Capital Markets Day
November 2008
Copper smelter
revenue stream
Bildplatshållare
Ulf Söderström
President BA Market
Boliden Commercial AB
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2008-11-04
Table of content
1.
2.
3.
4.
Important information
Copper concentrates – example of content
Pricing of copper concentrates
Typical pricing clauses
i.
ii.
iii.
iv.
Deductions – Treatment Charge and Refinery Charge (TC/RC)
Deductions – Price Participation (PP)
Deductions – RC Gold, RC Silver
Deductions – Penalties
5. Pricing of secondary raw materials
6. Free metals
7. By-product credits
8. Metal premiums
9. Putting it together
10. Smelter’s share of raw material value
11. Business cycle of metals
12. How to increase smelters’ profit?
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1. Important information
This presentation contains examples of common calculations
that can be used to model the businesses in which Boliden
operates.
All concentrate specification and contract terms presented here
are hypothetical and are used to illustrate the relevant
calculations.
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2. Copper concentrate – examples of content
Others
10%
Copper
30%
Sulphur
30%
Iron
30%
ƒ Others include for example gold 2-40 g/DMT
and silver 30-200 g/DMT
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3. Pricing of copper concentrates
The price of the raw materials shall be the sum of the values
of the payable metals less the sum of the deductions.
In general smelting business consists of the following gross
profit elements:
ƒ
ƒ
ƒ
ƒ
ƒ
Treatment Charge and Refining Charge for copper
Refining Charges for other metals
Free metals
By product credits
Metal premiums
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3.1 Typical pricing clause – Copper
The price of the raw materials shall be the sum of the values
of the payable metals less the sum of the deductions.
Buyer shall pay for 96.65% of the final copper content, subject to a
minimum deduction of 1.0 unit at the official LME Grade A Settlement
Copper Quotation averaged over the quotational period.
Example) For a concentrate with a copper content of 30 % the payable copper
value is:
30% x 96.65% x 7,000 USD/t-Cu = 2,030 USD/DMT
Example) For a concentrate with a copper content of 24% the payable copper
value is 24% – 1%-unit = 23% i.e. 23/24 x 100 = 95.83% payment:
(24%-1%) x 7,000 USD/t-Cu = 1,610 USD/DMT
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3.1 Typical pricing clause – Copper
98 %
97 %
Payment %
96 %
95 %
94 %
93 %
92 %
15 %
20 %
25 %
30 %
35 %
40 %
Cu content in the concentrate %
ƒ Minimum deduction mechanism compensates smelters for
processing low grade concentrates.
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3.1 Typical pricing clause – Gold
The price of the raw materials shall be the sum of the values
of the payable metals less the sum of the deductions.
Buyer shall pay for 97.50% of the final gold content, subject to a
minimum deduction of 1.0 g per DMT, at the London Morning
Quotation averaged over the quotational period.
Example) For a concentrate with a gold content of 40 g/DMT the payable gold
value is:
40 g/DMT x 0.0321 x 97.50% x 800 USD/troz = 1,002 USD/DMT
Example) For a concentrate with a gold content of 2.0 g/DMT the payable gold
value is 2 g/DMT – 1 g/DMT = 1 g/DMT i.e. 1.0/2.0 x100 = 50.0% payment:
(2.0 g/DMT – 1.0 g/DMT) x 0.0321 x 800 USD/troz = 25.7 USD/DMT
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3.1 Typical pricing clause – Silver
The price of the raw materials shall be the sum of the values
of the payable metals less the sum of the deductions.
Buyer shall pay for 90.0% of the final silver content, subject to a
minimum deduction of 30.0 g per DMT, at the London Silver Spot/US
Cents Quotation averaged over the quotational period.
Example) For a concentrate with a silver content of 200 g/DMT the payable
silver value is 200 g/DMT – 30 g/DMT = 170 g/DMT i.e. 170/200 x 100 =
85.0% payment:
(200 g/DMT – 30 g/DMT) x 0.0321 x 12 USD/troz = 65.5 USD/DMT
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TC
3.2 Deductions – Treatment Charge (TC)
The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
Treatment Charge shall be 45 USD per DMT of concentrate.
Example) 1 DMT Cu concentrate x 45 USD= 45 USD/DMT
TC,RC and Price Participation are negotiated annually between miners
and smelters. Typically negotiations start in October and normally
finished by year-end. Benchmark terms are normally established when
the major mines and smelters have agreed the annual terms.
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RC
3.2 Deductions – Refining Charge (RC)
The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
The refining charge for payable copper shall be 4.5 USc per pound of
payable copper.
Example) For a concentrate with a copper content of 24% the payable
copper value is 24% – 1 %-unit = 23%.
23% x 22.046 x 4.5 USc/lb = 22.8 USD/DMT
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RC
3.3 Deductions – Price Participation (PP)
The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
On long-term contracts there has been a Price Participation clause in
the past. i.e. the copper RC shall be increased by 0.10 USc per
payable pound of copper for each 1.00 USc per pound which the
average LME settlement price for Grade A copper during quotational
period exceeds 90 USc per pound payable copper.
Example) An average LME settlement price at 140 USc/lb.
Copper PP: (140 USc/lb – 90 USc/lb) x 10% = 5.0 USc/lbs
Copper RC incl. PP: 4.5 USc/lb + 5.0 USc/lb = 9.5 USc/lb
In recent years the miners have not accepted shown structure
for PP in the annual negotiations.
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RC
3.4 Deductions – Refining Charge for gold
The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
The Refining Charge for payable gold shall be 6.0 USD per ounce of
payable gold.
Example) For a concentrate with a gold content of 40 g/DMT the Refining
Charge for gold is:
40 g/DMT x 97.50% x 0.0321 x 6.0 USD/troz = 7.5 USD/DMT
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RC
3.4 Deductions – Refining Charge for silver
The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
The Refining Charge for payable silver shall be 35.0 USc per ounce of
payable silver.
Example) For a concentrate with a silver content of 200 g/DMT the payable
silver value is 200 g/DMT – 30 g/DMT = 170 g/DMT:
170 g/DMT x 0.0321 x 0.35 USD/troz = 1.9 USD/DMT
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TC
3.5 Deductions – Penalties
The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
For instance, a zinc penalty means that for each 1.0 units by which the
final zinc assay exceeds 3.00%, the seller shall pay a penalty charge
of 3.00 USD per DMT of concentrates, fractions pro rata.
Example) A final zinc assay of 5.00%, i.e. 2%-units over 3.00%:
2 x 3.0 USD/DMT = 6.0 USD/DMT
Penalty clauses are typically applied for the impurities harmful to
copper smelting and refining processes.
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4. Pricing of secondary raw materials
ƒ In addition to copper concentrate, secondary raw materials
ƒ
can be used as raw material.
Secondary raw materials include (among other things):
– Copper scrap
– Electronic scrap (containing copper, gold, silver and lead)
– Copper/zinc residues
ƒ Commercial terms for these materials are constructed and
ƒ
calculated in the same way as copper concentrate but levels
of Payment %, TC and RC are not necessary following the
copper concentrate terms.
Legislations and “green image” are strong drivers to recycle
material suitable for a copper smelter.
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Free metal
5. Free metal
The value of the free copper, gold and silver in a copper
concentrates for a copper smelter is depending on the
recovery rate, LME copper price and LMBA gold and silver
price.
In this example the recovery rate for a copper smelter is 98.0%. The
value of free gold and silver is normally greater than the value of the
free metal for copper.
Example) Value of Free Cu = Cu content x (Recovery% - Payable Cu %) x
LME Cu price:
30% x (98.0% - 96.65%) x 7,000 USD/t-Cu = 28.4 USD/DMT
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By-product
6. By-product credits
ƒ Main by-product for a copper smelter is sulphuric acid (H2SO4)
Example) Value of Sulphur (rule of thumb)= 1 DMT of Cu concentrate with
30% of sulphur gives approximately 1 ton of sulphuric acid (H2SO4)
depending on recovery rate. Typical recovery rate is 95% in a Cu smelter.
1 DMT Cu concentrate (30%S) x (98/32) x 95%
x 75 USD/t = 65.5 USD/DMT
S u lp h u ric a c id , c o n tra c t C F R N W E u ro p e 1 9 8 8 -2 0 0 8
S o u rc e : F e rtiliz e r M a rk e t B u lle tin
Low
H ig h
19
8
19 8
88
19
8
19 9
8
19 9
9
19 0
9
19 1
9
19 1
92
19
9
19 3
9
19 3
9
19 4
9
19 4
95
19
9
19 6
9
19 6
97
19
9
19 7
9
19 8
9
19 9
9
20 9
0
20 0
0
20 0
0
20 1
0
20 2
02
20
0
20 3
0
20 3
04
20
0
20 5
0
20 5
06
20
0
20 6
0
20 7
08
€ /t
200
180
160
140
120
100
80
60
40
20
0
0.873 ton H2SO4
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Premium
7. Metal premiums
ƒ The value of metal premium depends on:
– Demand/supply situation
– The product (preferred quality)
– The amount of value added in customer service functions
Example) Value of metal premium = Metal ton x Cu content x recovery rate x
premium/USD
1 MT Cu metal x 30% x 98.0% x 115 USD/t = 33.8 USD/DMT
CIF NW Europe port US$/ton + Coldeco Premia
200
200
180
180
160
165
140
140 140
130
120
120
100
80
60
40
180
130
120
105 105 105 105 105 105
90
160
150
100
130
60
50
140
130
125 125 125 125 125 125 125 125 125 125 125 125
110 105 105
105 105
100
100
90
80 80
120
115 115 115 115 115
105 105
70
100 100
80
60 60 60
50
50
40
70 70
90
55 60
40 40
80
70 75
20
70
90 90
80
110
100 95 100
60
45 50 50 50 50
30 30 30
100
75 70 70
50 50
40
80
60
40
20
0
0
Jan Feb Mar Apri May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apri May Jun July Aug Sep Oct Nov Dec Jan Feb Mar A pri May Jun July Aug
06 06 06 l06 06 e06 06 06 06 06 06 06 07 07 07 l07 07 e 07 07 07 07 07 07 07 08 08 08 l 08 08 e 08 08 08
Low
50 120 140 140 100 120 100
80
60
50
60
50
40
70
40
40
70
75
45
30
30
30
50
80
70
50
40
High
90 130 165 180 130 150 130 110 100
90
80
70
80
60
60
100 100 55
70
60
90
80
60
50
50
50
70
90 130 110 95 100
90
100 75
70
50
Premia Codelco 105 105 105 105 105 105 105 105 105 105 105 105 125 125 125 125 125 125 125 125 125 125 125 125 115 115 115 115 115
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8. Putting copper smelters’ revenues together
Treatment Charge (TC/RC)
TC:1 DMT Cu concentrate x 45 USD=
RC: 23% x 22.046 x 4.5 USc/lb =
PP: No PP
Au: 40 g/DMT x 97.5% x 0.0321 x 6.0 USD/troz =
Ag:170 g/DMT x 0.0321 x 0.35 USD/troz =
Zn penalty: 2 x 3.0 USD/DMT =
Sum TC/RC
USD/DMT
45
22.8
0
7.5
1.9
6.0
83.2
Share
By-products
40%
Treatment Charge (TC/RC)
31%
40%
Free metal
Cu: 30% x (98.0% - 96.65%) x 7,000 USD/t-Cu =
Sum Free metal
28.4
28.4
13%
By-products
1 DMT Cu concentrate (30%S) x (98/32) x 95% =
0.882 ton H2SO4 x 75 USD/t
Sum By-product
Metal premium
Free metal
16%
65.5
65.5
31%
33.8
33.8
16%
210.9
100%
13%
Metal premium
Cu Premium: 1 MT Cu metal x 30% x 98.0% x 115 USD/t
Sum Metal premium
Sum Raw Material revenue
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8.1 Putting copper smelters’ revenues together
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8.2 Putting copper smelters’ revenues together
Boliden’s copper smelters’ approximate year-to-date revenue distribution
9M 2007
9M 2008
By-products
15%
By-products
28%
Premiums
5%
TC/RC
44%
TC/RC
55%
Premiums
3%
Free metal
25%
Free metal
25%
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2008-10-28
9. Smelters’ share of raw material value
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10. Business cycle of metals
Availability of raw materials
+
Low metal prices
High metal prices
High TC/RC
High TC/RC
–
+
Availability
of metals
Low metal prices
High metal prices
Low TC/RC
Low TC/RC
–
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11. How to increase smelters’ profit?
Boliden Mines
New Mines
Commercial
terms
Concentrate sales
External Mines
and Smelters
BA Market
Metal sales
Tolling
Tolling
Boliden Smelters
New Smelters
Tolling concept (optimisation and rules for settlement/compensation) is the cornerstone in BA Market Business model
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