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-0--0-
The changing business landscape within China
15th Annual Global Iron Ore & Steel Forecast ConferencePerth, 20 March 2012
Lilian LucaManaging Director, The Beijing Axis Procurement
www.thebeijingaxis.com
-1--1-
This document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of this document, no responsibility or liability is accepted for errors or omissions of fact or for any opinions expressed herein. Opinions, projections and estimates are subject to change without notice. This document is for information purposes only, and solely for private circulation. The information contained here has been compiled from sources believed to be reliable. While every effort has been made to ensure that the information is correct and that the views are accurate, The Beijing Axis cannot be held responsible for any loss, irrespective of how it may arise. In addition, this document does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy, nor does it constitute any prediction of likely future movements or events in any form. Some investments discussed here may not be suitable for all investors. Past performance is not necessarily indicative of future performance; the value, price or income from investments may fall as well as rise. The Beijing Axis, and/or a connected company may have a position in any of the investments mentioned in this document. All concerned are advised to form their own independent judgement with respect to any matter contained in this document.
-2--2-
The Beijing Axis’ Knowledge & Network Synergies
Beijing Axis Commodities
• Commodity Marketing• Commodity Procurement
Beijing AxisCapital
• Transaction Origination• Corporate Finance
Advisory
Beijing Axis Procurement
• Comprehensive Procurement Solutions
Beijing Axis Strategy
• Strategy Formulation• Strategy Implementation
Founded in 2002; has successfully worked with many international and Chinese/Asian MNCs
Operates in four synergistic cross-border China/Asia businesses
Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIAL and ENGINEERING sectors
Provides solutions to international firms as they act in unfamiliar territory in China/Asia
Provides solutions to Chinese/Asian firms as they venture out and ‘go global’
-3--3-
Africa Axis’ Knowledge & Network Synergies
Africa Axis Commodities
• Commodity Marketing• Commodity Procurement
Africa AxisCapital
• Transaction Origination• Corporate Finance
Advisory
Africa Axis Procurement
• Comprehensive Procurement Solutions
Africa Axis Strategy
• Strategy Formulation• Strategy Implementation
Founded in 2010; has successfully worked with many international and African MNCs
Operates in four synergistic cross-border African businesses
Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIAL, ENGINEERING and OTHER SERVICES sectors
Provides solutions to international/African firms as they go global
Provides solutions to Asian/International firms as they venture into Africa
-4--4- -5--5-Source: The Beijing Axis Analysis
The backdrop
China’s rise … labour market and supply shock as a producer … engine as a consumer … investor
New competitive lines and forces, winners/losers – the rise of Asia, BRICS, etc
A two-speed global economy over the medium and long term
A lasting GDP trajectory in Asia, Africa and Latin America – governance, growth, stability, infrastructure, confidence, etc.
The issues now
Europe broken … fragile developed markets – and knock-on effects?
China’s landing – soft or hard? Implications for growth and resource demand?
Tapping into the China story vs. over-reliance on China and need to diversify economic ties
Strategic intelligence – to make decisions in boardrooms around the world in order to reposition
-6--6-
China’s Resource Consumption and Drivers
Trends in China’s Outbound Investments
Final Word
-7--7-
South AmericaAfrica
Other Asia
Regional GDP Comparison (USD bn, 2015F)*Bubble Size: Nominal GDP (USD bn, 2015F)
Developed economies are expected to continue to lose share in world GDP in the coming years
Asia-Pacific is expected to account for the largest share of world GDP (34%) by 2015F
2011E to 2015F
2011E to 2015F
GDP Average Growth Rate (%, 2011E-2015F)
Forecast world average GDP growth until 2015F: 3.95%
% of World GDP (2015F)
Shaded bubbles represent 2011E figures Rising real incomes
and high commodity prices will drive growth
BRICS 2015F GDP (USD bn)
2011* Growth Rate (%)
2010 GDP Per Capita (USD)
China 10,903.6 9.2% 4,382.1India 2,359.2 7.4% 1,370.8Russia 1,926.1 4.1% 10,355.7Brazil 2,546.7 2.9% 10,816.5South Africa 425.6 3.1% 7,274.4
*Note: Data based on IMF World Economic Outlook*Note: Other Asia includes Bangladesh, Sri Lanka, Nepal, Pakistan, Bhutan, Burma, North Korea, Kazakhstan, Tajikistan, Turkmenistan and Uzbekistan. Source: IMF 2012; The Beijing Axis Analysis
20,337
19,634
25,807
4,280
4,486
2,259
0
5
10
0% 5% 10% 15% 20% 25% 30% 35% 40%
Asia-Pacific
North America
Europe
-8--8-
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2010 2015F 2020F 2025F 2030F 2035F
China
IndiaYear 2010-
2015F2016F-2025F
2026F-2035F
GDP Per Capita
2035F (USD)China 8.0% 7.0% 6.5% 22,458India 7.5% 7.0% 6.5% 6,070
2016F: China adds 1 Germany
2025F: China adds 2 Japans
2028F: China adds 1 US
2026F: India adds 1 Germany
2032F: India adds 1 Japan
2010-2016
2010-2020
2010-2025
2010-2028
2010-20202010-2026
2010-2032
2020F: China’s economy doubles
2020F: India’s economy doubles
Sustainable Growth Phase
Continued Acceleration
Drive to Maturity Phase
Growth Moderation Phase
2013F: India adds 1 South Africa
Now 2010-2013
China
India
Moderating Phase China
IndiaAccelerating Growth
Box indicates additional nominal GDP from now to forecast yearChina’s and India’s Forecast Nominal GDP (USD bn, 2010-2035F*)
*Note: Forecast GDP growth rate for each period listed in the graph aboveSource: IMF; The Beijing Axis Analysis -9--9-
28% 26% 31%0%
50%
100%
1990 2000 2010
ROW* APAC*
GDP
12% 13%30%
0%
50%
100%
1990 2000 2010
ROW APAC
FDI Inflows
7% 10% 27%0%
50%
100%
1990 2000 2010
ROW APAC
13% 19% 25%0%
50%
100%
1990 2000 2010
Rest of GDP Imports
37% 44%65%
0%
50%
100%
1990 2000 2010
ROW APAC
40%57% 65%
0%
50%
100%
1990 2000 2010
ROW APAC
FDI Outflows
Imports as % of GDP Steel ConsumptionCopper Consumption
Asia-Pacific as % of World Total (%, 1990, 2000, 2010)
14% 21% 24%0%
50%
100%
1990 2000 2010
Rest of GDP ExportsExports as % of GDP
28% 27% 29%0%
50%
100%
1990 2000 2010
Rest of GDPGross Domestic Investment
GDI % of GDP
*Note: ROW stands for Rest of World and APAC stands for Asia-PacificSource: CEIC; CRU; UN; World Steel Association; The Beijing Axis Analysis
-10-
-40
-20
0
20
40
60
80
100
120
140
98 99 00 01 02 03 04 05 06 07 08 09 10 11F 12F
Net Exports of Goods and ServicesGross Capital FormationFinal Consumption Expenditure (Household + Government)
0%
5%
10%
15%
Q1 Q1 Q1 Q1F
China’s Quarterly Y-o-Y GDP Growth Rate (2009-2012F)
2009 2010 2011
3-year (2009-2011) average: 9.4%
Government stimulus package (USD 586 bn)
2011 y-o-y GDP: 9.2%
2012F
Falling net exports contribution
2012F y-o-y GDP: 8.0%
Policy easing to provide room for growth moderation
Effect from stimulus package
Contribution of Components to China’s GDP Growth (%, 1998-2012F)
Source: CNBS; Deutsche Bank; Morgan Stanley; The Beijing Axis Analysis -11--11-
4% 17%41%
0%
50%
100%
1990 2000 2010
ROW China
14% 18%45%
0%
50%
100%
1990 2000 2010
ROW China
7% 22%47%
0%
50%
100%
1990 2000 2010
ROW China
Primary Aluminium Steel Coal
China’s Share of Global GDP and Consumption of Selected Commodities (% 1990, 2000, 2010)
2% 4% 10%0%
50%
100%
1990 2000 2010
ROW ChinaGDP
4% 13%32%
0%
50%
100%
1990 2000 2010
ROW* ChinaRefined Nickel
13% 17% 33%0%
50%
100%
1990 2000 2010
ROW China
4% 12%38%
0%
50%
100%
1990 2000 2010
ROW ChinaChrome Ore Refined Copper
8% 20%41%
0%
50%
100%
1990 2000 2010
ROW ChinaRefined Zinc
*Note: ROW stands for Rest of World Source: World Bank; CNBS; CEIC; The Beijing Axis Analysis
-12--12-Source: SWS; CNBS; The Beijing Axis Analysis
Fixed Asset Investment (USD tn, 2000-2011) Steel Consumption Driven by the Major Components (mn tons, 2002-2011E)mn tons
0
100
200
300
400
02 03 04 05 06 07 08 09 10 11E
Investment Consumption Export Others
0.4 0.4 0.5 0.70.9
1.11.4
1.8
2.5
3.3
4.1
4.7
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
00 01 02 03 04 05 06 07 08 09 10 11
Fixed Asset InvestmentFAI as % of GDP (rhs)
USD tn
FAI rose 23.8% in 2011 -Primary sector was up 25%, secondary sector was up 27.3% and the tertiary sector was up 21.1%
-13--13-
348
422
488 498
566
627
683712
348
388436 453
559
610 649702
0
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012E
Production Apparent ConsumptionChina’s government has been talking about controlling supply growth for years, but the actual production growth has still been strong
0%
10%
20%
30%
10th Five-Year Plan(2001-2005)
11th Five-Year Plan(2006-2010)
12th Five-Year Plan(2011-2015)
0%
20%
40%
60%
2005 2006 2007 2008 2009 2010 2015F
Top 10* Steel Group Share of Total Output (2005-2015F) Steel industry consolidation is a
key initiative of 12th Five Year Plan
Source: CNBS; Various; The Beijing Axis Analysis
China’s Crude Output Target Growth RateChina Steel Demand/Supply Forecast (mn tons, 2005-2012E)
Actual Crude Output
21%
28.2%
-14--14-
0
200
400
600
800
1,000
1,200
0 10,000 20,000 30,000 40,000 50,000 60,000
Steel Consumption Per Capita(USD, 2010)
GDP Per Capita (USD, 2010)
Emerging Economies except ChinaMainland China
Developed Economies
Bubble Size: GDP CAGR (2000-2010)
Russia
Brazil
South Africa
Japan
US
Germany
FranceUK
Italy
Spain
Mexico
Australia
Sweden Netherlands
CanadaAustria
Belgium
Saudi Arabia
India
Indonesia
IranThailand
China
Poland
ArgentinaVenezuela
With less infrastructure construction, developed economies have lower demand for finished steel
The trend line is indicative of the general pattern in steel consumption at different stages of industrialisation
Steel consumption declines after
GDP per capita reaches USD 25,000
Developing economies consume less steel per capita, but their relatively large populations ensure years of steady demand growth
Malaysia
PhilippinesVietnam
S. Korea
Turkey
Steel Intensity Comparison of Top 30 Economies* and Other Selected Asian Economies (2010)
*Note: Switzerland, Norway and Sweden are not included for comparison purposesSource: IMF; World Steel Association; The Beijing Axis Analysis -15--15-Source: The Beijing Axis Analysis
Economic GrowthGDP growth to continue at 7-8% for the next 5 years
Social DevelopmentGrowing middle-class with an increasing purchasing power
UrbanisationCurrent rate is low compared to developed countries’
IndustrialisationRising labour costs, improving industry efficiency and increasing R&D investment
ModernisationInvestments in improving strategic new industries -telecommunications, transportation, energy, etc.
Structural ChangeShift to a domestic driven economy
Import DependencyChina’s demand outstrips domestic supply of mineral resources
5 Year PlanConsolidation, moving inland, steady GDP growth, and sound policy, high tech and value added production
Global External FactorsArising concerns over debt problems in Western economies
Sustained Resource Demand
-16--16-
Asia occupies a far more crucial role in the global economy – the world has changed and is changing still, with many far-reaching implications
China’s demand drivers remain intact, but there are clearly more risks in the supply/demand picture
Continuous and robust domestic consumption will drive growth moving forward – China will have a key influence in resource demand if at lower growth
China will face the toughest policy challenges ‘ever’ in the next 5-10 years
Heightened market volatility and redistribution of global influence require a more informed and strategic decision-making process
Resources sector will become more ‘competitive’ – players must out-market, not just out-produce peers – strategic marketing will be a differentiator
-17--17-
China’s Resource Consumption and Drivers
Trends in China’s Outbound Investments
Final Word
18
350
15,092
438
7,620 7,246
9,118
2,1651,775
500 3401,150
128 456
3,5002,800
1,1506 202
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Cobalt Ore('000 tons)
Aluminium(mn tons)
Nickel ('000tons)
Iron Ore (mn tons)
Platinum ('000 oz)
Chrome Ore ('000 tons)
Copper Ore('000 tons)
Zinc Ore ('000 tons)
ManganeseOre ('000 tons)
Demand Production
x
China’s Implied Demand and Domestic Production of Commodities (2010)
Source: USGS; BP; WGC; USDA; Various; The Beijing Axis Analysis
0
50,000
100,000
150,000
200,000
250,000
300,000
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Exports Imports
Mineral Product Imports and Exports(USD mn, 1992-2010)
-19--19-
0 50 100 150 200 250 300 350
USGermany
FranceHong Kong
ChinaSwitzerland
JapanRussia
CanadaBelgium
NetherlandsSweden
AustraliaSpain
ItalyBr. Virgin Is.
SingaporeS. Korea
LuxembourgIreland
World’s Top 20 Outward FDI Originators, Flows(USD bn, 2010)
China ranked 6th in 2009
China ranked 13th
in 2008 and 2007
China ranked 5th in 2010
China ranked 18th in 2006 29.9 33.2 44.8 57.2
90.6117.8
184.0
245.8
317.2
383.4
560.0
0
100
200
300
400
500
600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2015F
Flows Stock
China OFDI Stock and Flows (USD bn, 2002-2015F)
*Note: China OFDI flows for 2011 do not include financial investments from September-December 2011 Source: WIR 2011; The Beijing Axis Analysis
In 2011 alone, China invested in 1,392 overseas projects in 132 countries
-20--20-Source: MOFCOM; The Beijing Axis Analysis
Breakdown of Overseas Investments by Sector(USD bn, 2004-2010)
2010 Mining Investment: USD 5.7 bn
0
20
40
60
80
2004 2005 2006 2007 2008 2009 2010
OthersLeasing & Commercial ServiceBanking and InsuranceWholesale & Retail TradeTransport, Storage and Postal ServiceManufacturingMining
Commercial services include investments in holding companies, regional headquarters or SPVs that are often established in offshore centres to invest in other countries and sectors
31%
28%
17%
10%
5%2%
2%2%2%
1%Iron Ore
Copper
Aluminium
Platinum
Exploration
Steel
Coal
Gold
Rare Earths
Other Base Metals
Value of China’s Mining and Metals Investments by Commodity (2010)
China’s investments in chrome, nickel, and manganese are still very small compared to other commodities
-21--21-
CHN/HK Outward Deals for Top 30 Countries and Target Sectors (2000-2011)
≥ 300≥ 200≥ 100≥ 50≥ 30≥ 15≥ 10≥ 5
Number of Deals
1
North America59
South America16
94
Mining
211
24
18
8
22
2
2
1
1
1
1Asia272
Australia
Mongolia
Indonesia
Philippines
71
UK
4
1
58
Canada
3
*Note: The Dealogic M&A database was used here, it groups China and Hong Kong outward investments.Source: Deutsche Bank; Dealogic; The Beijing Axis Analysis
1
0 100 200 300 400
MiningElectronics
Oil & GasFinance
Professional ServicesTelecom
Real Estate/PropertyConsumer Products
TransportationDining & Lodging
Utility & EnergyRetail
Food & BeverageMachinery
TextileConstruction/Building
HealthcareChemicals
Auto/TruckLeisure & Recreation
Metal & SteelHolding Companies
PublishingForestry & Paper
AgribusnessinsuranceInsurance
Government
-22--22-Source: Various; China Steel Association; The Beijing Axis Analysis
Share of Imported Iron Ore Owned by China (Mn tonnes, 2002-2011E)
Going forward, China Iron Steel Association announced that China would seek to derive 40% of ore imports from Chinese-invested sources by 2015 and 50 percent by 2020 driven by:
- Over-reliance on high priced imports of the mineral
- Shrinking profit margins for Chinese steel companies
- Reduce its reliance on the big global miners
It is estimated that Chinese-invested overseas sources will bring in 100 million tonnes to 200 million tonnes of iron ore annually in the coming three to five years
Australia and West Africa will remain as the key focused markets for such investments
0
100
200
300
400
500
600
700
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E
Imported Iron Ore Owned by China
Others
-23--23-
Cumulative capital stock must align
Annual investment flow must adjust
Government policies set the tone
Global challengers look different
Internationalised corporate balance sheets
Geopolitical ambitions necessitate ‘reach’
Wider industry acquisitions
Strengthening RMB & Foreign Reserves
Pursuit of advanced technologies
Wider market interest‘Go global’ policy to continue
Resource pipelines are being built
China Overseas Direct Investment – Key Drivers
Source: The Beijing Axis Analysis
-24--24-Source: UN Comtrade; The Beijing Axis Analysis
Australia Export Structure (2000) Australia Export Structure (2010)
20%2%3%
3%4%
4%4%
7%
9%19%
17%
3%5%
25%
Others SingaporeThailand New ZealandUkraine TaiwanUS IndiaSouth Korea Japan
31%
3%3%3%5%
5%5%
6% 8%10% 6%
2%2%2%
9%21%
Others IndonesiaHong Kong UkraineTaiwan SingaporeChina New ZealandSouth Korea US
USD 51 bn
Total: USD 206.7 bnTotal: USD 63.8 bn
China
Ores
Mineral fuels, oils
Others
Ores
Mineral fuels, oils,MeatAluminium products
Others
Japan
USD 154 bn
-25--25-Source: UN Comtrade; The Beijing Axis Analysis
Sources of China’s Imports of Resources Australian Resource Exports (USD bn)
0
20
40
60
80
100
120
140
2000 2005 2010
China
Japan
S. Korea
IndiaUK
Rank 2000 2005 2010
1 Oman Saudi Arabia Australia
2 South Korea Australia Saudi Arabia
3 Angola Russia Angola
4 Iran Angola Brazil
5 Saudi Arabia Iran Iran
6 Australia India Russia
7 Indonesia Brazil India
8 Singapore Oman Indonesia
9 Russia South Korea Oman
10 Vietnam Yemen South Korea
TaiwanThailand
Others
Singapore
-26--26-Source: FIRB; The Beijing Axis Analysis
Australian Natural Resources M&A Inflow by Buyer’s Nation (% share of total, 2001-2010)
0% 20% 40% 60% 80% 100%
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
China US UK Japan Switzerland Canada Netherlands India Others
-27--27-
Australia’s Mineral Deposits
Mineral deposits: gold, silver, iron, coal, copper, nickel, lead, zinc, tin, tungsten, etc.
Coal
Oil
Iron Ore/Ferrous
Copper Gold & Uranium
Aluminum
Diversified
Non-ferrous*
2
5
4
16
Major Chinese Investments in Australia(2007 – present)
Focus: Iron Ore
Focus: Coal and Oil
2009MCC– Waratah Coal
USD 7.2 bn (10%)
2008Chinalco – Rio TintoUSD 12.85 bn (9.3%)
2010CNPC – Arrow En.USD 3.2 bn (100%)
2009Yanzhou Coal Mining - Felix Resources
USD 3.2 bn (100%)
2011Yanzhou Coal Mining - Whitehaven Coal USD 3.7 bn
3
2006CITIC Pacific- Sino Iron ProjectUSD 5.7 bn
*Note1: Zinc, nickel, lead and copper, China Minmetals – OZ Minerals dealNote2: Top six deals by value are highlighted on the right hand side chartSource: Geoscience Australia; The Beijing Axis Analysis
-28--28-
China’s outbound capital will continue to hit the headlines - Australia has not yet seen the full impact of this
OFDI participation by private enterprises has just started – Expect this to pick up at a rapid pace
Overseas investment is moving beyond trade facilitation and natural resources, driven by an increasing need to reach high-growth markets - Link and align these trends to the existing strategy
Steel makers will continue overseas iron ore investments in order to reduce the over reliance on high priced imports and increase profit margins for Chinese steel companies –diversification and security of supply
Chinese investors proceeding more cautiously and are becoming more selective about asset quality. Valuation, cost escalation, operations in unfamiliar jurisdictions, and operational risks are the major concerns
-29--29-
Australia will continue riding its resource boom buoyed by increasing trade with China, a largely mineral-based trade that has increased multi-fold in the last decade
With a booming economy at home with a high demand for steel and energy, China’s demand for Australian minerals will remain focused on iron ore and coal
With many Chinese mining firms rich in cash, acquisitions of mineral producers in Australia will continue although most deals will most likely remain at mid-market levels
Australian mining industry’s expertise in exploration and developing new mines around the world (e.g. Africa) can be a successful asset for potential JVs with Chinese mining companies
-30--30-
China’s Resource Consumption and Drivers
Trends in China’s Outbound Investments
Final Word
-31--31-
Tap into China / Asia opportunity
Hedge against global (developed country)
risks
Attract strategic capital
Supply raw materials, manufactures/services
Strategic marketing
Own end-user relationships
Develop strategic
intelligence
‘Be completely comfortable in the new world: China/Asia/New
Winners –informed, strategic,
systematic’
Procurement and supply chain a MUST
Understand variability, volatility & exceptions
Equity level / disposals
Project level
CAPEX / projects
MRO
Equity, debt, off-take, infrastructure
Products & services
Aware
Source: The Beijing Axis Analysis
Action
-32--32-
There are new markets that matter – a new competitive landscape is unfolding. China, India, rest of Asia to be central in this reconfiguration
Location, location, location - China and rest of Asia are key economic regions for the future –growth, resource demand, outbound investment, wider (non-resource) consumption, etc, all make them relevant for Australian policy, economy, companies
Australia Inc’s overall ‘China-position’ is solid, and will only expand. More China investment inevitable – focus on win-win, shape and quality
Is there a need for deliberate diversification – to tap into the rise of India, Africa, South America?
Complexity and change means that resources industry becoming increasingly competitive –asset ownership and production growth not enough; exemplary use of information, strategic intelligence and strategic end-user marketing to play a crucial role in shaping competitive advantage and mitigating risk
Iron ore buyers becoming more sophisticated. As Chinese steel makers push for cost reduction and product innovation, miners’ technical support and value added will be crucial in maintaining and growing the relationship
-33--33-
THANK YOU!
Lilian LucaManaging Director, The Beijing Axis [email protected]
Beijing, ChinaCheryl Tang, GM, [email protected]+86 10 6440 2106
Shanghai, ChinaJulia WangProcurement [email protected]+86 21 5158 3584 ext. 6249
Hong Kong TBA Secretary Corporate Office 3806 Central Plaza, 18 Harbour Rd, Wanchai, HK
SingaporeKobus van der Wath, FounderPenthouse & LV 42,Suntec Tower 3, 8 Temasek Blvd, Singapore 038988+65 6829 2189
Perth, AustraliaKobus van der Wath, [email protected]
Johannesburg, South AfricaDirk KotzeDirector; GM, [email protected]+27 (0)11 201 2453
London, UK/EuropeMatt PieterseMD, Beijing Axis Capital [email protected]
Russia DeskLilian Luca (Beijing)MD, Beijing Axis [email protected]
Latin America DeskJavier Cuñat (Beijing)GM, Beijing Axis [email protected]
www.thebeijingaxis.com
-34--34- -35--35-
Rising Energy and Commodity Consumptionin EM
New Global Technologies
Stronger Emerging Market Companies
Rising Risks
Emerging Market GDP Growth
Rising Global Integration
Industrialisation and Urbanisation
Aging of the Global Population (DM and EM)
Rising Emerging Market Consumption
Megatrends
12
3
6
7
4
5
8
9
Source: Deutsche Bank; The Beijing Axis Analysis
-36--36-
Economic Growth
Industrialisation
Urbanisation
Modernisation
By 2020-2025, China will potentially have an urbanisation rate of 60% and the number of households with an annual disposable income above USD 10,000 will reach 222 million
Source: The Beijing Axis Analysis
Substantial investments to upgrade China‘s telecommunications, transportation, energy sectors, etc.
Government has set China‘s target GDP growth rate at 7.5% for 2012 with emphasis on gradually rebalan-cing of the economy
Development in strategic new industries and the evolution of high-tech R&D due to a dramatic increase of domestic consumption
-37--37-
0
200
400
600
800
1,000
1,200
2003 2004 2005 2006 2007 2008 2009 2010
China Japan South Korea Other Asia Rest of World
Seaborne Iron Ore
2734
% World40 45 49 54
68 62
China’s Demand for Iron Ore (mn tn, 2003-2010)
Source: CEIC; WBR; The Beijing Axis Analysis
10 11 15 1824 23
41 37
0
400
800
1,200
1,600
2003 2004 2005 2006 2007 2008 2009 2010
China Japan BRIC-China Other Asia Rest of the World
Semi-Refined Nickel
China’s Demand for Nickel (‘000 tn, 2003-2010)
% World
-38--38-
GDP and Mining Industry as a % of GDP of Top Mining Countries (USD bn, %, 2010)
0%
5%
10%
15%
20%
25%
0
1,000
2,000
3,000
4,000
USA
Chi
na
Bra
zil
Indi
a
Can
ada
Rus
sia
Aus
tral
ia
Indo
nesi
a
S. A
fric
a
Thai
land
Chi
le
Phili
ppin
es
Peru
Kaz
akhs
tan
Viet
nam
32845 34 41
13484
34
11
40
4
18
24
12
14,527 5,878
Mineral sector contributes 20% to Chile's GDP
China has the world’s largest mining sector with an overall mining industry value of USD 328 bn (2010)
USD bn
77
GDP (lhs)Mining as a % of GDP (rhs)Mining Industry Value (USD bn)
306
Source: Research and Markets; IMF; The Beijing Axis Analysis -39--39-Note: Forecast GDP growth based on IMF Economic OutlookSource: IMF; The Beijing Axis Analysis
Top Economies’ GDP, excl. US (USD bn, 1990-2015F) China Rank 10 10 9 7 9 8 7 7 7 7 6 6 6 6 6 5 4 3 3 3 2 2 2 2 2 …1?
0
2,000
4,000
6,000
8,000
10,000
12,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11F 12F 13F 14F 15F
ChinaJapanGermanyFranceUKBrazilIndiaRussiaIndonesiaSouth Africa
2005: ChinaSurpassed
France
2007:Chinasurpassed Germany
2006: Chinasurpassed
UK
Q2 2010: China
surpassed Japan
2000: Chinasurpassed
Italy
1996: China
surpassed Brazil
1995: China surpassed
Canada
20102345679
111829
2015F23467598
1628
2007: India surpassed Korea
RankIndia Rank 12 14 15 15 15 14 14 14 12 13 13 13 12 12 12 13 14 12 12 11 10 10 10 9 9 …5?
-40--40-Source: Economist Intelligence Unit; Various; The Beijing Axis Analysis
China Percent Stake Obtained through Acquisition (2004-2010)
Type of Overseas Assets Acquired by China (2004-2010)
47%
15%
5%
1%
32%
Ownership Stake: PubliclyListed
Operating Assets: Resources
Operating Assets: Plant,Property, Equipment
Operating Assets: Intangible
Ownership Stake: Private
40%
36%
13%
11%
75-100%
50-75%
25-50%
1-25%
-41-
0 5 10 15 20
Ashanti GoldfieldsXstrataCAEMI*
Gold Fields LtdTeck Corp
Cominco Ltd.Barrick Gold Corp.
Placer Dome Inc.AngloGold Ltd.
Newmont MiningCameco Corp.
Falconbridge Ltd.Grupo Mexico S.A.Freeport McMoRan
Potash CorporationPeabody Energy
Inco Ltd.MIM Holdings
IMC GlobalCoal India
CodelcoVale SA
Phelps DodgeNorilsk Nickel
Noranda IncPechineyRio Tinto
AlcanAnglo American
BHP Billiton
BRICS-based Company
0 10 20 30 40 50 60
Kinross GoldFortescue Metals
KazakhmysIvanhoe Mines
AntofagastaGold Fields Ltd.
Industrias PenolesConsol Energy
AngloGold AshantiYanzhou Coal Mining
ENRCPeabody Energy
The Mosaic CompanyGrupo Mexico S.A.
Potash Corp.Newmont Mining
Barrick GoldJiangxi Copper
Coal IndiaChina Coal Energy
Norilsk NickelCodelco
Freeport-McMoRanJizhong Energy
China Shenhua EnergyAnglo American
XstrataVale SA
BHP BillitonRio Tinto
BRICS No. of Mining Companies
Total Revenue (USD bn)
China 0 0India 1 3.55Russia 1 4.50Brazil 2 4.63South Africa 2 2.57Total 6 15.25
BRICS No. of Mining Companies
Total Revenue (USD bn)
China 5 77.57India 1 12.20Russia 1 15.00Brazil(1) 1 45.29South Africa 2 10.15Total 10 160.21
*Note: (1) CAEMI was acquired by Vale in 2006 Companies marked in red are BRICS-based companies
Source: Fortune 500; Various; The Beijing Axis Analysis
2010
Top 30 Mining Companies by Revenue (USD bn, 2000-2010)
2000
2000 2010
BRICS-based Company
-42--42-Source: CNBS; The Beijing Axis Analysis
Industrial Value Added, Yearly (USD bn, 2000-2011) Annual Retail Sales Y-o-Y Growth (%, 1981-2011)
0%
10%
20%
30%
40%
50%
0
500
1,000
1,500
2,000
2,500
3,000
00 01 02 03 04 05 06 07 08 09 10 11
China‘s WTO accessionin December 2001
Industrial value added output increased by 13.9% in 2011
0%
10%
20%
30%
40%
81 84 87 90 93 96 99 02 05 08 11
Income tax cut enacted in September 2011 hassupported consumption growth
-43--43-
66.2%
1.5%
32.3%
SOE
Private Enterprise
Others
0 2000 4000 6000 8000
Limited Liability Company
State Owned Enterprise
Private Enterprise
Joint-stock company
Joint-equity
Foreign InvestedEnterprise
Hong Kong, Macao andTaiwanese Enterprises
Collective Enterprise
Others
Chinese Overseas Investors by Type (2010) China’s Non-financial Overseas Investment Stock by Value (2010)
As % of Total
57.1%
10.2%
8.2%
7.0%
4.6%
3.2%
2.0%
1.1%
6.6%
Source: MOFCOM; The Beijing Axis Analysis
Private enterprises have only recently started looking beyond China
-44--44-Source: Platts; Various; The Beijing Axis Analysis
Period ChineseInvestor
Project / Company
Mine Location
Proven Resources(bn tons)
Investment (USD mn)
Acquisition Share
Dec 2011 Sichuan Hanlong SDL, Australia Cameroon 2.8 1,300 100%
Nov 2011 Sichuan Taifeng FWL’s Yogi Australia 1.2 500 67%
Nov 2011 Nanjing Iron & Steel Bumi Makmur Indonesia n/a n/a 50%
Aug 2011 Shandong Iron & Steel Tonkolili Sierra Leone 12.8 1,500 25%
Apr 2011 Nanjing Iron & Steel 6 Iron ore Projects Malaysia n/a 50 10%
Feb 2011 Wuhan Iron & Steel 3 Iron ore Projects Quebec, Canada 1 57 25%
Feb 2011 Wuhan Iron & Steel Lac Otelnuk Quebec, Canada 6 120 60%
Sep 2010 Chongqing Iron & Steel Extension Hill Australia 1.8 300 60%
Jul 2010 Chalco Simandou Guinea 2.25 1,350 47%
May 2010 Wuhan Iron & Steel Soalala Madagascar 0.8 100 n/a
Apr 2010 Wuhan Iron & Steel Bong Iron ore Liberia 1.31 68 60%
Jan 2010 Sichuan Taifeng Cairn Hill Australia n/a 42 50%
Aug 2009 Baoshan Iron & Steel Aquila Resource Australia n/a 286 15%
Dec 2007 Citic Pacific Sino Iron Australia n/a 460 n/a
Sep 2007 Anshan Iron & Steel Karara Australia 1.43 2,570 50%
Australia Deals
List of Selected Recent Acquisition of Iron Ore Assets by China (2007-2011)
-45--45-Source: The Beijing Axis Analysis
1. Cape Lambert Project—Iron Ore, USD 370 mn
2. Waratah—Coal, USD 515 mn
3. BHP’s Ravensthorpe Mine—Nickel, bid withdrawn
4. Galiliee—Coal, 10% equity, debt financing for USD 7.2 bn project
5. Resource House—Coal, USD 200 mn
1 2 3 4 5
2007 2008 2009 2010
1
23
4
5
-46--46-Source: Various; The Beijing Axis Analysis
AustraliaSyntech Resources Pty. Ltd.Aug 2011USD 202.5 millionAcquired
Yangzhou Coal Mining acquired Australia’s Syntech Resource for about USD 200 mn in Aug 2011. Syntech Resource owns the CarnabyDowns thermal coal project in Queensland’s Surat Basin
Australia Whitehaven Coal Ltd.2011USD 3.7 billionPending
Yangzhou Coal Mining offredmore than USD 3.74 bn to acquire Whitehaven Coal, an Australian coal miner. The Chinese company is attempting to secure overseas resources to meet the increase domestic demand for steel coal
AustraliaFelix Resources Ltd.2009USD 3.5 billionAcquired
In 2009 Yangzhou Coal Mining acquired 100% of Felix Resources for a total of USD 3.5 bn making it the first Chinese state-owned company to fully acquire a public Australian firm
Australia Yanzhou Australia Ltd.Dec 2011USD 2.1 billionOngoing
Yangzhou Coal Mining initiated a bid to merge its Australian unit, Yancoal Australia Ltd., withSydney-based Gloucester Coal Ltd. This transaction will leave Yanzhou with a 77%stake in the new company, while Noble-backed Gloucester will have a 14.8% stake in the merged group
Australia Wesfarmers Premier Coal & Wesfarmers Char Sep 2011USD 296 millionAcquired
Yangzhou Coal Mining In a separate transaction, Yanzhousigned agreements to fully acquire Wesfarmers Premier Coal and Wesfarmers Char for USD 296 mn in September 2011
Location of Mines or Companies