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Mining Investment Asia Conference Deck March 2018_Nicholas Assef


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Conference presentation by Nicholas Assef at Mining Investment Asia held in Singapore March 2018

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Mining Investment Asia Conference Deck March 2018_Nicholas Assef

  1. 1. StrictlyConfidentialDocumentFor Discussion CONFIDENTIAL DOCUMENT Date Created: 27 March 2018 Traditional & Technology Trends in the Mining Sector Nicholas Assef LLB(Hons, LLM, MBA ASIA DEAL OF THE YEAR
  2. 2. StrictlyConfidentialDocumentFor Discussion Work Book Contents Page | 2 1 2 3 Big Picture Observations – Market Drivers Technology Adoption Will Drive Value Cover Photo : View From LCC Asia Pacific’s Sydney Office The Immediate Future 27 March 2018 Mining Investment Asia March 2018
  3. 3. StrictlyConfidentialDocumentFor Discussion Big Picture Observations – Market Drivers
  4. 4. StrictlyConfidentialDocumentFor Discussion Page | 4 Mining Investment Asia March 2018 Do The Markets Make Any Sense ?………. Interest Rates Tightening – QE From The GFC IS Still With Us………. 27 March 2018
  5. 5. StrictlyConfidentialDocumentFor Discussion Page | 5 Mining Investment Asia March 2018 Global Macro Data Continues To Be Mixed LCC’s observation is that volatility drives “fundamental” approach to deal making 27 March 2018  World Inflation “Volatile”  “Trade Wars” – Real Or Diluted ?  Commodities – Belt & Road Impact ?  Old Business Models vs New ?  Trump “Expansionist Policy” or just Low Rates ?  Support of Coal Industry…… but…..  Infrastructure spend ….. But…….  Stimulating USA Industry……………. But…..  Impact of US Tax Cuts ?
  6. 6. StrictlyConfidentialDocumentFor Discussion Page | 6 Mining Investment Asia March 2018 Central Themes Of Last 5 Years (Post GFC – It Cast A Long Shadow) Conservatism can only last so long………… Mining is meant to be Risk for Reward ? 27 March 2018 1  Lowering of Dividends, reduction in Buybacks – stockpiling of cash  Optimised mining operations (including technology) boost cashflow  Punch out more ore – expansion programmes now occurring  Sale of Assets – although in volatile market some processes pulled  Opportunistically Refinance (Debt + Equity) on Commodity “knee jerk” Balance Sheet Repair What Driving Valuations ? 4  Emergence of Private Equity  Drilling For Equity Deals  Royalty Streamers Providing Growth Capital  Higher use of Hybrid Instruments Alternate Financing 2 Lowering Exploration – Increasing Expansion 3 Targeted M & A Activity  Redirection of capital to Balance Sheet Repair  “Low Risk” Corporate Strategies – near term focus  Reduction in “organically developed” project pipeline  Where expenditure – chase for grade and / or expansion  Chinese have continued to dominate with “internalizing” key resources  Majors have focused on “concentration deals” – typically with producers  Smaller players have continued as usual to “shuffle assets”  Developers will be a key area of attention going forward Top 40 Miners divested $8bln in assets & $14 bln in minority stakes 5  Lots Divestments To PE But Not Many “Mega Deals”  Valuations In Services Sector High – Don’t Rock The Boat  Dividends Been A Focus – But Resources Not Yield Stocks ?  Volatility Will Drive More Deal Making Board Engagement
  7. 7. StrictlyConfidentialDocumentFor Discussion Page | 7 Mining Investment Asia March 2018 Investment In Exploration Weak Highly conservative approach to CAPEX has resulted in near all times lows in exploration 27 March 2018  Ultra Conservative Corporate Policy (Delever) has resulted in constraints on Exploration Expenditure  And even what is spent is heavily skewed to both Gold & Base Metals  Investors require growth – and so the lack of investment in developing project pipeline will likely lead to high level of M & A in the Bulge Bracket chasing the credible Developers
  8. 8. StrictlyConfidentialDocumentFor Discussion Page | 827 March 2018 Mining Investment Asia March 2018 Australian Mineral Exploration As a nation rich in many minerals, Australia provides a useful “canary in the coal mine” on investment Exploration Spend By Commodity Metres Drilled Metres Drilled By Deposit
  9. 9. StrictlyConfidentialDocumentFor Discussion Page | 927 March 2018 Mining Investment Asia March 2018 But Over 5 Years vs Index Performance Is Mixed Leading Engineering & Mining Services Companies Common Pattern
  10. 10. StrictlyConfidentialDocumentFor Discussion Page | 1027 March 2018 Mining Investment Asia March 2018 But Over 5 Years vs Index Performance Is Mixed Leading Engineering & Mining Services Companies Big Spread In Performance
  11. 11. StrictlyConfidentialDocumentFor Discussion Technology Adoption Will Drive Value FENIX CAPSULE
  12. 12. StrictlyConfidentialDocumentFor Discussion Barriers & Accelerators To “Technology” Change Page | 12 1 2 3 4 Resistance To Change : Old Guard, Old Ways Risk Of Error : Cost Benefit Analysis & Certainty Materiality : Great, but does it “turn the dial” ? “Domino Effect”: Change one piece – disrupt the ecosystem ? 27 March 2018 LCC Asia Pacific Believes The Are 3 Key Themes : Productivity, Efficiency, OHS Mining Investment Asia March 2018 “Weight of Venture Capital” seeking disruption Young Engineers Who Think Differently Greater focus on availability of Data: Sensors, Monitoring A D B C Drive to optimise CAPEX & “shuts”. Operational excellence BarriersAccelerators Exploration Testing & Analysis Mine Design Operate Maintenance OHS Remediation
  13. 13. StrictlyConfidentialDocumentFor Discussion Example Of Technology Development The ability to gather accurate data will drive additional innovation : Monitoring & Sensors Mining Investment Asia March 2018 OEM Automation Data Analytics & Software Hardware / Components Optimisation Productivity & Simulation Environmental, & Maintenance Connected Worker OHS
  14. 14. StrictlyConfidentialDocumentFor Discussion Observations On Innovation Trajectory Page | 1427 March 2018 Both ends of the Resources sector are driving innovative change – in their own ways Mining Investment Asia March 2018 Explorers Producers Strategy Funding Bandwidth Investment Leverage Urgency Can be innovators. Looking to leverage available capital Actively exploring innovations driving productivity, cost curve, efficiency of exploration or OHS Limited. Open to innovative collaborations (equity for service) Available. Range of approaches from “skunkworks” to experimentation (robotics example) Very limited – needs to “turn the dial” Available. Business Case driven Low. Not rewarded for innovation directly – is it a priority ? Higher. Playing longer game. Wider application of improvement High sense of Urgency. Drive to deliver “best C1 cost performance” Low. Not rewarded for innovation
  15. 15. StrictlyConfidentialDocumentFor Discussion Page | 15 Mining Investment Asia March 2018 Contributors to Battery Technology Various Countries (Germany 2030, France & UK by 2040) phasing out Diesel & Petrol Cars 27 March 2018  Anticipating a trend towards vertical integration and “security of supply”. In particular over the ramp up period to 2025  Cobalt, with limited supply, DRC bias and controlled market (Glencore) might be an interesting vertical for priority  Chinese appetite for Copper (given consume 40% world production) continues unabated – producers to large projects acquired to “internalize” supply CobaltFrom2010 LithiumFrom2012 CopperFrom2012 C o s t E f f i c i e n c y
  16. 16. StrictlyConfidentialDocumentFor Discussion The Immediate Future
  17. 17. StrictlyConfidentialDocumentFor Discussion Page | 17 Mining Investment Asia March 2018 2018 : Change Is No Longer On The Horizon “filling gaps”, regional expansion & mining services technology prominent themes 27 March 2018 CoalBulk Services OilGas GoldBattery  Watching Interest Rates On Valuations – Overall Market Health  Big plays, such as China Belt & Road Initiative to be watched – Steel & Coal  “First Mover Advantage” For Companies Embracing Technology Led Optimisation Mining Tech Consolidation will continue to be a driver as will “gap filling” in product / services Drones, data analytics, performance optimization, cost savings, safety DEVELOPERS •DEVELOPERS • Opportunistic deals • Coking coal bias • “Trump Bump” ? • Continued Mergers • Deals for Geography • Deals for Portfolios • Upstream to Downstream • Deals for Geography • Deals for Portfolios • Operational Focus • Buy “Exploration” • China & India Keys • Portfolio “Improvement” Deals • Continued Lead Exploration • Chasing Grade in Deals • Certainty of Supply Deals • Scarce vs Scarce Now • Copper a key area for M & A
  18. 18. StrictlyConfidentialDocumentFor Discussion Page | 1827 March 2018 Mining Investment Asia March 2018 What Does This Mean For Performance & Deal Making 3 Closing Thoughts 1 Early Adoption Has Advantages  Across all industries those companies that adopt technology early have a strategic cost advantage  Anticipate rising M & A  For Investors Being Focused On Drive To Minimise C1 Cost 2 Volatility Will Drive Dealmaking  Hard for CEOs & Boards to do “big plays” when Valuations at all time highs – paying “Peak Cycle”  Anticipate rising M & A in the Engineering, Contracting & Services Sectors – consolidation & technology  Balance Sheet weakness will be exposed if “the tide goes out” 3 Macro Factors  USA current position is only one piece in the puzzle  Understand regional opportunities being opened up by China Belt & Road  Understand the impact of Interest Rates rising at different speeds in different parts of the world – like they did prior to the GFC………
  19. 19. StrictlyConfidentialDocumentFor Discussion IMPORTANT INFORMATION: This presentation (‘Presentation’) has been drafted by LCC Asia Pacific Pty Limited and/or its affiliates (together, “LCC”) for the exclusive use of the party to whom LCC delivers this presentation (the “Recipient”) using information provided from a variety of sources, including publicly available information and potentially information from the Recipient. You acknowledge and agree LCC has not independently verified the information contained in this Presentation, nor does LCC make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this Presentation. 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Examples of regional engagements detailed in this Work Book are typically advisory or consulting in style, or involve an Australian company that is either seeking to expand into a market or has assets within that market. Today LCC is a licensed wholesale securities dealer in Australia only Page | 19 Office Contact Details 2017 SYDNEY Suite 3, Level 39, Aurora Place 88 Phillip Street Sydney NSW 2000 AUSTRALIA T: +612 9262 2121 F: +612 8088 1239 Correspondence GPO Box 4154 Sydney NSW 2001 BRISBANE Level 18 123 Eagle Street Brisbane QLD 4000 Australia T: +617 3112 2688 HONG KONG 20/F One International Finance Centre 1 Harbour View Street Central Hong Kong HONG KONG T: +852 3960 6532 F: +852 3669 8008 LCCASIAPACIFIC.COM AFSL 278054 ACN 105 807 645 Initial Contacts to: Nicholas Assef