Andrew Johnson. Group Mining Engineer Global PS Mining South Africa. September 13 16, 2009 Hotel de Convenções de Talatona, Luanda, ANGOLA

Transcription

1 Andrew Johnson Group Mining Engineer Global PS Mining South Africa September 13 16, 2009 Hotel de Convenções de Talatona, Luanda, ANGOLA

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3 Disclaimer Any views expressed in this presentation are strictly personal opinions of the presenter and are not representative of Global PS or its Joint Venture partners. This does not purport to be a definitive guide to Joint Ventures but a perspective from a practical mining engineer 2011/09/21 3

4 Definition Joint Venture is when two, or more, parties form a legal understanding towards a mutual financial goal. Usually each partner brings in a different skill or performs a different role in the creation or marketing of a project. 2011/09/21 4

5 Typical mineral project valuation curve 2011/09/21 5

6 Mining JV One partner has the mineral, the other(s) has the capital. Generally the owner of the mineral rights, either for prospecting or mining, does not have the capital to develop the project to its full potential. The other party(ies) has the access to capital but not to the particular mineral or project, for a variety of reasons. 2011/09/21 6

7 Types of JV Unincorporated or contractual Incorporated or Equity 2011/09/21 7

8 Comparison Unincorporated or Contractual JV General contract law No separate legal entity set up Possible to have an Opco to manage the venture. Each participant may take its share in kind i.e. ore production Incorporated or Equity Set up by incorporating a new company JV partners are shareholders Is a separate legal entity from the JV partners.

9 Incorporated JV Advantages Limited liability Simplified collective financing Transferability of interests Highly regulated management structure Disadvantages Trapped tax loss Inability of individual shareholders to influence tax position Potential Capital Gains tax Inability to stream cash flow to individual participants

10 Unincorporated JV Advantages Direct and separate legal and beneficial interests in assets Separate liability Management Entitlement to production from the JV Separate responsibility for tax treatment Fewer restrictions on financing the JV Security for financing 2011/09/21 10

11 Unincorporated JV Advantages Direct and separate legal and beneficial interests in assets Separate liability Management Entitlement to production from the JV Separate responsibility for tax treatment Fewer restrictions on financing the JV Security for financing Disadvantages Requires detailed legal documentation to set out rights and obligations.

12 EXAMPLES

13 Genesis Mining LLC Supplies, and manufactures, mineral processing equipment (specifically gold) Enter into JV with mining companies and target small companies with limited finances but needing to develop a good mining resource. 2011/09/21 13

14 Genesis Mining LLC Require; Proof of ownership Proof of resource (CPR) Permitting in place or in application Rehabilitation bonding Water use licenses Site accessibility 2011/09/21 14

15 Morobe Mining JV - Papua New Guinea Harmony Newcrest (ex Newmont Australia) 50:50 JV In 2009 Newcrest aquired 50% of Harmony s PNG gold assets Developed the project together as a JV 2011/09/21 15

16 AFRICAN JOINT VENTURES

17 Indo African Joint ventures Coal mainly Coal exported to India to bolster domestic production, and to blend with lower grade products Preference for JV in order for locals to manage the project 2011/09/21 17

18 Sekoko / Firestone Waterberg Joint Venture Sekoko has 8 farms under prospecting rights in the Waterberg Had commenced exploration Completed Scoping Report Appointed consultants to complete Mining Right Application, and Feasibility studies. Had a management team (financial and technical) 2011/09/21 18

19 Sekoko / Firestone Waterberg Joint Venture Firestone Energy is an ASX listed company Initially offered to JV on two farms (T1) Expanded later to include the remaining 6 farms (T2,T3) Offered Sekoko cash plus shares for 60%share in the project. Financed completion of exploration, feasibility studies and regulatory applications. 2011/09/21 19

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21 Angolan Diamond JV Endiama 15% Marketing, mineral rights Angolan partners Typically 30 to 50% Local knowledge, security, some capital Mining Company Balance Technical expertise, capital equipment

22 African context Generally minerals are held by the state to be developed, with State approval, to the benefit of the country as a whole. Approvals are usually only granted to indigenous entities, either individuals or companies. Such parties are expected to maintain some level of interest in order to preserve the indigenisation. 2011/09/21 22

23 Process of JV in African Mining (1) The holder of prospecting or mining rights usually has the resources to carry out initial mineral resource assessment. Desk top study, previous exploration information held in State geological and minerals bureaux, etc Maybe even preliminary field work, and /or drilling. BUT, does not usually have sufficient access to capital to take the project to CPR or BFS level. 2011/09/21 23

24 Process of JV in African Mining (2) The second party, usually from outside of the country, wishes to gain access to a mineral project. Various reasons; They need the mineral, They already have similar projects and wish to expand They like the country and wish to make a presence there AND they have access to capital 2011/09/21 24

25 Process of JV in African Mining The two parties meet and discuss the mutual financial benefits of a JV Can take a few weeks or a few months Needs to meet regulatory issues Must delineate the exact expectations and requirements of both parties. 2011/09/21 25

26 Perfect partners Partner A Access to minerals, either prospecting right or mining right Regulatory issues in place or proceeding Project at feasibility stage Measured reserve Technical team Local knowledge Needs Finance to develop the project 2011/09/21 26

27 Partner B Perfect partners Access to finance or capability to raise finance Knowledge of the mineral and mining industry Experience operating in the country Strong management team Takes the project to production in fairly short time 2011/09/21 27

28 What usually happens Partner A Has Access to minerals Has political or community influence But No cash to finance exploration No or limited technical knowledge Limited corporate organisation 2011/09/21 28

29 Partner B What may happen Sees the opportunity for a quick buck Little or no cash to finance exploration but relies on selling the project to third parties for Equity No significant technical knowledge and no special interest in developing a mine Stock exchange listing and can offer shares in place of cash 2011/09/21 29

30 This leads to What then could happen Frustration to both parties because a) Party A doesn t see his project developed b) Party B doesn t see the quick buck c) Lack of direction for both parties d) Disillusionment of junior staff on the ground Ultimately the JV breaks up usually acrimoniously 2011/09/21 30

31 Conclusions Joint Ventures can and do work There are enough successful examples around the world Joint ventures can also fail Usually quietly fade away, occasionally break down dramatically When successful; mineral projects grow and prosper 2011/09/21 31

32 Conclusions Know exactly what you want from the JV. Know exactly what you want to contribute to the JV. DYOR, Do Your Own Research on the potential partner, make sure the fit will work. Be prepared to make it work. 2011/09/21 32