Global Industry Overview - Tin: No Boom Years Ahead - APR 2014

BMI View: Global tin mine production will only expand modestly in the coming years on the back of tighter environmental regulations, falling ore grades and higher production costs. China will lead the bulk of the output increase, while other traditional players such as Indonesia and Australia continue to make a modest contribution . The key downside risk to our production forecast stems from the fact that tin miners are finding access to bank loans especially tough as long-term hedging is impossible for the metal , which only exten d 15 months forward on the London Metals Exchange (LME). Modest mine production growth prospects contributes to our medium-term bullish view on tin prices.

We forecast global tin mine production to increase at an average clip of 3.2% between 2014 and 2018. As spotlighted in the chart below, tin output will expand only modestly in the coming years as miners continue to take the strain of tighter environmental regulations, falling ore grades and higher production costs. Moreover, the bulk of new projects are still a decade or more from reaching production, according to the International Tin Research Institute (ITRI). This feeds into our view that subdued growth in supply, coupled with improving end-user demand, will push tin prices higher over the coming years. We forecast tin prices to average USD24,000/tonne between 2014 and 2018, compared with an average price of USD22,298/tonne last year.

Modest Growth In Sight
Global - Tin Mine Production

We have incorporated into our forecast a scepticism that some of the projects announced may reach full fruition. With underground mining constituting around 56% of all tin operations, the inherent constraints posed by depleting ore grades, rising labour and energy costs remain major roadblocks for miners to grapple with.

Tough Digging Underground
Global - Tin Mine Production By Method (2012)

China: In Driving Seat

We expect China to account for the bulk of the output increase in the coming years, with tin mine output rising from 113 thousand tonnes (kt) in 2013 to 133kt by 2018. Yunnan Tin will be a key driver of output growth as it forges ahead with a pipeline of expansion plans at its Laochang and Wuchangping mines. The miner aims to lift the daily tin ore throughput at the Laochang mine from 1.5kt in 2012 to 2.0kt by 2014, before finally reaching a target of 3.0kt in 2019. Additionally, it will also boost production at the Wuchangping mine, although few details on this are available.

China Holds The Key
Global - Tin Incremental Mine Output (2013-2018)

However, a tighter than expected clampdown on tin mining activities in China could significantly pull back mine supply over the coming the quarters. Indeed, the Chinese government has embarked on a series of plans in recent years to promote environmental accountability in the resource industry. It is estimated that around 100 small tin mines and processors in the Yunnan province were forced to cease operations in 2012 as part of an effort to curb pollution in the country's Hong River.

Indonesia: Mining Continues, Despite Policy Changes

We believe Indonesia will remain a prominent player in the tin industry despite the beneficiation push and the introduction of new trading policies in recent quarters ( see 'Modest Growth Ahead', March 27). Our expectation for tin prices to remain an outperformer in the industrial metals complex should continue to encourage domestic production. Tin prices will remain supported by restrictive export policies in Indonesia as well as resilient demand from the electronics sector. The Indonesian government has on several occasions, restrict exports in a bid to exacerbate market tightness and push up prices on the international stage.

Higher Margins For Miners
Three-Month LME Tin (USD/tonne)

That said, declining ore grades and depleting reserves of tin in Indonesia will continue to take their toll on production. Domestic miners such as PT Timah are investing in offshore production capabilities to offset the effects of rising onshore production costs as higher-grade areas become increasingly costly to exploit.

Australia: Landscape Brightening

In our view, Australia's tin mining sector is heading towards a brighter future following a drastic fall in production in 2011 and 2012, during which output plunged by 16% year-on-year (y-o-y) and 48% y-o-y, respectively. Several key mining projects on the horizon should eventually push output growth towards positive territory. For instance, the 2.9ktpa Mt Garnet project by Consolidated Tin Mines is on track to commence production by the end of 2014, while Stellar Resources' Heemskirk project is expected to start operating in 2015.

Global - Select Tin Mining Projects
Country Company Mine Details Year
Australia Consolidated Tin Mines Mt Garnet 2.9ktpa 2014
Australia Stellar Resources (SRZ) Heemskirk Estimated resource of 4.4mnt 2015
China Yunnan Tin Laochang Increase daily throughput from 1.5kt to 3.0kt 2019
Brazil Minsur Pitinga Expanding production 2020
Australia Monto Minerals Herberton Undergoing drilling activities na
China Yunnan Tin Wuchangping Expanding production na
Brazil Lara Exploration, Avenue Resources Sao Lourenco Granted exploration licenses na
na = not available. Source: Company Announcements, BMI.

At present, almost all of Australia's tin ores and concentrates exports are shipped to Malaysia. We expect this trend to persist over the coming years as Malaysia depends heavily on imported tin concentrates to feed its domestic smelters following the collapse of its tin mining industry in the 1980s.

Peru: Modest Growth In Sight

Aside from the countries mentioned above, Peru will contribute around 3.0kt to global tin mine output over our forecast period. Minsur's San Rafael underground mine in Peru is the largest underground tin mine in the world with an average grade of 2.7% in 2013 (the highest in the industry according to ITRI). The San Rafael project has a cash cost of USD7,779/tonne, significantly below the average tin price of USD22,298/tonne in 2013. Encouragingly, Minsur will begin operating a tailings treatment program at its flagship mine that is aimed at adding between 6-7kt of tin to its annual production by early 2017.

Risks To Outlook

The key downside risk to our production forecast stems from the lack of access to traditional mine financing for many mining companies. In particular, tin miners are finding access to bank loans especially tough as long-term hedging is impossible for the metal which only extent 15 months forward on the London Metals Exchange (LME). Frontier mining destinations, many of which require heavy infrastructure investment, could thus struggle to push exploration projects into production.

Global - Tin Mine Production Forecasts
2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f
Global, kt 252 247 244 260 240 249 258 267 274 281
% chg y-o-y -1.9 -2.0 -1.2 6.5 -7.6 3.7 3.8 3.2 2.8 2.5
China, kt 115 115 120 126 113 119 124 128 131 133
% chg y-o-y 4.5 0.0 4.3 5.0 -10.0 4.6 4.4 3.0 2.4 2.0
Indonesia, kt 46.1 43.3 42.0 60.0 55.2 56.5 58.1 60.0 62.0 64.3
% chg y-o-y -13.4 -6.1 -2.9 42.9 -8.0 2.4 2.8 3.2 3.4 3.7
Peru, kt 37.5 33.8 28.9 26.1 23.7 23.8 24.3 25.0 25.8 26.7
% chg y-o-y -3.9 -9.7 -14.7 -9.6 -9.3 0.5 2.0 3.0 3.2 3.5
f = BMI forecast. Source: BMI, USGS