IFC Global MiningDivisionKarsten FuelsterBusiness Development East Asia PacificIFC Jakarta Office, Indonesia
IFC – An Overview       2
IFC is a Member of the World Bank Group                   IBRD                          IDA                               ...
IFC – investing in Emerging Markets since 1956• Largest multilateral source of loan/equity  financing for the emerging mar...
The Reach of IFC‟s ProjectsIFC’s activities in the Oil, Gas, Mining and Chemicals Sectors helpraise living standards for p...
IFC‟s Global Reach               •100+ country and regional advisory services offices worldwide                           ...
IFC in Asia and the Pacific                    •Ulaanbaatar      •Bishkek•Tashkent         •Almaty          •Khodjand     ...
IFC in the Mining Sector           8
The IBRD („World Bank‟) and IFC Work Togetherto Promote Sustainable Mining in Developing Countries                        ...
IFC‟s Current Mining Portfolio                     US$445 million for IFC‟s account as of July 31st, 2010                 ...
Equity at Market Value                        East Asia                          1.0%MENA   Central Europe0.5%       16.0%...
IFC Value Add in the   Mining Sector         12
Financing and Sustainability Expertise Under One Roof                                     IFC Mining                   Int...
IFC Value Add in Mining  Long-term            Regional                                                     Environmental  ...
IFC‟s Package Deal = Cost Synergies for ClientsWe combine world-class talent, a global outlook and asocial/environmental m...
The IFC AdvantageA long term commitment to our clients and sustainabledevelopment in emerging markets allows us to offer:S...
How We Finance Mining Projects   Project Type                                     IFC InvestmentGreenfield, total cost    ...
Financial Products - From Equity to Debt                  •    Corporate/UJV                  •    Typically 5-15% shareho...
Financial Products - Syndication (“B-Loan”) Structure                                  Loan Agreement                IFC  ...
Mining Projects Are Often Seen As                             “Controversial”…  • Increased pressure by governments and co...
IFC Sustainability Approach to Mining        Generating benefits for society in addition to profits for   investors, allow...
Sustainable Development Offers Attractive Value                  Proposition                        Increased Shareholder ...
IFC‟s Performance Standards:   International Stamp of Approval“Equator Principles” adopted by 70+ of the world‟s leading  ...
IFC‟s Performance Standards on Social and Environmental  Sustainability: Best Practice Tools in Risk Management   Implemen...
Applying IFC‟s Performance Standards on Social andEnvironmental Sustainability: : A Tailor-Made Process                   ...
Local Supplier Linkages – Business Rationale Using local suppliers allows clients to: • Reduce delivery times • Control in...
Example: Supplier Development, Ahafo Gold Mine, Ghana Issue •Physical and economic dislocation of  people - total impacted...
Example of Supplier Development:               Ahafo Gold Mine in GhanaThe opening of the Ahafo mine created an opportunit...
Local Economic Development Programs – Business Rationale   Supporting Local Economic Development:   • Spreads projects‟ po...
Environmental and Social Risk MitigationIn-house environmental and social specialists to assist clients with:•Pollution pr...
IFC environmental and social specialists travel regularly to project Sites,      offering advice and lessons learned from ...
Social Advice Example: Improving the effectiveness of Sadiola              Gold Mine‟s Community Foundation            IFC...
Social Advice Example: Improving the effectiveness of Sadiola         Gold Mine‟s Community Foundation (cont‟d)   Working ...
Social Advising: Sual Stakeholder Capacity                     BuildingClient needEmpower local mine stakeholders to parti...
Corporate Governance ProgramIFC is the leading provider of advice on Corporate Governance in emerging                     ...
Extractive Industries Community Development                     Fund       A $12 million fund focused on helping communiti...
Municipal Capacity Building Program       Program                      Results                  Benefits for        Purpos...
World Bank Mining Policy Division                                National Legal and                                Regulat...
Working with IFC in the    Mining Sector          39
Approaching IFC• Foreign or Domestic Sponsors        New venture or expansion; private sector majority ownership only    ...
IFC‟s Approval Cycle – Loans                                                                               Internal Early ...
IFC‟s Approval Cycle – Early EquitiesEarly Concept      Due                Finalization         Disclosure    Formal Board...
Equity Investments: Approaching IFCOften starts with submitting brief project description, incl. technical feasibility, in...
We Agree on a Specific Timeline to Meet Client‟s Needs                                                                    ...
Thank you!IFC Contact Information                IFC East Asia Pacific:                Karsten Fuelster                Sen...
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International Finance Corporation (IFC) - investing in the mining sector in emerging markets

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IFC, the private sector arm of the World Bank, is selectively investing - amongst others - in the mining sector in emerging market countries. As part of its development mandate IFC is providing long term funding in form of equity and long term debt. IFC is providing multiple additional services

Published in: Economy & Finance

International Finance Corporation (IFC) - investing in the mining sector in emerging markets

  1. 1. IFC Global MiningDivisionKarsten FuelsterBusiness Development East Asia PacificIFC Jakarta Office, Indonesia
  2. 2. IFC – An Overview 2
  3. 3. IFC is a Member of the World Bank Group IBRD IDA MIGA IFC Multilateral International Bank International International Investment and for Reconstruction Development Finance Corporation and Development Association Guarantee Agency Est. 1945 Est. 1960 Est. 1956 Est. 1988 To promote private Role: To promote institutional, To promote institutional, sector development To reduce political legal and regulatory legal and regulatory investment risk reform reform Private companies in Clients: Governments of member Governments of poorest member countries Foreign investors in countries with per capita countries with per capita member countries income between $1,025 income of less than and $6,055. $1,025 - Equity/Quasi-EquityProducts: - Technical assistance - Technical assistance - Long-term Loans - Political Risk Insurance - Loans - Interest Free Loans - Risk Management - Policy Advice - Policy Advice - Advisory Services Shared Mission: To Promote Economic Development and Reduce Poverty 3
  4. 4. IFC – investing in Emerging Markets since 1956• Largest multilateral source of loan/equity financing for the emerging markets private IFC FY10 Highlights sector• Founded in 1956 with 182 member countries Portfolio $48.8 billion Committed $12.7 billion• AAA rated by S&P and Moody‟s Mobilized $5.3 billion• Equity, quasi-equity, loans, risk management # of companies 1,656 and local currency products # of countries 120• Takes market risk with no sovereign guarantees Sub-Saharan Middle East Africa & N.Africa Global• Promoter of environmental, social, and 19% 12% 1% corporate governance standards South Asia 8%• Resources and know-how of a global Europe & development bank + flexibility of a merchant Central Asia bank 23% Latin• Holds equity in over 800 companies East Asia and America worldwide the Pacific 24% 13% 4
  5. 5. The Reach of IFC‟s ProjectsIFC’s activities in the Oil, Gas, Mining and Chemicals Sectors helpraise living standards for people throughout the developing world Last year the reach of our clients included: • Providing over 128,000 jobs • Paying over $7.4 billion in revenues to governments • Spending over $9.3billion on local goods and services • Investing over $268 million in community development programs 5
  6. 6. IFC‟s Global Reach •100+ country and regional advisory services offices worldwide •Tbilisi •Almaty•Mexico City •Dakar •Port-of-Spain •Bogota •Nairobi •Sao Paulo •Buenos Aires 6
  7. 7. IFC in Asia and the Pacific •Ulaanbaatar •Bishkek•Tashkent •Almaty •Khodjand •Beijing •Dushanbe •Kabul •Tokyo •Islamabad •Kathmandu •Chengdu •New Delhi •Guwahati •Karachi •Dhaka •Hong Kong •Hanoi •Mumbai •Vientiane •Bangkok •Chennai •Manila •Phnom Penh •Ho Chi Minh City •PACIFIC •Colombo •Davao City •Banda Aceh •OCEAN •Makassar •Jakarta •Dili •Port Moresby •INDIAN •OCEAN •Sydney •IFC Hubs •IFC Country Offices 7
  8. 8. IFC in the Mining Sector 8
  9. 9. The IBRD („World Bank‟) and IFC Work Togetherto Promote Sustainable Mining in Developing Countries Global Mining Group World Bank Mining Policy Division IFC Mining Investment Division Works with Governments to facilitate - Works with Private Companies to ensure- • Investor-friendly policies • Sound Economic fundamentals • Reform and modernization of Mining • Sufficient Financial Strength Sector • Environmental Rigor • Privatization of State-owned Assets • Sensitivity to the Community • Community Relations & Equitable Rent Sharing
  10. 10. IFC‟s Current Mining Portfolio US$445 million for IFC‟s account as of July 31st, 2010 By Product By Region MENA US$4.8M Gold 43% Eastern & Other C. Europe Metals US$49.6M Sub-Saharan 20.9% Africa US$255.5M Aluminum & Bauxite Latin America 9% Copper US$89M Iron Ore 18% 9%Diamonds 0.1% E Asia & Pacific World US$41.7M US$4.6M
  11. 11. Equity at Market Value East Asia 1.0%MENA Central Europe0.5% 16.0% Sub-Saharan Africa 22.5% LAC 60.0%
  12. 12. IFC Value Add in the Mining Sector 12
  13. 13. Financing and Sustainability Expertise Under One Roof IFC Mining Integrated Solutions Combining Capital and ExpertiseComprehensive Product Suite Advisory Services• Loans • Supplier development (linkages)• Equity • Community Development• Quasi-equity • Municipal Capacity Building• Structured products • Resettlement• Capital markets access and • Dispute Resolution mobilization • World-class environmental and social advice• Risk management • Access to Technical Assistance Funding• Political risk cover
  14. 14. IFC Value Add in Mining Long-term Regional Environmental Global Mining Country Risk Sustainability Competitive Knowledge & Social Risk Expertise Mitigation Toolkit Financing Management Equity  Extensive  50+ Years of  Government  Advice on  Local Supplier Fixed/Floating Local Office Sector Relations Environmental Development Rates, Local Network Expertise and Social Best Currencies  Neutral broker  Environmental  Local Practices / Social Advice  Greenfield Role Up to 15 year Transaction  Equator Loan Maturity  Expansion/  Reduced Risk of  Corporate Experience Principles Modernization Expropriation, B Governance Flexible  World Bank Modeled after reach of  Local Amortization Synergies  Corporate IFC Standards Contract, Conve Economic Profile Strategy rtibility  Local Development Catalyst for  Access to Consultation  World Bank  Community other Investors International and Disclosure Synergies Development and Lenders Investors  Witholding Tax Funding Equity  Technical Benefit Participation Advice Capital Mobilization 14
  15. 15. IFC‟s Package Deal = Cost Synergies for ClientsWe combine world-class talent, a global outlook and asocial/environmental mandate to deliver sustainable business solutions Our team consists of:  Financial professionals  Mining engineers  Environmental specialists  Development experts  Communications specialists
  16. 16. The IFC AdvantageA long term commitment to our clients and sustainabledevelopment in emerging markets allows us to offer:Seal of Approval  IFC involvement in a project is often seen as a seal of approvalPolitical Risk Coverage  IFC presence in a transaction greatly reduces the occurrence of: • Corruption • Expropriation of funds • Mismanagement of revenues • Extraneous regulationsStructuring Capability  „Honest Broker‟ reputation facilitates negotiations amongst diverse groups: • Foreign investors • Local partners • Local communities • Government representatives
  17. 17. How We Finance Mining Projects Project Type IFC InvestmentGreenfield, total cost Up to 35% of project costless than $50 million for IFC‟s accountGreenfield, total cost Up to 25% of project costmore than $50 million for IFC‟s accountExpansion or rehabilitation Up to 50% of project costGreenfield, expansion, reh 100% project cost for IFCabilitation and participating banks‟ accounts•Umbrella for participants in IFC‟s syndication program: IFC lender of record, immunity from taxation and provisioning requirements.•IFC‟s total financing (for its own account) must be less than 25% of total company capitalization, and IFC does not manage or have largest stake.
  18. 18. Financial Products - From Equity to Debt • Corporate/UJV • Typically 5-15% shareholding Equity • Long-term investor, typically 6-8 year holding period • Not just financial investor, adding to shareholder value • Usually no seat on board • Subordinated loansMezzanine / • Income participating loans • ConvertiblesQuasi Equity • Other hybrid instruments • Senior Debt (reserve, base lending. corporate finance, project finance) • Fixed/floating rates, US$, Euro and local currencies available • Commercial rates, repayment tailored to project/company needsSenior Debt • Long maturities: 7-12 years, appropriate grace periods& Equivalents • Range of security packages suited to project/country • Mobilization of funds from other lenders and investors, through financings, syndications, underwritings and guarantees
  19. 19. Financial Products - Syndication (“B-Loan”) Structure Loan Agreement IFC Borrower A + B LoansParticipation B LoanAgreement • A loan is for IFC‟s own account • B loan is for account of participant commercial banks • Only one loan agreement, signed by the borrower and IFC Participants • IFC is the lender of record for the entire loan (A+B) • Structure allows participants to benefit from IFC privileges and immunities • Better pricing/tenors than otherwise available; preferred creditor access to foreign exchange • IFC Loans exempt from withholding taxes
  20. 20. Mining Projects Are Often Seen As “Controversial”… • Increased pressure by governments and communities for a larger share of profits • Social benefits often underestimated • Environmental degradation often more feared than real • Unrelenting civil society attention • Amplified brand and reputational risk …and yet no sector is more important to development than ours.Industry context
  21. 21. IFC Sustainability Approach to Mining Generating benefits for society in addition to profits for investors, allows projects to acquire a “social license to operate”. Key dimensions for successful sustainable development in mining • Broad and ongoing community consultation with affected communities • Generating community benefits by broadening economic opportunities (linkages) • Assistance in prudent government use of revenues (good governance, revenue transparency)The Sustainable Approach
  22. 22. Sustainable Development Offers Attractive Value Proposition Increased Shareholder Value/ Long Term Viability Improved: + Reduced: • Reputation/Local acceptance • Risk of disruptions • Access to investors • Labor and healthcare expenditures • Access to growth opportunities abroad • Operational liability costs Sustainable Approach
  23. 23. IFC‟s Performance Standards: International Stamp of Approval“Equator Principles” adopted by 70+ of the world‟s leading banks and based on IFC‟s Performance Standards Apply to 85% of project financing worldwide 23
  24. 24. IFC‟s Performance Standards on Social and Environmental Sustainability: Best Practice Tools in Risk Management Implementing the Performance Standards Guards Against Unforeseen Interruptions in Project Execution: • Strikes or protests • Costly environmental clean ups • Loss of investor confidence due to unfavorable media attention Meeting the Performance Standards Helps to Improve the Bottom Line: • Helps ensure smooth and continuous operations • Maximizing local development benefits fosters good neighborly relations • Good corporate citizenship raises project‟s acceptance locally and with governments • Optimization of resource management (water, energy, etc) • Helps to create reliable and cost effective supply chains • Helps attract top talent both locally and internationally • Enhances company brand value to investors
  25. 25. Applying IFC‟s Performance Standards on Social andEnvironmental Sustainability: : A Tailor-Made Process IFC‟s Perfomance Standards (PS) • PS1. Social and environmental assessment and management systems • PS2. Labor and working conditions • PS3. Pollution prevention and abatement • PS4. Community health and safety • PS5. Land acquisition & involuntary resettlement • PS6. Conservation of biodiversity and sustainable natural resource management • PS7. Indigenous peoples • PS8. Cultural heritage• Meeting all 8 standards upfront not required – select PS apply to each projects and most clients meet many of them already• In areas in which clients do not already profit from international best practice, we agree on a flexible action plan and guide them through the process• Implementation process is tailored to client‟s particular situation
  26. 26. Local Supplier Linkages – Business Rationale Using local suppliers allows clients to: • Reduce delivery times • Control inventories • Increase number of local jobs created by project • Spreads projects‟ positive impacts among members of host communities Leads to: • Lower operating costs • Mutually beneficial business relationships between IFC clients and local suppliers • Social license to operate and mitigation of social risks • Stronger local support for project Our advice and assistance includes: • On the ground support for local businesses inside the supply chain of IFC clients • Creating and identifying financing solutions for local entrepreneurs • Establishing and operating local “enterprise centers” to train local businesses
  27. 27. Example: Supplier Development, Ahafo Gold Mine, Ghana Issue •Physical and economic dislocation of people - total impacted 1,700 household (9,575 people) •Low level business skills of local entrepreneurs, mostly former farmers Linkages Solution •Supplier Development, Local Economic Development, Institutional Capacity Building, HIV/AIDS and Gender •International partnership -Transferring lessons from Minera Yanacocha in Peru
  28. 28. Example of Supplier Development: Ahafo Gold Mine in GhanaThe opening of the Ahafo mine created an opportunity for SaveokCO. Ltd, a supplier of anti-erosion Jute Mats to the Newmontmine. • The IFC Linkages program is assisting Saveok in raising its standards and technical expertise. • Saveok has grown to 12 employees, 5 of which are full-time employees, and is actively working to increase its production capacity. • Saveok directly benefits local producers of Jute mats by purchasing them from the producers and selling them to Newmont.
  29. 29. Local Economic Development Programs – Business Rationale Supporting Local Economic Development: • Spreads projects‟ positive impacts among members of host communities • Helps to provide alternative livelihoods to local populations • Increases effectiveness of compensation packages Leads to: • Stronger local support for projects • Social license to operate and mitigation of social risks • Management of reputational risks • Minimized disruptions for project effected people IFC advice and assistance includes: • Supporting small and medium size businesses outside the supply chain of IFC clients • Creating and identifying financing solutions for local businesses • Strengthening the capacity of development foundations to identify needs and priorities of communities
  30. 30. Environmental and Social Risk MitigationIn-house environmental and social specialists to assist clients with:•Pollution prevention •Community Development & Consultation•Cleaner production •Cultural property•Socioeconomic/workplace/ labor issues •Impact assessment•Land acquisition/resettlement/ •E&S management systems compensation •Health & Safety•Indigenous peoples •Gender empowerment•Biodiversity
  31. 31. IFC environmental and social specialists travel regularly to project Sites, offering advice and lessons learned from other IFC projects.
  32. 32. Social Advice Example: Improving the effectiveness of Sadiola Gold Mine‟s Community Foundation IFC social specialists helped Sadiola create a long term plan which would guide the work of its community foundation past the life of the mine. .
  33. 33. Social Advice Example: Improving the effectiveness of Sadiola Gold Mine‟s Community Foundation (cont‟d) Working directly with the local population, government authorities and NGOs, the Sadiola Foundation is now implementing development initiatives focusing on three main areas: 1. Development Training and Capacity Building 2. Agricultural Assistance 3. Enterprise Development Peanut Butter Producers Trained by Sadiola Foundation
  34. 34. Social Advising: Sual Stakeholder Capacity BuildingClient needEmpower local mine stakeholders to participate in public consultation and disclosure processesSolution• Capacity building workshop held in city of Syktyvkar• Capacity building and stakeholder forum held in Ukhta• Capacity building program delivered in several locationsOutcome• Improved information flow• Broadened participation• Extended opportunity for dialogue Komi, Russia:Local stakeholders discuss the project• Improved ability to respond to questions• Improved capacity in the company
  35. 35. Corporate Governance ProgramIFC is the leading provider of advice on Corporate Governance in emerging marketsThe IFC Corporate Governance Methodology employs specialized assessment tools tailored to the different governance priorities of: • publicly listed companies • founder and family-owned firms • financial institutions • newly privatized enterprisesIFC corporate governance experts advise clients on: • board practices • shareholder rights • the internal control environment • transparency and disclosure
  36. 36. Extractive Industries Community Development Fund A $12 million fund focused on helping communities receive sustainable benefits from extractive industries projects. -Provides funding and knowledge to IFC clients -Tri-partite approach with key stakeholders – in order to ensure sustainability 1. Community 2. Extractive Industry investors 3. local/regional governments -Supports: • Capacity Building • Training • Technical Assistance • Tool Development and Information Clearinghouse
  37. 37. Municipal Capacity Building Program Program Results Benefits for Purpose IFC Clients• Enhancing local • A more efficient • Increased municipalities‟ allocation and community support ability to use leverage of royalties for projects increased tax and taxes on the • Supports and royalty regional level companies‟ own revenues for • Local communities local development economic begin to feel positive projects development economic and social impacts from the use of public revenuesCajamarca Program, Peru Results Benefits IFC Client:• Program helping municipalities • Dramatic increase in surrounding Yanacocha local development Mine use increased tax projects financed by revenue municipalities Presentation Title 37
  38. 38. World Bank Mining Policy Division National Legal and Regulatory Policies Extractive IndustriesNational Investment Transparency Initiative Climate Policies (EITI) Artisanal & Small Community Scale Mining Development Fund
  39. 39. Working with IFC in the Mining Sector 39
  40. 40. Approaching IFC• Foreign or Domestic Sponsors  New venture or expansion; private sector majority ownership only  Project must be developmentally sound and commercially viable• Sponsor Commitment is Required  Equity participation; pre-completion support/guarantees• Submit Preliminary Business Plan or Feasibility Study  Brief project description, incl. technical feasibility and market study  Information on sponsors and operator  Environmental studies  Information on requirements, financing plan and cash flow projections
  41. 41. IFC‟s Approval Cycle – Loans Internal Early Review Due Diligence Negotiation Disclosure Approvals and Disbursement Commitment• Client needs • Assessment of • Conditions of • Environmental • Board • Loan disbursed determined business disbursement and social consideration on agreed potential, risks and information schedule, acco• Contribution • Board approval , opportunities covenants, per disclosed rding to of project to formance and • Legal review negotiated development • Evaluation of • Opportunity monitoring terms and assessed financial and for public • Signing of legal requirements, conditions economic comment documents• Project and action plan soundness screened for agreed potential • Compliance problems with IFC‟s social and• Site visit environmental• Mandate performance letter standards reviewed We Agree on a Specific Timeline to Meet Client‟s Needs
  42. 42. IFC‟s Approval Cycle – Early EquitiesEarly Concept Due Finalization Disclosure Formal Board Commitment Review Diligence of terms and Approval Disbursement Drafting Agreement s/• Early • Site visit • Agreement on • Public • Board project • Further term sheet disclosure consideration • Signing of screening project • Price lock-in (30/60 days) and approval equity• Agreement screening and (if listed) • Draft equity subscription reached on evaluation • IFC Credit subscription agreement broad (geological Committee agreement and technical) Approval • Equity equity disbursed • Early subscription screening for terms social and• IFC Concept environmental Review issues Meeting We Agree on a Specific Timeline to Meet Client‟s Needs
  43. 43. Equity Investments: Approaching IFCOften starts with submitting brief project description, incl. technical feasibility, information oncompany, and environmental studies MONTH 1 MONTH 2 MONTH 3 MONTH 4Early Concept ReviewDue diligenceFinalization of terms and Credit committee approvalPublic DisclosureDrafting of legal agreementsIFC Board ApprovalEquity Commitment and Disbursement
  44. 44. We Agree on a Specific Timeline to Meet Client‟s Needs Kalahari Diamonds: IFC equity investment in Botswana aerial surveying diamond exploration project. Completed in 5 Months Nov 2002 Dec‟02 – Feb „03 March 2003 March 2003 Current Mandate Letter Appraisal Equity Commitment Disbursement SupervisionInitial Discussion Financing Negotiations Internal Approval Time line depends on company‟s support in providing information
  45. 45. Thank you!IFC Contact Information IFC East Asia Pacific: Karsten Fuelster Senior Investment Officer Infrastructure and Natural Resources Group (Oil, Gas, and Mining) Phone: +62 21 2994 8036 Email: kfuelster@ifc.org Fax: +62 21 29948002 45

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