'Mining Finance - What are Your Options?' by Tim Goldsmith, PwC at Mines and Money Hong Kong

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  • The equity/ debt split was 50/50 4 years ago to 20/80 in 2012
  • Note: Emerging Markets is non-rated issue by an emerging market issuer In 2012 corporate bonds raised 46% more than in 2011: Investment grade corporates saw an increase of 57% and proceeds raised by Emerging market-investment grade corporates even tripled.- The US$100m-US$500m issues are the most numerous, but the last 4 years we have seen an increasing number of large deals: 42% of the 2012 deals raised more than US$500m, compared to 16% in 2009. The average yield on bonds increased for the more riskier issuers (emerging market and high yield corporates) and the yield of less riskier issuers (Investment Grade corporates) decreased. The average spreads on high yield debt (the premium investors demanded above the government benchmark rate) widened considerably in the period compared to 2011. In addition the average maturity of less riskier issuers in the period 2011-2012 increased, whereas the average maturity of more riskier issues decreased in the same period.  Investors more risk averse but also a some change in the mix of bonds issued.
  • This data is as of December 31, 2012.Three key observations:Toronto stock exchange registers the highest number of mining issuers listed, a combined 1600 strong, majority are from the junior board. This is followed by Australian Stock ExchangeIn terms of mining market capitalisation, the London Stock Exchange posts the highest value, a combined USD425billion, followed by the Toronto stock exchanges.In terms of new mining issues in 2011, ASX got the most in terms of number at 49 but the combined number of 48 issues from TSX is close. You can see the emergence of HKSE. In terms of the average proceeds raised for 2011, the London Stock Exchanged posted the highest at an average of US$3.6billion. What is interesting to note is all of a sudden, HKSE came at US$303million on average. Quite a good number considering only 7 issues for 2011.
  • Volume:1,803 dealsDown 30%Value:$110B Down 26%“Glenstrata” impact - $54BAverage deal value fell marginally to $112M, but excluding the impact of the pending Glencore / Xstrata deal, that would have fallen to $56MCopper and gold continued to dominate activity…China represents 6% in volume and 11% in value (excl GlencoreXtrata merger) – compared to 11% and 8% in 2011 – it’s the only non-western geography to make it to the top 5 (in 2011 there was also Russia)
  • Strategy to seek alternatives to traditional equity markets (TSX, ASX and AIM) given current volatility.SGX and HKSE well positioned to capitalise on strong Asian demand (commodities) and liquidity of funds.Increasing number of mid-tier companies with Asian-based cornerstone investors.HKSE liquidity and proximity to end-users is attractive; listing rules and cost seen as hurdles.SGX the opposite to HK but can leverage off commodity trading and funds hub.Rapid globalisation and changes in shareholder/customer mix = increase in complexity.Increased activity from Private Equity and Sovereign Wealth FundsState Owned Enterprises entering through funding and off-take agreementsIncreasing competition between key exchanges - finding right platform is key to unlocking untapped value.
  • Different types of finance are more suitable depending on where a company is in its life cycle and what are the co’s strategic objectives. For example if you are close to production and do not want to dilute ownership, Royalty/ Streaming may be a good option. However if you are an early stage exploration company the key options are either a IPO or Private placement.
  • 'Mining Finance - What are Your Options?' by Tim Goldsmith, PwC at Mines and Money Hong Kong

    1. 1. Presented at:www.minesandmoney.com/hongkongPwC
    2. 2. www.pwc.com/miningMining finance – what are youroptions?Mines & Money – Hong KongMarch 2013
    3. 3. Presenter Tim Goldsmith Partner, PwC Australia Global Mining Leader PwC Australia China Practice Leader E mail: tim.goldsmith@au.pwc.com Tel.: +61 (3) 8603 2016 Mob.: +61 (3) 419 201 877Indaba - February 2013PwC 3
    4. 4. Today’s agenda Topic Challenges faced by miners in funding new discoveries Overview of global capital markets - capital raising options and trends for mining companies: • Debt • Equity including choice of listing venues • Other sources of financing (SWFs, PE, strategic investors and more) How to make your story attractive to investorsPwC 4
    5. 5. Challenges faced by miners infunding new discoveriesPwC 5
    6. 6. Miners have lagged behind both commodities and thegeneral market. Why? The growing disconnect • Economic uncertainty, concerns regarding future global Global equity indices growth Historical earnings • Capex delays and cost overruns, plus rising operating costs Commodity prices • Shareholder calls for capital discipline gained momentum throughout 2012 Miners share prices • Disconnect grew between miners strategies and investors. Commodity prices vs industry index 250% 200% S&P 500 HSBC Global Mining Index 150% Gold Spot 100% Copper Spot Australian Coal Spot 50% 0% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12PwC 6
    7. 7. Overview of global capital markets -capital raising options and trends formining companiesPwC 7
    8. 8. Key financing options for mining companies Public equity ( IPOs/ FOs) Equity financing Strategic investor Private/state- owned investor Financial investor Corporate bonds Public debt ConvertiblesNeed for capital to develop Debt financing reserves Syndicate Private debt Bank financing Royalty financing Alternative financing Stream financing PwC 8
    9. 9. Overall financing for miners decreased by 28% in 2012Equity / debt split at 20/80 in 2012 Mining - Money raised (US$ bn)Overall decline of equity 250• IPOs are down to 2009 levels• Share of resource sector in global IPO $194bn 200 proceeds reduced to 10% in 2012 from 22% in 2011 $165bn $152bn• Follow ons (including sell downs and 150 49% capital increases) were down 27% $127bn 41% compared to 2011 35% 20% 100 23% 22%Credit markets going through 5% 25% 46%significant structural changes 50 2% 2%• Decline of bank loans on the back of 50% 27% 17% 2% banks deleveraging 16% 7% 8% - 1% 1%• Growing interest in bonds – 2012 the 2009 2010 2011 2012 all-time high for the industry IPOs Follow Ons Convertibles Bonds Loans Source: Thomson OnePwC 9
    10. 10. 46% more corporate bonds issued than in 2011, +20%for smaller issuesProceeds raised by mining corporate bond issues Average yield on mining corporate bonds 8.8% +46% 8.0% 8.1% Investment Grade Emerging Markets 6.8% 6.7% 47,029 6.0% Emerging Markets - High Yield Corporate 5.0% Investment Grade 29,946 4.3% High Yield Emerging Markets - Investment Grade Investment Grade 11,984 14,825 Emerging Markets 10,053 2,363 2011 2012 2011 2012Deal volume classified per size Average maturity in years on mining corporate bonds2009-2012 corporate bond issues 10.8 10.3 10.0 68 8.9 Emerging Market 59 8.3 56 51 7.2 Emerging Market/ 6.4 Investment Grade 5.0 30 High yield 23 20 17 16 Investment Grade 10 11 10 11 6 7 7 < $100m $100m - $500m $500m-$1000m > $1bn 2011 2012 2009 2010 2011 2012 Source: Thomson OnePwC 10
    11. 11. 2012 mining equity financing was half of 2011 levels IPOs and Further issues by mining issuers FO IPO Average Number Proceeds Exchange proceeds of IPOs ($m) ($m) 130 32 Australia 123 1,544 13 116 52 891 Canada – TSX and 758 705 133 1,956 15 570 TSXV Hong Kong – Main 13 2,874 221 2009 2010 2011 2012 London – Main and 24 11,534 823 AIM Proceeds raised by IPOs and Further issues by mining issuers ($bn) 2009-2012 total 330 29,499 89 FO IPO 1 12 45 14 Just four exchanges 2 23 17 14 accounted for 90% of the 2009-2012 mining IPOs 2009 2010 2011 2012 Source: Dealogic, Thomson OnePwC 11
    12. 12. Comparison of stock exchanges At 31 December 2012 London Australia Toronto Hong Kong Main Main AIM ASX TSX TSXV Market Board Total number of issuers 1,307 1,096 2,056 1,569 2,258 1,367 Total market cap, US$ bn 6,097 96 1,387 2,156 40 2,944 Number of international cos 304 225 97 183 156 88 No. of mining issuers listed 40 145 685 364 1,309 68 Mining market cap, US$ bn 420 11 391 382 19 199 Average mining market cap, 10,430 78 549 1,050 15 2,926 US$ m New mining IPOs in 2012 1 8 21 3 41 5 Proceeds of mining IPOs in 3 62 138 327 65 517 2012, US$ m Average raise, US$ m 3 8 7 109 2 103 Total mining equity raised in 955 1,012 3,260 5,688 575 1,673 2012, US$ mConverted at USD/GBP of 1.6153; USD/AUD of 1.0371; USD/CAD of 1.0031; USD/HKD of 0.1290sources: World Federation of Exchanges, stock exchanges, Bloomberg, Dealogic, PwC researchPwC 12
    13. 13. Which Market – How do you decideCome and visit us at stand B10PwC 13
    14. 14. Volume of mining deals at its lowest since 2005 Deal activity expected to remain low in 2013 Drivers for improvement: Global Mining M&A Volume and Aggregate Value • Capital discipline expected 180,000 3,000 by shareholders – 150,000 2,500 divestitures of non-strategic saleValue (US$ millions) 120,000 2,000 • Attractive valuations Volume 90,000 1,500 • Global competition for 60,000 1,000 resources 30,000 500 0 0 33% of the junior/mid-tier mining companies are planning on $0 - <500 $500 - $1,000 >$1,000 - $5,000 >$5,000 Volume spending money on acquisition related activities in 2013, this is double the activity of 2012 Source: S&P Capital IQ, PwC Analysis PwC 14
    15. 15. Increasing choices of available capital sourcesRoyalty and stream financing is said to represent 5% of overallsector financing Major playersMiners looking for innovative ways to fundprojects and future growth, a trend that isexpected to continue into 2013+- Alternative to traditional funding sources drying up- No dilution of shareholders- Interests aligned / risk shared- Upfront cash payment to start producing Recent transactions Miner Financier Deal Location Commodity- Vale Inmet Mining Silver Wheaton Franco-Nevada $1.9bn $1.1bn Brazil Panama Iron ore Copper- Still limited availability Hudbay Silver Wheaton $750m Peru Silver Minerals- Mainly for explorers near to producing stage London Blackrock World $110m Sierra Iron ore- Reduced commercial benefit Mining Mining Trust Leone Hummingbird Anglo Pacific $15m Liberia Gold Resources GroupPwC 15
    16. 16. Current trends and outlookWe will be seeing some deal activity in 2013 – although capitalmarkets will remain tight Increase in non-equity Africa hot destination financing Governments seeking to raise funds via Cross-border listings privatisations of emerging market companies Increasing Increased activity from competition between PE, SWFs and SOEs, esp. key financial centres Asian Popularity of precious metals and copper Spin-offs and demergers Attractive M&A environment with low Listing in country of valuations operationsPwC 16
    17. 17. How to make your story attractive toinvestorsPwC 17
    18. 18. What makes a good mining equity story? Market position of Understanding assets stage of development Positive commodity Quality of resource prices outlook base Competition and Well thought market share through capex Maximising value of plans asset portfolio Proximity to Good access to emerging market transportation customers routes Credibility of Off-take management agreements Commodity Efficient cost synergies managementPwC 18
    19. 19. Financing options recapHigh-level considerations Royalty / Private Placing Public bond IPO Stream Permanence of funding     Flexible / discretionary service of     financing Dilution of existing shareholders     Investor interaction via meetings / - -  - votes Security / collateral requirements     Restrictions on corporate activities     Impact on risk profile     Ability to raise further funds     Relative cost     Ongoing requirements     Commercial restrictions     Near to Best candidate Explorers Producers All production most  medium  leastPwC 19
    20. 20. Summary Have you considered available capital raising alternatives? Have you got your equity story right? Are you clear about your strategy? Have you decided Will you be ready which market best when the window suits you? opens? Deal Governance, r PwC Accounting, a Tax Sustainability Readiness, Whi isk Services: ch market? udit structuring Community compliancePwC 20
    21. 21. Our selected mining IPO credentials January 2013 July 2011 June 2011 Jul 2010 December 2010 November 2010 Feb/Jun 2011 IPO on HKSE IPO on the Warsaw £707m IPO Stock Exchange IPO on AIM IPO on TSX IPO on ASX $3bn acquisitions and listing on the Official $400m $1,960m £10m List of the LSE $80m $280m Reporting Accountant Reporting Accountant Reporting Accountant Reporting Accountant Reporting Accountant Reporting Accountant pwc pwc pwc pwc pwc pwc November 2010 November 2010 September 2010 July 2010 March 2010 February 2010 IPO on Jakarta Stock IPO on Johannesburg IPO on NYSE IPO on the Official List IPO on Turkey Stock Exchange Stock Exchange IPO on AIM of the LSE Exchange $408m $580m $426m $60m £581m $433m Reporting Accountant Reporting Accountant Reporting Accountant Reporting Accountant Reporting Accountant Reporting Accountant pwc pwc pwc pwc pwc pwcPwC 21
    22. 22. Save the Date for Mines and Money Hong Kong 2014 March 24-28, 2014 - Hong Kong Convention & Exhibition CentreRegister your Interest at:www.minesandmoney.com/hongkongPwC

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