Deal-making in Africa

Transcript Deal-making in Africa

Deal-making in Africa

16 June 2011 Sean Chilvers (Macquarie), Adam Hing (Control Risks), David Eliakim (Mallesons) and Paul Schroder (Mallesons)

Deal-making in Africa

 Background -

Mallesons

 Understanding the market -

Macquarie

 Being honest about the risks –

Control Risks

 Navigating the legal minefields –

Mallesons

 Bringing it all together -

Panel

 Q & A -

Panel

Background –

Paul Schroder, Mallesons

   DFAT statistics on Australian investment in Africa: ⇒ 2010 surge: 48 new companies, 143 new projects ⇒ ⇒ ⇒ Australia represented 10% of all M&A activity in Africa by deal value (2010) A$19bn investment pipeline Australian exports to Africa – A$5.8bn in 2009-10 Our own recent experience is the increasing importance of Africa and in particular Africa resources to our clients: ⇒ high commodity prices ameliorates political risk and infrastructure costs ⇒ ⇒ Africa welcomes Chinese/Indian investment risk tolerance and technical expertise of Australian miners Some of the most interesting recent Australian M&A deals have involved companies with all their resources in Africa. These include: ⇒ Xstrata’s successful $514 million bid for the shares in Sphere Minerals, an iron ore miner in Mauritania ⇒ ⇒ Rio Tinto’s successful takeover of Riversdale with its Mozambique coal assets Paladin’s bid for NGM Resource’s uranium assets in Niger, which went before the Takeover Panel who declined to find the invasion by al-Qaeda in the Maghreb (North Africa) was force majeure/MAC © Mallesons Stephen Jaques 2

Understanding the market –

Sean Chilvers, Macquarie

        

Three

of the world’s

Saharan Africa 10

fastest-growing economies over the past five years have been from

sub-

The International Monetary Fund predicts that next five years will also be from

Africa four

of the top

fastest-growing economies in the Of the 324 fastest-growing cities,

24.4%

are located in Africa and the Middle East Over the past decade sub-Saharan annual average of 5.7%, up from Africa’s real gross domestic product growth rate jumped to an

2.4%

over the previous two decades Africa’s consumer spending is predicted to total

$US1.4 trillion by 2020

, with around 128 million households having discretionary income and more than half living in cities Foreign direct investment in Africa has increased from US$10 billion in 2000 to

US$59 billion in 2009

, significantly larger than the flow to China if measured relative to gross domestic product

c.220 ASX listed companies countries

are mining and exploration companies active

in c. 42 African

Australian investment in African resources has grown to c.

A$20 billion 1

There are a number of opportunities for Australian companies to invest in infrastructure projects resulting from the development of a growing number of resource projects in Africa 1 Australian Department of Foreign Affairs and Trade © Mallesons Stephen Jaques

Source: Australia Africa Mining Industry Group

Resource rich Africa Driving mining and infrastructure investment opportunities

US$31 billion a year

Africa’s infrastructure funding gap, mostly in the power sector

Algeria

ranks

5th

in global natural

gas

production

20 Iron ore mines

to open in the

West Africa region

(Liberia, Guinea, Sierra Leone, Cameroon) by

2015;

aggregate output could reach

600-million tonnes a year

(equivalent to

62%

of global production in

2012

and

38%

2015

)

US$93.3 billion

needed to improve Africa’s infrastructure of which : 

US$40.8 billion

to boost power supply 

US$21.9 billion

and sanitation to improve water supply 

US$18.2 billion

to develop transport 

US$9.0 billion

technology to improve information and communication 

US$3.4 billion

requirements to address irrigation © Mallesons Stephen Jaques One of

the top gold

producing regions in the world is

West Africa Nigeria oil Angola

is the producer in the world; ranks

14th 17th

largest

Niger and Namibia

are in

the top six uranium

producing countries in the world The Zambia/DRC

copper

belt is among the

richest

in the world with ranking

9 th

production

Zambia

in world

75%

of South Africa's energy needs are directly derived from coal and

92%

of coal consumed on the African continent is produced in

South Africa 85%

of the world’s reserves are in

platinum South Africa

alone

Three

of the world’s

top five diamond

producing countries are in Africa:

Angola, Botswana, South Africa

Source: MINEAfrica, The International Bank for Reconstruction and Development / The World Bank

Record years for mining financings

Equity capital raised globally for mining companies has increased dramatically since 2005… Global equity capital raised by mining companies from 2000 to 2010 (US$ billions) 98.6

Rio Tinto ($15.9bn) Barrick Gold (US$4.0bn) Xstrata (US$5.8bn) 62.5

94.0

71.8

53.6

29.4

27.3

19.9

15.3

5.1

2000 7.5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Dealogic

Record years for mining financings

… with US$7.9 billion raised in Australia in 2010 Global equity capital raised by mining companies: 2010 (US$ billions) Includes Ivanhoe Mines (US$1.2bn) and Red Back Mining (US$0.6bn) 17.0

4.5

TSXV Includes CONSOL Energy (US$1.9bn) Includes UC Rusal (US$2.4bn) Includes African Barrick Gold (US$0.9bn) Includes Anglo Platinum (US$1.7bn) and AngloGold (US$1.6bn) 7.9

7.0

12.5

TSX 6.4

5.3

4.5

2.2

TSX/TSXV

303 / 2,110

ASX

524

HKE

Number of financings LSE

JSE

AIM

121 Source: Dealogic

Market dynamics

ASX TSX TSXV LSE AIM JSE HKEx NYSE/ NYSE Amex Number of issuers listed

666 353 1,178 52 145 59 50 135

Mining market comparison – 2010 Quoted market value (US$ billions) Equity capital raised (US$ billions) Number of financings

684.8

7.9

524 520.9

42.0

624.4

27.9

442.0

329.4

12.5

5.3

2.2

4.5

6.4

303 2,110 16 121 10 36

Number of new listings

75 59 149 3 23 4 8 1,547.1

7.0

Source: Dealogic

Dual primary listing of Gold One International Limited

  Australian incorporated first dual primary listing on the ASX and the JSE (ASX/JSE: GDO)  Gold One was listed on 18 May 2009 after ASX listed BMA Gold Limited implemented a reverse takeover of JSE listed Aflease Gold Limited  Gold One is an African focussed gold producer and explorer, and owns a producing gold mine and a gold development project in South Africa, as well as a gold exploration project in Namibia  Subsequent to its listing, Gold One received approval to amend its listing status on the JSE to a secondary listing during February 2010 During September 2009, Gold One raised A$30 million through a private placement of shares During May 2011, Gold One announced the execution of a transaction implementation agreement with a Chinese consortium of investors  The cash consideration premium of 27.9% to the closing price and 25.1% premium to the 30-day VWAP of Gold One shares on the ASX on 12 May 2011 reflects the consortium’s serious intention to implement the takeover

Aflease Gold / Gold One

Reverse take-over of JSE listed Aflease Gold by ASX listed BMA Gold and dual primary foreign inward listing of Gold One on the JSE and ASX CONSIDERATION A$100 million Financial Adviser , Transaction Sponsor, and Sponsor 2009 © Mallesons Stephen Jaques

Gold One International Limited

Gold One ’s general and specific issue of shares for cash to foreign institutions CONSIDERATION A$30 million Financial Adviser, Transaction Sponsor, and Sponsor 2009

Gold One International Limited

Takeover offer by a consortium of Chinese Investors including a US$150 million cash subscription by the consortium OFFER CONSIDERATION A$0.55 per share Financial Adviser , Transaction Sponsor. and Sponsor 2011 8

Rio Tinto A$4 billion acquisition of Riversdale Mining

Macquarie is currently advising Rio Tinto on its A$4.0 billion acquisition of Riversdale Mining, delivering Rio control of substantial Tier 1 coking coal assets in Mozambique

   

Transaction Overview

 On 23 December 2010 Rio Tinto announced a recommended cash takeover offer for Riversdale for $16 per share (A$3.9 billion)   On 10 March 2011, Rio Tinto announced that it would increase its offer to $16.50 if it reached 50% within 2 weeks On 29 March 2011, Rio Tinto declared its offer unconditional at $16 with a relevant interest of 41%, and stated that the offer would increase to $16.50 if Rio achieved more than 47% acceptances before the end of the offer period On 6 April 2011, Rio Tinto went through 47% acceptances and hence increased its offer to $16.50 (A$4.0 billion) Two days later Rio Tinto’s interest exceeded 50% and it assumed control of Riversdale On 29 April 2011, Rio Tinto announced that it had gained control of the Riversdale board and would seek to de-list the company The offer has now been declared final and will close on 17 June 2011, with Rio Tinto currently owning 73.4%, Tata Steel 26.3% and free float of 0.3%

Riversdale’s Share Register

Tata Steel 24.4% Minority Shareholders 0.3% Minority Shareholders 43.9%

Pre-offer Current

Opportunities abound

   The African investment climate is the best it has been in at least a decade Africa’s current economy is comparable to where Australia was c. 20 years ago The case for Africa presents a number of opportunities in terms of resource exploitation, as well as resources and infrastructure development  The Australian investment community presents a deeper pool of sophisticated investors (specifically in the resources sector) relative to African markets  The global mining industry is reliant on regions such as Africa as a future source of commodities  Australian firms are well place to provide capital and capability to exploit African opportunities

“West Africa is the new Pilbara for iron ore mining as well as a battleground between established miners and Chinese firms seeking to enter the region”

Miningmx

“India has stepped up its push to deepen its economic ties with Africa and emerge from the shadow of rival China by offering $5bn in new credit lines to the continent.”

Miningmx

Australia Africa Business Council Deal making in Africa – Being honest about the risks Adam Hing – Director Strategic Consulting

About us

Since 1975 we have worked in over 130 countries for more than 5,000 clients © Mallesons Stephen Jaques An international consultancy with 34 offices worldwide National and multinational clients in a wide variety of industrial and service sectors, governments and NGOs 12

Worldwide office network

Our service areas

Information Investigation       Fraud prevention and investigation Litigation support Information leaks Asset tracing Business and reputational audit Sabotage Security       Pre-entry country studies Online political analysis and forecasting Online travel security advice Due diligence Competitor intelligence Vetting services     Protection of people, assets and information Risk analysis and evaluation Security planning and consultancy Security design and implementation © Mallesons Stephen Jaques Response     24 hour manned hotline service Crisis management planning Response: extortion, product contamination, kidnap and ransom Post-incident evaluation and victim rehabilitation 14

Agenda

 Three of the top risks when doing deals in Africa: ⇒ ⇒ ⇒ Political stability Infrastructure Corruption  Piecing together the risks: ⇒ Political and macro economic stability ⇒ ⇒ ⇒ ⇒ ⇒ Integrity/corruption Regulatory issues Social & environmental issues Availability of reliable infrastructure Security © Mallesons Stephen Jaques 15

Risk 1: Political stability

Risk 2: Infrastructure

 Insufficient infrastructure single largest constraint on private sector growth  Unreliable electricity and inadequate roads especially burdensome/ problematic for 2011  These problems will only increase as mining expands into ever more remote regions © Mallesons Stephen Jaques 17

Risk 3: Corruption

 African countries and corruption have a long and unhealthy relationship  During 2010, 64.5% of approximately 15,000 transactions in Tanzania were characterised by requests for bribery payments  Corruption ⇒

“Dishonest or fraudulent conduct by those in power, typically involving bribery”

Oxford Dictionary 3 rd edition  Bribe ⇒

“Dishonestly persuade (someone) to act in one’s favour by a gift of money or some other inducement”

Extractives and corruption

 More often than not extractives companies are operating in countries with a high risk of corruption; often corruption is endemic  The extractives industry will require the issue of many licences, concessions, permits and consents, which are nearly always discretionary and involve public officials  There is a very high use of agents and third parties, many of whom are operating in high-risk countries and dealing with public officials  The vast majority of cases involve agents paying bribes on behalf of the parent company  Vetco International (Panalpina case) © Mallesons Stephen Jaques 19

It’s not just about legal risk

Legal risk Project Political risk

Issues – Big picture

 Political and macro economic stability  Integrity/corruption  Regulatory issues  Social & environmental issues  Availability of reliable infrastructure  Security © Mallesons Stephen Jaques 21

Political and macro-economic threats

 The political environment and key players  Regulatory bodies  Political stability  Prospects for the next legislative and presidential election cycles  Macro-economic policy-making agenda  Foreign relations  Insurable risks © Mallesons Stephen Jaques 22

Operational environment

 

Regulatory and governance threats

 Regulatory environment Security of tenure Taxation and royalty schemes and potential changes to these regimes  Bureaucratic and judicial systems    

Social and environmental threats

 Overview of society  Land access and ownership issues Labour and employment issues Artisan mining Social and environmental issues International and local NGO and media scrutiny  

Infrastructure threats

 Power supplies Transport and logistics Public health situation 23

Security threat environment

 Terrorism  Organised crime  General crime  Political and socio-economic unrest  Labour strikes and unrest  Public and private security provision © Mallesons Stephen Jaques 24

Navigating the legal minefields –

David Eliakim, Mallesons

 Usual cross-border issues associates with multiple regulators ⇒ Australia: ˿ ˿ ˿ FIRB ASX ACCC ⇒ ⇒ China outbound investment approvals Africa: ˿ ˿ ˿ ˿ ˿ ˿ South Africa as a case-study Exchange Controls Competition authorities JSE Takeover Regulation Panel Department of Mineral Resources ⇒ US$25bn MTN/Bharti mobile phone deal fell over when South African and Indian currency control authorities could not agree © Mallesons Stephen Jaques 25

Navigating the legal minefields –

David Eliakim, Mallesons

Asia-Pacific competing as a place where Africa raises capital: ASX & HKSE –

David Eliakim, Mallesons

 Historic dominance of LSE (AIM) and TSX  Emergence of ASX  HKSE as the future ⇒ More capital was raised on the HKSE (US$52.8 billion) in 2010 than on all the US exchanges combined (US$42 billion).

⇒ Our Hong Kong offices have seen a flurry of resources IPOs on the HKSE which they attribute to factors such as the resources boom generally and the desire of issuers to associate themselves with the China story. ⇒ The HKSE has developed a reputation for resources, with Singapore having more success in REITs © Mallesons Stephen Jaques 27

Bringing it all together: Panel members comments on each others’ presentations –

Paul Schroder, Mallesons

Deal-making in Africa

Transcript Deal-making in Africa

Deal-making in Africa