zimbabwe mining and energy - african lion holdings
TRANSCRIPT
Zimbabwe Mining and Energy
Strictly confidential – Onward Distribution is not permitted
Enquiries may be directed to
Ryan Long Tel. +35699344338
Email: [email protected]
Leveraging a cash investment, a country and valuable resource
Without Capex you cannot monetize mining resource
A country rich in resource with no investment is in an equal position to a country with no investment and no resource!
The only requirement to “enable” the country with resource is the investment required to monetize/beneficiate its resource at which point a degree of self-
sustainable growth can be reached
A country struggling for investment would be willing to make a greater effort to encourage investors to invest
The right assets with the right commitment from the country’s government and the required investment can create a perfect investment scenario which
presents a win-win situation to all stakeholders
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Our Value Added
Regional expertise on Zimbabwean mining industry enabled access and cherry-picking of key assets
Expertise beyond just Zimbabwe and are regularly offered M&A deals across Africa and sometimes even Europe and Latin America
We have early-mover advantage with years of preparatory work specifically on Zimbabwe
A fully legally compliant Zimbabwean indigenized structure
No politically exposed or sanctions hit individuals or properties
Strong human capital with strong local knowledge that is highly respected at Government and corporate level
Strong access and relationships to Government who have bought into our investment approach
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The Integrated Business Vertical
BORDERLESS Chromite/coal/gold/tantalite
resource
ZIMBABWE SMELTER
PLAN B SALES OF
CHROMITE GOLD
TANTALITE
SALES OF FERRO-
CHROME
COAL POWER PLANTS BOT or
OWNERSHIP
COAL
SUPPLY
1.6M TPA
POWER
SUPPLY
OFFTAKE
CHROMITE MINING CAPACITY
ORE SUPPLIES MANAGED TO
REQUIRED DESTINATION
ORE
EXPORT
HIGH VALUE
FERROCHROME
AND OTHER
SMELTER
PRODUCTS
POWER SALES
Minimalized due to B+
Country rating
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IDEAL SCENARIO WITH OFFTAKE
FULLY INDIGENIZED PRIVATE EQUITY STYLE STRUCTURE
PUTTING TOGETHER RESOURCE, IDEAS, KNOW-HOW, EXPERIENCE
AND FINANCIAL CAPABILITY
ZIMBABWE SMELTER
BORDERLESS Shareholding
Indigenization
Shareholding
Indigenization
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Margin
Shareholding
added value
Active
replacement of
guarantees
from margins
on offtake
Required Investment
$500million for a 40% shareholding for chrome and coal projects
• Investment sufficient for self-sustained growth
• Allows for a small war-chest for possible add-on assets and geo surveying to identify PGM and Base Metal opportunities on existing concessions
6
Zimbabwe Facts
Starved for investment
Lowest African illiteracy rates
Fast improving healthcare
Mining not supported by from Supranational and Sovereign investors
OECD Cat. 7 with no export credit financing from key countries
Sanctions limited only to a list of people
Regional mood much more positive towards Zimbabwe when compared to South Africa
100% support and political will to enable beneficiation and bring in investment
Abundant Labour and entrepreneur supply
Resources diversity, quantity and quality
Cheap mineable resource almost untouched
One of Africa’s largest coal reserves!
Solid 5 year plan to be net-power exporters
Landlocked so un-beneficiated resource export expensive
People hungry to prove themselves and to put past mistakes behind them
Early-mover advantage means we have secured exceptional assets and deals
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Mineralogy 40 minerals/ mineral-based commodities produced.
Several billion tones of Coal reserves
7th largest producer of lithium (2%)
6th largest producer of chrysotile asbestos (4%) and vermiculite (2%)
PGM’s and chrome form the principal endowments.
13% of world’s total chromium reserves
80% of world’s metallurgical grade chromite
Second largest producer of PGM’s after South Africa
Ranked fourth for platinum (2.3%) and fifth for palladium and other PGM’s (1.7%).
Gold production Zimbabwe tenth largest gold producer in Africa
Diamonds Zimbabwe was rated as the seventh largest producer in Africa.
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Road, Rail and Port Infrastructure
9
MOZAMBIQUE PORTS INFO
Regional Power Situation
10
No. Country Utility
Installed
Capacity
[MW] As at
Feb 2014
Available
Capacity
[MW]
Feb 2014
Forecast
Demand
Capacity
Shortfall
including
reserves,
MW
Calculated
Reserve
Margin, %
1 Angola ENE 2,028 1,805 1333
2 Botswana BPC 352 322 580
3 DRC SNEL 2,442 1,268 1342
4 Lesotho LEC 72 72 138
5 Malawi ESCOM 351 351 323
6 Mozambique EDM /HCB 2308 2,279 763
7 Namibia NamPower 501 392 635
8 South Africa Eskom 44,170 41,074 38775
9 Swaziland SEC 70 70 222
10 Tanzania TANESCO 1380 1,143 898
11 Zambia ZESCO / CEC/LHPC 2,128 2,029 2287
12 Zimbabwe ZESA 2,045 1,600 2267
57,847 52,405 49,563 (4,592) 5.4%
54,088 49,106 47,009 (2,787) 4.3%
TOTAL SAPP
Total Interconnected SAPP
Capacity
Announcements
Sino Hydro 1GW
capacity increase coal
and hydro
Middle Eastern company
indicated interest to
install 450MW capacity
We are looking at options to be energy neutral including a coal plant or potential Coal
bed methane options on our own property. However the domestic picture appears quite
promising since planned capacity in the 5 year plant would deliver required power in
absence of own power
The Chromite and Coal Play
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Uses of Chromite
Chromite Ferrochrome Stainless Steel
Chromite lumpy, fines exported or processed
Briquetting, pelletizing
Foreign Smelters
High Quality Chromite
Concentrate
Pure chromium compounds
Chrome plating and other
applications
Ferrochrome recipe
One Tonne Ferrochrome
From Smelter
Coking coal
1 Tonne
Chromite ore
2-3 Tonnes
Power
3.6MW
Scale Of Production- 1million tonnes per annum
Roughly 3 million tonnes chromite for 1million tonnes of Ferrochrome production
Capex of $650 million on smelters required to reach 1million tonne output before factoring in mining and power capex
Zimbabwe has not achieved such Chromite production output to date, however our model and in-house expertise should allow us to be the number 1 producers in Zimbabwe
Zimbabwe’s should target at least 10-15% of the 14million TPA market or1.5-2 million TPA Ferrochrome
Chrome Exports to enable Beneficiation
Chromite exports will grow the chromite mining production volumes with immediate returns for the capex outlay since the product can be at clients and payments settled in a month
Smelter production requires 15 month lead time to initiate and this means we would require flexible export delivery schedules that enable us to better manage mining output and divert production towards our own smelters
We cannot simply switch off chromite production from mines since this is the area where heavy employment occurs, however we can time mining capacity upgrades to coincide with export deals being concluded and subsequently shift mined product to smelting capacity upgrades
Whether beneficiated in country or exported, chromite production is the area which will ensure employment levels achieved within the industry become significant
Maintaining our Natural Advantage
Mineral resource grade gives higher margins in final product and therefore Zimbabwean ore provides a competitive advantage
Our chosen ore offtake partners will benefit from a reduced competitive advantage due to logistics overheads, however will still benefit from significant upside
Maximizing efficiencies with the best model and continued investment, and integrating supply chain ensures we secure our advantage
OWNING THE ENTIRE SUPPLY CHAIN
CHROMITE MINING
Offtake for internal and external clients with priority on developing a consistent quality product leveraging all the dyke with non-beneficiated and lightly beneficiated products
Capex of around $40-60million
COKING COAL
Leveraging a low sulphur, low phosphorous coal plant to deliver fuel for power plant and coking coal for smelting possibility of supply third parties
Capex of around $40million
POWER
Achieving self-sufficiency on Power enabling company to limit the impact on local power with 3.6MW power per Tonne of Ferrochrome
Capex $3-700/tonne depending on chosen technology
SMELTING Requires roughly $1million / 1500 tonnes annual
output
Our initial target 100-200,000
tonnes
Advantage of Integrated Model
Reductant (coking coal), Power (up to
3.6MWh/tonne), Ore (chromite)
Low sulphur and low Phosphorous coal can
deliver reductant (coking coal) and also serve as a
source of fuel for a power plant
Power plant on site uses Carbon Monoxide Off Gases and saves 25%-35% of the
fuel costs
Capex made knowing resource for feedstock is
there for decades Predictability of costs
Ability to scale up and scale down as required any
production
Improving efficiency-Improving competitiveness
Higher Efficiency
and greater margins
Power plant next to smelter requires transport of coal,
however, using off-gasses from smelting delivers 25-35% fuel
savings
Proper selection and blending of chromite fed into smelter can improve yield and
efficiency
Correct plant selection and introduction of
specific improvements can reduce power costs
and improve yields Hub structure with local processing limits
transport volumes to higher premium
product
Improving rail efficiency lowers the carbon
footprint of the delivered product
whether this is coking or thermal coal, or
chromite
Capex Investment for Integrated model
350
20
60
650
CAPEX ALLOCATION IN $/Tonne FeCr Production BASED ON 1 MILLION TONNES PER ANNUM FeCr OUTPUT
Sourced from$200million injection and reinvestment of over $800million
POWER CHROMITE SUPPLY CHAIN THERMAL/COKING COAL SUPPLY CHAIN SMELTING
Return on Capex
40%
300%
80% 90%
0%
50%
100%
150%
200%
250%
300%
350%
Power Chromite Mining andprocessing
Coal (Coking and Thermal) Smelting
Project return on Capex based on debt free model
Power Chromite Mining and processing Coal (Coking and Thermal) Smelting
Effect of Grade on Beneficiation Facts
A 2:1 Cr:Fe ratio is required to achieve >60% Cr
contained FeCr, Zimbabwe grades between 2-3.6:1 are
in good supply
S.A which has Cr:Fe ratios of 1.3-1.7:1 which yield, only once upgraded, 56% FeCr.
Zimbabwe Cr2O3 content > 42% whereas S.A. is making use of grades as low as 25%
better grades are usually mined at $100/tonne
minimum in S.A.
Since Zimbabwe’s high grade lumpy and fines are
relatively untouched, so, extracting ore at $50 in open
cast mining is still possible
Higher grade of ore also means less ore is required
A >60% Cr contained FeCr will achieve a price premium
of $0.12/Lb on the market
A high Cr:Fe ratio also means that your reductant is going towards reducing Cr and not
Fe oxides
Higher quality feedstock means less power required to produce an equivalent
amount of Cr contained FeCr since less impurities take up
power and reductant
Chromite Pricing Formula Maintaining a competitive advantage in price war
FeCr PRICE ($0.98-1.10/Lb Cr contained 56-65% FeCr depending on Cr:Fe ratio in ore)
150 150
500 600
280 500 240 240
169 169
288
288
200 200
200 200
200
200
100 100
30 30
100
100
200 200
200 200
200
200 683 469 108
374
139
285
ZIMBABWE $1.1/LB 65%
ZIMBABWE $0.95/LB 65%
CHINA $0.98/LB 56%
CHINA/ZIM ORE $1.1/LB 65%
SOUTH AFRICA $0.98/LB 56%
SOUTH AFRICA/ZIM ORE
$1.1/LB 65%
COST MARGIN COMPARISON
CHROMITE POWER REDUCTANT TRANSPORT OTHER MARGIN
Aggressive pricing to gain market-share
Our cost model means we could in theory enter into LTSA with
several off takers at prices other companies simply cannot
approach thereby securing offtake for 100% of production
Since FeCr is a key ingredient and a major cost in production of Stainless steel, the demand is
surely there
We believe no country could compete in a price war meaning our plants can afford to run 24/7
at full production
CAPEX IMPACT- Economic game changer
CAPEX for 1million tonne output approximately
$700million
40,000 jobs created per million TPA in coal and
chromite mining, smelting, logistics and services plus
ancillary jobs
20% additional GDP creation over and above
export value of ferrochrome and chromite
resource export
GDP upside would be around $1.6billion or 10%
increase
OUR RESOURCE BASE
Chromite
• Over 300million tonnes within 45km2 of Great Dyke concessions having >42% Cr2O3 and greater than 2:1 Cr:Fe ratios
Coal
• >1billion tonnes confirmed in a concession with up to 7billion tonnes inferred. Total resource is approx. 35% open cast and there is also potential for Coal Bed Methane
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The Numbers Plan A Chromite/Offtake*/Smelting/Coal/Power
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ITEM Start Q2 Q3 Q4 End Yr 1 2016 Q1 Q2 Q3 Q4 End Yr 2 2017 Q2 Q3 Q4 End Yr 3 2018 Q2 Q3 Q4 End Yr 4 2019 Q2 Q3 Q4
OLD Smelting( Thousands Tonnes/Quarter) 0 0 0 0 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30
New Smelting (Thousands Tonnes/Quarter) 0 0 0 0 0 20 20 20 20 40 60 80 120 120 160 240 360 360 360 400 480 480 480
Total Capacity 0 50 390
Power offtake Old GWh 0 0 0 0 108 108 108 108 432 108 108 108 108 432 108 108 108 108 432 108 108 108 108
Power offtake New GWh 0 0 0 0 0 72 72 72 216 144 216 288 432 432 576 864 1,296 1,296 1,296 1,440 1,728 1,728 1,728
Power production balance point 24/7 peak power 0 0 0 0 50 83 83 83 83 117 150 183 250 250 317 450 650 650 650 717 850 850 850
Power Production MW PEAK 0 0 0 0 0 0 0 700 700 700 700 700 700 700 700 700 700 700 700
Power Plant capacity upgrade MW PEAK 0 0 0 0 0 0 0 0 0 0 0 700 0 0 0 0 0 0 0 0 0 0 0
Net offtake/uptake MW PEAK 0 0 0 0 105 175 175 175 175 245 315 -1,086 -946 -946 -806 -526 -105 -105 -105 35 315 315 315
Coal Mining output (Thosands Tonnes/Quarter) 0 0 0 0 0 0 0 0 0 0 0 0 250 250 250 250 250 250 1000 250 250 250 251
Coking coal (Thousands Tonnes/Quarter) 0 0 0 0 30 50 50 50 180 70 90 110 150 420 190 270 390 390 1,240 430 510 510 510
Chromite smelting volume 0 0 0 0 90 150 150 150 540 210 270 330 450 1,260 570 810 1,170 1,170 3,720 1,290 1,530 1,530 1,530
Chromite offtake volume 50 200 400 650 710 950 950 950 3,560 890 830 770 650 3,140 530 290 0 0 820 0 0 0 0
Chromite Total volume 50 200 400 650 800 1,100 1,100 1,100 4,100 1,100 1,100 1,100 1,100 4,400 1,100 1,100 1,170 1,170 4,540 1,290 1,530 1,530 1,530
Export revenue 8 32 64 104 114 152 152 152 570 142 133 123 104 502 85 46 0 0 131 0 0 0 0
Export cost 5.5 22 44 72 78 105 105 105 392 98 91 85 72 345 58 32 0 0 90 0 0 0 0
Chromite mining capex $MM $ 5 $ - $ - $ - $ 5 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Old Smelting Capex $MM $ - $ - $ 20 $ 40 $ 60 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Legacy payments $ - $ 18 $ - $ - $ - $ 18 $ - $ 18 $ - $ - $ - $ -
Smelting Capex $MM $ - $ - $ - $ - $ - $ 48 $ - $ - $ - $ 48 $ 48 $ 48 $ 96 $ - $ 96 $ 192 $ 288 $ - $ - $ 96 $ 192 $ - $ -
Power Capex $MM $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 500
Coal Mining capex $MM $ - $ - $ - $ - $ - $ 30 $ - $ 30 $ - $ 60 $ 30 $ - $ - $ 30 $ 30 $ - $ - $ - $ 30 $ - $ -
CASH $MM $ 100 $ 95 $ 98 $ 88 $ 88 $ 50 $ 73 $ 3 $ 51 $ 51 $ 130 $ 151 $ 169 $ 227 $ 227 $ 240 $ 257 $ 245 $ 195 $ 195 $ 419 $ 286 $ 405 $ 217
Equity injection/Dividends $ - $ - $ - $ - $ - $ - $ -15 $ - $ - $ -15 $ -300
Short/Med-Term Financing $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ 100 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Production costs $MM $ 5.5 $ 22 $ 44 $ 0 $ 102 $ 144 $ 144 $ 144 $ 142 $ 153 $ 162 $ 172 $ 190 $ 283 $ 208 $ 245 $ 308 $ 308 $ 774 $ 340 $ 403 $ 403 $ 403
Revenue $MM $ 8.0 $ 32 $ 64 $ 104 $ 156 $ 222 $ 222 $ 222 $ 640 $ 241 $ 259 $ 277 $ 314 $ 713 $ 351 $ 425 $ 547 $ 547 $ 678 $ 603 $ 715 $ 715 $ 715
Margin $MM $ 3 $ 10 $ 20 $ 33 $ 54 $ 78 $ 78 $ 78 $ 288 $ 87 $ 97 $ 106 $ 124 $ 414 $ 143 $ 180 $ 238 $ 238 $ 799 $ 263 $ 312 $ 312 $ 312
CHROMITE MINE SELF-SUSTAINS GROWTH THANKS TO $10/TONNE MARGIN PRICED INTO MODEL
MODEL ASSUMES NO DEBT RAISING IS POSSIBLE THROUGH SMELTER SUPPLIERS OR OTHER FINANCING ROUTES
Leveraging external producers to the maximum
TURNOVER BASED ON 95% NAMEPLATE OUTPUT FINAL CAPEX ON SMELTERS SUBJECT TO NEGOTIATION AND CONDITIONS COAL ASSETS
POWER ASSUMED AT $75/MWh however power should be lower in year 3 CHROMITE MINING
MARGIN IS EBITDA SMELTING ASSETS
MILLIONS USD POWER BUILD OPERATE AND TRANSFER
CASH- EQUITY INJECTION REPAID WHEN SUFFICIENT CASH FLOW PERMITS FINANCING REQUIREMENTS
INVESTOR SHORT TERM FINANCING MAINLY REQUIRED FOR GUARANTEES FOR CAPEX/CASH FLOW TO SUSTAIN OPERATION DURING RAMPING-UP PHASE POWER ASSETS
* Export ban is now lifted
Target Asset snapshot by year 5
>5% of world’s chrome reserves within the portfolio worth multi-billion USD
>1 million TPA ferrochrome and other smelted products output
>1TPA Gold output
Valuation in excess of $5billion for entire group based on approx. $1billion P/L and P/E of 5
3MMTPA Coal mine output with possible roll-over into CTL
500-1000MW Power plant owned by group
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Upside to Zimbabwe by Year 5
Company valuations are effected by main country exposure
Creation 50,000 well paid jobs
Contributing an increase of 10-15% in GDP
And a 10-digit contribution towards reducing trade deficit
Considerable tax and Royalty revenue steams for Government.
Help Communities through key tribute agreements
All the above reduce credit risk and increase credit worthiness of country
We can impact valuation by impacting country due to small size of economy!
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Asset Valuation- What is it worth?
Mechel/Yildirim deal valued at $20/tonne or $15/tonne if one considers replacement value of furnaces
Our proposed chromite portfolio would be worth over $1.2billion with a $300million investment in smelters, based on open cast reserves and smelting capacity
$7.2billion based on entire portfolio of assets (not only open castable) and a cumulative investment/reinvestment of $1billion in smelting capacity
Coal asset within the ferrochrome value chain can be priceless since it guarantees security of supply and price visibility of power and Coking coal and guarantees higher margins on finished ferrochrome
Significant upside on specific concessions and PGM potential not factored in
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SUMMARY OF REQUIREMENT Without Offtake
$200million total requirement
$50million to secure chromite and coal groups enters within deal (Year 1)
$100million to secure first smelter (80% from Q3 after IPO)
$20million for various capex projects across different mines and to secure specific properties (low investment, high upside)
$30million balance to cover fees, operational cash flow and guarantees required for future orders of smelters
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Tantalite Add-on We have in place also a very inexpensive tantalite project
This requires under 1million in financing and can deliver the full capex repayment in months
We also have offtake deals which can be tapped at competitive prices
32
Gold Add-on Gold asset which was offered
to us with over 9million ounces of proven resource
and 11 inferred with existing production approaching 6
tonnes annually
A business plan is in place to lift production to over 1
tonne per month
We require total financing of $260million
over 3 years to include this asset
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Possible IPO route 2015
$2,500-3,000million issue for 40-50% of the business
• P/E of 14 by end of year 1 @ $50million profit based on 50% equity and $700million valuation
• P/E of <5 by end of year 2 @$150million profit based on 50% equity and $700million valuation
• P/E of <2 by end of year 3 @ $400million profit based on 50% equity and $700million valuation
34
Possible IPO route 2020
$2.5-3Billion issue for 40-50% of the business
• Based on a P/E of 5-7 and profits in excess of $1billion annually
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