Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

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

367 views

Published on

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

Published in: Business, Technology
  • Be the first to comment

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

  1. 1. DRAFTFinding and securing high-quality mining projects:Alternative strategies for the Chinese outbound investorPatrick Loftus-HillsManaging DirectorHead of Metals & MiningMoelis & Company
  2. 2. 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]
  3. 3. 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]
  4. 4. 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]
  5. 5. 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]
  6. 6. 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]
  7. 7. 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]
  8. 8. 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]
  9. 9. 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]
  10. 10. 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]
  11. 11. 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 ]

×