Liam Twigger - PCF Capital Group - Asian investment trends in the Australian resources sector
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Liam Twigger - PCF Capital Group - Asian investment trends in the Australian resources sector

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Liam Twigger delivered the presentation at the 2014 Mining the Territory Conference. ...

Liam Twigger delivered the presentation at the 2014 Mining the Territory Conference.

With record year on year investment in mining developments and exploration in the Northern Territory, the 8th Annual Mining the Territory Conference is perfectly placed to hear latest information on this booming region.

For more information about the event, please visit: http://bit.ly/MiningtheNT2014

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Liam Twigger - PCF Capital Group - Asian investment trends in the Australian resources sector Liam Twigger - PCF Capital Group - Asian investment trends in the Australian resources sector Presentation Transcript

  • Asian Capital and Australian Projects
  • This presentation has been prepared by PCF Capital Group Pty Ltd ("PCF“). The information contained in this presentation is confidential to PCF and is provided for information purposes only. Accordingly, it is provided on the basis of no liability whatsoever to PCF, or the directors, officers and employees of PCF who will not be responsible for any damages arising from any use made of the information herein. While all care has been taken in its preparation, this information has not been independently audited and PCF, or the directors, officers and employees of PCF make no representation and give no warranty or undertaking, express or implied, nor assume any responsibility for the authenticity, origin, validity, accuracy or completeness, or for any errors or omissions contained in the information. The assumptions that were made in its preparation were based on either publicly available information. The presentation is published for information purposes and is not intended to solicit an offer to buy or sell securities mentioned. To the extent any recommendations or statements of opinion or fact made by PCF constitutes financial product advice, they constitute general advice and not personal financial advice in any form. As such, any recommendations or statements do not take into account the financial circumstances, investment objectives, tax implications, or any specific requirements of the recipient. This presentation cannot be reproduced, copied or provided to a third party without the prior written consent of PCF. Disclaimer
  • • Resource sector junior and mid cap valuations remain at long term low levels. Investor interest is on the rise but focused on production and near production opportunities • Despite slowing Chinese GDP, plus $500 Billion of Outbound Chinese DFI is expected over the next 5 years • Since 2006, 75% of Chinese DFI has gone into a small number of very large deals. We expect to see an increasing number of small to medium deals and with growing confidence and deal sophistication • Energy and Power deals are currently the focus of Chinese M&A and this trend is likely to continue Key Themes • Asian capital will continue to underwrite the Australian Mining and Energy sectors for the foreseeable future with Australia in the top 3 preferred destinations for DFI for China
  • Resources Stocks Continue to Underperform 27%28% 30% 6% -40% -55% -45% -35% -25% -15% -5% 5% 15% 25% 35% Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Dow Jones S&P/ASX 200 S&P/ASX 50 S&P/ASX 200 RESOURCES S&P/ASX SMALL RESOURCES
  • Relative Sector Performance Index 2 Year Change S&P/ASX 200 HealthCare ↑ 54% S&P/ASX 200 Telecoms ↑ 54% S&P/ASX 200 Consumer Discretionary ↑ 46% S&P/ASX 200 Information Technology ↑ 38% S&P/ASX 200 Financials ↑ 38% S&P/ASX 200 A-REIT ↑ 25% S&P/ASX 200 Industrial ↑ 24% S&P/ASX 200 Utilities ↑ 21% S&P/ASX 200 Consumer Staples ↑ 20% S&P/ASX 200 Resources ↓ -7% S&P/ASX 200 Materials ↓ -8% S&P/ASX 200 Energy ↓ -13%
  • Capital raisings in 2014, both primary and secondary, are improving in comparison to previous years. Source: ASX Capital Raisings – Activity is Improving $19,897 $2,458 $7,509 $25,048 $14,674 $7,146 $24,037 $14,456 $62,528 $60,019 $98,629 $31,428 $33,101 $31,452 $32,844 $21,675 $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 2007 2008 2009 2010 2011 2012 2013 2014 Initial (M) Secondary (M) 2014 Initial (m) Secondary (m) January $23 $788 February $219 $2,327 March $449 $3,895 April $2,550 $4,260 May $3,893 $4,907 June $2,708 $3,299 July $4,614 $2,199 Total $14,456 $21,675
  • Source: Bloomberg Global Mining Deals $230 $151 $89 $164 $216 $184 $79 $35 1,992 1,711 1,569 1,932 1,766 1,501 1,323 375 $- $50 $100 $150 $200 $250 0 500 1,000 1,500 2,000 2,500 2007 2008 2009 2010 2011 2012 2013 2014 $ Billion Deal Count
  • Iron Ore Prices – Remain Volatile but Stabilising -34% 9% -19% -40% -20% 0% 20% 40% 60% Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Iron Ore (A$/t) Large Cap Index (BHP, FMG, RIO) Mid Cap Index (AGO, BCI, GBG, MGX, NFE)
  • Equity Trading Multiples for Explorers, Developers & Producers Copper (U$/lb) Gold(U$/oz) Iron Ore (U$/t) Nickel (U$/lb) $0.000 $0.020 $0.040 $0.060 $0.080 $0.100 $0.120 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Explorers Developers Producers $0 $20 $40 $60 $80 $100 $120 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Explorers Developers Producers $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Explorers Developers Producers $0.000 $0.100 $0.200 $0.300 $0.400 $0.500 $0.600 $0.700 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Explorers Developers Producers
  • In terms of leverage and upside, quality exploration projects have historically provided the best returns prior to moving into the Feasibility Study phase. Current project pricing according to MinesOnline.com is as follows: Question of Value 2014 may well be a market turning point, funds are flowing back into the producer sector and shortly into developers and the exploration sector DSO Iron Exploration Projects are being acquired for less than 25c/T versus longer term average multiple of $1.00/T. Copper Exploration Projects are being acquired for less than 2.5c/lb versus longer term average multiple of 9c/lb. Gold Exploration Projects are being acquired for less than $2.50/oz versus longer term average multiple of $25/oz.
  • Chinese direct investment in Australia by year Chinese investment in Australia declined in 2013 as total M&A deals out of China slowed following efforts by the Peoples Republic of China to moderate overseas spending. Source: The China Global Investment Tracker compiled by the American Enterprise Institute and The Heritage Foundation. Deals < US$100M excluded. Chinese Direct Investment into Australia 3% 15% 1% 27% 17% 5% 12% 12% 8% 10% 0% 5% 10% 15% 20% 25% 30% $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 US$M % of Global
  • 2005 – 2012 2013-2014 While SOE’s continued to dominate investment by value, the number of Chinese private enterprise deals is increasing particularly in commercial real estate. 62% of the number of deals done in 2013 were small to medium transactions. 2013/14 is the first time in 9 years that Chinese Foreign Investment was not concentrated in mining. The mining industry no longer dominates Chinese direct investment in Australia There has been an increase in direct investment by Chinese private enterprise Chinese Direct Investment into Australia (cont’d) Source: The China Global Investment Tracker compiled by the American Enterprise Institute and The Heritage Foundation Energy 39% Metals 53% Real estate 2% Transport 2% Agriculture 3% Other 1% Energy 49% Metals 39% Real estate 4% Transport 8%
  • Chinese investors are increasingly showing that they are willing to take a more pro-active and sophisticated approach to their investments. After a series of unsuccessful investments in the past, evidence is building to show that Chinese investors are increasingly willing to take advice or partner up with local enterprises to gain local knowledge and expertise to help their investments succeed. Chinese Investment – Changing attitudes Examples: Sino Iron Project
  • Chinese investors are increasingly showing that they are willing to take a more pro-active and sophisticated approach to their investments. Chinese ODI – Increased Confidence & Sophistication 5 May 14: Baosteel and Aurizon make joint $3.40 unsolicited cash bid for Aquila 12 Jun 14: Min Res purchase 12.78% Aquila stake on market 13 Jun 14: Baosteel advises no extension of offer beyond 11 Jul 18 Jun 14: Min Res advise of discussions re a $3.75 per share scrip offer for Aquila 18 Jun 14: Min Res advises of the termination of discussions with Aquila 3 Jul 14: Min Res advises that it has accepted into the Baosteel offer ($18.4M)
  • Year Buyer Target Transaction Commodity Interest Value 2014 Cheung Kong Group consortium • Off-market cash take over offer at $1.32 per share Energy - Utilities 100% US$2,372M 2014 Baosteel & Aurizon • Off-market cash take over offer at $3.40 per share Metals - Steel 100% US$1,420M 2014 China Merchants Group & Hastings Funds Management • Successful bidders for a 98-year lease a The New South Wales government auction Transport - shipping 98 year lease US$1,600M 2013 State Grid Intl Dvlp Ltd (CSOE) • Asset divestment process • at least 50% of the new board members must be a resident in Australia Energy & Power 60% US$2,856M 2013 State Grid Intl Dvlp Ltd (CSOE) • Asset divestment process • at least 50% of the new board members must be a resident in Australia Energy & Power 19.9% US$810M 2013 CNOOC (CSOE) Queensland Curtis LNG • Equity and LNG sale agreement • CNOOC will now own 50% of the first LNG production train at QCLNG, and option to take up to 25% of potential expansion. Energy & Power 25% US$1,930M Chinese Deals in Australia
  • • Exploration and Development projects still present outstanding value based on historical averages • Australia will continue to present attractive destination for Chinese DFI over the next 5 years • Increasing number of smaller deals from the Chinese private sector growing confidence and deal sophistication • Expect fewer but larger strategic deals by SOE’s and a focus on Energy and Power. More JV’s and alliances anticipated Closing Comments • Market sentiment is on the up and funds are starting to switch out of yield plays and focus on growth – mining stocks
  • THANK YOU!