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3 Reasons Why the M&A Boom is Here - Ken Hoffman, Bloomberg

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Ken Hoffman, Sector Head of Metals and Mining at Bloomberg, outlined his reasons for predicting the expansion of M&A activity in the mining sector at this year's Mines and Money Hong Kong. View the …

Ken Hoffman, Sector Head of Metals and Mining at Bloomberg, outlined his reasons for predicting the expansion of M&A activity in the mining sector at this year's Mines and Money Hong Kong. View the slides from his presentation.

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  • 1. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// BLOOMBERG INDUSTRIES METALS & MINING THE M&ABOOM IS HERE MINES & MONEY – HONG KONG MARCH// 27 // 2014 Kenneth Hoffman, CFA Global Head Metals and Mining Research Bloomberg Industries
  • 2. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// CONFLUENCE OF INDUSTRY EVENTS MAY LEAD TO A BOOM IN MINING M&A 2 THE BOOM IS HERE Mining Companies High Debt Forces “Asset Rebalance” PE Sees Underserved Market, “Dry Powder Of Up To $30 bn” Valuations Plunge—Boards Can Agree To Deals And PE Sees Opportunity
  • 3. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// DEBT LEVELS RISING MANY METALS IN “BEAR MARKET” EQUITY MARKETS NOT RECEPTIVE DEBT MARKETS NOT RECEPTIVE BUYERS FOR ASSETS APPEARING FROM ALL OVER 3 WHY MINERS HAVE COME TO PUT OUT “FOR SALE” SIGNS
  • 4. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// Public Mining Companies Have Seen Miserable Performance Over the Past 3 Years 4
  • 5. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// Historic Relationships Have Broken Down 5
  • 6. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// The Decline in Shares Has been Related to the Uptick in trading of Metals 6
  • 7. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// Not Just Gold… China alone Has launched 8 Metals Exchanges since 1993 Is this the big bang moment for metal markets? 7
  • 8. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 8Now Metal Prices Have Declined
  • 9. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 9 This has led to the Firing of a Herd of CEO’s
  • 10. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 10 Time is Short as Miners Run out of Cash
  • 11. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 11Debt Levels Are Nearing Historical Highs
  • 12. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 12Barrick’s Additional Offering Wasn’t Received Well
  • 13. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 13 New CEO’s Have All Put Up For Sale Signs “There are assets in the portfolio that we're questioning. We're working with the team. There's some turnaround work, but we will sell assets over the next three or four years.” - Mark Cutifani, CEO Anglo American, 12/12/2013, Analyst & Investor Meeting “We continue to actively pursue opportunities to optimize our existing portfolio including the potential sale of assets…which are non-core, high cost, short life and low free cash flow generating” - Sam Walsh, CEO Rio Tinto, 02/12/13, Investor Seminar
  • 14. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// UP TO $30 BILLION IN “DRY POWDER” MAY BE AVAILABLE FOR ASSETS DON’T FORGET CHINA THEY ARE BACK BUYING SELECT ASSETS CORPORATES IN “STRONGER POSITIONS” READY TO MAKE THEIR MOVE 14 LAST YEAR WE TALKED PE--THEY DELIVERED
  • 15. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 15 During The 2013 HK Mines & Money We Spoke Of PE
  • 16. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 16 The Money Now Raised PE will Want to Invest Bloomberg’s Team Researches & Tracks Private Equity ---- PE<GO>
  • 17. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 17Potentially $25-$30 bn Of Capital Ready 15 Major New Mining PE Funds in 2013 /2014 More Than $12.5 Bn raised in last 24 months Vs. 1.6Bn Deals Done across all PE in Mining Perhaps $25-$30 Bn In Potential Capital Could Come Into Mining Use Bloomberg’s PE<GO> Function to Track Private Equity Activity
  • 18. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 18 PE Firms Will Need to Invest Soon. Investors Demand Returns “Waterton’s project evaluations team has identified and evaluated over 350 projects worldwide, ranging from $10mm million to $3.6 billion. “ - Waterton Global May 22 2013, Press Release
  • 19. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 19Biggest Potential Deals Failed to Materialise
  • 20. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 20Other Funds Made Strategic, Small Investments
  • 21. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 21 What About China? Foreign Chinese/HK Acquisitions (Completed) Completed Since ‘05 # Deals $ Value Largest Deal Gold 36 2.5Bn Taung Gold - $670M Base Metals 70 7.5Bn 12% Stake Rio Tinto $14Bn
  • 22. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// * Bloomberg M&A Database, Not including Las Bambas bids 22 Target Commodity Value TV/R&R Gold One International Gold $38.67M 0.4 Focus Minerals Gold $2 0.11 Galabyte $63.33M Palbora Mining Copper $143.3M Elemental Minerals Potash $180 - Stonewall Mining Gold $141M Some Large Deals Pending, Especially Copper & Gold Miners $2.06 Billion of Cross Border Chinese Acquisitions Announced in 2013
  • 23. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// * Bloomberg M&A Database, Not including Las Bambas bids 23 Target Commodity Value TV/R&R Gold One International Gold $399.8M 0.07 Focus Minerals Gold $237.5M 0.14 Galabyte Pty Gold $63.33M - Palabora Mining Copper $143.3M 0.03 Elemental Minerals Potash $180 - Stonewall Mining Gold $141M 0.21 Some Large Deals Pending, Especially Copper & Gold Miners $2.06 Billion of Cross Border Chinese Acquisitions Announced in 2013
  • 24. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 24 The Bottom May Have Been Seen In 4Q13
  • 25. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// Acquired Deal Price EV/R&R Date Red Back Mining $6.7 bn 0.410 08/2010 Anglo American Sur $5.4 bn 0.415 11/2011 Inmet Mining Augusta Bid $4.2 bn $0.60-$0.75 0.340 0.029-0.036 11/2012 01/2014 Andean Res. $3.2 bn *1.95 09/2010 Current Copper Company EV/ Reserve 0.042 Las Bambas (est in Press) $ 5.9 Bn 0.169 Assuming $3 bn for start- up All-In $8.9 bn 0.254 25 Las Bambas Deal May Be Completed Soon * Augusta far from production-- Andean only M&I/ Inferred Resources
  • 26. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// Deal Multiples in Base Metals
  • 27. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 27 Only Lead Multiples are not at Historic lows
  • 28. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// Deal Multiples in Base Metals
  • 29. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// Last 3 years Are Seeing Falling Multiples
  • 30. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 30 Precious Metals: Prices Are Falling=More Deals
  • 31. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 31 Large Cap Miners Have Seen Valuation Declines Small Miners Have Collapsed
  • 32. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 32Last 2 years: Deal Prices Have Lessened More Deals Can Get Done TV/R&R
  • 33. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// WILLING MINING COMPANY SELLERS PRIVATE EQUITY, CHINA, AND SELECT CORPORATE BUYERS LOOKING FOR BARGAINS A CONFLUENCE OF A DROP IN MINING EV/RESERVE PRICES AND THE PRICE AT WHICH SELLERS AND BUYERS CAN COME TOGETHER 33 CONCLUSION—HERE COMES THE BOOM
  • 34. THEPRIVATEEQUITY/PUIBLICMINERDILEMMA// 34 Thank you for listening Ken Hoffman, CFA Sector Head Metal and Mining khoffman12@bloomberg.net +1-609-279--5754 Princeton NJ Oliver Nugent, Metals and Mining Analyst onugent@bloomberg.net +44-20-3525-8425 London

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