Mining Investment Asia Conference Deck March 2018

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

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

Discussion
Big Picture Observations – Market Drivers

Discussion
Page | 4
Do The Markets Make Any Sense ?……….
Interest Rates Tightening – QE From The GFC IS Still With Us……….
27 March 2018

Discussion
Page | 5
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 ?

Discussion
Page | 6
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

Discussion
Page | 7
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

Discussion
Page | 827 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

Discussion
But Over 5 Years vs Index Performance Is Mixed
Leading Engineering & Mining Services Companies
Common Pattern

Discussion
But Over 5 Years vs Index Performance Is Mixed
Leading Engineering & Mining Services Companies
Big Spread In Performance

Discussion
Technology Adoption Will Drive Value
FENIX CAPSULE

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
“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

Discussion
Example Of Technology Development
The ability to gather accurate data will drive additional innovation : Monitoring & Sensors
OEM Automation
Data Analytics & Software
Hardware / Components
Optimisation
Productivity & Simulation
Environmental, &
Maintenance
Connected
Worker
OHS

Discussion
Observations On Innovation Trajectory
Both ends of the Resources sector are driving innovative change – in their own ways
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

Discussion
Page | 15
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

Discussion
The Immediate Future

Discussion
Page | 17
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

Discussion
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………

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. This Presentation should not be regarded by the Recipient as a substitute for the exercise
of its own judgment, and the Recipient is expected to rely on its own due diligence, including separate legal, tax and accounting, if it wishes to proceed further in relation to any transaction concept outlined in this Presentation.
The indicative valuations, forecasts, estimates, opinions and projections contained in this Presentation involve elements of subjective judgment and analysis. They are based on facts and data that are often subject to rapid change. Any opinions
expressed in this material are subject to change without notice. This Presentation may contain forward-looking statements, included those reported by various Companies. LCC undertakes no obligation to update these forward-looking statements for
events or circumstances that occur subsequent to such dates or to update or keep current any of the information contained in this Presentation. Any estimates or projections as to events that occur in the future (including projections of revenue, expense,
net income and stock performance) are based upon the best judgment of LCC from the information provided by the Recipient and other publicly available as of the date of this presentation. Any statements, estimates or projections as to LCC’s fees or
other pricing are accurate only as at the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual results will vary from the projections and such variations may be material.
Nothing contained in this Presentation is, or shall be relied upon as, a promise or presentation as to the past or the future. LCC, its affiliates, directors, employees and/or agents expressly disclaim any and all liability relating or resulting from inaccurate or
incomplete information and the use or reliance of all or any part of this Presentation or any of the information contained within this Presentation.
By accepting this Presentation, the Recipient acknowledges and agrees that LCC will at all times act as an independent contractor on an arm’s-length basis and will not act in any other capacity, including in a fiduciary capacity, with respect to the
Recipient. LCC may provide services to any member of the same group as the Recipient or any other entity or person (a “Third Party”), engage in any transaction (on its own account or otherwise) with respect to the Recipient or a Third Party, or act in
relation to any matter for itself or any Third Party, notwithstanding that such services, transactions or actions may be adverse to the Recipient or any member of its group, and LCC may retain for its own benefit any related remuneration or profit.
This Presentation has been prepared solely for informational purposes and is not to be constructed as a solicitation or an offer to buy or sell any securities or related financial instruments. The Recipient should not construe the contents of this
presentation as legal, tax, accounting or investment advice or a recommendation. The Recipient should consult its own counsel, tax and financial advisors as to legal and related matters concerning any transaction described in this Presentation. This
Presentation does not purport to be all-inclusive or to contain all of the information that the Recipient may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this Presentation.
This presentation has been prepared on a confidential basis solely for the use and benefit of the Recipient. Distribution of this presentation to any person other than the Recipient and those persons retained to advice the Recipient, who agree to maintain
the confidentiality of this material and be bound by the limitations outlined herein, is not authorized by LCC. LCC specifically prohibits the redistribution or reproduction of this material in whole or in part without the written permission of LCC and LCC
accepts no liability whatsoever for the actions of third parties in this respect.
LCC holds a series of registered trademarks in the United States of America and Australia to protect its intellectual property. 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
naa@lccapac.com

Mining Investment Asia Conference Deck March 2018

Recommended

Recommended

More Related Content

Similar to Mining Investment Asia Conference Deck March 2018

Similar to Mining Investment Asia Conference Deck March 2018 (20)

Recently uploaded

Recently uploaded (20)

Mining Investment Asia Conference Deck March 2018