Global Capital Markets - where does your equity story fit?

www.pwc.com/ca
Global Capital Markets – where
does your equity story fit?
PDAC, Toronto
March 2012
Presenter
Jason Burkitt
Partner, PwC London
UK Mining Leader
E mail:
Tel.:
Mob.:
PwC
[email protected]
+44(0) 20 7213 2515
+44 (0) 7740 064717
2
PwC Global Mining Network
We have been providing
professional services to
mining companies for over
100 years.
We audit:
• 25% of Top 40 global
mining companies
• 37% of the FTSE 100
• 32% of ASX listed
mining companies
• 24% of the TSX listed
mining companies
PwC
3
Our selected mining deal credentials
Nov 2010
June 2011
July 2011
Feb/Jun 2011
September 2010
IPO on the Warsaw
Stock Exchange
IPO on ASX
$3bn acquisitions and
listing on the Official
List of the LSE
IPO on AIM
IPO on AIM
$1,960m
£10m
$80m
Introduction only
$60m
Reporting Accountant
pwc
March 2010
Reporting Accountant
pwc
December 2007
Reporting Accountant
Reporting Accountant
pwc
pwc
December 2007
December 2010
Reporting Accountant
pwc
December 2010
July 2010
IPO on the Official List
of the LSE
£707m
Reporting Accountant
pwc
February 2007
I
IPO on the Official List
of the LSE
IPO on the Official List
of the LSE
IPO on the Official List
of the LSE
IPO of TSX
IPO on TSX
£581m
$3,042m
$185m
$280m
$51m
Reporting Accountant
Reporting Accountant
Reporting Accountant
pwc
pwc
pwc
PwC
Reporting Accountant
pwc
Reporting Accountant
pwc
IPO on AIM and TSX
$100m
Reporting Accountant
pwc
4
Today’s agenda
Topic
Global capital markets overview
Where does your equity story fit?
Getting ready – how to stand out.
PwC
5
Over 250 IPOs cancelled or postponed globally in 2011
Recent deals have been vulnerable to market volatility and changes
in investor risk appetite – although pipeline remains strong
Eye of the storm and impact
of the financial crisis
90
Market Volatility Index
80
70
Eurozone
financial
crisis
60
Sovereign
debt crisis
50
40
30
20
10
0
02/01/2008
PwC
02/07/2008
Source: Yahoo Finance
02/01/2009
02/07/2009
02/01/2010
02/07/2010
02/01/2011
02/07/2011
6
Some of mining stories of the past 12 months
Conditions remain difficult, but good stories still sell
Market
Country of
ops
Amount
raised
LSE, HKEx
Swiss/Int’l
$9.8bn
London and HK listing of the largest commodities trader in
May 2011, merger talks with Xstrata
HKEx
Australia
Cancelled
Major Australian iron ore and coal group pulled $3.6bn PO
after a number of attempts to attract Chinese investors
LSE
Russia
Introduction
only
LSE, HKEx
Mongolia
Postponed
JSW SA
WSE
Poland
$1.9bn
One of the largest IPOs in Europe in 2011, privatisation of
largest coking coal producer in Europe
Vallar plc / Bumi plc
LSE
EM/Indonesia
$1.1bn
July 2010 IPO of a SPAC raising $1.1bn, followed by $3.3bn
acquisition of Indonesian coal interests completed in Feb
2011, with premium listing on the LSE in June 2011
PhosAgro
LSE
Russia
$0.7bn
Russian potash producer floating in London in July 2011 at
lower valuation
Polymetal
LSE
Russia
$0.8bn
Russian gold miner moved up from DRs to premium listing
and FTSE 100
Nord Gold
LSE
Russia
Postponed
Gold-mining unit of Severstal withdrawn $0.7bn listing due
to market conditions and falling gold prices
Company
Glencore International
PLC
Resourcehouse Ltd
Evraz
Erdenes Tavan Tolgoi
PwC
Comments
Russian steelmaker moved up from GDRs to premium
listing and FTSE 100
One of the largest coal deposits in the world, initially
expected to list on LSE, HKEx and MSE
7
Current trends in international equity capital markets
– all impacted by the commodities boom
Shareholder exits
Emerging
market
issuers,
- Private
equity
cross-border
listings
- Entrepreneurs
Privatisation
Spin-offs and demergers
- For capital investments
- For shareholder value
Secondary and dual listings
– heading East?
PwC
8
Outlook
• With strong demand fundamentals and looming supply challenges for many metals,
resource sector remains one of the hottest for IPO activity
• Mining IPO pipeline remains strong - continuation of 2010 and 2011 trends in the
sector expected:
 continuing popularity of gold and coal
 spin-offs of assets by major mining & energy groups
 increased emerging markets activity in mid-tier
 further privatisation of fully or partly state-owned assets, including Russia,
Mongolia, Kazakhstan
 secondary listings in Asia (Vale, Kazakhmys)
• Promotion of Hong Kong as a listing venue for resource sector, although remains
difficult for exploration & development companies
• Increasing competition among key financial centres for IPO candidates, eg first
mining IPO on Catalyst market in Singapore
• Continued economic uncertainty and volatility in short term
PwC
9
Today’s agenda
Topic
Global capital markets overview
Where does your equity story fit?
Getting ready
PwC
10
What is your equity story – and who will buy it?
Market position of
assets
Understanding
stage of
development
Quality of resource
base
Competition and
market share
Positive commodity
prices outlook
Well thought
through capex
plans
Maximising value of
asset portfolio
Proximity to
emerging market
customers
Good access to
transportation
routes
Credibility of
management
Off-take
agreements
Commodity
synergies
PwC
Efficient cost
management
11
Creating a compelling investment proposition – Key
considerations
• Near term cash
flow to fund
capex?
• Durable cost
curve position?
Does the
whole equal
more than the
parts?
• Commodity &
geographic
diversification?
• Vertical integration?
• Synergies?
PwC
Set the
asset
perimeter
• Foundation assets
• Downstream facilities
• Exploration projects
Critically
assess
each
project’s
maturity
Determine
how
proceeds
will be
applied
• Optimised or mature
mine?
• Robustness of
construction plans?
• Mineral resource
uncertainty?
• Cost to take forward
• Production expansion
• New mines
• Exploration programmes
• Growth through acquisition
• Management focus
12
How does your equity story influence your choice of
market?
Market size and liquidity
Market
Geographic proximity
Domestic
Regional
International
Global
Likely investor base
Regulated/
Unregulated
Regulation and process
PwC
Single/primary or
Dual/secondary
listings
Valuation
Ongoing obligations
Corporate governance
Ease of further
fundraising
13
Evolution of the mining industry capital markets
Increasing choice for issuers and strong competition amongst
exchanges
Future
Present
- Significance of NY
diminished
- London remains a
Past
- NYSE and LSE key global capital
markets
- TSX and ASX as
main options for
juniors
- Domestic capital
markets illiquid
and shallow
PwC
major int’l mining
finance hub
- TSX and ASX continue
attracting juniors
- Push by HKSE to
become a major mining
centre
- Significant cross-border
activity - Some domestic
capital market growth
- HK as an established
global mining finance hub
for majors?
- SGX as a creditable Asian
alternative to HKSE for
juniors?
- Bovespa as a LatAm
mining hub?
- Further attempts at
exchange consolidation?
Global trading platforms?
- Ultimately, domestic
capital markets as the
primary source of mining
equity finance?
- Developed PE and SWF
financing routes for
miners?
14
Comparison of stock exchanges
At 31 December 2011
London
Australia
Toronto
Hong Kong
Main
Market
AIM
ASX
TSX
TSXV
Main
Board
Total number of issuers
1,376
1,143
2,079
1,588
2,249
1,326
Total market cap, US$ bn
5,584
101
1,198
1,967
48
2,247
Number of international cos
312
225
96
194
158
24
No. of mining issuers listed
44
136
687
371
1,274
69
Mining market cap, US$ bn
405
20
308
391
28
243
Average market cap, US$ m
9,205
147
448
1,054
22
3,522
3
9
49
6
42
7
Proceeds of mining IPOs in
2011, US$ m
10,907
67
471
202
145
2,124
Average raise
3,636
7
10
34
3
303
Total mining equity raised in
2011, US$m
10,972
378
7,273
4,813
1,007
3,419
New mining IPOs in 2011
Converted at:USD:AUD of 1.02, USD:CAD of 0.98, USD:GBP of 1.55, HKD:USD of 7.76
sources: World Federation of Exchanges, stock exchanges, ThomsonOne data, PwC research
PwC
15
Key resource companies listing venues – commodity
focus
LSE
HKEx
ASX
TSX
• Big diversified miners
account for c.30% of
market value of all
resources firms
• Fewer number of
resource companies
but concentration of
large cap companies
• High concentration of
small cap companies
• High concentration of
small cap companies
• O&G represents
c.60% of resources
• Coal and O&G
account for c.90% of
market value of all
resources
• Most diversified listing
venue with balanced mix
across all commodities
• Balanced mix of
precious metals and
base metals and O&G
• Rio Tinto and BHP
Billiton account for c.2/3
of resource market value
• High concentration of
precious metal
companies especially
gold
• Largest listing venue
for oil & gas and
copper companies by
market value
Base
Metals
7%
Coal
7%
•
Largest listing for
coal companies by
market value
• Largest listing venue for
iron ore by market cap
Base
Metals
12%
Iron ore
6%
Copper
8%
Base
Metals
6%
Precious
metals
10%
Oil & Gas
62%
Coal
22%
Coal
20%
Uranium
3%
Copper
12%
Iron ore
20%
Oil &
Gas
19%
Precious
metals
14%
Uranium
3%
Copper
8%
Copper
1%
Precious
metals
3%
PwC
Oil & Gas
68%
Base
Metals
12%
Oil &
Gas
43%
Precious
metals
34%
16
Which market – which investors will buy your story?
Considerations
Market
Dynamics
Overview
LSE
PwC
ASX
TSX
HK
• Significant liquidity and
appetite for resource
companies
• Significant experience in
the metals & mining
sector
• Significant experience
in the metals & mining
sector (~50% mining)
• Hub of Asia regional
exchange excluding
Japan
• Global diversified players
listed here
• Investors widely exposed
to resources and
understand risks
• Investor community
familiar with
international assets and
willing to evaluate
exploration assets
• Increasing appetite for
mining companies (i.e.
Rusal and SouthGobi)
• Market cap =
US$6,129bn
• Resources: 20% of
exchange
• Market cap =
US$1,454bn
• Resources: 39% of
exchange
• Market cap =
US$1,596bn
• Resources: 37% of
exchange
• Market cap = US$2,711bn
• C. 350 resource
companies
• >900 resource
companies
• >1,800 resource
companies
• >150 resource companies
• FTSE index inclusion
important to generate
investor interest
• Investors would prefer
some management
presence in London
• Limited large scale IPOs
in resources
• Fewer large scale IPOs
(>US$1bn)
• Increasing interest for
international listings
• Limited experience with
companies with offshore
assets
• Smaller, focused
investor base but access
to US capital
• Bias towards producing
assets
• Largest number of international issuers (c.600),
leading exchange for
inbound listings
• Lower trading volumes
than other global
listings
• Resources: 18% of
exchange
• Mining companies with
China focus
• Coverage more limited
17
London listing requirements – overview
Eligibility conditions in London
Premium
Standard
AIM
Appointment of a sponsor/nominated adviser and broker



Clean three year track record (>75% of business)



If exists, must present 3 years
Control of the majority of assets (>50%)



Two years IFRS (or equivalent) – US GAAP accepted



Audited numbers must not be more than 6 months old



n/a


Adequate controls to meet continuing obligations



Adequate financial reporting procedures

(a), (b)

Sufficient working capital for at least 12 months from date of
prospectus

– shares

Long-form due diligence

(a) – shares
GDR

At least 25% shares/GDRs in public hands



Shareholder approval of significant and related party transactions


Reverse takeovers
Interims if document dated > 9 months after the end of last audited
year
(b) - GDRs
(a) For shares, level of diligence similar to premium listing expected; market practice currently evolving.
(b) For GDRs, sometimes required; practice evolving.
PwC
18
AIM Fast Track Overview
Background
Companies already listed on one of nine overseas exchanges (AIM designated market),
including TSX, may not have to produce a full admission document if they want to establish
a joint or secondary listing on AIM
Note: TSXV does not count as a designated exchange and therefore fast track will
not be available
• This route is available to companies that have been quoted on an AIM Designated Market
(“ADM”) for at least 18 months prior to the date of admission to AIM
18 month requirement
AIM and the LSE
Nomad
PwC
• If a business has changed substantially in the last 18 months (for example if it has acquired
a large business in that period) it is possible that the entity will not be able to take
advantage of the ADM route
•
One of the deepest pools of global capital
•
Specialist resource focused investors and relevant peer groups
•
Sarbanes-Oxley free zone
•
Prospectus not necessary on AIM for private placement
•
Will require a nominated advisor and broker who are members of the London Stock
Exchange
•
AIM is much more Nomad-led than other markets, which rely on lawyers and a regulator
•
Principles based approach
19
Requirements for Fast Track
Instead of an AIM admission document, companies are required to make a more detailed pre-admission
announcement which has to be made at least 20 clear business days prior to the date of admission. This
announcement must include:
Legal and regulatory
Working capital
Historic accounts
AIM disclosures
PwC
• Confirmation that the company has adhered to the legal and regulatory requirements of the
relevant ADM
• A statement that the directors have no reason to believe that the company’s working capital
will be insufficient for at least 12 months from the date of its admission to AIM
• The address of a website containing the company’s latest annual report and accounts
(prepared in accordance with accounting standards currently acceptable under AIM rules)
which must have a financial year end not more than nine months prior to admission
(otherwise audited interim accounts will be required)
• Any other information which has not been made public which would otherwise be required
of an AIM applicant
20
Today’s agenda
Topic
Global capital markets overview
Where does your equity story fit?
Getting ready
PwC
21
Key decisions on the road to an IPO
Start of
preparation
Strategy and equity story, which
businesses/assets to float
Tax and legal structuring,
holding company location
Appointment of advisors, esp
Mineral Expert
Financial reporting and track
record audit requirements
Management information
systems
Choice of market and timing
Transparency and corporate
governance
People and resources,
key management
IPO launch
Board composition
22
Telling your story – key considerations
Consistency
in all
communications
Sustainability
• Link to strategy
Performance
fundamentals
• Underlying
performance drivers
External
Drivers
• Explain market
context and
what future
means
Strategy
• Clear priorities
• Context in external
market
•Link to….
Risks
Investment
Proposition
Measures of
success
• Clear KPI’s
• Link to
remuneration
• Risk appetite
• Clear description
of key risks
Business
operations
• Define business
model
• Explain key
relationships
4
Summary
Have you got your equity
story right? Are you clear
about your strategy?
Have you decided which
market best suits you?
Are you ready? Have
you got an up to date
Competent Person’s
Report?
PwC
Services:
PwC
IPO
Readiness
Pipeline remains strong
with fundamental demand
and supply drivers in place
but may be slow to emerge
Which
Market?
Tax
structuring
Governance
and controls
Reporting
Accountant
24
Thank you!
Continue the conversation …
LinkedIn: Join the PwC Mining Community
www.pwc.com/ca/mining-linkedin
Twitter: Follow @John_Gravelle for mining
updates & business insights
PwC
Thank you
This publication has been prepared for general guidance on matters of interest only, and does
not constitute professional advice. You should not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty
(express or implied) is given as to the accuracy or completeness of the information contained
in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its
members, employees and agents do not accept or assume any liability, responsibility or duty of
care for any consequences of you or anyone else acting, or refraining to act, in reliance on the
information contained in this publication or for any decision based on it.
© 2012 PricewaterhouseCoopers LLP . All rights reserved. In this document, “PwC” refers to
PricewaterhouseCoopers LLP which is a member firm of PricewaterhouseCoopers
International Limited, each member firm of which is a separate legal entity.