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2Confidential
Debt that is not debt
� “Loan to own”
� Lender seeks to assume ownership of
the company or its assets if default
occurs
Debt that is debt
� Lender intends to be repaid from
company’s cash flows
� Lender would see ownership of the
company or its assets as problematic
Discussing Debt that is
Debt in this
presentation
TWO KINDS OF
DEBT
3Confidential
Make bankers richIncrease leverage
Increase available fundingAvoid dilution
Could we not just
finance everything
with equity?
WHY BOTHER
WITH DEBT
AT ALL?
4Confidential
� Ranks ahead of equity
� Generally (but not always) has a fixed term
� Generally has a more or less fixed interest rate
� Can have embellishments
� Should cost less than equity
CHARACTERISTICS
OF DEBT
6Confidential
Corporate debt
� Revolving credit facilities – often unsecured
� Term debt – normally secured
Project finance (limited recourse finance)
� Recourse to specified project only
� Extensive due diligence by lenders
Pre-export finance
� Suitable for higher risk countries
� Pledge over exported product and proceeds
Trade finance
� Security over product in pipeline
� Self-liquidating
Equipment finance
� Secured by equipment
SENIOR DEBT
7Confidential
Lenders
� Commercial banks
� Insurance companies
� Funds
� Export Credit Agencies
� Development Finance Institutions
� Metal traders
� Equipment suppliers
� Industry partners
SENIOR DEBT
8Confidential
Tradable bonds
� Most securities exchanges
� Generally rated
� Similar terms
High Yield Bonds
� Not always listed
� Traded in OTC markets
� Not always rated
Scandinavian market
� Scandinavian exchanges’ rules are suitable
� Funds come from outside geographical region
Islamic bonds
� Tailored so as to not pay interest
� Other yields
� Non-Islamic investors
Fixed coupon
Market related yield
BONDS
9Confidential
DEBT AVAILABILITY
0
2
4
6
8
10
2009 2010 2011 2012 2013 2014
$ b
illi
on
Debt raised by Big 3 companies
ASX
TSX
London
0
20
40
60
80
100
2009 2010 2011 2012 2013 2014$
bil
lio
n
Total debt raised
Total
Big 32014 was a subdued year
for debt
TSX numbers include
$5.6 billion for
mid-tiers
10Confidential
DEBT AVAILABILITY
0.00
10.00
20.00
30.00
40.00
50.00
2008 2009 2010 2011 2012 2013 2014$
bil
lio
n
Total equity raised
Other
Big three
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014
Debt fraction of financing
ASX Debt
London Debt
TSX Debt
ASX and TSX investment
styles appear to have
swapped!
12Confidential
� Ability to convert debt into equity
� Traded converts have more value than debt
Extra value is due to
the option value
associated with the
conversion right
There are two kinds of
buyers
CONVERTIBLES
Debt value
Share price
Tota
l V
alu
e
13Confidential
CONVERTIBLES
0
1
2
3
4
5
6
2008 2009 2010 2011 2012 2013 2014
$ b
illi
on
Total convertible debt
Total
Big 3
0
0.5
1
1.5
2
2.5
2008 2009 2010 2011 2012 2013 2014
$ b
illi
on
Convertibles by Big 3 companies
London
TMX
ASX
15Confidential
Royalties
� Specified percentage of revenue
� Can be gross royalty or net of costs
� Can be limited to one metal out of suite of products
� Varies directly with metal price
� Payable only on production
Streams
� Large number of possibilities
� Typically a metal loan with price participation
� Payable on production but fixed quantity of metal over a specified term
Metal loans
� Fixed amount of metal to be repaid
� Fixed repayment schedule
� Effectively a loan with a flat forward metal price hedge
More than two kinds
of buyers
ROYALTIES AND
STREAMS
16Confidential
2013 dominated by
Silver Wheaton’s $1.9
billion deal with Vale
ROYALTY
0
0.5
1
1.5
2
2.5
2008 2009 2010 2011 2012 2013
$ b
illi
on
Royalties
18Confidential
SUMMARY
AND OUTLOOK
0
20
40
60
80
100
120
2009 2010 2011 2012 2013 2014
$ b
illi
on
Total finance
Royalties
Converts
Debt
Equity
19Confidential
Debt becomes relatively more attractive in tough equity markets
Banks and other lenders have liquidity and are seeking investments
Debt availability for producers is high
Debt availability for developers is limited by equity availability
Good producers and good developers will get funding
SUMMARY
AND OUTLOOK