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Presentation to Investors
May 2012
Richard Horlick, Director Tau Capital Plc
Mathias Wikberg, Head of Public Equity
Michael Adams, Head of Private Equity
Brian O’Callaghan, CEO Compass Asset Management
Michael Sauer, CEO Visor Holding, Director Tau Capital Plc
1
The near term is likely to be marked by significant uncertainty and volatility…however, the outlook beyond remains very positive.
Kazakhstan, Mongolia and Central Asia remain compelling in the medium term and beyond
Kazakh economic growth remains strong, external debt substantially reduced since crisis, FX rates and reserves are stable, inflation is trending down
The investment climate and corporate governance is improving Long awaited banking sector policy adjustments have begun
Market conditions and liquidity are likely to improve, aided by IPOs and changes to pension investment rules
For Tau Capital, this means: The market offers great value, political succession risk and negative headlines are more than priced in
Very attractive equity valuations, at 1-2 std’s below historical means
Increased and improved Private Equity opportunities
Tau Capital and Compass Asset Management will continue to pursue these opportunities with an absolute commitment to shareholders
Ongoing discount management
Continued commitment to transparency
On the ground presence, international fund management best practices and robust parent company support
The Outlook – Medium to Long term
2
Natural Resources wealth Natural Resources at spot prices ≈ $500,000 per capita Oil: 3% of global reserves, 40bn barrels Current production rate: 1.7mn boepd (to double over next decade) Top 10 Global Oil Producer after Kashagan reaches full capacity Gas: 1.1% of global resources, 1.90tcm Uranium: 15% of global reserves, #1 Global producer
Stable social, economic and political environment
Economics: strong GDP growth above 6% 2012e CPI trending down, 4.8% YoY (Apr 2012) Real wage growth 9.9% YoY (Mar 2012) FDI $24.5bn, forecast 2012
Bank sector recovery Tax exemption provision for commercial banks on certain write-offs
(reduction to 0% from 20%, valid until YE2012)
Sector’s NPL declined 5.6% YTD to 33.1% (as of 1 Apr 2012)
Investment environment improving Corporate governance makes all the headlines in Europe Market conditions likely to change: liquidity improvements, IPOs, pension
allocations
Coal: 3% of global proven reserves 3rd rank of global reserves in silver, copper, zinc and lead 6th in gold and coal
Stable FX National Bank Foreign Reserves $86bn, 47% of 2011GDP Successful deleveraging
- Total external debt down from 105% of GDP in 2009 to 78% in 2012e
Sector NPL coverage (ex. BTA & Alliance) grew 2.4% YTD to 93% Commercial bank external debt down from 28% of GDP in 2009
to 11% in 2012e
World Bank Survey, “Doing Business 2012”: Kazakhstan ranks 47 out of 183 (prev.58) - strong progress in the “Protecting Investors” category
The Heritage Foundation 2012 Index of Economic Freedom: Kazakhstan ranks 65 out of 179 (prev.78)
The Investment Case for Kazakhstan
3
Sources: Bloomberg, http://www.gustaviadavegardh.se/fonder/kazakhstan.aspx
Comparative Performance
4
Sources: Bloomberg; Compass Asset Management Company Index returns: Price appreciation
*NAV per share (Daily basis)
Tau Capital Performance vs. Benchmarks
5
Public Equity Strategy
Global economy still in the midst of massive deleveraging process
Macro indicators, Eurozone political debacle and monetary responses continue to drive markets
Developed markets causing global contagion and volatility in the near term
However, the long term fundamental case for the Central Asian Region remains intact
Commodity prices remain elevated
Market is overly bearish on Chinese economic slowdown
Regional investment environment is improving - Liquidity improvements, corporate governance, IPOs, pension allocations - Mongolian elections at the end of June paves the way for political stability
Central Asian equity valuations are currently at very attractive levels
Sell-off in commodity stocks has led to earnings multiples at 1-2 std’s below historical means
Markets are oversold with very negative sentiment Equity market is likely to repeat the pattern of 2010 and 2011 : Advance..correction..recovery
Soon time to start layering into high beta names and increase overall exposure
6
Sources: Compass Asset Management Company
Public Equity Portfolio Structure
Exposure decreased YTD after substantial increase at the end of 2011
7
Very attractive valuations in Central Asia
Uranium One (5.4% of NAV) Lowest cost producer: $19/lb 2012
guidance, but likely to outperform Consistently meeting targets Supply / demand fundamentals in
Uranium sector very attractive Connections: ARMZ/ROSATOM;
partnership with KazAtomProm Near-term growth:
2012/13: +8% pa to 12.5m lbs KZ assets ramping up on sched
Medium-term growth platform: Option to acquire Mkuju River
Favourable entry point: EV/fwd EBITDA at 4.2x is -1.6 StD’s below MEAN; +32%(e) 5y CAGR EPS growth
8
Mongolia Mining Corporation (2.7% of NAV)
Fast-growing Mongolian-owned supplier of coking coal to China
853mnt resource; 54% reserves Successful 2011 ramp-up:
7.1mt produced Ave price: $114/t
Mongolia #1 coking coal to China Infrastructure projects:
Road to Chinese border complete Phase 1 of coal washing facility
commissioned in Q2 2011 Rail link key mid-term project
Gradually eliminating middleman EV/fwd EBITDA at 5.8x is -1.0 StD’s
below MEAN
Source: Bloomberg; EBITDA forecast is 12m fwd blended
Mongolian coking coal for China; low-cost uranium production
Kazakhmys (1.6% of NAV) Long mine lives; huge resource base Excellent relationships with buyers:
90% of sales contracted Strong Kazakhstan political
connections Funding secured for long-term growth
projects Challenges include cost inflation and
project development risks Stake in ENRC a steady earnings
contributor, but a non-core asset EV/fwd EBITDA at 3.7x is -1.5 StD’s
below MEAN
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ENRC (3.1% of NAV) Extremely high quality assets Lowest cost producer of FeCr South African competitors higher cost,
especially due to power costs Strong Kaz political connections Strong generator of cash flow
$2.2bn CFO in 2011 44% EBITDA margin
Challenges include cost inflation and managing global assets
Significant discount to global peers: (24%); EV/fwd EBITDA at 3.4x is -1.1 StD’s below MEAN
Source: Bloomberg; EBITDA forecast is 12m fwd blended
Kazakh copper for China; low-cost ferrochrome production
Dragon Oil (6.2% of NAV) Growth: +30% in 2011; 2012-15 target
annual prod. growth of 10-15% pa 2011 exit production rate: 71kboepd:
2015 goal: 100kboepd 2011 Revenue $1.2bn (+47% YoY) 2011 EBITDA $1.1bn (+55% YoY) 2P reserves: 658mmboe; API 35-45° Potential takeover target; acquirer
Net cash: $1.8bn
Cheap growth: 42% discount to peers 2.0x EV/fwd EBITDA -1.7 StD’s from MEAN
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Zhaikmunai LP (7.2% of NAV) 2P reserves: 522mboe (45% gas) High quality oil: similar to WTI specs; API
gravity 40-41.5° 2011 exit rate: 37kboepd; 3-year target
is 100kboepd 2011 Revenue $301m (+69% YoY) 2011 EBITDA $197m (+99% YoY) Potential takeover target 61% (e) 4-year CAGR EPS growth Valuation:
2.9x EV/fwd EBITDA -1.3 StD’s from MEAN
Source: Bloomberg; EBITDA forecast is 12m fwd blended
Cheap access to fast-growing oil production
Centerra Gold (2.5% of NAV) Major gold producer with operations in
Kyrgyzstan and Mongolia Kyrgyz Gov’t 1/3 owner; protection M&I resource: 14.7Moz (55% reserves) Gold output in 2011 642koz 2011 revenue US$1.0bn (+20% YoY) 2011 EBITDA US$613mn (+22% YoY) Reaction to recent deferred production
announcement overdone Valuation:
3.6x EV/fwd EBITDA -2.2 StD’s from MEAN
3-year EPS growth: 20% CAGR (e)
11
Polymetal (4.7% of NAV) Gold and silver producer with operations in
Russia and Kazakhstan M&I resource: 19.9Moz (72% reserves) Gold production 443koz and silver output
20moz in 2011 Total cash costs: $701/oz AuEq; negatively
affected by ramp-ups 2011 revenue $1,326m (+43% YoY) 2011 EBITDA $624mn (+47% YoY) Valuation:
4.9x EV/fwd EBITDA -1.7 StD’s from MEAN
4-year EPS growth: 23% CAGR (e)
Source: Bloomberg; EBITDA forecast is 12m fwd blended
Attractively-priced major gold producers
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Michael Adams – Head of Private Equity
Michael succeeded David Herbada after a two month overlap.
Michael has over 14 years’ experience working in private equity, most of that in emerging and frontier markets.
Immediately prior to joining CAM, Michael was Managing Director for approximately two years at Pantek Partners LLC, in California and Doha, Qatar.
Prior to that he spent nearly 4 years at Lonestar Ventures LLP in Moscow and Bahrain, a year in Kabul with Acap Partners, and 5 years at Distribution Partners Investment Capital LLP in the US.
g
Michael holds an MBA from Thunderbird, a BA in Russian Studies from Haverford College, is a CFA Charterholder and is fluent in Russian and Arabic.
Investment Management Team – Update
Private Equity Portfolio Dec 2011
Conversion into equity of the remaining 16.35% interest in Stopharm - Tau directly holds a 40.35% equity interest
Jan 2012
Conversion into equity of the Convertible Bridge Loan provided to Lucent - Tau directly holds a 6.18% equity interest
May 2012
Sale-Purchase Agreement signed for the full sale of interest in Alem Communications Holding LLP, proceeds expected early June 2012
- Total expected gross proceeds in the amount of ~$19.56M prior to deduction of taxes and expenses
- US dollar exit at cost, although representing a small decrease from current carrying value of $21.1mn (less than 1% of NAV)
- In local currency terms, exit proceeds were KZT 500 million above the invested amount of KZT 2,388 million, illustrating the impact of the Feb 2009 Tenge devaluation (~20%) on the US dollar returns
- Exit value implies EV/subscriber multiple of $605
25% write-down of Lucent investment by Board of Directors - Write-down due to extension of timeline to determine commerciality of Lebyazhye well
13
Significant Portfolio Activity
Structure of Investment 40.35% equity stake
Total consideration $21.5M Substantial minority rights, Board representation and active involvement
Financial performance* 4M2012 Revenues increased +37% compared to budgeted revenues reaching $98.2M
Gross Profit for 4M2012 +43.7% above budget, reaching $13.8M 4M2012 EBITDA reached $7.8M, 154% higher than budgeted with EBITDA margin of 8% vs. 4.3% budgeted
Exit strategy Trade sale to another major international distributor
Listing on an internationally recognized stock exchange (several Emerging Markets pharma distributors currently listed worldwide)
14
*Important note: All financials shown are provisional and derived from management accounts. Subject to review and restatement
Private Equity Investment – Stopharm LLP
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*Important note: All financials shown are provisional and derived from management accounts. Subject to review and restatement
Private Equity Investment – Lucent Petroleum LLP
Structure of investment 6.18% equity stake
Total consideration $15M, current carrying value $11.25M Substantial rights and Board representation post conversion
25% write-down based on extension of timeline to determine commerciality of Lebyazhye well
Operational and Financial highlights* Lucent raised additional funds (Q4 2011) in the amount of $30M through third party financing Net cash position is $20.3M
South Prorva did not encounter commercial hydrocarbons, the well reached in total a depth of 3,863m
Lebyazhye reservoir encountered hydrocarbons at a depth of ~3,480m and 3,617m
Seismic analysis continuing in east of license region, cube expected in June
Exit strategy Listing / IPO on AIM or another internationally recognized exchange post-drilling program as pre-agreed with majority
shareholder Trade sale to strategic investor also possible
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Many of the funds established through Kazyna Capital Management are inactive Distressed investees over-leveraged during the boom, banks (the key) are intransigent
Picky investees have had access to cheap money in the past, making valuations difficult
Family groups are best performing but are not institutional…yet
Positive changes in landscape: Customs Union
Oligarch transitions
Compass Asset Management continues to identify and analyse an attractive pipeline of potential investments for the Tau portfolio
Sourced through Visor network or directly by Compass
One deal potentially ready for investment by July / August
Private Equity – Views on the investment climate
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On 20th February 2012 the Board of Tau announced a share buy back programme for up to 10% of shares to address the discount between the market price of the Company’s shares and NAV.
Since the beginning of the buy back programme until the end of April, 6.8% of shares were purchased by the Fund for the total amount of $6.908M, at a weighted average price of $0.4279 per share.
The change in the Fund’s NAV per share was positively affected by +2.37 ppts YTD due to the execution of the share buy back programme.
Since initiation of buy back programme, the share price discount to NAV has decreased from ~33.8% to ~22.8% as of May 18, 2012.
Buy Back Programme
18
Public Equity
Volatility expected to continue in the near term due to EU zone uncertainty and global contagion.
However, the investment case for the Central Asian Region remains intact. Global markets are showing signs of bottoming out. Valuations at current levels are very attractive.
Looking to increase Public Equity exposure.
Private Equity
Lucent: consider seismic findings carefully, there is adequate runway, bulk up with alternatives for sale.
Stopharm: assist business to progress beyond public revenues, buttress finance function, assist with sources of financing.
Pipeline: continue to source potential deals through Compass and Visor networks, as well as explore follow-on rounds in 3rd party portfolios.
Conclusion
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Central Asia’s leading asset manager with AuM of ~$180m invested in public markets and private equity
Thoroughly experienced team with substantial track record (Central Asia, Russia and Mongolia)
Local presence, local knowledge
Based in Almaty, Kazakhstan Wide and deep network in target geographies, direct and through parent group Visor Holding, the largest
investment group in Central Asia
International profile, institutional investors
Operations run in accordance with the highest institutional standards - Investment Manager to Tau Capital (~$130m AuM) listed on AIM in London (TAU LN) - Investment Manager to Kazakh Compass Fund (~$50m AuM) listed on ISE in Dublin
Analytical expertise across all sectors
Robust organisation: core investment team of 7 investment professionals, including expats and locals
Top tier service providers: Morgan Stanley (prime brokerage), Ogier (legal), Deloitte (audit), HSBC (custody)
Appendix – Compass Asset Management
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*16.09% of NAV is attributable to Alem Communications Holding LLP, the sale of the stake is in process
Source: Compass Asset Management Company
Appendix – Portfolio Structure
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Appendix – Portfolio Structure
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Source: Bloomberg
YTD: +1.87% YTD: +1.48% YTD: -0.48%
YTD: +0.04% YTD: -3.13% YTD: +2.61%
Appendix – Commodity Prices
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