0
Amanda van Dyke
Mining Equity Specialist, Palisade Capital Corporation
Chairman, Women in Mining UK

INVESTING IN MINING
N...
RISK WARNING AND DISCLAIMER


I am not offering any investment advice in this seminar - which is
for educational purposes...
WHAT IS A MINE?
1. “A hole in the ground owned by a liar”
Mark Twain

2. A business operation
that extracts valuable
miner...
WHY DO WE NEED MINING/MINERS
MINING CAN NOT BE IGNORED
Extracted total worth

US$1,900billion per year
US $700 billion-metals and gems
US $660 billion-...
TOTAL APPROXIMATE MARKET CAPITALIZATION
OF MINING COMPANIES

US $2.5 Trillion
MINING REALLY IS A GLOBAL BUSINESS,
GLOBAL GOLD PROJECTS 2012
METALS CONSUMPTION consumption is linked
And metals IS LINKED TO
to URBANISATION
POPULATION ANDpopulation and urbanisation...
ANNUAL GLOBAL OUTPUT
SOURCE INTIERRA RMG
METALS DEMAND FOLLOW GLOBAL GDP
PRICES FOLLOW OECD OUTPUT
ORE PREDICTIONS IN MILLIONS OF TONNES
COMMODITY RANKINGS
SOURCE INTIERRA RMG
COMMODITY PRICES
•
•
•
•

Commodity prices are fundamentally driven by supply (amount of a commodity
mined/produced) and d...
TOP 12 COMMODITIES
Commodit
y

Global Annual
Demand for 2012

Major uses

Gold

145.3M oz

Jewelry, Investments, Electroni...
GOLD VS OTHER COMMODITIES
• Over the long run commodity
prices are determined by demand
(consumption) and supply
• Gold de...
LIFE CYCLE OF A MINING COMPANY
EXPLORERS VS DEVELOPERS VS PRODUCERS
•

•

•

Explorers
o These companies have very little in the way of assets. They expl...
GENERAL BREAKDOWN MINING COMPANIES
• Large cap – Market cap. value > $10bn
o Large diversified Miners, AAL, BLT, RIO, XTA,...
GLOBAL MINING PROJECTS BY STATUS 2012
# of
Projects
Grass Roots (no
drilling)

16,456

38%

Exploration (limited
drilling)...
SO WHEN DO YOU INVEST......
WHAT ARE RESOURCES AND RESERVES
• Inferred Resource: 20-50 drill holes, a
confirmed occurrence of minerals, continuity
ass...
HOW DO YOU VALUE AN EXPLORER/DEVELOPER
• NPV
• Comparable valuation per oz/lb in the
ground
• Comparable Companies
• IRR
•...
HOW DO YOU VALUE PRODUCER
•
•
•
•
•
•
•
•

Absolute Valuation
NPV
Yield
Relative Valuation
P/E Ratio
Enterprise Value
Cash...
KEY CONSIDERATIONS
•
•
•
•
•
•
•
•
•
•
•
•
•

Production
Capital Costs (Capex)
Sustaining Capital Costs
Operating Costs (O...
TIMMINS (TMM CN)-A MEXICAN GOLD MINE
San Francisco
Mine

Open Pit

Heap Leach

Reserves

1.3moz P&P

Debt

18m

Resources
...
WHAT AFFECTS BOTH THE VALUE OF
MINING COMPANY
•
•
•
•
•
•
•
•

Ability to execute
Growth timeline
Place on cost curve
Gene...
10 MAJOR RISK CONSIDERATIONS FOR
MINERS AND EXPLORERS
• Exploration Risk
o commodity dependent e.g. open pit coal vs thin ...
THE SEVEN DEADLY SINS OF MINING
Executio
n

Financing
Risk

Market risk

Operating
Risk
Resource Risk

Country Risk
10 MAJOR RISK CONSIDERATIONS FOR
MINERS AND EXPLORERS
• Market Risk
o availability of finance at each stage
o commodity pr...
SUSTAINABILITY/BALANCING STAKEHOLDER CONCERNS

A SOCIAL LISCENCE TO OPERATE
Community

Investors/Fin
ancers

Mine
Environm...
KEY INVESTMENT QUESTIONS
• What are the key operating risks? Go through the
major mining risk checklist.
• What is the cap...
SO HOW DO YOU INVEST IN MINING
• Choose where you are going to invest,
Explorers, Developers, Producers, MajorDiversified ...
Ultimately the value of a mine is the NPV
discounted by the total of execution risks.
 The three most important factors o...
THANK YOU FOR LISTENING!


Questions?
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How to invest in mining for high net worth investors

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  • Mining companies are fundamentally driven by supply (amount of a commodity mined/produced) and demand (global commodity consumption).There is a certain amount of any given commodity that is fairly stable, and regularly consumedThen there is a certain amount which driven by global growth, demographics, urbanisation, economic development etc. This is marginal change which drives demand supply imbalances, and price growth, and in some cases increases to stable demand.
  • Sprott note bring with
  • Look for a track record and gray hair
  • Transcript of "How to invest in mining for high net worth investors"

    1. 1. Amanda van Dyke Mining Equity Specialist, Palisade Capital Corporation Chairman, Women in Mining UK INVESTING IN MINING NEW ORLEANS INVESTOR SHOW NOVEMBER 13TH 2013
    2. 2. RISK WARNING AND DISCLAIMER  I am not offering any investment advice in this seminar - which is for educational purposes only and therefore does not constitute a regulated activity under the FSMA 2000 and does not fall under the remit of the FCA. The educational material within the presentation represents my views alone and not those of my employers and cannot be viewed as investment advice but as general information which is not intended to address your individual investment requirements. This information is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. Myself and the New Orleans Investor show shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
    3. 3. WHAT IS A MINE? 1. “A hole in the ground owned by a liar” Mark Twain 2. A business operation that extracts valuable minerals or other geological materials from the earth from an ore body, lode, vein, seam, or reef.
    4. 4. WHY DO WE NEED MINING/MINERS
    5. 5. MINING CAN NOT BE IGNORED Extracted total worth US$1,900billion per year US $700 billion-metals and gems US $660 billion-coal / lignite US $340 billion –cement and aggregates US $200 billion – industrial minerals
    6. 6. TOTAL APPROXIMATE MARKET CAPITALIZATION OF MINING COMPANIES US $2.5 Trillion
    7. 7. MINING REALLY IS A GLOBAL BUSINESS, GLOBAL GOLD PROJECTS 2012
    8. 8. METALS CONSUMPTION consumption is linked And metals IS LINKED TO to URBANISATION POPULATION ANDpopulation and urbanisation Australasia 100% 90% Chile Brazil SK USA 80% 70% Switzerland Malaysia Russia G Japan Urbanisation 60% 50% Copper consumption China Indonesia Philippines World 40% Pakistan 30% Zambia Thailand 20% India G = Germany 10% SK = South Korea 0% 1 10 100 1000 10000 Population (m) Source: ICSG, Raw Materials Group
    9. 9. ANNUAL GLOBAL OUTPUT SOURCE INTIERRA RMG
    10. 10. METALS DEMAND FOLLOW GLOBAL GDP
    11. 11. PRICES FOLLOW OECD OUTPUT
    12. 12. ORE PREDICTIONS IN MILLIONS OF TONNES
    13. 13. COMMODITY RANKINGS SOURCE INTIERRA RMG
    14. 14. COMMODITY PRICES • • • • Commodity prices are fundamentally driven by supply (amount of a commodity mined/produced) and demand (global commodity consumption). There is a certain amount of any given commodity that is fairly stable, and regularly consumed Then there is a certain amount which driven by global growth This is marginal change which drives demand supply imbalances,
    15. 15. TOP 12 COMMODITIES Commodit y Global Annual Demand for 2012 Major uses Gold 145.3M oz Jewelry, Investments, Electronics, Computers, Dentistry Copper 19.7M t Electrical wiring, pipes, Wire Rod, Cake/Slab, Billet Silver 1.0B oz Photographic Paper and Film, Jewelry, Electronics, solar panels Uranium 180M lbs Nuclear power Zinc 12.8M t Galvanizing steel, Die-Casting Alloys, Brass Semis & Castings Nickel 17.2M t Stainless Steel, Alloys, Plating, Batteries Lead 10.5M t Batteries, Vehicles, Motorbikes, Industrial Coal 946.6M t Steel, heating, electricity Iron 2.0B t Steel Diamonds Jewelry, cutting tools, Diamond Speaker Domes, Heat Sinks Platinum 7.2M oz Jewelry, Vehicles, Investments Potash 51.3M t Fertilizer, Soaps, Water Softeners, De-Icers, Drilling Muds, Feed, Food Phosphate 200M t Fertilizer, Feed, Food, Detergents
    16. 16. GOLD VS OTHER COMMODITIES • Over the long run commodity prices are determined by demand (consumption) and supply • Gold demand is based on its status in the world as a store of value, not on a need for consumption, it is a currency, a method of savings, a currency devaluation hedge GOLD IS NOT A REGULAR COMMODITY
    17. 17. LIFE CYCLE OF A MINING COMPANY
    18. 18. EXPLORERS VS DEVELOPERS VS PRODUCERS • • • Explorers o These companies have very little in the way of assets. They explore and prove that a commodity exists in a particular area. The only major assets owned by exploration firms are the rights to drill and a small amount of capital, which is needed to conduct resource definition, and delineation of an ore body. This process takes 1-5years Developers o Once a deposit is discovered by exploration companies, it needs to be developed into a business proposition and a working producing mine. That process usually takes 1-5 years. Producers o Producer firms are full-fledged mining companies that extract and produce a given commodity. Average mine life is 25 years, but the range can be anywhere between 8100years.
    19. 19. GENERAL BREAKDOWN MINING COMPANIES • Large cap – Market cap. value > $10bn o Large diversified Miners, AAL, BLT, RIO, XTA, VALE • Mid cap – Market cap. $2 -10bn, o Producers, less diversified, often single commodity • Small cap – Market cap. $100m -$2bn o Developers and producers, often single mine • Microcap –Market cap.$1mn-$100 mn, o Explorers and developers
    20. 20. GLOBAL MINING PROJECTS BY STATUS 2012 # of Projects Grass Roots (no drilling) 16,456 38% Exploration (limited drilling) 12,494 29% Advanced Exploration 6,490 15% Pre-Feasibility/Scoping 1,686 4% Feasibility 1,189 3% Construction 528 1% Operating Mines 4311 10% 43,154 100% Total
    21. 21. SO WHEN DO YOU INVEST......
    22. 22. WHAT ARE RESOURCES AND RESERVES • Inferred Resource: 20-50 drill holes, a confirmed occurrence of minerals, continuity assumed not verified, no economic indication • Indicated Resource: 100-200 drill holes, tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence • Measured Resource: 200-500 drill holes, that part of a mineral resource that can be estimated with a high level of confidence to allow the application of technical and economic parameters and to enable an evaluation of economic viability • Probable Reserves: Measured and Indicated + scoping study proving it is economic to mine • Proven Reserves: Probable Reserves and a bankable feasibility study give you assets on a balance sheet
    23. 23. HOW DO YOU VALUE AN EXPLORER/DEVELOPER • NPV • Comparable valuation per oz/lb in the ground • Comparable Companies • IRR • Rules of Thumb: Chance of being a mine • Grass roots 1/100, Drilling 1/10, PEA 1/5 • Tip: do not forget the dilution factor!
    24. 24. HOW DO YOU VALUE PRODUCER • • • • • • • • Absolute Valuation NPV Yield Relative Valuation P/E Ratio Enterprise Value Cash flow and Cash flow per share ROE
    25. 25. KEY CONSIDERATIONS • • • • • • • • • • • • • Production Capital Costs (Capex) Sustaining Capital Costs Operating Costs (Opex) Cash costs All in costs Royalties, Taxes, Debt, and Offtakes Reserve Replacement Mine-life Grade Recovery Strip Ratio Payback period
    26. 26. TIMMINS (TMM CN)-A MEXICAN GOLD MINE San Francisco Mine Open Pit Heap Leach Reserves 1.3moz P&P Debt 18m Resources 1.5mozM&I 1.6mozInferred Hedging none Grade 0.846 g/t Cash 2012ye $24.2m Recovery 65% EV $419m Minelife 10years NPV 2013 $542MM Production p/a 100koz 2012,94koz •P/E Ratio (vs peers) 6.4x (vs 10.3x) Au/56kozAg •P/CF (vs peers) 4.7x(vs6.5x) 130kozAu 2013EST Strip Ratio 2.14:1 Sustaining Capex 2012 $20m Corp tax rate 30% royalties n/a Dividend and Yield n/a (est 2014) Cash Flow per share 2012 $0.41
    27. 27. WHAT AFFECTS BOTH THE VALUE OF MINING COMPANY • • • • • • • • Ability to execute Growth timeline Place on cost curve General market conditions Demand forecast for the commodity Jurisdiction And never forget in mining, Grade is King
    28. 28. 10 MAJOR RISK CONSIDERATIONS FOR MINERS AND EXPLORERS • Exploration Risk o commodity dependent e.g. open pit coal vs thin vein underground gold • Execution Risk o development issues o access to market/infrastructure o local logistics (roads / water supply / power supply / raw materials) • Resource Risk • metallurgy and recovery mineability of the deposit – underground vs open-pit • Operating Risk o management experience o mining complexity o extreme conditions (e.g. Siberia)
    29. 29. THE SEVEN DEADLY SINS OF MINING Executio n Financing Risk Market risk Operating Risk Resource Risk Country Risk
    30. 30. 10 MAJOR RISK CONSIDERATIONS FOR MINERS AND EXPLORERS • Market Risk o availability of finance at each stage o commodity price o equity markets Sectomeres? • Environmental/Social Risk o Equator Principle Compliance Some Secret? • Technology Risk o extraction and processing Sovereign Risk o currency movements Country risk o permitting, war, nationalization, taxes o labour issues, infrastructure services • Stakeholder Risk o NGOs, communities, Debt holders I have Some Secrets to share with you 
    31. 31. SUSTAINABILITY/BALANCING STAKEHOLDER CONCERNS A SOCIAL LISCENCE TO OPERATE Community Investors/Fin ancers Mine Environment Government
    32. 32. KEY INVESTMENT QUESTIONS • What are the key operating risks? Go through the major mining risk checklist. • What is the capex and what are the all in sustaining costs. • What are your financial considerations, corporate tax rate, royalites, debt, hedges/offtakes, streams? • Life-of-Mine (LOM) model, Net present value, Internal Rate of Return, Payback period, Dividend yield • Does this mine have social licence to operate • Remember: The long run is a misleading guide to current affairs. In the long run we are all dead. The market can remain irrational longer than you can remain solvent. John Maynard Keynes
    33. 33. SO HOW DO YOU INVEST IN MINING • Choose where you are going to invest, Explorers, Developers, Producers, MajorDiversified Miners or Funds? –this should be based on your risk appetite. • Choose the commodities you believe in • Choose your approach, Portfolio approach Stock Picking Funds
    34. 34. Ultimately the value of a mine is the NPV discounted by the total of execution risks.  The three most important factors of long term success in a mining company is: 1. Management 2. Management 3. Management 
    35. 35. THANK YOU FOR LISTENING!  Questions?
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