Transcript www.eaz.org.zm

Chamber of Mines in Zambia
24 November 2008
GLOBAL FINANCIAL CRISIS – SOME
PERSPECTIVES
SIGNIFICANCE OF FINANCIAL MARKETS

Source of capital for:
 Exploration
 Pre-development
activities
 Mine Development
 Investment/Expansion
Play a major role in M & A Activity
 Influence Investment Flows
 Determine (to some extent) commodity prices

THE 10 STEPS IN A PROJECT EVALUATION
Exploration, discovery, drilling, resource estimation
2. Metallurgical and mining method testwork
3. Mining and process method selection and optimisation
4. Operating and capital cost estimates
5. Economic Optimisation of economic resource (sub-economic
remains behind)
6. Detailed engineering design of economic optimisation
7. Development of mining and processing schedules
8. Inclusion of the above as well as other relevant economic
data (eg: fiscal measures) into a financial model.
9. Project decision and if positive, funding
10. Development
1.
3
Development Schedule
for a typical large copper project
4
PLAYERS
Rewards, No. of
Winners
Risks, No. of Players
Major Producers
Mid – Tier Producers
Juniors
Explorers (Type I)
Entrants (“Lottery Tickets”)
Adapted from Resource Stock Guide (RSG)
Investor (n)
“One who commits
capital in order to
gain a financial
return”
TYPES OF INVESTORS
Individuals
 Pension Funds
 Mutual Funds
 Hedge Funds
 Companies
 Sovereign Wealth
Funds
 Banks

EFFECTS OF CURRENT FINANCIAL CRISIS
General Weakening in global demand
 Slow down in economic activity

 Depressed
economic output
 Weak demand for durable goods, housing units
 Slow down in construction activity
Marked reduction in investor confidence
 Reduced availability of investible funds

AS A RESULT…..
Investors have become risk averse
 In the current situation, investors see little
“upside” in long term risky investments
 The few investible funds available will only go to
high quality “safe” investments
 The few investors remaining will be very
rigorous in evaluating their portfolios

IMPORTANTLY…
Exploration is the major source of growth in the
mining industry
 At present, more than half of exploration
activity is carried out by mid-tiers, juniors and
exploration companies (US$11bn – US$15bn)
 With restricted funds availability, only quality
projects with the right parameters will continue
 Recent reports indicate approx. US$50bn of
investment is likely to be deferred between
2008/9

PARAMETERS
Top 10 ranked Company Decision Criteria for exploration
(out of 62 factors)
•
•
•
•
•
•
•
•
•
•
Geological potential for target mineral
Profitability of potential operations
Security of tenure & permitting
Ability to repatriate profits
Consistency of mineral policies
Realistic foreign exchange controls
Stability of exploration terms/conditions
Ability to predetermine environmental obligations
Ability to predetermine tax liability
Stability of fiscal regime
United Nations Survey of
45 companies
Source: James Otto
10
WHAT THIS MEANS…
Major Producers
Mid – Tier Producers
Juniors
Explorers
Entrants (“Lottery Tickets”)
No Major Structural Effect
– Focus on
Efficiency/Acquisition
Focus switch from
exploration to efficiency or
M&A
Take over, barely survive or
close down
Marked reduction leaving
very few players
RECENT FALLS IN STOCK PRICES
Central African Copper/Cobalt
BHP Billiton
Freeport McMoran
86%
57.8%
82.2%
IMPLICATIONS FOR ZAMBIA
Pre-2008, Zambia had just started to emerge
as a prime destination for investment, much
more work is still ahead
 In the Zambian mining sector a considerable
number of assets are running old technology,
this has implications on costs
 The current global crisis will impact on
recapitalisation and investment programmes

IMPLICATIONS FOR ZAMBIA
Mineral Exports still account for majority of
foreign earnings
 Mining activity accounts for a very large part of
GDP:

 Tourist
enterprises (hotels, lodges, car hire)
 Support industries (drilling, suppliers, construction,
banks, others)
 “Spin-off” industries (business services, local
entrepreneurship)
LESSONS
The international financial markets are good
sources of capital, but they are very sensitive
 With increasing globalisation developments in
one part of the world can bring far reaching
consequences
 In times of crisis, the winners will always be the
investments and countries that pose the least
risk to investors in the international markets
