Mining in Emerging EconomiesSharing the Spoils
2 | Mining in Emerging Economies - Sharing the Spoils
Global mining overview | 3
Mining in Emerging Economies - Sharing the Spoils |
Foreword
Anjani K. Agrawal
2 | Mining in Emerging Economies - Sharing the Spoils
3Mining in Emerging Economies - Sharing the Spoils |
Volatile and uncertain scenario
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 periods of correction
The US:
Exhibit 2: real GDP growth rate (in %)
Source: IHS Global Insight
2.2 1.62.7
3.5
7.8 7.5 7.8 8.2
-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
| 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 loomed heavy
Exhibit 4: Global demand of select commodities (Rebased 2007= 100)
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;
80859095
100105110115120125
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, 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;
0
20
40
60
80
100
120
140
160
180
200
2007 2008 2009 2010 2011 2012 2013E
Iron ore prices Thermal coal pricesSteel prices (HRC) Copper prices
Mining in Emerging Economies - Sharing the Spoils |
2
3
| Mining in Emerging Economies - Sharing the Spoils
Capital raising and investments
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 2013FTSE All Share mining S&P/ASX 300 Metal & miningDow Jones Industrial Average
Mining stocks sharply underperformed
Mining stocks rebounded on account of
Mining indices underperformed
2007 2008 2009 2010 2011 2012
Source: EY Research
Mining in Emerging Economies - Sharing the Spoils |
Exhibit 8: Capital raising (Rebased 2007=100; comparison)
Source: EY Research
100
0
100
200
300
400
500
600
700
2007 2008 2009 2010 2011 2012IPO Follow ons Convertible Bonds BondsLoans total
*High volume and large-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
Num
ber o
f IPO
s
Proe
eds
$bill
ion
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
Num
ber o
f bon
d is
sues
Proe
eds
$bill
ion
Proceeds Number
| Mining in Emerging Economies - Sharing the Spoils
(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
Mining in Emerging Economies - Sharing the Spoils |
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 |
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
Uni
ted
Stat
es
Aus
tral
ia
Cana
da
Chile
Cong
o (K
insh
asa)
Chin
a
Peru
Russ
ia
Zam
bia
Indo
nesi
a
kt
Exhibit 15: Gold production - 10-year CAGR
Source: United States Geological Survey
-10%
-5%
0%
5%
10%
15%
20%
050
100150200250300350400
Aus
tral
ia
Cana
da
Uni
ted
Stat
es
Chin
a
Russ
ia
Mex
ico
Sout
h A
fric
a
Peru
Indo
nesi
a
Uzb
ekis
tan
tons
Exhibit 16: Iron ore production - 10-year CAGR
Source: United States Geological Survey
0%2%4%6%8%10%12%14%16%18%20%
050
100150200250300350400450
Aus
tral
ia
Uni
ted
Stat
es
Cana
da
Swed
en
Chin
a
Braz
il
Indi
a
Russ
ia
Sout
h A
fric
a
Ukr
aine
mill
ion
tons
Exhibit 13: Bauxite production - 10-year CAGR
Source: United States Geological Survey
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
0
20
40
60
80
Aus
tral
ia
Chin
a
Braz
il
Indi
a
Guin
ea
Jam
aica
Russ
ia
Kaza
khst
an
Ven
ezue
la
Surin
ame
mill
ion
tons
Emerging Economies: future growth engine for the mining industry
| 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 |
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 Paci c
Source: EY research
M&A trend in emerging economies
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
Paci c Islands
West Africa
Sub-SaharanAfricaBrazil
6%
| Mining in Emerging Economies - Sharing the Spoils
emerging economies
Exhibit 19: Global distribution of mineral reserves in 2012
0%
20%
40%
60%
80%
100%
Baux
ite
Copp
er
Iron
Ore
(Cru
de O
re)
Gold
Nic
kel
PGM
s
Silv
er Tin
Zinc
Developed Economies Emerging Economies
Source: United States Geological Survey
Major factors shifting mining to emerging economies
Commodity demand and price boom:
Liberalization of mineral policies:
Mining in Emerging Economies - Sharing the Spoils |
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 |
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 but huge potential
| Mining in Emerging Economies - Sharing the Spoils
Impact of Currency depreciation
Exhibit 21: Dollar Index Movement
Source: Wall Street Journal
70
72
74
76
78
80
82
84
86
88
90
08/0
3/20
09
12/0
7/20
09
04/1
4/20
10
08/1
8/20
10
12/2
2/20
10
04/2
9/20
11
09/0
2/20
11
01/0
6/20
12
05/1
1/20
12
08/3
0/20
12
12/1
4/20
12
03/3
1/20
13
07/3
1/20
13
DXY
Exhibit 22: Historical Currency Movement
Source: RBI
0
20
40
60
80
100
Oct
-09
Feb-
10
Jun-
10
Oct
-10
Feb-
11
Jun-
11
Oct
-11
Feb-
12
Jun-
12
Oct
-12
Feb-
13
Jun-
13
Avg
Exh
chan
ge ra
te: I
NR
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 Thomson Research
-40%-20%0%20%40%60%80%100%
020406080
100120140160
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
US$
Mining in Emerging Economies - Sharing the Spoils |
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
| Mining in Emerging Economies - Sharing the Spoils
32
Exhibit 26: Twelfth plan target — earth-moving and mining equipment
Source: Report of the Working Group on Capital Goods & Engineering Sector for the 12th Five Year Plan (2012-2017)
050
100150200250300350400450500
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
INR
Billi
on
Market Size Production Import Export
32
Mining services picking up
Source: EY Research
Mining in Emerging Economies - Sharing the Spoils |
Business risks facing mining and metals 2013-14
Major challenges in the Indian mining sector
Exhibit 27: Business risks facing global mining and metals industry2013-14
Source: EY Research
10. Threat of substitutes
9. Infrastructure access
8. Sharing the bene ts
7. Capital project execution
6. Price and currency volatility
5. Skills shortage
4. Social license to operate
3. Resource nationalism
2. Margin protection and
productivity improvement 1.
Capital allocationand access
yrtne weN2102 sa emaS2102 morf pU Down from 2012
22 | Mining in Emerging Economies - Sharing the Spoils
Regulations:
Infrastructure access:
Capital project execution:
Social license to operate:
33
Competing demand for land use:
33
23Mining in Emerging Economies - Sharing the Spoils |
Margin protection and productivity improvement:
Recommendations for stakeholders
Promote transparency:
Regulatory certainty:
Fraud and corruption:
| Mining in Emerging Economies - Sharing the Spoils
Promote risk capital markets in India:
Mining taxation reforms:
Recalibrate exploration:
Promote contract mining and other mining services in India:
Mining in Emerging Economies - Sharing the Spoils |
Build strategic alliances:
Develop special mining regions and SPVs:
| Mining in Emerging Economies - Sharing the Spoils
Mining in Emerging Economies - Sharing the Spoils |
| Mining in Emerging Economies - Sharing the Spoils
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