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Strategic Partnerships: Reshaping the financing landscape within the mining sector

Strategic Partnerships: Reshaping the financing landscape within the mining sector. Bruce Shapiro President, Mine Africa Inc. President, Canada-South Africa Chamber of Business www.mineafrica.com www.canadasachamber.com. Overview – Global Outlook. IMF

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Strategic Partnerships: Reshaping the financing landscape within the mining sector

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  1. Strategic Partnerships:Reshaping the financing landscape within the mining sector Bruce Shapiro President, Mine Africa Inc. President, Canada-South Africa Chamber of Business www.mineafrica.com www.canadasachamber.com

  2. Overview – Global Outlook • IMF • Global economy likely to contract 1.4% • A sluggish growth of 2.5% forecast for 2010 • Financial institutions could lose $4.1 trillion • Banks need to raise $875b in fresh capital

  3. Overview – Sub-Saharan Africa Advanced economies to contract by 3.8% in 2009 and grow by 0.6% in 2010 Sub-Saharan Africa to grow by 1.5% in 2009 and 4.1% in 2010

  4. Overview – Mining Outlook • The mining industry had its fair share of the contraction • Performance of the global mining sector has been poor towards the end of last year and the beginning of this year • The Economist reported of rumours, just over 18 months ago, of a wave of mega-mergers that were expected by the end of 2008, including: • BHP Billiton’s bid for Rio Tinto • Vale’s bid for Xstrata • Xstrata’s bid for Anglo American

  5. Overview – Mining Outlook • These bids are still being talked about, even as mining stocks continue to suffer globally • ...and the biggest of them – if finalized – the estimated US$116b joint venture between Rio Tinto and BHP • The deal faces two major impediments: • Rio Tinto’s scrapping of a proposed US$20b tie-up with Chinese metals group Chinalco is being challenged by the Chinese investor • a Rio-BHP merger will produce a mega monopoly in the supply of iron ore products, a prospect facing a stern test from restrictive competition rules.

  6. Overview – Mining Outlook • 62% drop in cap. of top 40 companies in ’08. 73% drop in cap. on TSX-V to C$7.9b • 30% of exploration companies to go under. Drop in spending from $3.4b in ‘08 to $2b in ‘09 • Steel sheet products to fall by 22% in 2009. Tonnage to fall to 300m from 380m in ’08

  7. Overview – Mining Outlook • Copper slumped from $9,000t Q3 ’08 - $3,000t Q1 ’09 • Despite 29% gain in 20 top caps, AIM to lose in ’09 • SA had an output decline of 7.5% in 2008 Up to 30,000 workers could lose their jobs 49.7t gold production, 5% down year-on-year Diamond production to fall to 15.8m carats in ‘09

  8. Public to public agreements • Who benefits from these global partnerships? • Politically motivated for political benefits • Susceptible to policy discrepancies, problems with transparency and consistency • Drive away financiers and investors

  9. Public to public agreements • Gov’t policy is important in attracting FDI • IE - transparent mining legislation, minerals rights granting processes and foreign investment protection agreements • Governments should focus on improving the investment climate for the private sector but not necessarily get involved themselves • If so, they must operate under the same principles that governs the private sector

  10. Public to public agreements:China • Offers a “hear no evil, see no evil and speak no evil” – approach • Investment commitment in Africa grew - $10B in 1980s to $100b in 2008 • Chinese mining stocks have an almost 25 percent stake of the world’s top 100 miners, benefiting from: • considerable demand for mining resources • A US$585b stimulus package

  11. Public to public agreements:China SELECTED INDICES, SPOTS AND GROUPS Points From From High Low MSCI world equities USD952.44 -35.2% 39.2% MSCI emerging markets USD749.02 -34.8% 68.0% Dow Jones Industrial8497.18 -30.1% 31.3% S+P 500910.71 -32.5% 36.6% DJ Stoxx 600203.84 -33.3% 31.2% CSI 3003057.43 -0.1% 90.3% Shanghai Composite2853.90 -3.3% 71.4% Micex Russia1004.53 -46.4% 103.5% India Nifty4251.40 -9.4% 88.7% Reuters/Jefferies CRB256.82 -45.8% 28.3% Dow Jones AIG Commodity126.46 -47.0% 24.6% Baltic Dry Shipping4026.00 -58.1% 507.2% Baltic Capesize Shipping7825.00 -44.7% 842.8% Dollar Index Spot80.42 -10.3% 12.8% Gold spot USD/oz937.14 -6.9% 37.3% KBW banks35.52 -57.4% 100.1%

  12. Public to public agreements:China TOP RUNNER CHINESE MINING STOCKS From From Stock Price High Low China ZhongwangHKD 9.10 -2.2% 39.8% ZhongjinCNY 52.02 -2.2% 401.9% Gansu JingyuanCNY 16.95 -3.6% 324.8% SDIC XinjiCNY 16.12 -5.0% 253.5% Tibet MineralsCNY 23.43 -5.7% 346.3% Yunnan AluminiumCNY 9.20 -5.8% 142.1% Anhui HengyuanCNY 25.35 -6.1% 280.7% Shanxi XishanCNY 27.48 -7.0% 293.7% Shenzhen ZhongjinCNY 20.80- 7.7% 243.2% Shanxi GuanluCNY 8.39 -7.8% 193.4%

  13. Public to public agreements: China • However, recession has caught up with China too, forcing it to demand accountability from some African beneficiary countries: • Wants stability in Guinea • Falling prices of copper products in the Congo • Oil deal in Angola likely to collapse • African governments also realizing that deals are in essence loans against future revenue

  14. A Case for SWF’s • SWF’s have existed since at least the 1950s, but their total size worldwide has increased dramatically over the past 10 - 15 years; • In 1990 sovereign funds held about $500b • In 2009 total value is estimated at $2–3t • In 2012, could reach $10t

  15. Advantages of SWF’s • Accumulation of reserves increased size of SWF’s • Current liquidity crisis increases role of SWF’s • SWF’s enjoy substantial freedom in selecting assets to invest in, in line with gov’t policy • Investment horizon considered as long term These factors provide a perfect combination for SWF’s investments into mining

  16. The increasing role of M&A’s • Good for business consolidation and injection of capital in struggling companies. • Of benefit to juniors and BEEs

  17. The increasing role of M&A’s:The current negatives • Value declined 40% to US$127b in 2008, for 919 transactions • In 2007, 903 transactions were valued at US$211b • Loans increased to 268 for US$172b in 2008 compared to US$111b in 2007

  18. The increasing role of M&A’s:some positive developments • Despite low forecast in value, a substantial number of M&As are expected this year: • Mvelaphanda Resources, which plans to de-list by early 2010, is refinancing the R 2.1 billion Gold Fields mezzanine debt • Red Back Mining acquired Moto Goldmines for a reported Cd 513 million

  19. The increasing role of M&A’s:some positive developments • Continued... • Lake Victoria Mining will acquire up to 100% interest in Kilimanjaro • MDN will acquire up to 75% of the shares of MCI • Gold Fields sold a stake in Sino Gold for US$282m • However, equity not dead (Banro)

  20. Can the finance market support the shift in control of mineral resources?  • Finance markets tend to shun government controlled assets • Fraser Institute’s Policy Potential Index (13 areas) • African governments should regulate only, not compete with private sector

  21. Can the finance market support the shift in control of mineral resources?  • Government self-interest: • France plans to assist African governments in owning & controlling mineral resources • South Africa is planning a state-owned mining company • 51% ownership proposal in Zimbabwe • Contract reviews in Congo • Tax reviews in Zambia

  22. Strategic partnerships to level the financing playing field • A combination of: • foreign capital • local control • unrestricted market access

  23. Consolidation strategies vs.bold investments • Industry should consider consolidation strategies leading to bold investments C + C + C = SFS U

  24. Conclusion • Recessions should not be looked only in terms of their negative impact • Recessions allow breathing space to self-calibrate and refocus • Recessions necessitate re-assessments of financing, investing and production options • Time to embrace other options, e.g.; • Partnering/working alongside state-run mining companies • China is the de facto driver of the global mining economy • Severe dilution to survive

  25. Conclusion: Recent deal-flow and trends on the TSX • Increase in gold, silver, copper and uranium financings • $6.4 billion raised across all commodities in the first four months of 2009 • 90% increase over this time last year • Increase in consolidations and takeover bids between TSX and TSXV miners • New players coming to TSX – investors and foreign mining companies

  26. Conclusion: Recent deal-flow and trends on the TSX • Still some listed mining companies are trading below cash value placing little or no value on assets • TSX Venture Exchange bouncing back; up 18.6% this year (March 31, 2009) • Increase in unconventional mining finance • Structured gold or silver based financing • More convertible securities, bigger discounts, more dilution

  27. Conclusion: Mining activity on Toronto Stock Exchange has increased in the last five months

  28. Conclusion: Activity by exploration companies on TSX Venture Exchange is beginning to pick up

  29. Sources and Thanks to: • Innocent Madawo (Researcher) • MineAfrica Inc. • Canada-southern Africa Chamber of Business • Enrst & Young • Fraser Institute • Frost & Sullivan • Global InfoMine • Global Times • MBendi Information Services • MineWeb • Mining Review • Mining Weekly • Mines and Commodities.Org • NEPAD-OECD Africa Investment Initiative • New York Times • Reuters News Agency • The Economist • Toronto Stock Exchange • Finance and Development Magazine • Business Day

  30. Useful Websites • http://www.mineafrica.com/ • http://www.canadasachamber.com • http://www.miningmx.com/news/markets/Slump-not-over-for-AIM-juniors.htm • http://www.fraserinstitute.org/ • http://www.mineweb.com/mineweb/view/mineweb/en/page37?oid=83804&sn=Detail • http://technology.infomine.com/articles/1/4052/fraser-institute.exploration.geology/survey.of.mining.aspx • http://en.huanqiu.com/www/english/business/news/2009-04/426957.html • http://beta.miningreview.com/node/15111 • http://www.mbendi.com/a_sndmsg/news_view.asp?I=99825&PG=35 • http://www.miningweekly.com/article/toronto-still-the-mining-finance-capital-of-the-world-2009-04-17 • http://www.minesandcommunities.org/article.php?a=9246 • http://www.oecd.org/dataoecd/39/43/41775935.pdf • http://www.nytimes.com/2009/03/26/world/africa/26chinaafrica.html?_r=2 • http://www.reuters.com/article/topNews/idUSTRE53L32C20090422?feedType=RSS&feedName=topNews

  31. Useful Websites • http://www.miningmx.com/news/markets/166391.htm • http://beta.miningreview.com/node/15481 • http://www.miningmx.com/news/gold_and_silver/SA-gold-output-drops-again.htm • http://www.diplomatie.gouv.fr/en/ministry_158/publications_2288/international-cooperation-and-development_2289/brochures-grand-public-serie_2535/mineral-resources-and-development-in-africa_6529/index.html • http://www.fin24.com/articles/default/display_article.aspx?ArticleId=1518-25_2400209 • http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=81882&sn=Detail • http://www.tsx.com/ • http://www.theeconomist.com/ • http://www.economist.com/businessfinance/displayStory.cfm?story_id=13788658 • http://www.imf.org/external/pubs/ft/fandd/2007/09/straight.htm • http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=85130&sn=Detail • http://www.economist.com/businessfinance/displayStory.cfm?story_id=13788658 • http://www.businessday.com.au/business/cfd/riobhp-ironore-venture-monopolistic-20090617-chok.html

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