investment attraction of mena mining
TRANSCRIPT
Investment Attraction of MENA Mining
Vladimir F. Kuznetsov Director Earthstone Holdings, Ltd.
Conference Day Two: 26 October 2011 13:10 Mining investment opportunities
AS A GENERAL RULE, THE MOST SUCCESSFUL MAN IN LIFE IS THE MAN WHO HAS THE BEST INFORMATION
Benjamin Disraeli, British Prime Minster & Novelist
The information contained in this presentation is given without any liability whatsoever to myself, any persons, institutions or organizations that I may or may not be related with, for any loss whatsoever arising from any use of this presentation or its contents or otherwise. No representation or warranty, expressed or implied, is made or given by myself as to the accuracy, completeness or fairness of the information or opinions contained in this presentation. In particular, no representation or warranty is made that any projection, forecast, calculation, forward-looking statement, assumption or estimate contained in this presentation should or will be achieved. There is a substantial likelihood that at least some, if not all, of the forward-looking statements included in this presentation will prove to be inaccurate, possibly to a significant degree. The information contained in this presentation does not constitute investment, legal, tax or accounting advice. Recipients of this presentation should conduct their own due diligence and other enquiries in relation to such information and consult with their own professional advisors as to the accuracy and application of the information contained in this presentation and for advice relating to any legal, tax or accounting issues relating to a potential investment in the MENA region. This presentation does not constitute a recommendation to invest in the MENA region. Certain information contained in this presentation concerning economic trends and performance is based on or derived from information provided by independent third party sources, believed to be reliable. I cannot guarantee the accuracy of such information and have not independently verified the assumptions on which such information is based. I disclaim any responsibility for any errors or omissions in such information, including any financial calculations, projections, and forecasts in this presentation. The views and opinions expressed herein represent my own and not those of the people, institutions or organizations that I may or may not be related with, unless stated explicitly. This is not research and is not intended as such. This presentation has absolutely no intention of complete and comprehensive coverage of the enclosed problems, rather offers a general outline. This presentation is intended for discussion purposes only and is solely for your information and may not be reproduced or further distributed to any other person or published, in whole or in part, for any purpose.
Disclaimer
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Profound economy transformations, revolution in commodities’ weight substantially changed the global mining picture
Global Mining: Changed Picture
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Magnitude and ease of making profit, in comparison with the risks involved, that an industrial sector offers. It is based on the number of competitors,
their relative strength,
width of margins,
and rate of growth in demand for its goods or services
Industry Attractiveness
Goals & Perceptions: Investor vs. Recipient
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Natural and human resources; Price, quality and productivity of inputs; International transportation and
communication cost; Investment favor or discrimination; Man-made barriers to trade; Fundamental facilities; Cross-national values, language, culture,
commercial practice and politics; Research and development; Concentration of production and sales; Economic system and political strategy; Resource allocation system
Over the years, a number of salient points for investment attraction factors were developed by economists:
Dunning, J. (1977), “The location of economic activity and the multinational enterprise: search for an eclectic approach”, in Ohlin, B., Hesselborn, P. and Wiskman, P. (Eds), The International Allocation of Economic Activity, Macmillan, London, pp. 395-418
Investing Essence
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MENA: Investor’s Eyeball
This region faces geopolitical risks, is considerably dependent on energy exports and suffers from infrastructural bottlenecks. Moreover, it also has a way to go before it can overcome challenges in the form of bureaucracy, lack of transparency and limited availability of information. Finally, it lacks high-quality research to aid investment decisions and has an underdeveloped secondary market because of which the financial market is still at a nascent stage.
Investment Opportunities in the Middle East and North Africa (MENA) Region © 2009 Evalueserve, Ltd. All Rights Reserved
MENA region is one of the most geopolitically sensitive areas: it is at the crossroad between Eastern
and Western commerce
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Deficiency of adequate information on MENA mining
Search news results on MENA MINING : 16 Search news results on AFRICAN MINING : 1,720
MENA: Investor’s Eyeball
Solutions: Establishment of MENA Mining Information Agency
Develop ArabStat initiative to remedy information & data gap
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MENA Country Risks
Region is a heterogeneous mix of countries that vary in size, social and political structure, economic and regulatory framework, and the degree of economic diversification
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Based on data from: Economic Freedom of the World – 2010 Annual Report, by Fraser Institute
Economic Freedom
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Ease of Doing Business
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Investment Incentives
Morocco
State contribution to certain investment expenses through: Investment Promotion Fund State contribution to certain expenses in specific industrial sectors, development of modern technologies: the Hassan II Fund for Economic and Social Development Exemption from customs duties Exemption from import VAT Regime of convertibility for foreign investment: investors to carry out their investment in Morocco, directly transfer revenues generated /proceeds of their sale or liquidation 16 Regional Investment Centers ensure speedy company registration Customs duty and tax exemptions on imported equipment. 50% reduction on company tax or income tax for mining companies that directly or indirectly export their mining products Mining company may set up a tax-exempt reserve fund for exploration/ development investment equal to as much as 50% of fiscal profits, with a ceiling of 30% of turnover
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Investment Incentives
Jordan
Projects exempted from income & social services taxes by 25%, 50%, or 75% for 10 years, depending on the location and sector of project Foreigners can invest in mineral resources under special agreements and own up to 100% of mining projects Imported fixed assets are exempted from customs duties/taxes Free repatriation of capital, profits and salaries Exemptions in Free Zones Industrial Estates
Oman
Provision of soft loans for investment projects (3% interest rate) Free transfer of capital and profits, and access and departure of expatriate workers to and from abroad Duty-free import of machinery, equipment and spare parts for industrial investment Tax exemption to foreign investors for five years (renewable) from inception of company Minerals City being established to serve as a hub for a number of minerals-based processing projects No taxation of personal income
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Investment Incentives
Saudi Arabia
SIDF: Short term loans to investors, technical, administrative, financial and marketing advice. Loans: medium; long-term - up to 50% project’s total cost Payback: up to 15 years (2-year grace period) Low prices for electricity, water, and other fuels for industrial projects Flat corporate tax rate of 20% Absence of mineral royalties Highly competitive energy costs Import duties exemptions for approved mining equipment - 5% on other imported equipment Foreign individuals pay tax at a flat rate of 20% on income sourced in Saudi Arabia
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Technology & Infrastructure
New plans for upgrading infrastructure: e.g. Plan Azur envisions construction of new roads and airports Industrial development zones The MED zones: Special zones around the Tangier Med port project to serve the European Union based on optimal logistic conditions and an integrated multimodal platform (airport, highway network, rail network, seaport) offering attractive factor costs (freight charges reduced by 40% to 50%) Expansion of railway system and development of rural inroads with World Bank funded projects
Morocco
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Technology & Infrastructure
High quality infrastructure: 3 airports,1 port; 8,000 km of modern highway system; railway master plan to develop an extensive rail network Jordan
Suitable for mining: roads, power gird, availability of water, deep-sea port Industrial land planned for industrial investors are being provided and being equipped with the necessary services and facilities required for construction of projects: roads, water, electricity, gas, telecommunication and facilities for solid waste collection and disposal.
Oman
Saudi Arabia
Focusing on heavy infrastructure spending and the development of Saudi Economic Cities valued at over $80b Available land in different industrial cities at nominal charges. Land for other uses is available on lease or sale Advanced, state-of-the-art engineering supply and construction/contracting companies Extensive rail network that benefits mining projects
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Arab Spring & Investment
Period of momentous change, challenges and opportunity that can lead to a historical shift
in growth and development patterns
MENA Political turmoil leads to economic and financial repercussions; but largely limited to countries at the epicenter of the political events
Investment climate is blurred
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Arab Spring & Investment
What the population thinks: Qatar: 92% economy is getting better Morocco: 68% economy is getting better. Tunisia: 50% economy is doing better; 20% doing worse and 27% “staying the same.” Egypt: 42% see conditions in their country “getting” better, versus 37% who said it is “getting worse” Syria: 34% economy getting worse ; 32% getting better Yemen: 19% doing better Iraq: 16% economy looks to be doing better
Estimated cuts in 2011 FDI Egypt – 92%, Libya – 87%, Syria – 65% , Bahrain – 35%, Increase – 7 countries; the biggest – Saudi Arabia and Iraq Arab Investment and Export Credit Guarantee Corp.
Gallup poll results – October 10, 2011
Top ranking H1 2011 M&A Deals As to volumes of M&A deals: Jordan, UAE and Oman AS to deals value: Qatar, UAE, Kuwait Sectors: banking, education and healthcare, construction
Real Estate Secure and stable markets: Abu Dhabi, Dubai, Qatar, and Saudi Arabia Uncertain: Bahrain, Egypt, and Syria
2011 Country Wise Picture
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Arab Spring & Investment
© PwC/INSEAD “The Next Five Years, MENA PE”
Hot for Investments
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Political instability and turmoil, instead of negative provide positive affect in FDI
Foreign Direct Investment in Africa: What are the Key Factors of Attraction aside from Natural Resources? By Bertrand BLANCHETON, Université de Bordeaux, Lambert OPARA-OPIMBA Université de Bordeaux
Arab Spring & Investment
At the first HSBC MENA Global Banking and Markets Leadership Forum, 62% of the region's most senior business leaders stated that the impact of the Arab Spring would be positive, when viewed over a three year horizon.
October, 2011
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Arab Spring & Investment
Pre-turmoil and Current-turmoil Energy Investment Mapping
© Arab Petroleum Investments Corporation. Economic Commentary Volume 6 No 4 April 2011
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Liberalization of Mining Sectors Offers of state-held equity in mining companies Introduction of modern contractual schemes: BOT (build-operate-transfer) DBOT (design- build-operate-transfer) BOO (build-operate-own) Joint Venture or Consortium contracts Franchise and Leasing contracts
Applying available investment laws, acceding to international treaties to protect investments especially the Arab Investment Guarantee Corporation and the Multilateral Investment Guarantee Agency (MIGA) Examination of similar (e.g. India’s) experience: Extending Tax Breaks for Exploration: Flow-Through Shares (success in Australia, Canada, USA) to attract investors in mining Institutional Finance Schemes Exploration & Infrastructure Bonds
MENA: What to Expect?
Governments are holding stakes worth $320B in publicly traded firms (directly or through rulers and sovereign funds) Thomson Reuters
A flow-through share is a common share of an oil and gas or mineral exploration company that normally trades on an exchange. It is referred to as “flow-through” because the company enters into an agreement with investor to flow certain tax deductions from that company’s capital expenditure program through to investor
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Thank You for Your Attention
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Vladimir F. Kuznetsov Director, Corporate Communications, Earthstone Holdings, Ltd http://buysellmines.blogspot.com [email protected]