creating value across the resources sector the “perfect” mix – an advisor’s view finex ’10...
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CREATING VALUE ACROSS THE RESOURCES SECTOR
The “Perfect” Mix – An Advisor’s View
FINEX ’10
Richard Chase, Managing Director
2
Investors have millions of investment options but you only have the one thing
to sell
3
Company
The ingredients
Sponsorship / Group
Structure
4What are investors looking for?
Positive Underlying
Market Conditions
Demonstrated Growth & Quality of
Growth
Management Track Record
Size / Scale
Industry / Sector
Momentum
Attractive Business
Profile
Optimal Valuation
5
Gold Mining32%
Coal8%
Diamonds & Gemstones8%
General Mining47%
Platinum & Precious Metals5%
Africa10%
Australia6%
Canada4%
Central & Eastern Europe
5%
Channel Islands1%
China10%
India & Bangladesh5%
Isle of Man3%
Israel2%
Japan1%
Latin America6%
Middle East2%
Other Offshore2%
Russia & CIS8%
South East Asia7%
USA11%
Western Europe15%
Countries and Commodities
Source: London Stock Exchange, as at 31 May 2010
AIM companies as per country of operation (exc. UK)
AIM mining companies as per sub-sector
Investors have an appreciation of companies with a diverse range of risk
6Commodity choices
Source:Minerals, Critical Minerals, and the U.S. Economy (2008) Board on Earth Sciences and Resources (BESR)
Metals that are in the news do not necessarily make the most investable projects
7Company considerations for success in financing?
Investment Story
Maintaining Investors Interest
Size / ScaleManagement &
Shareholder Intentions
Rationale
Corporate Governance
Fair valuation with credible justification
8The Marketing Strategy : Building Momentum
Building momentum from the start is critical in maximising value
Team Responsible
Broker Sales Research
• Equity Research• Company Management• Corporate Finance
• Equity Research• Sales• Broker
•Broker•Sales
Identify key investors
By identifying the key investors early in the process, the right institutions can be given direct
marketing access to management and assets. These investors become the cornerstone for future
fundraising.
Sell the cycle as well as company
For an institution to invest they will need to buy into both the equity story and the basic materials
“super cycle”. Ambrian will utilise its Metals and Mining research team to promote the “stronger for
longer” cycle.
Maximise management impact through well-crafted equity story
Management will have the opportunity to sell the equity story to the most important institutions. A meeting with
management is a key part of a fund’s investment criteria. The roadshow presentation, therefore, must be carefully
crafted to have maximum impact.
Aftermarket Support
Ambrian’ will work to maintain an orderly market through sales and research support long after the initial
market interest has subsided.
9Know your target audience
AIM FTSE Small Cap FTSE 100
(Thomson Reuters data)
One size does not fit all
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Communication
Timeliness and quality of public reporting
Transparency of ownership and arms length operations
Investor relations
Corporate governance and Communications
Prepare early Ensure that systems and controls are in place
Directors dealing process (adoption of the
Model Code)
Compliance with corporate
governance
Internal reporting
Implementation of business strategy
Effective Board
Appropriate management
Employee incentivisation
Internal External
You can hide poor governance, but good governance is evident in everything you do
11
An Example Investment Case
Strong FundamentalsAttractive copper fundamentals,
growth to be underpinned by Emerging markets
Regionally Advantaged
Copper belt, high grade, low cash cost
Regional LeaderLarge reserve in the African Copper
Belt area
Cash flow generativeRobust financial condition and
high profitability
Integrated CompanyState of the art SX/EW, leaching, HMS, and sulphuric acid plants
Strong Management and Clear Strategy
Successful Central African Cu Belt
company
12Enormous Demand for New Copper Exposure There is a strong appetite for copper equities…
Copper remains THE industrial commodity to play the ‘urbanisation and industrialisation’ of China
Large liquid market preferable to OTC markets such as coal and iron ore Not susceptible to substitution like e.g. platinum in catalytic converters or nickel in steel Equity positions can be hedged with metal derivatives No potential supply overhangs as for nickel (laterite) or aluminium in general
…the London Market understands the Africa opportunity
Long history of operating and investing in Africa
Lower risk-discounts placed on DRC companies because of in-depth coverage in the market
…and M&A has left a void in the market
In the last two years competitors have been taken over (Nikanor, CRC, CAMEC and Kiwara) and have left the market
Only equity exposure is now large-end of mid-cap (First Quantum, Vedanta) and pre-production, small low-grade Southern African stocks
We believe there is a huge appetite for a sub £1bn ‘mid cap’ which offers greater leverage to both the copper price and acquisitions
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Freeport McMoran 8,172 7,518 92%
First Quantum 5,893 5,402 92%
Lundin 2,410 2,160 90%
Equinox 2,424 2,036 84%
Katanga 1,280 1,280 100%
Anvil 483 272 56%
Metorex 385 266 69%
Tiger 91 81 89%
average: 84%
Free Float Market Cap
(US$m)
Market Cap
(US$m)DRC Copper Players
Free Float as a %
Market Cap
Determining the Size and Scale of free float
In the Metals and Mining space free float at IPO is typically 30%
21
39
82
63
48
2923
10 11
26
0102030405060708090
0-10
%
10%-20%
20-30%
30-40%
40-50%
50-60%
60-70%
70-80%
80-90%
>90%
No
of IP
Os
Size of Free Float for London IPO: 2005-2009
3
5
7
3
5
3 3
0
1
2
3
4
5
6
7
8
0-10% 10%-20% 20-30% 30-40% 40-50% 50-60% >60%
No
of IP
OS
Size of Free Float of Peers (avge free float: 84%)Size of Free Float for London¹ IPO: 2005-2009
Source: Thomson One, Datastream
¹ All marketsSource: Bloomberg,
Liquidity, valuation and growth ambition will define free float
Minimum :- Main Market 25%,- AIM 10%
14Positioning the company
Delivering on its stated strategy, investors will value resources and growth
Source: Thomson One, Company Report
EquinoxFirst quantum
Lundin
Metorex
Katanga
Anvil
Tiger
Shalina
0
200
400
600
800
1,000
1,200
1,400
1,600
2.25x 2.50x 2.75x 3.00x 3.25x 3.50x 3.75x 4.00x
EV /
2P
Rese
rves
(US$
/t)
2011 EV/EBITDA
EV =size of bubbleAs an integrated producer with substantial cash flow generation, an IPO should position the Company appropriately in terms of EV / reserves and EV / EBITDA
The Company will transition to higher valuation as it implements its strategy
EV/EBITDA EV/EBITName Market Cap EV CY2010 CY2011
Equinox Minerals Ltd 2,406.5 3,009.9 5.9x 3.8x
First Quantum Minerals Ltd 5,893.0 6,425.8 3.6x 3.1x
Lundin Mining Corp 2,409.5 2,691.5 4.9x 3.8x
Metorex 384.8 715.3 3.4x 2.5x
Katanga Mng Ltd 1,279.5 1,303.8 3.8x 2.6x
Anvil Mining Ltd 483.0 421.6 n.m 2.5x
Tiger Resources 91.3 80.7 2.9x 2.3x
median 3.6x 2.6x
average 3.5x 3.0x
EBITDA 126.2 168.4
448 465
m US$
Implied value Shalina
15London, a Natural Place for Coal Players
London listings cover a wide spectrum of coal companies, spreading from junior developers to world-scale players
Diversified Miners with Large Coal Businesses
Pure Coal Players Cash Shells Focusing on Coal
16Nature and Structure of UK Coal Sector
London investors are accustomed to coal companies with assets located on every continent
Companies Market Cap(m £)
Listing Location of Key Assets
Commentary
New World Resources
1,782 International Main Market
Poland, Czech Republic
Leading CEE producer
Western Coal 937 AIM Canada, USA, UK Originally Canadian based company consolidating in Europe by acquiring the balance of EnergyBuild Group; having acquired AIM listed Cambrian last year
Coal of Africa 534 AIM South Africa Focused SA coal producer (thermal and coking coal) with processing capacity
Ncondezi Coal 160 AIM Mozambique Coking coal developer . IPO successfully conducted in June 2010
UK Coal 118 Main Market UK Largest thermal coal producer in UK
GCM Resources 83 AIM Bangladesh Holding company focusing on large thermal coal project in Bangladesh with equity stakes in Coal of Africa and Polo resources (cash shell for commodity project)
Churchill Mining 96 AIM Indonesia Thermal coal developer being marketed for sale by shareholder
Caledon Resources
60 AIM Australia Coking coal producer and explorer looking for partnership / merger
EnergyBuild Group
53 AIM UK Board has recently recommended offer from Western Coal
ATH Resources 27 AIM UK Opencast thermal coal producer in UK
Palmaris Capital 24 AIM UK Cash shell with 16.1% stake in Scottish Resources Group (UK coal company)
Bisichi Mining 20 Main Market South Africa Junior coal producer focused on SA
Strategic Natural Resources
11 AIM South Africa Cash shell with a 74% in Elitheni Coal (coal developer) and a 26% stake in a South African engineering firm, which will build boilers to burn anthracite
Atlantic Coal 7 AIM USA Cash shell with US thermal coal asset (Stockton mine)
17Recap: Steps to improve success
Clean up the balance sheet
Have audited accounts
Fill gaps in management
Have technical work audited and / or reported on as a CPR
Raise the company’s public profile
Position the company for the right comparisons
Document the competition
Understand investor’s needs
Examine your company as an investor would
Be prepared for the unsolicited approach
18Ambrian Capital: Full service banking
Single asset Company or greenfield development
Intermediate Producer with small number of operating assets
Development and evolution of AMBRIAN Client Companies
Project Finance
• Equity
• Off-take Finance
• Debt
Structured Facilities with hybrid project and corporate aspects
Major Company with multiple established operating assets
Feasibility Stage Company in the process of completing Feasibility/Bankable
Advisory Services
Ambrian advises on various financial solutions
Equity Financetakes an equity position to fund potential exploration companies
Exploration
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Richard.chase@ambrian.com +44 (0)207 634 4700
CORPORATE FINANCE
& EQUITIESCOMMODITIES
PRINCIPAL INVESTMENTS
AMBRIAN PARTNERS LIMITED
AMBRIAN COMMODITIES LIMITED
AMBRIAN METALS
LIMITED
AMBRIAN ENERGY
LIMITEDAMBRIAN ASSET MANAGEMENT LIMITED
Nominated Adviser
Corporate Finance
Corporate Broker
Equity New Issues
Market Making
Equity Sales & Trading
Research
Broker-Dealer of LME Futures and Options
- Aluminium
- Copper
- Nickel
- Lead
- Tin
- Zinc
Bullion Dealer
Physical metals merchant
Focus on:
- Copper (wire-rod/
cathode)
- Aluminium
- Lead
Physical oils merchant
Focus on:
- Crude Oil and Refined
Products Structured
Trades
- Strategic Inventory
Management Specialist
- Biofuels supply and
blending
Manages Ambrian Principal Investments Limited, wholly owned Jersey investment company
Ambrian Resources AG, majority owned Swiss subsidiary
- Arranges and manages strategic principal investments
FSA Authorised
Member of the London Stock Exchange
FSA Authorised
Associate Broker Member of the London Metal Exchange
London and Shanghai
Agents in Calcutta, New York, São
Paulo, Santiago, Seoul and
Tokyo
London, Geneva, Hamburg, Singapore
Agents in Istanbul, Johannesburg
FSA Authorised
Office in Zug
LONDON METAL EXCHANGE
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