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Structuring mining business in Brazil
Current situation And future perspectives
www.pwc.com
PricewaterhouseCoopers LLP
Summary
Global mining deals
Chinese expansion
Brazil: numbers and recent transactions
Access to capital: TSX and Private Equity
Structuring mining business in Brazil
2
September/2011
PwC
Deal volumes and aggregate values were 10% and 25% higher than the first half of 2010
Structuring mining business in Brazil
3
September/2011
PricewaterhouseCoopers LLP
Global mining M&A deal volumes and values rally during 1H 2011
Annual volumes make 2011 the busiest year of M&A in the history of the mining sector (even more frenzied than 2007!)
1,379 deals worth $71 billion were announced during the first six months of 2011. On an annual basis, deal volumes and aggregate values were 24% and 2% higher than 2010 and 122% and 32%.
Structuring mining business in Brazil
4
September/2011
PricewaterhouseCoopers LLP
Global mining M&A deal volumes and values rally during 1H 2011
Structuring mining business in Brazil
5
September/2011
PricewaterhouseCoopers LLP
Global mining M&A deal volumes and values rally during 1H 2011
Structuring mining business in Brazil
6
September/2011
PricewaterhouseCoopers LLP
2011 Top 10 Global Mining Deals
Structuring mining business in Brazil
7
September/2011
PricewaterhouseCoopers LLP
Chinese expansion
Structuring mining business in Brazil
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September/2011
In the first six months of 2011, Chinese entities announced 75 acquisitions in the global mining sector worth a total $4.7 billion (excluding cancelled & withdrawn deals). Dollar values were down 15% over the first half of 2010 and, on an annual basis, were 18% lower than 2010
PricewaterhouseCoopers LLP
Chinese expansion
Structuring mining business in Brazil
9
September/2011
Despite repeated efforts to extend its geographic reach via M&A, Chinese entities remained close to home in 2011. 68% of acquisitions were in Asia/Pacific emerging markets, including the largest Chinese acquisition of the year
Soaring deal valuations keep Chinese buyers close to home
PricewaterhouseCoopers LLP
0
100
200
300
400
500
600
700
800
900
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total of transactions in Brazil
Brazil Transations Mining Transations
Numbers of Brazil
Structuring mining business in Brazil
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September/2011
572
395
337
415 389
573
722
645 644
797
483
11 37
10 9 11 12 13 19 23 33 11
0
100
200
300
400
500
600
700
800
900
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total of transactions in Brazil
Brazil Transations Mining Transations
11
37
10 9
11 12
13
19
23
33
11
38
0 0
20 21
14
6
11
16
29
14
0
5
10
15
20
25
30
35
40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Mining x Oil & Gas transactions
Mining Transations Oil & Gas Transations
Nu
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f d
ea
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PwC
Recent transactions involving Brazilian companies
Structuring mining business in Brazil
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September/2011
Mineração Usiminas entered into an agreement with MBL Materiais Básicos to lease the MBL mining rights for 30 years or even until the depletion of the reserves, which are estimated in 145 mt
Mineração Usiminas S.A.
The Russian company Soverstal announced the purchase of 25% of the Brazilian SPG Mineração, which has license to explore iron ore in the north of Amapá
OAO Severstal
CSN announces the sale of 19.9% of its share in the Australian company Riversdale Mining to the mining company Rio Tinto
CSN
A consortium of companies of Japan and South Korea acquired 15% of Companhia Brasileira de Metalurgia e Mineração, controlled by Brasil Warrant
Nippon Steel Corporation / Posco / Sojitz Corporation / Japan Oil, Fas and Metals National Corporation
Usiminas and MMX entered into a partnership to explore mining and logistics assets. The agreement involves the rendering of port services and the lease of Mina Pau Vinho
MMX Mineração e Metálicos S.A.
PricewaterhouseCoopers LLP
Access to capital
Companies should consider the use of TSX and Private Equity to maximize their opportunities and budgets, to execute the projects
Structuring mining business in Brazil
12
September/2011
www.pwc.com/ca
Financial Statement and Audit considerations for Companies going public in Canada
Canadian Capital Markets opportunities
Resource Rich • One of the largest oil reserves in the world • World’s largest producer of zinc and uranium and major producer of gold, nickel, aluminum and lead • Important global supplier of wheat, canola and other grains • Extensive timber resources
Strong • Canada’s financial system has been ranked as the soundest in the world for two years in a row by the World Economic Forum • Lowest debt-to-GDP among G7 • Relatively strong financial position: 12 years of surpluses 1998-2009
Scaleable Equity Market Structure
1245 Mining Companies 361 Mining 361 Mining Companies
TSX Venture Exchange
• Access to capital for earlier stage companies or smaller financings
• Total market cap of mining companies $39.9 Billion & average market cap of $32.0 M
• Cost effective stepping stone for international companies looking to list on a quality North American market
• Exchange mandate to mentor management of newly public companies
• Streamlined graduation to TSX when senior market requirements are met
• 103 year history
Toronto Stock Exchange
• Senior market for well established businesses and management teams with experience in public markets
• Total mining market cap of $471.4 million & average market cap of $1.3B
• Access to larger, more international
institutional investors and greater analyst
coverage
• Globally visible specialized indices
• 157 year history
TMX Group Serves Companies at all Stages of Growth
Market Capitalization
Toronto Stock Exchange and TSX Venture Exchange
35% 31% 37%
90%
9% 1%
<$50 Million $50 - $250 Million >$250 Million
% of TSX Issuers
% of TSXV Issuers
As of September 30, 2010
473
Issuers
549
Issuers
463
Issuers
1922
Issuers
191
30
Issuers
Unique feeder system
471 graduates
+ 85 M&A*
*From January 1, 2000 – September 30, 2010
Toronto Stock Exchange issuer base: 1,485 issuers, ~$1.9 trillion market cap
TSX Venture Exchange issuer base (excludes NEX): 2,143 issuers, ~$48.5 billion market cap
TSX and TSXV have the most mining companies in the world
616
17963 60 57 38 30
1466
TSX TSXV ASX LSE-AIM NYSE NYSE Amex JSE HKEx Lima
Total Number of Mining Issuers
As at June 30, 2010
Source: Exchange Websites, Capital IQ
*Includes RTOs and QTs on TSXV
Why List on TSX Venture Exchange
• Financing range: $500K to $20 Million
• Multiple financing rounds = more ground-floor investing opportunity
• Acquisition currency
• Employee stock options
• Mentoring role
• Stepping stone to senior markets
• Streamlined graduation path to Toronto Stock Exchange
• Graduates leave with a track record
How can mining companies access TMX?
Public companies dual list on a TMX exchange and remain listed on home exchange
Companies can access via IPO, Capital Pool Program (CPC) or RTO onto TSX V or TSX
Access the TSX or TSXV through an M&A transaction or equity investment
Financial Statement and Listing Requirements
Public Disclosure Requirements included in Listing
• Depend on the method by which a Company is going public
• RTO’s - Annual balance sheets and income statements must be filed for the last 2 years
• IPO’s - Annual balance sheets must be filed for the last 2 years or since inception
- Income statements must be filed for the last 3 years or since inception
Financial Statement and Listing Requirements
Public Disclosure Requirements included in a Listing
Pro forma financial statements
• RTO - pro forma financial statements giving effect to the terms of the transaction are required
• IPO- pro forma financial statements are not required
Financial Statement and Listing Requirements
Public Disclosure Requirements included in a Listing
Other Considerations IPO versus RTO
• Filing document with TSX is more comprehensive for an IPO
• Securities regulator must review
• For an RTO, a shareholder meeting of the public company is required to approve the deal, etc.
• For an IPO, the shareholder meeting is simpler since the company that requires shareholder approval is private
Financial Statement and Listing Requirements
Other Issues
• Change of control issues with mining permits/other contracts
• A share transfer is required for RTO – this could have tax consequences
Estimated Cost of Going Public and Listing
Toronto Stock Exchange
TSX Venture Exchange
National Instrument 43-101 (NI 43-101) Definition & Purpose
Created after the Bre-X scandal, the NI 43-101 ensures that misleading, erroneous, or fraudulent information relating to mineral properties is not published and promoted to investors on the stock exchanges overseen by the Canadian Securities Authority
A mineral resource classification scheme used for the public disclosure of information relating to mineral properties in Canada
The National Instrument 43-101 is comparable to the JORC (Australia) and SAMREC (South African) codes
Disclosures covered by the NI 43-101 code include:
press releases of mineral exploration reports
reporting of reserves and resources
presentations
oral comments (conference calls, AGM)
websites
Technical Reports must be authored by a technically qualified person (i.e. Engineer/Geologist)
© 2010 PricewaterhouseCoopers Contadores Públicos. All rights reserved. In this document,
“PwC” refers to PricewaterhouseCoopers Contadores Públicos which is a member firm of
PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.
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