide, copper and precious
  • The third largest producer of both zinc metal and
    copper metal in Canada and the third largest
    producer of zinc oxide in North America

Company History
  • Incorporation Ontario, Canada, Jan 16, 1996
  • Changed its name from ONTZINC Corporation to
    HudBay Minerals Inc. on December 21, 2004
  • Prior to that date, the Company had not earned
    significant revenue and was considered to be in
    the development stage

Key Personnel
  • Peter R. Jones
  • President, CEO Director
  • Jeff A. Swinoga, CA, MBA
  • Vice-President and Chief Financial Officer
  • Tom A. Goodman
  • Vice President, Technical Services and Human

Map for Operations
(No Transcript)
Business Segments
  • Zinc
  • Annual production 115,000 tonnes of zinc metal
  • Third largest producer of zinc metal in Canada
  • 75 of zinc metal sold directly to customers
  • Zinc price premium up to US 7/lb in 2005.
  • The worlds first use of two-stage pressure

Business Segments
  • Zinc oxide
  • Annual production 45,000 tonnes of zinc oxide
  • Third largest zinc oxide producer in North
  • Produced by 100 owned Zochem division
  • 25 of HudBay zinc metal used by Zochem

Business Segments
  • Copper
  • Annual production 90,000 tonnes of copper anode
  • Third largest producer of copper metal in Canada
  • White Pine Refinery purchased 2006
  • Copper price premium up to US 6/lb in 2006

Business Segments
  • Gold and silver
  • Annual production 100,000 oz. of gold
  • Annual production 1,000,000 oz. of silver
  • Most gold and silver produced from HudBay owned
  • Produced during electrolysis at White Pine Copper

Summary of Business Segments (Based on Revenue)
Competitive Advantages
  • Mineral reserves resources
  • Financial position
  • Exploration

Mineral Reserves Resources
  • reserves of 21.4 million tonnes
  • resources of 4.9 million tonnes
  • long history of adding to reserves and resources
  • 25 mines discovered to date in Manitoba and

Mines 777 Mine, Manitoba
  • First production in 2004
  • HudBays flagship mine
  • Ore production in 2005 was 1.1 million tonnes
  • Ore production increased to 1.35 million tonnes
    as of January 2006
  • Increased production replaces Konuto mine

Mines Trout Lake Mine, Manitoba
  • First production in 1982
  • Ore production in 2005 was 859,000 tonnes

Mines Chisel North Mine,Manitoba
  • First production in 2000
  • Ore production in 2005 was 337,000 tonnes

Mines Balmat Mine, New York
  • First ore production before the end of Q2,
  • Will produce up to 60,000 tons of zinc in
    concentrate when in full production in 2008
  • Majority of concentrate will be treated at the
    CEZ refinery in Quebec

Map of Major Mines
Mineral Reserves Resources
Financial position
  • record earnings of 85 million (1.04 per share)
  • operating cash flow of 145 million (1.77 per
  • net debt of 67 million
  • new 25 million credit facility
  • metals un-hedged

Financial Performance
Financial Statements
  • HBM Financial Statements

Note 21
  • 10 million annual exploration expenditure
  • 210,000 hectares of exploration land in Flin
    Flon Greenstone Belt
  • 20,000 hectares in Balmat district
  • extensive zinc prospect lands in SW Ontario
  • Tom Valley lead/zinc deposit in the Yukon
  • San Antonio copper prospect in Chile

Reserves Exploration
Growth Opportunities
  • In 2006, the Company will look at opportunities
    to identify and evaluate strategic growth,
    focusing on zinc but not to the exclusion of
    copper, precious metals or secondary products.
  • Opportunities synergistic with the Companys
    fully vertically integrated operations will be of
    particular interest.

Other Performance
Stock Performance 3 years trend
(No Transcript)
  • Speculative Buy

Thank You !
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