Investment Attraction of MENA MINING


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Presentation was delivered at MENA MINING 2011 CONGRESS, Dubai, October 26, 2011

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Investment Attraction of MENA MINING

  1. 1. Investment Attraction of MENA Mining Vladimir F. Kuznetsov Director Earthstone Holdings, Ltd. Conference Day Two: 26 October 2011 13:10 Mining investment opportunities
  3. 3. DisclaimerThe information contained in this presentation is given without any liability whatsoever to myself, any persons, institutions ororganizations that I may or may not be related with, for any loss whatsoever arising from any use of this presentation or itscontents or otherwise.No representation or warranty, expressed or implied, is made or given by myself as to the accuracy, completeness or fairnessof the information or opinions contained in this presentation. In particular, no representation or warranty is made that anyprojection, forecast, calculation, forward-looking statement, assumption or estimate contained in this presentation should orwill be achieved. There is a substantial likelihood that at least some, if not all, of the forward-looking statements included inthis presentation will prove to be inaccurate, possibly to a significant degree.The information contained in this presentation does not constitute investment, legal, tax or accounting advice. Recipients ofthis presentation should conduct their own due diligence and other enquiries in relation to such information and consult withtheir own professional advisors as to the accuracy and application of the information contained in this presentation and foradvice relating to any legal, tax or accounting issues relating to a potential investment in the MENA region. This presentationdoes not constitute a recommendation to invest in the MENA region.Certain information contained in this presentation concerning economic trends and performance is based on or derived frominformation provided by independent third party sources, believed to be reliable. I cannot guarantee the accuracy of suchinformation and have not independently verified the assumptions on which such information is based. I disclaim anyresponsibility for any errors or omissions in such information, including any financial calculations, projections, and forecastsin this presentation.The views and opinions expressed herein represent my own and not those of the people, institutions or organizations that Imay or may not be related with, unless stated explicitly. This is not research and is not intended as such. This presentation hasabsolutely no intention of complete and comprehensive coverage of the enclosed problems, rather offers a general outline.This presentation is intended for discussion purposes only and is solely for your information and may not be reproduced orfurther distributed to any other person or published, in whole or in part, for any purpose.
  4. 4. Global Mining: Changed Picture Profound economy transformations, revolution in commodities’ weight substantially changed the global mining picture 4
  5. 5. Goals & Perceptions: Investor vs. RecipientIndustry AttractivenessMagnitude and ease ofmaking profit, incomparison with the risksinvolved, that an industrialsector offers. It is based on the number of competitors, their relative strength, width of margins, and rate of growth indemand for its goods orservices 5
  6. 6. Investing Essence Over the years, a number of salient points for investment attraction factors were developed by economists:  Natural and human resources;  Price, quality and productivity of inputs;  International transportation and communication cost;  Investment favor or discrimination;  Man-made barriers to trade;  Fundamental facilities;  Cross-national values, language, culture, commercial practice and politics;  Research and development;  Concentration of production and sales;  Economic system and political strategy;  Resource allocation system Dunning, J. (1977), “The location of economic activity and the multinational enterprise: search for an eclectic approach”, in Ohlin, B., Hesselborn, P. and Wiskman, P. (Eds), The International Allocation of Economic Activity, Macmillan, London, pp. 395-418 6
  7. 7. MENA: Investor’s Eyeball MENA region is one of the most geopolitically sensitive areas: it is at the crossroad between Eastern and Western commerceThis region faces geopolitical risks, is considerably dependent on energyexports and suffers from infrastructural bottlenecks. Moreover, it also has away to go before it can overcome challenges in the form of bureaucracy, lackof transparency and limited availability of information. Finally, it lacks high-quality research to aid investment decisions and has an underdevelopedsecondary market because of which the financial market is still at a nascentstage. Investment Opportunities in the Middle East and North Africa (MENA) Region © 2009 Evalueserve, Ltd. All Rights Reserved 7
  8. 8. MENA: Investor’s Eyeball Deficiency of adequate information on MENA mining Search news results on MENA MINING : 16 Search news results on AFRICAN MINING : 1,720Solutions:  Establishment of MENA Mining Information Agency  Develop ArabStat initiative to remedy information & data gap 8
  9. 9. MENA Country RisksRegion is a heterogeneous mix of countries that vary in size, social and political structure, economic and regulatory framework, and the degree of economic diversification 9
  10. 10. Economic Freedom Based on data from: Economic Freedom of the World – 2010 Annual Report, by Fraser Institute 10
  11. 11. Ease of Doing Business 11
  12. 12. Investment Incentives  State contribution to certain investment expenses through: Investment Promotion Fund  State contribution to certain expenses in specific industrial sectors, development of modern technologies: the Hassan II Fund for Morocco Economic and Social Development  Exemption from customs duties  Exemption from import VAT  Regime of convertibility for foreign investment: investors to carry out their investment in Morocco, directly transfer revenues generated /proceeds of their sale or liquidation  16 Regional Investment Centers ensure speedy company registration  Customs duty and tax exemptions on imported equipment. 50% reduction on company tax or income tax for mining companies that directly or indirectly export their mining products  Mining company may set up a tax-exempt reserve fund for exploration/ development investment equal to as much as 50% of fiscal profits, with a ceiling of 30% of turnover 12
  13. 13. Investment Incentives  Provision of soft loans for investment projects (3% interest rate)  Free transfer of capital and profits, and access and departure of expatriate workers to and from abroad Oman  Duty-free import of machinery, equipment and spare parts for industrial investment  Tax exemption to foreign investors for five years (renewable) from inception of company  Minerals City being established to serve as a hub for a number of minerals-based processing projects  No taxation of personal income  Projects exempted from income & social services taxes by 25%, 50%, or 75% for 10 years, depending on the location and sector of project Foreigners can invest in mineral resources under special agreements and own up to 100% of mining projects  Imported fixed assets are exempted from customs duties/taxes Jordan  Free repatriation of capital, profits and salaries  Exemptions in Free Zones  Industrial Estates 13
  14. 14. Investment Incentives SIDF: Short term loans to investors, technical, administrative, financial and marketing advice. Saudi Arabia Loans: medium; long-term - up to 50% project’s total cost Payback: up to 15 years (2-year grace period) Low prices for electricity, water, and other fuels for industrial projects Flat corporate tax rate of 20%  Absence of mineral royalties  Highly competitive energy costs  Import duties exemptions for approved mining equipment - 5% on other imported equipment  Foreign individuals pay tax at a flat rate of 20% on income sourced in Saudi Arabia 14
  15. 15. Technology & Infrastructure  New plans for upgrading infrastructure: e.g. Plan Azur envisions construction of new roads and airports  Industrial development zones  The MED zones: Special zones around the Tangier Med port project to serve the European Union based on optimal logistic Morocco conditions and an integrated multimodal platform (airport, highway network, rail network, seaport) offering attractive factor costs (freight charges reduced by 40% to 50%)  Expansion of railway system and development of rural inroads with World Bank funded projects 15
  16. 16. Technology & Infrastructure  Suitable for mining: roads, power gird, availability of water, deep-sea port  Industrial land planned for industrial investors are being Oman provided and being equipped with the necessary services and facilities required for construction of projects: roads, water, electricity, gas, telecommunication and facilities for solid waste collection and disposal.  Focusing on heavy infrastructure spending and the development of Saudi Economic Cities valued at over $80b  Available land in different industrial cities at nominal charges. Land forSaudi Arabia other uses is available on lease or sale  Advanced, state-of-the-art engineering supply and construction/contracting companies  Extensive rail network that benefits mining projects  High quality infrastructure: 3 airports,1 port; 8,000 km of modern highway system; railway master plan to develop an extensive rail Jordan network 16
  17. 17. Arab Spring & Investment Period of momentous change, challenges and opportunity that can lead to a historical shift in growth and development patterns MENA Political turmoil leads to economic and financial repercussions; but largely limited to countries at the epicenter of the political events Investment climate is blurred 17
  18. 18. Arab Spring & Investment 2011 Country Wise PictureWhat the population thinks: Estimated cuts in 2011 FDIQatar: 92% economy is getting better Egypt – 92%,Morocco: 68% economy is getting better. Libya – 87%,Tunisia: 50% economy is doing better; 20% doing Syria – 65% ,worse and 27% “staying the same.”Egypt: 42% see conditions in their country “getting” Bahrain – 35%,better, versus 37% who said it is “getting worse” Increase – 7 countries;Syria: 34% economy getting worse ; 32% getting the biggest – Saudi Arabia and Iraqbetter Arab InvestmentYemen: 19% doing better and Export Credit Guarantee Corp.Iraq: 16% economy looks to be doing better Gallup poll results – October 10, 2011 Top ranking H1 2011 M&A Deals Real Estate As to volumes of M&A deals: Jordan, UAE Secure and stable markets: Abu Dhabi, and Oman Dubai, Qatar, and Saudi Arabia AS to deals value: Qatar, UAE, Kuwait Uncertain: Bahrain, Egypt, and Syria Sectors: banking, education and healthcare, construction 18
  19. 19. Arab Spring & InvestmentHot for Investments © PwC/INSEAD “The Next Five Years, MENA PE” 19
  20. 20. Arab Spring & Investment Political instability and turmoil, instead of negative provide positive affect in FDI Foreign Direct Investment in Africa: What are the Key Factors of Attraction aside from Natural Resources? By Bertrand BLANCHETON, Université de Bordeaux, Lambert OPARA-OPIMBA Université de BordeauxAt the first HSBC MENA Global Banking andMarkets Leadership Forum, 62% of theregions most senior business leaders statedthat the impact of the Arab Spring would bepositive, when viewed over a three yearhorizon. October, 2011 20
  21. 21. Arab Spring & InvestmentPre-turmoil and Current-turmoil Energy Investment Mapping © Arab Petroleum Investments Corporation. Economic Commentary Volume 6 No 4 April 2011 21
  22. 22. MENA: What to Expect?Liberalization of Mining SectorsOffers of state-held equity in mining companies Governments are holding stakes Introduction of modern contractual schemes: worth $320B in publicly traded firms  BOT (build-operate-transfer) (directly or through rulers and  DBOT (design- build-operate-transfer) sovereign funds) Thomson Reuters  BOO (build-operate-own)  Joint Venture or Consortium contracts  Franchise and Leasing contracts Applying available investment laws, acceding to international treaties to protect investments especially the Arab Investment Guarantee Corporation and the Multilateral Investment Guarantee Agency (MIGA) Examination of similar (e.g. India’s) experience: A flow-through share is a common share of an oil and gas or mineral exploration  Extending Tax Breaks for Exploration: company that normally trades on an Flow-Through Shares (success in Australia, exchange. It is referred to as “flow-through” because the company enters into an Canada, USA) to attract investors in mining agreement with investor to flow certain tax  Institutional Finance Schemes deductions from that company’s capital expenditure program through to investor  Exploration & Infrastructure Bonds 22
  23. 23. Thank You for Your Attention 23
  24. 24. Vladimir F. KuznetsovDirector, Corporate Communications,Earthstone Holdings, Ltd 24