Investing in the African renaissance

GLOBAL RESOURCESINVESTMENT CONFERENCE

STATIONERS’ HALL, CITY OF LONDON ● TUESDAY-WEDNESDAY, 27-28 SEP 2011

www.ObjectiveCapitalConferences.com

Closing Keynote: Investing in the African renaissance Christopher Goss – IFC

Other sponsors & participating organisations:

GLOBAL RESOURCESINVESTMENT CONFERENCE 2011

Lead sponsor:

Media partners:

@Objectivelive

Mining, Africa and IFC; Opportunities, Risks, and

Partnership

Christopher Goss

IFC Consultant

4

Over the last 18 months, junior mining companies have raised over $6.3 billion for their African projects

35% spent on gold; 24% on

iron-ore

Data Source: Intierra

US$ million

Gold

Iron

Ore

Coppe

r

Urani

um

Rare

Earth Coa

l

Plat

inum

Manga

nese

Diam

onds

Pota

sh

Niobi

um Tin

Tant

alum

Nickel

Miner

al S

ands

Vanad

ium

Phos

phat

eZin

c

Grani

teLe

ad

Verm

iculit

e -

500

1,000

1,500

2,000

2,500

8,266.28

13,036.23

IDA

NON-IDA

Breakdown by African Region $m (2000-2011)

Debt Finance - About $22 billion raised in Africa Mining over the last 10 years

• Between 2000-2011, African Mining raised $22billion in debt financing

• 78% was for projects in Southern Africa (South Africa, Botswana, Namibia, Zimbabwe, Zambia, Mozambique)

• South-Africa alone accounted for 55%.

• High concentration on Gold projects, which raised $9.5 billion, or 43% of the total.

Data Source - Dealogic

Where is the money going ? (IDA vs Non-IDA)

60%

40%

FlouriteFerrochrome

ZincTitanium

PhosphateMineral SandsMolybdenum

Rare EarthManganese

NickelUraniumIron Ore

CoalDiamonds

Bauxite\AluminiumPlatinum

CopperGold

- 2,000 4,000 6,000 8,000 10,000

5 25 40 240 310 315 316 336 382 523 549 663 858

1,278 1,575 1,600

2,263 9,429

Breakdown by Commodity $m (2000-2011)

5

Summary IFC Investment in Africa

• $578m. in 30 transactions since 1999, or an average of just over two per year.

• But half of these transactions in the last three years:4 in FY2011 (up to June 2011)7 in FY20104 in FY 2009

• Half investment volume in debt, half in equity

• But debt in only 6 transactions

6

Mining and Africa

• Major global investment flows into Africa mining as investors and companies take on the country risks in their hunger for resources

• But mining carries with it wide ranging investment risks, some of which are acute in many African countries.

7

Risks in the Metals and Mining Sector

• Ernst and Young released its annual report, “Business risks facing mining and metals” for 2011–2012

• Through discussions with mining and metals leaders and from its global analysis of companies and projects, E&Y provides a snapshot of the most significant challenges currently facing the sector

8

E&Y’s Top 10 Risks to the Metals and Mining Sector

1. Resource nationalism 6. Price and currency volatility

2. Skills shortage 7. Capital allocation

3. Infrastructure access 8. Cost management

4. Maintaining a social license to operate

9. Interruptions to supply

5. Capital project execution 10.Fraud and corruption

Source: Ernst and Young, “Business risks facing mining and metals 2011 – 2012.” www.ey.com/miningmetals.

Challenges in Africa Mining

• Risks 1-4 and 10. in the previous slide, ie:

Resource NationalismSkillsInfrastructureSocial LicenceFraud and Corruption

apply particularly in many African countries.

• Governance, Infrastructure and other challenges vary greatly across the continent. For example, by contrast:

Governance and infrastructure standards in Botswana are high.

The infrastructure challenges and investment needs for iron ore in West Africa are huge.

9

Challenges in Africa Mining (cont.)

• Where these risks are high, IFC can help; especially regarding the company’s social licence.

• Recent events in Guinea and DRC, which have involved IFC, have demonstrated our willingness to maintain our partnership and support in challenging circumstances.

• Infrastructure requirements, when large (risk 3.), are likely to need some form of project financing.

• This financing will be very challenging to raise, given the sums needed, country risks and current global financial stresses. It will probably need extensive involvement of IFIs such as IFC to succeed.

10

Examples of Large Infrastructure Requirements for Africa Mining Projects

S/N Sponsor Country Project Infra Needs

1 Xstrata(Zanaga)

Republic of Congo

• 4 billion tonne Iron Ore Deposit in South-Central Congo

• Railway – 350 km• Port – Expansion of existing

port at Pointe Noire• Power

2 First Quantum Zambia Copper Mines • Power Transmission and Distribution Lusaka-Trident-Lumwana

• Power line length about 600km

3 Sundance(Mbalam)

Cameroon • 2.5 billion tonne Iron Ore Deposit in North East Cameroon

• Chinese investors

• Railway – 500km• Port – Located in Kribi);

Chinese expected to build

4 Rio Tinto(Simandou)

Guinea • Over 2 billion tonnes Iron Ore with significant upside

• IFC currently owns 5% of project

• 700km Rail-line• A Deepwater Port at

Conakry

11

The World Bank Group

IBRDInternational Bank for Reconstruction and Development

IDAInternational Development Association

IFCInternational

Finance Corporation

MIGAMultilateral

Investment and Guarantee Agency

Est. 1945 Est. 1960 Est. 1956 Est. 1998

Role To promote institutional, legal and regulatory reform

To promote institutional, legal and regulatory reform

To promote private sector development

To reduce political investment risk

Clients Governments of member countries with per capita income between $1,025 and $6,055

Governments of poorest countries with per capita income of less than $1,025

Private companies in member countries

Foreign investors in member countries

Products

• Technical Assistance

• Loans• Policy Advice

• Technical Assistance

• Interest Free Loans• Policy Advice

• Equity/Loans• Risk Management• Advisory Services

• Political Risk Insurance

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Over $85 Billion Invested Since 1956

• Largest multilateral source of loan/equity financing for the emerging markets private sector

• Founded in 1956 with 182 member countries• AAA-rated by S&P and Moody’s• Equity, quasi-equity, loans, risk management

and local currency products• Takes market risk with no sovereign guarantees• Promoter of environmental, social, and

corporate governance standards• Resources and know-how of a global

development bank with the flexibility of a merchant bank

• Holds equity in over 800 companies worldwide

13

IFC FY2010 Highlights

Portfolio $48.8 billion

Committed $12.7 billion

Mobilized $5.3 billion

# of Companies 1,656

# of Countries 120

Latin America

24%

East Asia and the Pacific

13%

Europe & Central Asia

23%

Sub-Saharan Africa19%

Middle East & N.Africa

12%Global

1%South Asia

8%

IFC’s Global and Africa Reach

14

22 Country offices in Africa, including 4 regional hubs

Dakar

Nairobi

Johannesburg

Cairo

Washington

Mexico City

Bogota

Buenos Aires

São Paulo

Port-of-Spain

Moscow

IFC HQ/Hub OfficesIFC Operational CentersIFC Country Offices

Hong Kong

New Delhi

Almaty

Istanbul

IFC’s Mining Portfolio• $507 million current portfolio comprising 36 projects in 24 countries

• Major commitment to Africa: Half of our total current portfolio in Sub-Saharan Africa

• Track record of long-life partnerships with companies• Equity represents 54% of portfolio

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By Product By Region

Iron Ore 9%

Other Metals21% Gold

43%

Copper18%

Sub-Saha-ran Africa

$256MLatin Amer-ica

$89M

East Asia &

Pacific$42M

Eastern & Central Eu-

rope$50M

MENA: $5MWorld: $5M

Note: Data as of March 2011

Aluminum &

Bauxite9%

IFC Value-Add in Mining

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Long-Term Competitive

Financing

Regional Knowledge

Global Mining Expertise

Country Risk Mitigation

Environmental & Social Risk Management

Advisory Services

• Equity

• Fixed & Floating Rates, Local Currencies

• Up to 15 Year Loan Maturity

• Catalyst for Other Investors and Lenders

• Capital Mobilization

• Extensive Local Office Network

• Local Transaction Experience

• World Bank Synergies

• 50+ Years of Sector Experience

• Greenfield

• Expansion / Modernization

• Corporate Strategy

• Access to International Investors

• Technical Advice

• Government Relations

• Reduced Risk of Expropriation, Breach of Contract, Convertibility

• World Bank Synergies

• Withholding Tax Benefit

• Advice on Environmental & Social Best Practices

• Equator Principles Modeled after IFC Standards

• Local Consultation & Disclosure

• Local Supplier Development

• Local Economic Development

• Community Development Funding

• Financial Valuation Tool

• Resource Efficiency

Financing & Sustainability Expertise Under One Roof

• IFC’s package deal brings together world-class talent, a global outlook and a social/environmental mandate to deliver sustainable business solutions; IFC’s team includes financial professionals, mining engineers, environmental specialists, development experts, and communications specialists

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Financing Advisory Services

• Equity• Quasi-equity• Loans• Capital markets access and mobilization• Risk management• Political risk cover

• Supplier development (linkages)• Community Development• Municipal Capacity Building• World-class environmental and social advice • Resettlement & Indigenous Peoples• Access to Community Development Funding

IFC Mining

Integrated Solutions Combining Capital and Expertise

IFC: The Complete Package; African Examples

18

IFC Investment & Advisory Services

Project Ahafo (Ghana)

Investment $75 million A Loan, $10 million B Loan

IFC Role • IFC social and environmental specialists supported complex resettlement process that affected close to 10,000 people

• IFC Advisory Services helped increase # of women working at the mine and designed a supplier program enabling entrepreneurs to deliver goods and services to Newmont

Project Simandou (Guinea)

Investment $35 million (5% equity stake)

IFC Role • IFC Advisory Services is working with Rio Tinto and Guinea Alumina Corporation to establish and manage a national mining supplier development and training program

Project Tulu Kapi (Ethiopia)

Investment $15 million equity

IFC Role • IFC and Nyota are designing a program to help build long-term relationships with local communities in the context of an exploration project

One Example Closer Up: Allana Potash, Ethiopia

Allana Potash is a mineral exploration company focused on Ethiopia

Key assets are three licenses in the Danakil Depression near the Eritrean border

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Capital for Growth

• IFC US $10 million equity investment in May

2011

• To help Allana carry the Project through to

feasibility study

Other IFC Value Added

• IFC is helping Allana to achieve appropriate

environmental and social standards during

both exploration and development

• Key issues include: working conditions;

training; waste prevention

Project Development Impact

• Allana will contribute jobs, infrastructure and

revenues to an underdeveloped region of

Ethiopia should it become a full operating

mine.

When Does IFC Invest?

• IFC funds projects in all stages of development

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IFC in the Project Life Cycle

Valu

e

Time

EarlyExploration

ProjectDiscovery

ProjectFinance Mature Production

EquityEquity/

Mezzanine

Senior Debts and Equivalents

A Broad Range of Financial Products

• Corporate • Typically 5-15% shareholding• Long-term investor, typically 6-8 year holding period• Not just financial investor, adding to shareholder value• Usually no seat on board

• Subordinated loans• Income participating loans• Convertibles • Other hybrid instruments

• Senior Debt (reserve-based lending. corporate finance, project finance)

• Fixed/floating rates, US$, Euro and local currencies available• Commercial rates, repayment tailored to project/company needs• Long maturities: 7-12 years, appropriate grace periods• Range of security packages suited to project/country• Mobilization of funds from other lenders and investors, through

financings, syndications (IFC “B” Loan structure), underwritings and guarantees

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Equity

Mezzanine / Quasi-Equity

Senior Debts & Equivalents

IFC as a Strategic Partner: Equity Investments

22

General IFC Offerings and Criteria

IFC Advantages Criteria for Investment

• IFC acts as a long-term strategic partner, cornerstone investor

• Ability to participate at project or corporate level• Deep pockets for future support• Demonstration effect: possibly catalyze further

financial support from other investors• Support for international listing• Third-party, neutral, honest broker• Advisory Services

Strategic community investment, linkages, other• Best practice environmental and social practice

Includes special environmental and/or social issues, such as resettlement or indigenous peoples

• Direct government engagement• World Bank Group synergies

• Not largest shareholder, not more than 20% ownership

• Typically does not seek a board seat; not involved in general management but will help with E&S issues

• Large resource potential• Regions of strategic interest to IFC

IDA country, frontier regions of non-IDA countries• Formal E&S risk management system• Transparency

Payments to government (EITI)Contract/License

• IFC funding limits:Greenfield:

– If project size < $50 million, IFC may fund up to 35% of total costs

– If project size > $50 million, IFC may fund up to 25% of total costs

Expansion: IFC may fund up to 50% of total costs

IFC as a Strategic Partner: Debt Investments

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General IFC Offerings and Criteria

IFC Advantages Criteria for Investment

• IFC acts as a long-term strategic partner• Deep pockets for future support• Demonstration effect: possibly catalyze further

financial support from other debt providers• Mobilization (“B Loan” structure)• Possible corporate finance in special situations• Potential political risk carve-outs• Third-party, neutral, honest broker• Advisory Services

Strategic community investment, linkages, other• Best practice environmental and social practice

Includes special environmental and/or social issues, such as resettlement or indigenous peoples

• Direct government engagement• World Bank Group synergies

• Project anticipated to have major development impact

• Long mine life• Role for IFC in environmental and social issues or

Advisory Services• Regions of strategic interest to IFC

IDA country, frontier regions of non-IDA countries• Transparency

Payments to government (EITI)Contract/License

• IFC funding limits:Greenfield:

– If project size < $50 million, IFC may fund up to 35% of total costs

– If project size > $50 million, IFC may fund up to 25% of total costs

Expansion: IFC may fund up to 50% of total costs

Past IFC Investments

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Ahafo

$75,000,000Senior Term Loan

Mandated Lead Arranger

2006

$50,000,000Syndicated Loan

Ghana

Simandou/RioTinto

$35,000,000Equity

Equity Investor

2006

Guinea South Africa

Lonmin


$50,000,000Equity

Equity Investor & Lender2006

Tanzania

Williamson$40,000,000

Senior Term Loan

Equity Investor & Lender2010

$10,000,000Equity

Dallol

$10,000,000Equity

Equity Investor

2011

EthiopiaPeru

Anteres Minerals

$12,800,000Equity

Equity Investor

2009

Chile

Escondida Copper


$15,000,000Equity

Equity Investor & Lender1989 and 1999

Newmont / Yanacocha

$94,000,000Syndicated Loan

Equity Investor & Lender

1993 and 1999

Peru


$330,000Equity

Peru

Minera Quellaveco

$42,000,000Equity

Equity Investor1993-2011

Morocco

Achmmach Tin

$5,700,000Equity

Equity Investor

2010

http://www.riotintodev.com/index.asp






http://www.lonmin.com/






Advisory Services

• IFC relies on 50+ years of experience of working in developing countries to develop practical, sustainable business solutions for its clients

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Community Development Corporate Governance

• Community investment strategies

• Measuring the impact of community spending

• Increasing participation of local businesses in supply chain

• Business skills training for local entrepreneurs

• Promoting female workforce

• Helping local governments manage mining revenues for economic development

• Water risk/footprint assessment

• Energy efficiency analysis to reduce water, energy and raw materials use

• IFC works with the different governance priorities:

Publicly listed companies

Founder and family-owned firms

Financial institutions

Newly privatized and state-owned enterprises

• IFC Corporate Governance experts advise clients on:

Defining shareholder rights

Creating a solid control environment

Ensuring high levels of transparency and disclosure

Setting up an empowered board of directors

IFC Africa and Global Mining Team

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Tom ButlerGlobal Head, Mining

Washington DC

[email protected]

Louis VosWashington DC

[email protected]

Stephan VermaakJohannesburg

[email protected]

Brian McNamaraWashington DC

+1.202.473.0461 [email protected]

Juan Jose RosselLima


Christian Mulamula

Washington DC

+1.458.1218 [email protected]

g

Karsten FuelsterJakarta


Latin America Africa Asia

Tom BruingtonChief Engineer

Washington DC

[email protected]

Robin WeismanWashington DC

[email protected]

Gustaf LilliehookIstanbul


MENA / CEU

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Annex: IFC Deals In Africa

Deals Done in Africa: FY1999-2011

Project Name Sponsor Repeat (Y/N) Country Region Commodity Investment Amounts Client HQ ListedLoan Equity Quasi-Equity Guarantee Total

FY 2011

1 Dallol Potash Allana Potash N Ethiopia CAF Potash - 10.53 - - 10.53 Toronto TSX-V2 Gryphon RI-2 Gryphon Minerals Y Burkina CAF Gold - 2.67 - - 2.67 Perth ASX3 Tulu Kapi Gold RI Nyota Minerals Y Ethiopia CAF Gold - 9.17 - - 9.17 Perth AIM4 Williamson Petra Diamonds Y Tanzania CAF Diamonds 40.00 10.00 - - 50.00 Johannesburg AIM

FY 2010

1 Gryphon RI-1 Gryphon Minerals Y Burkina Faso CAF Gold - 1.04 - - 1.04 Perth ASX2 Hernic WCF Hernic Ferrochrome Y South Africa CAF Ferrochrome - 2.50 - - 2.50 Johannesburg -3 Kiaka Gold Volta Resources N Burkina Faso CAF Gold - 6.41 - - 6.41 Toronto TSX4 SMP Gold Helio Resources N Tanzania CAF Gold - 7.63 - - 7.63 Vancouver TSX-V5 Tulu Kapi Gold Nyota Minerals N Ethiopia CAF Gold - 5.29 - - 5.29 Perth AIM6 NAMF II NAMF II Y Africa CAF Various - 30.00 - - 30.00 Johannesburg -7 Tsodilo Tsodilo Resources N Botswana CAF Diamonds/ Copper/ Nickel - 4.77 - - 4.77 Toronto TSX-V

FY 2009

1 Baobab Resources Baobab Resources N Mozambique CAF Iron Ore - 5.00 - - 5.00 Perth AIM2 Lonmin RI Lonmin Y South Africa CAF PGMs - 5.00 - - 5.00 Johannesburg LSE/JSE3 Kiwara Kiwara Plc N Zambia CAF Copper - 6.00 - - 6.00 London AIM/JSE4 Gryphon Gryphon Minerals N Burkina Faso CAF Gold - 1.63 - - 1.63 Perth ASX

FY 2008

1 Simandou II Rio Tinto Y Guinea CAF Iron Ore - 30.00 - - 30.00 London LSE/ASX2 Kalukundi Africo Resources N DRC CAF Copper/Cobalt - 3.58 - - 3.58 Vancouver TSX

FY 2007

1 Ahafo Newmont Mining Corp N Ghana CAF Gold 75.00 - - - 75.00 Denver NYSE2 Simandou Rio Tinto N Guinea CAF Iron Ore - 5.00 - - 5.00 London LSE/ASX3 Lonmin Lonmin N South Africa CAF PGMs 100.00 50.00 - - 150.00 Johannesburg LSE/JSE

FY 2006

1 Kolwezi Tailings First Quantum Minerals N DRC CAF Copper/Cobalt - 5.45 0.45 - 5.90 Vancouver TSX/LSE2 Hernic BEE Hernic Ferrochrome N South Africa CAF Ferrochrome - - 1.52 3.73 5.25 Johannesburg -

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Deals Done in Africa: FY1999-2011 (Contd.)

Project Name Sponsor Repeat (Y/N) Country Region Commodity Investment Amounts Client HQ ListedLoan Equity Quasi-Equity Guarantee Total

FY 2005

NO DEALS DONE

FY 2004

1 Mvelaphanda Gold Mvelaphanda Resources N South Africa CAF Gold - - 28.00 - 28.00 Johannesburg JSE2 Hernic Hernic Ferrochrome N South Africa CAF Ferrochrome 24.17 4.70 1.56 - 30.43 Johannesburg -

FY 2003

1 NAMF NAMF N South Africa CAF Various - 5.00 - - 5.00 Johannesburg -2 Kalahari Diamonds BHP Billiton N Botswana CAF Diamonds - 2.00 - - 2.00 London LSE/ASX

FY 2002

NO DEALS DONE

FY 2001

1 Mining & Contracting Services (MACS) Henry Walker Eltin Ltd. and Ausdrill Ltd N Africa CAF Services 30.00 4.00 - - 34.00 Perth ASX2 Mozal II BHP Billiton Y Mozambique CAF Aluminum 25.00 - - - 25.00 London LSE/ASX

FY 2000

1 Konkola Copper Anglo American N Zambia CAF Copper - 5.63 24.38 - 30.01 London LSE/JSE

FY 1999

1 Randgold RI Randgold Resources Y Mali CAF Gold - 2.03 - - 2.03 Johannesburg LSE/NASDAQ

SUMMARY

Total Investment ($ mil) 578.8 <---- 294.17 225.03 55.91 3.73 578.84 Debt/Equity/QL (%) 51/ 39/ 10 <---- 51% 39% 10% 1%Analysis Period (years) 13.0 Total Deals done 30.0 Average deals/per year 2.3 No. Global clients 20 67% (Perth - 7, London - 6, Toronto/Vancouver - 6)No. Local clients 10 33% (Johannesburg - 10)

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Investing in the African renaissance

Business

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