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Confidential Capital raising and financing options for Asian mining operations Alberto Migliucci, Head of Southeast
Confidential
Capital raising and financing
options for Asian mining
operations
Alberto Migliucci, Head of Southeast Asia Mining
October 20, 2009
Presentation at the China Mining Congress 2009
These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written
agreement with Credit Suisse.

H:\Projects\Conference\China MC Migliucci - Presentation.ppt

Table of contents

1. Overview of global mining industry

2. Overview of Credit Suisse

3. Financing mining projects

of contents 1. Overview of global mining industry 2. Overview of Credit Suisse 3. Financing mining
of contents 1. Overview of global mining industry 2. Overview of Credit Suisse 3. Financing mining

Confidential

1

1. Overview of global mining industry

Perspectives on recent global trends in mining

Price

! Commodities markets remain volatile though recovery seen in recent months Strengthening US dollar and global macro-economic concerns

outlook

! Commodity prices are expected to remain under pressure in H2 2009 and recover in H1 2010 on the back of production cuts and demand recovery

Capital

! Significant rise in project capital costs has led many companies to reassess their project pipelines

costs

! However, recent drop in raw materials costs and depreciating currencies likely to help

Valuations

! Share prices for many mining companies were down 50%-75% 1H 2009 vs 1H2008

! Strategic investors still pay top dollar for high quality coal assets

Rio Tinto asset sale to Chinalco at 124% premium to market enterprise value

Jacobs Ranch coal mine sold to Arch Coal for 10.4x pro-forma 2008 EBITDA

Financing

! Financing remains challenging - limited capacity and financing costs have increased significantly

! All deals face increased hurdles

! Project financings are struggling in the current environment - highest quality assets will come back first

M&A

! Global mining M&A has dropped off significantly in 2009

activity

! The dramatic changes in commodity markets has led to deals being re-negotiated - some have been repudiated

! Drivers for consolidation remain in place but M&A targets (both assets and corporates) are being reassessed given the new environment

! A wide variety of players see value in the sector ñ Sovereign Wealth Funds, off-takers, sponsors, etc.

A wide variety of players see value in the se ctor ñ Sovereign Wealth Funds, off-takers,
A wide variety of players see value in the se ctor ñ Sovereign Wealth Funds, off-takers,

Confidential

3

Global mining sector update

LTM share price performance Commodity Indices Commodity Prices (rebased to 100) 300 Reduced volatility over
LTM share price performance
Commodity
Indices
Commodity Prices
(rebased to 100)
300
Reduced volatility over the
past few months
300
200
200
100
0.0
100
(100)
0
(200)
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Global Diversified Base Metals
Zinc & Lead
Nickel
Copper
Gold & Silver
Global Coal
Gold (rebased to 100)
Zinc (rebased to 100)
Lead (rebased to 100)
Copper (rebased to 100)
Nickel (rebased to 100)
NEWC (rebased to 100)

Source: Factset as of 27 May 2009

Valuation multiples

Global 17.6x 20.0x 10.0x diversified 5.8x 10.0x 4.2x base metals 0.0x EV/EBITDA '09 P/E '09
Global
17.6x
20.0x
10.0x
diversified
5.8x
10.0x
4.2x
base metals
0.0x
EV/EBITDA '09
P/E '09
17.7x
20.0x
8.7x
7.4x
Zinc & Lead
5.9x
10.0x
0.0x
EV/EBITDA '09
P/E '09
30.0x
21.7x
Nickel
20.0x
11.2x
10.3x
4.4x
10.0x
0.0x
EV/EBITDA '09
P/E '09
20.0x
14.3x
Copper
8.6x
5.5x
10.0x
3.2x
0.0x
EV/EBITDA '09
P/E '09
30.0x
20.4x
Gold & Silver
15.9x
13.8x
20.0x
8.5x
10.0x
0.0x
EV/EBITDA '09
P/E '09
20.0x
14.5x
Global Coal
8.8x
5.2x
10.0x
4.1x
0.0x
EV/EBITDA '09
P/E '09
Dec 2008
Sep 2009

! Strong volatility in the global metals and mining universe over 2009 but valuations have since stabilized over the past few months

! All commodities suffered significantly in the wake of the crisis except for gold

! Gains registered by base metals miners, precious metals miners and coal miners in the first half of 2008 were wiped out in the second half

Share price performance and commodity prices have been severely dampened by the global financial crisis but recent stability could point towards a recovery

2. Overview of Credit Suisse

Credit Suisseís leadership is widely acknowledged by the investment community

is widely acknowledged by the investment community ìTough decisions taken in 2007 and 2008 leave Credit
is widely acknowledged by the investment community ìTough decisions taken in 2007 and 2008 leave Credit

ìTough decisions taken in 2007 and 2008 leave Credit Suisseí investment bank in a prime position for the years aheadî

ìBy concentrating on client-related business, the firm has been able to increase market share across all of its main businesses. That sounds like the very model of a modern investment bank.î

2009
2009

The Banker recognized the success of Credit Suisseís client-focused model, disciplined approach to risk taking, progress on cost and efficiency measures and our distinctive business mix.

ìCredit Suisse is our top pick within global investment banks, ticking all the right boxes:
ìCredit Suisse is our top pick within global investment banks,
ticking all the right boxes: i) ongoing market share gains in IB, ii)
restructuring of cost and risk taking businesses within IB, iii) no
management turnover, iv) limited credit risk, v) and capital strength.î
JP Morgan
While 2009 will remain a challenging year, we believe that Credit Suisse has sufficient levers
While 2009 will remain a challenging year, we believe that Credit Suisse
has sufficient levers to exploit good openings in the market such
as trading conditions in 1Q09 and asset outflows from competitorsÖ
Though levered, Credit Suisse has capital flexibility vs. peers to
profit more from any improvements/opportunities
Morgan Stanley
Credit Suisse offers investors a cost-cutting story and owing to fair value accounting, fewer asset
Credit Suisse offers investors a cost-cutting story and owing to fair value
accounting, fewer asset quality concerns than most European banksÖ
we like owning the "best in class" European investment bank and
rate it a Buy.
Bank of America ñ Merrill Lynch
Credit Suisse Ö was quick to scale down its balance-sheet, has plotted a credible strategy
Credit Suisse Ö was quick to scale down its balance-sheet, has plotted a
credible strategy for its investment bank and pulled well ahead of
UBS.î
The Economist

Credit Suisse is the undisputable investment banking leader

Credit Suisse is the undisput able investment banking leader
pulled well ahead of UBS.î The Economist Credit Suisse is the undisput able investment banking leader

Confidential

6

Credit Suisse ñ Coal House of the Year

Credit Suisse Coal House of the Year !
Credit Suisse
Coal House of the Year
!
ìWe are involved in more than 60% of all options transactions in the market.î Meindert
ìWe are involved in more than 60% of all options
transactions in the market.î
Meindert Witteveen
Head of Coal, Freight and UK Gas Trading,
Credit Suisse
ìOur specialists understand the physical markets and the
fundamentals and work with our alliance partner
Glencore to get real, up-to-date information on flows in
the market. We think this adds a lot of value to our client
base, both institutions and corporates, giving us a real
edge compared to other banks in the marketî
ìOur specialist coverage has allowed us to expand our
client base past the usual corporates hedging their
revenue stream or input costs, and enabled us to leverage
Credit Suisseís relationships with commodity hedge
funds, macro and multistrategy hedge funds as well as
credit and equity funds that have exposure in companies
with significant coal price riskî
Alex Toone
Global Head of Commodities Sales,
Credit Suisse

Voted Coal House of the Year 2009 in the Energy Risk Awards 2009 for building its position as one of the top 3 market-makers in financial coal markets from scratch over the past 18 months

! Differentiating alliance with Glencore, coupled with strong emerging market platform in countries such as Indonesia

! Dedicated coal derivatives team of 4 coal and freight traders and 35 sales staff

! Customer base grew tenfold in 2008

derivatives team of 4 coal and freight traders and 35 sales staff ! Customer base grew

Confidential

7

Best M&A franchise

Best Emerging Markets M&A House Best M&A House Singapore 2009 2008 Best M&A House Korea
Best Emerging Markets
M&A House
Best M&A House
Singapore
2009
2008
Best M&A House
Korea
Best M&A House
Indonesia
2008
2008
Best M&A Deal Australia Commonwealth Bank Group/ Bank of Western Australia and St Andrewís Australia
Best M&A Deal
Australia
Commonwealth Bank Group/
Bank of Western Australia and
St Andrewís Australia
2008
Best M&A Deal
Australia
Primary Health Care
Acquisition and Financing of
Symbion Health
2008
Best M&A Deal Australia Commonwealth Bank Group/Bank of Western Australia and St Andrewís Australia 2008
Best M&A Deal
Australia
Commonwealth Bank
Group/Bank of Western
Australia and St Andrewís
Australia
2008
Best Syndicated Loan
Australia
A$2.5bn loan for Primary
Healthís hostile acquisition
of Symbion
2008
ìBest M&A Houseî ! Euromoney − ìCredit Suisse has delivered a strong record across all
ìBest M&A Houseî
! Euromoney
− ìCredit Suisse has delivered a strong record across all regions and in several different countriesÖitís Credit Suisseís achievements in Russia, Brazil and China that really stands outî
− ìIn China, Credit Suisse showed its strength in the technology sector when it helped Focus Media on a $1.4 billion sale of its outdoor digital advertising business to the countryís biggest
portal website, SinaÖ. It is the biggest ever technology M&A transaction in China.î
− ìCredit Suisseís most impressive deal in the region was acting as adviser to the biggest shareholder of Wing Lung Bank on the $4.7 billion sale of the bank to China Merchants Bank
The
deal is the biggest Hong Kong bank M&A transaction in the past seven years.î
− ìOther impressive deals in Asia include the biggest ever M&A deals in Indonesia and the Philippines, and the largest ever cross-border transactions between the Middle East and Asia, and
between Malaysia and Indonesia.î
! The Asset
− ìCredit Suisse continues to dominate Indonesian market with strong leadership across all products as it retains the Triple A accolade for Best M&A House Awardsî
− ìAs the only investment bank to be involved in the three largest and high profile cross-border deals in the 12-months to September 2008, Credit Suisse is an easy choice for the Triple A
Best M&A House in Singaporeî
− ìCredit Suisse continues to execute deals and secure landmark mandates amid the decline in transaction volumes due to unfavourable domestic economic conditions [in Vietnam] and the
prevailing global credit crunchî
− ìCredit Suisse manifested leadership in M&A transactions in South Korea, leading several cross-border deals that helped transform Korean companiesÖ î
transactions in South Korea, leading several cross-border deals that helped transform Korean companiesÖ î Confidential 8

Confidential

8

3. Financing mining projects

Impact of current credit market turmoil

Liquidity

Pricing

! Depressed commodity prices also not helping

! Limited new issuance in capital markets from HY Asian issuers for last 12 months

! Lack of deep local bank markets in most mining countries, even Australian banks are slowing credit growth

! Regional banks (DBS, Korean, Taiwanese, Chinese) and international banks (Japanese, French, German, US) have changed focus to their home markets as they are tied by strings that come with stimulus / govt support

! Contractor / supplier financing is one alternative

! PE / Equity sale is another

! Emerging market credit spreads are at all time high

! Local and foreign bank markets are open to deals with right structure and pricing. Pricing has moved up and structures are tighter

Credit markets are going through unprecedented volatility with limited liquidity

Impact of current credit market turmoil (contíd)

Type /

Structure

Type / Structure Flight to Quality

Flight to

Quality

! Development / exploration funding most impacted. Growth / expansion capital still available to mid-large size operators

! Industry also saw inexperienced / new entrants take on greenfield ventures during commodity boom (especially in Indo), most of the financiers to these operations are now struggling with recovery

! Better investor reception for structured / secured deals with security over cash flows. Structure needs to be secure to attract investors

! Hedge funds / institutional investors looking for value in equity

! Banks like CS continue to be selective with whom they work

! Its clear now that some of the weak players in current commodity price environment will fail

Investors are increasing pushing for a flight to quality in credit names

Mining project lifecycle

NPV Production start-up Offtake Secondary agreement areas Independent reserve/resource certification Commercial
NPV
Production
start-up
Offtake
Secondary
agreement
areas
Independent
reserve/resource
certification
Commercial
discovery
0
Timeline
Define budget and
work program
Neg ta vei
Pos
viti
e

Phase

Characteristics

Activities

Neg ta vei Pos viti e Phase Characteristics Activities Working interest Exploration 1.Acquire survey data 2.Bid

Working interest Exploration

Characteristics Activities Working interest Exploration 1.Acquire survey data 2.Bid for working area Low /
Characteristics Activities Working interest Exploration 1.Acquire survey data 2.Bid for working area Low /

1.Acquire

survey data 2.Bid for working area

Low / medium capex High risk

1.Geological / subsurface / geophysical study 2.Seismic study (2D / 3D) 3.Exploration drilling 4.Core tests

Development

Production

High capex

Low capex

Medium risk

Low risk

1.Pre-Stripping

2.Construction

3.Infrastructure

4.Processing

1.Mineral production 2.New mines/areas 3.Reclamation & rehabilitation

Available source of financing for mining projects

Pros

Cons

Local Commercial Banks

" Lower cost of funds

! Regulatory constraints ! Limited level of risk appetite ! Limited access to USD funding

" May offer the tightest margins

Foreign Commercial Banks

" Higher risk appetite than local banks

! Selective industry / sector coverage ! May not have sufficient presence or local knowledge

" May offer competitive rates to establish relationship and market foothold

Project Financing

" Well-established financing structure

! Highly complicated ! Execution could potentially take 12- 18 months or longer

" Available for greenfield projects

Lease / Asset backed financing

" Basic form of financing structure with clear security package and cover

! Limited leverage

Cashflow

" May allow for tighter pricing and longer tenure

! Complicated execution process ! Cashflows have to be captured and deployed offshore

Securitization

Bond Markets

" Less stringent on structure (eg. security and amortizations)

! Corporate lending deals vs. project asset ! Typically require corporate audited accounts, ratings and offering docs ! Limited flexibility on structure ! Bond markets are currently challenging

" May allow for tighter pricing and longer tenure

! Bond markets are currently challenging " May allow for tighter pricing and longer tenure Confidential
! Bond markets are currently challenging " May allow for tighter pricing and longer tenure Confidential

Confidential

13

Project financing

! Typically covers construction period to end of useful life

! Requires contractual arrangements on:

Procurement of asset / equipment from reputable suppliers

Customer contracts (long-term take-or-pay contracts)

Third party or reputable operator

Size of US$100-500mm, economies of scale

Non-recourse project company

Suppliers

Operator

Equity

Equipment

Suppliers Operator Equity Equipment $ Upfront Project Co / Asset Owner Debt Services $ Periodic Customer
Suppliers Operator Equity Equipment $ Upfront Project Co / Asset Owner Debt Services $ Periodic Customer
Suppliers Operator Equity Equipment $ Upfront Project Co / Asset Owner Debt Services $ Periodic Customer

$ Upfront

Project Co / Asset Owner

Suppliers Operator Equity Equipment $ Upfront Project Co / Asset Owner Debt Services $ Periodic Customer

Debt

Services

Suppliers Operator Equity Equipment $ Upfront Project Co / Asset Owner Debt Services $ Periodic Customer
Suppliers Operator Equity Equipment $ Upfront Project Co / Asset Owner Debt Services $ Periodic Customer

$ Periodic

Customer

Lease financing

! Suitable for moving assets or assets that may be redeployed

! Lessor owns the assets during the life of the transaction

! Possible tax advantages for the lessee

! Typically only upon delivery of asset / equipment to lessee

Equipment

Suppliers

Equipment Suppliers Lessee $ Periodic Services $ Periodic Customer Lessor

Lessee

$ Periodic

Equipment Suppliers Lessee $ Periodic Services $ Periodic Customer Lessor

Services

Equipment Suppliers Lessee $ Periodic Services $ Periodic Customer Lessor
Equipment Suppliers Lessee $ Periodic Services $ Periodic Customer Lessor

$ Periodic

Customer

Lessor

Cash flow securitization

! Typically for operating assets generating cash flows

! Diversification of assets / customers improving deal economics

! Requires security over assets and cash flows

! Requires long term contracts with customers on take-or-pay basis and/or collateralisation of cash flows

! Diversification of assets and customers improves pricing on these deals

! Structure can be applied to bank, bond markets or private financings

Services

Asset Owner Customer $ Periodic Assets secured Lenders $ Secured
Asset Owner
Customer
$ Periodic
Assets
secured
Lenders
$ Secured

Emergence of Private Placement Market

! Over the last 4-5 years the private placement market has matured significantly

! Private placement market offers an alternative to traditional bank and bond /capital markets

! Private placements allow access to institutional investors and allows issuers to share forward looking projections / business plans that are not allowed in bond markets

! Private placement investors require access to management and due diligence, thus allowing issuers to better sell their credit story

! Estimated issuance of $20-25 billion in the structured private placement market since 2003. Credit Suisse leads this market with over $11 billion of private placements

! Ideally suited to mid-size companies which are not ready for listed bond market or have limited access to bank market

! Private market should be used in addition to bank lines and should not be treated as a replacement for the working capital bank lines

! Private deals can be structured as loans or bonds

Conclusion

Banks

! Focused now on restructuring given the economic crisis

! Increased losses and defaults in mining projects

! Less aggressive, specifically on

Greenfield

Commodities

Execution/Development risks

New Lending

! Back to basics

! Higher grade credits

! Well collateralized structures

! Larger corporates

! Local banks still have local currency appetite

Credit Suisse

! Appetite on a selected basis

! Local banks still have local currency appetite Credit Suisse ! Appetite on a selected basis

H:\Projects\Conference\China MC Migliucci - Presentation.ppt

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research analysts from being compensate d for their involvement in investment banking transactions. Confidential 19
research analysts from being compensate d for their involvement in investment banking transactions. Confidential 19

Confidential

19

Alberto Migliucci Director - Investment Banking Head of Mining and Oil & Gas, South East

Alberto Migliucci

Director - Investment Banking Head of Mining and Oil & Gas, South East Asia

CREDIT SUISSE (SINGAPORE) LIMITED One Raffles Link #03-01/#04-01 South Lobby Singapore 039393

Tel: (65) 6306 7305 Fax: (65) 6212 7356 Mob: (65) 9826 9720 Email: alberto.migliucci@credit-suisse.com

www.credit-suisse.com