19 th Industrial Minerals Congress

1. 19th Industrial Minerals Congress Athens , Greece , 3-4/ 2008 11/3/2008 10:46, Draft No 9

2. Globalisation and the Industrial Minerals Industry Vasili Nicoletopoulos Managing Director [Development] Premier Chemicals LLC , USA

3. What is Globalisation? • Is it the possibility to have free movement of people, goods, capital & services throughout the globe ? The movement of billions of dollars around the global financial system • Or is it the homogenisation of all rules, including political and social norms, environmental standards and safety rules? Affecting people at the bottom of the pile

4. Basic Pros and Cons • Proponents : ‘it is the driving force behind growth in the world economy in recent years, as well as the cause of the [associated] commodities boom’ • Opponents [from Stiglitz to Chomsky & Hobsbawm] : ‘it amounts to Americanisation ie dominance of one country , to rising inequalities, and to destruction of the environment’

5. Key Questions: Does Globalisation… • Foster Economic Growth? • Benefit the Consumer? • Benefit the Worker? • Benefit the Environment? • Benefit Developing Nations? • Promote Human Rights? • Foster Growth of Democratic Governments? • Improve Quality of Life?

6. Globalists’ Arguments… • Accelerates economic growth, increasing standards of living, albeit w/ winners and losers • Benefits the consumer, increasing income, offering a greater variety of lower-priced products and services • Increases employment, wages and helps improve working conditions [e.g. workers’ rights] • Helps clean up and protect the environment: national wealth for environmental improvements

7. …Globalists’ Arguments • Helps developing nations: acceleration of economic growth and lifting of millions out of poverty • Helps protection of human rights: economic and political freedom closely linked • Fosters the growth of democratic governments, which have almost doubled worldwide in the last decade • Globalisation and technology result in a quality of life unimaginable 100 years ago. Life expectancy, literacy, human health, leisure and living standards improved dramatically worldwide

8. Antiglobalists’ Arguments… • Subjects people to financial crises and poverty in the name of corporate greed • Has resulted in record corporate profit rates while worldwide income gap widens • Results in jobs being shipped overseas to low-wage factories with poor working conditions and abuses of workers’ rights • Exploits local environments in the quest for corporate profit and contributes to worldwide global warming

9. …Antiglobalists’ Arguments • Subjects developing nations to severe trade and financial lending practices, keeps nations trapped in debt and poverty • Supports a world trade in human bondage and slavery estimated in the millions • Threatens sovereignty of the nation-state undermining national laws and regulations with power of world trade and finance bodies • Threatens public health, local economies and social fabric of agricultural based societies

10. Analysis… • Started as internationalisation of commerce in goods: an ancient and evolutionary phenomenon • Then came transport and communications technologies • … followed by freer movement of capital, labor and services • In modern times, US [+UK] the driving forces • Collapse of communism • An excellent period of economic growth, esp ’02-’07

11. Seven New Factors Eased Globalisation … • Institutions, like the EU w/ now 27 members [+4 candidates] and most policies originating in Brussels :environmental, social, health and safety, antimonopoly, antidumping, R&D, financing • Information globalisation :internet, e-mail, search engines, data bases, e-press, mobiles, Google Earth • Energy developments: demand/prices at a high point, ex-Comecon pay @ market rates, links w/ environment • Environmental globalisation: greenhouse emissions

12. …Seven New Factors Eased Globalisation 5. New finance tools and mechanisms: euro, stock exchanges - themselves globalised & on-line, new financial schemes eg options/ real options / derivatives, mathematics and computers software/hardware 6. The role of BRIC as suppliers and consumers : a shift in the global economy’s centre of gravity 7. International organisations: lobbying groups, environmental NGOs

13. But Recently = ? … • Partial return to so-called ‘protectionism’? • Davos ’08: ‘struggle for the 3 basic commodities - food, energy and water’ • Australia may probe Chinese move on Rio Tinto • Reform fatigue in the new [+some old] EU member states • Markets in turmoil, looking for decoupling [=deglobalisation?] • Talk of ‘a new type of stagflation’ • New powers: ‘Americanisation’ gives way to Multipolarism . Many of the world-class companies of the future will come from the ‘new economies’ rather than the ‘new economy’

14. …But Recently = ? • The role of BRIC as investors: FDI from China in Africa w/ Chinese companies searching for raw materials • Costs of food and energy rising fast : biggest long-term driver is growing wealth in China and India • Environmental [sustainability] problems , worldwide • Increase in transport costs • Increasing role of sovereign wealth funds* and [in the other end of the scale] of individuals such as Soros & Buffet • Subprime > credit squeeze, $/euro, energy and food prices • Global financial system now so complicated that nobody really knows how deep its’ problems run! ----- * ‘Yesterday’s bad guys come to the rescue’ …of UBS, Morgan Stanley etc

15. Globalisation in Minerals: Driving Forces… From the supplier’s viewpoint: • access to mineral resources • access to markets • synergies & economies of scale in production • partial abandonment of state ownership • decline in transport costs [until…]

16. …Globalisation in Minerals: Driving Forces… • A new era of resource wars? • Oil and gas trends> Metal ores and metals>Industrial minerals

17. ...Globalisation in Minerals: Driving Forces… • BRIC affecting all mining [and shipping!] worldwide • China booming, polluting, increasing in costs, rich in industrial minerals . But… ‘from dumping to rationing’ ? • India following • Russia and Brazil major in industrial minerals, energy • Chinese [+Russian] mining giants invest abroad: Latin America / Australia / Africa/ China and now North America

18. ...Globalisation in Minerals: Driving Forces • Londonstillthecenterofminingfinance , but… • EU directives and regulations : Natura , REACH , Emissions Trading Systems, IPPC Directive/BAT, Waste directive … • Trade institutions respond to many of these challenges w/ info, lobbying, networks: Euromines, Eurometaux, IMA, The World Mining Council • M&A : a key element of globalisation

19. M&A in Mining…*Source: Raw Materials Data, Stockholm

20. M&A in Mining…*Sources: Metals Economics Group, The Economist, D.Humphreys

21. M&A in Mining ’99-’01…*Source: D.Humphreys • Bad market conditions, low prices, low morale • Hence M&A mostly defensive/cost-cutting/consolidation/ rationalisation • Economies of scale • Exploration vs. M&A • Followed similar moves in the oil industry

22. …M&A in Mining ’99-’01Source: D.Humphreys

23. M&A in Mining ’05-’06… • Bull market, hence different M&A drivers: • Expansion mood: ‘growth and opportunity’, rather than ‘cost-cutting and restoration of profitability’ • Companies had excess cash and bought, rather than returned to shareholders • Strong demand from China, India

24. …M&A in Mining ’05-’06 • Commodity diversification • Resource availability: low exploration, difficult permitting [politically, environmentally] • Economies of scale • Exploration vs. M&A

25. …M&A in Mining ’05-’06

26. Industrial Minerals are Different • Deposits more dispersed • A long-term commitment necessary • Complex marketing and market development • Wide range of applications • Pricing not set by a stock market • Sophisticated processing often necessary • Shipping : an important aspect

27. M&A in Industrial Minerals … In next six slides: • M&A in ind mins • Private equity capital in ind mins : examples

28. ...M&A in Industrial Minerals…*Source: The Core 1/08 Year over year, ’06-’07 No of transactions in ’07 +57% over ’06

29. …M&A In Industrial Minerals…by mineral ’06-’07*Source: The Core 1/08 Lime and Clays most active mineral targets

30. M&A in Industrial Minerals 2008Source: The Core 1/08, Nicoletopoulos Consulting

31. M&A in Industrial Minerals 2007Source: The Core 1/08, Nicoletopoulos Consulting

32. M&A in Industrial Minerals 2006Source: The Core 1/08, Nicoletopoulos Consulting

33. Venture Capital / Private Equityin Industrial Minerals M&ASource: Nicoletopoulos Consulting • The Carlyle Group bought PQ • Hg Capital…Omya talc division ‘Mondo Minerals’ • GP Investments …Magnesita • Resource Capital Fund …QMAG , NYCO Minerals • Rhone Capital of the USA …Almatis GmbH , LWB Refractories • Palladium Equity Partners …Prince Minerals • 3 i sold UCM

34. Company Policy Recommendations… • Whether they like what is going or not , modern industrial minerals companies cannot ignore the realities of globalisation, nor of the developments of the last months: appropriate strategies should be explored • In particular, im companies should …

35. ..Company Policy Recommendations… • Be always alert re market as well as administrative issues • Participate in alliances , initially to test the waters • Get involved in distribution channels [and in shipping?] • Perform joint R&D projects , eg in EU Framework projects • Be prepared for major M&A s and alliances ; their customers [eg refractories] and their customers’ customers [eg steel] are doing it ! But : beware of competition policy, especially ‘market definition’ and ‘producer vs consumer surplus’

36. ...Company Policy Recommendations... • Be socially and environmentally aware and proactive • Communicate , esp. on environmental matters • Engage communities [and more…] early in new projects. • A common [unfavourable] perception : ‘mining benefits are national, costs are local’ • Be active in international institutions and associations

37. ...Company Policy Recommendations… • Use financial institutions & consultants as antennae • Employ cosmopolitan , multilingual staff • Make full use of IT • Keep improving management, corporate governance and financial reporting • Set a clear strategy and business plan , but be prepared to scrap it if a great new opportunity arises • Lastly , be prepared for a market downturn: good times do not last forever !

38. …Company Policy Recommendations:A Concluding Comment • Ours is a mature industry, highly competitive and cyclical • Assets are depleting, for technical as well as administrative reasons • Demand for mineral products may be still good, but projects will be harder to do • The risk-reward structure is changing • There is polarisation towards: -large diversified companies and -small companies to pioneer new regions and fill niches of the market It is very difficult to do both !

39. Thank you ! V.Nicoletopoulos