1、 Please refer to page 101 for important disclosures and analyst certification,or on our website April 2019 Global EQUITIES Source:Macquarie Research,April 2019 Inside Growing Pains 2 ESG positing a framework 4 Copper preference scorecard 9 Profitable growth is scarce 16 We are moderate copper bulls
2、17 First Quantum Minerals 21 KAZ Minerals 49 Antofagasta 75 Analysts Macquarie Capital(Europe)Limited Danielle Chigumira +44 203 037 4269 Grant Sporre +44 20 3037 5019 Ioannis Masvoulas +44 20303 72314 Macquarie Capital Markets Canada Ltd.Michael Siperco +1 416 848 3520 Macquarie Capital(USA)Inc.Dav
3、id Lipschitz +1 212 231 1232 Macquarie Securities(Australia)Limited Hayden Bairstow +61 8 9224 0838 Copper Miners Growing Pains Key points Production growth for copper miners is difficult and returns are modest.Our ESG and copper preference scorecards place Antofagasta on top.Our preferences(Antofag
4、asta most preferred,First Quantum least preferred,neutral on KAZ Minerals)reflect our moderately bullish copper view.Antofagasta,KAZ Minerals and First Quantum in context We reassess the investment cases for Antofagasta,KAZ Minerals and First Quantum in new models and detailed separate notes publish
5、ed today.In this sector note we place these names in the context of global copper miners;outline our ESG and copper preference scorecards,and compare greenfield copper growth projects.ESG scorecard a tool to integrate ESG into the fundamental view Often ESG analysis is used as an addendum to fundame
6、ntal equity analysis.Instead here,we analyse quantitative and qualitative data relating to ESG factors to build a framework that can help to synthesise ESG directly into our fundamental investment recommendation.Antofagasta scores top on our ESG rating.However,all three names have their respective c
7、hallenges;Antofagastas large El Mauro tailings dam has historically faced challenges from the local community;First Quantum faces headwinds in Zambia;and for KAZ Minerals we question the downside protection given the seller in the acquisition of Baimskaya.Copper growth is difficult,and returns(c14%I
8、RR)are modest The combination of a constructive consensus outlook and an improvement in miners cash generation over the past few years has led to miners prioritising investment in growing copper production(especially relative to other metals).However,as demonstrated by our analysis of selected green
9、field projects,returns can be modest(IRR average 14%)and production forecasts for our global mining coverage demonstrates that many miners struggle to grow production long term.Copper preference scorecard Antofagasta the leader of the pack Our copper preference scorecard integrates metrics on growth
10、,valuation,leverage,regional risk,and our ESG rating to inform our relative preferences.Antofagasta(Outperform)is our most preferred,balancing modest production growth,cash returns and low financial leverage.We downgrade First Quantum to Underperform from Outperform;as we believe the headwinds in Za
11、mbia and Panama are unappreciated,and the market is paying too much for uncertain greenfield growth.We see the risks on KAZ Minerals(Neutral)as finely balanced.Our relative preferences reflect our moderately bullish stance on copper,and would likely be reversed in a higher copper price scenario.Anto
12、fagastaKAZ Minerals First QuantumCopper preference scorecard(higher=positive for investment view)GrowthLeverageValuationRegional riskESG ratingMacquarie Research Copper Miners 11 April 2019 2 Growing Pains Placing Antofagasta,KAZ Minerals,and First Quantum in the global context In separate notes,we
13、outline detailed evaluation of the investment cases for Antofagasta,KAZ Minerals and First Quantum;in this sector note we place these names in a global context;outline our ESG and copper preference scorecards,and compare greenfield copper growth projects.Production growth is difficult,and delivers m
14、odest returns As shown below(and with help from our global mining analysts);sustainable production growth is difficult for global copper and diversified miners.In this respect,even though we do not have a constructive investment view overall;First Quantums growth does stand out as noteworthy.Fig 1 A
15、ttributable copper-equivalent growth selected base metal and diversified miners(rebased to 100,2018)Note:Stock details given on page 20 Source:Company data,Macquarie Research,April 2019.Given the markets constructive view,miners are keen to grow in copper production relative to other metals.However
16、analysing returns on a selection of greenfield copper projects demonstrates that returns are modest,with an average IRR for new projects(ex Timok)of 14%,just shy of the industry“target”of 15%.Fig 2 Selected greenfield copper projects Not many projects surpass 15%IRR Source:Company data,Macquarie Res
17、earch,April 2019.*Projects already built and ramped up 0.60.81.01.21.41.61.820172018201920202021202220232024AntofagastaFirst QuantumKAZ MineralsFreeport-McMoranLundin MiningTECKBHP BillitonAnglo AmericanRio TintoGlencoreForecast40.0%22.1%20.3%18.1%15.5%14.2%12.8%12.6%12.0%11.8%10.8%10.0%8.7%5%10%15%
18、20%25%30%Nevsun-TimokKAZ Minerals-Bozshakol*Newcrest/Harmony -Wafi GolpuAnglo American-QuellavecoFirst Quantum-Sentinel*KAZ Minerals-Aktogay(incl expansion)*TECK-QB2First Quantum-TacaTacaAntofagasta-TwinMetalsKAZ Minerals-BaimskayaKAZ Minerals-KoksayFirst Quantum-HaquiraAntofagasta-Antucoya*Detailed
19、 stock notes published today:Antofagasta Cheaper than it seems KAZ Minerals Long-term value?Or a lost decade?First Quantum Expensive tailwinds,mispriced headwinds This sector note places the copper names above in a global context Macquarie Research Copper Miners 11 April 2019 3 Copper preference sco
20、recard We build a copper preference scorecard to demonstrate our relative preferences within the subsector.It integrates the following factors:Growth though not a panacea for all problems,it can provide a useful tailwind Leverage financial leverage can restrict the ability to invest in value-accreti
21、ve projects or return cash to shareholders,and under stressed scenarios can hinder the ability to service debt or maintain sustaining capex spend Valuation weighted based on metrics we believe are relevant signals of value Regional risk fiscal policy and stability of regulation can hurt or help the
22、mine operators ability to generate an economic return from a mining deposit/asset ESG rating from our ESG scorecard below;we believe companies that score highly are less likely to suffer fewer one-off events and more likely to generate sustainable returns Fig 3 Copper preference scorecard Source:Com
23、pany data,Macquarie Research,April 2019 Environmental,Social and Governance(ESG)scorecard We analyse data relating to ESG data and build a framework that can help to synthesise ESG factors when considering investment in the subsector.Antofagasta scores top on our ESG rating;with a good safety record
24、,though all three names have their respective challenges.Fig 4 Macquarie ESG Scorecard Copper miners Source:Company data,Macquarie Research,April 2019.See notes for Figure 5 Regional riskESG ratingOverall score1 year3 year5 yearND:EBITDA 2019ND:EBITDA 20212019 EV/EBITDAP/NPV2019 ROCE(%)2019 Dividend
25、 yield(%)(quartile)(out of 10-10 good)(out of 10-10 good)Antofagasta8.0%2.1%1.5%0.10.25.20.9614.2%4.0%178.85KAZ Minerals0.3%-0.8%0.9%2.42.27.10.9420.9%1.3%256.48First Quantum15.2%11.2%5.6%3.61.88.60.974.6%0.1%364.67Attributable copper equivalent growth(CAGR)%LeverageValuationScope 1 and Scope 2 CO2
26、emissions(mt,total past 3 years)CO2 intensity(t/tonne copper produced,average past 3 years)Use of water(ex seawater,million m3-total past 3 years)Use of water(ex seawater,megalitres per tonne of produced copper-average past 3 years)Waste(mt)-total past 3 yearsTailings(mt)-total past 3 yearsOther red
27、 flags?Other positives?Injuries(LTIFR per m man hours,3 year average)Fatalities(total,past 3 years)Gender diversity-%women on board-average past 3 yearsGender diversity-%women in workforce-average past 3 yearsCommunity spend(USDm-total last 3 years)Other red flags?Other positives?Independent chairpe
28、rson?Insider share ownership 35%?Other red flags?Other positives?(out of 10-10 is good)Antofagasta7.713.890.844722268A1.63315%9%58.7ANoYes7KAZ Minerals4.5310.195.01994459B1.351317%26%33.2NoYesC5First Quantum4.372.8Low data-DLow data-D205Low data-EF2.0484%NO DATA 62.7NoNo6GovernanceMacquarie ESG rati
29、ngSafetyEmissionsWater,waste,tailingsEnvironmentalSocialMacquarie Research Copper Miners 11 April 2019 4 ESG positing a framework An increasing focus on ESG factors is evident across sectors,with an increasing prevalence of ESG-focused research providers and ESG,sustainability,and impact investing m
30、andates at asset management firms.Traditionally an ESG focus would be separate from or in addition to the fundamental equity view,or represent a hurdle that would need to be overcome to secure investment(i.e.asset managers would be prohibited from investing in companies on a blacklist”).We believe E
31、SG has special relevance in the mining sector,the nuances of which cannot always be so easily captured by a sector-blind approach.In our view,Environmental,Social and Governance factors underpin a companys licence to operate,and can also have direct operational and financial implications which are n
32、ot always easily captured in explicit estimates(except as reaction to“one-off”events).Given the increasing flows being directed to ESG funds,we see a risk that not being able to resolve these specific issues could lead to a widespread de-rating of the sector as it becomes harder to justify a positio
33、n for any mining stock within a portfolio.Why an ESG“scorecard”?(10%weighting in copper preference scorecard)For those investors able to take a more nuanced approach to ESG for mining equities we wish to provide a tool to analyse the ESG risks and opportunities through an ESG scorecard.We gather exi
34、sting disclosed data which align with relevant ESG factors,evaluate more qualitative issues(e.g.governance history,increasing focus on tailings dams)and we integrate this explicitly in a scorecard,which we outline in the pages that follow.We believe this can provide a useful supplement to cross-sect
35、or ESG approaches.Unlike the broader copper preference scorecard(page 9),where the score is mathematically calculated based on the relative rankings and weightings;our Macquarie ESG rating is a judgement based on the data that is disclosed,the data that isnt,and the other challenges/opportunities we
36、 evaluate given our detailed operational,financial and sector knowledge of the companies as it relates to ESG-relevant factors.Our ESG rating feeds directly into our investment recommendation,with a 10%weighting in our copper preference scorecard.We see this as a tangible step towards ESG integratio
37、n in mining equity valuation,but do not purport to have“solved”the challenge of ESG and mining,and see this as an area that will continue to evolve as disclosure improves and understanding develops.Fig 5 ESG scorecard Source:Company data,Macquarie Research,April 2019 A Historical issues on El Mauro
38、tailings dam,scrutiny on water use in Chile see“Antofagasta Cheaper than it seems”published today B East Region mines have upstream tailings dams C Historical involvement with ENRC,Baimskaya acquisition see“KAZ Minerals Long-term value?Or a lost decade?”published today D First Quantum prepared its f
39、irst Sustainability Report in 2018,so three years data not available E First Quantum prepared its first Sustainability Report in 2018,which only has visual representation of tailings(rather than specific amounts)F Kansanshi and Sentinel mines have upstream tailings dams Scope 1 and Scope 2 CO2 emiss
40、ions(mt,total past 3 years)CO2 intensity(t/tonne copper produced,average past 3 years)Use of water(ex seawater,million m3-total past 3 years)Use of water(ex seawater,megalitres per tonne of produced copper-average past 3 years)Waste(mt)-total past 3 yearsTailings(mt)-total past 3 yearsOther red flag
41、s?Other positives?Injuries(LTIFR per m man hours,3 year average)Fatalities(total,past 3 years)Gender diversity-%women on board-average past 3 yearsGender diversity-%women in workforce-average past 3 yearsCommunity spend(USDm-total last 3 years)Other red flags?Other positives?Independent chairperson?
42、Insider share ownership 35%?Other red flags?Other positives?(out of 10-10 is good)Antofagasta7.713.890.844722268A1.63315%9%58.7ANoYes7KAZ Minerals4.5310.195.01994459B1.351317%26%33.2NoYesC5First Quantum4.372.8Low data-DLow data-D205Low data-EF2.0484%NO DATA 62.7NoNo6GovernanceMacquarie ESG ratingSaf
43、etyEmissionsWater,waste,tailingsEnvironmentalSocialOur ESG scorecard is a framework for intra-sector comparison of mining stocks based on Environmental,Social and Governance considerations Combination of detailed operational and sector-level knowledge with ESG awareness can augment existing cross-se
44、ctor ESG approaches Macquarie Research Copper Miners 11 April 2019 5 Environmental the most data-rich By its nature mining,which exploits natural resources,will have an impact on the natural environment in some form.In order to acquire regulatory approval to operate,the mine operator will have had t
45、o submit some form of environmental impact assessment,outlining the expected environmental effects and how they will be mitigated or remedied.This needs to be approved by the relevant regulatory body in order for the mine to be developed and brought into operation.Listed mining operators provide ann
46、ual data regarding the direct environmental impact of its operations,and disclosure seems to be improving year by year.We outline the some factors regarding the direct and indirect environmental impact of mining operations below:Emissions(direct)miners have more recently started disclosing the CO2 e
47、missions of operations,and we include both the absolute and the relative(i.e.per tonne of copper produced)measures in our ESG scorecard,and shown in Figure 6 below.We note that given different mixes of copper production in terms of cathode and copper in concentrate,even the per tonne emissions wont
48、be directly comparable.Additionally,companies disclose SO2 emissions(if relevant),and some report emissions of other substances such as NOX and particulates,however currently this is not done on a consistent basis.Fig 6 CO2 intensity of production(CO2 per tonne of produced copper)Selected copper min
49、ers Source:Company data,Macquarie Research,April 2019 Water usage(direct)mining can be a water-intense activity so mining companies water use,especially of naturally-occurring water;has come under increasing scrutiny.This is exacerbated in countries/regions that suffer water shortage.Measures to mit
50、igate this include recycling water used in mine operations,and increased use of seawater(either from desalinating water or using seawater directly in the copper concentrating process)to reduce use of groundwater and piped water.We include water use statistics in our ESG scorecard.Accidents and envir
