Financing Mining Projects in Québec

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Dentons' Pierre Lortie was invited to speak on the topic of financing mining projects in Quebec during “Deloitte’s Business Class” conference held on November 19 at the Palais des congrès in Montreal.

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Financing Mining Projects in Québec

  1. 1. Dentons Canada LLP Financing Mining Projects in Québec Deloitte’s Business Class: Montreal Mining – Investing and financing in today’s capital markets November 19, 2013
  2. 2. Overview of the Québec mining sector Value of mining production by province ($M, 2012) • There are 20 mines in activity. 9 163 • The value of mineral production in Québec was $8.2 billion in 2012. - 9% 8 312 8 247 8 187 • Québec's share of the Canadian mineral production in 2012 was about 17.5%, up from 13.2% in 2008. 4 449 • 60% of Quebecers believe the mining industry is contributing to the Québec economy and job growth. Ontario British Columbia Saskatchewan Québec Newfoundland and Labrador Source : Natural Resources Canada November 19, 2013 Dentons Canada LLP 2
  3. 3. Distribution of mine complex development expenditures by location of company head office, Québec 2008 Outside Canada, the United States or in the world 35% British-Columbia 2% 2012 Québec 25% Ontario 36% Total: $1,485 million Total: $4,509 million In 2012, only 1.7% of mining development expenditures were done by Québec junior mining companies compared to 26% in 2008. Source: Institut de la statistique du Québec November 19, 2013 Dentons Canada LLP 3
  4. 4. Distribution of exploration and deposit appraisal expenditures by type of company, Québec (2011 – 2013*) 2011 2012 2013 Total: $620,7 million Total: $447 million Senior companies 41,6 % Junior companies 55,3 % Crown corporations 3,1 % Total: $834 million Junior exploration companies fund their operations in capital markets. Where do we go from here? * Revised intentions (July 2013) Source: Institut de la statistique du Québec (October 2013) November 19, 2013 Dentons Canada LLP 4
  5. 5. Evolution of exploration and deposit appraisal expenditures by type of company, in constant 1997 dollars, Québec, 1986 – 2009 1 Total Junior Majorr Public 1 Revised intentions Source: Institut de la statistique du Québec . Relevé des dépenses d’exploration minière, de mise en valeur et d’aménagement du complexe minier, 2008 et 2009 (intentions révisées) November 19, 2013 Dentons Canada LLP. 5
  6. 6. Evolution of mineral shipments and mining investment ($M, 2001 constant): 1980 to 2010 & 2011 1 i Mining investment Mineral shipments 1: i: Final investment data, preliminary expeditions value Intentions Quebec's share of Canadian mineral production, 1999 - 2008 Québec / Canada % 1999 2003 2005 2008 2009 2010 2011 2012 19,8 Mineral production 2001 18,4 17,7 14,0 11,5 18 17 17 17,5 Source: Institut de la statistique du Québec, Natural Resources Canada November 19, 2013 Dentons Canada LLP 6
  7. 7. Access to public capital markets is an inescapable condition of success TSX(V) TSX 2010 2011 2012 2013 (sept.) 2010 2011 2012 2013 (sept.) Number of listed mining companies 1 180 1 275 1 309 1 288 357 371 364 345 Value of equity financing (billion of $) 5,3 5,9 2,8 1,0 12,5 6,6 7,5 1,9 Market capitalisation (billion of $) 40,1 28,4 19,2 11,8 523 398 381 240 Source: TMX, The MIG Report Quebec-based exploration and mining companies are underrepresented on the TSX and the TSX(V). There are only 82 on the TSX(V) and 12 on the TSX. November 19, 2013 Dentons Canada LLP 7
  8. 8. Fundraising by mining companies on the TSX and TSX(V) (2009-2013) New issues Follow-on issues and private placements Total issues Mining as % of total TSX and TSX(V) proceeds Nb of IPOs Proceeds C $M Nb of financings Proceeds C $M Proceeds C $M % 2012 49 391 1,655 9,899 10,290 18 2011 70 362 1,921 12,112 12,474 24 2010 93 1,312 2,315 16,427 17,749 33 2009 43 23 2,179 21,784 21,806 34 Total financing proceeds for the first 9 months amounted to $2.9 billion in 2013 compared to $7.3 billion in 2012. Listing on a TSX exchange is the key to secondary and private placement financings. November 19, 2013 Dentons Canada LLP 8
  9. 9. China is a key player….but it is not in the dominant position Chinese investments per region (cumulative: 2005 – 2012) Value of M&A per origin (excluding Glencore-Xstrata) 2012 Australia Latin America 19,26% Australia 17,64% Others North America 10,09% Europe 14,24% Africa 12,30% Canada Asia 26,47% United States United Kingdom China Source: The Heritage Foundation November 19, 2013 Source: Global Mining Deals, PwC (2013) Dentons Canada LLP 9
  10. 10. Global investors have different interests (value of deals – 2012 $) Copper Poland 25% China 18% Japan 11% Other 26% Chile 13% Canada 47% U.K. 16% Other 17% China 15% Dentons Canada Other 22% China 28% Australia 12% Total: $13.5 billion November 19, 2013 Iron Ore Gold Total: $14.6 billion LLP South Korea 23% Japan 27% Total: $7.4 billion 10
  11. 11. Global investors have different interests (value of deals – 2012 $) Silver/Lead/Zinc Potash/Phosphate Uranium Other 3% Other 12% USA 5% China 16% Canada 49% Russia 67.3% Switzerland 34% Total: $3.1 billion November 19, 2013 Other 12% Dentons Canada Total: $4.1 billion LLP China 5% U.K. 15% China 59% Canada 23% Total: $3.9 billion 11
  12. 12. Average duration and average cost of transportation of a ton of iron ore to China (2012, $US, days) 31 $ Québec Option Cap de Bonne Espérance - 59 $ Québec Option Canal de Panama - 43 days* 31 days* 15 days* Brazil (Tubarao) 23 $ 13 $ Australia (Dampier) 34 days* * Duration based on the average speed of 15 knots Sources : Baltic Exchange, Bloomberg, AME Group, SECOR November 19, 2013 Dentons Canada LLP 12
  13. 13. Long-term evolution of real prices of metals 1865 – 1881 1881 – 1974 1974 – 2010 Annual compound growth rate 0,1 % - 0,7 % 1,0 % Compound rate for the period 1,7 % - 48,2 % 43,8 % 16 93 36 Number of years The levels of financing activity on the TSX(V) gives credence to analysts forecast that there will be significant oversupply in most metals by 2016. Source : Jose Antonio Ocampo, Professor, University of Columbia, March 2013 November 19, 2013 Dentons Canada LLP 13
  14. 14. Québec mining policies are unhelpful • The Royalty Regime • Taxation on a mine by mine basis eliminates the incentive for existing mines to expand their operations into adjacent projects that are often marginal on a stand-alone basis. • Although the NPV of the royalty payments under the current system is roughly equivalent to the precedent regime, its structure greatly increases the risk of new developments. • Requirement to consider local transformation • Greatly increases financing difficulties because it puts risk mitigation financing options in jeopardy. • The business case for strategic investors is considerably weakened. Why would a global company invest in a Québec mining development project if it cannot supply its existing plants with the product? • The rationale for off-take agreements is destroyed. November 19, 2013 Dentons Canada LLP 14
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  17. 17. A profound transformation is occurring in the nature of our economy Modern economies are evolving from a biological basis to a mineral basis. Rare earths may replay the role aluminium played during the transition from base metals. November 19, 2013 Dentons Canada LLP 17
  18. 18. Global mining executives are regaining confidence in the future believe that credit availability is improving. have a greater focus on growth, up from 38% at the end of 2012. believe there is a greater emphasis on efficiency and cost control compared to a year ago. This implies a greater interest in acquiring well-advanced projects rather than assuming responsibility for mining project developments. believe that the state of the global economy is improving compared to 21% at the end of 2012. Sources : Global Capital Confidence Barometer, April-October 2013 November 19, 2013 Dentons Canada LLP 18

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