Funding Africa’s Mining Projects - The case for Private Equity

Presented by: Dimitri Cavvadas

London, UK December 2, 2013

Outline

•  The current funding environment

•  Private equity in Africa in the last decade

•  Private equity enters the mining space

•  The new mining private equity funds

•  Which projects will they back?

•  Transaction Structuring in Africa and the Exit

•  The Outlook

The current funding environment

Global Environment: Ø Few new listings Ø Low company valuations Ø Austerity Africa’s Regional Challenges: Ø Political risk Ø Resource nationalism Ø Infrastructure Ø Labour unrest

Private Equity in Africa in the last decade

•  120 private equity funds headquartered in Africa •  $19.3b raised •  $8.4b raised by SA based firms •  20% investment returns

•  Top 5 Africa based fund managers (45% of capital raised in last decade): Ø  Citadel Capital (Egypt) Ø  ChrysCapital (Mauritius) Ø  Ethos Private Equity (SA) Ø  Pamodzi Investment (SA) Ø  EFG – Hermes Private Equity (MENA Region)

Private equity in Africa in the last decade

The mining/private equity relationship

From the Miner’s perspective: •  Expensive •  Intrusive •  Transaction Complexity

From the Investor’s perspective:

•  Extensive due diligence •  Regulatory hurdles •  Timelines to develop project

•  Exit strategy

The emergence of private equity backed mining vehicles

• X2 Resources (M Davis) •  $1 billion •  Backed by TPG Capital and Noble Group •  Seeking assets in production

• Pangea Resources (R Still) •  Initial $200 million commitment •  Backed by Denham Capital •  Targets all stages of project life cycle

• B & A Mineracao (R Agnelli) •  $520 million •  Backed by PTG Pactual Investment Bank and AGN Agroindustrial •  Targeting Fertilizer, Iron Ore and Copper in Latin America and Africa

• QKR (L Pengilly)

•  $1 billion •  Backed by Qatar Holding and Jan Kulczyk •  Targeting early stage projects in Africa and Latin America

Selected dedicated mining funds operating in Africa

•  IDC Mining Fund •  R5 billion annual allocation •  10 to 15 mining transactions annually •  Seeks 10% - 15% interest in Target

•  New Africa Mining Fund •  Operates in venture capital space •  Seeks controlling interest in project

•  IFC Mining Fund •  36 mining projects (mostly in Sub Saharan Africa) •  53% of fund equity based

•  SEFA Mining Fund

•  Created by Anglo American to fund juniors •  Seeks 10% - 30% interest in project

Due Diligence Checklist

ü Quality of management ü Quality of ore body ü Geographical location of project ü Infrastructure ü Country risk ü Debt levels in project ü Sound corporate governance (foreign corrupt

practices legislation)

Example of basic transaction structure

Key transaction study issues: •  Tax •  Corporate structure •  Documentation •  Board control •  Exit mechanism

Implementation challenges in Africa

•  Resource Nationalism

•  Regulatory issues

•  Choice of law and disputes

•  Exit strategy v  IPO v  Trade Sale v  Management Buy out v  Management Buy back

The Outlook

“It’s a financial buyers’ market. Private equity will not be around forever and miners should not look at it as a permanent source of capital but there will always be a small

space for it. Rumours of massive private equity interest in mining are overblown.” Peter Gordon (Brookfield Asset Management)

“Private equity is interested in only the highest quality assets and mining companies have to think about prettying themselves up if they want attention.”

Chris Porter (BDO Canada)

“Investors who follow Davis and other turnaround specialists in the sector could make

a killing from these assets.” Meyer (SP Angel)