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Transcript of Investment Trends in Mining & Metals - How Has This Impacted Financing for Projects in Africa ?...
Investment Trends in Mining & Metals
How Has This Impacted Financing for Projects in Africa ?
Presented by Rajat Kohli
Prevalent industry trends
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-14
Pri
ce
(re
ba
sed
)
Gold Copper Zinc Iron Ore
Commodity price performance
10 year relative base, bulk and precious metals performance
Source: Bloomberg, FactSet as at 24/11/14
10YR 5YR 3YR 1YR 6M
Precious metals (USD/oz)
Gold 1,198 166% 2% (29%) (4%) (7%) (37%)
Base metals (USD/t)
Copper 6,731 110% (3%) (6%) (5%) (4%) (34%)
Zinc 2,300 104% 2% 22% 23% 10% (50%)
Iron Ore 74 352% (25%) (46%) (46%) (27%) (61%)
Commodity Spot PricePerformance Performance
since peak
3
LTM 6 Months 3 Months 1 Month 1 Week
(1%)
(3%)
(6%)
(11%)
(17%)
TSX Diversified Metals &Mining Index
FTSE 350 Mining Index
JSE Mining Index
HSBC Global Mining Index
ASX 300 Mining & MetalsIndex
(14%)
(8%)
(16%)
(14%)
(16%)
6%
0%
(3%)
(3%)
(7%)
6%
1%
2%
2%
(4%)
(15%)
(11%)
(17%)
(18%)
(18%)
Equity indices performance
Source: Bloomberg as at 24/11/14
Mining Indices
4 Miners face severe financing challenges in the equity capital markets…
Steep reduction in new mining issues as equity markets cool on sector
92
70 69
3038 40
1,140
1,442
1,156
814
594
686
0
200
400
600
800
1,000
1,200
1,400
1,600
0
10
20
30
40
50
60
70
80
90
100
2009 2010 2011 2012 2013 2014E
Vo
lum
e (
de
als)
Equ
ity
Pro
cee
ds
(USD
bn
)
Equity Proceeds Deal volume
1
Source: Dealogic
Note:
1. 2014E represents YTD Q3 2014 annualized to reflect full year estimate
5 …Though debt funding remains available
Debt raised has been less severely affected
76 78110
157
117132
154
212
240
175
212
230
230
290
350
332 329
362
192215
270
345
306
438
441
487
558
501
441
384
0
100
200
300
400
500
600
700
800
0
50
100
150
200
250
300
350
400
2009 2010 2011 2012 2013 2014E
Vo
lum
e (
de
als)
De
bt
Pro
cee
ds
(USD
bn
)
Bonds Loans Deal volume (Bonds) Deal volume (Loans)
1
Source: Dealogic
Note:
1. 2014E represents YTD Q3 2014 annualized to reflect full year estimate
6 Selected African debt transactions in LTM
Company Date Facility Use of proceeds Amount
(USDm)
AngloGold Ashanti 17-Jul-14 RCF General Corporate Purposes;
Refinancing 1,000
Gold Fields 14-Jun-14 Term Loan
Refinancing;
Working Capital;
General Corporate Purposes
1,440
First Quantum Minerals 02-May-14 Term Loan / RCF General Corporate Purposes;
Repay Debt 3,000
Optimum Coal Mine 26-Feb-14 RCF
Working Capital;
General Corporate Purposes;
Repay Debt
232
Aureus Mining 17-Dec-13 PF Development of the New
Liberty Gold Project 100
Sibanye Gold 10-Dec-13 RCF General Corporate Purposes 242
London Mining 28-Nov-13 Term Loan / RCF Expansion of Marampa 200
Sishen Iron Ore Company 26-Nov-13 RCF General Corporate Purposes 1,082
Source: Dealogic as at 28/11/14
Focused on
larger caps with
established
asset base,
largely
refinancing
existing facilities
Fewer
conventional
financings
apparent for
juniors as
industry
conditions have
become more
challenged
The Impact on Producers
8 How do producers respond in this environment ?
1. Cost cutting and capital discipline
2. Restore balance sheets
3. Portfolio optimisation
4. Innovative funding solutions
1
2
3
4
9
Gold industry C1 cost curve: 2012 vs. 2013
Source: SNL
Average: USD828/oz
Average: USD851/oz
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%
2013 2012 Average 2013 Average 2012
Cost cutting is already feeding through to the bottom line 1
10
9 11 17 18
-
14
35
22 24 7
30
64
26
1
2
11
23
6 17
23
31
45
38
46
66
82
82
-
20
40
60
80
100
120
140
2005 2006 2007 2008 2009 2010 2011 2012 2013
Value (USD'bn)Dividends and buybacks, net of share issues
Acquisitions and investments, net of disposals
Capex, including exploration
Capital shifting from investment to investor returns and deleveraging
Source: Glencore
Note:
1. Includes Anglo American, BHP Billiton, Freeport, Rio Tinto, Teck, Vale, Vedanta, Glencore and Xstrata
1
Major mining companies’ capital allocation 2005 - 2013
11 De-leveraging an imperative as profitability declines
0%
10%
20%
30%
40%
50%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gearing Top 40 miners ROCE of Top 40 miners
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012 2013
ROCE Adjusted ROCE (excluding impairment, after tax)
Source: PWC
2
Cash flow generation New equity raise Subsidiary IPOs Asset disposals
Several de-leveraging tools exist
12 Share prices not conducive to raising equity (or selling assets)
Equity and commodity values % of 3 year high
Source: FactSet as at 24/11/14
99%
46%
24%
71%
80%
62%
68%
38%
28%
87%
74% 74%
39%
31%
53%
71%
94%
54%
0%
20%
40%
60%
80%
100%
Alc
oa
Ang
lo A
meri
can
Barr
ick
Gold
BH
P B
illiton
Chalc
o
Fre
ep
ort
-McM
oR
an
Gle
ncore
Go
ldcorp
New
mon
t
Norlis
k
Rio
Tin
to
Sou
thern
Co
pp
er
Te
ck R
eso
urc
es
Vale
Ved
an
ta
% of 3 Year High Gold Copper Iron Ore
13 Portfolio optimisation can have multiple benefits
Focus on lowest cost, most cash flow generative assets
Prioritise scarce capital
Enhance management focus
De-leverage
Provide shareholders with choice of investment strategy
3
Acquisitions to upgrade portfolio Asset disposals De-mergers
Portfolio optimisation tools
14 M&A volumes have plummeted…
Sharp decline in M&A due to value mismatch, lack of confidence and focus on cash preservation
68
94
156
131118
56
1,245
1,472 1,498
1,273
1,068
645
0
200
400
600
800
1,000
1,200
1,400
1,600
0
20
40
60
80
100
120
140
160
180
2009 2010 2011 2012 2013 2014E
Vo
lum
e (
de
als)
De
al v
alu
e (
USD
bn
)
Deal value Deal volume
1
Source: Bloomberg
Note:
1. 2014E represents YTD Q3 2014 annualized to reflect full year estimate
3
15
Narrowing valuation differential between producers and developers points towards a ‘buy over build’ strategy
Source: Broker research, FactSet
1.32
0.99 0.980.92
0.88 0.85 0.820.78
0.680.64
0.58
0.42
0.900.83
0.660.61
0.45 0.440.37 0.36
0.25
Average: 0.82x
Average: 0.54x
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Barr
ick
Gold
Sou
thern
Co
pp
er
New
mon
t
Ved
an
ta
Go
ldcorp
Gle
ncore
BH
P B
illiton
Rio
Tin
to
Fre
ep
ort
-McM
oR
an
Te
ck R
eso
urc
es
Ang
lo A
meri
can
Vale
Flin
ders
Min
es
Ban
da
nna
Tre
vali
Pan
ora
mic
EM
ED
Tig
er
Sun
da
nce
Cape
Lam
bert
Nevad
a C
opp
er
Mining producers Mining developers
…In spite of ‘bargain’ valuations – particularly for producing assets 3
16
-
20
40
60
80
100
0
5,000
10,000
15,000
20,000
25,000
30,000
2009 2010 2011 2012 2013 2014
Africa Asia AustralasiaEurope North America South AmericaDeal Volume (RHS)
-
75
150
225
300
375
450
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2009 2010 2011 2012 2013 2014
Africa Asia AustralasiaEurope Middle East North AmericaSouth America Deal Volume (RHS)
Mining & Metals M&A
Average deal size (USD’m) – All bidders Value by target region – All bidders (USD’m)
Average deal size (USD’m) – China bidders Value by target region – China bidders (USD’m)
405 465
578
399
243 268
0
200
400
600
800
1,000
1,200
1,400
1,600
2009 2010 2011 2012 2013 2014
Africa Asia AustralasiaEurope Middle East North AmericaSouth America Global Average
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014
China RoW
China’s share of global M&M
M&A (by value)
529
189 320
253 322 376
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2009 2010 2011 2012 2013 2014
Africa Asia AustralasiaEurope North America South AmericaGlobal Average
Total M&M
volumes have
declined
significantly as
has average deal
size
China’s share of
global sector
M&A has been
averaging c20%
3
17
Average deal size by bidder region (USD’m)
-
7
14
21
28
35
42
49
0
4,000
8,000
12,000
16,000
20,000
24,000
2009 2010 2011 2012 2013 2014
Africa Asia Australasia China Europe Middle East North America South America Deal Volume (RHS)
M&A into Africa
Value by bidder region (USD’m)
180 171
491 322
85 72
-
200
400
600
800
1,000
1,200
2009 2010 2011 2012 2013 2014
Africa Asia Australasia China Europe Middle East North America South America Global Average
Looking at
African sector
M&A , the peak
was in 2011,
mirroring the
industry as a
whole
China’s share
similarly peaked
in 2011 with a c.
30% market
share
Average deal
value has also
declined
Source: MergerMarket
Note:
1. 2014 represents YTD Q3 2014
1
1
3
18 Notable China-Africa investment interest
Year Target Company / Asset Target
country Commodity Bidder
Deal Value
(USDm)
2014 Eastern Platinum SA Platinum Hebei Zhongbo Platinum 225
2014 Soremi Investments ROC Copper China National Gold Group n.a.
2014 Langer Heinrich
(25% stake) Namibia Uranium China Uranium Corporation 190
2012 Palabora Mining SA Copper Consortium led by Hebei Iron & Steel 338
2012 Discovery Metals Botswana Copper Cathay Fortune 873
2012 Extract Resources (57% stake) Namibia Uranium CGNPC 1,250
2011 Sundance Resources Cameroon Iron ore Hanlong Mining Investment 1,048
2011 Anvil Mining DRC Copper Minmetals Resources 1,300
2011 Gold One International SA Gold Consortium led by Baiyin Non-Ferrous Group 536
2011 African Minerals
(25% project stake)
Sierra
Leone Iron ore Shandong Iron and Steel 1,700
2011 Metorex DRC Copper Jinchuan Group 1,320
Source: MergerMarket, Public disclosure
3
19 Mining companies turning to alternative funding solutions
JVs and strategic partnerships
Private capital: SWFs, PE, HNWI, Trading Companies
Streams and royalties
Convertibles
4
20 Private capital in Africa: partially plugging the equity (and debt ?) hole
Recent PE mining investments Estimated private capital available to mining
Acquirer Target Value (USD’m)
Cupric (BNRI) Hana Mining 68
QKR Navachab Mine 110
Greenstone
Resources* Orbis Gold 20
Appian Natural
Resources Roxgold 12.5
Taurus Hummingbird
Resources 85
Tembo Capital Toro Gold Undisclosed
USD8bn
USD10-15bn
USD10-20bn
USD24.5bn
0 5 10 15 20 25 30
Bloomberg
Baker & McKenzie
EY
Preqin
USD’bn
Source
Source: Public disclosure
Note:
1. Preqin estimate inclusive of oil
Average: USD15bn
4
* Subsequently terminated
21 Streams can fill a funding gap, but upside is capped 4
22 Medium-term implications
Capex cuts and investor sentiment will eventually squeeze supply
Acquisitions can drive value over the medium term
Quality, long-life assets will make money through the cycle
Capital is available but more selective
Mining is a cyclical business !
More pain to come – but this will lay the foundation for a better future
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