Current capital markets landscape for miners Singapore School of Mines 23 November 2017

Transcription

1 Current capital markets landscape for miners Singapore School of Mines 23 November 2017

2 Agenda Market Overview Past, present & future Features of the future investment cycle Who are the investors? Options for raising finance Which equity market? and maybe how to make your company attractive to investors 2

3 Market overview 3

4 After 5 years of decline, mining stocks have continued rising since the lowest point in January 2016 Commodity prices outlook remains positive 350% Commodity prices vs industry index vs general equity index 300% 250% 200% 150% 100% 50% 0% Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 World Market Euromoney Global Mining Gold Spot Copper Spot Australian Coal Spot Source: Thomson Reuters 4

5 Capital investment by large mining companies Miners investment has declined each year since peak. 5

6 71 mining transactions in last twelve months worth 2017 School of Mines, Singapore Nov

7 Returning interest in equity raisings 7

8 Mining equity indices still lagging behind general equity indices, however some are closing the gap Market Volatility Index (VIX) 60 Eye of the storm and impact of the financial crisis 50 Eurozone financial crisis 40 Sovereign debt crisis 30 China stock market turmoil Greek and Spanish bailouts and downturn in global economic growth Declining oil price Falling oil prices, Chinese economy slowdown EU referendum in the UK QE by ECB Turmoil in emerging markets US presidential election UK General election 20 Triggering of Article Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Mining Indices 350% 300% 250% 200% 150% 100% 50% 0% Jan-09 Jul-09 Jan-10 Jul-10 Global Market Jan-11 Jul-11 Jan-12 Jul-12 FTSE 350 Mining Jan-13 Jul-13 Jan-14 Global Mining Market S&P ASX 300 Metals & Mining Source: Thomson Reuters 8

9 Miners are returning to equity markets IPO proceeds and volumes are highest since IPOs and Further Offers by mining issuers* , FO 1 Exchange Number of IPOs Proceeds ($m) Average proceeds ($m) Australia 247 2, Canada TSX and TSXV 141 3, YTD Hong Kong Main and GEM 22 13, London Main and AIM 35 13, Total YTD , IPO Proceeds raised by IPOs and Further Offers by mining issuers ($bn)* FO 3 1 IPO YTD Just four exchanges accounted for 86% of the YTD mining IPOs Source: Dealogic, 15 November 2017 *2017 includes the listing of EN+ Group 9

10 Key financing options for mining companies Going public Strategic investor Equity financing Private/stateowned investor Financial investor Corporate bonds Public debt Need for capital to develop reserves Convertibles Debt financing Syndicate Private debt Bank financing Royalty financing Alternative financing Stream financing 10

11 Overall financing for miners has been declining since 2013 as the industry rebuilt its financial health Proportion of equity increased in to levels not seen since pre-2010 IPOs are up to their level Follow on proceeds for full 2017 expected to be highest since 2012 Thousands Mining - Money raised (US$ bn) $284bn $257bn $276bn $233bn $195bn 62% 50% 61% 150 Overall decline in debt following return to financial discipline 100 $177bn 63% 65% 37% $162bn 59% 57% 50% 30% 36% 14% 14% YTD 34% 26% 27% 44% 50 29% 12% 12% $257bn $253bn 7% 2012 Equity 28% 8% 28% 31% 7% 10% Bonds Loans Source: Thomson Reuters *2017 includes the listing of EN+ Group 11

12 Current trends and outlook Mining sector is recovering from the period of depression and is expected to continue generating higher deal activity in 2018 Return of emerging markets companies to capital markets Governments seeking to raise funds via privatisations Divestments of non-core assets continuing Popularity of base metals cobalt, copper, zinc, lithium, molybdenum Less traditional equity raising structures, including convertibles Significant activity driven by Chinese buyers and investors Governments interventions affect miners activity International investors still largely averse to higher risk destinations, eg Africa, Russia 12

13 Who is investing? 13

14 Transaction activity Summary Steady as it goes Capital IQ data shows that in the 12 months to 30 September 2017 ( LTM2017 ) there have been 71 (LTM2016: 76) mining transactions larger than US$200M at a total transaction value of US$54B (LTM2016: $58B). The largest transaction in LTM2017 was the acquisition of the Novosibirsk Gold refinery by Volga Capital for US$12B (LTM2016: Baoshan Iron & Steel s acquisition of Wuhan Iron & Steel for US$10B) School of Mines, Singapore Nov

15 Transaction activity Top 10 M&A deals Digging deeper the buyers The ten largest M&A deals in LTM2017 involved 6 strategic acquirers and 4 financial investors (LTM2016: 9 and 1). 8 transactions involved cross-border deals and 2 were in-country deals (LTM2016: 6 and 4). The key messages? Financial investors are looking to invest more often at the bigger end of town (and they appear to have been successful at being competitive) and all investors are now more likely to pursue big opportunities outside their home country. The Top 10 M&A deals were pretty evenly spread across geography and buyer type School of Mines, Singapore Nov

16 Transaction activity Top 10 M&A deals Digging deeper the sellers The majority of deals continue to derive from vendors divesting assets they no longer consider core or aligned with their long term, strategic interests. The sale of Rio Tinto s Hunter Valley coal assets to Yancoal and Glencore for $2.7B was the biggest such deal in LTM2017. Newmont s sale of the Tenggara mine for $3.6B was the biggest such deal in LTM2016. We expect this trend to continue in the near term, as evidenced by a number of large divestment processes currently in play Rio Tinto s disposal of the Hail Creek and Kestrel metallurgical coal mines being an example School of Mines, Singapore Nov

17 Transaction activity Mergers & acquisitions Who s investing by geography? LTM2017 saw investors from China, USA and Russia make up 56% of all M&A buyers. By contrast in LTM2016, investor origin was far more concentrated with China and Canada making up 58% of all buyers. The buyer mix moved dramatically in LTM2017. The number of Chinese buyers dropped from 21 in LTM2016 to 12 this year. Similarly the number of Canadian buyers fell from 7 to 4 this year. The 3rd most prolific buyer in LTM2016 was Japan with 4 transactions this year they had only 2. On the other hand, USA (9 up from 3), Russia (6 up from 0), Switzerland (4 up from 0) and South Africa (4 up from 1) all emerged as significant investors in LTM School of Mines, Singapore Nov

18 Transaction activity Mergers & acquisitions Who s investing by type? In LTM2017 the ratio of strategic to financial buyers was 1.8 to 1. This was a lot lower than LTM2016 when the ratio was 3.2 to 1. So it would seem that financial buyers are stepping up their push into mining. We think the increased level of successful activity by financial buyers has been driven by historically relatively low valuations for mining assets, combined with a significant volume of available funding and the ability of traditional PE to now manufacture bids that are competitive in auction processes. On the latter point, we think PE has learned lessons from past failed bids to now be more skilled at structuring a truly competitive bid and more capable at engaging with mining vendors in a way that secures a successful outcome School of Mines, Singapore Nov

19 Transaction activity Mergers & acquisitions Who are the financial buyers? LTM2017 saw 17 financial buyer M&A deals undertaken. The buyers mostly came from the USA (6 deals) and Russia (5). But they are very different players in each country. In the USA we see very familiar names like KKR and JP Morgan s One Equity Partners and others like American Industrial Partners (2 deals), SPL Advisers and Argand Partners. Include Australia s EMR Capital and ~15% of LTM2017 M&A was carried out by traditional PE. All but one of those deals were cross-border deals. In Russia, Volga Capital, Otkritie, Zonoville and Interros all did deals. These players can be characterized as large investment houses or private banks often controlled by a wealthy individual. All the Russian deals were in country School of Mines, Singapore Nov

20 Transaction activity Mergers & acquisitions How are deals being done? In LTM2017 the vast majority of deals were completed as cash deals. The largest scrip based deal was Alamos Gold s $720M all scrip bid for Richmont Mines. In contrast, LTM2016 saw three scrip deals worth over $1B, including Baoshan s $10B scrip bid for Wuhan. The increasing use of cash is a trend that is unlikely to please those activist shareholders critical of what they consider the mining industry s wasteful cash acquisitions of the past, eg Elliott and their very public criticism of BHP this year. In our view, all stakeholders remain very conscious of the willingness to spend big during the last boom they will continue to closely examine all proposed acquisitions for true value generation School of Mines, Singapore Nov

21 Which market? 21

22 Which market considerations to help your decision Likely investor base Geographic proximity Management track record Location of management Commodity fit, degree of diversification Location of mines Size and stage of development of assets, extent of capital required Proximity to emerging market customers, especially China Quality and risks of assets Where to list a mining company? Market Regulation and process Market capitalisation and liquidity Admission criteria, including CPR requirements Number of listing location peers Total money raised from resource IPOs Presence of mining analysts Ongoing obligations Speed and cost Index inclusion 22

23 Comparison of stock exchanges At 31 December 2016 London Main Market AIM Australia Toronto Hong Kong ASX TSX & TSXV Main Board Total number of issuers 1, ,095 Total market cap, US$ bn 5, ,268 1,994 3,193 Number of international cos No. of mining issuers listed , Mining market cap, US$ bn Average mining market cap, US$ m 6, ,904 2,213 3,419 1,973 Converted at USD/GBP of ; USD/AUD of ; USD/CAD of ; USD/HKD of Resources: World Federation of Exchanges, stock exchanges, Thomson Reuters, research 23

24 Stock exchanges commodities and geographies LSE Commodity & geographic focus Largest listing venue for copper companies by market value Strong presence of precious metals Most international venue, particularly well represented Russia / CIS and Africa ASX TSX Most diversified listing venue with balanced mix across all commodities High concentration of precious metal companies especially gold Largest listing venue for iron ore by market cap, while gold companies dominate by number Uranium and potash miners well represented Predominantly projects in Australia, SE Asia and increasingly Africa HK Largest listing venue for coal companies by market value Proximity to Chinese base is an advantage International companies mainly from US and Australasia and increasingly Africa 24

25 Financing options for miners maximising attractiveness of your assets 25

26 Financing options High-level considerations Private Placing Public bond IPO Royalty / 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 Explorers Producers All Near to production Best candidate most medium least 26

27 Maximising the value of your business Modernise format Factors maximising deal value Value Transparent external reporting Robust financial control Developing strategy Clear strategy and compelling equity story Transparent structure Corporate governance Maximising investment value IPO Debt Attracting investors Reputation and corporate responsibility Strategic deal Raising capital 27

28 What makes a good mining equity story? Market position of assets Understanding stage of development Quality of resource base Competition and market share Positive commodity prices outlook Well thought through capex plans Maximising value of asset portfolio Proximity to emerging market customers Good access to transportation routes Credibility of management Off-take agreements Commodity synergies Efficient cost management 28

29 Summary Have you considered available capital raising alternatives? Have you got your equity story right? Are you clear about your strategy? Have you decided which market best suits you? Services: Deal Readiness, Which market? Will you be ready when the window opens? Accounting, audit Tax structuring Governance, risk compliance Sustainability Community 29

30 Our selected mining deal credentials October 2017 April 2012 December 2012 November 2011 IPO on NYSE IPO on HKSE Secondary listing on AIM IPO on Hong Kong Exchange IPO on TSX $570.4m $400m 8m $20.6m $14.9m Reporting Accountant pwc IPO on the Warsaw Stock Exchange $1,960m pwc Reporting Accountant pwc July 2011 January 2013 Reporting Accountant $3bn acquisitions and listing on the Official List of the LSE 707m IPO Reporting Accountant pwc June 2011 June 2011 IPO on Toronto Stock Exchange IPO on AIM $16.4m $20.6m Reporting Accountant pwc Reporting Accountant pwc Reporting Accountant pwc pwc pwc Jul 2010 Feb/Jun 2011 Reporting Accountant September 2010 IPO on Toronto Stock Exchange $18.1m Reporting Accountant pwc 30

31 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, refers to PricewaterhouseCoopers LLP which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.