Financing Mining Projects in Québec

Financing Mining Projects in Québec

Deloitte’s Business Class: Montreal Mining –Investing and financing in today’s capital markets

November 19, 2013

Dentons Canada LLP

November 19, 2013 Dentons Canada LLP 2

Overview of the Québec mining sector

Value of mining production by province($M, 2012)

Source : Natural Resources Canada

• There are 20 mines in activity.

• The value of mineral production in Québec was$8.2 billion in 2012.

• Québec's share of the Canadian mineralproduction in 2012 was about 17.5%, up from13.2% in 2008.

• 60% of Quebecers believe the mining industryis contributing to the Québec economy and jobgrowth.

Saskatchewan

- 9%8 312

8 247

Newfoundland-and Labrador

4 449

Québec

8 187

Ontario

9 163

BritishColumbia

Distribution of mine complex development expendituresby location of company head office, Québec


2008 2012

Source: Institut de la statistique du Québec

Total: $4,509 millionTotal: $1,485 million

In 2012, only 1.7% of mining development expenditures were done byQuébec junior mining companies compared to 26% in 2008.

Outside Canada,the United

States or in theworld35%

Québec25%

Ontario36%British-Columbia

2%

Distribution of exploration and deposit appraisalexpenditures by type of company, Québec (2011 – 2013*)


2011

Total: $834 million

* Revised intentions (July 2013)Source: Institut de la statistique du Québec (October 2013)

Junior companies55,3 %

Seniorcompanies

41,6 %

Crowncorporations

3,1 %

2012

Total: $620,7 million

2013

Total: $447 million

Junior exploration companies fund their operations in capital markets.Where do we go from here?

Evolution of exploration and deposit appraisal expenditures bytype of company, in constant 1997 dollars, Québec, 1986 – 20091

November 19, 2013 Dentons Canada LLP. 5

1 Revised intentionsSource: Institut de la statistique du Québec . Relevé des dépenses d’exploration minière, de mise en valeur et d’aménagement du complexe minier, 2008 et 2009 (intentions révisées)

Majorr

Junior

Total

Public

Evolution of mineral shipments and mining investment($M, 2001 constant): 1980 to 20101 & 2011i


Quebec's share of Canadian mineral production, 1999 - 2008

1999 2001 2003 2005 2008 2009 2010 2011 2012

Mineral production 19,8 18,4 17,7 14,0 11,5 18 17 17 17,5

Québec / Canada%

Source: Institut de la statistique du Québec, Natural Resources Canada

1: Final investment data, preliminary expeditions valuei: Intentions

Mineral shipments

Mining investment

Access to public capital markets is an inescapablecondition of success


TSX(V) TSX

2010 2011 2012 2013(sept.)

2010 2011 2012 2013(sept.)

Number of listed miningcompanies

1 180 1 275 1 309 1 288 357 371 364 345

Value of equity financing(billion of $)

5,3 5,9 2,8 1,0 12,5 6,6 7,5 1,9

Market capitalisation(billion of $)

40,1 28,4 19,2 11,8 523 398 381 240

Source: TMX, The MIG Report

Quebec-based exploration and mining companies are underrepresented on theTSX and the TSX(V). There are only 82 on the TSX(V) and 12 on the TSX.

Fundraising by mining companies on the TSX and TSX(V)(2009-2013)


Nb of IPOs ProceedsC $M

Nb offinancings

ProceedsC $M

ProceedsC $M

%

2012 49 391 1,655 9,899 10,290 18

2011 70 362 1,921 12,112 12,474 24

2010 93 1,312 2,315 16,427 17,749 33

2009 43 23 2,179 21,784 21,806 34

Total financing proceeds for the first 9 months amounted to $2.9 billion in2013 compared to $7.3 billion in 2012. Listing on a TSX exchange is the key

to secondary and private placement financings.

New issues Follow-on issues andprivate placements

Totalissues

Mining as %of total TSXand TSX(V)proceeds

China is a key player….but it is not in the dominantposition

November 19, 2013 9Dentons Canada LLP

United States

China

Others

Australia

Canada

UnitedKingdom

Value of M&A per origin(excluding Glencore-Xstrata)

2012

Australia17,64%

Africa12,30%

Asia26,47%

Europe14,24%

NorthAmerica10,09%

LatinAmerica19,26%

Chinese investments per region(cumulative: 2005 – 2012)

Source: Global Mining Deals, PwC (2013)Source: The Heritage Foundation

Global investors have different interests(value of deals – 2012 $)


Copper

China18%

Other17%

Japan11%

Chile13%

U.K.16%

Poland25%

Gold

Canada47%

Other26%

Australia12%

China15%

Iron Ore

China28%

Japan27%

Other22%

South Korea23%

Total: $13.5 billion Total: $14.6 billion Total: $7.4 billion

Global investors have different interests(value of deals – 2012 $)


Total: $3.1 billion Total: $4.1 billion Total: $3.9 billion

Potash/Phosphate

China16%

Russia67.3%

Other12%

USA5%

Silver/Lead/Zinc

Other12%

China5%

Switzerland34%

Canada49%

Uranium

China59% Canada

23%

U.K.15%

Other3%

Average duration and average cost of transportation of a ton of ironore to China (2012, $US, days)


* Duration based on the average speed of 15 knotsSources : Baltic Exchange, Bloomberg, AME Group, SECOR

23 $13 $

31 $ Québec- Option Cap de Bonne Espérance

59 $

Québec- Option Canal de Panama

Brazil (Tubarao)Australia (Dampier)

31 days*

15 days*

34days*

43 days*

Long-term evolution of real prices of metals


1865 – 1881 1881 – 1974 1974 – 2010

Annual compound growth rate 0,1 % - 0,7 % 1,0 %

Compound rate for the period 1,7 % - 48,2 % 43,8 %

Number of years 16 93 36

Source : Jose Antonio Ocampo, Professor, University of Columbia, March 2013

The levels of financing activity on the TSX(V) gives credence to analystsforecast that there will be significant oversupply in most metals by 2016.

Québec mining policies are unhelpful


• The Royalty Regime

• Taxation on a mine by mine basis eliminates the incentive for existing mines toexpand their operations into adjacent projects that are often marginal on astand-alone basis.

• Although the NPV of the royalty payments under the current system is roughlyequivalent to the precedent regime, its structure greatly increases the risk ofnew developments.

• Requirement to consider local transformation

• Greatly increases financing difficulties because it puts risk mitigation financingoptions in jeopardy.

• The business case for strategic investors is considerably weakened. Why would a globalcompany invest in a Québec mining development project if it cannot supply its existing plantswith the product?

• The rationale for off-take agreements is destroyed.



A profound transformation is occurring in the nature ofour economy


Modern economies are evolving from a biological basis to a mineral basis. Rare earths may replaythe role aluminium played during the transition from base metals.

Global mining executives are regaining confidencein the future


believe that credit availability is improving.

have a greater focus on growth, up from 38% at the end of 2012.

believe there is a greater emphasis on efficiency and cost controlcompared to a year ago. This implies a greater interest in acquiringwell-advanced projects rather than assuming responsibility formining project developments.

believe that the state of the global economy is improving comparedto 21% at the end of 2012.

Sources : Global Capital Confidence Barometer, April-October 2013