day 1: opening session
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Day 1- Session 1: What is the new 'normal' for mining? Objective Capital Global Mining Investment Conference 2010 Stationers' Hall, City of London 28-29 September 2010 Speakers: David Humphreys - DaiEcon Richard Chase - Ambrian PartnersTRANSCRIPT
GLOBAL MININGINVESTMENT CONFERENCE 2010
STATIONERS’ HALL ● CITY OF LONDON ● TUESDAY-WEDNESDAY, 28-29 SEP 2010www.ObjectiveCapitalConferences.com
Investment Conferences
What is the new ‘normal’ for mining?David Humphreys – DaiEcon Advisors
Raising funds in today’s marketRichard Chase – Managing Director, Ambrian Partners
DAY 1 – OPENING SESSION: WHAT IS THE NEW ‘NORMAL’ FOR MINING?
Other sponsors & participating organisations:
GLOBAL MININGINVESTMENT CONFERENCE 2010
Lead sponsors:
Media partners:
David HumphreysDaiEcon Advisors
What is the ‘New Normal’ for Mining ?
Presentation to Objective Capital’s Global Mining Investment conference, London, 28-29 September 2010
Elements of the ‘New Normal’
• Deleveraging
• Reregulation
• Deglobalisation
‘New Normal’ for Mining
• On-going shift of markets to emerging economies
• Growing role of the state in affairs of the industry
• Fragmentation, volatility, change to corporate order
‘New Normal’ for Mining
• On-going shift of markets to emerging economies
• Growing role of the state in affairs of the industry
• Fragmentation, volatility, change to corporate order
0
20
40
60
80
100
120
140
160
180
200
1980 1985 1990 1995 2000 2005 2010 2015
% of GDP
Source: IMF
Government net debt
Japan
USA
Canada
France
GermanyUK
Italy
OECD composite leading indicators
-15
-10
-5
0
5
10
15
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
% change
Source: OECD
EurozoneUSA
Japan
OECD industrial production
70
75
80
85
90
95
100
105
110
115
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Index of IP, 2005=100
Source: OECD
EU USA
Japan
China and India: industrial production
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year-on-year % change
Source: OECD, NBS.
China
India
0
1
2
3
4
5
6
1980 1984 1988 1992 1996 2000 2004 2008 2012
Emerging & developing economies
Advanced economies
World GDP growth %, 5 year moving averages
Composition of global growth
Source: IMF Forecasts
0
10
20
30
40
50
60
70
80
Aluminium Copper Nickel Steel
2000 2009%
Sources: WBMS and worldsteel. For steel, data is for 2008, not 2009.
Developing world share of metal consumption
‘New Normal’ for Mining
• On-going shift of markets to emerging economies
• Growing role of the state in affairs of the industry
• Fragmentation, volatility, change to corporate order
Metals prices since 1991
0
200
400
600
800
1000
1200
1400
0
50
100
150
200
250
300
350
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Gold
Nonferrous metal prices
The Economist NFM index, 2000=100 Gold price $/oz
‘New Normal’ for Mining
• On-going shift of markets to emerging economies
• Growing role of the state in affairs of the industry
• Fragmentation, volatility, change to corporate order
China’s global mining investment
Source: Mining Journal, 13 August 2010
Politicalstability
Regulatory quality
Control of corruption
Argentina 3 3 3Bolivia 4 4 3Botswana 1 2 1Brazil 3 2 2Chile 1 1 1Congo DR 4 4 4Ghana 3 2 2Guinea 4 4 4Indonesia 4 3 3Kazakhstan 2 3 4Madagascar 3 3 2Mexico 4 2 3Mongolia 2 3 3Namibia 1 2 2Papua New Guinea 3 3 4Peru 4 2 3Philippines 4 2 3Russia 4 3 4South Africa 3 2 2Uzbekistan 4 4 4Venezuela 4 4 4Zambia 2 3 3Zimbabwe 4 4 4
Source: Worldwide Governance Indicators at http://info.worldbank.org/governance/wgi/index.aspCountries are rated accordingly to a variety of criteria and then ranked. The numbers shown are the quartiles into which the country falls on the given measure. 1 = first quartile.
Mining country governance indicators
Criticality matrix for the US
Source: US National Research Council, 2008
‘New Normal’ for Mining
• On-going shift of markets to emerging economies
• Growing role of the state in affairs of the industry
• Fragmentation, volatility, change to corporate order
0
2,000
4,000
6,000
8,000
10,000
12,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
$ billion
Source: IMF
Imports of advanced economies
forecast
Growth in Asian trade
70
120
170
220
270
320
2001 2003 2005 2007 2009
Asia
World
Index 2001=100 (exports)
Asia
Africa
Europe
N America
L AmericaMiddle East
CIS
Destination of Asian exports
Trade regionalisation
Source: WTO
Deglobalisation means for mining
• Geopolitical fragmentation and increased risk
• Volatile commodity and currency markets
• Weaker banks and less debt financing
World’s largest mining companies
Company Country % of total Company Country % of total
1. Vale Brazil 7.0 11. Newmont Mining USA 1.0
2. BHP Billiton Australia 5.3 12. Anglogold Ashanti South Africa 0.9
3. Rio Tinto UK 4.5 13. AcelorMittal UK 0.8
4. Anglo American UK 3.7 14. Teck Canada 0.7
5. Freeport McMoRan USA 2.6 15. Impala Platinum South Africa 0.7
6. Xstrata Switzerland 2.1 16. Vedanta Resources UK 0.7
7. Codelco Chile 2.0 17 Gold Fields South Africa 0.7
8. Norilsk Nickel Russia 1.9 18 Metalloinvest Russia 0.7
9. Barrick Gold USA 1.5 19 ENRC UK 0.6
10. Grupo Mexico Mexico 1.1 20. Glencore Switzerland 0.6
- By value of mine production in 2008 -
Source: Raw Materials Group
World’s largest mining companies
Company Country % of total Company Country % of total
1. Vale Brazil 7.0 11. Newmont Mining USA 1.0
2. BHP Billiton Australia 5.3 12. Anglogold Ashanti South Africa 0.9
3. Rio Tinto UK 4.5 13. AcelorMittal UK 0.8
4. Anglo American UK 3.7 14. Teck Canada 0.7
5. Freeport McMoRan USA 2.6 15. Impala Platinum South Africa 0.7
6. Xstrata Switzerland 2.1 16. Vedanta Resources UK 0.7
7. Codelco Chile 2.0 17 Gold Fields South Africa 0.7
8. Norilsk Nickel Russia 1.9 18 Metalloinvest Russia 0.7
9. Barrick Gold USA 1.5 19 ENRC UK 0.6
10. Grupo Mexico Mexico 1.1 20. Glencore Switzerland 0.6
- By value of mine production in 2008 -
Source: Raw Materials Group
So what happens next?
Metals prices and exchange stocks
0
50
100
150
200
250
300
350
400
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: The Economist, LME, Comex and SHME. Stocks is a composite index, weighted by value.
Indexes 2000=100
Nonferrousmetals prices (l.h.s.)
Stocks(r.h.s)
05
101520253035404550
Manufacturing Real estate Infrastructure Mining Other Total
2008 2009 1-7 2010
Average annual % growth, nominal RMB terms
Sources: NBS
China: fixed asset investment
0
10
20
30
40
50
60
70
0 10000 20000 30000 40000 50000 60000
Steel use per unit GDP
GDP per capita US$
Steel use (in t) per $m GDP
India
China
Colombia
USA
Norway
Source: World Bank and worldsteel. GDP is PPP based.
Algeria
AustriaSlovak RepSlovenia
RoK
New Zealand
Thailand
Current account imbalances
Source: IMF
-1000
-800
-600
-400
-200
0
200
400
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
USAEurozoneJapanAsian NICsChinaCISMid East
US$ bn
-70
-60
-50
-40
-30
-20
-10
0
10
2008 2009 2010
$ billion sa
US trade deficit
0
5
10
15
20
25
30
35
40
1980 1985 1990 1995 2000 2005 2010 2015
Shares of world GDP
% of global GDP (market exchange rate basis)
Source: IMF
EU
USAJapan
China
0
5
10
15
20
25
30
35
40
1980 1985 1990 1995 2000 2005 2010 2015
Shares of world GDP
% of global GDP (market exchange rate basis)
Source: IMF
EU
USAJapan
China
David HumphreysDaiEcon Advisors
What is the ‘New Normal’ for Mining ?
Presentation to Objective Capital’s Global Mining Investment conference, London, 28-29 September 2010
Other sponsors & participating organisations:
GLOBAL MININGINVESTMENT CONFERENCE 2010
Lead sponsors:
Media partners:
CREATING VALUE ACROSS THE RESOURCES SECTOR
Raising funds in today’s market
RICHARD CHASEManaging Director
36Expansion and Capital Raising
Raise funds with no loss of control, but• limited availability• income or asset backing • timing
Source of capital and expertise, but • sentiment towards the sector• limited growth • ultimate exit route
Access to capital markets and raises profile, but• cost• change in culture• liquidity• need to augment the management team
• all of the above, and... • dealing with residual liabilities
Raise funds with no loss of control, but• short term solution• identifying a suitable asset / buyer• timing• one off raise modest quantum of funds
Private equity
IPO
Reverse takeover
Sell existing assets
Raise debtMarket to private
funds
Market to trade
Joint Venture
Acquisitions
Expansion and Capital raising
37The basic forms of capital
Project finance
restrictions on what you can do
no dilution of your holding
loan has to be repaid, but interest should be tax deductible
Generally only after (bankable) feasibility study
Private Equity
restrictions on what you can do
dilution of your holding
may have onerous clauses attached (negotiate hard and read the small print!)
Public equity
fiduciary duties
dilution of your holding
potential capital appreciation
easier exit (subject to lock-ins and black-outs)
Joint venture / farm-out
restricted by terms of agreement
Unlikely to provide significant cash injection – but can avoid further cash expenditure
dilution of project equity
dependent on performance of farm-in partner
38Diversity is key in tricky markets
£98.0 million
Nautical Petroleum plc
Secondary Offering raising £30.4 million and £16.3 million Placing of
existing sharesJoint Broker
August 2010
US$47.6 million
Pangea DiamondFields plc
Merger with International Gold by Disposal of
AssetsFinancial Adviser
April 2010
US$40.0 million
Weatherly International plc
Disposal of Namibia Custom Smelters
Financial Adviser
March 2010
39Equity Finance
Bank lending has become more conservative....and expensive
Equity financing can be completed more quickly....and with less rigour ( !? )
Equity investors are readily financing quality projects
Carpe Diem
40AIM: A brief recap
0.0
20,000.0
40,000.0
60,000.0
80,000.0
100,000.0
120,000.0
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 to Aug
Average daily value £m Average daily shares traded (millions) Market value (£m) (RHS)
41AIM: Outperformance
80
90
100
110
120
130
140
150
1601
4 S
ep
28
Se
p
12
Oct
26
Oct
09
No
v
23
No
v
07
De
c
21
De
c
04
Jan
18
Jan
01
Fe
b
15
Fe
b
01
Mar
15
Mar
29
Mar
12
Ap
r
26
Ap
r
10
May
24
May
07
Jun
21
Jun
05
Jul
19
Jul
02
Au
g
16
Au
g
30
Au
g
13
Se
p
Pri
ce (r
eb
ase
d t
o 1
00
)
AIM Basic Resources ASX All Ord TSX Composite FTSE 250
“…the market is ending the year on ahigh. The Aim index has risen by 62 percent since January 1, compared with arise of 22 per cent in the FTSE 100.
The rate of secondary fundraisings hasbeen picking up, especially in the naturalresources sectors.
After the famine of 2008 and 2009, timesof plenty might once again return forLondon’s junior market.”
Source: Financial Times, 15 December 2009
AIM has outperformed the FTSE 250, TSX and ASX over the last twelve months
42London as a source of equity finance
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
70,000.00
80,000.00
90,000.00
2010 (YTD)
2009 2008 2007 2006 2005 2004 2003
Further Money Raised IPO Money raised
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2010 (YTD)
2009 2008 2007 2006 2005 2004 2003
Further Money Raised IPO Money raised
43Choose your broker (and your audience)
AIM FTSE Small Cap FTSE 100
0% 2% 4% 6% 8%
IndividualsMarket Makers
INVESCOBlackRock
ArtemisAviva
FidelityAXA Framlington
SchroderLansdowne …
JPMorgan AMF&C
GartmoreM & G
Standard LifeJupiter
HendersonOctopus
LangholmUBS
Hargreave HaleInsight
0% 2% 4% 6% 8%
Legal & GeneralIndividuals
Standard LifeM & G
F&CSchroder
Barclays G.I.JPMorgan AM
InsightAberforth
BlackRockMarket Makers
AvivaRathbone
ArtemisScottish WidowsAXA Framlington
HendersonFidelity
INVESCORensburg
Threadneedle
0% 2% 4% 6% 8%
Legal & GeneralBarclays G.I.
CapitalM & G
AXA FramlingtonState Street
FidelityStandard LifeNorges Bank
BlackRockInsight
Scottish WidowsINVESCO
Capital World …AvivaUBS
ThreadneedleSchroder
F&CNewton
USSGov't of Singapore
% Market Share by Value
(Thomson Reuters data)
44Alternatives: Private equity and investment companies
Vallar
Special situation vehicle, IPO in July raised £687m
Initial target is one major takeover financed with debt and by issuing additional new shares
Endeavour Financial – now re-named Endeavour Mining
Classic merchant bank
Acquired Etruscan through a finance and restructuring plan
Sold 43% Crew Gold for US$215m, giving an annualise rate of return of 124%
Noble
Started in 1987, it is firmly established as an investor and commodity trader
CIC invested US$850m
45Alternatives: Sovereign Wealth Funds
Source: SWF Institute10 = Overweight / 0 = Underweight
Q3 2009 Q3 2010
46Current trends
Timing has been key
Non-deal road shows are essential to “warm-up” investors
Include the Private Client Brokers: private investor shareholdings have hit a two-year high
Less conventional sources of equity finance have shown clear signs of indigestion
Commodity Financing for traded metals has become more common
as an alternative to equity finance, and as a cornerstone to equity finance
Financing of advanced exploration – especially for gold – is “in”
47Debt
Debt has re-appeared
It is starting to occur further up the development cycle
The two primary drivers are:
securitization means debt holders are first in line if the project is derailed
interest payments incrementally diminish the risk for the lender and provide yield
The current economic landscape supports debt: a debt investor's exposure is limited to a finite time horizon
A potentially inflationary environment makes debt more attractive.
48Alternative loan options
Instrument Comments
Equity Swap • legally binding subscription for shares • subscription reference price at a premium to the prevailingprice• monthly “swap” of equity for cash• cash receipt adjusted according to prevailing price in relation to the agreed reference price
Convertible loan note • unsecured• typically 10 -12% coupon• can limit future corporate flexibility
Metal Off-take Financing / Commodity Financing
• pre-payment for future metal off-take• unsecured • pricing mechanism and term of the off-take can have a significant economic impact
Gold Exchangeable Bond • gold secured loan• exchangeable into physical metal at holder’s option• callable by the issuer at trigger price• can be utilised for any exchange traded commodity
49
Company
What financiers look for
Sponsorship / Group
Structure
Sovereign & Political
Technical
Commodity: demand and price
Environmental & Social
Financial Structure
An initial resource estimate is a must
Transparent markets with prices and volumes quoted
Key to management’s reputation
Sound financial structure and procedures is
essential
These risks are increasingly
becoming less palatable
Do they know what are doing?
50Ambrian Capital: Full service banking
Single assetCompany or greenfielddevelopment
IntermediateProducer with small number of operating assets
Development and evolution of AMBRIAN Client Companies
Project Finance
• Equity
• Off-take Finance
• Debt
Structured Facilitieswith hybrid project and corporate aspects
Major Company with multiple established operating assets
Feasibility StageCompany 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
51
[email protected] +44 (0)207 634 4700
CORPORATE FINANCE
& EQUITIESCOMMODITIES PRINCIPAL
INVESTMENTS
AMBRIAN PARTNERS LIMITED
AMBRIAN COMMODITIES LIMITED
AMBRIAN METALS LIMITED
AMBRIAN ENERGYLIMITED
AMBRIAN ASSET MANAGEMENT LIMITED
Nominated AdviserCorporate FinanceCorporate BrokerEquity New IssuesMarket MakingEquity Sales & TradingResearch
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
Other sponsors & participating organisations:
GLOBAL MININGINVESTMENT CONFERENCE 2010
Lead sponsors:
Media partners: