consolidation – then and now robert champion de crespigny ac chairman, buka minerals limited
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Consolidation – Then and Now Robert Champion de Crespigny AC Chairman, Buka Minerals Limited Sydney Mining Club, 7 October 2004. Consolidation – the 1980s. Australian equity markets were a major source of exploration capital a boom in the small end of the gold business - PowerPoint PPT PresentationTRANSCRIPT
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Consolidation – Then and Now
Robert Champion de Crespigny AC
Chairman, Buka Minerals Limited
Sydney Mining Club, 7 October 2004
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1) Australian equity markets were a major source of exploration capital
a. a boom in the small end of the gold business
b. boom in mining services and finance
2) … but little equity for established miners seeking to grow, unless you were foreign and had a track record
a. Placer, Homestake, Newmont, etc
3) To grow beyond organic growth, you needed (and still need) access to offshore markets - that required size
Consolidation – the 1980s
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1) Equity capital and premium prices followed the successful miners and explorers
a. the North American markets began to dominate the equity side of mining finance
b. North American institutions became the dominant investors and shareholders
c. … and they were only interested in large capitalisation stocks, preferably home-grown
2) The result was mass consolidation in Australian mining
a. between Australian companies seeking to compete
b. by North American companies using their financial muscle
c. by South African companies seeking to diversify
Growing a mining company in the 1990s
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Consolidation in the global gold sector
Battle Mountain LAC Homestake Sutton Getchell Highlands
GoldSanta Fe Newmont
Gold Normandy Franco-Nevada
Anglo Gold (6.0Moz)
Gold Fields (4.5Moz)
Aurion Gold
Niugini Mining
Homestake Australia Plutonic Prime
ResourcesEast Arican Gold Mines
Goldfields (Australia)
TVX North Flinders
Mt Leyshon
Great Central Dalta Gold
Ranger Tarkwa ARMgold Evander Elandskraal KalgoldAshanti Acacia Minorco WMC Gold Randfontein
Newmont (7.5Moz)
Barrick (5.7Moz)
Placer (3.7Moz)
Harmony (4.0Moz)
Hill 50 New Hampton Bendigo Abelle
Source: AME Mineral Economics, N M Rothschild & Sons
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Australia vs North America in the 1980s & 90s
KEY ATTRIBUTESAustralianGold Companies
North American Gold Companies
Exploration Focus Brownfields, local Greenfields, emerging markets
Mine Developments Re-working old mines - Eastern Goldfields
New mines - Nevada, Chile, Peru
Mine Lives 5-10 years 15-25 years
Reserve Growth Modest Dramatic
Growth Focus Merger Exploration, merger
Financial Markets Modest support Strong support
Valuation Basis DCF Premium to DCF
Financial Returns to Investors
Modest, cyclical Strong, based on reserve growth
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1) By 2000, the ranks of Australian mining companies had been decimated
a. large parts foreign owned
b. the Australian majors had become international
c. the mid-ranked Australians disappeared
2) … and a new generation of investors did not understand mining
a. they didn’t need to
and
b. it didn’t pay, we were in a 10 year bear market
The result
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1) A handful of majors
a. foreign – Rio, Anglo, the gold majors
b. Australian – BHPB, WMC
2) A number of significant company failures (Pasminco, Western Metals, Gympie, Sons of Gwalia)
3) A tiny mid tier
4) A diminishing number of active smaller companies
The Australian mining industry in 2000-04
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1) The disappearance of the listed Australian mining industry has coincided with a mining boom
2) … resulting in a high level of industry profitability and major capital investment in new capacity
3) … but mineral exploration is surprisingly subdued. Why?
a. the effects of consolidation
b. the disappearance of the “cashed-up junior explorer”
c. very few “exciting” discoveries
d. junior companies focusing on production vs exploration
In 2004 - Golden times for the industry
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1) Some seeds were sown in the nickel boom
a. exploration-driven success with Jubilee and MPI
b. several strong juniors, but mostly re-working old mines
2) … and success by enterprising locals offshore (Oxiana, Kingsgate, Pan Aust)
3) But there has been no broadly-based recovery in the locally-owned mining industry
4) … and local investors have largely stayed on the sidelines
So how do we rebuild an Australian-owned mining industry?
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1) The Australian industry has not delivered real exploration success
a. comparison to the North American majors
b. distinction between bulk commodities and metals
2) Australian institutions have not seen the same value in Australian-owned resources assets
a. cycle-pickers rather than long term investors
b. thus the need to secure equity offshore
c. disadvantage relative to North American and UK-based companies (pool of funds, Canadian property, etc)
Two underlying issues
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1) Exploration success
a. exploration funding will follow success
2) Aggressive mining entrepreneurs
a. we have some – Andrew Forrest, Keith Liddell
b. … but we need more
The financial markets won’t lead the charge, but we need them to follow
Two prerequisites?
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1) Australia remains a competitive location for exploration
2) Macroeconomic stability
3) Supported by a favourable regulatory environment
a. pro-development Federal and State governments
b. Australia and its states always rank well in industry competitiveness surveys
c. moderate tax and royalty regimes
d. streamlined native title resolution processes
e. no corruption
Exploration – the landscape
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1) Much of country is under cover
2) New exploration techniques allow exploration under this cover
… and remains highly prospective & under-explored
Deposit
Operating Mine
Thin cover (0-50m)
Moderate cover (50-100m)
Thick cover (100-800m)
Pre-Cambrian Provinces
Sedimentary Basins
Deposit
Operating Mine
Thin cover (0-50m)
Moderate cover (50-100m)
Thick cover (100-800m)
Pre-Cambrian Provinces
Sedimentary Basins
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1) Exploration expenditure has been low for some years in line with weak prices
2) Gold exploration dominated, but was mostly around existing mines
3) Resulting in only a handful of new mine discoveries in this decade
a. Prominent Hill Au/Cu, S.A. (Minotaur / BHP)
b. Wingina Well Au, Pilbara (De Grey)
c. Waterloo Ni, Yilgarn (LionOre)
... who can think of any more?
… but there have been few recent discoveries
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1) Create a more favourable climate for exploration
a. South Australian initiatives
b. taxation incentives and R&D treatment play a part, but not an important one
2) Encourage investors to support junior explorers
a. Lion Selection has been a strong supporter
b. other funds are being established
3) Encourage producers to re-invest profits in exploration
a. it is the major driver of long term value creation
… but the most important catalyst will be exploration success
What will change this?
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Total Australia $735 million
South Australian exploration initiative
Exploration Expenditure by State - 2003
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SA initiative – ‘A Plan to Accelerate Exploration’
1) Package designed to remove or overcome impediments
a. combined State-wide and region-by-region approach
1) Addresses issues such asa. land access
b. difficulties of exploring under cover
2) Action plans includea. State funded R&D programmes
b. increased PIRSA staffing
c. “dollar-for-dollar” partnership on drilling in target regions
d. Resource Industry Ambassador
3) Spending $22.5 million over 5 yearsa. Aimed at boosting annual minerals production to $3 billion by 2020
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Listed ASX: BKA
Issued Capital 138.5 million ord. shares100.0 million options (at $0.20-$0.225)
Market Cap. $48 million$73 million (fully diluted)
Board Robert Champion de Crespigny AC, ChairmanJohn Richards, Managing DirectorMark CarnegieAngus CollinsTom KlingerRonald Walker AC CBE
Holders Investor Group 30.5%Triako Resources 24.7%Delphic Holdings 16.2%
Buka - Profile
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1) Buka has traditionally been an explorer-developer
a. Lady Annie pre-feasibility study completed on 13,000 tpa SX-EW copper project
ready to go but lacking critical mass
b. Lady Loretta JV with Noranda
high quality undeveloped zinc resource
awaiting an improvement in the zinc market
Our strategy at Buka
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1) Buka is now a 21st century resource finance house
a. an investor and financier of resource companies and projects
b. an opportunistic investor
c. a friend to emerging mining companies
2) A very different model from previous mining houses
a. very small executive team
b. active Board of Directors
3) Initial investments
a. CopperCo
b. Gympie Gold
Our strategy at Buka
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1) Buka is the cornerstone shareholder (22%)
2) Buka’s Lady Annie is the cornerstone asset
3) A regional exploration play
a. large land position north of Mt Isa
b. oxide and sulphide copper focus
4) … and a strong management team
a. Brian Rear
b. Mineral Securities
CopperCo
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1) Buka is in syndicate with Mizuho and Investec
a. formed to acquire Gympie Gold debt
b. now acquiring Gympie Eldorado assets
2) $4-5 million 2004/05 exploration programme commenced
a. stop-start exploration history has not done the field justice
b. key target is South Inglewood prospect
Buka and its partners have relaunched exploration at Gympie Eldorado
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Questions?