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Objective Capital Global Mining Investment Conference Raising Finance in Today's Marketplace 30 Sep 2009 by Richard Chase, Ambrian Partners
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CREATING VALUE ACROSS THE RESOURCES SECTOR
Raising finance in today’s market place
RICHARD CHASEManaging Director
2
“At some point the quantitative easing will come to an end,
but until it does this bull market is sponsored by
governments and everyone should enjoy it.” Global financial model:
1.Find rainbow2.Borrow against expectation of finding crock of gold
3
Global Mining Offers – Market Share by Proceeds
Global Mining Offers – Market Share by Number
New Issues on AIM
4China: Driving demand for natural resources
27%
28%
35%
35%
38%
58%
0% 10% 20% 30% 40% 50% 60% 70%
Nickel
Copper
Aluminium
Zinc
Energy Coal
Iron OreAutos & Shipbuilding
5%
Home Appliances1%
Metal Goods6%
Other6%
Machinery20%
Infrastructure14%
Construction48%
China’s Urban Residential Floor Space(Billions of Square Metres)
Source: CRU, Brook Hunt, IISI, PEL, China Customs, BHP Biliton estimates
Source: McKinsey & Co, BHP Billiton Estimates
Source: BHP Billiton Estimates
33
24
18
9
5
10
15
20
25
30
35
2000 2008 2015 2025
5Sharp Recovery in Natural Resources Sector
China’s Economic Recovery in 2009(% growth year-on-year to August 2009)
Industrial Production +12.3%
Fixed Asset Investment +33.3%
Construction Materials Sector +36.6%
Passenger Car Sales +90.0%
Exports (23.4%)
Rebound in Natural Resources
20
40
60
80
100
120
140
160
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun 08
Jul 08
Aug
08
Sep 08
Oct 08
Nov
08
Dec
08
Jan 09
Feb 09
Mar 09
Apr 09
May 09
Jun 09
Jul 09
Aug
09
Sep 09
FTSE All Share Mining Oil Copper Gold
7Equity Finance – Deeply discounted issues in H1 2009
Price (p) Discount Raised (£m) Current Price
RIO TINTO RIGHTS June 1400 50% 7,342 2664
XSTRATA RIGHTS March 210 40% 4,106 916
LONMIN RIGHTS May 900 40% 316 1681
GEM DIAMONDS PLACING April 100 33% 75 248
AQUARIUS PLATINUM PLACING March 180 10% 83 282
AQUARIUS PLATINUM RIGHTS April 115 36% 48 282
• UK financings in H1 were dominated by balance sheet repair • 25% of institutional cash flow was hoovered-up by the top 3 transactions
8Junior Company Equity Finance
Bank lending has become more conservative....and expensive
Equity financing can be completed more quickly....and with less rigour ( !? )
Carpe Diem: gold companies, in particular, feel an urgency
Quality projects are finding equity financing.
9Equity Finance – A Currency for Acquisitions
$86.5 million
Avocet Mining plc
Recommended all share offer for Wega Mining
April 2009
Joint Financial Adviser and Broker
$314.7 million
Sylvania Resources Limited
Recommended all share offer by Ruukki Group
Nominated Adviser
June 2009
£1.8 million
Dwyka Resources Limited
Recommended all share offer for Minerva
Resources
Financial Adviser, Nominated Adviser and BrokerJuly 2009
Shares are the obvious currency for juniors whose share prices have risen sharply in the last nine months.
10Equity Finance – Financing for Growth
• Financing to participate in rights offer by Extract Resources
• World class uranium asset in Namibia
• 100% Equity finance of mine development and start-up
11
Pangea DiamondFields
• Critical stage of ramp-up to become cash flow positive
• Massively diluting 15 : 1 open offer
• Fully underwritten by management and key institutions
• Raised £8.7 million at 0.5p/share
• 33% discount
• Repaid loan obligation
• Exercised option to acquire 100% of operations
• Price has recovered to 2p/share
Equity Finance – Deeply Discounted Rights Issue
12
African Copper (“ACU”)
• Natasa Mining agrees bridging loan and and equity financing
• ACU offers debt for equity swap to bond holders.
• Natasa buys US$21m secured loan note at 60% face value and calls the loan
• ZCI subscribes for shares at 1p for gross proceeds of £6.76m, giving it 82% interest
• Natasa is repaid in full and releases security over the assets
• ZCI and African Copper agree a re-financing of inter-company loans :
• US$8.4m convertible loan note at 1p for 4 years, with a coupon of 12%
• US$22.7m of ordinary 4 year loan notes with a coupon of 14%
Equity Finance – Rescue Finance
13Equity Finance – Choose your broker (and your audience)
AIM FTSE Small Cap FTSE 100
% Market Share by Value
(Thomson Reuters data)
14Debt
Debt has re-appeared
It is starting to occur further up the development cycle
The two primary drivers are:
security means debt holders are first in line if the project is derailed
debt comes with interest payments which diminish the risk incrementally
The current economic landscape supports debt: a debt investor's exposure is limited to a finite time horizon
A potentially inflationary environment makes debt more attractive.
15Alternative loan options
Instrument Comments
Equity Swap • legally binding subscription for shares • subscription reference price at a premium to the prevailing price• monthly “swap” of equity for cash• cash receipt adjusted according to prevailing price in relation to the agreed reference price
Convertible loan note • unsecured• typically 10 -12% coupon• can limit future corporate flexibility
Gold Participating Bond* • up to 20% of annual mine production• loan effectively converts to a securitised gold loan• repaid quarterly as ETF • pays a coupon
Gold Exchangeable Bond ** • gold secured loan• exchangeable into physical metal at holder’s option• callable by the issuer at trigger price• can be utilised for any exchange traded commodity
* marketed by Canaccord Adams** marketed by Ambrian
16Private Equity
Historically avoided cyclical businesses
At the peak they specifically avoid miners because valuations are too high to provide the returns they seek
And booming investor demand meant smaller companies could obtain capital through share placings
Through high interest rates, private equity financing can provide a solution to the troubles facing companies at the pre-production / feasibility stage
The expectation is that over a 3 – 5 year timeframe the return will be 2 – 5 times the investment
The latest development is the tie-up between banking and trading groups with commodity expertise and Sovereign Wealth Funds (SWF’s) to buy assets
17Private equity and investment companies
Polo Resources
Aim listed group focused on investing in uranium and coal assets
Capitalised at £120 million
Investments include Extract Resources, West Australian Metals, Impact Minerals, Uranex
Endeavour Financial
Classical merchant bank
Capitalised at US$174 million with cash of US$122m and investments of US$71m
Recently acquired up to 54% of Etruscan Resources through a US$43m finance and restructuring plan
18Private equity and investment companies
Och Ziff
“Alternative asset” management firm
US$21.7 billion of assets under management
African Global Capital created in January 2008, biased towards natural resources
Noble
Started in 1987, it has moved upstream to secure commodity off take for trading
CIC invested US$850m
Distressed asset acquisitions incldue:Gloucester Coal (US$430m)US fuel terminal & storage assets (US$65m)
19Sovereign Wealth Funds
An Example
China Investment Corporation
US$200 billion seed with the goal of improving returns on foreign exchange reserves
17% of Teck Corporation
14.5% of Noble Group ( for US$850m at a 8% discount to market)
US$1.9bn in PT Bumi
Approved investment partners increase access to global raw materials (eg: Glencore)Source: SWF Institute
10 = Overweight / 0 = Underweight
SWF’s have focussed on Resources Companies
21
CORPORATE FINANCE & EQUITIES COMMODITIES
AMBRIAN PARTNERS LIMITED _______________________________________Nominated AdviserCorporate FinanceCorporate BrokerEquity New IssuesMarket MakingEquity Sales & TradingResearch
_______________________________________Authorised and Regulated by the FSA
Member of the London Stock Exchange
AMBRIAN COMMODITIES LIMITED_______________________________________Broker-Dealer of LME Futures & Options- Aluminium- Copper- Nickel- Lead- Tin- Zinc
Bullion Dealer_______________________________________
Authorised and Regulated by the FSA
Member of the London Metal Exchange
AMBRIAN METALS LIMITED_______________________________________Physical metals traderFocus on:- Copper (wire-rod/cathode)- Aluminium- Lead
_______________________________________London and Shanghai
Agents in Calcutta, New York, Santiago, Seoul and Tokyo
#1
AIM AdvisersBasic Materials
Nomad & Broker
Ambrian Partners
April 2009
#1
Extel Smal l CapsMetals & Mining
Broker
Ambrian Partners
2009
[email protected] +44 (0)207 634 4700