PwC

Presented at:

www.minesandmoney.com/hongkong

Mining finance – what are your options?

Mines & Money – Hong KongMarch 2013

www.pwc.com/mining

PwC

Presenter

Partner, PwC AustraliaGlobal Mining LeaderPwC Australia China Practice Leader

Tim Goldsmith

E mail: tim.goldsmith@au.pwc.comTel.: +61 (3) 8603 2016 Mob.: +61 (3) 419 201 877

Indaba - February 20133

PwC

Today’s agenda

Topic

Challenges faced by miners in funding new discoveries

Overview of global capital markets - capital raising options and trends for mining companies:• Debt• Equity including choice of listing venues• Other sources of financing (SWFs, PE, strategic investors and

more)

How to make your story attractive to investors

4

PwC

Challenges faced by miners in funding new discoveries

5

PwC

Miners have lagged behind both commodities and the general market. Why?

The growing disconnect• Economic uncertainty, concerns regarding future

global growth

• Capex delays and cost overruns, plus rising operating costs

• Shareholder calls for capital discipline gained momentum throughout 2012

• Disconnect grew between miners strategies and investors.

Global equity indices

Historical earnings

Commodity prices

Miners share prices

6

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-120%

50%

100%

150%

200%

250%Commodity prices vs industry index

S&P 500

HSBC Global Mining Index

Gold Spot

Copper Spot

Australian Coal Spot

PwC

Overview of global capital markets - capital raising options and trends for mining companies

7

PwC

Equity financing

Key financing options for mining companies

Need for capital to develop reserves

Public equity ( IPOs/ FOs)

Private/state-owned investor

Strategic investor

Financial investor

Convertibles

Corporate bonds

Public debt

Debt financing

Bank financing

Syndicate

Private debt

Alternative financing

Stream financing

Royalty financing

8

PwC

Overall financing for miners decreased by 28% in 2012 Equity / debt split at 20/80 in 2012

Overall decline of equity

•IPOs are down to 2009 levels

• Share of resource sector in global IPO proceeds reduced to 10% in 2012 from 22% in 2011

• Follow ons (including sell downs and capital increases) were down 27% compared to 2011

Credit markets going through significant structural changes

• Decline of bank loans on the back of banks deleveraging

• Growing interest in bonds – 2012 the all-time high for the industry

9Source: Thomson One

2009 2010 2011 2012 -

50,000

100,000

150,000

200,000

250,000

1% 7% 8%1%

50% 27% 17%

16%

5% 2%

2%

2%

23% 22% 25%

46%

20%

41%

49%

35%

Mining - Money raised (US$ bn)

IPOs Follow Ons ConvertiblesBonds Loans

$127bn

$165bn

$194bn

$152bn

PwC

2011 2012

6.8%

8.1%

6.7%6.0%

8.0%8.8%

5.0%4.3%

Average yield on mining corporate bonds

Emerging Markets

Emerging Markets - Investment Grade

High Yield

Investment Grade

46% more corporate bonds issued than in 2011, +20% for smaller issues

2011 2012

2,363 10,053

14,825

11,984

29,946

47,029

Proceeds raised by mining corporate bond issues

Investment Grade

High Yield Corporate

Emerging Markets - Investment Grade

Emerging Markets

+46%

Source: Thomson One10

< $100m $100m - $500m

$500m-$1000m

> $1bn

17

51

6 7

16

68

10 710

59

23

11 11

56

30

20

Deal volume classified per size 2009-2012 corporate bond issues

2009 2010 2011 2012

2011 2012

6.4

5.0

10.3 10.8

8.3 7.2

8.9 10.0

Average maturity in years on mining corporate bonds

Emerging Market

Emerging Market/ In-vestment GradeHigh yield

Investment Grade

PwC

2012 mining equity financing was half of 2011 levels

Exchange Number of IPOs

Proceeds ($m)

Average proceeds

($m)

Australia 123 1,544 13

Canada – TSX and TSXV

133 1,956 15

Hong Kong – Main 13 2,874 221

London – Main and AIM

24 11,534 823

2009-2012 total 330 29,499 89

Just four exchanges accounted for 90% of the 2009-2012 mining IPOs

Source: Dealogic, Thomson One11

2009 2010 2011 2012

758891

705570

32130

11652

IPOs and Further issues by mining issuers

FO IPO

2009 2010 2011 2012

45

23 17 14

1

12 14

2

Proceeds raised by IPOs and Further issues by mining issuers ($bn)

FO IPO

PwC

At 31 December 2012 London Australia Toronto Hong Kong

Main Market

AIM ASX TSX TSXVMain Board

Total number of issuers 1,307 1,096 2,056 1,569 2,258 1,367

Total market cap, US$ bn 6,097 96 1,387 2,156 40 2,944

Number of international cos 304 225 97 183 156 88

No. of mining issuers listed 40 145 685 364 1,309 68

Mining market cap, US$ bn 420 11 391 382 19 199

Average mining market cap, US$ m

10,430 78 549 1,050 15 2,926

New mining IPOs in 2012 1 8 21 3 41 5

Proceeds of mining IPOs in 2012, US$ m

3 62 138 327 65 517

Average raise, US$ m 3 8 7 109 2 103

Total mining equity raised in 2012, US$ m

955 1,012 3,260 5,688 575 1,673

Comparison of stock exchanges

Converted at USD/GBP of 1.6153; USD/AUD of 1.0371; USD/CAD of 1.0031; USD/HKD of 0.1290sources: World Federation of Exchanges, stock exchanges, Bloomberg, Dealogic, PwC research

12

PwC 13

?Which Market – How do you decideCome and visit us at stand B10

PwC

Volume of mining deals at its lowest since 2005 Deal activity expected to remain low in 2013

14

0

500

1,000

1,500

2,000

2,500

3,000

0

30,000

60,000

90,000

120,000

150,000

180,000

Volu

me

Valu

e (U

S$ m

illi

on

s)

Global Mining M&A Volume and Aggregate Value

$0 - <500 $500 - $1,000 >$1,000 - $5,000 >$5,000 Volume

Drivers for improvement:

• Capital discipline expected by shareholders –divestitures of non-strategic sale

• Attractive valuations

• Global competition for resources

33% of the junior/mid-tier mining companies are planning

on spending money on acquisition related activities in 2013, this is double the activity

of 2012

Source: S&P Capital IQ, PwC Analysis

PwC

Major players

Recent transactions

Increasing choices of available capital sources Royalty and stream financing is said to represent 5% of overall sector financing

Miners looking for innovative ways to fund projects and future growth, a trend that is expected to continue into 2013

- Alternative to traditional funding sources drying up

- No dilution of shareholders

- Interests aligned / risk shared

- Upfront cash payment to start producing

- Still limited availability

- Mainly for explorers near to producing stage

- Reduced commercial benefit

+

-

Miner Financier Deal Location

Commodity

Vale Silver Wheaton $1.9bn

Brazil Iron ore

Inmet Mining

Franco-Nevada $1.1bn

Panama Copper

Hudbay Minerals

Silver Wheaton $750m

Peru Silver

London Mining

Blackrock World Mining Trust

$110m

Sierra Leone

Iron ore

Hummingbird Resources

Anglo Pacific Group

$15m Liberia Gold 15

PwC

Increased activity from PE, SWFs and SOEs, esp. Asian

Increase in non-equity financing

Listing in country of operations

Current trends and outlookWe will be seeing some deal activity in 2013 – although capital markets will remain tight

Cross-border listings of emerging market companies

Africa hot destination

Spin-offs and demergers

Increasing competition between key financial centres

16

Attractive M&A environment with low valuations

Governments seeking to raise funds via privatisations

Popularity of precious metals and copper

PwC

How to make your story attractive to investors

17

PwC

What makes a good mining equity story?

Established production

Development

Early production

Maximising value of asset portfolio

Commodity synergies

Proximity to emerging market

customers

Positive commodity prices outlook

Well thought through capex

plans

Good access to transportation

routes

Efficient cost management

Understanding stage of

development

Competition and market share

Quality of resource base

Market position of assets

Off-take agreements

Credibility of management

Exploration

18

PwC

Financing options recapHigh-level considerations

Private Placing

Public bond IPORoyalty / Stream

Permanence of funding

Flexible / discretionary service of financing

Dilution of existing shareholders

Investor interaction via meetings / votes

- - -

Security / collateral requirements

Restrictions on corporate activities

Impact on risk profile

Ability to raise further funds

Relative cost

Ongoing requirements

Commercial restrictions

Best candidate Explorers Producers AllNear to

production most medium least

19

PwC

Have you considered available capital raising alternatives?

Summary

Have you decided which market best suits you?

Have you got your equity story right? Are you clear about your strategy?

PwCServices:

Deal Readiness,

Which market?

Accounting, audit

Governance, risk

compliance

SustainabilityCommunity

Tax structuring

Will you be ready when the window opens?

20

PwC

IPO on Jakarta Stock Exchange

$580m

pwc

November 2010

Reporting Accountant

Our selected mining IPO credentials

IPO on the Official List of the LSE

£581m

pwc

March 2010

Reporting Accountant

IPO on NYSE

$408m

pwc

July 2010

Reporting Accountant

IPO on ASX

$80m

pwc

November 2010

Reporting Accountant

IPO on AIM

$60m

pwc

September 2010

Reporting Accountant

IPO on Johannesburg Stock Exchange

$426m

November 2010

pwc

Reporting Accountant

IPO on the Warsaw Stock Exchange

$1,960m

pwc

July 2011

Reporting Accountant

IPO on TSX

$280m Reporting Accountant

pwc

December 2010

IPO on AIM

£10m

pwc

June 2011

Reporting Accountant

£707m IPO

$3bn acquisitions and

listing on the Official List of the LSE

pwc

Jul 2010Feb/Jun

2011

Reporting Accountant

IPO on Turkey Stock Exchange

$433m

pwc

February 2010

Reporting Accountant

21

IPO on HKSE

$400m

pwc

January 2013

Reporting Accountant

PwC

Save the Date for Mines and Money Hong Kong 2014March 24-28, 2014 - Hong Kong Convention & Exhibition Centre

www.minesandmoney.com/hongkongRegister your Interest at: