Confidential
October 20, 2009Presentation at the China Mining Congress 2009
These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse.
Capital raising and financing options for Asian mining operationsAlberto Migliucci, Head of Southeast Asia Mining
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Table of contents
1. Overview of global mining industry
2. Overview of Credit Suisse
3. Financing mining projects
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1. Overview of global mining industry
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Perspectives on recent global trends in miningPriceoutlook
Capital costs
Valuations
Financing
! Commodities markets remain volatile though recovery seen in recent months−Strengthening US dollar and global macro-economic concerns
! Commodity prices are expected to remain under pressure in H2 2009 and recover in H1 2010 on the back of production cuts and demand recovery
! Significant rise in project capital costs has led many companies to reassess their project pipelines
! However, recent drop in raw materials costs and depreciating currencies likely to help
! Share prices for many mining companies were down 50%-75% 1H 2009 vs 1H2008 ! Strategic investors still pay top dollar for high quality coal assets
− Rio Tinto asset sale to Chinalco at 124% premium to market enterprise value− Jacobs Ranch coal mine sold to Arch Coal for 10.4x pro-forma 2008 EBITDA
! Financing remains challenging - limited capacity and financing costs have increased significantly
! All deals face increased hurdles
! Project financings are struggling in the current environment - highest quality assets will come back first
! Global mining M&A has dropped off significantly in 2009! The dramatic changes in commodity markets has led to deals being re-negotiated - some
have been repudiated! Drivers for consolidation remain in place but M&A targets (both assets and corporates) are
being reassessed given the new environment! A wide variety of players see value in the sector � Sovereign Wealth Funds, off-takers,
sponsors, etc.
M&A activity
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0
100
200
300
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(200)
(100)
0.0
100
200
300
Global Diversified Base Metals Zinc & Lead Nickel
Copper Gold & Silver Global Coal
Gold (rebased to 100) Zinc (rebased to 100) Lead (rebased to 100)
Copper (rebased to 100) Nickel (rebased to 100) NEWC (rebased to 100)
Global mining sector update
Share price performance and commodity prices have been severely dampened by the global financial crisis but recent stability could point towards a recovery
LTM share price performance
! Strong volatility in the global metals and mining universe over 2009 but valuations have since stabilized over the past few months
! All commodities suffered significantly in the wake of the crisis except for gold ! Gains registered by base metals miners, precious metals miners and coal miners in the first
half of 2008 were wiped out in the second half
Valuation multiples
Commodity Indices
Commodity Prices (rebased to 100)
Source: Factset as of 27 May 2009
Reduced volatility over the past few months
Global diversified base metals
4.2x 5.8x10.0x
17.6x
0.0x
10.0x
20.0x
EV/EBITDA '09 P/E '09
Dec 2008 Sep 2009
Zinc & Lead 5.9x 8.7x7.4x
17.7x
0.0x
10.0x
20.0x
EV/EBITDA '09 P/E '09
Nickel 4.4x10.3x11.2x
21.7x
0.0x10.0x20.0x30.0x
EV/EBITDA '09 P/E '09
Copper 3.2x 5.5x8.6x14.3x
0.0x
10.0x
20.0x
EV/EBITDA '09 P/E '09
Gold & Silver 8.5x15.9x13.8x
20.4x
0.0x10.0x20.0x30.0x
EV/EBITDA '09 P/E '09
Global Coal4.1x 5.2x
8.8x14.5x
0.0x
10.0x
20.0x
EV/EBITDA '09 P/E '09
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2. Overview of Credit Suisse
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Credit Suisse�s leadership is widely acknowledged by the investment community
The Banker recognized the success of Credit Suisse�s client-focused model, disciplined approach to risk taking, progress on cost and efficiency measures and our distinctive business mix.
�Tough decisions taken in 2007 and 2008 leave Credit Suisse� investment bank in a prime position for the years ahead�
�By concentrating on client-related business, the firm has been able to increase market share across all of its main businesses. That sounds like the very model of a modern investment bank.�
�Credit Suisse is our top pick within global investment banks, ticking all the right boxes: i) ongoing market share gains in IB, ii) restructuring of cost and risk taking businesses within IB, iii) no management turnover, iv) limited credit risk, v) and capital strength.�
JP Morgan
While 2009 will remain a challenging year, we believe that Credit Suisse has sufficient levers to exploit good openings in the market such as trading conditions in 1Q09 and asset outflows from competitors�Though levered, Credit Suisse has capital flexibility vs. peers to profit more from any improvements/opportunities
Morgan Stanley
Credit Suisse offers investors a cost-cutting story and owing to fair value accounting, fewer asset quality concerns than most European banks�we like owning the "best in class" European investment bank and rate it a Buy.
Bank of America � Merrill Lynch
Credit Suisse � was quick to scale down its balance-sheet, has plotted a credible strategy for its investment bank and pulled well ahead of UBS.�
The Economist
Credit Suisse is the undisputable investment banking leader
2009
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Credit Suisse � Coal House of the Year
! Voted Coal House of the Year 2009 in the Energy Risk Awards 2009 for building its position as one of the top 3 market-makers in financial coal markets from scratch over the past 18 months
! Differentiating alliance with Glencore, coupled with strong emerging market platform in countries such as Indonesia
! Dedicated coal derivatives team of 4 coal and freight traders and 35 sales staff
! Customer base grew tenfold in 2008
�We are involved in more than 60% of all options transactions in the market.�
Meindert WitteveenHead of Coal, Freight and UK Gas Trading,
Credit Suisse
Credit Suisse
Coal House of the Year
�Our specialist coverage has allowed us to expand our client base past the usual corporates hedging their revenue stream or input costs, and enabled us to leverage Credit Suisse�s relationships with commodity hedge funds, macro and multistrategy hedge funds as well as credit and equity funds that have exposure in companies with significant coal price risk�
Alex TooneGlobal Head of Commodities Sales,
Credit Suisse
�Our specialists understand the physical markets and the fundamentals and work with our alliance partner Glencore to get real, up-to-date information on flows in the market. We think this adds a lot of value to our client base, both institutions and corporates, giving us a real edge compared to other banks in the market�
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Best M&A franchise
�Best M&A House�! Euromoney
− �Credit Suisse has delivered a strong record across all regions and in several different countries�it�s Credit Suisse�s achievements in Russia, Brazil and China that really stands out�− �In China, Credit Suisse showed its strength in the technology sector when it helped Focus Media on a $1.4 billion sale of its outdoor digital advertising business to the country�s biggest
portal website, Sina�. It is the biggest ever technology M&A transaction in China.�− �Credit Suisse�s most impressive deal in the region was acting as adviser to the biggest shareholder of Wing Lung Bank on the $4.7 billion sale of the bank to China Merchants Bank...The
deal is the biggest Hong Kong bank M&A transaction in the past seven years.�− �Other impressive deals in Asia include the biggest ever M&A deals in Indonesia and the Philippines, and the largest ever cross-border transactions between the Middle East and Asia, and
between Malaysia and Indonesia.�! The Asset
− �Credit Suisse continues to dominate Indonesian market with strong leadership across all products as it retains the Triple A accolade for Best M&A House Awards�− �As the only investment bank to be involved in the three largest and high profile cross-border deals in the 12-months to September 2008, Credit Suisse is an easy choice for the Triple A
Best M&A House in Singapore�− �Credit Suisse continues to execute deals and secure landmark mandates amid the decline in transaction volumes due to unfavourable domestic economic conditions [in Vietnam] and the
prevailing global credit crunch�− �Credit Suisse manifested leadership in M&A transactions in South Korea, leading several cross-border deals that helped transform Korean companies� �
Best M&A HouseKorea
2008 2008
Best M&A HouseIndonesia
Best M&A HouseSingapore
2008
2008
Best M&A DealAustraliaPrimary Health Care Acquisition and Financing of Symbion Health
Best M&A DealAustralia
Commonwealth Bank Group/Bank of Western Australia and St Andrew�s Australia
2008 2008
Best M&A DealAustralia
Commonwealth Bank Group/Bank of Western Australia and St Andrew�s Australia
2008
Best Syndicated LoanAustraliaA$2.5bn loan for Primary Health�s hostile acquisition of Symbion
2009
Best Emerging MarketsM&A House
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3. Financing mining projects
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Credit markets are going through unprecedented volatility with limited liquidity
Liquidity
!Depressed commodity prices also not helping
!Limited new issuance in capital markets from HY Asian issuers for last 12 months
!Lack of deep local bank markets in most mining countries, even Australian banks are slowing credit growth
!Regional banks (DBS, Korean, Taiwanese, Chinese) and international banks (Japanese, French, German, US) have changed focus to their home markets as they are tied by strings that come with stimulus / govt support
!Contractor / supplier financing is one alternative
!PE / Equity sale is another
Pricing
!Emerging market credit spreads are at all time high
!Local and foreign bank markets are open to deals with right structure and pricing. Pricing has moved up and structures are tighter
Impact of current credit market turmoil
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Type / Structure
!Development / exploration funding most impacted. Growth / expansion capital still available to mid-large size operators
!Industry also saw inexperienced / new entrants take on greenfield ventures during commodity boom (especially in Indo), most of the financiers to these operations are now struggling with recovery
!Better investor reception for structured / secured deals with security over cash flows. Structure needs to be secure to attract investors
Flight to Quality
!Hedge funds / institutional investors looking for value in equity
!Banks like CS continue to be selective with whom they work
!Its clear now that some of the weak players in current commodity price environment will fail
Impact of current credit market turmoil (cont�d)
Investors are increasing pushing for a flight to quality in credit names
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Mining project lifecycle
1.Acquire survey data
2.Bid for working area
1.Geological / subsurface / geophysical study
2.Seismic study (2D / 3D)
3.Exploration drilling4.Core tests
Phase
Characteristics
Activities
Working interest Exploration ProductionDevelopment
Low / medium capex
High riskLow capexLow risk
High capex Medium risk
1.Pre-Stripping2.Construction3.Infrastructure4.Processing
1.Mineral production2.New mines/areas3.Reclamation &
rehabilitation
NPV
Po
sit
ive
N
eg
at i
ve
0
Define budget and work program
Commercial discovery
Independent reserve/resource certification
Production start-up
Secondary areas
Offtakeagreement
Timeline
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Available source of financing for mining projects
!Regulatory constraints!Limited level of risk appetite!Limited access to USD funding
"Lower cost of funds
"May offer the tightest margins
Local Commercial Banks
!Selective industry / sector coverage!May not have sufficient presence or
local knowledge
"Higher risk appetite than local banks
"May offer competitive rates to establish relationship and market foothold
Foreign Commercial Banks
!Corporate lending deals vs. project asset
!Typically require corporate audited accounts, ratings and offering docs
!Limited flexibility on structure!Bond markets are currently
challenging
"Less stringent on structure (eg. security and amortizations)
"May allow for tighter pricing and longer tenure
Bond Markets
!Complicated execution process!Cashflows have to be captured and
deployed offshore
"May allow for tighter pricing and longer tenure
CashflowSecuritization
!Limited leverage "Basic form of financing structure with clear security package and cover
Lease / Asset backed financing
!Highly complicated!Execution could potentially take 12-
18 months or longer
"Well-established financing structure
"Available for greenfield projects
Project Financing
Pros Cons
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Project financing
! Typically covers construction period to end of useful life! Requires contractual arrangements on:
− Procurement of asset / equipment from reputable suppliers− Customer contracts (long-term take-or-pay contracts)− Third party or reputable operator− Size of US$100-500mm, economies of scale− Non-recourse project company
Equity
Debt
$ Upfront
Project Co / Asset
OwnerSuppliers
Equipment Services
$ Periodic
Customer
Operator
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Lease financing
! Suitable for moving assets or assets that may be redeployed! Lessor owns the assets during the life of the transaction! Possible tax advantages for the lessee! Typically only upon delivery of asset / equipment to lessee
LesseeEquipment
Suppliers
Services
$ Periodic
Customer
Lessor
$ Periodic
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Cash flow securitization
! Typically for operating assets generating cash flows! Diversification of assets / customers improving deal economics! Requires security over assets and cash flows! Requires long term contracts with customers on take-or-pay basis and/or collateralisation of
cash flows! Diversification of assets and customers improves pricing on these deals! Structure can be applied to bank, bond markets or private financings
Asset Owner
Services
$ Periodic
Customer
Lenders$ Secured
Assets secured
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Emergence of Private Placement Market
! Over the last 4-5 years the private placement market has matured significantly
! Private placement market offers an alternative to traditional bank and bond /capital markets
! Private placements allow access to institutional investors and allows issuers to share forward looking projections / business plans that are not allowed in bond markets
! Private placement investors require access to management and due diligence, thus allowing issuers to better sell their credit story
! Estimated issuance of $20-25 billion in the structured private placement market since 2003. Credit Suisse leads this market with over $11 billion of private placements
! Ideally suited to mid-size companies which are not ready for listed bond market or have limited access to bank market
! Private market should be used in addition to bank lines and should not be treated as a replacement for the working capital bank lines
! Private deals can be structured as loans or bonds
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Conclusion
Banks
! Focused now on restructuring given the economic crisis
! Increased losses and defaults in mining projects
! Less aggressive, specifically on
− Greenfield
− Commodities
− Execution/Development risks
New Lending
! Back to basics
! Higher grade credits
! Well collateralized structures
! Larger corporates
! Local banks still have local currency appetite
Credit Suisse
! Appetite on a selected basis
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CREDIT SUISSE (SINGAPORE) LIMITED
One Raffles Link#03-01/#04-01 South LobbySingapore 039393
Tel: (65) 6306 7305 Fax: (65) 6212 7356 Mob: (65) 9826 9720 Email: [email protected]
www.credit-suisse.com
Alberto Migliucci
Director - Investment Banking
Head of Mining and Oil & Gas, South East Asia