Investing in Africa – Mining, politics, risk and reward

Mining Indaba

February 1, 2014

Tom ButlerGlobal Head of Mining

IFC

IFC, A Member of the World Bank Group

IBRDInternational Bank for Reconstruction and Development

IDAInternational Development Association

IFCInternational Finance

Corporation

MIGAMultilateral

Investment and Guarantee Agency

Est. 1945 Est. 1960 Est. 1956 Est. 1998

Role To promote institutional, legal and regulatory reform

To promote institutional, legal and regulatory reform

To promote private sector development

To reduce political investment risk

Clients Governments of member countries with per capita income between $1,025 and $6,055

Governments of poorest countries with per capita income of less than $1,025

Private companies in member countries

Foreign investors in member countries

Products • Technical Assistance• Loans• Policy Advice

• Technical Assistance• Interest Free Loans• Policy Advice

• Equity/Loans• Risk Management• Advisory Services

• Political Risk Insurance

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$510 Million Mining Portfolio (52% equity)

By Product

35 Projects in 25 Countries

By Region

Nickel1%

Gold40%

Iron (Pellets,

etc.)27%Other

Metals 9%

Copper2%

Diamonds and Other Gems10%

Industrial Ores11%

Sub Saharan Africa, 72%

Latin America,

18%

East Asia, 1%

Eastern Europe,

6%

Middle East & NA, 2% World, 1%

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African Mining – Select IFC Mining InvestmentsIFC Hub OfficesIFC Country Offices

Cape Town

Johannesburg Maputo

Antananarivo

Lusaka

NairobiKigali

Douala

N’Djamena

Lagos

Accra

Ouagadougou

Abidjan

Dakar

Cairo

Algiers

Rabat

Monrovia

Kinshasa

Addis Abala

Dar-es-SalaamBujumbura

Bamako

Bangui Juba

Morocco

Burkina Faso

Guinea

Liberia

Cote d’Ivoire

South AfricaGhana

Botswana

Egypt

Ethiopia

Tanzania

Zambia

Mozambique

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Africa’s Potential

-2-1012345678

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• Sub-Sahara Africa GDP growth averaging 5-6% over last decade

• In last 10 years, poverty headcount ratio has declined by almost 10 percentage points to ~48.5 %

• FDI flows to Sub-Saharan Africa are projected to increase from $27bn in 2010 to $54bn by 2015

• Wave of excitement from investors

1990s:2.2% CAGR

*Source: IMF, World Economic Outlook, October 2013

1980s:2.6% CAGR

2000-2012:5.5% CAGR

Historic GDP Growth : Sub-Saharan Africa*

Africa – A New Paradigm?

2013-2018f:5.6% CAGR

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Africa – IFC Significant Commitment Growth

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$252 $140$405 $445

$700

$1,379 $1,390

$1,824

$2,428$2,150

$2,733

$3,501

0

20

40

60

80

100

120

140

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$ million

IFC Own Account in US$m Project Count Country Reach

IFC’s investment volume in Sub-Saharan Africa doubled in last 5 years

IFC Own Account Commitments in Sub Saharan Africa (All Sectors) FY02-13

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African Mining - Central to Continent’s Present and Future

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Source: Maarten de Wit (2008) in AU and UN paper 2011

• Mining generates >20% of gov’t revenues

• Economic rents average 21% of GDP inresource rich African countries

• Exploration in Africa up from $200 millionin early 2000 to $1.4 billion in 2010

The Present

The Potential

• Africa has 30% of global mineral reserves

• New discoveries have opened up newmining regions / countries

• World Bank estimates $87 billionprojected investment in 2013-2017 periodin main mining countries

Despite recent commodity price dip, mining still central to Africa’s growth

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Tackling the Challenges to Mining in Africa

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“Hardware” challenges:

• Lack of core infrastructure:

• Power

• Rail

• Roads

• Ports

Challenges for the Mining Sector in Africa

“Software” Challenges:

• Political risk

• Bureaucracy / government capacity

• Underdeveloped legal / regulatory environment

• Corruption

• Lack of skilled labor force

• Social / community issues

While not unique to Africa, both “Hardware” and “Software” challenges are hampering the sector’s growth

Iron ore in Mauritania, Guinea, Liberia , Senegal,

Cote d’Ivoire

Iron ore in R. of Congo, Gabon, CAR, Cameroon

Coal in Mozambique, Zimbabwe, South Africa,

Botswana, Namibia

Infrastructure – The Nature of the Challenge

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Vast bulk commodity resources locked in by lack of transport infrastructure Lack of power also key issue for sector competitiveness across Africa

Bauxite in Guinea, Ghana, Nigeria, Cameroon, Sierra

Leone

What is needed?• Deep water ports• Rail• Reliable power• Roads

What are the issues?• Scale of projects• Regulatory framework• Government capacity• Lack of coordination• E&S issues• Cross-border

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“Software” Challenge - Social License to Operate

“South Africa wildcat strikes spread to more mines”

“Mining communities ‘not benefiting‘ from the profits”Bench Marks Foundation (South Africa)

Across the world, communities/stakeholders are more vocal about their demands and more willing to push their claims

Making it Work

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Build strong and sustainable relationships with local communities

Effective local stakeholder engagement (includingpublic disclosure of ESIA, etc) will reduce likelihood ofundue local expectations and mutual suspicion

Incorporate key sustainability principles in

operations

Sound sustainability practices will reduce risk of unexpected incidents and externalities

Transparency / frequent dialogue with government on project economics, timing,etc

Establish fair/transparent partnership with government(public disclosure of terms, scenario analysis forrevenue sharing, etc) to reduce political risk

Develop partnerships with reputable groups / strategic partners (majors, DFIs, etc)

Provides “stamp of approval” and support when things go wrong

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IFC’s Recommendations to Mitigate the “Software” Risks

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IFC Financing and Advice

When Does IFC Invest?

• IFC funds projects in all stages of development

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IFC in the Project Life Cycle

Valu

e

Time

GrassrootsExploration

ProjectDiscovery

ProjectFinance

Mature Production

EquityQuasi-Equity /

Mezzanine

Senior Debts and Equivalents

A Broad Range of Financial Products

• Corporate • Typically 5-15% shareholding• Long-term investor, typically 6-8 year holding period• Not just financial investor, adding to shareholder value• Usually no seat on board

• Subordinated loans• Income participating loans• Convertibles • Other hybrid instruments

• Senior Debt (reserve-based lending. corporate finance, project finance)• Fixed/floating rates, US$, Euro and local currencies available• Commercial rates, repayment tailored to project/company needs• Long maturities: 7-12 years, appropriate grace periods• Range of security packages suited to project/country• Mobilization of funds from other lenders and investors, through financings,

syndications (IFC “B” Loan structure), underwritings and guarantees

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Equity

Mezzanine / Quasi-Equity

Senior Debts & Equivalents

IFC Performance Standards: Helping Clients Manage E&S Risks

PS1: Assessment and Management of Social and Environmental Risks and

Impacts

PS2: Labor and Working Conditions

PS3: Resource Efficiency and Pollution Prevention

PS4: Community Health, Safety and Security

PS5: Land Acquisition and Involuntary Resettlement

PS6: Biodiversity Conservation and

Sustainable Management of Living Natural Resources

PS7: Indigenous Peoples PS8: Cultural Heritage

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Going Beyond the Performance Standards

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IFC’s Advisory Services can help create Positive Impact

IFC’s Advisory Services offerings include: Community investment strategies Measuring the impact of community spending (Financial Valuation Tool) Increasing participation of local businesses in supply chain Business skills training for local entrepreneurs Promoting female workforce Helping local governments manage mining revenues for economic

development Water risk/footprint assessment Energy efficiency analysis to reduce water, energy and raw materials use Stakeholder Engagement Guide for Juniors being launched at Indaba.

IFC in Africa Mining Infrastructure

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IFC leverages off its unique capabilities as well as the broader World Bank to support “transformational” mining projects in Africa

IFC Advisory Services

IFC Mobilisation

IFC Mining

• Global portfolio of $8.4 bn• $1.3 bn committed and mobilized

in FY13 in Africa • Sample power deals: Azito (CdI),

Thiko (Kenya), Kribi (Cameroon)• Sample transport deals: Lome Port

Terminal (Togo), Kenya-Uganda Rail, Dakar Toll Road (Senegal)

• Advise on PPP frameworks• Identify strategic investors• Assist on community

development/linkages

• IFC manages over $6 bn in private equity funds

• Ability to mobilize other debt pools (incl $3 bn SAFE fund)

• Provide capacity building / advice to govts (incl. on fiscal revenue management)

• Fund public sector projects• Political risk insurance

IFC Power and Transport

Examples of Mining Infra Projects

Nachtigal Hydro Power Project(Cameroon)

Comilog Rail Project(Gabon)

World Bank Group

Thank You

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