Finding and securing high quality mining projects - Presented at www.minesandmoney.com
 

Finding and securing high quality mining projects - Presented at www.minesandmoney.com

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Finding and securing high-quality mining projects: alternative strategies for the Chinese outbound investor ...

Finding and securing high-quality mining projects: alternative strategies for the Chinese outbound investor

Examining the challenges Chinese investors face in securing high-quality assets
What are global project developers and mining authorities looking for from China’s investors?
Examining alternative strategies for gaining strategic interests in the best projects

Patrick Loftus-Hills, Head of Metals and Mining, Moelis & Company

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Finding and securing high quality mining projects - Presented at www.minesandmoney.com Finding and securing high quality mining projects - Presented at www.minesandmoney.com Presentation Transcript

  • DRAFTFinding and securing high-quality mining projects:Alternative strategies for the Chinese outbound investorPatrick Loftus-HillsManaging DirectorHead of Metals & MiningMoelis & Company
  • What Global Project Developers & Mining Authorities Seek DRAFTfrom Chinese InvestorsGlobal project developers and mining authorities are increasingly reliant onChinese investors for continued commodity demand, financing andinfrastructure support  China continues to dominate global consumptionDemand  Strong appetite and risk tolerance  Willing to invest in non-traditional jurisdictions  Provider of low cost financingFinancing  Prepared to finance exploration and development projects  Taking on task of constructing infrastructure necessary toInfrastructure make projects viable … but what about exploration? [1]
  • DRAFTProgression of Chinese Mining Investments – By Region Financial crisis providing opportunities 15,000 12,500 11,244 Transaction Value ($mm) Struggling to find 10,016 10,000 9,366 opportunities 7,500 4,801 5,000 4,030 2,395 2,212 2,500 6 9 69 57 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Africa Asia (ex. China) Australia Europe North America South AmericaSource: Thomson, Capital IQNote: Excludes Chinalco’s US$14bn investment for 12% of Rio Tinto in Feb 2008 [2] View slide
  • DRAFTProgression of Chinese Mining Investments – By Deal TypeChinese companies participated in more majority stake acquisitions after the 2008financial crisis but have recently become more flexible with the types ofinvestments undertaken and are reverting back to pre-crisis minority stake deals 30 26 25 25 23 8% 21 20% 20 19% Number of Deals 20 22% 12% 25% 33% 15% 15 22% 20% 15% 14% 9% 5% 10 7 19% 14% 58% 5 14% 55% 48% 48% 3 3 33% 33% 2 1 33% 71% 50% 0 33% 100% 33% 50% 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 % Acquired <25% 25-50% 50-90% 90-100%Source: Thomson, Capital IQNote: Not all transaction records include amount of equity stake acquired, and hence, were omitted [3] View slide
  • DRAFTProgression of Chinese Mining Investments – By PremiumFollowing the 2008 financial crisis, Chinese investors significantly increased thepremiums paid for public transactions, offering a “fair” price for global assets 30 25 23 19 Number of Deals 20 18 26% 18 15 33% 42% 33% 22% 10 17% 8 28% 16% 30% 7 13% 22% 5 38% 17% 43% 2 42% 14% 50% 1 38% 22% 28% 29% 0 0 0 13% 22% 50% 100% 14% 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 % Premium to 4 Week Price <0% 0-20% 20-40% >40%Source: Thomson, Capital IQNote: Not all transactions were public and records may not include premium offered, and hence, were omitted [4]
  • DRAFTChinese Financing of Mining Projects / TransactionsChina has been actively involved in the financing of mining projects andtransactions that involve Chinese companies and that benefit the State DESCRIPTION EXAMPLES  State owned commercial and policy  Minmetals / OZChinese banks MineralsBanks  China Exim Bank, China  Resourcehouse Development Bank, Bank of ChinaSovereign  Teck Resources  China Investment CorporationWealth Fund  Bumi Resources  Prepayment loan in return for aCommodity  Minmetals / AWAC guaranteed offtake agreementLinked Loans  Minmetals / Codelco  Minmetals [5]
  • DRAFTChinese Infrastructure SupportAs an extension of Chinas current model for mining expansion, the willingnessto support infrastructure building has advantages on both sides CASE STUDY: CONGO SICOMINES DEAL (APRIL 2008) Transaction Size – US$9.25 billion Parties – China Railway Group, Sinohydro / DRC Government Key Terms: China 68% / DRC 32% JV covering copper and cobalt concessions in Katanga US$6 billion earmarked for road, railway and water projects Addressed development priorities to build: — 32 hospitals — 2 universities — 145 health centers — Upgrade 2 airports — 2 hydroelectric dams — Upgrade 2 electricity distribution grids — 5,000 houses [6]
  • Key Challenges Facing Chinese Investors in Securing High- DRAFTQuality AssetsChinese investors face a number of perception challenges amongforeign governments and mining companies 1 Control by the Chinese government 2 Resource monopoly 3 Governance and corporate social responsibility standards 4 Environmental and health & safety standards 5 Cultural and management differences [7]
  • Key Challenges Facing Chinese Investors in Securing High- DRAFTQuality Assets (continued)Chinese investors, like all foreign mining investors, also facechallenges from increased government intervention  “Strategic asset” classificationProtection of  Divestiture requirementsNational Assets  Nationalization  Indigenisation  Direct and indirect taxes – corporate taxes, sales taxes, payroll taxes, special costsTaxation  Royalty arrangements  Windfall levy  Tightly legislating the mining sector as a politicalEnvironmental necessity and ethical imperative [8]
  • Key Considerations to Gaining Approval of a Foreign DRAFTGovernmentWhen Chinese firms are looking to broker an overseas cross-borderacquisition, a number of factors must be keenly considered. These include: 1 Engage regulators at the earliest possible instance 2 Ensure that any bid is first and foremost, a commercial transaction 3 Have a back-up plan [9]
  • Key Considerations to Successfully Managing Overseas DRAFTOperationsIn addition to technical and operational know-how, “soft” issues should also beprioritized in order to avoid pitfalls and reduce execution risk  CollaborationLabor  Cultural integration  Language  Improve standard of livingCommunity  Job creationHealth & Safety  Safe work environmentEnvironment  Waste managementGovernment  Cooperative arrangements [ 10 ]