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J. Mverecha

Financing Mining Projects Risks and Opportunities. J. Mverecha. Contents. Introduction Opportunities in the Mining Sector Mining Sector and the Broader Economy Mining sector Financing Requirements Financing Mining Sector Projects Concluding Remarks. Introduction.

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J. Mverecha

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  1. Financing Mining Projects Risks and Opportunities J. Mverecha

  2. Contents • Introduction • Opportunities in the Mining Sector • Mining Sector and the Broader Economy • Mining sector Financing Requirements • Financing Mining Sector Projects • Concluding Remarks

  3. Introduction Mining is a global business

  4. Introduction • For Countries such as: • China, Australia, RSA, Russia, Peru, Chile, Ghana, Tanzania • Mining ha been catalytic for growth • In Peru, the target is for $14bn investment in mining • Community Development initiatives • Environmental issues • Contribution to Fiscus

  5. Introduction • The mining sector is increasingly, evolving into a dominant sector in the economy: • Accounted for 2/3 of exports in 2010 • Will account for over 50% of exports in 2011 • Accounts for about 20% of Nominal GDP • Mining is the fastest growing sector • Not Homogeneous • Large well capitalized mines • Medium sized mines • Small and artisinal mining

  6. Mining Financial Requirements • Zimbabwe has over 40 different minerals • Major Minerals are: • Platinum (45%) • Gold (24%) • Diamonds (14%) • Chrome • Coal • Nickel

  7. A historical Overview • The Mining sector output declined progressively over since 1999, culminating in the hyperinflation • Only 3 mines were operating by December 1998 (most had closed) • Since 2009, STERP and new measures • Mining has rebounded strongly • Growth also reflects the low base

  8. GOLD PRODUCTIONKilograms 1980-2009 Fine Kilograms

  9. PLATINUM PRODUCTION:1990-2009

  10. Ferrochrome 1990 -2009

  11. COAL PRODUCTION:1980 -2009 Volume in Tonnes

  12. NICKEL PRODUCTION:1990 - 2009 Tonnes

  13. IRON ORE PRODUCTION - 1980-2009 Tonnes

  14. 2011 Deposits Structure Over 90% of Deposits are Short Term

  15. Comm. Bank Loans & Advances Mining share of loans is about 5%

  16. Introduction • Mining requires over substantial resources for capitalization: • US$3 – US$5 billion recapitalization requirements over the next 5 years. • Gold (US$1 billion) • Platinum (US$1.2 billion) • Nickel (US$110 m) • Chrome (US$118 m) • Diamonds (US$339 m) • Coal (US$225 m)

  17. A complex, risky and capital intensive industry

  18. Exploration is the Genesis

  19. Funding Cycle Lower risk, lower reward High risk, high reward

  20. Mining Development Stages

  21. Mining Project Progression Junior explorer Claim Holder

  22. Each player can add to the value chain

  23. Typical cost of a large scale mine over its life Gross outlay to get a mine to production up to $315m and up to 12years

  24. Risks to mitigate when investing

  25. Role of FDI in Financing Mining • Long Term Funding is key for sustained mining sector growth • Venture Capital Financing • High risk/ high return • Shareholders Equity • Other Long Term Sources of Funding

  26. Debt/Equity Financing

  27. Debt/Equity Financing

  28. Investors are prudent

  29. Fraser Report Assessment Benchmark risk perception measure The Fraser Institute Surveys 3,000 mining companies and institutions Responses from 670 executives The companies participating in the survey reported exploration spending of US$2.9 billion in 2009 and of US$3.6 billion in 2008. Thus, survey respondents represent 38 per cent of total global non-ferrous exploration of US$7.7 billion in 2009 and 27 per cent of US$13.2 billion in 2008 Assess how mineral endowments and public policy factors such as tax as taxation and regulation affect exploration investment The report indicates what potential investors think of risk of investing in Zimbabwe mining Source: Fraser Report 2009, Metals Economics Group

  30. Gold Production (Actual & Forecasts)

  31. Platinum: Actual & Forecasts:2000-2015

  32. Ferrochrome:Baseline Vs Capex: 2000 - 2015

  33. Coal: Baseline Vs Capex:2000 - 2015

  34. Nickel Baseline Vs Capex:2000 - 2015

  35. THANK YOU

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