GLOBAL CHINESE FINANCIAL FORUM SHANGHAI CONFERENCE 2009

Canadian Natural Resources M&A Environment Trends and Outlook

Brian Imrie Partner, KPMG Corporate Finance, Canada

Canadian Natural Resources M&A Environment M&A Activity Overview

   Global M&A has fallen dramatically from the 2007 peak and activity has continued to decline in 2009 M&A activity has rebounded modestly in Canada in 2009 Canadian portion of global total is significant and has risen in recent years Canadian M &A Activity - % of Global 8.8% 6.0% 6.9% 2004 2005 2006 2007 8.9% 4.4% 9.4% 2008 YTD 2009 Global M &A Activity - Annual - $B $3,549 $4,050 $2,608 $2,013 $2,523 $1,399 Canadian M &A Activity - Annual - $B $311 $359 $179 $121 $112 $132 Source: 2004 Bloomberg 2005 2006 2007 2008 YTD 2009 2004 2005 2006 2007 © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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2008 YTD 2009

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Canadian Natural Resources M&A Environment Importance of Natural Resources in Canada

 Natural Resources are the leading components of Canadian equity markets and M&A Canadian Equity M arket (as at Sep 30, 2009) Info Tech, 3.2% Industrials, 5.5% Telecom Services, 4.3% Utilities, 1.5% M ining/M aterials, 20.4% Health Care, 0.5% M ining 10% Canadian M &A M arket 2004-2009 Energy 15% Financials, 30.6% Energy, 27.2% Other 75% Consumer Staples, 2.7% Consumer Discretionary, 4.2% Source: Standard and Poor’s (as at November 23, 2009) © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Natural Resources M&A 2004 - 2009

 Mining M&A activity has declined since 2007 with fewer mega deals  Energy M&A activity has declined less M ining M &A 30 20 10 0 80 70 60 50 40 2004 2005 2006 2007 2008 2009 30 20 10 0 80 70 60 50 40 Value of Deals ($) Number of Deals (Announced) Energy M &A 80 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 80 70 60 50 40 30 20 10 0 Value of Deals ($) Number of Deals (Announced) Source: MergerMarket © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Premiums Paid Analysis

 The average premium paid in public natural resources takeovers in this period has been 24.7%  The premium paid in the energy industry has been lower because of the greater number of “mergers of equals” with little or no premium, i.e. “at the market” transactions Premiums Paid - M ining 60% 50% 40% 30% 20% 10% 0% 2004 2005 30.6% 2006 2007 2008 2009 Premiums Paid - Energy 60% 50% 40% 30% 20% 10% 0% 2004 2005 2006 2007 2008 20.5% 2009 Source: Average Premium Paid MergerMarket Average premium paid for all deals Average Premium Paid Average premium paid for all deals © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Cross-Border Transactions

 Cross-border transactions continue to represent a majority of Canadian M&A by Value  Significantly higher than US Market Source: MergerMarket Cross-Border as a % of M &A Transactions 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 58% 29% 72% 29% 53% 28% 23% 71% 66% 24% 24% 76% 67% 29% 37% 80% 52% 43% 32% 2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD 2009 61% Canada US © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Importance of Foreign Acquirors of Natural Resources Companies

M ining & Energy - Foreign Buyers  Non-Canadian acquirors play an important role in takeovers of Canadian natural resources companies 60% 50% 40% 30%  Proportion is higher for mining companies, given the more global nature of the assets and the high degree of consolidation activity in Western Canadian conventional oil and gas 20% 10% 0% 2004 2005 2006 2007 M ining 2008 Energy Source: MergerMarket © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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2009

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Canadian Natural Resources M&A Environment Consideration Used in Acquisitions

 Cash is used to acquire natural resource companies in the majority of transactions  However, acquirors regularly offer equity to target shareholders, or a combination of cash and equity Consideration Used - M ining 14% 17% 9% 12% 9% Consideration Used - Energy 20% 15% 17% 27% 15% 12% 26% 20% 39% 35% 33% 35% 25% 24% 43% 30% 42% 33% 23% 65% 52% 53% 57% 58% 61% 62% 43% 42% 43% 50% 40% 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 Source: Cash Deals MergerMarket Equity Deals Combination Deals Cash Deals Equity Deals Combination Deals © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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2009

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Canadian Natural Resources M&A Environment Notable Deals - Mining

 Decline in Canadian mining M&A values in 2009 has been driven by a reduced number of mega deals    Decline of commodity prices Lower equity market values for acquirors Reduced access to capital

2006 2007 2008 2009

 Barrick Gold/Placer Dome  Xstrata/Falconbridge  Vale/Inco  Rio Tinto/Alcan  Teck Resources/Fording Canadian Coal Trust  CIC/Teck (17% stake) $10 B $24 B $18 B $44 B $14 B $1.7B

Source: MergerMarket © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Chinese Mining Acquisitions

 In the last several years, Chinese acquirors have been very active in Canada  Targets have been multiple minerals: nickel, coal, gold, zinc, copper  Exploration, development and production  100% ownership/minority control/portfolio investment

2009 2008

 Jilin Jien Nickel Industry/Canadian Royalties  CIC/Teck Resources (17% stake)  Jinduicheng Molybdenum/Yukon Zinc  China National Gold Corp/Jinshan Gold Mines (42% stake)  Jinchuan Group/Tyler Resources  China Minmetals & Jiangxi Copper/Northern Peru Copper $137 MM $1.7 B $120 MM $200 mm $175 MM $410 mm Source: MergerMarket © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Notable Deals – Energy 2009

 Energy has been the most active sector in Canadian M&A in 2009    Top 2 transactions and 5 of the top 10 Foreign companies have been active buyers Ongoing domestic consolidation also  Top Energy Deals  Suncor Energy/Petro-Canada - $20 B    Sinopec/Addax Petroleum - $10 B Korean National Oil/Harvest Energy Trust - $5 B Petrobakken Energy/Tristar Oil & Gas - $3 B  Abu Dhabi Investment Authority/Nova Chemicals - $2 B Source: MergerMarket © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Chinese Energy Acquisitions

 Chinese acquirors have also been active in the mining sector  Greater focus historically on companies with large international reserves

2009 2008 2005

 PetroChina/AOSC Oil Sands Project (60%)  Sinopec/Addax Petroleum  CNPC/Verenex Energy  China Petroleum & Chemical/Tanganyika Oil  CNPC International/PetroKazakhstan $1.9 B $10 B $325 MM (pending) $1.8 B $3.9 B Source: MergerMarket © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Unsolicited or “Hostile” Bids in Canada

 Most public company takeovers in Canada are friendly, negotiated transactions  Exclusive negotiations with single buyer or a controlled auction of company  However, Canadian takeover regulations and practices make Canada one of the easiest jurisdictions globally to successfully launch an unsolicited or hostile takeover bid  Regulators in Canada want shareholders to decide on merits of a takeover bid   Majority of Canadian hostile transactions result in a change of control Different from US “Just Say No” defence  Average ultimate takeover premium for hostile bids is 54%, well above average premium for negotiated deals  First Chinese hostile bid for Canadian company was successful in 2009  Jilin Jien Nickel Industry’s acquisition of Canadian Royalties © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Canadian Hostile Transactions since 2005

Pending 7%

Number of Deals:

Acquired by Initial Offeror Remained Independent Acquired by Interloper Pending

Total

28 6 10 7 51 Acquired by Interloper 10% Remained Independent 6% Acquired by Initial Offeror 28% © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment Foreign Acquisitions in Canada – Investment Canada Act

 Investment Canada Act applies to every acquisition of control of a Canadian business by a non Canadian  Only 1 transaction has been blocked in 25 years, excluding cultural industries  Proposed $1.3 B acquisition of MDA’s space division by US-based Alliant Techsystems  Changes to the ICA in 2009 significantly increased the threshold size under which reviews are not required  Deals will not be reviewed under $600 MM enterprise value  Increasing to $800 MM in 2011 and $1 B in 2013  No longer any special review for uranium  However, new power to review transactions based on national security interests creates some uncertainty  Not expected to be used often © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment

S&P/TSX Global Gold Index v Gold 200 180 160 140 120 100 80 60 Ju l-0 7 Se p 07 Nov 07 Ja n 08 M ar -0 8 M ay 08 Ju l-0 8 Se p 08 Nov 08 Ja n 09 M ar -0 9 M ay 09 Ju l-0 9 Se p 09 S&P/TSX Global Gold Index Gold Source: Bloomberg S&P/TSX Energy Index v Crude Oil 210 190 170 150 130 110 90 70 50 Ju l-0 7 Se p 07 Nov 07 Ja n 08 M ar -0 8 M ay 08 Ju l-0 8 Se p 08 Nov 08 Ja n 09 M ar -0 9 M ay 09 Ju l-0 9 Se p 09 S&P/TSX Energy Index Crude Oil S&P/TSX Global M ining Index v IM F World Non Fuel All Commodity 140 120 100 80 60 40 20 0 Ju l-0 7 Se p 07 Nov 07 Ja n 08 M ar -0 8 M ay 08 Ju l-0 8 Se p 08 Nov 08 Ja n 09 M ar -0 9 M ay 09 Ju l-0 9 Se p 09 S&P TSX global mining index IM F World Non Fuel Commodities Index © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Canadian Natural Resources M&A Environment

M&A Outlook – 2010 and Beyond

 Most markets have improved significantly in 2009     Prospect for global economy has improved Commodity prices have strengthened Equity markets have improved and reduction of volatility Improved CEO and Board confidence  Improved Liquidity   Access to equity capital, particularly for senior and intermediate producers Improved investment grade credit  Canadian Natural Resources M&A   Mining M&A activity will increase substantially in 2010; energy M&A will remain high Increased competition for mega deals as seniors return to the game    Junior and intermediates, especially miners with development projects, will actively seek strategic partners and creative solutions   M&A Minority investments JV’s/project level investments Offtakes © 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.

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Questions/Discussion

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