Capital Markets Day

November 2008

Copper smelter
revenue stream

Bildplatshllare

Ulf Sderstrm
President BA Market

Boliden Commercial AB

2008-11-04

Table of content
1.
2.
3.
4.

Important information
Copper concentrates example of content
Pricing of copper concentrates
Typical pricing clauses
i.
ii.
iii.
iv.

Deductions Treatment Charge and Refinery Charge (TC/RC)

Deductions Price Participation (PP)
Deductions RC Gold, RC Silver
Deductions Penalties

5. Pricing of secondary raw materials

6. Free metals
7. By-product credits
8. Metal premiums
9. Putting it together
10. Smelters share of raw material value
11. Business cycle of metals
12. How to increase smelters profit?
Boliden Commercial AB

2008-11-04

1. Important information
This presentation contains examples of common calculations
that can be used to model the businesses in which Boliden
operates.
All concentrate specification and contract terms presented here
are hypothetical and are used to illustrate the relevant
calculations.

Boliden Commercial AB

2008-11-04

2. Copper concentrate examples of content

Others
10%
Copper
30%

Sulphur
30%

Iron
30%

Others include for example gold 2-40 g/DMT

and silver 30-200 g/DMT

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2008-11-04

3. Pricing of copper concentrates

The price of the raw materials shall be the sum of the values
of the payable metals less the sum of the deductions.
In general smelting business consists of the following gross
profit elements:

Treatment Charge and Refining Charge for copper

Refining Charges for other metals
Free metals
By product credits
Metal premiums

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2008-11-04

3.1 Typical pricing clause Copper

The price of the raw materials shall be the sum of the values
of the payable metals less the sum of the deductions.
Buyer shall pay for 96.65% of the final copper content, subject to a
minimum deduction of 1.0 unit at the official LME Grade A Settlement
Copper Quotation averaged over the quotational period.
Example) For a concentrate with a copper content of 30 % the payable copper
value is:
30% x 96.65% x 7,000 USD/t-Cu = 2,030 USD/DMT
Example) For a concentrate with a copper content of 24% the payable copper
value is 24% 1%-unit = 23% i.e. 23/24 x 100 = 95.83% payment:
(24%-1%) x 7,000 USD/t-Cu = 1,610 USD/DMT

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2008-11-04

3.1 Typical pricing clause Copper

98 %
97 %

Payment %

96 %
95 %
94 %
93 %
92 %
15 %

20 %

25 %

30 %

35 %

40 %

Cu content in the concentrate %

Minimum deduction mechanism compensates smelters for

processing low grade concentrates.

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2008-11-04

3.1 Typical pricing clause Gold

The price of the raw materials shall be the sum of the values
of the payable metals less the sum of the deductions.
Buyer shall pay for 97.50% of the final gold content, subject to a
minimum deduction of 1.0 g per DMT, at the London Morning
Quotation averaged over the quotational period.
Example) For a concentrate with a gold content of 40 g/DMT the payable gold
value is:
40 g/DMT x 0.0321 x 97.50% x 800 USD/troz = 1,002 USD/DMT
Example) For a concentrate with a gold content of 2.0 g/DMT the payable gold
value is 2 g/DMT 1 g/DMT = 1 g/DMT i.e. 1.0/2.0 x100 = 50.0% payment:
(2.0 g/DMT 1.0 g/DMT) x 0.0321 x 800 USD/troz = 25.7 USD/DMT

Boliden Commercial AB

2008-11-04

3.1 Typical pricing clause Silver

The price of the raw materials shall be the sum of the values
of the payable metals less the sum of the deductions.
Buyer shall pay for 90.0% of the final silver content, subject to a
minimum deduction of 30.0 g per DMT, at the London Silver Spot/US
Cents Quotation averaged over the quotational period.
Example) For a concentrate with a silver content of 200 g/DMT the payable
silver value is 200 g/DMT 30 g/DMT = 170 g/DMT i.e. 170/200 x 100 =
85.0% payment:
(200 g/DMT 30 g/DMT) x 0.0321 x 12 USD/troz = 65.5 USD/DMT

Boliden Commercial AB

2008-11-04

TC

3.2 Deductions Treatment Charge (TC)

The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
Treatment Charge shall be 45 USD per DMT of concentrate.

Example) 1 DMT Cu concentrate x 45 USD= 45 USD/DMT

TC,RC and Price Participation are negotiated annually between miners

and smelters. Typically negotiations start in October and normally
finished by year-end. Benchmark terms are normally established when
the major mines and smelters have agreed the annual terms.

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2008-11-04

RC

3.2 Deductions Refining Charge (RC)

The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
The refining charge for payable copper shall be 4.5 USc per pound of
payable copper.

Example) For a concentrate with a copper content of 24% the payable

copper value is 24% 1 %-unit = 23%.
23% x 22.046 x 4.5 USc/lb = 22.8 USD/DMT

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2008-11-04

RC

3.3 Deductions Price Participation (PP)

The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
On long-term contracts there has been a Price Participation clause in
the past. i.e. the copper RC shall be increased by 0.10 USc per
payable pound of copper for each 1.00 USc per pound which the
average LME settlement price for Grade A copper during quotational
period exceeds 90 USc per pound payable copper.
Example) An average LME settlement price at 140 USc/lb.
Copper PP: (140 USc/lb 90 USc/lb) x 10% = 5.0 USc/lbs
Copper RC incl. PP: 4.5 USc/lb + 5.0 USc/lb = 9.5 USc/lb
In recent years the miners have not accepted shown structure
for PP in the annual negotiations.
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2008-11-04

RC

3.4 Deductions Refining Charge for gold

The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
The Refining Charge for payable gold shall be 6.0 USD per ounce of
payable gold.

Example) For a concentrate with a gold content of 40 g/DMT the Refining

Charge for gold is:
40 g/DMT x 97.50% x 0.0321 x 6.0 USD/troz = 7.5 USD/DMT

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2008-11-04

RC

3.4 Deductions Refining Charge for silver

The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
The Refining Charge for payable silver shall be 35.0 USc per ounce of
payable silver.

Example) For a concentrate with a silver content of 200 g/DMT the payable
silver value is 200 g/DMT 30 g/DMT = 170 g/DMT:
170 g/DMT x 0.0321 x 0.35 USD/troz = 1.9 USD/DMT

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2008-11-04

TC

3.5 Deductions Penalties

The price of the raw materials shall be the sum of the values of
the payable metals less the sum of the deductions.
For instance, a zinc penalty means that for each 1.0 units by which the
final zinc assay exceeds 3.00%, the seller shall pay a penalty charge
of 3.00 USD per DMT of concentrates, fractions pro rata.
Example) A final zinc assay of 5.00%, i.e. 2%-units over 3.00%:
2 x 3.0 USD/DMT = 6.0 USD/DMT
Penalty clauses are typically applied for the impurities harmful to
copper smelting and refining processes.

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2008-11-04

4. Pricing of secondary raw materials

In addition to copper concentrate, secondary raw materials

can be used as raw material.

Secondary raw materials include (among other things):
Copper scrap
Electronic scrap (containing copper, gold, silver and lead)
Copper/zinc residues

Commercial terms for these materials are constructed and

calculated in the same way as copper concentrate but levels

of Payment %, TC and RC are not necessary following the
copper concentrate terms.
Legislations and green image are strong drivers to recycle
material suitable for a copper smelter.

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2008-11-04

Free metal

5. Free metal
The value of the free copper, gold and silver in a copper
concentrates for a copper smelter is depending on the
recovery rate, LME copper price and LMBA gold and silver
price.
In this example the recovery rate for a copper smelter is 98.0%. The
value of free gold and silver is normally greater than the value of the
free metal for copper.
Example) Value of Free Cu = Cu content x (Recovery% - Payable Cu %) x
LME Cu price:
30% x (98.0% - 96.65%) x 7,000 USD/t-Cu = 28.4 USD/DMT

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By-product

6. By-product credits
Main by-product for a copper smelter is sulphuric acid (H2SO4)
Example) Value of Sulphur (rule of thumb)= 1 DMT of Cu concentrate with
30% of sulphur gives approximately 1 ton of sulphuric acid (H2SO4)
depending on recovery rate. Typical recovery rate is 95% in a Cu smelter.
1 DMT Cu concentrate (30%S) x (98/32) x 95%
x 75 USD/t = 65.5 USD/DMT
S u lp h u ric a c id , c o n tra c t C F R N W E u ro p e 1 9 8 8 -2 0 0 8
S o u rc e : F e rtiliz e r M a rk e t B u lle tin

Low

H ig h

19
8
19 8
88
19
8
19 9
8
19 9
9
19 0
9
19 1
9
19 1
92
19
9
19 3
9
19 3
9
19 4
9
19 4
95
19
9
19 6
9
19 6
97
19
9
19 7
9
19 8
9
19 9
9
20 9
0
20 0
0
20 0
0
20 1
0
20 2
02
20
0
20 3
0
20 3
04
20
0
20 5
0
20 5
06
20
0
20 6
0
20 7
08

/t
200
180
160
140
120
100
80
60
40
20
0

0.873 ton H2SO4

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Premium

7. Metal premiums
The value of metal premium depends on:
Demand/supply situation
The product (preferred quality)
The amount of value added in customer service functions

Example) Value of metal premium = Metal ton x Cu content x recovery rate x

premium/USD
1 MT Cu metal x 30% x 98.0% x 115 USD/t = 33.8 USD/DMT
CIF NW Europe port US$/ton + Coldeco Premia
200

200
180

180
160

165

140

140 140

130
120

120
100
80
60
40

180

130

120

105 105 105 105 105 105

90

160

150

100

130

60

50

140

130

125 125 125 125 125 125 125 125 125 125 125 125

110 105 105

105 105
100
100
90
80 80

120

115 115 115 115 115

105 105

70

100 100

80

60 60 60
50
50
40

70 70

90
55 60
40 40

80
70 75

20

70

90 90
80

110
100 95 100

60
45 50 50 50 50
30 30 30

100

75 70 70
50 50
40

80
60
40
20

0
Jan Feb Mar Apri May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apri May Jun July Aug Sep Oct Nov Dec Jan Feb Mar A pri May Jun July Aug
06 06 06 l06 06 e06 06 06 06 06 06 06 07 07 07 l07 07 e 07 07 07 07 07 07 07 08 08 08 l 08 08 e 08 08 08

Low

50 120 140 140 100 120 100

80

60

50

60

50

40

70

40

40

70

75

45

30

30

30

50

80

70

50

40

High

90 130 165 180 130 150 130 110 100

90

80

70

80

60

60

100 100 55

70

60

90

80

60

50

50

50

70

90 130 110 95 100

90

100 75

70

50

Premia Codelco 105 105 105 105 105 105 105 105 105 105 105 105 125 125 125 125 125 125 125 125 125 125 125 125 115 115 115 115 115

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8. Putting copper smelters revenues together

Treatment Charge (TC/RC)
TC:1 DMT Cu concentrate x 45 USD=
RC: 23% x 22.046 x 4.5 USc/lb =
PP: No PP
Au: 40 g/DMT x 97.5% x 0.0321 x 6.0 USD/troz =
Ag:170 g/DMT x 0.0321 x 0.35 USD/troz =
Zn penalty: 2 x 3.0 USD/DMT =
Sum TC/RC

USD/DMT
45
22.8
0
7.5
1.9
6.0
83.2

Share

By-products
40%

Treatment Charge (TC/RC)

31%

40%

Free metal
Cu: 30% x (98.0% - 96.65%) x 7,000 USD/t-Cu =
Sum Free metal

28.4
28.4

13%

By-products
1 DMT Cu concentrate (30%S) x (98/32) x 95% =
0.882 ton H2SO4 x 75 USD/t
Sum By-product

Metal premium
Free metal

16%

65.5
65.5

31%

33.8
33.8

16%

210.9

100%

13%

Metal premium
Cu Premium: 1 MT Cu metal x 30% x 98.0% x 115 USD/t
Sum Metal premium
Sum Raw Material revenue

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8.1 Putting copper smelters revenues together

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8.2 Putting copper smelters revenues together

Bolidens copper smelters approximate year-to-date revenue distribution
9M 2007

9M 2008
By-products
15%

By-products
28%

Premiums
5%

TC/RC
44%

TC/RC
55%

Premiums
3%
Free metal
25%

Free metal
25%

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2008-10-28

9. Smelters share of raw material value

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10. Business cycle of metals

Availability of raw materials

+
Low metal prices

High metal prices

High TC/RC

High TC/RC

Availability
of metals

Low metal prices

High metal prices

Low TC/RC

Low TC/RC

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2008-11-04

11. How to increase smelters profit?

Boliden Mines

New Mines
Commercial
terms

Concentrate sales
External Mines
and Smelters

BA Market
Metal sales
Tolling

Tolling

Boliden Smelters

New Smelters

Tolling concept (optimisation and rules for settlement/compensation) is the cornerstone in BA Market Business model
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