Richard Chase: Raising funds in today's market (Opening Session: What is the new 'normal' for mining?)

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Day 1 - Opening Session: What is the new 'normal' for mining?

Raising funds in today's market

Objective Capital Global Mining Investment Conference 2010
Stationers' Hall, City of London
28-29 September 2010
Speaker:
Ricahrd Chase - Ambrian Partners

Published in: Investor Relations
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Richard Chase: Raising funds in today's market (Opening Session: What is the new 'normal' for mining?)

  1. 1. day 1 – opening session: What is the new ‘normal’ for mining? <br />Raising funds in today’s marketRichard Chase – Managing Director, Ambrian Partners<br />
  2. 2. GLOBAL MININGINVESTMENT CONFERENCE 2010<br />Lead sponsors:<br />Media partners:<br />Other sponsors & participating organisations:<br />
  3. 3. Raising funds in today’s market<br />RICHARD CHASE<br />Managing Director<br />CREATING VALUE ACROSS THE RESOURCES SECTOR<br />
  4. 4. Expansion and Capital Raising<br />Source of capital and expertise, but <br /><ul><li> sentiment towards the sector
  5. 5. limited growth
  6. 6. ultimate exit route</li></ul>Private equity<br />Acquisitions<br />Access to capital markets and raises profile, but<br /><ul><li> cost
  7. 7. change in culture
  8. 8. liquidity
  9. 9. need to augment the management team</li></ul>IPO<br />Joint Venture<br />Expansion and Capital raising<br /><ul><li> all of the above, and...
  10. 10. dealing with residual liabilities</li></ul>Reverse <br />takeover<br />Market to <br />trade<br />Sell existing <br />assets<br />Raise funds with no loss of control, but<br /><ul><li> short term solution
  11. 11. identifying a suitable asset / buyer
  12. 12. timing
  13. 13. one off raise modest quantum of funds</li></ul>Market to private <br />funds<br />Raise debt<br />Raise funds with no loss of control, but<br /><ul><li> limited availability
  14. 14. income or asset backing
  15. 15. timing</li></li></ul><li>The basic forms of capital<br />Project finance<br />restrictions on what you can do <br />no dilution of your holding<br />loan has to be repaid, but interest should be tax deductible<br />Generally only after (bankable) feasibility study<br />Private Equity<br />restrictions on what you can do<br />dilution of your holding<br />may have onerous clauses attached (negotiate hard and read the small print!)<br /><ul><li>Public equity
  16. 16. fiduciary duties
  17. 17. dilution of your holding
  18. 18. potential capital appreciation
  19. 19. easier exit (subject to lock-ins and black-outs)
  20. 20. Joint venture / farm-out
  21. 21. restricted by terms of agreement
  22. 22. Unlikely to provide significant cash injection – but can avoid further cash expenditure
  23. 23. dilution of project equity
  24. 24. dependent on performance of farm-in partner</li></li></ul><li>Diversity is key in tricky markets<br />
  25. 25. Equity Finance<br />Bank lending has become more conservative....and expensive<br />Equity financing can be completed more quickly....and with less rigour ( !? )<br />Equity investors are readily financing quality projects<br />Carpe Diem<br />
  26. 26. AIM: A brief recap<br />
  27. 27. AIM: Outperformance<br />“…the market is ending the year on a high. The Aim index has risen by 62 per cent since January 1, compared with a rise of 22 per cent in the FTSE 100. <br />The rate of secondary fundraisings has been picking up, especially in the natural resources sectors. <br />After the famine of 2008 and 2009, times of plenty might once again return for London’s junior market.”<br />Source: Financial Times, 15 December 2009<br />AIM has outperformed the FTSE 250, TSX and ASX over the last twelve months <br />
  28. 28. London as a source of equity finance<br />
  29. 29. Choose your broker (and your audience)<br />FTSE 100<br />FTSE Small Cap<br />AIM<br />% Market Share by Value <br />(Thomson Reuters data)<br />
  30. 30. Alternatives: Private equity and investment companies<br />Vallar<br />Special situation vehicle, IPO in July raised £687m<br />Initial target is one major takeover financed with debt and by issuing additional new shares<br />Endeavour Financial – now re-named Endeavour Mining<br />Classic merchant bank<br />Acquired Etruscan through a finance and restructuring plan<br />Sold 43% Crew Gold for US$215m, giving an annualise rate of return of 124%<br />Noble<br />Started in 1987, it is firmly established as an investor and commodity trader<br />CIC invested US$850m<br />
  31. 31. Alternatives: Sovereign Wealth Funds<br />Q3 2009<br />Q3 2010<br />Source: SWF Institute<br />10 = Overweight / 0 = Underweight<br />
  32. 32. Current trends<br />Timing has been key<br />Non-deal road shows are essential to “warm-up” investors<br />Include the Private Client Brokers: private investor shareholdings have hit a two-year high<br />Less conventional sources of equity finance have shown clear signs of indigestion<br />Commodity Financing for traded metals has become more common <br />as an alternative to equity finance, and as a cornerstone to equity finance<br />Financing of advanced exploration – especially for gold – is “in”<br />
  33. 33. Debt<br />Debt has re-appeared<br />It is starting to occur further up the development cycle<br />The two primary drivers are: <br />securitization means debt holders are first in line if the project is derailed <br />interest payments incrementally diminish the risk for the lender and provide yield<br />The current economic landscape supports debt: a debt investor's exposure is limited to a finite time horizon<br />A potentially inflationary environment makes debt more attractive. <br />
  34. 34. Alternative loan options<br />
  35. 35. What financiers look for<br />Sponsorship / <br />Group <br />Structure<br />Technical<br />Commodity: <br />demand and price<br />Financial Structure<br />Sovereign & <br />Political<br />Environmental <br />& Social <br />An initial resource estimate is a must<br />Do they know what are doing?<br />Company<br />Transparent markets with prices and volumes quoted<br />Sound financial structure and procedures is essential <br />These risks are increasingly becoming less palatable<br />Key to management’s reputation<br />
  36. 36. Ambrian Capital: Full service banking<br />Development and evolution of AMBRIAN Client Companies<br />Exploration<br />Single assetCompany or greenfield development<br />IntermediateProducer with small number of operating assets<br />Feasibility StageCompany in the process of completing Feasibility/Bankable<br />Major Company with multiple established operating assets<br />Structured Facilitieswith hybrid project and corporate aspects<br />Equity Financetakes an equity position to fund potential exploration companies<br />Project Finance<br /><ul><li> Equity
  37. 37. Off-take Finance
  38. 38. Debt </li></ul>Advisory Services <br />Ambrian advises on various financial solutions<br />
  39. 39. Richard.chase@ambrian.com +44 (0)207 634 4700<br />LONDON METAL EXCHANGE<br />
  40. 40. GLOBAL MININGINVESTMENT CONFERENCE 2010<br />Lead sponsors:<br />Media partners:<br />Other sponsors & participating organisations:<br />

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