1 / 32

Strategic Partnerships: Reshaping the financing landscape within the mining sector

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. IMF

isabelle-whitfield
Download Presentation

Strategic Partnerships: Reshaping the financing landscape within the mining sector

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 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

  2. Overview – Global Outlook • IMF • 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

  3. 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

  4. Overview – Mining Outlook • 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: • BHP Billiton’s bid for Rio Tinto • Vale’s bid for Xstrata • Xstrata’s bid for Anglo American

  5. Overview – Mining Outlook • 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: • 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.

  6. 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 • Steel sheet products to fall by 22% in 2009. Tonnage to fall to 300m from 380m in ’08

  7. Overview – Mining Outlook • 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

  8. Public to public agreements • 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

  9. Public to public agreements • 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

  10. Public to public agreements:China • 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: • considerable demand for mining resources • A US$585b stimulus package

  11. Public to public agreements:China SELECTED INDICES, SPOTS AND GROUPS Points From From High Low MSCI world equities USD952.44 -35.2% 39.2% MSCI emerging markets USD749.02 -34.8% 68.0% Dow Jones Industrial8497.18 -30.1% 31.3% S+P 500910.71 -32.5% 36.6% DJ Stoxx 600203.84 -33.3% 31.2% CSI 3003057.43 -0.1% 90.3% Shanghai Composite2853.90 -3.3% 71.4% Micex Russia1004.53 -46.4% 103.5% India Nifty4251.40 -9.4% 88.7% Reuters/Jefferies CRB256.82 -45.8% 28.3% Dow Jones AIG Commodity126.46 -47.0% 24.6% Baltic Dry Shipping4026.00 -58.1% 507.2% Baltic Capesize Shipping7825.00 -44.7% 842.8% Dollar Index Spot80.42 -10.3% 12.8% Gold spot USD/oz937.14 -6.9% 37.3% KBW banks35.52 -57.4% 100.1%

  12. Public to public agreements:China TOP RUNNER CHINESE MINING STOCKS From From Stock Price High Low China ZhongwangHKD 9.10 -2.2% 39.8% ZhongjinCNY 52.02 -2.2% 401.9% Gansu JingyuanCNY 16.95 -3.6% 324.8% SDIC XinjiCNY 16.12 -5.0% 253.5% Tibet MineralsCNY 23.43 -5.7% 346.3% Yunnan AluminiumCNY 9.20 -5.8% 142.1% Anhui HengyuanCNY 25.35 -6.1% 280.7% Shanxi XishanCNY 27.48 -7.0% 293.7% Shenzhen ZhongjinCNY 20.80- 7.7% 243.2% Shanxi GuanluCNY 8.39 -7.8% 193.4%

  13. Public to public agreements: China • However, recession has caught up with China too, forcing it to demand accountability from some African beneficiary countries: • 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

  14. A Case for SWF’s • 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

  15. Advantages of SWF’s • 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

  16. The increasing role of M&A’s • Good for business consolidation and injection of capital in struggling companies. • Of benefit to juniors and BEEs

  17. The increasing role of M&A’s:The current negatives • 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

  18. The increasing role of M&A’s:some positive developments • Despite low forecast in value, a substantial number of M&As are expected this year: • Mvelaphanda Resources, which plans to de-list 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

  19. The increasing role of M&A’s:some positive developments • Continued... • 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)

  20. Can the finance market support the shift in control of mineral resources?  • 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

  21. Can the finance market support the shift in control of mineral resources?  • Government self-interest: • 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

  22. Strategic partnerships to level the financing playing field • A combination of: • foreign capital • local control • unrestricted market access

  23. Consolidation strategies vs.bold investments • Industry should consider consolidation strategies leading to bold investments C + C + C = SFS U

  24. Conclusion • Recessions should not be looked only in terms of their negative impact • Recessions allow breathing space to self-calibrate and refocus • Recessions necessitate re-assessments of financing, investing and production options • Time to embrace other options, e.g.; • Partnering/working alongside state-run mining companies • China is the de facto driver of the global mining economy • Severe dilution to survive

  25. Conclusion: Recent deal-flow and trends on the TSX • Increase in gold, silver, copper and uranium financings • $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

  26. Conclusion: Recent deal-flow and trends on the TSX • 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 • Structured gold or silver based financing • More convertible securities, bigger discounts, more dilution

  27. Conclusion: Mining activity on Toronto Stock Exchange has increased in the last five months

  28. Conclusion: Activity by exploration companies on TSX Venture Exchange is beginning to pick up

  29. Sources and Thanks to: • 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

  30. Useful Websites • http://www.mineafrica.com/ • http://www.canadasachamber.com • http://www.miningmx.com/news/markets/Slump-not-over-for-AIM-juniors.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/fraser-institute.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-finance-capital-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&feedName=topNews

  31. Useful Websites • 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-drops-again.htm • http://www.diplomatie.gouv.fr/en/ministry_158/publications_2288/international-cooperation-and-development_2289/brochures-grand-public-serie_2535/mineral-resources-and-development-in-africa_6529/index.html • http://www.fin24.com/articles/default/display_article.aspx?ArticleId=1518-25_2400209 • http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=81882&sn=Detail • http://www.tsx.com/ • http://www.theeconomist.com/ • http://www.economist.com/businessfinance/displayStory.cfm?story_id=13788658 • 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=13788658 • http://www.businessday.com.au/business/cfd/riobhp-ironore-venture-monopolistic-20090617-chok.html

More Related