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Mining in Emerging Economies

Sharing the Spoils

Mining in Emerging Economies Sharing the Spoils
Mining in Emerging Economies Sharing the Spoils
Mining in Emerging Economies Sharing the Spoils
Mining in Emerging Economies Sharing the Spoils
Mining in Emerging Economies Sharing the Spoils

Global mining overview | 3

2

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Mining in Emerging Economies - Sharing the Spoils

Foreword

Foreword Anjani K. Agrawal Mining in Emerging Economies - Sharing the Spoils |

Anjani K. Agrawal

Mining in Emerging Economies - Sharing the Spoils |

Global mining overview

Volatile and uncertain scenario

Exhibit 1: Roller coaster ride (2008-2013)

14 Two periods of correction 12 10 8 6 4 2 0 2006 2007 2008
14
Two periods
of correction
12
10
8
6
4
2
0
2006
2007
2008
2009
2010
2011
2012 2013E 2014E
-2
-4
-6
World
China
The US
Euro area
India

Source: IMF World Economic Outlook

The US:

Exhibit 2: real GDP growth rate (in %) 10 8.2 7.8 7.8 8 7.5 6
Exhibit 2: real GDP growth rate (in %)
10
8.2
7.8
7.8
8
7.5
6
4
3.5
2.7
2.2
1.6
2
1.3
0.6
0
-0.6
-0.7
-2
2012
2013E
2014P
2015P
The US
China
Eurozone

Source: IHS Global Insight

China:

Exhibit 3: Manufacturing PMI (China)

Month

Headline

Outputs

New

New

2013

orders

export

orders

Source: HSBC China Manufacturing PMI (Flash, July):-Dipping To an 11-M, HSBC

Global Research, 24 July 2013

Eurozone:

Economic slowdown loomed heavy

Exhibit 4: Global demand of select commodities (Rebased 2007= 100) 125 120 115 110 105
Exhibit 4: Global demand of select commodities (Rebased
2007= 100)
125
120
115
110
105
100
95
90
85
80
2007 2008
2009
2010
2011
2012
2013E
Iron ore demand (world)
Thermal coal trade
Steel demand
Copper demand

Source: NORTH AMERICAN IRON ORE - INITIATING COVERAGE, Credit Suisse, 1 December 2011; Iron ore Chartbook, Morgan Stanley, 7 July 2013; Higher coal/iron ore price scenario, ABN Amro, 7 March 2008 (2007 price); The 2013; World steel association;

Exhibit 5: Commodity price trends for iron ore, steel, coal, copper (Rebased 2007= 100) 200
Exhibit 5: Commodity price trends for iron ore, steel, coal,
copper (Rebased 2007= 100)
200
180
160
140
120
100
80
60
40
20
0
2007 2008
2009
2010
2011
2012
2013E

Iron ore prices

Thermal coal prices

Steel prices (HRC)

Copper prices

| Mining in Emerging Economies - Sharing the Spoils

Source: NORTH AMERICAN IRON ORE - INITIATING COVERAGE, Credit Suisse, 1 December 2011; Iron ore Chartbook, Morgan Stanley, 7 July 2013; Higher coal/iron ore price scenario, ABN Amro, 7 March 2008 (2007 price); The 2013; World steel association;

2 3

Mining in Emerging Economies - Sharing the Spoils |

Exhibit 6: mining indices vs broader indices (rebased 2007=100) 115 110 105 100 95 Mining
Exhibit 6: mining indices vs broader indices
(rebased 2007=100)
115
110
105
100
95
Mining stocks
Mining indices
90
rebounded on
underperformed
account of
Mining stocks
85
sharply
underperformed
80
2007
2008
2009
2010
2011
2012
2013
FTSE All Share mining
S&P/ASX 300 Metal & mining
Dow Jones Industrial Average

Source: Thomson DataStream

Capital raising and investments

 

 

2007

2008

2009

2010

2011

2012

Source: EY Research

| Mining in Emerging Economies - Sharing the Spoils

Exhibit 8: Capital raising (Rebased 2007=100; comparison)

700 600 *High volume and large-scale issues 500 400 300 200 100 100 0 2007
700
600
*High volume and
large-scale issues
500
400
300
200
100
100
0
2007
2008
2009
2010
2011
2012
IPO
Follow ons
Convertible Bonds
Bonds
Loans
total
Source: EY Research

Exhibit 9: IPOs volume and proceeds

25 300 250 20 200 15 150 10 100 5 50 0 0 2007 2008
25
300
250
20
200
15
150
10
100
5
50
0
0
2007
2008
2009
2010
2011
2012
Proceeds
Number
Proeeds $billion
Number of IPOs

Source: EY Research

Exhibit 10: Bond volume and proceeds 120 200 180 100 160 140 80 120 60
Exhibit 10: Bond volume and proceeds
120
200
180
100
160
140
80
120
60
100
80
40
60
40
20
20
0
0
2007
2008
2009
2010
2011
2012
Proceeds
Number
Proeeds $billion
Number of bond issues

Source: EY Research

Mining in Emerging Economies - Sharing the Spoils |

| Mining in Emerging Economies - Sharing the Spoils

(2012)

Company

Type

Total

Focus of

proceeds

activity

$m*

Iron ore in

 

Iron ore in

33

Source: Mining Eye Q42012, EY (Yearly average pound (£)-dollar ($) conversion

Deal values Country Change in global share by value (%) Change in global share by
Deal values Country Change in global share by value (%) Change in global share by
Deal values
Country
Change in global
share by value (%)
Change in global
share by volume (%)
33
Source: EY research

Mining in Emerging Economies - Sharing the Spoils |

| Mining in Emerging Economies - Sharing the Spoils

Emerging Economies: future growth

engine for the mining industry

Exhibit 13: Bauxite production - 10-year CAGR

80 20.0% 15.0% 60 10.0% 40 5.0% 20 0.0% 0 -5.0% million tons Australia China
80
20.0%
15.0%
60
10.0%
40
5.0%
20
0.0%
0
-5.0%
million tons
Australia
China
Brazil
India
Guinea
Jamaica
Russia
Kazakhstan
Venezuela
Suriname

Source: United States Geological Survey

Exhibit 14: Copper production - 10-year CAGR 6,000 5,000 4,000 3,000 2,000 1,000 0 kt
Exhibit 14: Copper production - 10-year CAGR
6,000
5,000
4,000
3,000
2,000
1,000
0
kt
United States
Australia
Canada
Chile
Congo (Kinshasa)
China
Peru
Russia
Zambia
Indonesia

Source: United States Geological Survey

40%

30%

20%

10%

0%

-10%

-20%

Exhibit 15: Gold production - 10-year CAGR

400 350 300 250 200 150 100 50 0 tons Australia Canada United States China
400
350
300
250
200
150
100
50
0
tons
Australia
Canada
United States
China
Russia
Mexico
South Africa
Peru
Indonesia
Uzbekistan

Source: United States Geological Survey

20%

15%

10%

5%

0%

-5%

-10%

Exhibit 16: Iron ore production - 10-year CAGR

450 400 350 300 250 200 150 100 50 0 million tons Australia United States
450
400
350
300
250
200
150
100
50
0
million tons
Australia
United States
Canada
Sweden
China
Brazil
India
Russia
South Africa
Ukraine

Source: United States Geological Survey

20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

Mining in Emerging Economies - Sharing the Spoils |

Exploration trends

Latin America and Africa take the lion’s share

| Mining in Emerging Economies - Sharing the Spoils

Exploration trends Latin America and Africa take the lion’s share | Mining in Emerging Economies -
Exploration trends Latin America and Africa take the lion’s share | Mining in Emerging Economies -
Exhibit17: Top destinations for non-ferrous exploration, 2012 Russia 3% 16% FSU/ Canada Mongolia 4% 3%
Exhibit17: Top destinations for non-ferrous exploration, 2012
Russia
3%
16%
FSU/
Canada
Mongolia
4%
3%
Europe
United States
8%
4%
China
Mexico
6%
West
7%
Africa
Colombia
2%
Paci c
Islands
6%
Sub-Saharan
9%
Peru
3%
Brazil
5%
Africa
12%
Chile
5%
Australia
3%
Argentina
Source: Metals Economics Group, World Exploration Trends 2013
M&A trend in emerging

M&A trend in emerging

economies

economies

 

M&A trend in emerging economies  

2013 M&A trend in emerging economies   Exhibit 18: Percentage deals by target region (2007–12)
Exhibit 18: Percentage deals by target region (2007–12) 100% 90% 80% 70% 60% 50% 40%
Exhibit 18: Percentage deals by target region (2007–12)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2007
2008
2009
2010
2011
2012
Europe
Middle East
North America
CIS
Latin America
Africa
Asia Paci c

Source: EY research

CIS Latin America Africa Asia Paci c Source: EY research Mining in Emerging Economies - Sharing

Mining in Emerging Economies - Sharing the Spoils |

CIS Latin America Africa Asia Paci c Source: EY research Mining in Emerging Economies - Sharing

emerging economies

Exhibit 19: Global distribution of mineral reserves in 2012

100% 80% 60% 40% 20% 0% Developed Economies Emerging Economies Bauxite Copper Iron Ore (Crude
100%
80%
60%
40%
20%
0%
Developed Economies
Emerging Economies
Bauxite
Copper
Iron Ore (Crude Ore)
Gold
Nickel
PGMs
Silver
Tin
Zinc

Source: United States Geological Survey

| Mining in Emerging Economies - Sharing the Spoils

Major factors shifting mining to emerging economies

Commodity demand and price boom:

Liberalization of mineral policies:

Advancement in technology:

other emerging markets:

22 23

Challenges in emerging economies

22 23

Mining in Emerging Economies - Sharing the Spoils |

| Mining in Emerging Economies - Sharing the Spoils

Indian mining industry — slowing down but

huge potential

Recent developments

Mineral

Global rank

3

3

Iron ore

Source: Annual report FY13, Ministry of mines, Government of India

Iron ore bans in Karnataka and Goa created shortage among surplus:

Environmental monitoring in Goa affecting production: village

Despite slowdown, Indian mining majors stick to capital expenditure plans:

Coal India faces challenges in increasing production:

Government plans to hike iron ore royalty by 50%:

Mining in Emerging Economies - Sharing the Spoils |

Impact of Currency depreciation

Exhibit 21: Dollar Index Movement

Exhibit 22: Historical Currency Movement

100 80 60 40 20 0 Avg Exhchange rate: INR
100
80
60
40
20
0
Avg Exhchange rate: INR
90 88 INR- USD INR - EURO INR - GBP 86 Source: RBI 84 82
90
88
INR- USD
INR - EURO
INR - GBP
86
Source: RBI
84
82
80
78
76
74
72
70
DXY
08/03/2009
12/07/2009
04/14/2010
08/18/2010
12/22/2010
04/29/2011
09/02/2011
01/06/2012
05/11/2012
08/30/2012
12/14/2012
03/31/2013
07/31/2013
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11
Feb-12
Jun-12
Oct-12
Feb-13
Jun-13

Source: Wall Street Journal

| Mining in Emerging Economies - Sharing the Spoils

Exhibit 23: Iron ore prices (62% Fe) price 160 100% 140 80% 120 60% 100
Exhibit 23: Iron ore prices (62% Fe) price
160
100%
140
80%
120
60%
100
40%
80
20%
60
0%
40
20
-20%
0
-40%
US$

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Source: “Mired in Mining Mess- Next is Odisha,” 28 May 2013 via Thomson Research

India iron ore mining update

State

R & R

Production

PSU share in production

Private share in production

State’s

FY12 (million

production (%)

(million tons)

tons)

   

Goa

 

Source: “Mired in Mining Mess- Next is Odisha,” 28 May 2013 via Thomson Research

US$

Iron ore export (value)

Total export

Percentage

million

(value)

US$ Iron ore export (value) Total export Percentage million (value)

Source: “Mired in Mining Mess- Next is Odisha,” 28 May 2013 via Thomson

Research

Mining in Emerging Economies - Sharing the Spoils |

Mining services picking up

Mining services picking up Source: EY Research | Mining in Emerging Economies - Sharing the Spoils
Mining services picking up Source: EY Research | Mining in Emerging Economies - Sharing the Spoils

Mining services picking up Source: EY Research | Mining in Emerging Economies - Sharing the Spoils

Source: EY Research

| Mining in Emerging Economies - Sharing the Spoils

32

Exhibit 26: Twelfth plan target — earth-moving and mining equipment

500 450 400 350 300 250 200 150 100 50 0 INR Billion
500
450
400
350
300
250
200
150
100
50
0
INR Billion

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

INR Billion 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Market Size Production Import Export Source: Report of

Market Size

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Market Size Production Import Export Source: Report of the Working

Production

2013-14 2014-15 2015-16 2016-17 Market Size Production Import Export Source: Report of the Working Group on

Import

2014-15 2015-16 2016-17 Market Size Production Import Export Source: Report of the Working Group on Capital

Export

Source: Report of the Working Group on Capital Goods & Engineering Sector for the 12th Five Year Plan (2012-2017)

32

Major challenges in the Indian mining sector

Business risks facing mining and metals 2013-

14

Exhibit 27: Business risks facing global mining and metals industry2013-14 t n e d y
Exhibit 27: Business risks facing global mining and metals industry2013-14
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Up from 2012
Down from 2012
c
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New entry
o
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d
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.
1

Source: EY Research

Mining in Emerging Economies - Sharing the Spoils |

Social license to operate: 33

Competing demand for land use:

33

Regulations:

Infrastructure access:

Capital project execution:

Fraud and corruption:

Margin protection and productivity improvement:

Recommendations for stakeholders

Promote transparency: Promote transparency:

Regulatory certainty: Regulatory certainty:

Recalibrate exploration: Promote contract mining and other mining services in India: | Mining in Emerging

Recalibrate exploration: Recalibrate exploration:

Promote contract mining and other mining services in India: in India:

| Mining in Emerging Economies - Sharing the Spoils

Promote risk capital markets in India: mining and other mining services in India: | Mining in Emerging Economies - Sharing the Spoils

Mining taxation reforms: Mining taxation reforms:

Build strategic alliances: Develop special mining regions and SPVs: Mining in Emerging Economies - Sharing

Build strategic alliances: Build strategic alliances:

Develop special mining regions and SPVs: Build strategic alliances: Mining in Emerging Economies - Sharing the Spoils |

Mining in Emerging Economies - Sharing the Spoils |

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| Mining in Emerging Economies - Sharing the Spoils

Ahmedabad

Bengaluru

Chandigarh

Chennai

Hyderabad

Ahmedabad Bengaluru Chandigarh Chennai Hyderabad Kochi Kolkata Mumbai NCR Pune Mining in Emerging Economies - Sharing

Kochi

Kolkata

Mumbai

NCR

Pune

Bengaluru Chandigarh Chennai Hyderabad Kochi Kolkata Mumbai NCR Pune Mining in Emerging Economies - Sharing the

Mining in Emerging Economies - Sharing the Spoils |

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