Global Capital ConfidenceBarometerAbout this surveyThe Global Capital Confidence Barometeris a regular survey of senior ex...
Access to capital Capital planningPlease indicate your level of confidence in credit availability. How do you think the bo...
Growth strategiesWhich statement best describes your organization’s focus overthe next 12 months?If your company has exces...
Mergers & acquisitionsDo you expect your company to pursue acquisitions in the next12 months?A weaker appetite for M&A, wi...
What is the excepted deal size?26%48%21%5%46%45%7%2%Oct-12 Apr-13Over US$1b US$501m–US$1bUS$51m–US$500m US$50m or lessWhat...
Survey demographicsWhat best describes your company ownership?Publicly listedPrivately ownedGovernment/state-owned enterpr...
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Ernst & YoungAssurance | Tax | Transactions | Advisory© 2013 EYGM Limited.All Rights Reserved.EYG no: ER0062CSG/GSC2013/10...
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E&Y Global Capital Confidence Barometer Outlook Apr-Oct 2013

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Our Global Capital Confidence Barometer shows that mining and metals companies have a stronger desire for growth with 44% of respondents citing this as their main focus, an increase from 38% reported six months
ago. However, companies expect to achieve this from an improved operational base where efficiency and cost control remains as the top agenda item for boardrooms.

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E&Y Global Capital Confidence Barometer Outlook Apr-Oct 2013

  1. 1. Global Capital ConfidenceBarometerAbout this surveyThe Global Capital Confidence Barometeris a regular survey of senior executivesfrom large companies around the world,conducted by the Economist IntelligenceUnit (EIU). Our panel comprises selectErnst & Young clients and contacts andregular EIU contributors. This snapshot ofour findings guages corporate confidencein the economic outlook, and it identifiesboardroom trends and practices in theway companies manage their CapitalAgenda.Profile of respondents• EIU panel of almost 1,600 executivessurveyed in February and March 2013• 193 respondents from miningand metals• Companies from 50 countries• Respondents from more than20 industry sectors• 794 CEO, CFO and other C-levelrespondents• 912 companies would qualify for theFortune 1,000 based on revenues8th issueOutlook April–October 2013Our Global Capital Confidence Barometer shows that mining and metalscompanies have a stronger desire for growth with 44% of respondentsciting this as their main focus, an increase from 38% reported six monthsago. However, companies expect to achieve this from an improvedoperational base where efficiency and cost control remains as the topagenda item for boardrooms.Respondents are more optimistic about the global economy, with 57% viewing it as improvingcompared with 21% in October 2012. Macroeconomic risks, such as the Eurozone crisis, US budgetsequestration, slowing in emerging markets growth and price volatility have disrupted the equitymarkets and given companies reason to pause. But a more bullish economic view should go some wayto support investment decisions.Despite a more positive overall sentiment, the sector’s appetite for M&A is low: only 24% ofrespondents are focused on M&A, down from 28% during October 2012. Instead, companies are optingfor lower-risk organic growth, optimizing capital structure and strategic divestments. For those amongwhich M&A is still a priority, smaller bolt-on acquisitions are preferred.While there is a continued preference for organic growth and funds continued to be diverted intoprojects with the highest returns, M&A opportunities should not be ignored. Lower growth rates inChina have triggered a softening of commodity prices causing price earnings ratios to fall, and as aresult M&A provides attractive returns on synergistic deals. Conversely, cost inflation has pushed upthe price of organic development. Hence, the market fundamentals support an investment shift frombuild to buy. There is a window of opportunity for companies with a long-term view on the sector.Capital allocation is rising up the boardroom agenda; 54% of mining and metals companies have agreater focus on capital allocation, up from 44% six months ago. With capital constrained, togetherwith increased scrutiny from shareholders and credit rating agencies (which are poised for potentialdowngrades), it is vital that every capital decision is made with the upmost sophistication and diligence.The winners in the next investment cycle will be those who have the best approach to capital planning.The Capital AgendaBased around four dimensions, it helpscompanies consider their issues and challenges,understand their options and make moreinformed capital decisions:1. Preserving capital: reshaping theoperational and capital base2. Optimizing capital: driving cash andworking capital and managing the portfolioof assets3. Raising capital: assessing future capitalrequirements and funding sources4. Investing capital: strengthening investmentappraisal and transaction executionKey findings• 57% think the global economy is improving, up from 21% in October 2012.• 46% view credit availability as improving, up from 30% in October 2012.• 44% of companies are focused on growth, up from 38% in October 2012.• But only 24% are focused on M&A, down from 28% in October 2012.• 54% have a greater focus on capital planning, up from 44% in October 2012.• 69% believe there to be a greater focus on efficiency and cost control comparedto a year ago.Lee DownhamGlobal Mining and MetalsTransaction LeaderNicky CrabtreeGlobal Mining and MetalsAssistant Director, TransactionsMining and Metals
  2. 2. Access to capital Capital planningPlease indicate your level of confidence in credit availability. How do you think the boardroom agenda at your company haschanged from a year ago?Capital allocation decisions are becoming more complex andconsequently are moving up the boardroom agenda. Mining andmetals companies must balance the demands of their equityshareholders with those of local host governments, employeesand local communities — all of which have different priorities anddiffering investment horizons. Shareholders, for example, areincreasingly measuring a short investment window of two to threeyears, where the investment decisions undertaken by managementare to support growth well beyond that term.One way many mining and metals companies have reacted to this isthrough declaring a capital strike and rapidly cutting back on theircapital spend — but at what cost? There is a risk that this could betaken too far where scaling back on investment may damage thelonger-term prospects of a company and its ability to maintain itssocial license to operate.54%of mining and metals companies have agreater focus on capital allocation, upfrom 44% six months ago46% of mining and metals companies believethat credit availability is improvingWhile challenges persist in certain markets,respondents remain optimistic about theavailability of credit.It is encouraging to see a more positive sentiment regarding theavailability of capital, albeit from a low base when we witnessedin 2012 an overall decline in the amount of capital raised by thesector for the first time since 2009.Capital raising options are certainly broader than they werepreviously and alternative sources of finance are increasinglyreplacing traditional equity and loan finance in the sector, althoughthese are by no means filling the gap entirely.We are seeing funds flow into the sector as an alternative todebt and equity, ranging from equipment and infrastructureproviders; national and development banks; streaming and royaltyagreements; and private funds looking to achieve returns forprivate investors and institutions. Each different type of investorwill have its own funding criteria which will undoubtedly result in agreater need for companies to do their diligence and determine thetrue cost of capital to best optimize capital structures.7%23%13%45%47%41%48%30%46%Apr-12 Oct-12 Apr-13Improving Stable Declining69%63%54%53%52%51%46%42%35%22%30%39%38%39%41%42%38%49%9%7%7%9%9%8%12%20%16%Efficiency &cost controlRisk managementCapital allocationRegulatory issuesInvestor relationsCorporategovernancePeople — attracting &retaining talentGrowth — newgeographic marketsGrowth — innovationR&DGreater focus today Stayed the same Lessfocus todayCapital2 Mining and Metals — Global Capital Confidence Barometer
  3. 3. Growth strategiesWhich statement best describes your organization’s focus overthe next 12 months?If your company has excess cash to deploy, which of the followingwill be your focus over the next 12 months?44%of mining and metals companies have agreater focus on growth, up from 38% sixmonths ago3% 3%32%18%27%35%38%44%Oct-12 Apr-13GrowthMaintain stability SurvivalCost reduction and operational efficiency51%49%52%41%52%78%51% 53%38% 44%10%20%30%40%50%60%70%80%90%Apr–11 Oct–11 Apr–12 Oct–12 Apr–13% focused on growthGlobal Mining and metals63%20%10%7%44%35%16%5%75%12%9%4%Growth (organicand inorganic)Pay down debtPaying dividendsBuy back stockApr-13 Oct-12 Apr-12Despite this capital strike, respondents still believe that greaterreturns can be generated through developing project pipelinesabove returning cash to shareholders: only 17% of mining andmetals respondents are intending to increase their focus onreturning cash in the form of buybacks and dividends, despite agreater call from shareholders to do so. However, the pressureto return capital to shareholders, remains greater for the largermining companies.The high level of respondents giving this view is likely to be drivenby those with single project portfolios but, regardless, it highlightsthat the need for companies to balance their long-term growthobjectives with the need to satisfy stakeholder expectations isgreater than ever. This balance is best achieved through embeddingrigor, discipline and transparency into capital planning processeswhile ensuring this is best practice rather than value destructive.Growth3Mining and Metals — Global Capital Confidence Barometer
  4. 4. Mergers & acquisitionsDo you expect your company to pursue acquisitions in the next12 months?A weaker appetite for M&A, with smaller, lowerrisk deals favoredMining and metals respondents are less focused on pursuing M&Aopportunities compared with six months ago. This is unsurprisinggiven the recent level of write-offs announced during the firstquarter of 2013, which have stunned the industry and has takenlarge scale M&A off the table for now.For those deals expected to be undertaken, smaller bolt-on dealsare favored, with 91% of deals expected to be below US$500m,up from 74% in October 2012, supporting management’s currentpreference for steady growth in order not to jeopardize balancesheet agility and to preserve credit ratings.Global Mining and metals38%41%31%25%29%39%39%18%28%24%10%20%30%40%50%Apr–11 Apr–12 Oct-12 Apr–13Oct–11Improving growth sentimentCompanies are more focused on growth compared with six monthsago, as the pressure to replace depleting reserves and maintainproduction mounts. Growth is expected to be achieved by continuedinvestment into lower-cost, high margin projects; albeit at a slowerpace than witnessed during the past five years as a new era ofcapital discipline takes hold.While mining companies currently pause for breath, we expect tosee a steady approach to growth in the short term as the newlyappointed CEOs of the industry’s majors attempt to appeaseinvestors who have made it clear that long-term investmentwith large capital outlay and significant political risk will not berewarded.Growth will be supported by a strongeroperational baseCompanies are seeking to achieve growth from a strongeroperating base as they adopt an increased focus on cost reductionand operational efficiency in order to drive greater margins andimprove earnings. The industry has been squeezed in everydirection with weaker commodity prices, significant cost inflationand labor unrest placing pressure on earnings.Recently, companies have taken drastic measures to reduce theiroperating cost base, including announcing staff reductions andmine closures. As the effects of these measures, together with anuplift in production as capital projects begin to come on line, wewould expect to see this operational base improve and earningsrecover.69%of respondents believe there to be agreater focus on efficiency and costcontrol compared to a year ago91% of deals expected to be below US$500m,up from 74% in October 2012Growth M&A4 Mining and Metals — Global Capital Confidence Barometer
  5. 5. What is the excepted deal size?26%48%21%5%46%45%7%2%Oct-12 Apr-13Over US$1b US$501m–US$1bUS$51m–US$500m US$50m or lessWhat are the main drivers of your company’s planned divestmentactivity? (Select two)41%34%34%31%28%48%67%39%22%13%26%17%10%19%24%Focus on coreassetsEnhanceshareholder valueShedunderperformingbusiness unitFund inorganic/M&A growth plansRaise cash tocompensate forunderperformanceof aggregatebusinessApr-13 Oct-12 Apr-12Divesting for valueThere is a strong appetite for divestments in the sector where 43%of mining and metals respondents of Ernst & Young’s recent GlobalCorporate Divestment study revealed that they expect to initiatedivestment plans over the next two years.Capital recycling through asset divestitures or partial stakedivestments will remain a key priority for the large producers asan established method of enhancing shareholder value and capitalredeployment.Has risk aversion gone too far?As management continue to pursue divestment strategies, thoseignoring M&A opportunities may be missing out in an environmentwhere valuations are depressed, providing potentially attractivereturns on deals offering synergistic benefits.We expect to see a continued interest in M&A from those that havea longer-term view of the sector, specifically those counter-cyclicaland financial investors with access to capital outside of the publicmarkets.43%of mining and metals respondents ofErnst & Young’s recent Global CorporateDivestment study revealed that theyexpect to initiate divestment plans overthe next two yearsA Divestments5Mining and Metals — Global Capital Confidence Barometer
  6. 6. Survey demographicsWhat best describes your company ownership?Publicly listedPrivately ownedGovernment/state-owned enterpriseFamily-ownedPrivate equity portfolio company71%22%2%2%3%What is your position in the organization?C-level executiveHead of BU/dept.SVP/VP/director50%31%19%What are your company’s annual global revenues in US$?25%23%33%19%Lessthan $500m $500mto $999.9m $1b to $4.9b $5b or moreEconomic outlookWhat is your perspective on the state of the global economy?Apr-12 Oct-12 Apr-13Improving Stable Declining6%26%16%29%53%27%65%21%57%Economic optimism returnsMining and metals respondents are significantly more optimisticabout the global economic environment with 57% believing that thestate of the global economy is improving, up from 21% six monthsago. While global economic sentiment has improved, the growth ofBRIC and emerging nations remains the biggest economic factordriving demand.57%of mining and metals respondents believethat the state of the global economy isimproving-up from 21% in October 2012Economic Demographics6 Mining and Metals — Global Capital Confidence Barometer
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  8. 8. Ernst & YoungAssurance | Tax | Transactions | Advisory© 2013 EYGM Limited.All Rights Reserved.EYG no: ER0062CSG/GSC2013/1049244This publication contains information in summary form and istherefore intended for general guidance only. It is not intendedto be a substitute for detailed research or the exercise ofprofessional judgment. Neither EYGM Limited nor any othermember of the global Ernst & Young organization can acceptany responsibility for loss occasioned to any person actingor refraining from action as a result of any material in thispublication. On any specific matter, reference should be madeto the appropriate advisor.www.ey.com/miningmetalsED 0114About Ernst & YoungErnst & Young is a global leader in assurance,tax, transaction and advisory services.Worldwide, our 167,000 people are unitedby our shared values and an unwaveringcommitment to quality. We make a differenceby helping our people, our clients and ourwider communities achieve their potential.Ernst & Young refers to the global organizationof member firms of Ernst & Young GlobalLimited, each of which is a separate legalentity. Ernst & Young Global Limited, aUK company limited by guarantee, doesnot provide services to clients. For moreinformation about our organization, please visitwww.ey.com.Ernst & Young’s Global Mining & Metals CenterWith a strong but volatile outlook for the sector, the global mining and metals industry isfocused on future growth through expanded production, without losing sight of operationalefficiency and cost optimization. The sector is also faced with the increased challenges ofchanging expectations in the maintenance of its social license to operate, skills shortages,effectively executing capital projects and meeting government revenue expectations.Ernst & Young’s Global Mining & Metals Center brings together a worldwide team ofprofessionals to help you achieve your potential — a team with deep technical experience inproviding assurance, tax, transactions and advisory services to the mining and metals sector.The Center is where people and ideas come together to help mining and metals companiesmeet the issues of today and anticipate those of tomorrow. Ultimately it enables us tohelp you meet your goals and compete more effectively. It’s how Ernst & Young makes adifference.Area contactsGlobal Mining & Metals LeaderMike ElliottTel: +61 2 9248 4588michael.elliott@au.ey.comOceaniaScott GrimleyTel: +61 3 9655 2509scott.grimley@au.ey.comChina and MongoliaPeter MarkeyTel: +86 21 2228 2616peter.markey@cn.ey.comJapanAndrew CowellTel: +81 3 3503 3435cowell-ndrw@shinnihon.or.jpEurope, Middle East, Indiaand Africa LeaderMick BardellaTel: +44 20 795 16486mbardella@uk.ey.comAfricaWickus BothaTel: +27 11 772 3386wickus.botha@za.ey.comCommonwealth ofIndependent StatesEvgeni KhrustalevTel: +7 495 648 9624evgeni.khrustalev@ru.ey.comFrance and LuxemburgChristian MionTel: +33 1 46 93 65 47christian.mion@fr.ey.comIndiaAnjani AgrawalTel: +91 982 061 4141anjani.agrawal@in.ey.comUnited Kingdom and IrelandLee DownhamTel: +44 20 7951 2178ldownham@uk.ey.comAmericas and United States LeaderAndy MillerTel: +1 314 290 1205andy.miller@ey.comCanadaBruce SpragueTel: +1 604 891 8415bruce.f.sprague@ca.ey.comSouth America and Brazil LeaderCarlos AssisTel: +55 21 3263 7212carlos.assis@br.ey.comService line contactsGlobal Advisory LeaderPaul MitchellTel: +86 21 22282300paul.mitchell@cn.ey.comGlobal Assurance LeaderTom WhelanTel: +1 604 891 8381tom.s.whelan@ca.ey.comGlobal IFRS LeaderTracey WaringTel: +613 9288 8638tracey.waring@au.ey.comGlobal Tax LeaderAndy MillerTel: +1 314 290 1205andy.miller@ey.comGlobal Transactions LeaderLee DownhamTel: +44 20 7951 2178ldownham@uk.ey.com

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