RBC Dominion Securities Inc. H. Fraser Phillips (Analyst) (416) 842-7859 fraser.phillips@rbccm.com Patrick Morton (Analyst) (416) 842- 9957 patrick.morton@rbccm.com June 16, 2014 Metal Prospects Copper Market Outlook – Third Quarter 2014 Demand  We forecast global copper demand growth of 5.7% in 2014, 5.7% in 2015, 5.6% in 2016, and then trend growth of a little over 4.0% in 2017 and 2018. However, we believe that 2017 and 2018 growth could be constrained by a lack of mine supply and as a result we have adjusted downward our 2017 and 2018 estimates. Supply  Refined production growth accelerated in 2013 as mine supply caught up with demand. With concentrate supply forecast to increase and the concentrate market expected to be in surplus, we expect acceleration in refined production growth over the next two years. We forecast growth of 9.1% in 2014 and 6.1% in 2015. In 2016, we expect refined production growth to slow to 4.3% as a tighter concentrate market again begins to constrain metal supply. In 2017 and 2018, we expect growth of only 0.8% and 0.7%, respectively, as a shortage of concentrates limits metal supply growth. Market Balance and Inventories  The copper market was in deficit in the first five months of 2014, with total reported inventories down 105,000 tonnes. While our analysis continues to point to a slight surplus in 2014 and 2015, we believe that solid demand growth, a continued shortage of scrap, and ongoing production disruptions will support prices well above fundamental cost support of $2.38/lb for primary production. A sharp slowdown in mine supply growth is expected to constrain metal supply and push the market back into deficit in 2016, reversing the build in inventories and supporting higher prices. In 2017 and 2018, we expect a significant shortage of mine supply to result in a large deficit, drawing inventories down well below the critical level. Price Forecasts  Despite the slight surplus forecast in 2014 and 2015, we remain confident in our forecast that average copper prices will not drop below $3.00/lb over the next two years. However, the current Qingdao port scandal and the attendant risks of a supply shock and/or a resultant reduction in commodity financing represent risks to our forecast. We forecast an average price of $3.15/lb in 2014, $3.00/lb in 2015, $3.25/lb in 2016, $3.75/lb in 2017, and $4.00/lb in 2018. Our long-term price forecast is $2.75/lb in 2014 US dollars. Risks to Forecast  Economic growth – The key risk to our forecast is the strength of the global economy. A 1% decrease in forecast 2014 global demand would decrease our forecast growth rate to 4.6% from 5.7% and increase our forecast surplus by over 228,000 tonnes.  China – Slower demand growth than we are currently assuming due to a contraction in commodity financing in the wake of the Qingdao port scandal could push the market into a bigger surplus in 2014 and 2015.  Supply – A higher level of disruptions or an extended Indonesian export ban could limit supply to levels below our current forecasts. A liquidation of Chinese inventory held as collateral for loans due to the Qingdao port scandal could cause a supply shock. All values in U.S. dollars unless otherwise noted. Priced as of prior trading day’s market close, ET (unless otherwise stated). For Required Conflicts Disclosures, see page 22. Copper Price Forecast (US$/lb)NewOld% Chg.2014E$3.15$3.25-3%2015E$3.00n/cn/c2016E$3.25n/cn/c2017E$3.75n/cn/c2018E$4.00n/cn/cLong-term(2014$)$2.75n/cn/c Note: Price changes were originally published in our June 5, 2014 research comment “North American Metals & Mining Q3 2014 Commodity Price Revisions & Outlook: Still cautious”. frank_wy_leung11@hkma.gov.hk First Last 06/17/14 02:36:56 PM Hong Kong Highpower Metal Prospects: Copper Market Outlook – Third Quarter 2014 June 16, 2014 2 Table of ContentsSupply/Demand Production Changes Current Trends Inventory and Price Consumption Refined Capacity and Production Copper Costs Mine Supply/ Demand Balance Appendix I: Projections for Copper Consumption Exhibit 1: Refined Copper Supply/Demand Balance .................................................................................................... 3 Exhibit 2: Global Refined Copper Supply/Demand (’000 tonnes) ................................................................................ 3 Exhibit 3: Global Refined Copper Supply/Demand and Prices (’000 tonnes) ............................................................... 3 Exhibit 4: Summary of Production Changes (Compared to 2013E; ’000 tonnes) ......................................................... 4 Exhibit 5: Production Increases at Existing Operations/Approved Projects (Compared