Mining and Metals commodity briefcase Aluminium, Coal, Copper, Gold, Iron Ore, Nickel, Platinum & Palladium, Steel, Zinc & Lead Marzo, 2016

Aluminium

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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Industry Snapshot

The aluminium market has faced a tough year, with prices declining to the lowest level since 2009 due to robust exports from China and increased physical supply.

The aluminium market is expected to be in deficit in 2016 with high demand from the automotive sector and ongoing

global production cuts. However, the deficit is highly dependent on the actual reductions in China’s production capacity and the removal of subsidies.

The Chinese, Indian and US Governments have taken steps to keep aluminium smelters running by providing subsidies or imposing import taxes. The industry may continue to receive increased government support to keep the smelters running amid depressed prices.

Sector Overview Aluminium market faced historically low prices amid rising supply from China The aluminium market has seen significant price uncertainty over the last year. In November, aluminium prices fell to the lowest level since 2009 at $1460/t down 14% y-o-y. Prices continue to decline as the market remains in oversupply. Falling demand from China drives oversupply and a resultant increase in Chinese exports to rest of the world as the country fails to reduce production to match reduced demand levels. 1

Over 30% of aluminium production capacity is loss making Given weak aluminium prices, around 30% of the global aluminium capacity are loss making. Around two-thirds of loss-making capacity is in China and as a result US aluminium producers, Alcoa and Century Aluminium, are shutting down smelters or running them at reduced capacity. There are announcements Chinese production cuts in 2015 are estimated to be in the range of 2-3mt. Despite this China will have an aluminium surplus of 1.7mt after adding 3.4mt of capacity and curtailing 2mt, while rest of world will have deficit of 2.1mt. 2

Despite all the bad news the market has strong prospects Aluminium demand has been robust in recent years; the issue in the sector has been excessive supply. This excessive supply comes from Chinese overcapacity and the export of heavily-subsidized Chinese aluminium products. China exported a record 3.1mt (up 22% y-o-y) of semi-manufactured aluminium products for 9M 2015, even with a dip in the third quarter when weaker global prices made exporting less attractive. China's excess production will continue to be exported in the form of semi-fabricated products rather than primary ingot, owing to the export tax regime currently in place. Nonetheless, aluminium market fundamentals are expected to improve in 2016, with the expectation that China will remove subsidization owing to economic and environmental pressure. The market is likely to move to deficit from 2016 given ongoing production cuts and strong demand for aluminium which could continue into 2019. The deficit will be driven by the potential closure of 2.5-3mt of smelting capacity ex- China due to current low aluminium prices.3 1 “Primary aluminium prices at LME sink to six-year low in August 2015,” CMIE,

2 “BRIEF-Alcoa sees global aluminum deficit of 360,000 tonnes in 2016,” Reuters News, 04 November 2015 via FACTIVA

3 “Rusal expects aluminum market deficit in 2016-2019,” Interfax: Russia & CIS Business and Financial Newswire, 25 November 2015 via FACTIVA

EY aluminium commodity briefcase December 2015

Coal

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

EY coal commodity briefcase November - January 2016

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Industry Snapshot

Amid a persistent supply glut and stalled demand across geographies, coal market fundamentals will remain weak.

Production cutbacks have not been sufficient to stem the rising surplus. Reduction in Australian coal output is vital, if the market needs to progress towards balance.

Currency depreciation, low oil prices and productivity improvements have pushed down costs of production allowing many miners to continue to operate; alluding the need to temporarily shut down or restrain supply.

Although India is expected to pick up some of the waning coal demand from China, it is South East Asia that will be seen as the primary driver of growth in the coming years, with significant new coal fired power planned or under construction.

Sector Overview

Thermal coal The need for production cuts is desperate. The US removed 10mt in 2015, in some cases through company bankruptcies. Indonesian supply has also fallen by 25mt in 2015 as it cannot compete with the energy adjusted price advantage of Australian miners. However, for the cuts to come through, prices may have to fall to as low as $40/t despite the fact that around 350mt or 65% of production is loss-making at $50/t. While the US is likely to continue leading cuts, Indonesia will have to curb its output too as 60-70% of its production runs on negative margins. Most importantly, volume cuts from Australian miners are needed to balance the market.1 With a view to all of these factors the earliest we might see any price recovery maybe as late as 2019. Metallurgical coal Metallurgical coal demand has also suffered. In 2015, Chinese demand fell 24% and demand from Japan declined 23%, both on weaker steel production.2 Demand for metallurgical coal will be weak, as steel production continues to remain subdued, possibly declining1.5-3% during 2016. However, a price recovery will be dependent on the depth of supply cuts as well as the amount of new supply coming online. It isn’t likely that metallurgical coal prices will recover in less than two years.

1 Global coal supply glut said to reach 118 million tonnes in 2016, SNL Coal Report, 14 December 15; Metals Quarterly 1Q16, HSBC, 11 January 2016; Two thirds of world's coal output is loss-making, Wood Mackenzie estimates, Financial Review, 10 December 2015 2 Global Metals Playbook 2015, Morgan Stanley, 15 December 2015

Copper

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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Industry Snapshot

Copper prices have fallen to six year lows. As prices continue to decline, more miners are operating on negative margins.

Miners in the red are cutting production. An estimated 600kt – 700kt has been removed over the past 12 months.

Companies are also delaying or slowing the rate of new production coming online.

Market balance may be in sight but uncertainty over Chinese demand makes it hard to make that call.

Companies continue to take action to preserve margins including dividend cuts, production cuts, divestment and cost cutting.

Sector Review Uncertainty clouds the copper sector Despite ongoing suffering by miners, copper sector fundamentals are showing signs of improvement as production cuts move the market towards a balance. Analysts are, however, unable to reach a consensus on both the timing of a balance between supply and demand and a potential rebound in prices, largely due to ongoing over-estimation of China’s future demand. Copper production cuts have reached 600kt- 700kt over the past 12 months. Glencore initiated this, removing ~400kt of production from its African mines over an 18 month period. There have been a number of smaller supply cuts by other producers including: • Freeport cut 160ktpa including the suspension of Sierrita mine in Arizona (90ktpa) • Asarco cut US copper mine output by 34ktpa • Vedanta suspended Nchanga underground mine (15ktpa)

As a result of this reduction in concentrate availability, the nine large copper refiners of the China Smelters Purchase Team, combined production of 2.7mtpa, agreed to cut refined metal production by 200kt in 2016.

EY copper commodity briefcase December 2015 – February 2016

Gold

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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Industry Snapshot

In December the US Federal Reserve hiked interest rates for the first time in nine years. This is the start of what will be a gradual tightening cycle which is negative for gold prices.

Gold supply is expected to peak in 2017 and many miners already appear to be positioning for growth. Analysis of gold M&A deals in 2015 shows ‘switch to growth’ as one of the top three deal drivers during the year. The other two deal drivers are non-core asset divestment and debt reduction.

Streaming deals remain an important source of project financing. In 2015 miners raised US$4.2b US from 11 stream sales which is the highest value of streaming deals ever.1

Factors impacting gold forecasts

Many factors that could impact gold price forecasts are already accounted for in broker price forecasts. However, it is worth noting the momentum at which these factors could change will have a bearing on the estimates. For example, the current futures market is pricing in three US interest rate hikes during 2016. However, what the Federal Reserve says in its commentary regarding the economy and hikes will have an effect on gold prices and forecasts. What will push gold prices down? • Economic activity stabilizing in the US

• Strengthening US dollar

• Lower physical offtake, especially from China

• Cost-cutting by gold miners: lower operating costs are expected in 2016 on lower oil prices and depreciating producer

currencies (as US$ appreciates)

• Lower oil prices leading to lower inflation and hence negative for gold prices

• The dominant factor driving gold prices lower, however, is the expectation of continued interest rate hikes by the Federal Reserve in 2016, prompted by improved US employment figures, wage improvement and inflation firming up.

What will increase gold prices? • Weaker global equity markets resulting in investments moving from the equity market to gold

• Gold reserves of emerging markets, e.g., emerging markets still hold less than 10% of total reserves in gold vs. about

70% in developed economies. China and India both have currency policies requiring greater gold backing – an official sector driver that delivers an increasing share of total demand growth.1

• • Lower mined gold supply: expected to taper off from 2017 onwards due to project delays or mine shutdowns by a

number of gold miners, e.g., the top seven North American mines have an average mine life of about only 10 years.

• Global geo-political environment such as renewed hostilities in the Middle East, fresh nuclear posturing by North Korea.

1 “Global Metals Playbook: 4Q 2015,” Morgan Stanley, 29 September 2015 via ThomsonOne.

EY gold commodity briefcase January 2016

Iron Ore

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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Industry Snapshot

Samarco tailings dam breach; 13 dead and more missing. In addition to the widespread human and environmental

devastation, the repercussions for BHP Billiton and Vale and the industry as a whole will be significant.

Prices slide again approaching a 10 year low at the end of November. Forecasts now overwhelmingly bearish and miners

expect a tough 2016.

Chinese economic forecasts continue to be negative, with GDP now expected to drop in coming years. The outlook for

iron ore is grim.

Sector Overview Prices drop close to ten year low

Iron ore prices started to drop below $50/t on reports from the China Iron & Steel Association (CISA) that steel demand is

shrinking at an unprecedented rate. Prices are also under pressure as Chinese steel mills begin to scale back production

ahead of the winter lull.1 They then hit ten year low prices in mid-November and retreated further to $42.97/t on 30 November.2

Despite recent price falls, the major’s costs remain lower than prices, meaning there is no real incentive for them to curtail

expected supply increases. With so much capacity, any player seen to curtail will quickly find the gap filled by a rival. In fact,

current prices may incentivize the extra supply in order to make up for reduced revenue due to low prices.3

Analysts downgrade iron ore prices

Price forecasts for iron ore continue to be downgraded on predictions that steel demand has peaked. Business Monitor

International (BMI) believe prices will drop to $45-$55/t through 2015, while Goldman Sachs forecast an average of $44/t

through 2016 and down to $40/t in 2017.4 BMI at least expects 2016 to be the bottom for iron ore prices with longer term above

$60/mt.5

Demand

The decline in Chinese steel consumption is accelerating at a rate faster than previously expected. Steel demand fell 5.7% in

the first nine months of 2015, even lower than World Steel Association predictions of a 3.5% decline.6 Seaborne imports of iron

ore fell 5% in October y-o-y, and down 12.3% m-o-m.7 Most predict that we have either passed peak steel or it will peak in

2016.

Supply

Supply in the September quarter rose 4.4%. Despite reduced production from smaller pure plays, such as Kumba Iron Ore (-

12.2%), Arrium (-21%) and Mount Gibson (-21.4), overall production grew from 342.2mt in the June quarter, to 358.2mt in

September. The increase was led by the majors, Rio Tinto (+12.1%), BHP Billiton (+7.4%) and Vale (+3.3%).8 Some have

suggested that the tragedy at Samarco, may in fact provide some support to the pellet market in the near future,9 however

more realistically all it does is balance some of the reduced demand in China. 1 “More bad news looms for struggling iron ore miners,” The Courier Mail, 2 November 2015.

2 “Iron ore plunges below $US43,” Sydney Morning Herald, 1 December 2015.

3 “Iron ore’s $10 trading range may snap on low cost supplies,” Bloomberg, 20 October 2015.

4 “Goldman: Iron ore price to decline next two years,” Mining.com, 20 November 2015.

5 “Global – iron ore price to bottom in 2016,” BMI Research, 25th November 2015.

6 “Iron ore price craters,” Mining.com, 17 November 2015.

7 “China’s iron ore imports down 5% in October,” Metal Bulletin, 9 November 2015.

8 “State of the Market: September Quarter, 2015,” SNLMetals & Mining, November 2015.

9 “Fortescue tips iron ore demand, as price falls,” Australian Financial Review, 19 November 2015.

EY iron ore commodity briefcase October - November 2015

Nickel

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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Industry Snapshot

Price volatility: Nickel prices declined steadily throughout the year to reach a 12 year low of US$8,160/t in November 2015. The average nickel price in 2015 is down by 30% y-o-y to trade at US$11,894/t, a price at which over 60% of producers are cash flow negative.

Capital project execution: Most nickel smelter developers have put their projects on hold as they struggle to get finance due to low nickel prices. Indonesia received applications for smelter permits from at least 30 companies during the last 2 years but most of these are now being postponed or delayed as financial institutions are refraining from providing credit or working capital support to producers. 1

Resource nationalism: The Philippines is unlikely to replace Indonesia as world’s main exporter of nickel as Indonesia’s potential volume and nickel grades are much higher than the Philippines. Production may shortly resume in Indonesia following a raw material export ban, but at present, higher output at existing mines in New Caledonia, Russia and the Philippines will not be able to make up for the loss of supply from Indonesia or from the closure of loss- making smelters around the world.

Industry Developments Outlook At current prices, over 60% of nickel producers are cash flow negative. Nickel prices are expected to remain subdued in 2016 and this may force further supply cuts especially in Europe, Japan, New Caledonia and Australia. The Philippines, which is supplying over 90% of nickel ore imports to China since the Indonesian ban in 2014, is also looking to shut down or significantly reduce its production in light of low nickel prices. The global nickel market is likely to enter a deficit of 49,000t in 2016 after a surplus of 37,000t in 2015 on falling nickel supply. Supply is expected to drop by 2.7% y-o-y in 2015 potentially by a further 1.7% in 2016 to 1.91mt. Major adjustment may happen in China where nickel pig iron production could fall 11% to 0.35mt during 2016. 2 Nickel prices declined by 30% y-o-y in 2015 to average ~US$11,800/t are expected to decline a further 4% y-o-y in 2016 to average US$11,400/t. 3 1 “Nickel smelter developers shelve Indonesia projects amid credit squeeze,” Reuters, 18th November 2015.

2. “Nickel set to enter 49,000 mt deficit in 2016,” Platts SBB Steel Markets Daily,” 27th October 2015.

3. “Resource and energy quarterly,” BREE, December 2015

EY nickel commodity briefcase December 2015

Platinum and palladium

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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Industry Snapshot

Price and currency volatility: A number of miners took decisive action to mitigate the effects of the low PGM price environment by optimising mine plans, repositioning portfolios, capital discipline and reducing labour costs.

Portfolio optimisation: Major miners are selling loss-making mines to focus on assets that could deliver higher margins, lower costs and improved returns on capital.

Shaft closures and layoffs: A number of mines have announced job cuts, including Anglo American Platinum, Atlatsa Resources, Impala Platinum, Glencore, Lonmin and Royal Bafokeng Platinum. Lonmin, Atlatsa Resources and Implats are closing shafts.

Sector Update Platinum prices fell 28% over 2015 due to abundant supplies, weak demand and concerns about diesel car demand in Europe which may lead to further weakening in the wake of the Volkswagen emissions scandal. The current attack on diesel vehicles is putting a favourable spotlight on the zero-emission value of fuel cell electric vehicles that use considerable volumes of platinum however increased use in battery vehicles is a negative for platinum. Despite this there is likely to be a limited impact on diesel auto sales, as consumer buying preferences are yet to be affected. A platinum price recovery in 2016 largely depends on producers announcing more production cuts in South Africa. However political pressures to maintain employment and tight balance sheets limit producer ability to curtail production. Another potential price catalyst is the potential for strike action in 2016 when wage negotiations kick in. Analysts forecast a surplus of 5,000 ounces in 2016, compared to the 300koz surplus in 2015, as supply from mining and recycling rises and investment falls. Mine supply is expected to increase another 2% in 2016, largely on the back of gains in Zimbabwe. Platinum markets over supply could reach 300koz per annum up to 2020 due to a variety of factors:

• Falling Chinese jewellery consumption

• Stronger than expected South African production

• Continued robust scrap supply.

Potentially offsetting this are sensitivities in South Africa including: potential safety stoppages, the impact of much lower capital expenditure and corporate ownership changes. Palladium is expected to benefit from rising autocatalyst demand due to tightening emissions legislation on cars, as it is more heavily used in the gasoline-fuelled cars popular in the United States, China and emerging market economies. The recent drop in Chinese car sales is expected to be temporary and in the longer term, Chinese car sales should return to follow their structural growth path. The broader selloff in the entire metals sector has been mirrored in the platinum sector. The imminent interest rate rises by US Federal Reserve have been weighing on the gold price and other precious metals. Also weighing heavily on prices are weaker demand from China and a continued ramp up of production in South Africa following the five-month mining strike in 2014. On the positive, European auto sales rose 14% in November. The rise in auto sales suggests robust demand for platinum and palladium, especially since more new cars should be registered in the EU during 2016.1 1 . “Platinum price forecast 2016: market to balance,” Platinum Investing News, 15 December 2015.

EY platinum and palladium commodity briefcase October 2015 - January 2016

Steel

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

EY steel commodity briefcase September - November 2015

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Industry Snapshot

Chinese steel exports: For the first 11 months of 2015, China’s steel exports rose 22% y-o-y to 102 mt. In addition, Ministry of Finance in China plans to cut export taxes on steel billet from 25% to 20%, a move that is likely to support increased exports, boosting supply in an already oversupplied market.

Excess capacity: The gap between crude steel production capacity and demand has increased to around 700mt. China’s crude steel capacity is expected to exceed demand by 441mt in 2015.

Distress: Sharp fall in prices, lower demand and mounting debt has put steel companies under significant distress. Many steel producers are either shutting down operations or are cutting workforce as part of restructuring programs.

Raw material prices: Iron ore and coal prices have dropped to multi years low and are trading below US$40/t and

US$80/t respectively. Declines in Chinese steel production and rising capacities for iron ore and coal production could keep raw material prices under pressure in short to medium term.

Industry Developments

Global crude steel production declines and the gap between demand and capacity increases

Global crude steel production declined by 3.1% y-o-y in October and is down 2.5% in the first ten months of 2015 as several countries responded to lower steel demand. The gap between crude steel production capacity and apparent steel demand has increased to around 700mt and capacity utilization has dropped to below 70% as a result. It will take time before the China led global steel glut is resolved. China’s crude steel capacity is expected to exceed demand by 441mt in 2015. 1 Reactions to slow demand continue with Japan cutting its FY16 crude steel production target by 1mt to 106mt down 3.5% from FY15 production. Poor domestic and export demand has led to slow down in steel production in Japan. September production fell 7.3% y-o-y to 8.57mt, the 13th straight monthly drop of steel production in the country. 2 Slowing demand in China and Russia leads to excess steel flooding global markets Excess steel continues to flood global markets as steel demand weakens. The World Steel Association once again revised its outlook for demand in October with global apparent steel usage now expected to decline by 1.7% in 2015. Demand in China and Russia will decline more dramatically by 3.5% and 10.9% respectively in 2015.1 This indicates a slight improvement in Chinese steel demand for the final quarter of the year as demand declined 5.7% in the first nine months of 2015.3 China is the key source of excess material in the markets with its steel exports growing by 22% y-o-y to reach ~102mt in first 11 months of 2015. However, steel market will be watching future export data closely in light of hefty import tariffs imposed by several countries on Chinese steel. 4 Chinese exports are likely to peak in 2015 and remain around 100mt per year out to 2035. 5 As demand has declined in Russia, steelmakers have sought to take advantage of demand in Central and Eastern Europe (CEE). It is estimated Russia could ramp up its coil sales in CEE by 55% y-o-y to 510,000mt from 330,000mt of exports in 2014. 6 1 “China’s excess crude steel capacity to widen global gap to 700mt in 2016”, SteelGuru, 6 October 2015.

2. “Japan industry body cuts FY crude steel output forecast on slowing exports,” Hellenic Shipping News Worldwide, 26 Oct, 2015.

3. “Iron ore price craters,” Mining.com, 17 November 2015. 4. “Metals & Mining Weekly: the dollar regains its mojo,” BB&T Capital Markets,” 16 November 2015.

5. “JPMorgan sees Chinese steel exports stabilizing on waves of protectionism,” Steel Guru, 6 October 2015.

6. “CEE’s market rise attracts too many imports: ArcelorMittal,” Steel Business Briefing, 30 October 2015.

Zinc and Lead

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

EY zinc and lead commodity briefcase September 2015

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Industry Snapshot

Zinc mine supply shortage pushed out as producers announce short extensions. Miners are trying to push back the closure of zinc mines thus postponing the long-anticipated supply crunch. For instance, Century will be operational throughout 3Q15; similarly, Vedanta has managed to push the scheduled closure of its Skorpion mine in Namibia from 2016 to 2019 with a new mine plan.

Pipeline shrinkage: No new zinc-lead projects announced in 2014. Barring a few big projects already in the pipeline, no new zinc-lead projects were announced in 2014. Analysts believe that it is more a reflection of caution in capital project decisions than a reflection of zinc prospects, which continue to be positive.

Zinc and lead prices decline in tandem with other metals over slowing Chinese demand: Zinc and lead prices are now

trading at two- and five-year lows respectively. The decline is mainly driven by concerns over slowing Chinese economy and the resultant decline in domestic demand leading to increased exports to rest of the world thus keeping the market well supplied.

Key issues facing the sector Zinc mine supply shortage pushed out as producers announce short extensions

A number of large zinc mines are reaching the end of their life. Owners are either shutting down the mines or curtailing production, taking an estimated one million tonnes out of the mine supply chain over the next couple of years. Recent closures include Glencore’s Brunswick and Perseverance mines in Canada and Terramin's Angas mine in Australia.

Pipeline shrinkage: No new zinc-lead projects announced in 2014

Following a long period of low prices and capex reductions after the global economic downturn, large zinc majors had deferred zinc project spending, thus leading to the current pipeline shrinkage. A few big projects are in the pipeline, such as MMG’s Dugald river project and Vedanta’s Gamsberg project. However, despite the soon approaching supply deficit, no new zinc-lead projects were announced in 2014. Analysts believe that it is more a reflection of caution in capital project decisions than a reflection of zinc prospects, which continue to be positive.

Zinc and lead prices decline in tandem with other metals over slowing Chinese demand

Commodity prices are trending lower as are most major metals that are trading at levels not seen since the Global Financial Crisis of 2008-09. The decline is mainly driven by concerns over slowing Chinese economy and the resultant decline in domestic demand leading to increased exports to rest of the world. Zinc and lead prices have fallen in tandem and are now trading at two- and five-year lows respectively. Despite positive fundamentals and looming mine supply shortage, zinc declined from its highest rally in May when it was trading at $2,400/t.

While the rally in May can be explained as investor over-enthusiasm over zinc’s supply deficit story, the current slump can be partly explained by adequate supply of the metal in the market. As opposed to what is indicated by the steep draw-down of LME warehouse inventory (down 37% in first seven months of 2015), the market seems to be well supplied indicating that most of the withdrawn inventory is being moved to offmarket storage. In fact, the global refined zinc market was in 142kt surplus in the first five months of 2015 with Chinese production up by 18% in the same period. Global demand for growth has however declined to 2.6% in 2015 compared to 4.4% in 2014.

Contacts Peru Víctor Burga Assurance Services Tel: +51 1 411 4419 victor.burga@pe.ey.com Marcial García Tax Services Tel: +51 1 411 4424 marcial.garcia@pe.ey.com Rafael Huamán Advisory Services Tel: +51 1 411 4443 rafael.huaman@pe.ey.com Enrique Oliveros Transactions & Corporate Finance Services Tel: +51 1 411 4417 enrique.oliveros@pe.ey.com Marco Antonio Zaldívar Risk Management Tel: +51 1 411 4450 marco-antonio.zaldivar@pe.ey.com

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