Sacha Akira Backes - International Finance Corporation - International Finance Corporation
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Post on 22-Nov-2014
DESCRIPTIONSacha Akira Backes delivered the presentation at 2014 Africa Iron Ore conference. The Africa Iron Ore conference is the annual gathering for iron ore and stainless steel executives engaged in the African Region. For more information about the event, please visit: http://www.informa.com.au/africaironoreconference14
- 1. Investing in Africa Mining, Risk and Reward Sacha Backes Senior Investment Officer, Mining Investment Division International Finance Corporation 4th Annual Africa Iron Ore Conference Sandton, Johannesburg 3 & 4 June 2014
- 2. IFC: Part of the World Bank Group 2 Conciliation and arbitration of investment disputes Guarantees of private sector investments non- commercial risks Interest-free loans and grants to governments of poorest countries Loans to middle-income and credit- worthy low- income country governments Solutions in private sector development IBRD International Bank for Reconstructio n and Development IDA International Development Association IFC International Finance Corporation MIGA Multilateral Investment and Guarantee Agency ICSID International Center for Settlement of Investment Disputes Est. 1945 Est. 1960 Est. 1956 Est. 1998 Est. 1965
- 3. 3 IFCs Global Reach Paris El Cairo Tblisi Moscow Almaty Istanbul New Delhi Hong Kong Mexico City Santo Domingo Buenos Aires Sao Paulo Johannesburg Nairobi Dakar Washington HQ/Hub Offices Country Offices 109 country and regional offices worldwide 4,015 staff (57% are based outside Washington DC)
- 4. 4 Snapshot of the industry
- 5. 5 Metal prices and oil Dramatic recovery Reversal of fortunes China growth moderating or not?
- 6. 6 Snap-shot of the mining industry Miners on London AIM: Financings IPOs Delistings General investor sentiment Mining investor sentiment
- 7. 7 2013 M&A activity risk aversion Africa was largely absent! Why? Reference: Ernst & Young
- 8. 8 But ... Africas global mining role and potential Largest reserves in and largest producer of several metals globally; Africa has ~30% of global reserves, but output? World Bank estimates US$90b for African mining in five years; Mining generates >20% of govt revenues.
- 9. Summary 9 Demand: constrained in short term, expected to grow in medium/long term: Population growth in EM and rising EM incomes; Urbanization and need for infrastructure; Continued, commodity-intensive growth in EM. Supply: will be more expensive and difficult going forward: Upward pressure on costs of production: declining resource quality outrunning technological and economy of scale off-sets; New sources of supply long lead times, more complex deposits, further from market, difficult local environments; Increased focus on African resources.
- 10. 10 The challenges
- 11. 11 Hardware challenges: Lack of core infrastructure: Power Rail Roads Ports Summary of 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 sectors growth
- 12. Iron ore in Mauritania, Guinea, Liberia , Senegal, Cote dIvoire Iron ore in R. of Congo, Gabon, CAR, Cameroon Coal in Mozambique, Zimbabwe, South Africa, Botswana, Namibia Infrastructure The Nature of the Challenge 12 Vast bulk commodity resources locked in by lack of transport infrastructure Lack of power also key issue for sector competitiveness across Africa 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
- 13. 13 Infrastructure for iron ore the Scale of the Challenge Country # of Iron ore mines # of Railways Required # New Ports required Est. Cost of Infra $bn % GDP % National Budget Guinea 2 2 1 10.4 to13.6 91-118% 850-1,100% Cameroon 2 2 1 6.6 to 8.5 14-18% 120-160% Mauritania 3 2 0 3.8 to 4.9 53-69% 260-340% Senegal 1 1 0 3.8 to 4.9 15-19% 90-120% R. of Congo 3 3 0 3.3 to 4.2 18-23% 90-110% Gabon 2 2 0 2.9 to 3.8 12-15% 65-85% Liberia 2 2 0 1.9 to 2.5 80-103% 440-570% Sierra Leone 3 3 0 1.6 to 2.1 24-31% 250-330% Source: IFC, RBC Capital Markets, CIA World Factbook Many of these high-potential projects require greenfield infrastructure, and billions of dollars of investments, representing sizeable portions of host country GDP and national budget, in countries that are not credit rated.
- 14. 14 Infrastructure Maximizing efficiency and impacts In most of these countries, greenfield multi-user infrastructure for mining cant be financed by the public sector, but requires a private sector lead: a major mining company; or third party vehicle (ideally with a strong private sector lead) under a PPP, whereby the public sector role is limited to the award and regulation. Single-user mining infrastructure Multi-user mining infrastructure Users known at Financial Close Users unknown at Financial Close Multiuser multi-purpose infrastructure Users known at Financial Close Users unknown at Financial Close Low complexity High complexity Complexities of Multi-user/purpose Infra Advantages of Multi-user/purpose Complex contractual set up (tariffs, access, etc) Need agreement among many players Govt capacity to plan/agree framework Limited pool of investors Reduced predictability of cash flows Unlock significant resources in smaller mines Significantly increase development multipliers Reduce political risk Enhance long term sustainability of the infrastructure
- 15. 15 Access to the mining infrastructure Considering the various risks and challenges in Africa, it may be that a haulage regime under a PPP reduces risks and simplifies structuring more than an access regime, and thereby maximizes the opportunities for success. Two access options: Access regime Concessionaire provides access to (eg. tracks) other users who use own equipment to transport goods (UK, Russia, Australia, Brazil); or Haulage regime A principal operator acts as the sole transport service provider for other mines or clients (no relevant examples to date); Balance: (i) protect debt and equity providers; whilst (ii) encouraging shared use. Weakly drafted contractual language has often caused failure of shared- use agreements, especially when infrastructure assets have high capacity constraints (eg. single-track rail). Several African countries have shared use of mining infrastructure in their mining codes, but in insufficient detail to be a basis for structuring an agreement.
- 16. 16 Closing thoughts on mining infrastructure 1. High commodity prices unlocking new opportunities, but major greenfield infrastructure needed to exploit them; 2. Government financing not an option in most SSA; PPP schemes seem to be the only credible solution to unlocking Africas untapped mineral resources; 3. But mining companies ability to build such greenfield infrastructure unproven in Africa; 4. Bankability difficult to achieve, especially for multi-user multi-user/purpose projects: (i) asymmetry of risk profile between mine and infrastructure; and (ii) political economy challenges given political instability, regulatory risk and inexperience of Governments. 5. Greenfield shared-use PPP will have to rely on a large anchor mine (>25mtpa) and strong sponsor; major mining companies probably best equipped for this. 6. Will it work? the jury is out! Anchor client / sponsor Tariff setting flexibility Long-term take-or-pay Independent regulator Defined arbitration forum Expansions through cost sharing
- 17. 17 Software Challenge Political Risk/Govt Capacity Resource Nationalism is #1 Perceived Risk for Miners in 2012/2013 Example of Recent Changes or Proposed Changes to Tax / Mining Codes in Africa Ghana: New mining tax regime with increased rates and windfall tax Guinea: New mining code with broader free carry for government South Africa: ANC panel of experts tax proposals (incl windfall tax) Zimbabwe: Indigenization policy for mining sector Governments revisiting old, or establishing new, mining agreements / terms even with the best will it is difficult to assess what a fair deal is
- 18. 18 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
- 19. Software Challenge Mitigating the Risks 19 Build strong and sustainable relationships with local communities Effective local stakeholder engagement (including public disclosure of ESIA, etc) will reduce likelihood of undue 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 for revenue 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 19 IFCs Recommendations to Mitigate the Software Risks
- 20. 20 African mining and IFC
- 21. IFCs team includes financial professionals, mining engineers, environmental specialists, development experts, and communications specialists. 21 Investment Services Advisory Services AMC Parallel Equity Funding Equity Quasi-equity Loans Capital markets access and mobilization Risk management Political risk cover Supplier development (linkages) Community Development Municipal Capacity Building World-class environmental and social advice Resettlement & Indigenous Peoples Access to Community Development Funding Large Equity Tickets Shorter Timeframe Similar or Same Terms Invests third-party capital alongside IFC No Additional Due Diligence IFC Mining Integrated Solutions Combining Capital and Expertise Financing & Sustainability Expertise Under One Roof
- 22. 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 22
- 23. IFC in Africa Mining Infrastructure 23 IFC leverages off its unique capabilities as well as the broader World Bank to support transformational mining projects in Africa World Bank Group IFC Advisory Services IFC Mobilisation IFC Mining Global portfolio of $8.4 bn $1.3 bn committed and mobilized in FY13 in Africa Examples of recent IFC Africa power deals: Azito (Ivory Coast), Thiko (Kenya) Kribi (Cameroon), Bujagali (Uganda) Examples of recent IFC Africa transport deals: Lome Port Terminal (Togo) Kenya-Uganda Rail Dakar Toll Road (Senegal) TRL (Tanzania) Advise on PPP frameworks Help find strategic infrastructure investors Assist on community development/linkages IFC manages $6 billion in private equity funds Ability to mobilize significant debt pools (incl new $3 bn debt fund from SAFE) Provide capacity building / advice to governments Fund public sector projects Assist governments on revenue management IFC Power and Transport
- 24. . by Commodity Region 24 24 IFC Mining Portfolio (44% equity) 31 Projects in 20 Countries Book value as of March, 2014 Iron, 42% Gold, 18% Diamonds, 18% Industrial Ores, 12% Other Metals, 8% Copper, 2% Sub- Saharan Africa, 78% LAC, 16% Eastern Europe & Central Asia, 4% Middle East & North Africa, 1% World, 1% Total Portfolio: $409 Million
- 25. 25 IFC in Africa Select Mining Investments IFC Hub Offices IFC Country Offices Cape Town Johannesburg Maputo Antananarivo Lusaka Nairobi Kigali Douala NDjamena Lagos Accra Ouagadougou Abidjan Dakar Cairo Algiers Rabat Monrovia Kinshasa Addis Abala Dar-es-Salaam Bujumbura Bamako Bangui Juba Morocco Burkina Faso Guinea Liberia Cote dIvoire South Africa Ghana Botswana Egypt Ethiopia Tanzania Zambia Mozambique
- 26. The End - Thank You Sacha Backes Senior Investment Officer IFC Mining Investment Division firstname.lastname@example.org 26
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