EY - Mining in Emerging Economies - Mining and Metals.pdf

8/18/2019 EY - Mining in Emerging Economies - Mining and Metals.pdf

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Mining in Emerging EconomiesSharing the Spoils


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2 | Mining in Emerging Economies - Sharing the Spoils

Global mining overview | 3


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Mining in Emerging Economies - Sharing the Spoils |

Foreword

Anjani K. Agrawal


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3Mining in Emerging Economies - Sharing the Spoils |

Volatile and uncertainscenario

Exhibit 1: Roller coaster ride (2008-2013)

Source: IMF World Economic Outlook

-6

-4

-2

0

2

4

6

8

10

12

14

2006 2007 2008 2009 2010 2011 2012 2013E 2014E

World China The US Euro area India

Two periodsof correction

The US:

Exhibit 2: real GDP growth rate (in %)

Source: IHS Global Insight

2.21.6

2.73.5

7.8 7.5 7.88.2

-0.6 -0.7

0.61.3

-2

0

2

4

6

8

10

2012 2013E 2014P 2015P

The US China Eurozone

China:

Global mining overview


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| Mining in Emerging Economies - Sharing the Spoils

Exhibit 3: Manufacturing PMI (China)

Month

2013

Headline Outputs New

orders

New

export

orders

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

Global Research, 24 July 2013

Eurozone:

Economic slowdown loomedheavy

Exhibit 4: Global demand of select commodities (Rebased2007= 100)

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

2013; World steel association;

80

85

90

95

100

105

110

115

120

125

2007 2008 2009 2010 2011 2012 2013E

Iron ore demand (world) Thermal coal trade

Steel demand Copper demand

Exhibit 5: Commodity price trends for iron ore, steel, coal,copper (Rebased 2007= 100)

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

2013; World steel association;

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012 2013E

Iron ore prices Thermal coal prices

Steel prices (HRC) Copper prices


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2

3


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Capital raising andinvestments

Exhibit 6: mining indices vs broader indices(rebased 2007=100)

Source: Thomson DataStream

80

85

90

95

100

105

110

115

2007 2008 2009 2010 2011 2012 2013

FTSE All Share mining S&P/ASX 300 Metal & mining

Dow Jones Industrial Average

Mining stockssharplyunderperformed

Mining stocksrebounded onaccount of

Mining indicesunderperformed

2007 2008 2009 2010 2011 2012

Source: EY Research


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

Source: EY Research

1000

100

200

300

400

500

600

700

2007 2008 2009 2010 2011 2012

IPO Follow ons Convertible Bonds Bonds

Loans total

*High volume andlarge-scale issues

Exhibit 9: IPOs volume and proceeds

Source: EY Research

0

50

100

150

200

250

300

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012

N u m b e r o f I P O s

P r o e e d s $ b i l l i o n

Proceeds Number

Exhibit 10: Bond volume and proceeds

Source: EY Research

020406080100120140160180200

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012

N u m b e r o f b o n d i s s u e s

P r o e e d s $ b i l l i o n

Proceeds Number


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(2012)

Company Type Total

proceeds$m*

Focus of

activity

Iron ore in

Iron ore in

33

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


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Deal values

Country Change in global

share by value (%)

Change in global

share by volume (%)

33

Source: EY research


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Exhibit 14: Copper production - 10-year CAGR

Source: United States Geological Survey

-20%

-10%

0%

10%

20%

30%

40%

0

1,000

2,000

3,000

4,000

5,000

6,000

U n i t e d S t

a t e s

A u s t

r a l i a

C a n a d a

C h i l e

C o n g o ( K i n s h

a s a )

C

h i n a

P e r u

R u s s i a

Z a m b i a

I n d o n

e s i a

k t

Exhibit 15: Gold production - 10-year CAGR


-10%

-5%

0%

5%

10%

15%

20%

0

50

100

150200

250

300

350

400

A u s t r a l i a

C a n a d a

U n i t e d S t a t e s

C h i n a

R u s s i a

M e x i c o

S o u t h A f r i c a

P e r u

I n d o n e s i a

U z b e k i s t a n

t o n s

Exhibit 16: Iron ore production - 10-year CAGR


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

50

100

150

200

250

300

350

400

450

A u s t r a l i a

U n i t e d S t a t e s

C a n a d a

S w e d e n

C h i n a

B r a z i l

I n d i a

R u s s i a

S o u t h A f r i c a

U k r a i n e

m i l l i o n t o n s

Exhibit 13: Bauxite production - 10-year CAGR


-5.0%

0.0%5.0%

10.0%

15.0%

20.0%

0

20

40

60

80

A u s t r a l i a

C h i n a

B r a z i l

I n d i a

G u i n e a

J a m a i c a

R u s s i a

K a z a k h s t a n

V e n e z u e l a

S u r i n a m e

m i l l i o n t o n s

Emerging Economies: future growthengine for the mining industry


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Exploration trends

Latin America and Africa takethe lion’s share


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Exhibit 18: Percentage deals by target region (2007–12)

0%10%20%30%40%50%60%70%80%90%

100%

2007 2008 2009 2010 2011 2012

Europe North America Middle East CIS Latin America

Africa Asia Pacic

Source: EY research

M&A trend in emergingeconomies

Exhibit17: Top destinations for non-ferrous exploration, 2012

Source: Metals Economics Group, World Exploration Trends 2013

16%

8%

2%

5%

5%

3%

3%

7%

9%

4%

3%

3%

4%

6%

12%

Canada

United States

Mexico

Colombia

Peru

Chile

Argentina

Europe

Russia

FSU/

Mongolia

China

Australia

Pacic

Islands

West

Africa

Sub-Saharan

AfricaBrazil

6%


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emerging economies

Exhibit 19: Global distribution of mineral reserves in 2012

0%

20%

40%

60%

80%

100%

B a u x i t e

C o p p e r

I r o n

O r e ( C r u d e O r e )

G o l d

N i c k e l

P G M s

S i l v e r

T i n

Z i n c

Developed Economies Emerging Economies


Major factors shifting miningto emerging economies

Commodity demand and price boom:

Liberalization of mineral policies:


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Advancement in technology:

other emerging markets:

22

23

Challenges in emerging economies

22

23


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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%:

Indian mining industry — slowing down buthuge potential


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Impact of Currencydepreciation

Exhibit 21: Dollar Index Movement

Source: Wall Street Journal

70

72

74

76

78

80

82

84

86

88

90

0 8 / 0 3 / 2 0 0 9

1 2 / 0 7 / 2 0 0 9

0 4 / 1 4 / 2 0 1 0

0 8 / 1 8 / 2 0 1 0

1 2 / 2 2 / 2 0 1 0

0 4 / 2 9 / 2 0 1 1

0 9 / 0 2 / 2 0 1 1

0 1 / 0 6 / 2 0 1 2

0 5 / 1 1 / 2 0 1 2

0 8 / 3 0 / 2 0 1 2

1 2 / 1 4 / 2 0 1 2

0 3 / 3 1 / 2 0 1 3

0 7 / 3 1 / 2 0 1 3

D X Y

Exhibit 22: Historical Currency Movement

Source: RBI

0

20

40

60

80

100

O c t - 0 9

F e b - 1 0

J u n - 1 0

O c t - 1 0

F e b - 1 1

J u n - 1 1

O c t - 1 1

F e b - 1 2

J u n - 1 2

O c t - 1 2

F e b - 1 3

J u n - 1 3

A v g E x h c h a n g e r a t e : I N R

INR- USD INR - EURO INR - GBP

Exhibit 23: Iron ore prices (62% Fe) price

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

-40%-20%0%20%40%60%80%100%

020406080

100120140160

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

U S $


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US$

million

Iron ore export

(value)

Total export

(value)

Percentage

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

Research

India iron ore mining update

State R & R

(million tons)

Production

FY12 (million

tons)

PSU share in

production

Private share in

production

State’s

production (%)

Goa

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


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Exhibit 26: Twelfth plan target — earth-moving and miningequipment

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

050

100150200250300350400450500

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

I N R B i l l i o n

Market Size Production Import Export

32

Mining services picking up

Source: EY Research


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Business risks facing mining and metals 2013-

14

Major challenges in the Indianmining sector

Exhibit 27: Business risks facing global mining and metals industry2013-14

Source: EY Research

1 0. T h

r e a t o f s u

bs t i tu tes

9. I n f r

a s t r u c t u re

access

8. S h a

r i n g t h e be

ne ts

7. C a p

i t a l p r o jec t e

xecuti on

6. P r i c

e a n d currency v ol a t i l i t y

5. S k i l l s

s h or tage

4. S o

c i a l l icense

to o p e r a t e

3. R e

s o u rce nati o n a l i s m

2. M a r g

i n prot e c t i o n a n d

p r o d

u c t i vity i m p r o v e m

e n t

1 .

C a p i tal a l l o c a

t i o n a n

d ac c e s s

yrtneweN2102saemaS2102morfpU Down from 2012


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Regulations:

Infrastructure access:

Capital project execution:

Social license to operate:

33

Competing demand for land use:

33


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23Mining in Emerging Economies - Sharing the Spoils |

Margin protection and productivity improvement:

Recommendations forstakeholders

Promote transparency:

Regulatory certainty:

Fraud and corruption:


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Promote risk capital markets in India:

Mining taxation reforms:

Recalibrate exploration:

Promote contract mining and other mining services

in India:


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EY - Mining in Emerging Economies - Mining and Metals.pdf