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Managing in a Commodity World

Mike O’Shaughnessy, Director, Business Planning

Jim Popowich – Mining Guy at Large

January, 2013

Frontier & L421

Diversified, Low Risk,

Long Life Portfolio

• Wor ld’s 2nd largest seabornemet coal producer

• Six open-pit operations

• >25 year mine life

• >100 year resources

• Potential Quintette productionin 2014

Red Dog (100%)

• Large scale, low cost zincproduction

• ~20 year+ mine life, withpotential to increase further

• Mine life to 2026

• Potential to extend minelife by an additional 10-20 yrs

Antam ina (22.5%)

• Large, low cost copper-zincco-product mine

• Current operations to 2028

Quebrada Bl anca (76.5%)

• Current operations to 2016with cathode productionexpected to continue until2018; 40-year resource

• Plan to triple production; with$5.6b capital project

Andac oll o (90%)

• Recently completedexpansion that quadrupled

production

• >20 year mine life

Trail: Top 5 zinc/lead facility in the world

Note: References throughout to mine lives are based on Teck reserve estimates ( or where indicated resource estimates) and curre nt production rates. Actual mine lives may vary

Antamina

Quebrada Blanca

Andacollo

Relincho

Red Dog

Fort Hills

Teck Coal

Trail

Pend Oreille

Duck Pond

Highland Valley

Teck Coal (100%)

Highland Valley (97.5%)Red Dog (100%)

Antam ina (22.5%)

Quebrada Blanca (76.5%)

Andaco llo (90%)

Growth, Diversity andCost Competitive Production

Growth, Diversity andCost Competitive Production

Mine Advanced ProjectRefinery

• Fort Hills: 20%

• Frontier: 100%

• Lease 421: 50%

• 3.5b bbl contingent resource

• First production by 2017

Oil Sands

2

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7

Continued Improvement in Safety

- Employee and Contractor

• Teck Coal best ever year • Oct YTD Total Recordable Injury

Frequency of 1.45, 31% down onsame time last year

• Lost Time Injury Frequency of 0.23,85% down

• Frequency of High Potential Incidentsalso down

• Contractor statistics showingcontinual improvements – improvedexpectation setting and supervision,and emphasizing “all work on site atthe one standard”

• Random Drug and Alcohol testing in

place and functioning well at CardinalRiver, currently being rolled out to ElkValley mines

Outline

• Supply/Demand balance

• The macro demand picture

• Supply running to stand still

• How stable is your revenue?

o Drivers of price S/D balance

o Other factors

• Steelmaking Coal Case Study

• Ferti lizer Case Study

• The DCF4

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5

The Supply/Demand Balance

Commodity super-cycle

Commodity Price Increases CPI Adjusted - US$(Base Year 1960 = 100%)

6 Source: USGS Mineral Information, LME, Bloomberg

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

26%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

220%

240%

260%

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

CPI (YoY) Average

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Economics 101 – the supplyand demand relationship

7

P r i c e

Units

Supply Demand

P r i c e ( $ / u n i t )

Units Available

Panic Buying

Cost

Driven

Floor Price

Supply, demand and the

commodity cycle

8

U n i t s o f P r o d u c t i o n o r C o n s u m p t i o n

Time

Supply Demand

Excess Supply

SupplyShortfall

P r i c e ( $ / U n i t o f

P r o d u c t i o n )

Time

Super Cycle

Floor Price

Based on Usual Demand

and Supply Response

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Multi decade material change

in demand driven by…

9

• Urbanization of 1.4 billion people between 2005 – 2025

• Industrialization of emerging economies

• The move to middle class, replacement vs. additional demand

• Population growth

• BRICS (Brazil, Russia, India, China, South East Asia) expected tosustain high economic growth

World commodity demand expected to double overthe next 15 to 20 years.

Source: UN 2011

‐4.0%

‐3.0%

‐2.0%

‐1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

1 9 8 0

1 9 8 1

1 9 8 2

1 9 8 3

1 9 8 4

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

R e a l G D

P ( % C h a n g e Y e a r o v e r Y e a r )

Long Term Real GDP Forecast (YoY)

Global Developed Emerging

The driving force – global GDP

10 Source: IMF Nov/12

30%

40%

50%

60%

70%

1 9 8 0

1 9 8 3

1 9 8 6

1 9 8 9

1 9 9 2

1 9 9 5

1 9 9 8

2 0 0 1

2 0 0 4

2 0 0 7

2 0 1 0

2 0 1 3

2 0 1 6

Share of Global GDPDeveloped

Emerging

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Urbanization Levels

11

—

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

I n d i a

C h i n a

D e v e l o p e d

I n d i a

C h i n a

D e v e l o p e d

I n d i a

C h i n a

D e v e l o p e d

I n d i a

C h i n a

D e v e l o p e d

1990 2000 2010 2020

Population Distribution

Source UN October, 2012

URBAN

RURAL

How increases in the standard of

living affects commodity demand

12 Source Rio Tinto and World Bank

I n d i a , p o p u l a t i o n

1 , 1 7 1 M

C h i n

a , p o p u l a t i o n 1 , 3 3 8 M

A r a b

W o r l d , p o p u l a t i o n 3 5 7 M

S o u t h A m e r i c a , p o p u l a t i o n 5 8 8 M

O t h e r , p o p u l a t i o n 2 , 4 3 3 M

R u s s i a , p o p u l a t i o n 1 4 2 M

S o u

t h K o r e a , 4 9 M

E u r o p e , p o p u l a t i o n 3 3 1 M

J a p a n , p o p u l a t i o n 1 2 7 M

N o r t h A m e r i c a , p o p u l a t i o n 3 4 3 M

DEVELOPING ECONOMIES 6.15B EMERGED ECONOMIES 0.85B

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13

Putting the Growth into Perspective

2011 Stats China India Brazil USA Japan Korea Germany

Population (millions) 1,347 1,210 192 313 128 49 82

GDP growth rate 8.70% 7.96% 3.28% 1.82% 1.50% 4.10% 1.95%

GDP ($trillions) $6,988 $1,843 $2,518 $15,064 $5,855 $1,126 $3,628

GDP/capita $5,186 $1,523 $13,087 $48,097 $45,814 $23,169 $44,352

Auto Sales (millions) 10 2 3 13 4 2 3

Autos per 1000 people 38 17 249 810 593 346 534

Steel Production (mt) 705 78 36 86 109 65 46

Steel Intensity (kg/person) 400 50 150 250 500 1,050 450

HCC Seaborne (mt) 17 20 13 0 33 16 7

Population of emerging markets almost 5x greaterthan the developed regions shown

Based on relative statistics the BRIC(S) still have along way to go

Source: Population and GDP from IMF 2012, Auto sales from 2012 Scotia Bank report,Steel and HCC information from Wood Mackenzie 2012

14

Demand for Commodities

Source: WoddMac, IEA

0

500

1,000

1,500

2,000

2,500

2000 2010 2020

Global Steel Production

Other Germany Korea

Japan USA Brazil

India China

0

50

100

150

200

250

300

350

400

2000 2010 2020

Global Steel Making Coal Imports

Other Germany Korea

Japan USA Brazil

India China

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2000 2010 2020

Global Iron Ore Imports

Other Germany Korea

Japan USA Brazil

India China

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15

Demand for Commodities

Source: WoddMac, IEA

0

20

40

60

80

100

120

2000 2010 2020

Global Oil Consumption

Other Germany Korea

Japan USA Brazil

India China

0

5,000

10,000

15,000

20,000

25,000

30,000

2000 2010 2020

Global Copper Consumption

Other Germany Korea

Japan USA Brazil

India China

0

5,000

10,000

15,000

20,000

2000 2010 2020

Global Zinc Consumption

Other Germany Korea

Japan USA Brazil

India China

Challenges facing the resource sector

16

• Global financial crisis

– Has the economy recovered? Is another correction coming?

• Avai labil ity of fu tu re p ro jects

– Large easy projects already found and developed

– Lead time to project start, political risks, regional risks

• Challenges at current operations

– Resource depletion, higher strip ratios, falling head grade, longer hauls,deeper mines

• Sustainability

– Water, biodiversity, energy, community, people, product stewardship,cumulative effects, air and environment

• Cost escalation and scarce raw materials

– Energy, labour, equipment, tires, supply chain

• Protectionism

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Supply side struggling torespond

New projects are becoming r iskier

17

…and costlier

Source Rio Tinto Source Anglo

Supply side struggling to

respond

18

Working hard to stand stillCurrent operations are continually

falling short

Source BHP Source Xstrata

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Competition for finite resources

19

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

N e w H i r e s

Oil Sands Teck Coal

Engineer and Trades people shortagesare not an anomaly to Western Canada

(Australia, Chile and others)

Source: Estimates based on announced growth plans Source Rio Tinto

Not enough equipment to go around

Impact on an Industry Long Term

20 Source: Credit Suisse

An indust ry undersupplied going forward

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21

How stable is your revenue stream?

So how stable is your revenue stream?

(today and tomorrow)

22

• Supply / demand balances

• Substitution / demand destruction

• Diversification (regional, sector, commodity)

• Position on cost curve (capital vs operating cost… flexibility)

• Brownfield vs. Greenfield – time to market

• Competitors – changes to the market

• Going beyond the discounted cash flow to the option analysis

• Local currencies• Customers ability to pay

• Hedging

• Balance Sheet strength

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Commodity super-cycleCommodity Price Increases CPI Adjusted - US$(Base Year 1960 = 100%)

23 Source: USGS Mineral Information, LME, Bloomberg

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

26%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

220%

240%

260%

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

Commodity Price Increases CPI Adjusted ‐ CDN$ (Base Year 1960 = 100%)

CPI (YoY) Zinc Nickel Copper Aluminum IronPotash Oil Coking Coal Uranium Gold Average

Short Term vs Long Term

24 Source: CRU st eel, LME, EIA

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

0 1 / 0 1 / 2 0 0 9

0 1 / 0 3 / 2 0 0 9

0 1 / 0 5 / 2 0 0 9

0 1 / 0 7 / 2 0 0 9

0 1 / 0 9 / 2 0 0 9

0 1 / 1 1 / 2 0 0 9

0 1 / 0 1 / 2 0 1 0

0 1 / 0 3 / 2 0 1 0

0 1 / 0 5 / 2 0 1 0

0 1 / 0 7 / 2 0 1 0

0 1 / 0 9 / 2 0 1 0

0 1 / 1 1 / 2 0 1 0

0 1 / 0 1 / 2 0 1 1

0 1 / 0 3 / 2 0 1 1

0 1 / 0 5 / 2 0 1 1

0 1 / 0 7 / 2 0 1 1

0 1 / 0 9 / 2 0 1 1

0 1 / 1 1 / 2 0 1 1

0 1 / 0 1 / 2 0 1 2

0 1 / 0 3 / 2 0 1 2

0 1 / 0 5 / 2 0 1 2

0 1 / 0 7 / 2 0 1 2

0 1 / 0 9 / 2 0 1 2

0 1 / 1 1 / 2 0 1 2

Zinc (US$/lb)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

0 1 / 0 1 / 2 0 0 9

0 1 / 0 3 / 2 0 0 9

0 1 / 0 5 / 2 0 0 9

0 1 / 0 7 / 2 0 0 9

0 1 / 0 9 / 2 0 0 9

0 1 / 1 1 / 2 0 0 9

0 1 / 0 1 / 2 0 1 0

0 1 / 0 3 / 2 0 1 0

0 1 / 0 5 / 2 0 1 0

0 1 / 0 7 / 2 0 1 0

0 1 / 0 9 / 2 0 1 0

0 1 / 1 1 / 2 0 1 0

0 1 / 0 1 / 2 0 1 1

0 1 / 0 3 / 2 0 1 1

0 1 / 0 5 / 2 0 1 1

0 1 / 0 7 / 2 0 1 1

0 1 / 0 9 / 2 0 1 1

0 1 / 1 1 / 2 0 1 1

0 1 / 0 1 / 2 0 1 2

0 1 / 0 3 / 2 0 1 2

0 1 / 0 5 / 2 0 1 2

0 1 / 0 7 / 2 0 1 2

0 1 / 0 9 / 2 0 1 2

0 1 / 1 1 / 2 0 1 2

Copper (US$/lb)

$0

$20

$40

$60

$80

$100

$120

0 1 / 0 1 / 2 0 0 9

0 1 / 0 3 / 2 0 0 9

0 1 / 0 5 / 2 0 0 9

0 1 / 0 7 / 2 0 0 9

0 1 / 0 9 / 2 0 0 9

0 1 / 1 1 / 2 0 0 9

0 1 / 0 1 / 2 0 1 0

0 1 / 0 3 / 2 0 1 0

0 1 / 0 5 / 2 0 1 0

0 1 / 0 7 / 2 0 1 0

0 1 / 0 9 / 2 0 1 0

0 1 / 1 1 / 2 0 1 0

0 1 / 0 1 / 2 0 1 1

0 1 / 0 3 / 2 0 1 1

0 1 / 0 5 / 2 0 1 1

0 1 / 0 7 / 2 0 1 1

0 1 / 0 9 / 2 0 1 1

0 1 / 1 1 / 2 0 1 1

0 1 / 0 1 / 2 0 1 2

0 1 / 0 3 / 2 0 1 2

0 1 / 0 5 / 2 0 1 2

0 1 / 0 7 / 2 0 1 2

0 1 / 0 9 / 2 0 1 2

0 1 / 1 1 / 2 0 1 2

Oil WTI (US$/bbl)

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

0 1 / 0 1 / 2 0 0 9

0 1 / 0 3 / 2 0 0 9

0 1 / 0 5 / 2 0 0 9

0 1 / 0 7 / 2 0 0 9

0 1 / 0 9 / 2 0 0 9

0 1 / 1 1 / 2 0 0 9

0 1 / 0 1 / 2 0 1 0

0 1 / 0 3 / 2 0 1 0

0 1 / 0 5 / 2 0 1 0

0 1 / 0 7 / 2 0 1 0

0 1 / 0 9 / 2 0 1 0

0 1 / 1 1 / 2 0 1 0

0 1 / 0 1 / 2 0 1 1

0 1 / 0 3 / 2 0 1 1

0 1 / 0 5 / 2 0 1 1

0 1 / 0 7 / 2 0 1 1

0 1 / 0 9 / 2 0 1 1

0 1 / 1 1 / 2 0 1 1

0 1 / 0 1 / 2 0 1 2

0 1 / 0 3 / 2 0 1 2

0 1 / 0 5 / 2 0 1 2

0 1 / 0 7 / 2 0 1 2

0 1 / 0 9 / 2 0 1 2

0 1 / 1 1 / 2 0 1 2

Hard Coking Coal (US$/tonne)

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Diversification of Revenue - BHP

25

0

2

4

6

8

10

12

0 2 4 6 8 10 12 14 16 18 20

C o m m o d i t i e s

Countries

(bubble size indicates relative market capitalization)

Experts in single commodities and multiple jurisdictions

Glencore

Freeport

Antofagasta

Newmont

First Quantum

Codelco

Teck

Barrick

Anglo

Suncor

Rio Tinto

Xstrata

BHP

VALE

Fortescue

MosaicCliff Resources

Potash Corp

Diversification – how and

where to grow

26 Source: Stock market July, 2012

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What is your true margin?Example Chilean Mine

27 Source: Bloomberg, LME

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

0 2 / 0 1 / 2 0 …

0 2 / 0 3 / 2 0 …

0 2 / 0 5 / 2 0 …

0 2 / 0 7 / 2 0 …

0 2 / 0 9 / 2 0 …

0 2 / 1 1 / 2 0 …

0 2 / 0 1 / 2 0 …

0 2 / 0 3 / 2 0 …

0 2 / 0 5 / 2 0 …

0 2 / 0 7 / 2 0 …

0 2 / 0 9 / 2 0 …

0 2 / 1 1 / 2 0 …

0 2 / 0 1 / 2 0 …

0 2 / 0 3 / 2 0 …

0 2 / 0 5 / 2 0 …

0 2 / 0 7 / 2 0 …

0 2 / 0 9 / 2 0 …

0 2 / 1 1 / 2 0 …

0 2 / 0 1 / 2 0 …

0 2 / 0 3 / 2 0 …

0 2 / 0 5 / 2 0 …

0 2 / 0 7 / 2 0 …

0 2 / 0 9 / 2 0 …

0 2 / 1 1 / 2 0 …

0 2 / 0 1 / 2 0 …

0 2 / 0 3 / 2 0 …

0 2 / 0 5 / 2 0 …

0 2 / 0 7 / 2 0 …

0 2 / 0 9 / 2 0 …

0 2 / 1 1 / 2 0 …

Copper

Price

(US$/lb)

US$

Chilean Adjusted

What to use for pricing assumptions

28 Source: Bloomberg, LME, Bank of Canada as of 2011

• Historic perspective

• Use multiple approaches and use the most conservative or

justify otherwise

• Understand what analysts are using for forward pricing

assumptions• Short term vs long term price assumptions

• Pricing sensitivity analyses

• NPV and payback period

Zn ($/lb) Ni ($/lb) Cu ($/lb ) Al ($/t) Fe ($/t) Pot ($/t) Oil ($/bbl) HCC($/t) Au ($/oz) US/CDN

1yr Avg 0.88$ 7.94$ 3.61$ 2,137$ 135$ 550$ 95$ 192$ 1,648$ 1.00

3yr Avg 0.96$ 9.55$ 3.71$ 2,270$ 152$ 455$ 90$ 228$ 1,464$ 0.99

5yr Avg 0.91$ 9.54$ 3.40$ 2,275$ 152$ 499$ 86$ 222$ 1,165$ 0.96

10yr Avg 0.92$ 9.64$ 2.73$ 2,181$ 105$ 327$ 70$ 155$ 792$ 0.89

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Summary - How Stable is Your RevenueStream Today and Going Forward?

29

• Supply/demand balances

• Substitution

• Diversification (regional, sector, commodity)

• Position on cost curve

• Brownfield vs. Greenfield – time to market

• Competitors – changes to the market

• Going beyond the discounted cash flow to the option analysis

• Stakeholders and risks associated

• Local Currencies

• How many of you are dart players?

30

Steelmaking Coal a Case Study

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31

Per Capita Finished Steel ConsumptionRationale behind market growth projections

700kg/capita

*Source: Neil Bristow, 2010

32

Steelmaking Coal is a Vital Ingredient in

the Steelmaking Process

Iron Ore

Blast Furnace Ironmaking

Coke

Limestone

Sinter

Pellets

Blast Furnace(Ironmaking)

Coking Coal

To Converter (Steelmaking)Source : WSA, Teck

• Vast majority of global steelmade via blast furnacetechnology

• Coking coal is a key input inthe blast furnace ironmakingprocess

• Two main functions of cokingcoal (once coked) in the

furnace:

‒ Reductant

‒ Strength to hold physicalburden within the vessel

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33

HCC Niche MarketInfluenced by Many Moving Parts (2011)

Steel

1,542 Mt

BOF Hot Metal

1,095 Mt

Steelmaking Coal

1,095 Mt

Land Steelmaking Coal

854 Mt

Seaborne Steelmaking Coal

241 Mt

Seaborne SSCC

50 Mt

Seaborne PCI

39 Mt

Seaborne HCC

152 Mt

EAF Recycle

445 Mt

Source: Wood Mackenzie 2012

Global Car Sales

34Source: Scotiabank, Global Auto Report

16.4 19.8 19.4 19.6 19.3 18.8

15.912.7 14.0 15.2

16.7

14.3

17.1 16.7 17.0 17.3 18.317.6

16.6 16.1 16.7 16.5

0.3

0.6 1.3 2.7 4.2

5.2

5.07.3

9.4 10.0

10.9

0.3

0.6 0.6 0.8 1.0

1.2

1.31.5

1.92.0

2.1

6.3

6.6 6.77.6

7.8 8.1

8.78.9

11.2 10.5

11.6

1.6

1.9 1.72.2

2.7 3.3

3.7 3.9

4.3 4.5

4.7

0

10

20

30

40

50

60

70

1990‐99 2000 2001‐03 2004‐05 2006 2007 2008 2009 2010 2011 2012

S a l e s ( m i l l i o n s o f c a r s )

Global Auto Sales

South America Other Asia India China Europe North America

Note Europe includes Russia

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Impact of Global Slowdown on the SteelSector

35Source: Volkswagen, Global Insight, CRU steel, World Steel Association , IMF

3 %

0 %

‐ 7 %

‐ 1 9 %

‐ 2

1 %

‐ 1 3 %

0 %

1 6 %

2 0 %

1 1 %

6 %

1 0 %

9 %

4 %

4 %

4 %

7 %

1 1 %

6 %

5 % 6

%

2 %

‐

2 0 %

‐ 2 2 %

‐

2 0 %

‐ 4 %

2 3 %

3 4 %

2 2 %

5 %

5 % 6

% 1 0 %

1 0 %

2 %

1 . 2

%

0 . 9

%

0 . 1

% 4 %

4 %

3 %

‐ 2 5 %

‐ 3 6 %

‐ 3 3 %

‐ 1 9 %

1 5 %

4 4 %

2 6 %

1 1 %

7 %

2 %

1 1 %

6 %

3 %

‐ 0 . 1

%

0 . 0

%

‐ 0 . 7

%

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

Q1/08 Q2/08 Q3/08 Q4/08 Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12

Global Auto Global Steel Global Steel Ex China

China Projection

• China moves from an exporter toimporter of hard coking coal

• China’s steel mills getting biggerand bigger increasing therequirement for hard coking coal

• Average GDP growth projected at6%

• Large internal and land cokingcoal sources can’t keep up withsteel market• Chinese HCC production starts

trailing off after 2016

• Mongolian HCC productionpeaks in 2020

• Beyond 2026 see increasing levelsof EAF steel production

36

‐

5,000

10,000

15,000

20,000

25,000

30,000

0

10

20

30

40

50

60

70

80

G D P ( $ m i l l i o n s )

S e a b o r n e H C C I m p o r t s

China

Seaborne HCC

GDP

Source: Wood Mackenzie

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India Projection

• Average GDP growth projectedat 6%

• No internal or land coking coalsource

• Teck 33% freight differentialrelative to Aussie’s

• Beyond 2026 flip to a higherproportion of semisoft coal

37

‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

10

20

30

40

50

60

G D P ( $ m i l l i o n s )

S e a b o r n e H C C I m p o r t s

India

Seaborne HCC

GDP


China, 17

China, 69 China, 63

India, 12

India, 20

India, 45 India, 52

Japan, 36

Japan, 33

Japan, 32 Japan, 31

Korea, 11

Korea, 16

Korea, 18 Korea, 18

O Asia, 5

O Asia, 8

O Asia, 19 O Asia, 26

Brazil, 10

Brazil,

13

Brazil, 20 Brazil, 31 O America, 6

O America, 7

Europe,

35

Europe, 35

Europe, 44

Europe, 50 CIS, 10

CIS, 13

Other, 10

Other, 5

Other, 10

Other, 11

‐

50

100

150

200

250

300

350

2001 2011 2021 2031

S e a b

o r n e H a r d C o k i n g C o a l D e m a n d ( m t )

Source: World Steel Association, Wood Mackenzie

Changes in Seaborne Hard Coking Coal

Demand Growth

38

100%

China continues to play a big and complex rolein the market

• China expected to increase demand by 50mt

• China and Mongolia coal producers can’t keepup with steel growth and plateau

India and other markets set to driv e the nextdecades

• India up about 30mt

• Brazil up approximately 20mt

• Other Asia grows by a combined 20mt(Vietnam, Malaysia, Thailand among others)

• CIS more active on the seaborne market(Ukraine)

EAF steel (recycling) begins to dampendemand as markets mature and move p astindustrialization


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0%

50%

100%

150%

200%

250%

The Demand Side 2000 - 2010Poised for growth

39

75%

90%

30% 22%

CrudeSteel

HotMetal SeaborneSteelmaking Coal

Seaborne HardCoking Coal

2000 – 2010 Steel growth m et with i nternal suppl y, seaborne not materially im pacted


0%

50%

100%

150%

200%

250%

The Demand Side 2010 – 2020

Poised for growth

40

75% 90%

30% 22%

CrudeSteel

HotMetal

SeaborneSteelmaking Coal


75%

90%

100%

90%

2010 – 2020 Steel growth continues but local suppliers can’t keep up. India emerges


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0%

50%

100%

150%

200%

250%

The Demand Side 2020 – 2030Poised for growth

41

75%

90%

30% 22%

CrudeSteel

HotMetal SeaborneSteelmaking Coal


75%

90%

100%

90%

40%

45%

40%

28%

2020-2030 China levels out, other emerging markets grow, but bigger pie


Major Steelmaking Coal Basins

42

Major seaborne supply basin

Major prospective supply basin

Major domestic supply basin

Tavan Tolgoi, MongoliaHigh political risk, noinfrastructure in place, captiveto Chinese market

Shanxi, ChinaDangerous, high-cost miningconditions, costs escalatingon regulatory burden andRMB appreciation

Indonesia CentralKalimantanHigh political risk, transportlogistics uncertain

Bowen Basinlarge reserves, wide rangeof qualities, Increasingcosts, lower quality, no low-hanging fruit

Mozambique Tete/MoatizeGood mining conditions,challenging infrastructure

App alach iaIncreasing costs, regulations,declining reserves

Western CanadaHigh project development andoperating costs, particularly innorthern British Colombia, railand port constraints near term

E Siberia ElgaChallenging infrastructure,much delayed project

Russia Kuzbass Largereserves, but very longroute to coast and exportmarkets

PolandModerate reserves,deep, long route to coastand export markets

*Source: Neil Bristow, 2010

Basin Maturity

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Seaborne Steelmaking Coal Market

43

Other Canada, 1%Teck, 9%

BMA, 21%

Anglo, 9%

Xstrata, 6%Rio Tinto, 4%

Other Austr alia,17%

Other USA, 14%

Other World, 19%

Source: AME

The balancing act: what to do

44

• 2006 the super cycle mightbe real

• 2007 review of mines for profitabilitydue to CDN dollar appreciation

• 2008 ramping up on record prices andthen hitting the brakes with the GlobalFinancial Crisis

• 2009 25% drop in volumes, how do wekeep our people employed and stay inbusiness

• 2010 back on the growth path• 2011 stay the course

• 2012 quarterly volatility and oversupply

• 2013 back on the path?

Under supply

Over supply

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Cost Inflation

45

0%

100%

200%

300%

400%

500%

600%

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1

2004 2005 2006 2007 2008 2009 2010 2011 2012

C o s t I n f l a t i o n r e l a t i v e t o H 1 / 0 4

C o s t U S $ / t o n n e

Delivered

Cost

ChangesBHP Delivered Cost Teck Coal Delivered CostBHP cost inflation Teck Coal cost inflation

46

Teck Coal Cost Position

• Actively concentrating effortsto minimize cost inflation

• Eliminated price-participationfrom distribution agreements

• Changes in Australia royaltysystem increasing comparativecosts

• Appreciation of the Australian(and to a lesser extent

Canadian) dollar drasticallyimpacting the relative US$/tcost curve

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100

125

150

175

200

225

250

275

300

325

350

375

400

Platts FOB 64 Mid Vol

Platts FOB Prem Low Vol

Platts FOB Peak DownsQuarterly Contract Settlement

Source: Platts, Argus, McCloskey and Energy Publishing

Steelmaking Coal Price Assessments vs.Quarterly Benchmark Price (US$/t)

Steelmaking Coal Price Assessments vs.Quarterly Benchmark Price (US$/t)

Steelmaking Coal Spot PricesUnsustainably Low

• Hard coking benchmark priceshave declined significantly andhave impacted high cost andlow quality producers

• Escalating demand andperiodic supply disruptionshave led to volatile pricing

• Coal is not coal is not coal,therefore, margin curve isbetter gauge to assess the

market impact of lower prices

47

0 30 60 90 120 150 180 210 240 270-100

-50

0

50

100

Million tonnes

Source: Woodmac, Platts, TEX Report, AME, company reports and Teck estimates

Seaborne Steelmaking Coal

Margin Curve is What Matters

Seaborne Steel Making Coal Margin Curve(US$170/t benchmark price, FOB)

~20% of Global

ProductionUneconomic

• Margin curve highlights theimportance of coal quality

• High cost, low quality coalsshould be eliminated first

• US$170/tonne benchmarkprice could squeeze outapproximately 52-58mt ofseaborne metallurgical coal

• Total announced YTDproduction cuts hover around30mt on an annualized basis

• High quality HCC remainssupply constrained

48

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Not all coal is equal

49

$0

$50

$100

$150

$200

$250

$300

$350

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

Historic Coal Prices (US$/t)

Premium HCC

Semi-Soft Coking

Low Volatile PCI

Thermal

Forward Looking Benchmark Hard

Coking Coal Price (US$/t)

50

150169

160 165170

160 160

150 150 141

183189 190 190 190 190

195

190178

210 210223 225 225

230 233223

207

75

100

125

150

175

200

225

250

275

300

325

350

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 2014 2015 2016 Long Term(Nominal)

Ana lys t Pri ce For ecast ($USD/MT)

Anal yst Forec asts - Low

Anal yst Forec asts - Mid

Anal yst Forec asts - High

Source: Macquarie Bank, Wilson, HTM, RBS,ANZ, Standard Bank, BoA, Merrill Lynch, Investec, DeutscheBank, Morgan Stanley, UBS Credit Suisse, Wood MakenzieCRU, Deloitte, Access Economics, BREE

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Strong Global Demand Leading toRecord Coking Coal Prices…

51

$0

$50

$100

$150

$200

$250

$300

$350

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

H a r d C o k i n g C o a l P r i c e s

( U S $ / t o n n e )

Source: Teck, McCloskey

...But Inflation and Exchange Rate Impact

Revenue…

52

$0

$50

$100

$150

$200

$250

$300

$350

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

H a r d C

o k i n g C o a l P r i c e s ( $ / t o n n e ) Coal Price US$/tonne (Nominal)

Coal Price US$/tonne (Real)Coal Price CDN$/tonne (Real)

Source: Teck, McCloskey, Bank of Canada

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Cost Increases Also Tend to MitigateHigher Commodity Prices (Teck Coalcosts)

53

$0$25

$50

$75

$100

$125

$150

$175

$200

$225

$250

$275

$300

$325

$350

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

H a

r d C o k i n g C o a l P r i c e s a n d C o s t s

( $ / t o n n e )

Costs (FOB) Real

Coal Price CDN$/tonne (Real)

Oil ($/bbl) Real

Source: Teck, McClosk ey, Bank of Canada, EIA

The Customer and Their Ability to Pay

54

$0

$200

$400

$600

$800

$1,000

$1,200

$0

$50

$100

$150

$200

$250

$300

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

2 0 1 0

2 0 1 2

S t e e l P r i c e ( U S $ / t o n n e )

O i l , C o a l a n d I r o n P r i c e s ( U S $ / t o n n e )

Steel HRC (US$/tonne)

Thermal (US$/tonne)

Coal HCC (US$/tonne)

Iron Ore (US$/tonne)

WTI Oil (US$/bbl)

Source: Teck, McClosk ey, EIA, Wood Mackenzie, The Steel Index

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Steelmaking Coal Key Takeaways

55

• The importance of infrastructure and the supply chain

• Reserve and resource base size matter

• The industry has seen significant inflation in prices and in

costs

• Volatility and uncertainty are now a part of the business

• Coal is not coal is not coal. Pricing varies based on market

condition and desirability of a specific product

• Can your customer (and their customer) afford the raw

materials

56

The Fertilizer Industry: A Case Study

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Nominal Prices (not adjusted for inflation)

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

$ BU Corn PricesMonthly Average of Daily Close of Front Month Futures Contract

Source: CME

0

2

4

6

8

10

12

14

16

18

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

$ BU Soybean PricesMonthly Average of Daily Close of Front Month Futures Contract

Source: CME

1

2

3

4

5

6

7

8

9

10

11

12

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

$ BUHard Red Winter Wheat Prices

Monthly Average of Daily Close of Front Month Futures Contract

Source: KCBOT

Real Prices (adjusted for inflation)

0

2

4

6

8

10

12

14

16

18

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

$ BU Corn Prices -Inflation Ad justed in 2012 DollarsMonthly Average of Daily Close of Front Month Futures Contract

Source: CME and U.S.Depar ment of Labor

0

10

20

30

40

50

60

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

$ BU Soybean Prices -Inflation Adjusted i n 2012 DollarsMonthly Average of Daily Close of Front Month Futures Contract

Source: CME and U.S. Department of Labor

0

5

10

15

20

25

30

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

$ BUHRW Wheat Prices - Inflation Adju sted in 2012 Dollars

Monthly Average of Daily Close of Front Month Futures Contract

Source: CME and U.S. Departme nt of Labor

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Are real prices real?

The two previous charts show the price of corn since 1970 in both nominal and real terms. Nominal valuesare not adjusted for inflation. Real values are adjusted for inflation and gauge purchasing power over time.

For example, the nominal price of corn, measured as the monthly average of the daily closing price of the frontmonth futures contract, traded at $2.97 per bushel in August 1973. The nominal value is the actual price afarmer received for a bushel of corn back then. The real or inflation-adjusted value for the August 1973 pricein 2012 dollars is $15.15 per bushel. That means a farmer would have to receive $15.15 for a bushel of corntoday in order to buy what $2.97 bought in August 1973.

The chart shows that real price of corn was higher during the bull run of the 1970s than during the price spikesof 2008. Put another way, the real price of corn has declined over time even after the sharp increases innominal prices during the last few years. But that is no surprise. Real prices change over time depending onfactors such as productivity growth or efficiency improvements and real prices of agricultural commoditieshave trended downward over time due to the tremendous increases in productivity during the last 100 years.

However, since 2007, real prices of corn and many other commodities have trended upward due to acombination of factors including the impact of rapid economic growth in China and India on food demand, theexponential growth in biofuels production and several disappointing harvests. A key question is will

productivity growth increase fast enough to keep pace with demand growth in the future. History says yes butmany analysts now project that the days of steady declines in real agricultural commodity prices are behind usand argue that one of the greatest challenges of this century will be to feed a growing and more affluentpopulation and still conserve increasingly scare land, water and other resources.

A linkage between oil and soft commodities

prices: The case of corn pricesThe Case For

• Corn demand for U.S. ethanol production sets market price

• Key drivers of corn prices are the price of oil and exchange rates

• Strong economic growth & weak dollar cause oil prices to increase

• Higher oil prices boost U.S. ethanol economics/production

• Higher ethanol production increases corn demand

• Higher corn demand increases crop nutrient demand

• Traditional drivers matter less?

The Case Against

• Prices have decoupled during the last two years

• All drivers matter – Weather – Population growth

– Income growth

– Food AND energy demand

• Agricultural fundamentals continue to look positive due to severalfundamental factors

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The case for: strong correlation 2008-10

y = 0.0343x + 1.671R² = 0.6361

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

20 40 60 80 100 120 140 160

Corn$ BU

Oil - $ BBL

Daily WTI Crude Oil vs. Corn Nearby Futures PricesJan 2, 2008 to Dec 31, 2010

Sourc e: NYMEX & CME

The case against: decoupling of prices since

2010

y = -0.0021x + 7.0697

R² = 0.0007

5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

70.0 80.0 90.0 100.0 110.0 120.0

Corn$ BU

$ BBL

WTI Crude Oil vs. Corn Nearby Futures PricesJan 2, 2011 - Dec 28, 2012

Sourc e: NYMEX & CME

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Mosaic share price vs. corn price

y = 25.439x - 46.556R² = 0.7424

0

20

40

60

80

100

120

140

160

180

2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0

MOSShare Price

Corn Price -$ bu

Mosaic Stock Prices vs Nearby Corn Futures PricesDaily Closing Prices from Jan 2, 2008 to Dec 31, 2010

Source: Yahoo! and CMESource: Yahoo! and CMEy = 4.3712x + 31.089

R² = 0.0723

40

50

60

70

80

90

100

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5

MOSShare Price

Corn Price -$ bu

Mosaic Stock Prices vs Nearby Corn Futures PricesDaily Closing Prices from Jan 3, 2011 to Dec 28, 2012

Source: Yahoo! and CME

Fertilizer Prices

50

150

250

350

450

550650

750

850

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

$ STGranular Urea Prices

NOLA Barge

Source: Green Markets

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

$ MTDAP Prices

fob Tamp a Vessel

Source: Fertecon

0

100

200

300

400

500

600

700

800

900

1000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

$ STMOP Prices

Blend Grade fob U.S. Midwest Warehouse


0

100

200

300

400

500

600

700

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

$ LTSulphur Prices

c&f Tampa


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More People, More Food,More Consumption

65

• Large sections of farm being converted into corn for fuel

• A growing population with an appetite for meats as opposed to

rice (a larger middle class)

• Same area to grow food and an increasing population means

we need ways to become more productive with the resources

we have

66

Discounted Cash Flow

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The importance of the DCF

67

• Provides an opportunity to assign value to future cash flows and

todays terms and compare projects with different time horizons

• DCF =

+

+

+

+ … +

• DCF = discounted value of cash flow

• CF = cash flow in each year

• r = discount rate, puts a risk or value of money today vs in a future

period as investor could put their money elsewhere

•

• r d = return on debt (loan/bond rate) , Wd = amount of debt,r e = return expected by shareholders, We = market capitalization

• Ever increasing project lead time creating focus on DCF

Simple DCF Model

68Discount rate of 10%

New Coal S1 Year

Year 0 1 2 3 4 5 6 7 8 9 10

Capital ($millions) ($100) ($100)

Production (mtonnes) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Commodity Price ($/t) $250 $250 $250 $250 $250 $250 $250 $250 $250 $250 $250

Site Costs Fixed ($millions)

Site Costs Variable ($/t) $45 $45 $45 $45 $45 $45 $45 $45 $45 $45 $45

Transportation ($/t) $35 $35 $35 $35 $35 $35 $35 $35 $35 $35 $35

Operating Margin ($/t) $0 $170 $170 $170 $170 $170 $170 $170 $170 $170 $170

Profit ‐ pre tax ($millions) $100 $270 $170 $170 $170 $170 $170 $170 $170 $170 $170

Tax ($millions) $30 $81 $51 $51 $51 $51 $51 $51 $51 $51 $51

Profit ‐ post tax ($millions) $70 $189 $119 $119 $119 $119 $119 $119 $119 $119 $119

Discounted Cash Flow ( $mi ll io ns ) $ 70 $172 $98 $89 $81 $74 $67 $61 $56 $50 $46

Cash Flow

($millions) $1,330

NPV ($millions) $865

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DCF Scenarios

69

Summary Comparison

S1 S2 S3 S4 S5 S6

production/year 1 2 1 2 1 2

mine life 10 5 10 5 10 5

capital ($millions) 200 400 200 400 200 400

commodity price US 250 250 250 250 150 150

discount rate 10% 10% 8% 8% 10% 10%

DCF Scenarios

70

Summary Comparison

S1 S2 S3 S4 S5 S6

production/year 1 2 1 2 1 2

mine life 10 5 10 5 10 5

capital ($millions) 200 400 200 400 200 400

commodity price US 250 250 250 250 150 150

discount rate 10% 10% 8% 8% 10% 10%

Cash Flow $1,330 $1,470 $1,330 $1,470 $685 $825

NPV $865 $1,169 $933 $1,220 $469 $681

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Dangers of the DCF

71

• What if the project is in too early a phase for a dcf? Multiples

and industry comparables are useful

• Heavily dependent on the discount rate and your price

assumptions, do you have it right?

• What if your project misses the cycle?

• Value of management and their ability to move with the cycle

(increase or decrease capacity depending on market

conditions)

• Always need to keep an eye on the balance sheet to makesure you can pay your bills

What do we know for certain?

72

• The rules of the game have changed

• We will continue to see tremendous volatility in the

commodity sector

• You can’t control everything, but you can reduce your

risk by doing your homework

• The mining industry is going to be a very exciting

business in the years to come

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Thank you!

73

74

APPENDIX

Documents

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