Capital Markets Day

November 2008

Copper smelter
Bildplatshållare
revenue stream

Ulf Söderström
President BA Market

Boliden Commercial AB 1 2008-11-04

 Table of content
1. Important information
2. Copper concentrates – example of content
3. Pricing of copper concentrates
4. Typical pricing clauses
i. Deductions – Treatment Charge and Refinery Charge (TC/RC)
ii. Deductions – Price Participation (PP)
iii. Deductions – RC Gold, RC Silver
iv. Deductions – Penalties
5. Pricing of secondary raw materials
6. Free metals
7. By-product credits
8. Metal premiums
9. Putting it together
10. Smelter’s share of raw material value
11. Business cycle of metals
12. How to increase smelters’ profit?

Boliden Commercial AB 2 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 3 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

Boliden Commercial AB 4 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

Boliden Commercial AB 5 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

Boliden Commercial AB 6 2008-11-04

 3.1 Typical pricing clause – Copper
98 %

97 %

96 %
Payment %

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.

Boliden Commercial AB 7 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 8 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 9 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.

Boliden Commercial AB 10 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

Boliden Commercial AB 11 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.

Boliden Commercial AB 12 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

Boliden Commercial AB 13 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

Boliden Commercial AB 14 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.

Boliden Commercial AB 15 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.

Boliden Commercial AB 16 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

Boliden Commercial AB 17 2008-11-04

 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% 0.873 ton H2SO4

x 75 USD/t = 65.5 USD/DMT

S u lp h u ric ac id , c o n tr a c t C F R N W E u ro p e 1 9 8 8 -2 0 0 8
€ /t S o u rc e : F e rtiliz er M a rk et B u lle tin
200
180
160
140
120
100 Low
80 H ig h
60
40
20
0

88 88 89 89 90 91 91 92 93 93 94 94 95 96 96 97 97 98 99 99 00 00 01 02 02 03 03 04 05 05 06 06 07 08
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Boliden Commercial AB 18 2008-11-04

 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
180 180 180
160 165 160
150
140 140 140 140
130 130 130 125 125 125 125 125 125 125 125 125 125 125 125 130
120 120 120 115 115 115 115 115 120
105 105 105 105 105 105 105 110
105 105 105 105 105 110
100 100 100 100 100 100 100 95 100 100
90 90 90 90 90
80 80 80 80 80 80 80
70 70 70 70 75 70 75 70 70
60 60 60 60 60 55 60 60 60
50 50 50 45 50 50 50 50 50 50
40 40 40 40 40 40
30 30 30
20 20
0 0
Jan Feb Mar A pri 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 90 80 60 50 60 50 40 70 70 40 40 70 75 45 30 30 30 50 80 90 100 75 70 50 40

High 90 130 165 180 130 150 130 110 100 80 70 80 60 60 100 100 55 60 90 80 60 50 50 50 70 90 130 110 95 100 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

Boliden Commercial AB 19 2008-11-04

 8. Putting copper smelters’ revenues together
Treatment Charge (TC/RC) USD/DMT Share
TC:1 DMT Cu concentrate x 45 USD= 45
RC: 23% x 22.046 x 4.5 USc/lb = 22.8
PP: No PP 0
Au: 40 g/DMT x 97.5% x 0.0321 x 6.0 USD/troz = 7.5
Ag:170 g/DMT x 0.0321 x 0.35 USD/troz = 1.9 By-products
Zn penalty: 2 x 3.0 USD/DMT = 6.0
Sum TC/RC 83.2 40% 31% Treatment Charge (TC/RC)

40%
Free metal
Cu: 30% x (98.0% - 96.65%) x 7,000 USD/t-Cu = 28.4
Sum Free metal 28.4 13%

By-products Metal premium

1 DMT Cu concentrate (30%S) x (98/32) x 95% = 16% Free metal
0.882 ton H2SO4 x 75 USD/t 65.5 13%
Sum By-product 65.5 31%

Metal premium
Cu Premium: 1 MT Cu metal x 30% x 98.0% x 115 USD/t 33.8
Sum Metal premium 33.8 16%

Sum Raw Material revenue 210.9 100%

Boliden Commercial AB 20 2008-11-04

 8.1 Putting copper smelters’ revenues together

Boliden Commercial AB 21 2008-11-04

 8.2 Putting copper smelters’ revenues together

Boliden’s copper smelters’ approximate year-to-date revenue distribution

9M 2008 9M 2007

By-products
15%
By-products
28%

Premiums
5%
TC/RC
44%

TC/RC
Premiums 55%
3%
Free metal
25%

Free metal
25%

Boliden Commercial AB 22 2008-11-04

2008-10-28
 9. Smelters’ share of raw material value

Boliden Commercial AB 23 2008-11-04

 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

–
Boliden Commercial AB 24 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

Boliden Commercial AB 25 2008-11-04