Recent trends and key M&A/ECM issues in the African mining industry

1. Recent trends and key M&A/ECM issues in the African mining industry Michael Walter, Partner, Herbert Smith LLP 26th September 2011

2. A: Sector and market overview Current trends and recent transactions A busy sector: selected headlines from the FT Mining M&A: current trends African M&A: deal drivers and challenges in 2011 Mining M&A: recent global transactions Mining M&A: recent African transactions Mining ECM: current trends Mining ECM: recent transactions B: African M&A Key Issues Due diligence Deal certainty Warranty packages Public Company acquisitions C: IPOs Preparing for an IPO Pre-IPO issues Preliminary valuations and price formation Which market? Where to list Timing IPO Timetable Key IPO Issues Reserves and resources reporting Working capital At and after admission FTSE Listing Criteria FTSE 100 Mining Companies D: Case Studies Bharti/Zain M&A transaction In summary Glencore IPO In summary E: Contact Information Contact Information Contents

3. Current trends and recent transactions (1)A busy sector – Selected headlines from the Financial Times • “Avocet switches its focus to west Africa” (1/4) • “Lonmin to invest $2bn to boost production” (10/5) • “Africa pioneer eyes new ground for Cluff Gold” (30/5) • “Vale drops $1.1bn bid to purchase Metorex” (11/7) • “Hanlong Mining bids A$1.2bn for Sundance” (18/7) • “Glencore eyes bid for South African miner” (26/8) • “South Africa: Undermined potential” (4/9) • “Rio and Anglo to sell Palabora Stakes” (5/9) • Vale set to cede 35% of Guinea mining project” (21/9) • “Miners sue Anglo American for damages” (21/9) • “Opposition leader wins Zambian presidency” (23/9)

4. Current trends and recent transactions (2)- Mining M&A: current trends • Market dominated by the big three: BHP Billiton, Vale and Rio Tinto. Rio Tinto, the smallest of these three, has a market capitalisation double that of the next largest company • Rio Tinto, Xstrata and Vale were the most active acquirers between 2000 and 2010, with over $100 billion of acquisitions • 2,693 mining deals (both resource acquisition and M&A) with an aggregate value of $113 billion in 2010 – up 28% up on 2009 • No deals were valued at or above $10 billion in 2010 (n.b. BHP Billiton/Potash Corporation) • Deals to acquire gold reserves prominent in 2010 (44% by deal volume and 31% by deal value in 2010) - economic uncertainty/ Central Banks becoming net buyers Source: PwC Global Mining Deals 2010

5. Current trends and recent transactions (3)- African M&A deal drivers and challenges in 2011 • Drivers • Comeback of Private Equity • Cash-rich corporates • Improved financial conditions • Sector consolidations • Asian buyers • Challenges • Macro-economic uncertainty • Price dislocation • Lack of targets

6. Current trends and recent transactions (4)- Mining M&A: recent global transactions

7. Current trends and recent transactions (5)- Mining M&A: recent African transactions $1.4 billionacquisition of 45% stake in Rio Tinto’s Simandou iron ore project in Guinea (Mar 2010) $1.4 billion intended acquisition of Johannesburg-based Metorex (Jul 2011) $6.8 billion takeover of Red Back Mining (Sep 2010) $2.5 billion acquisition of 51% stake in BSG Resources (Apr 2010) $3.8 billion takeover by Rio Tinto (Apr 2011) $1.3 billion planned acquisition of Optimum Coal by investor group comprised of Piruto (a unit of Glencore), and Lexshell Investments (Sep 2011) $800 million pending acquisition of stake in Zambeze Coal Project in Mozambique by China’s Wuhan Iron & Steel (Jun 2010) $279 million for a further 8% stake in Ivanhoe Mines subsidiary Beales for (Jul 2011) $986 million acquisition of South Africa’s Taung Gold (Apr 2011) $90 million for a51% interest in Liberia’s Western Cluster Ltd for (Aug 2011)

8. Current trends and recent transactions (6)- Mining ECM: current trends • 2009-10: mining companies were very active in the global capital markets • Global financial crisis led to steep decline in demand for, and price of, most commodities, creating a challenging operating environment • Weakness of dollar contributed to difficulties for companies without currency hedges • Security of debt finance adversely affected by liquidity constraints and covenants • 2010-11: less active in respect of secondary capital raisings as focus moves to capital projects and privately held companies (e.g. Glencore) listing • Money raised by way of rights issues • Positive long-term supply/demand fundamentals in most key commodities make mining companies long-term investment propositions • Still difficult to list companies without a compelling equity story as markets remain volatile

9. Current trends and recent transactions (7)- Mining ECM: recent transactions $30 million IPO (Australia) (July 2011) £581 million IPO (March 2010)

10. African M&A: Key IssuesDue diligence Purchasers more thorough and thoughtful on due diligence: • Due diligence • Underpins price and facilitates acquisition finance • Purchaser can deal with unexpected issues through price, structure and/or deal terms • Purchasers thinking carefully in advance about scope, priorities and identifying key value items fast • Some common issues: • Important due diligence falls through the gaps/duplication of work • Coordination and quality control on multi-jurisdictional deals • Failure to feed due diligence findings to other key work streams • Financing banks requirements

11. African M&A: Key IssuesDeal certaintyParties are keen to get deals done quickly and are prepared to apportion risk to achieve this • Speed and deal certainty is key • Minimise gap between exchange and completion • Keep completion conditions to absolute minimum • Apportion risk between parties (to the extent possible) • Regulatory consents • Able/prepared to complete without all regulatory consents? • Apportioning risk in acquisition agreement • Third party consents • MACs • Has the market changed?

12. Business warranties Some full form; some light; more focus on key items; position of private equity as sellers Warranties vs. indemnities No general move to US style indemnification but bespoke indemnities being written for identified risks Focus on recourse against sellers Deferred/contingent consideration, TSAs or other commercial contract cashflows, holdback and escrow accounts Caps / De Minimis / Baskets / Limitation Period Warranty & indemnity insurance? African M&A: Key IssuesWarranty packagesBuyers are considering what sellers can and will offer and where real value on protection lies

13. African M&A: Key IssuesPublic M&A – Acquisitions of listed companies Public M&A is often a very different process: • Typically more limited diligence • Typically more limited purchaser protection and conditionality • Significant additional regulatory issues: • Role of the regulator and set timetables • Requirements for financial advisers • Requirements for secrecy • Disclosures of Dealings • Mandatory offer requirements • “Level playing field” requirements • Cash confirmations • Insider dealing/market abuse

14. Preparing for an IPO- Pre-IPO issues (1) • Capital Structure • Consider refinancing/deleveraging prior to IPO • Pro forma capital structure • Dividends • Address any dividend traps and set appropriate policy • Pre-IPO agreements • Ensure all pre-IPO shareholder agreements are terminated on IPO • Share numbers from operation of ratchets/warrants to be agreed • Taxation • Consider taxation (residence, reclassification, share option schemes) • Non-core/non-performing assets • Hive out non-core/non-performing assets; consider asset injection

15. Preparing for an IPO- Pre-IPO issues (2) • Corporate reorganisation • Re-registration as a public company or (if negative net assets) insert new HoldCo • Re-domicile? (market perception, FTSE inclusion, tax structuring, regulatory requirements) • Constitutional documents • Identify changes which will need to be made to the articles of association, so suitable for a public listed company • Size of board and corporate governance, borrowing powers, directors’ indemnities, electronic communication, CREST mechanics • Preliminary due diligence • Review material customer contracts, service agreements of directors and senior executives, IP, insurance cover, pension schemes • Other work streams • Appointing advisers – investments banks, legal advisers, reporting accountants, PR adviser, brokers, receiving agents, registrars, graphic designer, printer • Publicity guidelines and committee in place • New share scheme planning • Remuneration of directors and service contracts / letters of appointment

16. Preparing for an IPO- Preliminary valuations and price formation • ‘Volatility and motives sour appetite for IPOs’ • Financial Times, 6 April 2011 • ‘Glencore investors cover IPO in one day’ • Financial Times, 5 May 2011 • Developing equity story / investment case • Timing of preliminary valuations and appointment of lead manager(s) • Impact of connected analysts’ views • Pilot fishing – testing equity story, appetite and price/valuation (or possibly guidance) • Marketing around the time of the AITF • Price-range prospectus? • Roadshow • Pricing • After market

17. Which market?- Where to list • Affects not only the IPO, but also the post-IPO regulatory environment • Factors to consider • Legal factors: eligibility criteria for listing/liability regime, continuing obligations once listed • Commercial factors: a company’s funding and liquidity requirements, potential relative valuations and the strength of analyst coverage weighed against cost and burden of regulatory compliance • London • Main Market • Premium segment (shares) • Standard segment (shares or GDRs) • AIM (shares or GDRs) Other global markets • TSX • Euronext Amsterdam • Deutsche Börse • NYSE • NASDAQ • HKSE

18. Month 1 Month 2 Month 3 Month 4 Month 5 Week beginning 16 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 17 18 19 Kick-off meeting Prospectus drafting Submit to UKLA Due diligence Preparation of financials Prepare analyst meeting Analyst briefing Prepare research Prepare roadshow materials Announce intention to float Pre-marketing Announce price range/publish pathfinder Bookbuilding and roadshow Pricing and allocation Admission/unconditional dealings Aftermarket and stabilisation 30 days UKLA process Timing- IPO Timetable Key milestones

19. Key issues- Reserves and resources reporting • Prospectus - general content requirements - so some disclosure of reserves and resources information required anyway • In addition, CESR/ESMA Recommendations: • Basic definition of "mineral company" amended - now more outcome focussed - a "material mineral projects" test rather than a "principal activity" test • Prospectus must contain certain information - details of reserves and resources; anticipated mine life and exploration potential; duration and main terms of licences/concessions; current and anticipated progress of mineral exploration and/or extraction and processing including accessibility of deposit; exceptional factors • Need a competent person's report (CPR) on an IPO, but usually not afterwards • No longer need to forecast cash flows and have accountants report • CPR no more than six months old • Need scientific and technical information in prospectus to be consistent with that presented in CPR • Expert must be appropriately qualified • CPR to be prepared in accordance with internationally recognised standards (e.g., JORC, SAMREC, CIM Guidelines, SME, PERC) • Recommended content requirements for CPRs (n.b. valuations of reserves and resources)

20. Key issues- Working capital • Working capital forecasting has been a challenge for companies in every sector • Test “…sufficient for the issuer’s present requirements…” • ESMA 124: “Issuer should ensure that there is very little risk that the basis of [the working capital statement] is subsequently called into question” • Issues of general application • Long-term forecasting • Financial covenant analysis • Constraints in debt markets – no longer safe to assume debt can be rolled over? • Sensitivity about risk factor disclosures • Issues of specific application to the mining sector • Commodity price fluctuations • Exchange rate fluctuations • Energy prices • Cost control measures/capex constraints • Appropriate sensitivities in times of volatility

21. At and after admission- FTSE Listing Criteria Basic Criteria • Must have a premium listing of ordinary shares • Special rule allows for fast-track admission to FTSE 100 index if market capitalisation at end of first day of trading will be equal to or more than 1% of total index capitalisation. Nationality • Must normally be incorporated in the UK; if not incorporated in a Developed Country then it must only be listed in the UK, or if a company with multiple listings its most liquid market must be the UK Corporate Governance • If not incorporated in the UK, must agree to acknowledge and adhere to the UK Combined Code, the Pre-Emption Rights Guidance and the UK Takeover Code Liquidity • Must meet specified liquidity thresholds Free Float Restrictions • Index weighting will be reduced where shares are held as: • Trade investments (i.e. cross holdings) • Significant long-term holdings by founders, their families and/or directors • Government holdings • Employee share schemes • Portfolio investments subject to lock-in clauses

22. At and after admission– FTSE 100 Mining Companies

23. Bharti Airtel’s acquisition of Zain Africa

24. Bharti Airtel's US$10.7bn acquisition of Zain Africa • Bharti Airtel had been interested in entering the African market for more than 12 years • Africa is "the continent of hope" - Bharti Chairman and Group CEO, Sunil Mittal • A truly international deal - significant Indian buyer and Kuwaiti seller, assets in fifteen different African countries • Second-largest overseas acquisition by an Indian company ever, largest emerging markets deal ever • Bharti Airtel now the world's fifth largest mobile operator • Very tight deal time frame • Work commenced on 15 February 2010 • Due diligence substantially done 4 weeks later • Deal signed on 30 March 2010 • Deal closed on 8 June 2010

25. Bharti Airtel's US$10.7bn acquisition of Zain Africa • Challenging coordination of due diligence in 15 jurisdictions • Complex regulatory issues in many jurisdictions • Significant local financing arrangements in place • Share purchase agreement containing deal conditions and complex protection package, negotiated in London and subject to English law • Signing and closing in Amsterdam • Mandatory offer in Zambia • Transitional arrangements for a short period • Parallel acquisition of "Zap" • Excellent project management and team working between Bharti and advisers throughout

26. Glencore IPO- In summary • $10 billion offering, with the first ever simultaneous listing on the LSE and HKSE as part of an IPO • Listing priced under a price range prospectus at 530 pence per share (middle of range of 480 to 580 pence per share) • IPO consisted of an institutional offer in the UK and Hong Kong and a 144A placement in the USA. Retail offer was also made to private investors in Hong Kong only • The first company in 25 years to be included in the FTSE 100 on admission, and only the third company ever to do this • The largest ever metals and mining IPO and the largest ever IPO in the LSE premium segment. Glencore was also the largest ever European non-privatisation IPO • $3.1 billion placed with 12 cornerstone investors, largest by value ever achieved in an IPO

27. Contact information

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