Strategies in Volatile Times – MineAfrica

1. Strategies in Volatile Times – MineAfrica David Shaver – Managing Director, UBS Securities Canada February 28, 2009

2. UBS: Global Investment Bank of Choice for Canadian Companies US$17.1 billion Financial advisor on merger with Thomson Corporation2008 C$2.9 billion Joint bookrunner on private placement and joint lead manager on bought deal equity offering2008 €3.0 billion Joint bookrunner on3-year fixed rate bond issue 2008 US$460 million Joint bookrunner on convertible bond offering 2008 C$267 million Joint bookrunner on bought deal equity unit offering 2008 US$2.8 billion Financial advisor on restructuring Pending In a challenging year who led the largest deals in Canada? • Largest M&A Transaction • Largest Equity Offering • Largest Corporate Debt Offering • Largest Equity-linked Offering • Largest Public Equity Unit Offering • Largest Corporate Restructuring Bringing global capabilities to our Canadian clients Source: FP Datagroup, Bloomberg

3. UBS: World’s Largest Equity Trader UBS is the #1 equity trader in the world and trades 1 in 9 shares globally

4. What Went Wrong, Subprime Loan to CDO $1B of subprime mortgage loans AAA Bond AAA Bond AAA Bond AA Bond AA Bond A Bond AA Bond A Bond A Bond BBB Bond BBB Bond BBB Bond Unrated Equity Unrated Equity Unrated Equity Mortgage Loans ABS Bonds // ABX Index ABS CDO CDO of CDO

5. Looking Back at 2008 Part-NATIONALISED NATIONALISED NATIONALISED NATIONALISED NATIONALISED NATIONALISED Rescuepackage Takenover Takenover COLLAPSED & Sold Rescue package COLLAPSED Rescuepackage Rescuepackage Rescuepackage Rescuepackage Rescuepackage Rescue package Rescuepackage Rescuepackage Rescuepackage Rescuepackage Rescuepackage Rescue package Rescuepackage Rescuepackage SPV Package It begins with the financial crisis

6. The Tangled Web Money market fund exposure “2/20” and Regulation Changes Investment Banks Bond defaults hit money market funds Hedge funds Swap counterparties dump collateral 30% + in cash CP market seizing Stock prices hit Fears of mass redemptions Fear of under performance at year end Falling equities Failure of interbank funding Commercial banks Reduce net equity positions Lending tightened Fear of systemic risk Difficulty in wholesale funding Corporates Risk aversion, high cash levels Insurance of structured notes Confusion from scale and complexity Short squeeze on “hard to borrow” stocks Withdraw stock lending on counterparty concerns Long only funds AIG CDS counterparty exposure

7. TEDSpread Interbank Lending Cost Current = 99 Down 364 pts from the peak

8. Credit Default Swaps

9. Market Value and Performance Relative Credit Market Performance World Equity Indices

10. Market Volatility VIX Index Number of Days where S&P Declined 1.5% or More

11. The “Un-Wind” Oil vs. Banks Trade (WTI vs. BKX index) DJAIG Commodity Index

12. Redemptions Start Hedge Fund-Owned Share Performance CS/Tremont Hedge Fund Index

13. Equity Funds Flow US Mutual Fund Flows Canadian Domestic Equity Mutual Fund Flows 2006 2007 2008 2009

14. Financials Led Us Here…Now It’s The Economy A Weakening Labour Market Has Cut Into Consumer Confidence

15. The Case For and Against Equities… Equities look cheap compared to historical levels… FOR AGAINST • Equities have had their worst year since the MSCI World Index began in 1969 • Equities have fallen 55% from their October 2007 peak in price terms • Global equities trade at a trailing PE of 11.1 times, the lowest PE since 1982 • Over 80% of the MSCI World universe is now trading at PE multiples of less than 20x trailing earnings • At less than 1.5x, current global P/BV is at a level last reached in 1984 • Today’s global dividend yield is ~4%, a yield last seen in 1984 • Global growth is expected to fall sharply in 2009 to -0.2% • Profit margins typically trough going into a recession, allowing margin expansion to drive a strong rebound in earnings. Profit margins remain close to their peak, threatening earnings recovery • In previous earnings cycles, global earnings have fallen 30-40% from their peak, but so far EPS is down only ~20% • Downgrades to earnings estimates have only begun • TED spreads remain well in excess of historic “norms” • Equity volatility has reached new heights …but significant global volatility and economic concerns pose a serious risk

16. 2009 Outlook—Focus on Valuations and Earnings There is Scope for PE Multiple Expansion … • The equity market recovery debate centres on the degree to which valuations can rebound faster than earnings downgrades 40 30 20 10 0 75 78818487 90 93 96 99 02 05 08 PE (trailing) …But EPS May Have Further to Fall 0% -5% -10% -15% -20% -25% -30% -35% -40% 75 78818487 90 93 96 99 02 05 08 World EPS off prior 3y peak • After starting 2008 at what appeared to be “reasonable” levels (around 15x on a trailing basis), the PE for the world has collapsed, particularly since August • Given the outlook for a weak earnings environment over the course of the next 1–2 years, multiples are the sole driver of market upside

17. TSX Had Been Outperforming Global Markets Total Relative TSX Performance to MSCI World Index (US$) The Canadian markets have outperformed the world indices for eight of the last ten years

18. Global Equity Issuance Canadian Equity Issuance Global Equity Issuance

19. Investment Grade Credit Market Conditions 2007 2008 2009

20. High Yield Debt Volume High Yield Debt Volume (US$bn) Liquidity has dried up

21. Global Debt/Equity Ratios

22. M&A Activity and Share Price Movement

23. Factors Impacting the Global M&A Market From the Seller’s Perspective • Financial need is the key reason to sell • High premiums expected due to depressed share prices From the Buyer’s Perspective • Buyers balancing desire to preserve cash with unwillingness to issue shares at depressed prices • Companies reluctant to buy while length and severity of the market downturn is still unknown • Large and well-financed buyers want clarity on forecast price decks before buying companies in the commodity space • Acquisitions likely to be relatively “small” Other Factors and Considerations • Activity expected to pick up once the “worst is over” and the markets stabilize • Hostile approaches are increasingly common due to gap between buyers’ and sellers’ price expectations • Emerging market nations are still meaningful players in the M&A market

24. Crises Do End 120 115 110 105 100 95 90 85 80 index = 100 in quarterof re-capitalisation Bank re-capitalisation -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 Housing Cycles are Long in Both Directions Market Recoveries Take Time Quarters prior to and after recapitalisation plan Equity price index, average of previous crises Source: UBS research, based on experiences of US, Finland, Norway and Sweden in late 1980s / early 1990s

25. Emerging from the Credit Crunch 1 Recapitalization, failure and consolidation of banks 2 Capitulation in capital markets 3 Distressed asset liquidity 4 Enduring legislation 5 Real estate price stability 6 Banks resume lending • Industry Regulation • TARP • Market rules (eg. short sale, CDSs) • Hedge funds • Nationalization • Rating agencies • Accounting rules • Reverse Glass-Steagall

26. Redefined Metals & Mining Landscape Global Mining Companies—2008 Peak vs Current

27. Weakened Commodity Price Performance Relative Commodity Performance—Since 5/30/08

28. Gold Equities versus Gold Price Relative Performance Gold Equities Significantly Oversold Relative to Gold Price

29. What Happened to the Materials Bull Market Why are commodity prices struggling… • Demand weakness 2009 global GDP expected to be -0.2%, likely pushing surpluses up and negating positive effects of poor supply growth • De-leveraging Hedge fund selling has resulted in high volatility and pressure in the asset class • Fund redemptions Further selling pressure generated from less sophisticated money • US dollar strength Recent strength has added to selling pressure in commodities. Could be a catalyst if reversed • Chinese growth concerns Domestic construction activity and steel consumption has slowed • Regulatory pressures Concerns regarding disruptive impact of speculators in commodities markets – further regulation expected 1 2 3 4 5 6

30. Mining M&A Activity M&A activity in the sector fell dramatically in 2008 after a record year in 2007 Canadian Mining M&A Global Mining M&A

31. Top 2008 Mining M&A Deals—Canada Canadian Deals

32. Top 2008 Mining M&A Deals—Global Global Deals

33. Financing Alternatives and Potential Investors Potential Investors Generalist investors Types of Financing Corporate debt - Bank debt - Public debt - Term Loan B 1 Mining sector investors Private equity funds Sovereign wealth funds 2 Project finance Hedge funds Common stock / warrants 3 4 Convertible bonds Strategic investors 5 Royalty / streams Royalty / streaming companies 6 Asset sales / JV 7 Other

34. What are the Corporate Implications? Understand direct / indirect exposure M&A opportunities for the strong / vulnerability for the rest Market recovery will take time Commodities • Global growth will slow and a “G7” recession is forecast • De-levering will elongate the recovery • Cyclical weakness vs. secular strength • Supply contraction as high cost producers exit Cost of capital will rise Shareholder relations are more important than ever • “Do it when you can, not when you have to” • Market will be motivated to re-open on valuation attractiveness • Higher spreads, fees and tighter covenants likely Preserve liquidity • Use cash wisely • Raise capital to provide financial cushion • Be cautious about share buybacks

35. Is Humour a Sign of Capitulation? ONE WAY “A banker, eh? Can you make a living at that?” “Honey, we’re homeless” WALL ST First NationalBank & Grill Source: The New Yorker, October 6, 2008