Mining in Emerging Economies - Ernst & Young€¦ · Mining in Emerging Economies - Sharing the Spoils | 3 Volatile and uncertain scenario L`] jYha\ hY[] g^ _jgol` l`Yl l`] eafaf_

$Page 1: Mining in Emerging Economies - Ernst & Young€¦ · Mining in Emerging Economies - Sharing the Spoils | 3 Volatile and uncertain scenario L`] jYha\ hY[] g^ _jgol` l`Yl l`] eafaf_$
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


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


2

3


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


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


(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


Deal values

Country Change in global share by value (%)

Change in global share by volume (%)

33

Source: EY research



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


-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


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


-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


Exploration trends

Latin America and Africa take the lion’s share


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%


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


Major factors shifting mining to emerging economies

Commodity demand and price boom:

Liberalization of mineral policies:


Advancement in technology:

other emerging markets:

22

23

Challenges in emerging economies

22

23



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


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$


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


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


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


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:


Promote risk capital markets in India:

Mining taxation reforms:

Recalibrate exploration:

Promote contract mining and other mining services in India:


Build strategic alliances:

Develop special mining regions and SPVs:




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Mining in Emerging Economies - Ernst & Young€¦ · Mining in Emerging Economies - Sharing the Spoils | 3 Volatile and uncertain scenario L`] jYha\ hY[] g^ _jgol` l`Yl l`] eafaf_