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Chamber of Mines in Zambia24 November 2008
Source of capital for: Exploration Pre-development activities Mine Development Investment/Expansion
Play a major role in M & A Activity Influence Investment Flows Determine (to some extent)
commodity prices
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1. Exploration, discovery, drilling, resource estimation
2. Metallurgical and mining method testwork3. Mining and process method selection and
optimisation4. Operating and capital cost estimates5. Economic Optimisation of economic resource
(sub-economic remains behind)6. Detailed engineering design of economic
optimisation7. Development of mining and processing schedules8. Inclusion of the above as well as other relevant
economic data (eg: fiscal measures) into a financial model.
9. Project decision and if positive, funding10.Development
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Development Schedulefor a typical large copper project
Development Schedulefor a typical large copper project
Adapted from Resource Stock Guide (RSG)
Risks, No. of Players
Rewards, No. of Winners
Investor (n)“One who
commits capital in order to gain
a financial return”
Individuals Pension Funds Mutual Funds Hedge Funds Companies Sovereign
Wealth Funds Banks
General Weakening in global demand Slow down in economic activity
Depressed economic output Weak demand for durable goods, housing
units Slow down in construction activity
Marked reduction in investor confidence Reduced availability of investible funds
Investors have become risk averse In the current situation, investors see
little “upside” in long term risky investments
The few investible funds available will only go to high quality “safe” investments
The few investors remaining will be very rigorous in evaluating their portfolios
Exploration is the major source of growth in the mining industry
At present, more than half of exploration activity is carried out by mid-tiers, juniors and exploration companies (US$11bn – US$15bn)
With restricted funds availability, only quality projects with the right parameters will continue
Recent reports indicate approx. US$50bn of investment is likely to be deferred between 2008/9
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• Geological potential for target mineral• Profitability of potential operations • Security of tenure & permitting• Ability to repatriate profits• Consistency of mineral policies• Realistic foreign exchange controls• Stability of exploration terms/conditions• Ability to predetermine environmental obligations• Ability to predetermine tax liability• Stability of fiscal regime
United Nations Survey of45 companies
Source: James Otto
Top 10 ranked Company Decision Criteria for exploration(out of 62 factors)
No Major Structural Effect –
Focus on Efficiency/Acquisitio
nFocus switch from
exploration to efficiency or M & A
Take over, barely survive or close
down
Marked reduction leaving very few
players
Central African Copper/Cobalt 86%BHP Billiton 57.8%Freeport McMoran 82.2%
Pre-2008, Zambia had just started to emerge as a prime destination for investment, much more work is still ahead
In the Zambian mining sector a considerable number of assets are running old technology, this has implications on costs
The current global crisis will impact on recapitalisation and investment programmes
Mineral Exports still account for majority of foreign earnings
Mining activity accounts for a very large part of GDP: Tourist enterprises (hotels, lodges, car
hire) Support industries (drilling, suppliers,
construction, banks, others) “Spin-off” industries (business services,
local entrepreneurship)
The international financial markets are good sources of capital, but they are very sensitive
With increasing globalisation developments in one part of the world can bring far reaching consequences
In times of crisis, the winners will always be the investments and countries that pose the least risk to investors in the international markets
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