London School of Mines
6 June 2019
Mining Deals –Where is the money coming from and lessons learned from private equity
PwC
Commodity pricing
Mining Deals – Where is the money coming from and lessons learned from private equity
2
PwC
Bulk commodities
3
Favourable coal price environment underpinned metallurgical and thermal coal transactions in FY17 and FY18
Mining Deals – Where is the money coming from and lessons learned from private equity
Source: Refinitiv for Actuals, IHS Markit for Forecasts
(50%)
0%
50%
100%
150%
200%
% m
ov
em
en
t
Bulk Commodities Price Movement
Iron Ore Thermal Coal Metallurgical coal London Brent Crude
Met coal Iron ore Thermal coal
PwC
Base metals
4
Copper continues to have the least volatility reflecting the large market compared to other base metals
Mining Deals – Where is the money coming from and lessons learned from private equity
Source: Refinitiv for Actuals, IHS Markit for Forecasts
(50%)
0%
50%
100%
150%
200%
250%
300%
% m
ov
em
en
t
Base Metals Price Movement
Uranium Copper Nickel Cobalt Zinc London Brent Crude
Zinc
Brent
Copper Nickel
PwC
Precious metals
5
Lack of volatility in gold price creating a stable platform for deals
Mining Deals – Where is the money coming from and lessons learned from private equity
Source: Refinitiv for Actuals, IHS Markit for Forecasts
0%
50%
100%
150%
% m
ov
em
en
t
Precious Metals Price Movement
Gold Silver London Brent Crude
PwC
Public market valuations
Mining Deals – Where is the money coming from and lessons learned from private equity
6
PwC
Although over recent years mining equities have lagged behind the overall market, the gap is narrowing.
7
Mining Deals – Where is the money coming from and lessons learned from private equity
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
31/12/2009 31/12/2010 31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 31/12/2018
FTSE Benchmarking FY09 – FY19
FTSEAll Share Index FTSE 350 Mining Index
Source: Refinitiv
PwC
Increasing attractiveness of mining for institutional investors demonstrated by high yields….but returning cash to shareholders reduces reinvestment in exploration/development
8
Source: Refinitiv
-
2
4
6
8
10
12
14
16
18
31/12/2009 31/12/2010 31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 31/12/2018
Dividend Yield Benchmarking FY09 - FY19
FTSE All Share DY FTSE 350 Mining DY
PwC
And the gap between commodity benchmarks and mining index has been closing as balance sheets have been repaired....
9
Mining Deals – Where is the money coming from and lessons learned from private equity
0.2
0.4
0.6
0.8
1.0
1.2
1.4
31/12/2009 31/12/2010 31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 31/12/2018
LMEX Benchmarking FY09 – FY19
LMEX Index FTSE 350 Mining Index
Source: Refinitiv
PwC
Global gold mining stocks are still significantly disconnected from gold price
10
Mining Deals – Where is the money coming from and lessons learned from private equity
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
31/12/2009 31/12/2010 31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 31/12/2018
Gold Price Benchmarking FY09 – FY19
Gold Price S&P Global Gold Index
Source: Refinitiv
PwC
What has this meant for deal activity levels and capital allocation?
Mining Deals – Where is the money coming from and lessons learned from private equity
11
PwC
Very limited deals in YTD’19. Continuing hunt for copper but are seller price expectations preventing deals?
12
Mining Deals – Where is the money coming from and lessons learned from private equity
Source: Deallogic
1,394
1,159
621
145
47
41
61
14
-
10
20
30
40
50
60
70
-
200
400
600
800
1,000
1,200
1,400
1,600
FY16 FY17 FY18 YTD19
$ b
illi
on
No
of
Deals
No of deals by Commodity
Coal Copper Gold
Iron Other Silver
Uranium Zinc Deal Value $bn
-
2
4
6
8
10
12
14
16
18
20
Gold Copper Other Coal Iron Ore Zinc Silver Uranium
$ b
illi
on
Deal Value by Commodity
FY16 FY17 FY18 YTD19
PwC
M&A focused on more stable mining regimes as deal volumes decrease. Are investors starting to see value in Africa again?
13
Mining Deals – Where is the money coming from and lessons learned from private equity
1,394
1,159
621
145
-
200
400
600
800
1,000
1,200
1,400
1,600
FY16 FY17 FY18 YTD19
No
of
Deals
No of deals by Geography (Target)
North America Australia Asia Latin America Africa EMEA
Source: Deallogic
-
5
10
15
20
25
Africa Australia EMEA Asia Latin America NorthAmerica
$ b
illio
n
Deal Value by Geography (Target)
FY16 FY17 FY18 YTD19
PwC
Despite the gold mega-mergers transactions have largely been made in cash in recent years. General increase in premiums paid over the last 3 years across commodities
14
Mining Deals – Where is the money coming from and lessons learned from private equity
47
41
61
14
-
10
20
30
40
50
60
70
FY16 FY17 FY18 YTD19
$ B
illio
n
Methods for Payment
Cash Common Shares Mix of Cash and Shares Other Considerations
Source: Deallogic
(40)
(30)
(20)
(10)
-
10
20
30
40
50
60
Coal Copper Gold Iron Silver Uranium Zinc Other
% o
f p
rem
ium
pa
id
Average day 1 premium for Deals by Commodity
FY16 FY17 FY18 YTD19
PwC
As Chinese economy evolves towards a “value-add” & “service” economy, its % funding of global mining capital has reduced…
15
Source: DCM AnalyticsNote: The financing data above excludes financing raised through streaming transactions
Mining Deals – Where is the money coming from and lessons learned from private equity
109
158
134
52
0%
5%
10%
15%
20%
25%
30%
35%
40%
-
20
40
60
80
100
120
140
160
180
FY16 FY17 FY18 YTD19
% o
f to
tal fi
nan
cin
g
$ b
illio
n
Top Regions Raising Capital
China Canada United States Russia
Switzerland Australia United Kingdom Other
169
291 295
261
232
209 203
109
158
134
52
-
50
100
150
200
250
300
350
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 YTD 19
$ b
illi
on
Global Mining - Capital Raised
Loans Bonds Convertibles IPO Follow-ons
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… but on an absolute basis China is still the major source of capital for global mining
16
Source: DCM Analytics
Mining Deals – Where is the money coming from and lessons learned from private equity
-
5
10
15
20
25
30
35
40
45
50
China Canada United States Russia Switzerland Australia United Kingdom Other
$ b
illio
n
Capital raise by Region
FY16 FY17 FY18 YTD19
PwC
Majority of capex focused on copper and gold projects – with substantial catch up in maintenance capex
17
Mining Deals – Where is the money coming from and lessons learned from private equity
53,570
61,157
108,047
30,111
-
20,000
40,000
60,000
80,000
100,000
120,000
2016 2017 2018 2019
$ m
illio
n
Brownfield vs Greenfield
Greenfield
Brownfield
23
35
57
15
-
10
20
30
40
50
60
70
FY16 FY17 FY18 YTD19
$ B
illio
n
Development vs Maintenance
Maintenance
Development
54 61
108
30
-
50
100
150
FY16 FY17 FY18 YTD19
$ b
illio
n
Capex by Commodity
Copper Gold Lithium Coal Iron Ore Nickel Zinc Other
Source: DCM Analytics
PwC
Significant copper project announcements in 2018 with expenditure focused on brownfield life extensions & maintenance capex
18
Mining Deals – Where is the money coming from and lessons learned from private equity
12
8
18
11
-
5
10
15
20
FY16 FY17 FY18 YTD19
$ b
illio
n
Total Copper Greenfield spend
Development
7 8
27
3
-
5
10
15
20
25
30
FY16 FY17 FY18 YTD19
$ b
illio
n
Total Copper Brownfield spend
Maintenance
Development
Source: DCM Analytics
19
16
44
13
-
5
10
15
20
25
30
35
40
45
50
FY16 FY17 FY18 YTD19
$ b
illio
n
Copper capex by Geography
Other
DRC
Chile
Argentina
Peru
Panama
Mongolia
United States
PwC
• Investor sentiment gradually returning –
but this is being driven by returns to
shareholders and could be tempered by
environmental tragedies
• Gold, which has been range bound over
the recent past, continues to lead the way
in announced deals
• Premiums have risen over the last 3 years
– reflecting confidence in supply/demand
fundamentals but the impact of the
technology cold war is already coming
through
• China continues to be most active deployer
of capital, but relative share decreasing
• Search for copper is being led by
investment by existing owners in capex,
rather than M&A. But almost everyone is
looking…
In summary…
Mining Deals – Where is the money coming from and lessons learned from private equity
19
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Where will the investment come from?
Mining Deals – Where is the money coming from and lessons learned from private equity
20
PwC
1) Debt.Improved operational performance, overall commodity price environment, consolidation and reduced exploration spend has improved the cash and gearing position of the Top40
21
Mining Deals – Where is the money coming from and lessons learned from private equity
63 53
175
161
13
16
-
50
100
150
200
250
300
FY 17 FY 18
$ m
illio
n
Historical Debt
Other Debt
Fixed Rate Debt
Floating Rate Debt
Source: Deallogic
$ Billion FY 17 FY 18 %
Floating rates 55 45 (17%)
Fixed rates 152 143 (6%)
Accrued interest and other 4 9 115%
Non-Current Debt 156 152
Floating rates - current 8 8 (9%)
Fixed rates - current 23 18 (24%)
Accrued interest and other - current 9 8 (18%)
Current Debt 41 33 (20%)
Floating Rate Debt 63 53 (16%)
Fixed Rate Debt 175 161 (8%)
Other Debt 13 16 22%
Total Debt 252 230 (8%)
Cash (87) (93) 7%
Net Debt 165 137 (17%)
Financial Gearing 31% 28% 4%
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2). ChinaAs the Chinese economy shifts in focus can the industry continue to rely on Chinese investment?
22
Mining Deals – Where is the money coming from and lessons learned from private equity
95.0
54.0
71.0
86.0
63.0
26.0
-
10
20
30
40
50
60
70
80
90
100
-
2
4
6
8
10
12
14
2014 2015 2016 2017 2018 YTD 2019
£ b
n
Where is China deploying capital?
Other
Congo
Canada
Australia
China
Deal count
PwC
3). Sovereign wealth funds Returning to mining investment – but small scale transactions
23
Mining Deals – Where is the money coming from and lessons learned from private equity
Qatar Investment Authority and
Norway’s Sovereign Wealth Fund
revealed as investors in the UK’s
Sirius Minerals
May 2019
Russian Direct Investment Fund and
Partners announces investment in
Intergeo, a part of ONEXIM Group
March 2019
Mubadala announces a €130m
investment in Canada’s Equinox
Gold
February 2019
Source: Public information
PwC
4) Generalist PEDedicated funds have traditionally lead private equity investment into mining but will the next wave of investment be spearheaded by larger general funds?
24
Mining Deals – Where is the money coming from and lessons learned from private equity
PwC
Lessons from the Private Equity in the North Sea
Mining Deals – Where is the money coming from and lessons learned from private equity
25
PwC
Increased market attractiveness coupled with sell side pressures lead to an influx of private equity capital into the North Sea
26
Mariner Field stake to be sold to
Blackstone and Blue Water Energy
backed Siccar Point Energy.Mergermarket, Aug 2016
ConocoPhilips agrees to sell UK E&P
business to Harbour Energy/EIG
backed Chrysaor for USD 2.67bn
Mergermarket, April 2019
Engie's EPI business to be acquired
by Carlyle and CVC-backed Neptune
in USD 3.9bn dealMergermarket, May 2017
Shell to sell North Sea assets for up
to USD 3.8bn to group led by
Harbour Energy/EIG backed
ChrysaorMergermarket, Jan 2017
PwC
Generalist PE not has success in mining M&A – but recent transactions in oil & gas and improvements in overall supply/demand fundamentals could reignite interest
27
An eye of the exit (IPO, downstream, consolidator)
Sharper focus on balance sheet and working capital
Quick dividend returns early in investment life cycle
M&A optionality around portfolio of assets
De-risking the return from commodity price
movements
Preference for locked box (with very long completion
time frames)
Increased data requirements
More management access
More education around market and asset
Focus on balance sheet being delivered and
negotiation around this (impact equity price)
What does PE look for in natural resources
transactions?
What does this mean for a corporate vendor or
competing against a PE buyer?
Any questions?
Jonathan Lee is an experienced director who focuses on natural
resources transactions across the world. He leads our Mining Financial
Due Diligence practise in the UK.
He has worked with a variety of investors including the Majors,
Consolidators, Sovereign Wealth Funds, Japanese trading houses and
Private equity.
He needs a more age appropriate photo.Jonathan Lee
+44 (0) 771 886 4 887
pwc.com
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