Historical opportunities for growth of mining companies, Pan Guocheng, CEO, China Hanking
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Transcript of Historical opportunities for growth of mining companies, Pan Guocheng, CEO, China Hanking
Presenter
Pan, Guocheng
PhD
Chief Executive Officer and President
Over 25 years of experience in mine development, mine
operations, and business Management.
Presentation to Mines and Money Australia 2013
Chinese Investments in Australia and the
Iron Ore Industry
GuochengGuochengGuochengGuocheng PanPanPanPan
October 30th 2013
DISCLAIMER This material contains certain forecasts and forward-looking information,including regarding possible or assumed future performance, costs, productionlevels or rates, prices, resources, or potential growth of China HankingHoldings Limited (“Hanking”) , industry growth, or other trend projections.Such forecasts and information are not a guarantee of future performance andinvolve unknown risks and uncertainties, as well as other factors, many ofwhich are beyond the control of Hanking. Actual results and developmentsmay differ materially from those expressed or implied by these forward-looking statements depending on a variety of factors.
No representation or warranty, expressed or implied, is made or given by or onbehalf of Hanking, any of Hanking directors, or any other person as to theaccuracy or completeness or fairness of the information or opinions containedin this presentation and no responsibility or liability is accepted by any of themfor such information or opinions or for any errors, omissions, misstatements,negligent or otherwise, or for any communication written or otherwise,contained or referred to in this presentation.
Accordingly, neither Hanking nor any of the Hanking directors, officers,employees, advisers, associated persons or subsidiary undertakings shall beliable for any direct, indirect or consequential loss or damage suffered by anyperson as a result of relying upon the statement or as a result of any admissionin, or any document supplied with, this presentation or by any futurecommunications in connection with such documents and any such liabilitiesare expressly disclaimed.
Nothing in this material should be construed as either an offer to sell or asolicitation of an offer to buy or sell securities.
Chinese ODI in Australia
Iron Ore & Steel Industry
Hanking Business Strategies
2013-10-30 P1
Hanking Project Development
2.7 2.9 5.5 12.3
21.2 26.5
55.9 56.5
68.8 74.7
87.8
0
10
20
30
40
50
60
70
80
90
100
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Chinese ODI in Australia
Ch
ine
seF
DI G
row
th (b
nU
SD
)
Chinese FDI Outflows
� Outward FDI by Chinese companies
has increased 40 times in the past
decade.
� Chinese outbound investors are
active in manufacturing, energy &
resource sectors, although the
industry profile is increasingly
diversified.
� Chinese investment in Europe has
been aimed at enhancing market
access, while manufacturing
investment has been in developing
economies, ex., Asia.
� Most outbound direct investment
to Australia focuses on energy and
resource areas.
75.6%
50.4%
22.1%
13.3%
1.3%-5.3%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
5
10
15
20
25
30
35
40
45
50
Oceania Africa Europe L.America Asia N.America
2011
2010
Change
Ch
ine
seF
DI D
istrib
ution (b
nU
SD
)
Source: Chinese Bureau of Statistics
2013-10-30 P2
Chinese Outbound Direct InvestmentsChinese Outbound Direct Investments
� Australia is a significant
recipient of the Chinese
outbound investment, large-
scale investment began in
2005.
� By 2012, total accumulated
investment reached USD50.8
billion in Australia, just ahead
of the USA at USD50.7 billion
and USD36.7 billion in Canada.
0
10000
20000
30000
40000
50000
60000
0
2
4
6
8
10
12
14ODI Accumulated btw 2005-2012
Global ODI %
Chinese ODI Diversifying…Chinese ODI Diversifying…� Chinese investment is geographically diversifying, and other major
recipients included Brazil and Russia. The largest investment destinations in
Europe and Africa are UK and Nigeria respectively.
Inve
stme
nt in
US
D m
illion
Source: KPMG
Chinese ODI in Australia
2013-10-30 P3
Chinese ODI in Different States in 2012Chinese ODI in Different States in 2012
� In 2012, WA attracted 56% of the Chinese total ODI, and QLD 33%.
Companies officially incorporated in these two states together accounted for
90% of the 2012 investment capital.
� New South wales and Victoria have captured relatively less Chinese capital
compared to their historical shares.
� Investment in WA and QLD was concentrated in mining and resource sectors;
NSW & Victoria’s engagement with Chinese companies was more diversified.
0
1000
2000
3000
4000
5000
6000
7000
WA QLD SA VIC TAS NSW
0
10
20
30
40
50
60ODI Total in Different State
ODI% in Different State
Source: KPMG
Tota
l OD
I in U
SD
Millio
n
OD
I% in
Diffe
ren
t Sta
te
Chinese ODI in Australia
2013-10-30 P4
Chinese ODI Diversifying…Chinese ODI Diversifying…
� The 2012 growth rate of Chinese investment into
Australia was twice as high as that of global
Chinese outbound investment, as the 9th largest
FDI in Australia.
� Chinese investment trends in Australia in 2012
show a diversification towards energy, agriculture,
and other sectors, although mining still dominates.
� Of the total USD11.4 billion invested in 2012, 48%
was recorded in mining, 42% in gas, 3% in
agriculture and, 2% in renewable energy.
Accumulated ODI btw 2006-2012 being USD50.79bnAccumulated ODI btw 2006-2012 being USD50.79bn
Source: KPMG
48% Mining
USD5471.46mm
42% Gas
USD4785.20mm
2% Ren Energy
USD182.60mm
8% Others
USD944.20mm
73% Mining
USD36875mm
18% Gas
USD8867mm
4% Ren Energy
USD2213mm
5% Others
USD2837mm
Chinese ODI in Australia
2013-10-30 P5
Chinese ODI Size and OwnershipChinese ODI Size and Ownership
� In 2012, the average size of the completed deals in Australia remained large
compared with those of other countries. Over 50% had a transaction value
over USD200 million.
� The 30% of mega investments (over USD500 million) was relatively higher in
2012 than historical averages (19%).
� Investments by private Chinese companies in 2012 increased to 26% of total,
with SOE investment reduced to 74% by number of deals, and 87% by value.
Source: KPMG
Ownership Investment Value Investment Deals in 2012
USD million % Number %
SOE 9927.04 87% 20 74%
Private 1456.42 13% 7 26%
Total 11383.46 27
Chinese ODI in Australia
2013-10-30 P6
Chinese ODI in Australia
Iron Ore & Steel Industry
Hanking Business Strategies
2013-10-30 P7
Hanking Project Development
Iron Ore & Steel Industry
China - only driver for the world steel industry …
� World crude steel production reached 1.548 billion tons in 2012, a new historical high
level. The CAGR of world crude steel production was 5.6% over the past decade.
� Chinese crude steel production was 717 million tons in 2012, accounting for 47.2% of
the world total. Almost all growth of steel production worldwide came from China.
� China has become a net exporter since 2005. As the global economic progressively
recovers, Chinese net exports of steel rebounded to 42 million tons last year.
World Steel Prod by Region 2001-2012(mt) Chinese Steel Net Exports 2001-2012 (mt)
Source: Hatch, UNCTAD
2013-10-30 P8
Source: Hatch, UNCTAD
Largest Iron Ore Producers in the World
� As the largest iron ore producer, Vale produced 323 million tons of iron ore
and gained a market share of 16.3% in 2011.
� The “Big 3”, Vale, Rio Tinto and BHP Billiton, together controlled 35.6% of
world production in 2011.
� The top ten producers controlled 995 million tons iron ore and 50.3% of the
world total production.
2013-10-30 P9
Iron Ore & Steel Industry
Iron Ore Production (mt) in 2011
487.9
391.0
321.9
196.0
103.1
78.6
53.6
52.9
37.1
35.5
0 100 200 300 4 00 500 600
Australia
Brazil
China
India
Russia
Ukraine
South Arica
USA
Canada
Iran
2000
1500
1000
500
02001 2003 2005 2007 2009 2011
Americas
Oceania
China
Asia ex China
CIS
Africa
Europe ex CISWo
rld Iro
n O
re P
rod
uctio
n (m
t)
Source: Hatch, UNCTAD
Global Iron Ore Production Continues to Grow…
� World iron ore production increased from 934 million tons in 2001 to 1.923 billion
tons in 2011 at CAGR of 7.5%.
� Asia, Americas and Oceania are the major iron ore producing regions which accounted
for 84.1% of world total in 2011; China emerged as a country with the fastest growth of
iron ore production during 2001-2011 at a CAGR of 12.2%.
� The top five producing countries are Australia, Brazil, China, India and Russia, which
produced 488, 391, 322, 196 and 103 mt of iron in 2011, accounting for 78% of the
world total.
2013-10-30 P10
Iron Ore & Steel Industry
Source: Hatch, UNCTAD
Chinese Iron Ore Production
� Chinese crude iron ore output increased to 1.31 billion tons in 2012 from 218
million tons in 2001 with a CAGR of 17.7%.
� The Chinese iron ore concentrate production peaked in 2007 at 369mt, then
declined in 2008 and 2009, and resumed to 307mt in 2012.
� Northern, Northeastern and Southwestern China are the major iron ore
producing regions in China which collectively accounted for 81.9% of the
national total in 2012.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1400
1000
200
400
0
1200
800
600
Iron Ore Concentratescrude Iron Ore
Iron Ore & Steel Industry
2013-10-30 P11
Ch
ine
se Iro
n O
re P
rod
uctio
n (m
t)
Source: Hatch, UNCTAD
Chinese Iron Ore Producers
� Privately-owned small/medium sized mining enterprises have undergone a
significant growth in China at a CAGR of 24% from 2003 to 2012, while key-
producers at only a CAGR of 9.8%.
� Chinese crude iron ore productions from key and small/medium producers
were 224mt (17.1%) and 1.086bt (82.9%) last year, respectively.
2013-10-30 P12
Iron Ore & Steel Industry
Ch
ine
se C
rud
e Iro
n O
re P
rod
uctio
n (m
t)
Source: Hatch, UNCTAD
Chinese Iron Ore Imports
� Chinese iron ore imports in 2012 increased to 747mt from 687mt a year ago,
up by 8.3%; the imports increased at a CAGR of 20.9% during 2001 to 2012.
� Chinese iron ore imports from Australia were 352mt in 2012, accounting for
47.2% of Chinese total iron ore imports. Brazil ranked the second exporting
164mt or 22.1% to China. The two accounted for 69.3% last year.
� The top five countries, including Australia, Brazil, South Africa, India and
Ukraine, represented 81.4% of Chinese total iron ore imports.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Chinese Shares of World Total (%)
Chinese Iron Ore Imports (LHS)800
600
200
300
100
700
500
400
0
70%
50%
10%
20%
60%
40%
30%
0
2013-10-30 P13
Iron Ore & Steel Industry
Source: Hatch, UNCTAD
Global Iron Ore
Consumption
� World apparent iron
ore consumption
increased from 923mt
in 2001 to 1.886 billion
tons in 2011 at a CAGR
of 7.4%.
� Chinese consumption
was 1.05 billion tons in
2012, accounting for
53.5% of the world
total; it grew at a CAGR
of 16.6% in the past
decade.
2013-10-30 P14
Iron Ore & Steel IndustryGlobal Iron Ore Consumption (mt)
Source: Hatch, UNCTAD
Cash Costs for Chinese Iron Ore Producers
� The cash operating cost of Chinese iron ore concentrate in 2012 ranges from
RMB200 to 900/t with an average of RMB580/t.
� 26 key Chinese iron ore companies produced 96mt of concentrate in 2012,
accounting for 31.4% of national total. The average cash operating cost of
these companies was RMB457/t.
Ca
sh
Op
era
ting C
ost (R
MB
/t)
Accumulated Concentrate Production (mt)Accumulated Concentrate Production (mt)
2013-10-30 P15
Iron Ore & Steel Industry
Cash Cost Curve for China (RMB/t) Cash Cost Curve for key Procedures (RMB/t)
Source: Hatch, Platts
Imported Iron Ore Prices
� Annual average imported iron ore
(62% Fe content) CFR price to
China for 2009, 2010, 2011 and
2012 were $79.8, $146.5, $168.7
and $131.0/t, respectively.
� Chinese average imported iron
ore prices reached a historical
high in Q2 of 2011. The price
started declining and fell below
$100/t by Q3 of 2012. The import
price climbed back to around
$140/t in Q3 of 2013.
� Due to restriction on iron ore
export, Indian export of iron ore
to China has been quickly
diminishing.
2013-10-30 P16
Iron Ore & Steel Industry
Source: Hatch, Platts
Domestic Iron Ore Prices
� Hebei, the largest iron ore
producing and consuming
province, is usually viewed as a
key reference of domestic spot
market.
� Chinese domestic concentrate
prices peaked at RMB1,570/t in
July 2008, and then dropped
sharply due to the financial crisis
in late 2008.
� Since Q2 of 2009, Chinese
domestic prices have been moving
out of the haze and remained at a
mid-high level.
� The domestic iron ore price is
currently at around RMB1000/t.
2013-10-30 P17
Iron Ore & Steel Industry
On the Supply Side - New Iron Ore Production Capacity
� From 2013 to 2016, the new annual iron ore capacity introduced from
announced projects would surpass 800mt.
� “Big 3” accounts for around 27%.
� Emerging iron ore producers led by FMG would accounts for 43% of the total
newly added capacity.
� Remaining new capacity consists of Chinese domestic and overseas investments.
Source: Hatch, UNCTAD
2013-10-30 P18
Iron Ore & Steel Industry
Ne
w Iro
n O
re P
rod
Ca
pa
city (mt)
On the Demand Side – Pig Iron Production Projection
� On demand side, the pig iron production of China is estimated to rise from 658mt in
2012 to 750mt in 2016 at a CAGR of 3.3%.
� Global pig iron production would increase from 1.163 billion tons in 2012 to 1.26 billion
tons in 2016, at a CAGR of around 2.0%. Most of the increase would come from China.
� The annual increase in pig iron production would be around 23mt from 2013 to 2016
and the annual demand for new iron ore would be 37mt.
Source: Hatch, UNCTAD
2013-10-30 P19
Iron Ore & Steel Industry
Pig
Iron
Pro
du
ction
(mt)
Hanking Forecast
Chinese Iron Ore Shortage
� Chinese iron ore shortage is expected to continue with dependence on import to
grow from 71% in 2012 to 75% in 2016.
� Chinese total demand of iron ores by 2016 would grow to 1.2 billion tons; Chinese
iron ore imports forecast to grow from 747mt in 2012 to around 900mt by 2016.
Source: Hanking, Hatch, UNCTAD
2013-10-30 P20
Iron Ore & Steel Industry
102 109208 204
266328 369
301 251310 328 307 300 300 300 30092 112
148 208
275
326383
444628
619687 744
820 860 890 900
0
200
400
600
800
1000
1200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E
Import Forecast
Import Actual
Domestic Forecast
Domestic Actual
Ch
ine
se Iro
n O
re D
em
an
d (m
t)
Where Would the Iron Ore Price Go?
� Combining the forecasts from several organisations and in-house analysis, it
would be difficult for iron ore price to go back to 2008-2011 level.
� Hanking forecasts that the global iron ore price (CFR China) fluctuate within a
range of US$120-140/t for the period of 2014-2016.
� Possibility of witnessing an iron ore price below US$120/t still exists in a short
term within the next three years.
Source: Hatch, UNCTAD
2013-10-30 P21
Iron Ore & Steel Industry
Forecast Platts 62% Fe Index
Hatch
Hanking
Sea
bo
rne
Iron
Ore
Price
(USD
/t)
Chinese ODI in Australia
Iron Ore & Steel Industry
Hanking Business Strategies
2013-10-30 P22
Hanking Project Development
Hanking Project Development
Iron Ore
Business
Gold
Business
Nickel
Business
� Hanking acquired a world class
nickel mine in Indonesia and plan
to mine 2 mt nickel ore in 2014 and
a smelter is under construction.
� Hanking is one of the
largest iron ore producers
in China. All of its iron ore
mines are located in the
famous An-Ben Belt, which
hosts about 1/3 of the
Chinese iron ore reserves.
� Hanking acquired a 2.4
moz gold property in
Western Australia and is
now under development
planning.
Hanking’s Core Asset Portfolio:
Iron Ore, Nickel, Gold
2013-10-30 P23
Liaoning,
China
Sulawesi,
Indonesia
Western Australia
Location SE Sulawesi, Indonesia
Mining Method Open pit
JORC Resources 351 Mt ore, 4.80 Mt Ni
JORC Resources 90.54 Mt (high Fe low Ni)
Australia Gold Mines
China Iron Ore Mines
Location Southern Cross, WA
Mining Method Open pit + UG
JORC Resources 2.4 moz Au (75 ton)
Location Liaoning, China
MinesAoniu, Maogong, Xingzhou, Mengjia, Shangma
Mining Method Open pit + Underground
Total Resources 220 Mt
Indonesia Nickel Mines
Hanking Project Summary
2013-10-30 P24
Hanking Project Development
Low Cash Operating Cost Advantage
Current Production Capacity
� Low stripping ratio, simple magnetic processing� Proximity to steel mills (75 km radius)
� Employment of new technologies� Sharp cost control on daily basis
One of the lowest cash costs
0
200
400
600
800
1,000
0 50 100 150 200
人人币
/ 吨
精精 精铁 铁 ( 百百吨)
Hanking: RMB320/t
Average in China: RMB580/t
RM
B/t
Iron concentration Volume (Mt)
Attractive cost position relative to global seaborn e exportersGlobal seaborne iron ore cash cost curve (CRF China) (US$/t)
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Hanking (2012): US$52/t
China average (2012): US$95/t
200 Mt 1000 Mt400 Mt 600 Mt 800 Mt
Global average (2012E): US$77/t
2013-10-30 P25
Hanking Project Development
� Cash cost RMB320/t, 55% of national average� Operating margin over 60%
� 220mt JORC resources, 175mt JORC reserves� Five operating mines in NE China� 10mt crude ore, 3mt concentrate capacities
169
594
840
1584
2435
2592
2730
3120
3294
4155
4752
4797
5657
0 1000 2000 3000 4000 5000 6000
Cycloops
Gebe Island
S.E. Kalimantan
Obi
Koniambo
La Sampala
Buli
Gag Island
VNC
Halmahera/Weda Bay
Soroako
Hanking - N. Konawe
PT Aneka-Pomalaa
World Class Nickel Resource
The Hanking Nickel Mine in North Konawe, Southeastern Sulawesi Province, Indonesia ranks
in the second largest in the world by metal contents, .
JORC Resource and Reserve Estimation Ranks in Ni Quantity of Nickel Laterite Deposits
Class Resource((((103T))))
Grade Metal
Ni/% Ni (T)
Measured 85,818 1.51 1,292,397
Indicated 182,205 1.35 2,460,766
Inferred 83,104 1.26 1,043,744
Total (M+I+I) 351,128 1.37 4,796,907
High Fe Resource 90,540 50.27%Fe & 0.79%Ni
Class Reserve((((103T))))
Grade Metal
Ni% Ni (T)
Proven + Probable 74,850 1.4 1,046,537
Possible 171,984 1.31 2,256,590
Total (P+P+P) 246,834 1.34 3,303,128
Resources (Ni Metal in 103T)
2013-10-30 P26
Hanking Project Development
Laterite Nickel Mine Development
� KS and KKU mines are both in
production; Hanking plans to
sell 400,000 tons of laterite
ores this year and 2mt next
year.
� Major infrastructures, including
mine camps, roads, and
temporary wharf, have been
completed.
� The primary design for Energy
Saving Shaft Furnace (ESSF)
completed. Construction of the
facility is under way.
One of the berths of KKU port, which can
serve to move 2 million tons of ores annually.
2013-10-30 P27
Hanking Project Development
Production and Investment Plans for the Nickel Mine
Nickel Project Production Projections
Capital Investment Plan in the Nickel Project
Mining
Smelting
2013 2014 2015 2016 2017
0.4 mt 2.0 mt 3.0 mt 4.0 mt 5.0 mt
10,000 t 20,000 t 30,000 t 40,000 t
0
50
100
150
200
250
2013 2014 2015 2016 2017 Future Total
Investment in SmeltingInvestment in Mining
Total Capital Investment
Mining US$102 mm
Smelting US$145 mm
TOTAL US$247 mm
Ca
pE
xpin
mm
USD
2013-10-30 P28
Hanking Project Development
� SXO, about 360km west of Perth, has
JORC gold resources of 2.4 Moz and a
processing plant of 2.4 mt/a.
� Total 930 km2 coverage of exploration
and mining permits that spans along
the famous 150 km long gold belt.
� Focus on exploration for resource
upgrade & target for new discoveries.
� Mine planning is under way.
The 2.4 mt/a
processing plant
2013-10-30 P29
Hanking Project Development
Chinese ODI in Australia
Iron Ore & Steel Industry
Hanking Business Strategies
2013-10-30 P30
Hanking Project Development
STRATEGY
Hanking Business Strategies
2013-10-30 P31
Low Cost Strategy Diversification Strategy
Value-Chain Strategy Talents Strategy
� Iron ore is the core business, while Ni and Au are developed as parallel. Hanking aims to become an influential iron ore producer.
� Development of Ni and Au businesses helps reduce risks of market fluctuation.
� Low cost is the core competitive edge. This strategy is executed in project acquisition and operations.
� Continue to use the adaptive approach for optimizations of new mining and processing technologies.
� Establish exploration, mining, processing, & smelting value chain, maximizing values to shareholders.
� Create benefits from value-added processes, balance early-staged and advanced projects.
� Senior and special talents are sought globally, while operational teams are built locally.
� Team members must have global visions and experiences of international operations.
1 CLEAR M%A STRATEGY
� Assessment of target strategic fit
� Assessment of benefits from the deal
� Precise valuation of expected synergies
4 SUCCESSFUL POST INTEGRATION
� Process/procedure integration
� Cultural harmonization
� Identification of managerial skills
2 WELL EXECUTED DUE DILIGENCE
� Careful and precise due diligence
� Assessment of potential risks
� Design of negotiation tactics
3 DISCIPLINED DEAL EXECUTION
� Definition of the best method of payment
� Impact on the bidder’s financial situation
� Definition of the premium to be paid
M&A
Source: Company Information, Goldman Sachs
Hanking Business Strategies
2013-10-30 P32
Regardless of market volatility, low-cost has always been H anking’skey value driver. Hanking remains focused on optimizing itsoperational cost structures, will maintain our low operati ng costadvantage, and will continue to grow as a low-cost producer.
Sustainable Value Creation Model
Hanking Business Strategies
2013-10-30 P33
Thank You
&
Questions
Guocheng Pan, PhD
President/CEO
China Hanking Holdings, Ltd. (HKSE 03788)
Email: [email protected]
Web: www.hankingmining.com
2013-10-30 P34