Yesterday was the second day of RBCCM’s Global Mining and Materials Conference. Including panel discussions, 16 different companies presented. Highlights of which follow. The morning session consisted of two tracks, one focusing on industrial/equipment/services companies and the other on base and bulk commodity producers. The afternoon session focused exclusively on base metal producers. Similar to Day 1 of the conference, the overall tone of the presenting companies was positive, with cautious optimism in the short term and a clearly bullish long-term view. Companies once again pointed to China as a key source of global demand thus far in 2009.

Teck Resources (TSX: TCK.B; NYSE: TCK) – Don Lindsay, President & CEO

• Management had a bullish view on metallurgical coal prospects as existing sources of are declining. Management also believes that Chinese currency will strengthen on a sustained basis, so Canadian metallurgical coal will become cheaper
• There are four major steel plants under construction in China that are equivalent to the entire US steel industry. These plants need high quality coking coal and cannot use lower grades – each plant will need ~18 Mt
• Furthermore, China is shutting down old, marginal, inland steel plants and transferring that production to new plants under construction on the coast. This will require a large amount of coking coal
• Management noted that steel production appears to be stabilising. Teck recently has started to see a small upturn in US zinc demand. During the downturn, Teck saw that the destocking phase was very extreme for zinc and is finally seeing this reverse, but it is not sure if this is a lasting development
• Teck wants to get back to an investment grade credit rating and its designated way to achieving this is to pay down the acquisition debt as soon as possible
• Teck is in a phase over the next two years where it will have very low sustaining capital, which will allow it to use cash flow to pay off bank debt and get back to investment grade status.
• Company is holding off on finding a partner in the coal business and plans to wait six to 12 months for the steel industry to improve further before bringing in a partner. It claims there is significant interest now from potential partners. Coal partnership could be with a key customer, another global coal producer to combine coal assets (possibly Australian assets), or a financial partner.

Northern Iron Limited (ASX: NFE) – Mick McMullen, Managing Director

• All approvals are in place for the imminent (H2/09) restart of the Sydvaranger iron ore mine, located in the northern part of Norway. This mine was operated by the government from 1910 until its closure in 1997.
• Resource base is just under 500 Mt with a 13-year mine life. Resource is open at depth and along strike, but company is not planning to do drilling this year. A good resource upside exists with 200 Mt reserves expected within the next 12 months. Operating costs stand at $42/t
• A key benefit of the project is that it is low cost as a result of all infrastructure already being in place at time that project was acquired, with minimum refurbishment required
• Mine is located 8 km from the concentrator and the port. Company has a cost plus 15% agreement with the port owner
• First two satellite deposits that have started to be mined are small deposits, but they have high grade and give the company time to undergo stripping on the main large deposit
• Company is subject to a very simple mining code in Norway – no royalties. Furthermore, the company is allowed to explore beyond its land claim as long as it can prove it is the same ore body
• Management would need to spend $140M over two years to double production
• Key for project is it is one of the only magnetite producers coming on stream in the next few years and management believes ther product is of high quality (low deleterious elements).

Gerdau Ameristeel (TSX: GNA) – Mauricio Werneck, Treasurer

• GNA is a leading mini-mill producer and second-largest recycler in North America
• Produce long steel products, which is expected to benefit from infrastructure spending, with limited exposure to flat steel where historical spread is more volatile than long steel spread
• Vertically integrated: 1) scrap/recycling operations with 40% captive supply through parent Gerdau SA (66% ownership of GNA); 2) 19 mini-mills with flexible capacity – operating below 50% capacity; 3) downstream operations in 60 locations covering most of the US
• Long product spreads have fallen less than flat rolled spreads as flat steel is exposed to imports and is a less consolidated industry. GNA believes long steel will generate sustainable returns to its business over the long term.
• GNA has not seen stimulus impact yet and cannot forecast timing of stimulus or its impact on steel pricing, which is more dependent on demand, needing to see credit market improvement; however, the company is confident it stands to benefit from stimulus due to its long steel exposure.

Russel Metals (TSX: RUS; NASDAQ: RUSM) – Brian Hedges, CEO; Marion Britton, CFO

• Three sectors: 1) Metals service centers – traditional selling to manufacturing base; 2) Energy Tubular – sells line pipe to energy industry; and 3) Steel distributors – sells to other service centers and large OEMs
• RUS has no automotive exposure, which differentiates it from other service centers
• RUS Canadian service center demand in tonnes down 37% YTD 2009, similarly in US operations (U.S. MSCI service centre shipments for April/09 down a surprising 47% YoY).
• RUS reacted by cutting labour expenses by 35% from peak, reducing purchase orders, and renegotiated and upsized bank facility with restructuring of fixed charge covenant
• Energy Tubular division – company seeing a slight pickup this month; however, given falling OCTG prices RUS will likely take an inventory write-down in Q3/Q4 2009
• For profitability to be restored: 1) steel demand levels need to improve; 2) steel prices need to stabilize as plate and OCTG prices are still under pressure; 3) gas price increases; 4) existing OCTG inventory overhang reduction; and 5) further liquidity in the financial system.

Major Drilling (TSX: MDI) – Francis McGuire, President & CEO; Denis Larocque, CFO

• Emergence of “Specialised” Drilling with the depletion of most of the accessible mineral reserves around/in the world. MDI’s business premise is that new deposits over next 20 years will be in areas difficult to access, and specialised drilling will be larger part of market
• Company’s strategy is to dominate specialised drilling, expand effective capacity, modernise conventional fleet and expand footprint in strategic areas
• Crisis occurred in Oct/08 with junior companies’ pull-back, which was expected, but senior gold and base metal companies also pulled back even more dramatically, which was less expected
• Q4/F09 revenues down 60% YoY, prices down 20% YoY and utilization down to 30% from 70%
• Expectations for 2009: 1) senior gold companies should slowly increase activities; 2) many base metal companies with debt could focus on debt reduction before return to drilling; 3) junior mining companies will not have significant access to capital until further in the future
• Outlook: If clients carry through with intentions, company should see gradual month-by-month improvement in H2 and 2010 as existing mines continue to be depleted and supply issues come back into focus in 2010/2011.

TOROMONT (TSX: TIH) – Paul Jewer, CFO; Scott Medhurst, President, ToromontCAT

• Total revenue in mining since 2001 has grown ~400% over eight years – contributed by increased mining opportunity and additional focus on underground segment
• During economic downturn – still 60 operating mines, 60+ projects in various stages of development in Ontario, Manitoba, Nunavut, Newfoundland and Labrador
• TIH has a broad product range even outside mining; TIH will and has introduced non-CAT products to fill product gaps if aligned with customer base
• Mining accounted for 15% of the Equipment Group revenues in 2008 and 25% of Customer Support Agreements (CSA) revenues
• Mining takeaways: 1) mining is important revenue driver; 2) strong market share amongst mining companies; 3) mining drives larger equipment = greater product support; and 4) gold represents 40% of TIH’s mining opportunity
• TIH continues to diversify revenue base with mining, which may stabilise, but company would expect infrastructure to be a larger slice of business given significant infrastructure spending, which bodes well for TIH’s customer base.

Mercator Minerals (TSX: ML) – Mike Surratt, President & CEO

• Mercator is a one-mine producer of copper, molybdenum and silver at its Mineral Park mine in northwest Arizona with 1,200 Mlb of copper and 336 Mlb of molybdenum. Mine has a 25-year mine life with organic growth potential
• April 2009 was the first full month of production during which operation reached 27,000 t/d, above its nameplate of 25,000 t/d. Recoveries and concentrate grades have been above management’s expectations
• Company plans to increase production incrementally as equipment arrives, first to 35,000 t/d and then to 50,000 t/d
• Company plans to continue to expand resources and is looking to continue drilling in designated targets next year
• Mining by previous operator means the strip ratio is 0.18. In the last three months the company has not had to strip anything, driving mining cost lower
• Unique layout of mine with the mill in the middle of the ore body means a full 50,000 t/d production will need only 14 trucks (longest haul is some 800 m)
• One disadvantage is electricity cost, which is a large component of its mining costs. Mercator must pay a tariff on electricity and is unable to negotiate a rate better than $0.095/kWh. The company has installed monitoring equipment and is looking at alternative sources of power. This process is expected to take six to 12 months
• Ore is very fragile, which means that only 20% of material is crushed; the rest goes through a screen, which helps keep costs down
• Mercator is not an exploration company. It would like to grow through M&A for a similarly sized company.

Severstal Resources (RTS: CHMF) – Boris Granovsky, Director for Strategy & Corporate Development

• Russian-owned steel producer is self-sufficient in coking coal, selling excess 20% of production to external parties. Has 80%, 15% and 8% of Russian metallurgical coal, iron ore and coking coal markets, respectively
• Has expanded into Europe and North America through acquisitions, and is looking to double or triple coking coal and iron ore production within five years through acquisitions in the developing world, including diversification into other minerals, and sees gold as part of its portfolio only in the near term
• Currently negotiating new 50% grade, 20 Mt/y iron ore project with Liberian government while working on pre-feasibility study. Considers Liberia to be more stable than most assume
• Has restructured the business to match the commodity cycle (i.e., personnel reductions, suspension of excess blast furnace capacity). Sees opportunity to increase efficiencies in Post-Soviet operations. Expects full capacity optimization in Russian iron ore production this month.

Sherritt International Corp. (TSX: S) – Paula Myson, Directory of Investor Relations/Greg Fuhr, Senior Vice President, Coal Division

• Canada’s largest thermal coal producer with steady cash flows and long-term, indexed contracts to Western power utilities
• Large presence in Cuba with the Moa 50/50 nickel and cobalt; oil & gas exploration, drilling and production of 23,000 bopd; and 376 MW of electricity production (15-20% of country’s total consumption)
• The Ambatovy JV in Madagascar is a world-class nickel project with an expected 27-year mine life. Construction progress is half way, with the project expected to be mechanically completed by late 2010
• Conservative financial position by staggering debt maturities, beginning in late 2012. Keen focus on preserving the corporate balance sheet, and has instructed each division that capital expenditures can only be funded through each division’s own free cash flows.

Consolidated Thompson Iron Mines Ltd. (TSX: CLM) – Richard Quesnel, President & CEO

• A debt-free iron ore development and exploration company that owns the flagship Bloom Lake project as well as the Lamelle and Peppler Lake deposits in Labrador Trough, Quebec
• Key points are the strong assets with low costs, advanced funding, and established sales agreements for projects in a suitably located camp that currently produces 5% of world consumption and offers existing infrastructure
• Views drivers of growth in the next five years to be acquisitions, exploration upside and its development projects
• Flagship Bloom Lake project is a world-class deposit with a resource measuring ~910 Mt @ 29.41 Fe (M+I+I). The project promises a low stripping ratio, high recoveries, low costs, excellent margins, and a 30+ year mine life
• Chinese government approval for $240 million WISCO investment expected by mid-July.

Labrador Iron Ore Royalty Income Fund (TSX: LIF.UN) – Bruce Bone, Chairman & CEO

• Offers investors a unique position to gain exposure to the iron ore market through a 15% equity interest in the Iron Ore Co of Canada (IOC) and a 7% overriding royalty on all IOC iron ore sales volumes
• IOC is one of the largest and lowest cost iron ore pellet producers in North America. In addition, it owns its own rail line
• IOC has the capacity to mine 40 Mt/y of ore, with 18.5 Mt/y of concentrate and 14.2 Mt/y of pellets, with the flexibility to vary concentrate/pellet production mix
• Long-term electricity contract, which provides significant cost savings, will be up for another 30-year renewal in 2014, but favourable terms compared to competitors are expected
• Considers the market to still be soft with most of the European and American producers running down inventories. However, starting to see some pickup in demand from both Europe and North America at ~50% of capacity
• Sales in the past have been 30-40% each to North America and Europe, with the balance (~25%) to Asia (and a small portion to the Middle East). Company seeing a shift to 50% of sales into Asia this year.

First Quantum (TSX: FM; LSE: FQM) – Clive Newall, President

• Three growth vehicles: 1) Kolwezi; 2) Lonshi underground; and 3) Kevista
• Lonshi underground was difficult to drill, but the evaluation is expected to be completed soon
• Kevitsa – decision likely to be made in the next two to three months on whether to proceed with project
• Cash cost guidance of $0.80/lb for 2009 does not appear attainable given that the company is shipping concentrates to smelters offshore and incurring incremental $0.22/lb charge for them
• FM is contemplating the idea of building a smelter given local smelter constraints.

Rio Tinto Group (LSE: RIO; NYSE: RTP) – Phillip Strachan, CFO Rio Tinto Alcan

• 2009 aluminium cost curve appears to have shifted down ~$450/t ($0.20/lb) from 2008 levels
• Currently, aluminium inventory is at unprecedented levels, but there are some signs that they have peaked and leveled off
• Rio Tinto Alcan on track to unlock the $1.1 billion in synergies initially estimated when Alcan was acquired; currently 1.5 years into the two-year program to achieve this goal
• Targeting to bring down raw material costs to 2004 levels – currently more work needed on reduce caustic soda costs.

Cameco (TSX: CCO; NYSE: CCJ) – Gerald Grandey, President & CEO

• Commented that demand for uranium has not really been materially impacted in the current economic downturn
• Cameco will remain cautious in this environment
• The company is in the process of plugging the Cigar Lake water inflow and this should be completed by year-end
• Expects to reach commercial production at Inkai this year.

Freeport-McMoRan (NYSE: FCX) – Richard Adkerson, President & CEO

• Since Q3/08, cash costs have dropped by one-third before by-product credits
• China was identified as a significant factor contributing to the current copper price strength
• At $900/oz, gold production at Grasberg covers all operating expenses, implying a negative cash cost
• FCX will ramp up molybdenum production once market conditions warrant; indicated that the company has a good sense of market conditions and would wait until demand picks up and appears sustainable
• Adkerson believes the downside or trough of the cycle should be managed through cost reductions.