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

Richard.chase@ambrian.com +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: