Transcript AFRICA MINING CONGRESS 2009 14 – 17 July, 2009

Strategic Partnerships:
Reshaping the financing landscape within
the mining sector
Bruce Shapiro
President, Mine Africa Inc.
President, Canada-South Africa Chamber of Business
www.mineafrica.com
www.canadasachamber.com
Overview – Global Outlook
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IMF
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Global economy likely to contract 1.4%
A sluggish growth of 2.5% forecast for 2010
Financial institutions could lose $4.1 trillion
Banks need to raise $875b in fresh capital
Overview – Sub-Saharan Africa
Advanced economies to contract by 3.8% in
2009 and grow by 0.6% in 2010
Sub-Saharan Africa to grow by 1.5% in
2009 and 4.1% in 2010
Overview – Mining Outlook

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The mining industry had its fair share of the
contraction
Performance of the global mining sector has
been poor towards the end of last year and the
beginning of this year
The Economist reported of rumours, just over 18
months ago, of a wave of mega-mergers that
were expected by the end of 2008, including:
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BHP Billiton’s bid for Rio Tinto
Vale’s bid for Xstrata
Xstrata’s bid for Anglo American
Overview – Mining Outlook
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These bids are still being talked about, even as
mining stocks continue to suffer globally
...and the biggest of them – if finalized – the
estimated US$116b joint venture between Rio
Tinto and BHP
The deal faces two major impediments:
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Rio Tinto’s scrapping of a proposed US$20b tie-up
with Chinese metals group Chinalco is being
challenged by the Chinese investor
a Rio-BHP merger will produce a mega monopoly in
the supply of iron ore products, a prospect facing a
stern test from restrictive competition rules.
Overview – Mining Outlook

62% drop in cap. of top 40 companies in ’08.
73% drop in cap. on TSX-V to C$7.9b

30% of exploration companies to go under.
Drop in spending from $3.4b in ‘08 to $2b in ‘09
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Steel sheet products to fall by 22% in 2009.
Tonnage to fall to 300m from 380m in ’08
Overview – Mining Outlook
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Copper slumped from $9,000t Q3 ’08 - $3,000t
Q1 ’09
Despite 29% gain in 20 top caps, AIM to lose in
’09
SA had an output decline of 7.5% in 2008
Up to 30,000 workers could lose their jobs
49.7t gold production, 5% down year-on-year
Diamond production to fall to 15.8m carats in
‘09
Public to public agreements
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Who benefits from these global partnerships?
Politically motivated for political benefits
Susceptible to policy discrepancies, problems
with transparency and consistency
Drive away financiers and investors
Public to public agreements
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Gov’t policy is important in attracting FDI
IE - transparent mining legislation, minerals
rights granting processes and foreign investment
protection agreements
Governments should focus on improving the
investment climate for the private sector but not
necessarily get involved themselves
If so, they must operate under the same
principles that governs the private sector
Public to public agreements: China
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Offers a “hear no evil, see no evil and speak no
evil” – approach
Investment commitment in Africa grew - $10B in
1980s to $100b in 2008
Chinese mining stocks have an almost 25
percent stake of the world’s top 100 miners,
benefiting from:
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considerable demand for mining resources
A US$585b stimulus package
Public to public agreements: China
SELECTED INDICES, SPOTS AND GROUPS
MSCI world equities USD
MSCI emerging markets USD
Dow Jones Industrial
S+P 500
DJ Stoxx 600
CSI 300
Shanghai Composite
Micex Russia
India Nifty
Reuters/Jefferies CRB
Dow Jones AIG Commodity
Baltic Dry Shipping
Baltic Capesize Shipping
Dollar Index Spot
Gold spot USD/oz
KBW banks
Points
From
High
From
Low
952.44
749.02
8497.18
910.71
203.84
3057.43
2853.90
1004.53
4251.40
256.82
126.46
4026.00
7825.00
80.42
937.14
35.52
-35.2%
-34.8%
-30.1%
-32.5%
-33.3%
-0.1%
-3.3%
-46.4%
-9.4%
-45.8%
-47.0%
-58.1%
-44.7%
-10.3%
-6.9%
-57.4%
39.2%
68.0%
31.3%
36.6%
31.2%
90.3%
71.4%
103.5%
88.7%
28.3%
24.6%
507.2%
842.8%
12.8%
37.3%
100.1%
Public to public agreements: China
TOP RUNNER CHINESE MINING STOCKS
Stock Price
China Zhongwang
Zhongjin
Gansu Jingyuan
SDIC Xinji
Tibet Minerals
Yunnan Aluminium
Anhui Hengyuan
Shanxi Xishan
Shenzhen Zhongjin
Shanxi Guanlu
HKD 9.10
CNY 52.02
CNY 16.95
CNY 16.12
CNY 23.43
CNY 9.20
CNY 25.35
CNY 27.48
CNY 20.80CNY 8.39
From
High
From
Low
-2.2%
-2.2%
-3.6%
-5.0%
-5.7%
-5.8%
-6.1%
-7.0%
7.7%
-7.8%
39.8%
401.9%
324.8%
253.5%
346.3%
142.1%
280.7%
293.7%
243.2%
193.4%
Public to public agreements: China
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However, recession has caught up with China
too, forcing it to demand accountability from
some African beneficiary countries:
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Wants stability in Guinea
Falling prices of copper products in the Congo
Oil deal in Angola likely to collapse
African governments also realizing that deals are
in essence loans against future revenue
A Case for SWF’s
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SWF’s have existed since at least the 1950s, but
their total size worldwide has increased
dramatically over the past 10 - 15 years;
In 1990 sovereign funds held about $500b
In 2009 total value is estimated at $2–3t
In 2012, could reach $10t
Advantages of SWF’s
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Accumulation of reserves increased size of SWF’s
Current liquidity crisis increases role of SWF’s
SWF’s enjoy substantial freedom in selecting
assets to invest in, in line with gov’t policy
Investment horizon considered as long term
These factors provide a perfect combination for
SWF’s investments into mining
The increasing role of M&A’s
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Good for business consolidation and injection of
capital in struggling companies.
Of benefit to juniors and BEEs
The increasing role of M&A’s:
The current negatives
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Value declined 40% to US$127b in 2008, for 919
transactions
In 2007, 903 transactions were valued at
US$211b
Loans increased to 268 for US$172b in 2008
compared to US$111b in 2007
The increasing role of M&A’s:
some positive developments
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Despite low forecast in value, a
substantial number of M&As are
expected this year:
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Mvelaphanda Resources, which plans to delist by early 2010, is refinancing the R 2.1
billion Gold Fields mezzanine debt
Red Back Mining acquired Moto Goldmines for
a reported Cd 513 million
The increasing role of M&A’s:
some positive developments
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Continued...
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Lake Victoria Mining will acquire up to 100% interest
in Kilimanjaro
MDN will acquire up to 75% of the shares of MCI
Gold Fields sold a stake in Sino Gold for US$282m
However, equity not dead (Banro)
Can the finance market support the
shift in control of mineral resources?
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Finance markets tend to shun government
controlled assets
Fraser Institute’s Policy Potential Index (13
areas)
African governments should regulate only, not
compete with private sector
Can the finance market support the
shift in control of mineral resources?
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Government self-interest:
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France plans to assist African governments in owning
& controlling mineral resources
South Africa is planning a state-owned mining
company
51% ownership proposal in Zimbabwe
Contract reviews in Congo
Tax reviews in Zambia
Strategic partnerships to level
the financing playing field
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A combination of:
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foreign capital
local control
unrestricted market access
Consolidation strategies vs.
bold investments
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Industry should consider consolidation strategies
leading to bold investments
C + C + C = SFS
U
Conclusion
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Recessions should not be looked only in terms of
their negative impact
Recessions allow breathing space to selfcalibrate and refocus
Recessions necessitate re-assessments of
financing, investing and production options
Time to embrace other options, e.g.;
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Partnering/working alongside state-run mining
companies
China is the de facto driver of the global mining
economy
Severe dilution to survive
Conclusion: Recent deal-flow and
trends on the TSX
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Increase in gold, silver, copper and uranium
financings
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$6.4 billion raised across all commodities in the first
four months of 2009
90% increase over this time last year
Increase in consolidations and takeover bids
between TSX and TSXV miners
New players coming to TSX – investors and
foreign mining companies
Conclusion: Recent deal-flow and
trends on the TSX
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Still some listed mining companies are trading
below cash value placing little or no value on
assets
TSX Venture Exchange bouncing back; up
18.6% this year (March 31, 2009)
Increase in unconventional mining finance
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Structured gold or silver based financing
More convertible securities, bigger discounts, more
dilution
Conclusion: Mining activity on Toronto Stock
Exchange has increased in the last five months
450
2500
400
$1,970
2000
350
300
$1,507
$1,452
1500
250
$1,032
$1,018
200
1000
150
$537
100
500
$345
$254
$239
$212
$102
$88
$63
$44
Aug-08
Sep-08
50
$95
0
0
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Mining Equity Capital Raised on TSX (C$M)
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
TSX Mining Market Cap (C$B)
Mar-09
Apr-09
Market Capitalization (C$B)
Equity Capital Raised (C$M)
$2,113
Conclusion: Activity by exploration companies on
TSX Venture Exchange is beginning to pick up
700
40
$588
$598
35
30
500
25
400
$381
20
300
$250
$202
$275
$272
15
$204
200
$138
$152
$138
$121
100
10
$106
$73
$65
$72
Nov-08
Dec-08
Jan-09
5
0
0
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Mining Equity Capital Raised on TSXV (C$M)
Oct-08
Feb-09
TSXV Mining Market Cap (C$B)
Mar-09
Apr-09
Market Capitalization (C$B)
Equity Capital Raised (C$M)
600
Sources and Thanks to:
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Innocent Madawo (Researcher)
MineAfrica Inc.
Canada-southern Africa Chamber of Business
Enrst & Young
Fraser Institute
Frost & Sullivan
Global InfoMine
Global Times
MBendi Information Services
MineWeb
Mining Review
Mining Weekly
Mines and Commodities.Org
NEPAD-OECD Africa Investment Initiative
New York Times
Reuters News Agency
The Economist
Toronto Stock Exchange
Finance and Development Magazine
Business Day
Useful Websites
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http://www.mineafrica.com/
http://www.canadasachamber.com
http://www.miningmx.com/news/markets/Slump-not-over-for-AIMjuniors.htm
http://www.fraserinstitute.org/
http://www.mineweb.com/mineweb/view/mineweb/en/page37?oid=83804
&sn=Detail
http://technology.infomine.com/articles/1/4052/fraserinstitute.exploration.geology/survey.of.mining.aspx
http://en.huanqiu.com/www/english/business/news/2009-04/426957.html
http://beta.miningreview.com/node/15111
http://www.mbendi.com/a_sndmsg/news_view.asp?I=99825&PG=35
http://www.miningweekly.com/article/toronto-still-the-mining-financecapital-of-the-world-2009-04-17
http://www.minesandcommunities.org/article.php?a=9246
http://www.oecd.org/dataoecd/39/43/41775935.pdf
http://www.nytimes.com/2009/03/26/world/africa/26chinaafrica.html?_r=2
http://www.reuters.com/article/topNews/idUSTRE53L32C20090422?feedType=RSS&f
eedName=topNews
Useful Websites
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http://www.miningmx.com/news/markets/166391.htm
http://beta.miningreview.com/node/15481
http://www.miningmx.com/news/gold_and_silver/SA-gold-output-dropsagain.htm
http://www.diplomatie.gouv.fr/en/ministry_158/publications_2288/internati
onal-cooperation-and-development_2289/brochures-grand-publicserie_2535/mineral-resources-and-development-in-africa_6529/index.html
http://www.fin24.com/articles/default/display_article.aspx?ArticleId=151825_2400209
http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=818
82&sn=Detail
http://www.tsx.com/
http://www.theeconomist.com/
http://www.economist.com/businessfinance/displayStory.cfm?story_id=137
88658
http://www.imf.org/external/pubs/ft/fandd/2007/09/straight.htm
http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=85130
&sn=Detail
http://www.economist.com/businessfinance/displayStory.cfm?story_id=137
88658
http://www.businessday.com.au/business/cfd/riobhp-ironore-venturemonopolistic-20090617-chok.html