How to invest in mining for high net worth investors
-
Upload
palisade-capital-corp -
Category
Business
-
view
256 -
download
3
Transcript of How to invest in mining for high net worth investors
![Page 1: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/1.jpg)
INVESTING IN MININGNEW ORLEANS INVESTOR SHOW NOVEMBER 13TH 2013
Amanda van DykeMining Equity Specialist, Palisade Capital CorporationChairman, Women in Mining UK
![Page 2: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/2.jpg)
RISK WARNING AND DISCLAIMER
I am not offering any investment advice in this seminar - which is for educational purposes only and therefore does not constitute a regulated activity under the FSMA 2000 and does not fall under the remit of the FCA. The educational material within the presentation represents my views alone and not those of my employers and cannot be viewed as investment advice but as general information which is not intended to address your individual investment requirements. This information is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. Myself and the New Orleans Investor show shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
![Page 3: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/3.jpg)
WHAT IS A MINE?
2. A business operation that extracts valuable minerals or other geological materials from the earth from an ore body, lode, vein, seam, or reef.
1. “A hole in the ground owned by a liar” Mark Twain
![Page 4: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/4.jpg)
WHY DO WE NEED MINING/MINERS
![Page 5: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/5.jpg)
MINING CAN NOT BE IGNORED
Extracted total worth
US$1,900billion per year
US $700 billion-metals and gemsUS $660 billion-coal / ligniteUS $340 billion –cement and aggregatesUS $200 billion – industrial minerals
![Page 6: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/6.jpg)
TOTAL APPROXIMATE MARKET CAPITALIZATION OF MINING COMPANIES
US $2.5 Trillion
![Page 7: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/7.jpg)
MINING REALLY IS A GLOBAL BUSINESS, GLOBAL GOLD PROJECTS 2012
![Page 8: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/8.jpg)
METALS CONSUMPTION IS LINKED TO POPULATION AND URBANISATION
![Page 9: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/9.jpg)
ANNUAL GLOBAL OUTPUTSOURCE INTIERRA RMG
![Page 10: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/10.jpg)
METALS DEMAND FOLLOW GLOBAL GDP
![Page 11: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/11.jpg)
PRICES FOLLOW OECD OUTPUT
![Page 12: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/12.jpg)
ORE PREDICTIONS IN MILLIONS OF TONNES
![Page 13: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/13.jpg)
COMMODITY RANKINGS SOURCE INTIERRA RMG
![Page 14: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/14.jpg)
COMMODITY PRICES
• Commodity prices are fundamentally driven by supply (amount of a commodity mined/produced) and demand (global commodity consumption).
• There is a certain amount of any given commodity that is fairly stable, and regularly consumed
• Then there is a certain amount which driven by global growth• This is marginal change which drives demand supply imbalances,
![Page 15: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/15.jpg)
TOP 12 COMMODITIESCommodity
Global Annual Demand for
2012Major uses
Gold 145.3M oz Jewelry, Investments, Electronics, Computers, Dentistry
Copper 19.7M t Electrical wiring, pipes, Wire Rod, Cake/Slab, Billet
Silver 1.0B oz Photographic Paper and Film, Jewelry, Electronics, solar panels
Uranium 180M lbs Nuclear power
Zinc 12.8M t Galvanizing steel, Die-Casting Alloys, Brass Semis & Castings
Nickel 17.2M t Stainless Steel, Alloys, Plating, Batteries
Lead 10.5M t Batteries, Vehicles, Motorbikes, Industrial
Coal 946.6M t Steel, heating, electricity
Iron 2.0B t Steel
Diamonds Jewelry, cutting tools, Diamond Speaker Domes, Heat Sinks
Platinum 7.2M oz Jewelry, Vehicles, Investments
Potash 51.3M t Fertilizer, Soaps, Water Softeners, De-Icers, Drilling Muds, Feed, Food
Phosphate 200M t Fertilizer, Feed, Food, Detergents
![Page 16: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/16.jpg)
GOLD VS OTHER COMMODITIES
• Over the long run commodity prices are determined by demand (consumption) and supply
• Gold demand is based on its status in the world as a store of value, not on a need for consumption, it is a currency, a method of savings, a currency devaluation hedge
GOLD IS NOT A REGULAR COMMODITY
![Page 17: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/17.jpg)
LIFE CYCLE OF A MINING COMPANY
![Page 18: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/18.jpg)
EXPLORERS VS DEVELOPERS VS PRODUCERS• Explorers
o These companies have very little in the way of assets. They explore and prove that a commodity exists in a particular area. The only major assets owned by exploration firms are the rights to drill and a small amount of capital, which is needed to conduct resource definition, and delineation of an ore body. This process takes 1-5years
• Developerso Once a deposit is discovered by exploration companies, it needs to be
developed into a business proposition and a working producing mine. That process usually takes 1-5 years.
• Producerso Producer firms are full-fledged mining companies that extract and produce
a given commodity. Average mine life is 25 years, but the range can be anywhere between 8-100years.
![Page 19: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/19.jpg)
GENERAL BREAKDOWN MINING COMPANIES
• Large cap – Market cap. value > $10bn o Large diversified Miners, AAL, BLT, RIO, XTA,
VALE
• Mid cap – Market cap. $2 -10bn, o Producers, less diversified, often single
commodity
• Small cap – Market cap. $100m -$2bno Developers and producers, often single mine
• Microcap –Market cap.$1mn-$100 mn, o Explorers and developers
![Page 20: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/20.jpg)
GLOBAL MINING PROJECTS BY STATUS 2012
# of Projects
Grass Roots (no drilling)
16,456 38%
Exploration (limited drilling)
12,494 29%
Advanced Exploration
6,490 15%
Pre-Feasibility/Scoping
1,686 4%
Feasibility 1,189 3%
Construction 528 1%
Operating Mines 4311 10%
Total 43,154 100%
![Page 21: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/21.jpg)
SO WHEN DO YOU INVEST......
![Page 22: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/22.jpg)
WHAT ARE RESOURCES AND RESERVES
• Inferred Resource: 20-50 drill holes, a confirmed occurrence of minerals, continuity assumed not verified, no economic indication
• Indicated Resource: 100-200 drill holes, tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence
• Measured Resource: 200-500 drill holes, that part of a mineral resource that can be estimated with a high level of confidence to allow the application of technical and economic parameters and to enable an evaluation of economic viability
• Probable Reserves: Measured and Indicated + scoping study proving it is economic to mine
• Proven Reserves: Probable Reserves and a bankable feasibility study give you assets on a balance sheet
![Page 23: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/23.jpg)
HOW DO YOU VALUE AN EXPLORER/DEVELOPER
• NPV • Comparable valuation per oz/lb in the
ground• Comparable Companies• IRR
• Rules of Thumb: Chance of being a mine• Grass roots 1/100, Drilling 1/10, PEA 1/5
• Tip: do not forget the dilution factor!
![Page 24: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/24.jpg)
HOW DO YOU VALUE PRODUCER
• Absolute Valuation• NPV• Yield • Relative Valuation• P/E Ratio• Enterprise Value• Cash flow and Cash flow per share• ROE
![Page 25: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/25.jpg)
KEY CONSIDERATIONS
• Production• Capital Costs (Capex)• Sustaining Capital Costs • Operating Costs (Opex)• Cash costs • All in costs• Royalties, Taxes, Debt, and Offtakes• Reserve Replacement• Mine-life• Grade • Recovery• Strip Ratio• Payback period
![Page 26: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/26.jpg)
TIMMINS (TMM CN)-A MEXICAN GOLD MINE San Francisco Mine
Open Pit Heap Leach
Reserves 1.3moz P&P Debt 18m
Resources 1.5mozM&I 1.6mozInferred
Hedging none
Grade 0.846 g/t Cash 2012ye $24.2m
Recovery 65% EV $419m
Minelife 10years NPV 2013 $542MM
Production p/a 100koz 2012,94koz Au/56kozAg 130kozAu 2013EST
•P/E Ratio (vs peers)•P/CF (vs peers)
6.4x (vs 10.3x)4.7x(vs6.5x)
Strip Ratio 2.14:1 Dividend and Yield
n/a (est 2014)
Sustaining Capex 2012 $20m
Corp tax rate 30%
royalties n/a Cash Flow per share
2012 $0.41
Cash costs $723/oz 2013E Return on Equity 28%
All in costs $1121 Q1/13E
![Page 27: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/27.jpg)
WHAT AFFECTS BOTH THE VALUE OF MINING COMPANY
• Ability to execute• Growth timeline• Place on cost curve• General market conditions• Demand forecast for the commodity• Jurisdiction• And never forget in mining, • Grade is King
![Page 28: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/28.jpg)
10 MAJOR RISK CONSIDERATIONS FOR MINERS AND EXPLORERS
• Exploration Risk
o commodity dependent e.g. open pit coal vs thin vein underground gold
• Execution Risk
o development issues
o access to market/infrastructure
o local logistics (roads / water supply / power supply / raw materials)
• Resource Risk
• metallurgy and recovery
mineability of the deposit – underground vs open-pit
• Operating Risk
o management experience
o mining complexity
o extreme conditions (e.g. Siberia)
![Page 29: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/29.jpg)
THE SEVEN DEADLY SINS OF MINING
Country Risk
Execution
Market risk
Resource Risk
Operating Risk
Financing Risk
ESG Risk
![Page 30: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/30.jpg)
10 MAJOR RISK CONSIDERATIONS FOR MINERS AND EXPLORERS
• Market Risk
o availability of finance at each stage
o commodity price
o equity markets
• Environmental/Social Risk
o Equator Principle Compliance
• Technology Risk
o extraction and processing
Sovereign Risk
o currency movements
Country risk
o permitting, war, nationalization, taxes
o labour issues, infrastructure services
• Stakeholder Risk
o NGOs, communities, Debt holders
Sectomeres?
Some Secret?
I have Some Secrets to share
with you
![Page 31: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/31.jpg)
SUSTAINABILITY/BALANCING STAKEHOLDER CONCERNS
A SOCIAL LISCENCE TO OPERATE
MineInvestors/Financers Environme
nt
Government
Community
![Page 32: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/32.jpg)
KEY INVESTMENT QUESTIONS
• What are the key operating risks? Go through the major mining risk checklist.
• What is the capex and what are the all in sustaining costs.
• What are your financial considerations, corporate tax rate, royalites, debt, hedges/offtakes, streams?
• Life-of-Mine (LOM) model, Net present value, Internal Rate of Return, Payback period, Dividend yield
• Does this mine have social licence to operate
• Remember: The long run is a misleading guide to current affairs. In the long run we are all dead. The market can remain irrational longer than you can remain solvent.
John Maynard Keynes
![Page 33: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/33.jpg)
SO HOW DO YOU INVEST IN MINING
• Choose where you are going to invest, Explorers, Developers, Producers, Major- Diversified Miners or Funds? –this should be based on your risk appetite.
• Choose the commodities you believe in• Choose your approach, Portfolio approach Stock Picking Funds
![Page 34: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/34.jpg)
Ultimately the value of a mine is the NPV discounted by the total of execution risks.
The three most important factors of long term success in a mining company is:
1. Management 2. Management 3. Management
![Page 35: How to invest in mining for high net worth investors](https://reader036.fdocuments.net/reader036/viewer/2022062307/55572eb2d8b42a067f8b5086/html5/thumbnails/35.jpg)
THANK YOU FOR LISTENING!
Questions?