Objective Capital's Industrial Metals, Minerals & Investment Summit 2010 London Chamber of Commerce and Industry 3 November 2010 Speaker: Sacha Backes, International Finance Corporation

1. INDUSTRIAL METALS, MINERALS
AND MINEABLE ENERGY
INVESTMENT SUMMIT 2010
LONDON CHAMBER OF COMMERCE & INDUSTRY ● WEDNESDAY, 30 NOV 2010
www.ObjectiveCapitalConferences.com
Funding industrial metal projects
Sacha Backes – New Business Dev’t Head, IFC

2. Mining Financing
in Frontier
Countries
Dr. Sacha Backes
Oil, Gas, Mining & Chemicals Department
International Finance Corporation
World Bank Group
Industrial Metals, Minerals & Mineable Energy Investment Summit
London Chamber of Commerce & Industry
Wednesday 3 November, 2010

3. Contents
1. Global Market context
• Demand
• Supply
• Access to financing
2. Frontier countries
3. What you can do?

4. The Crisis and Government responses
Impact
• Bankruptcies, debt and equity
markets closed/constrained,
demand and trade collapse, supply
constraints, unemployment
Global responses
• Monetary easing: low interest
rates, liquidity supply through
packages ( Fed., ECB), QE
• Fiscal policies to stimulate
domestic demand: govn’t spending;
tax adjustments, etc
Fiscal Stimulus Packages
－ U.S. ~US$ 800 billion 5.5% GDP
－ China ~US$ 600 billion 6.9% GDP
－ Europe ~US$ 200 billion
－ Japan ~US$ 100 billion 2.3% GDP
－ Mexico ~US$ 32 billion 4.7% GDP
－ India ~US$ 4 billion 0.3% GDP
－ Australia ~US$ 10 billion 0.9% GDP
－ Argentina ~US$ 13 billion 3.9% GDP

5. Global economic
outlook
• Global recovery? GDP growth
of 5.2% in 2007 vs 4.6% in 2015
• China and India led and
leading global demand
• Sustainable recovery
dependent on successfully
phasing out of stimulus
packages and resurgence of
underlying real demand – but
OECD austerity budgets
• Fiscal and monetary
interventions rather than
structural reform – risk to long
term OECD potential growth
Source: IMF, World Economic Outlook, Apr 2010
-8%
-4%
0%
4%
8%
12%
2007a 2009a 2011f 2013f 2015f
GDPgrowth,
constantprices(%)
GDP growth - advanced economies
United States
Japan
Germany
United Kingdom
World
-8%
-4%
0%
4%
8%
12%
2007a 2009a 2011f 2013f 2015f
GDPgrowth,
constantprices(%)
GDP growth - emerging economies
China
India
Russia
Brazil
World

6. Labor markets
2%
4%
6%
8%
10%
12%
14%
2007a 2008a 2009a 2010f 2011f
Unemployment(%)
Unemployment(%)
Newlyindustrialized
Asianeconomies
Majoradvanced
economies(G7)
Euroarea
Ireland
UnitedStates
• Dramatic increase in
unemployment in advanced
economies since the crisis,
especially in Europe
• US labor costs down and
structural gaps emerging
• Lower unemployment in
emerging Asian economies
• Growth potential from
BRICs, esp. China - inland
infrastructure stimulus will
outlive OECD stimuli
• China asset bubbles
concerns and Renminbi
appreciation impact ?
Source: IMF, World Economic Outlook, Apr 2010

7. China rapidly
catching up
3.4
4.9
6.0
7.5
9.4
4.4
5.1 5.4 5.7 6.2
14.1 14.3
15.4
16.8
18.2
0
4
8
12
16
20
2007a 2009a 2011f 2013f 2015f
GDP,'current'prices
(US$trillion)
GDP of developed vs emerging economics (GDP)
China
India
Russia
Brazil
UnitedKingdom
Germany
Japan
UnitedStates
6.1%
8.5%
9.2% 10.3%
11.5%
7.9%
8.7% 8.3% 7.9% 7.6%
25.4%
24.6% 23.7%
23.0%
22.3%
0%
5%
10%
15%
20%
25%
30%
2007a 2009a 2011f 2013f 2015f
GDP,'current'prices
(%ofglobal) GDP of developed vs emerging economics (% of global)
China
India
Russia
Brazil
UnitedKingdom
Germany
Japan
UnitedStates
• Growth expected across
the board
• 1995 developing and
emerging economies
accounted for 35% of
global output (PPP) …
today it is around 47%.
• Declining US global share
of GDB based on
emergence of BRICs,
though mainly China
Source: IMF, World Economic Outlook, Apr 2010

8. Key metal consuming industries
• Autos and construction account for around 50% of global consumption of
four key base metals (also major consumers of iron and steel). Auto
industry was one focus of the US stimulus package.
• Chinese auto sales continue to increase dramatically and construction
continues to be a key element of Chinese stimulus. Chinese Stimulus
boosted Chinese demand through infrastructure projects focused on
inland areas.

9. Chinese consumption and Stimulus
• Largest single global consumer and producer; but also stock-building
• Stimulus package substantially boosting Chinese demand, through in-
land infrastructure projects, not only coastal areas
Stimulus
Copper
Aluminium
Zinc
Source: Fairfax, Global Insight, Bloomberg, American Zinc Association,
ILZSG
Additional demand from
stimulus over next 2 yrs,
MT
1.25
1.84
1.13
Metals used in
Chinese construction
(2008, MT)
1.84
2.7
1.66
MT % global
consumption
Copper 18.2 5.2* 28%
Aluminium 39.2 13.7 35%
Lead 8.6 2.8 32%
Zinc 11.5 3.7 32%
Steel 1,370.0 450.0 33%
Source: Fairfax, ANTAIKE, Rio Tinto, ABARE, ILZSG
* includes purchases by SRB and other investors. W/o those
purchases 2008 demand was 4.775 MT
World refined
consumption
2008 (MT)
Chinese consumption
MT % global
production
MT (Metal
content)
% global
production
Copper 18.3 3.8 21% 1.0 6%
Aluminium 39.7 13.5 34%
Lead 8.7 3.1 36% 1.5 41%
Zinc 11.7 3.9 33% 3.2 28%
Steel 1,360.0 513.0 38%
Source: Fairfax, ANTAIKE, USGS, ILZSG, ICSG
Refined production Mine production
Chinese productionWorld refined
production
2008 (MT)
Auto sales growth World* China
2007 2.8% 22.3%
2008 -3.1% 6.6%
2009 -4.0% 33.2%
2010q -9.0% 19.0%
Source: Bloomberg, OICA
* 57 major countries

10. • The deterioration in capital and financial markets since April
reflect an increasing recognition of the contraction to aggregate
demand implied by OECD spending cuts underway in much of
the developed world. BUT true impact on real economy will
only be felt in coming months.
• However, the forecast growth in emerging and developing
economies, especially China, less burdened by fiscal and debt
problems, which today constitute nearly half of global output,
may provide for some global economic respite, though some
short / medium term concerns exist.
• But the extent to which this can be sustained is not clear, but
sustained slow and steady growth generally expected.
Summary

11. Contents
1. Market context
• Demand
• Supply
• Access to financing
2. Frontier countries
3. What you can do?

12. Exploration
1. Future supply based on current
exploration efforts
2. Junior companies accounted for
ever increasing share of
exploration activity until 2008
3. Substantial reduction in spending
by juniors during crisis – closed
equity markets, heavily discounted
junior stocks, cash preservation
4. Juniors expected to lead again in
2010/11 on back of strong metal
prices and available equity
financing
5. M&A activity started slowly during
/ after crisis, but now …
Source: Metals Economics Group (MEG)
0
2
4
6
8
10
12
14
US$billion
Total exploration budget
0%
10%
20%
30%
40%
50%
60%
Global exploration budgets
Majors Intermediaries
Juniors Government
%oftotalinvestment

13. •Gold M&A (not all completed) – 1) Newcrest (Lihir, US$ 8.4 bil), 2) Kinross Gold
(Red Back Mining, US$ 7 bil), 3) Goldcorp (Andean Resources, C$ 3.6 bil), 4)
Eldorado Gold (Sino Gold Mining, C$ 2 bil), 5) Fronteer Gold (AuEx Ventures,
US$ 238 mil), 6) Eldorado Gold (Brazauro Resources, C$122 mil), 7) Apollo Gold
(Linear Gold, C$ 102 mil), 8) Kinross Gold (Underworld Resources, US$98 mil),
9) Serabi Mining (Brazil, Eldorado Gold to take 26.8% stake), 10) Goldstone
Resources (Bendigo Resources to take 20% stake), 11) Central African Gold
(Zimbabwe, taken over by New Dawn Mining),
•Other partnerships: BHP (Potash Corp, US$39 billion, SinoChem?), African
Minerals (Shandong Iron and Steel Grp to take 25% project stake for off-take or
dividends), Toledo Mining (Jinchuan Group, China’s largest Ni producer, to take
29.5% stake), Bellzone Mining (China International Fund re Kalia iron project in
Guinea), Herencia Resources (Nystar to take 10% stake re Paguanta Zn-Ag-Pb-
Au project in Chile), Creat Resources (formerly Zeehan Zinc, takes 20% stake in
eGalaxy Resources, re tantalum / lithium), Jubilee Platinum & Sylvania
Resources (S Africa, PGM processing JV), Sundance (China Harbour and China
Rail re Mbalam Fe Project Cameroon and Congo)
• 2010: Gold 40%, Copper 16%, Iron ore 7%, coal 7%, silver 6%
• 2010: Canadian / American firms 49%, Asian firms 21%
• Chinese strategic partnerships for off-take / resource security
2010 mining M&A – very busy!

14. Mine Development
Constraints:
 Resources - Large/high grade/low cost deposits increasingly rare
 Host country – Remaining deposits increasingly located in poorly
governed, unstable and/or frontier countries (DRC, Guinea,
Mongolia)
 Infrastructure - Many deposits in remote areas with major
infrastructure requirements
 Regulation - Increasingly tight host country regulatory constraints
(Zambia, Tanzania, S Africa, Zimbabwe, Russia)
 E&S: More rigorous environmental standards, and local
communities increasingly aware of the impact of mining and
asserting their right for a say in mining development

15. Metal prices & oil
• Strong metal price
recovery since Jan 2009,
but costs have also risen.
• Fall in oil price reduced
energy cost of production
for producers during crisis.
• Price glitch since
sovereign concerns
surfaced in April / May
• Gold and Silver continue
safe haven trend –
unwinding of hedge books,
low interest rates,
possible further US QE
• Industrial metals following
growth forecasts

16. Overall impacts
 Likely crisis induced slower pace of new development and metal
supply than in the past, against strong demand recovery
 Creeping increase in capex and opex; costs seem to have been
sticky downwards in 2009, probably in part due to national
stimulus packages.
 Long term supply price curve likely to be pushed up, though
ultimate impact will depend on demand trends / substitutes, etc.

17. Contents
1. Market context
• Demand
• Supply
• Access to financing
2. Frontier countries
3. What you can do?

18. Mining equities on AIM and market volatility
• Steady capital markets recovery through to April 2010,
followed by sovereign debt concerns and fear of contagion.
• Austerity packages have helped re-assure markets, but will
dent growth. How many more skeletons in the closet?
Ernst &
Young –
Mining Eye
Index
Dow Jones
Industrial
Average –
Volatility index

19. Mining equity financing on LSE AIM
• 14 new listings since Q4 2009!
• Lowest level further raisings in Q4
2008 / Q1 2009 … ramp up in Q2, Q3,
Q4 2009 on back of recovering share
prices, and recent lull!
• Dilution concerns (gold, copper, silver
exception) and focus on value adding
projects; Some indications of more
investor appetite on TSX and ASX.
• New: Q1: Scotgold Res. (Scotland),
Stellar Diamonds (Guinea, Sierra
Leone), Edenville Energy (Tanzania),
Pathfinder Min. (CIS, Africa), Q2:
Bellzone Min. (Guinea), Kibo Min.
(Tanzania), Metminco (Peru Chile), Q
Resources (‘Africa’), Ncondezi Coal
(Mozambique). Q3: Horizonte (Brazil),
CAML (Kazakhstan) (frontier focus!!)

20. Debt Syndications
• Syndications still down
compared to pre-crisis, in
numbers and volume
• Covenants tightened and
spreads widened during
crisis … recently leveled
out; may increase again
with renewed uncertainties
• DFIs often needed for large
financings in difficult
sectors in emerging markets
• Concern re bank exposure to
sovereign debt of concerned
countries, mostly European

21. Market Risk
Perception
CDS spreads – cost of insuring
against credit default and thus
market risk perception indicator
0
50
100
150
200
250
Spread(bps)
Credit Default Swap spreads - selected country groups
Kaz,Per, Rus, S Africa, Turk, Chile US, UK, Aus., Jap. China
-
100
200
300
400
500
600
Spread(bps)
Alcoa Barrick Gold BHP
CIA VALE Newmont PhelpsDodge
Teck Cominco US Steel Average
Credit Default Swap spreads - selected companies
• Dramatic increases during
crisis; now come down, but still
above pre-crisis levels
• Spreads not that far away from
China, emerging markets
heavily priced
• Dramatic increases for Greece,
Italy, Ireland, Portugal and
Spain during May 2010.
• China spreads closer to pre-
2007 levels than OECD

22. Possible outlook
• Equity markets have recovered well, but risk-aversion has
resurfaced; debts markets have still some way to go and may
have changed all together.
• Sovereign debt concerns have weighed heavily on market risk
perception and investor risk appetite
• Short term: Demand relatively stable and driven by China, BUT
uncertainty due to transition from Government fiscal stimulus
packages and impact of austerity budgets
• Medium/Long term: Global supply constraints likely in some
metals and fundamentals analysis fairly robust
 Prices - supply constraints and cost pressures likely to underpin
prices in long term

23. Contents
1. Market context
• Demand
• Supply
• Access to financing
2. Frontier countries
3. What you can do?

24. Mining and the Frontier
 Global resource scarcity and relative resource
richness in frontier countries have drawn juniors to
countries which many had previously avoided.
 As a commercially driven development institution,
IFC focuses on opportunities in the frontier.
 IFC defines the frontier as both the poorest
emerging countries and poorer, less developed
region in more middle income emerging countries
24

25. AIM Listed Juniors and Frontier Countries
64%
7%
8%
15%
10%
19%
21%
22%
New opportunities, but also challenges and risks:
1) Governance
2) Resource nationalism
High income
Upper middle income
Lower middle income
Low income
% % AIM-listed companies
working in this region
% Average TI corruption index
8.0
3.7
2.3
6.7
2.8
9.0
3.7
2.3
64% of AIM listed
companies are
active in Africa.

26. Challenges and Opportunities
Challenges
• Uncertain regulatory and fiscal frameworks and challenging business
environments, and increased host country awareness of bargaining power.
• As a result, good geological resource potential may be inadequately explored and
developed.
• A company needs to navigate government, local community and environmental
requirements skillfully and responsively in order to realize resource potential.
Potential Rewards
• These ‘barriers to entry’ against competition can help skilful companies with the
right approach in a particular frontier.
• The generally challenging environment globally for new supply also likely to
support prices for successful producers.

27. Contents
1. Market context
• Demand
• Supply
• Access to financing
2. Frontier countries
3. What you can do?

28. Responses
1. Investors can mitigate national/regional governance issues by building a
strong, sustainable relationship with the local community and getting a
‘social license to operate’.
• Three IFC clients who have done this well are:
1. Bema Gold (now acquired by Kinross) in Far East Russia;
2. Lonmin in S Africa;
3. Lydian in Armenia.
2. Other key mitigants: transparency about costs and project economics; and
contract terms which share fairly between host government and company.
3. Since frontier countries are higher risk, raising financing can be tough.
• Project Finance may need to involve DFIs, such as IFC, which require
high operating standards and strong community engagement.

29. Key Elements in Raising Finance
 Prepare the ground with financiers carefully and start
building relationships early on
 Strong documentation / demonstration of project quality
 Demonstration of project team experience and ability /
commitment to manage risks
 Evidence of high standards and strong community
engagement
 Partner with an established industry player and / or a strong
and reputable investor

30. • The combination of tougher market conditions and host country
challenges may make it difficult for a junior company to
succeed without one or more strong partner.
• This may be a strategic / industry or financial partner – depends
on needs. In both cases can:
1. Raise standards - by strengthening management capacity
(financial, technical, environmental and / or social)
2. Increase credibility / reputation – give comfort to
potential investors and to host government
3. Long term view – stick around even in bad times / deep
pockets
Role of value adding partners

31. IBRD
International Bank
for Reconstruction
and Development
IDA
International
Development
Association
IFC
International
Finance Corporation
MIGA
Multilateral
Investment and
Guarantee Agency
To promote institutional,
legal and regulatory
reform
Governments of poorest
countries with per capita
income of less than
$1,025
- Technical assistance
- Interest Free Loans
- Policy Advice
To promote private
sector development
Private companies in
member countries
- Equity/Quasi-Equity
- Long-term Loans
- Risk Management
- Advisory Services
To reduce political
investment risk
Foreign investors in
member countries
- Political Risk Insurance
Est. 1945 Est. 1960 Est. 1956 Est. 1988
Role:
Clients:
Products:
To promote institutional,
legal and regulatory
reform
Governments of member
countries with per capita
income between $1,025
and $6,055.
- Technical assistance
- Loans
- Policy Advice
IFC is a Member of the World Bank Group
Shared Mission: To Promote Economic Development and Reduce Poverty

32. IFC’s Products and Services
Senior
Debt
Global Trade
Finance Program
Structured
Finance
Mezzanine
Finance
Private
Equity
• On-lending
• Liquidity management
• Acquisition financing
• Warehousing facilities
• Syndicated loans
• Partial credit
guarantees
• Securitization
• Bond underwriting
• Credit
Enhancement
• Convertible debt
• Subordinated debt
• Convertibles
• Other Tier II
instruments
• Common shares
• Preferred shares
• $1 billion program
• Guarantees to issuing banks
• 46 issuing banks in 24
countries
• 92 confirming banks in 62
countries
• $579 million of issued
guarantees in first 12 months
Advisory
Services
• Corporate governance
• Risk management
• Small and medium business
banking
• Energy efficiency finance
• Local supplier development
• Community development
Sustainable
Finance
• Carbon finance
• Renewable energy
• Supply chain financing
• Corporate governance
financing

33. Investments by Region, FY09
• Sub-Saharan Africa 17%
•Commitments for IFC’s Account: $10.5 Billion
• Europe and Central Asia 20%
• Latin America and the Caribbean
26%
• Middle East and North Africa 12%
• Global 2%
• East Asia and Pacific 11%
• South Asia 12%

34. IFC’s Current Mining Portfolio
US$445 million for IFC’s account as of July 31st, 2010
By Product
Diamonds
0.1%
Aluminum &
Bauxite
9%
Other
Metals
20.9%
Gold
43%
Copper
18%Iron Ore
9%
By Region
Latin America
US$89M
E Asia &
Pacific
US$41.7M
Eastern &
C. Europe
US$49.6M Sub-Saharan
Africa
US$255.5M
World
US$4.6M
MENA
US$4.8M

35. 2010 IFC mining investments
1. Argentex Argentina pending ~US$18 million eq
2. Petra Diamonds Tanzania pending ~US$40 million ln
3. Mindoro Resources Philippines July 2010 ~CAD10 million eq
4. Tsodilo Resources Botswana June 2010 ~CAD5 million eq
5. Nyota Minerals Ethiopia June 2010 ~GBP7.5 million eq
6. Kasbah Resources Morocco June 2010 ~AS$10 million eq
7. Volta Resources Burkina Faso March 2010 ~CAD14 million eq
8. Eurasian Mining Haiti March 2010 ~US$5 million eq
9. Helio Resources Tanzania Feb 2010 ~CAD7.7 million eq

36. IFC Financing
• * “Mobilization” for 2006 and 2007 includes structured finance, loan participations, and parallel
loans.
Strong mobilization mandate

37. 1. Access to financing – With its development mandate, IFC takes on
country risk.
2. Seal of Approval - IFC involvement in a project is often seen as a
seal of approval, which can give comfort to potential investors
3. Political Risk Coverage - IFC presence in a transaction reduces the
occurrence of: 1) corruption, 2) expropriation of funds, 3)
mismanagement of revenues, and 4) extraneous regulations
4. Structuring Capability - ‘Honest Broker’ reputation facilitates
negotiations amongst diverse groups: 1) foreign investors, 2) local
partners, 3) local communities, and 4) government representatives
5. Environmental and social risk – IFC’s Performance Standards help
ensure good risk mitigation
The IFC Advantage

38. Many strong international financiers adhere to IFC’s principles
on E&S responsibility  risk management
“Equator Principles” adopted by 50+ of the world’s leading
investment banks and based on IFC’s Performance Standards
Apply to 85% of project financing worldwide

39. IFC’s Global Reach
London

40. IFC Contacts
William Bulmer
Head of Global Mining Investment Division, Washington DC
Phone: +1 202 473 8750
Email: WBulmer@ifc.org
Fax: +1 202 974 4323
Sacha Backes
Investment Officer, Business Development, London
Oil, Gas, Mining and Chemicals Department
Phone: +44 (0)20 7592 8413
Mobile: +44 (0)79 1710 0720
Email: SBackes@ifc.org
Fax: +44 207 592 8430

41. Thank you for
your attention!!