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Funding for the African Miner Today. Vaughan Wickins Head of Mining & Metals, London Standard Bank Plc. 29 November 2010. Contents. Funding for the African Miner Today The performance and outlook for commodities Financiers considerations The changing landscape of mine finance

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Funding for the african miner today

Funding for the African Miner Today

Vaughan WickinsHead of Mining & Metals, LondonStandard Bank Plc

29 November 2010


Contents

Contents

Funding for the African Miner Today

  • The performance and outlook for commodities

  • Financiers considerations

  • The changing landscape of mine finance

  • The outlook for the African Miner


The rebound in commodities continues

Nov 10

The rebound in commodities continues

Performance of Selected Equity & Commodity Indexes (2007 to date)

Precious & Base Commodities and Emerging Markets all outperforming Developed Markets

Source: SB Commodities and Bloomberg


With analysts forecasts remaining bullish

… with Analysts’ forecasts remaining bullish

Standard Bank’s outlook remains Bullish

* Market consensus from Bloomberg as of 22/11/10


An investor s dilemma

An investor’s dilemma

Cash

Cash rich investors are increasingly considering commodities within their investment portfolios

Commodities

Equities

Government Bonds

Property

The Son of Man, René Magritte (1964)

About the painting Magritte said,

“Everything we see hides another thing, we always want to see what is hidden by what we see, but it is impossible. Humans hide their secrets too well ...”

(also featured in The Thomas Crown Affair)


And the global portfolio flows

… and the Global portfolio flows

The Global Portfolio (2010)

Commodities continue to attract investment, although currently below the consensus level for portfolio risk diversification

Major Commodity Indices within the Global Portfolio (2007 to date)

Energy and Crude Oil continue to dominate as an asset class within the Commodities basket

Source: SB Plc, Bloomberg & Reuters


Unprecedented deleveraging in 2009

Unprecedented deleveraging in 2009 …

Net Debt Movements and Equity Issuances in the Mining and Metals Industry (2000 to date)

Financial Crisis in 2008/09 severely impacted supply of debt

Source: Ernst & Young, Worldscope via Thomson Datastream

Forecasts are Reuters consensus estimates, via Reuters Knowledge


Offset by equity issuance

*

… offset by equity issuance

Mining Equity: Amount Raised in USD (2000 to date)

The debt crisis led to a boom in equity raisings with record raisings in 2009

In 2009, around 40% of the total funds raised was accounted for by the majors and diversified players (Rio, Barrick, Arcelor Mittal and Xstrata)

Source: Capital IQ

Note: * to Oct 2010


The recovery of the loan market

The recovery of the loan market

Value of Mining Project Finance by Region (2005-2010)

2010 has shown strong signs of recovery in the debt market

Source: SB Plc/Dealogic

Note: * to 23 Nov 2010


So how are african miners faring

So how are African Miners faring?

Share Price Performance of Selected Mining & Metals companies (2007 to date)

* Portfolio of African copper companies includes: African Copper Plc, African Eagle Resources Plc, Anvil Mining Limited, Discovery Metals Limited, Equinox Minerals Limited, First Quantum Minerals Limited, Katanga Mining Limited, Metorex Mining Limited, Mwana Africa Plc and Tiger Resources Inc

** Portfolio of Precious Metal Companies includes: Centamin, Randgold, Perseus, Mineral Deposits, Cluffgold plc, Nevsun Resources Ltd, Sunridge Gold Corp, Colden Star Resources Ltd, Avion Gold Corp, Volta Resources Inc, GMA Resources plc, Gryphon Minerals Limited, Resolute Mining Ltd, Adamus Resources Ltd and Platinum Australia

Source: SB Global Markets Research

Performance of African Mining companies is accelerating


Current copper price is well above cash cost

Current copper price is well above cash-cost

Copper Production Cost Curve

Copper producers generating strong cash flows at current market prices

Source: GFMS and SB Global Markets Research - Mine Costs

Note: * Based on data from 155 mines


Current gold price is well above cash cost

Current gold price is well above cash-cost

Gold Production Cost Curve

Gold producers generating strong cash flows at current market prices

Source: GFMS and SB Global Markets Research - Mine Costs

Note: * Based on data from 213 mines


Financing commodities

Financing Commodities

Funding Available

  • Base Metals

  • Precious Metals

  • Bulks

  • Uranium

Funding Restricted

  • Diamonds

  • Rare earth metals

  • Alloy metals & metals in steel making

    (eg. tungsten, molybdenum, manganese, chromium)

    WHY?

    • No terminal markets

    • Lower volume markets

    • Less certainty in demand & supply fundamentals

Neodymium

Scandium

Samarium

Lanthanum

Europium

Yttrium

Cerium

Gadolinium

Terbium

Dysprosium

Holmium

Promethium

Praseodymium


Financing risk assessment

Financing Risk Assessment

Increasing Risk

Regardless of the funding solution, financiers need to assess the inherent project risks

Decreasing Cost


Finance considerations outlook

Finance considerations & outlook

  • Considerations

    • Deal size and Distribution: North of USD300M capex requires structuring

    • Complexity of terms – snowball effect

    • Equator Principles – requirements accurately understood ?

    • Time to close

    • Competitive pricing

    • Leverage

  • Outlook

    • Increasing volume of PF loans this year

    • Long-term commodity fundamentals

      remain compelling

    • Strong appetite from banks for high qualityassets with strong cash-flow

    • Political risk monitored carefully

Standard Bank’s outlook on Project Financing is Bullish


Historic sources of capital for african mining companies

Historic sources of capital for African mining companies

Source of capital for selected African mining companies (2005 to date)

Whilst equity is the primary source for the start up mines, developing mining companies increasingly utilize debt and physical linked funding solutions

330

301

736

361

513

953

291

793

130

149

1726

1951

458

1000

354

Totals (USDm):

Source: SB Global Markets Research

* Copper Portfolio includes African Eagle Resources Plc, Elnino Ventures Inc, Geovic Mining Corporation, Mwana Africa Plc, Africo Resources;

** Discovery Metals Ltd source of capital includes recently announced funding plans


Financing sources providing new funding solutions

Financing sources providing new funding solutions

Sources of Financing

Market players have diversified their funding product offerings to mining companies with the lines between traders and bankers blurring

Equity

Physical Linked

Finance

Debt

Equity Market

Traders / End Users

Banks

Debt & Physical

Linked Finance


Financing considerations

Financing considerations

Funding Solutions and their comparable advantages

Careful cost-benefit analysis of each of the funding solutions remains a crucial decision for management


Conclusion

GLOBAL MARKETS

Conclusion

Funding outlook for the African Miner

  • Increasing funding alternatives

    • Investor appetite for equity remains strong

    • Debt available in a number of forms

  • Cost of financing competitive

The Canaries in the Coal Mine*

Global Economy:

  • Long dated government bond yields

  • US Dollar

  • Crude oil price

* David Fuller from Fuller Money


Disclaimer

Disclaimer

This presentation is provided on the express understanding that the information contained herein will be regarded and treated as strictly confidential. It is not to be delivered nor shall its contents be disclosed to anyone other than the entity to which it is being provided and its employees without the prior consent of the Standard Bank Plc (“SB Plc”). Moreover, it shall not be reproduced or used, in whole or in part, for any purpose other than for the consideration of the financing or transaction described herein, without the prior written consent of SB Plc. The information contained in this presentation does not purport to be complete and is subject to change. This document does not constitute an offer, or the solicitation of an offer, for the sale or purchase of any investment or security. The information contained in this document does not purport to be complete and it is subject to change. This is a commercial communication. If you are in any doubt about the contents of this document or the investment or security to which this document relates you should consult a person authorised under the Financial Services and Markets Act 2000 who specialises in advising on such investments or securities. This document relates to derivative products and you should not deal in such products unless you understand the nature and extent of your exposure to risk. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this presentation. This presentation is not intended for the use of retail clients. This document must not be acted on or relied on by persons who are retail clients. Any investment or investment activity to which this document relates is only available to persons other than retail clients and will be engaged in only with such persons. SB Plc is authorised and regulated by the Financial Services Authority (“FSA”), entered in the FSA’s register (register number 124823) and has approved this document for distribution in the UK only to persons other retail clients. Persons into whose possession this document comes are required by the SB Plc to inform themselves about and to observe any such restrictions. You are to rely on your own independent appraisal of and investigations into all matters and things contemplated by this document. By accepting this document, you agree to be bound by the foregoing limitations. Kindly note that this presentation does not represent an offer of funding since any facility to be granted in terms of this presentation would be subject to Standard Bank Plc obtaining the requisite internal and external approvals.

Standard Bank Plc, 20 Gresham Street, London, EC2V 7JE

Value Added Tax identification number 625861525


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