10753682_410753682_210753682_2 deal-making in africa 16 june 2011 sean chilvers (macquarie), adam...

10753682_410753682_2 10753682_2

Deal-making in Africa

16 June 2011

Sean Chilvers (Macquarie), Adam Hing (Control Risks), David Eliakim (Mallesons) and Paul Schroder (Mallesons)

2© Mallesons Stephen Jaques

Deal-making in Africa

Background - Mallesons

Understanding the market - Macquarie

Being honest about the risks – Control Risks

Navigating the legal minefields – Mallesons

Bringing it all together - Panel

Q & A - Panel


Background – Paul Schroder, Mallesons

DFAT statistics on Australian investment in Africa:⇒ 2010 surge: 48 new companies, 143 new projects⇒ Australia represented 10% of all M&A activity in Africa by deal value (2010)⇒ A$19bn investment pipeline⇒ Australian exports to Africa – A$5.8bn in 2009-10

Our own recent experience is the increasing importance of Africa and in particular Africa resources to our clients:

⇒ high commodity prices ameliorates political risk and infrastructure costs⇒ Africa welcomes Chinese/Indian investment ⇒ risk tolerance and technical expertise of Australian miners

Some of the most interesting recent Australian M&A deals have involved companies with all their resources in Africa. These include:

⇒ Xstrata’s successful $514 million bid for the shares in Sphere Minerals, an iron ore miner in Mauritania

⇒ Rio Tinto’s successful takeover of Riversdale with its Mozambique coal assets⇒ Paladin’s bid for NGM Resource’s uranium assets in Niger, which went before the

Takeover Panel who declined to find the invasion by al-Qaeda in the Maghreb (North Africa) was force majeure/MAC


Understanding the market – Sean Chilvers, Macquarie

Three of the world’s 10 fastest-growing economies over the past five years have been from sub-Saharan Africa

The International Monetary Fund predicts that four of the top 10 fastest-growing economies in the next five years will also be from Africa

Of the 324 fastest-growing cities, 24.4% are located in Africa and the Middle East

Over the past decade sub-Saharan Africa’s real gross domestic product growth rate jumped to an annual average of 5.7%, up from 2.4% over the previous two decades

Africa’s consumer spending is predicted to total $US1.4 trillion by 2020, with around 128 million households having discretionary income and more than half living in cities

Foreign direct investment in Africa has increased from US$10 billion in 2000 to US$59 billion in 2009, significantly larger than the flow to China if measured relative to gross domestic product

c.220 ASX listed companies are mining and exploration companies active in c. 42 African countries

Australian investment in African resources has grown to c. A$20 billion1

There are a number of opportunities for Australian companies to invest in infrastructure projects resulting from the development of a growing number of resource projects in Africa

Source: Australia Africa Mining Industry Group

1 Australian Department of Foreign Affairs and Trade


Resource rich AfricaDriving mining and infrastructure investment opportunities

85% of the world’s platinum reserves are in South Africa

alone

The Zambia/DRC copper belt is among the richest in the world with Zambia ranking 9th in world production

Three of the world’s top five diamond producing countries are in Africa: Angola, Botswana, South Africa

One of the top gold producing

regions in the world is West

Africa

Algeria ranks 5th in global natural gas production

Nigeria is the 14th largest oil producer in the world; Angola ranks 17th

Niger and Namibia are in the top six uranium producing countries

in the world

US$93.3 billion needed to improve Africa’s infrastructure of which :

US$40.8 billion to boost power supply

US$21.9 billion to improve water supply and sanitation

US$18.2 billion to develop transport

US$9.0 billion to improve information and communication technology

US$3.4 billion to address irrigation requirements

US$31 billion a year Africa’s infrastructure funding gap, mostly in

the power sector

Source: MINEAfrica, The International Bank for Reconstruction and Development / The World Bank

20 Iron ore mines to open in the West Africa region (Liberia, Guinea, Sierra Leone, Cameroon) by 2015; aggregate output could reach 600-million tonnes a year (equivalent to 62% of global production in 2012 and 38% in 2015)

75% of South Africa's energy needs are directly derived from coal and 92% of coal

consumed on the African continent is produced in South Africa


Record years for mining financings

5.1 7.515.3

19.9

29.4 27.3

53.6

98.6

62.5

94.0

71.8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Equity capital raised globally for mining companies has increased dramatically since 2005…

Source: Dealogic

Global equity capital raised by mining companies from 2000 to 2010 (US$ billions)

Rio Tinto($15.9bn)Barrick Gold(US$4.0bn)Xstrata(US$5.8bn)


Record years for mining financings

7.97.0

6.45.3

4.5

2.2

17.0

TSX/TSXV ASX NYSE HKE LSE JSE AIM

… with US$7.9 billion raised in Australia in 2010

Source: Dealogic

Includes Ivanhoe Mines (US$1.2bn) and Red Back Mining (US$0.6bn)

Includes CONSOL Energy (US$1.9bn)

Includes UC Rusal (US$2.4bn)

Global equity capital raised by mining companies: 2010 (US$ billions)

303 / 2,110

524 27 36 16 10 121

Number of financings

Includes Anglo Platinum (US$1.7bn)and AngloGold (US$1.6bn)

Includes African Barrick Gold (US$0.9bn)

12.5TSX

4.5TSXV


Market dynamics

Mining market comparison – 2010

Number of issuers listed

Quoted market value (US$

billions)

Equity capital raised (US$ billions)

Number of financings

Number of new listings

ASX 666 684.8 7.9 524 75

TSX 353 520.9 12.5 303 59

TSXV 1,178 42.0 5.3 2,110 149

LSE 52 624.4 5.3 16 3

AIM 145 27.9 2.2 121 23

JSE 59 442.0 4.5 10 4

HKEx 50 329.4 6.4 36 8

NYSE/NYSE Amex

135 1,547.1 7.0 27 9

Source: Dealogic


Dual primary listing of Gold One International Limited

Gold One was listed on 18 May 2009 after ASX listed BMA Gold Limited implemented a reverse takeover of JSE listed Aflease Gold Limited

Gold One is an African focussed gold producer and explorer, and owns a producing gold mine and a gold development project in South Africa, as well as a gold exploration project in Namibia

Subsequent to its listing, Gold One received approval to amend its listing status on the JSE to a secondary listing during February 2010

During September 2009, Gold One raised A$30 million through a private placement of shares

During May 2011, Gold One announced the execution of a transaction implementation agreement with a Chinese consortium of investors

The cash consideration premium of 27.9% to the closing price and 25.1% premium to the 30-day VWAP of Gold One shares on the ASX on 12 May 2011 reflects the consortium’s serious intention to implement the takeover

Australian incorporated first dual primary listing on the ASX and the JSE (ASX/JSE: GDO)

Financial Adviser , Transaction Sponsor, and Sponsor

2009

Reverse take-over of JSE listed Aflease Gold by ASX listed BMA

Gold and dual primary foreign inward listing of Gold One on the

JSE and ASX

A$100 million

CONSIDERATION

Aflease Gold / Gold One

2009

A$30 million

Gold One’s general and specific issue of shares for cash to foreign

institutions

Gold One International Limited

CONSIDERATION

Financial Adviser, Transaction Sponsor, and Sponsor

2011

A$0.55 per share

Takeover offer by a consortium of Chinese Investors including a

US$150 million cash subscription by the consortium

Gold One International Limited

OFFER CONSIDERATION

Financial Adviser , Transaction Sponsor. and Sponsor


Rio Tinto

73.4%

Tata Steel

26.3%

Minority

Shareholders

0.3%

Rio Tinto A$4 billion acquisition of Riversdale Mining

On 23 December 2010 Rio Tinto announced a recommended cash takeover offer for Riversdale for $16 per share (A$3.9 billion)

On 10 March 2011, Rio Tinto announced that it would increase its offer to $16.50 if it reached 50% within 2 weeks

On 29 March 2011, Rio Tinto declared its offer unconditional at $16 with a relevant interest of 41%, and stated that the offer would increase to $16.50 if Rio achieved more than 47% acceptances before the end of the offer period

On 6 April 2011, Rio Tinto went through 47% acceptances and hence increased its offer to $16.50 (A$4.0 billion)

Two days later Rio Tinto’s interest exceeded 50% and it assumed control of Riversdale

On 29 April 2011, Rio Tinto announced that it had gained control of the Riversdale board and would seek to de-list the company

The offer has now been declared final and will close on 17 June 2011, with Rio Tinto currently owning 73.4%, Tata Steel 26.3% and free float of 0.3%

Transaction Overview

Macquarie is currently advising Rio Tinto on its A$4.0 billion acquisition of Riversdale Mining, delivering Rio control of substantial Tier 1 coking coal assets in Mozambique

Riversdale’s Share Register

Pre-offer Current

Tata Steel

24.4%

Passport

Capital

16.1%

Minority

Shareholders

43.9%

CSN

15.6%


The African investment climate is the best it has been in at least a decade

Africa’s current economy is comparable to where Australia was c. 20 years ago

The case for Africa presents a number of opportunities in terms of resource exploitation, as well as resources and infrastructure development

The Australian investment community presents a deeper pool of sophisticated investors (specifically in the resources sector) relative to African markets

The global mining industry is reliant on regions such as Africa as a future source of commodities

Australian firms are well place to provide capital and capability to exploit African opportunities

Opportunities abound

“West Africa is the new Pilbara for iron ore mining as well as a battleground between established miners and Chinese firms seeking to enter the

region”

Miningmx

“India has stepped up its push to deepen its economic ties with Africa and emerge

from the shadow of rival China by offering $5bn in new credit lines to the

continent.”

Miningmx


Australia Africa Business Council

Deal making in Africa – Being honest about the risks

Adam Hing – Director Strategic Consulting


Since 1975 we have worked in over 130 countries for more than 5,000 clients

An international consultancy with 34 offices worldwide

National and multinational clients in a wide variety of industrial and service sectors, governments and NGOs

About us


Worldwide office network


Our service areas

Information

Investigation

Security

Response

Pre-entry country studies

Online political analysis and forecasting

Online travel security advice

Due diligence

Competitor intelligence

Vetting services

Fraud prevention and investigation

Litigation support

Information leaks

Asset tracing

Business and reputational audit

Sabotage

Protection of people, assets and information

Risk analysis and evaluation

Security planning and consultancy

Security design and implementation

24 hour manned hotline service

Crisis management planning

Response: extortion, product contamination, kidnap and ransom

Post-incident evaluation and victim rehabilitation


Agenda

Three of the top risks when doingdeals in Africa:

⇒ Political stability⇒ Infrastructure⇒ Corruption

Piecing together the risks:

⇒ Political and macro economic stability

⇒ Integrity/corruption⇒ Regulatory issues⇒ Social & environmental issues⇒ Availability of reliable

infrastructure⇒ Security


Risk 1: Political stability


Risk 2: Infrastructure

Insufficient infrastructure single largest constraint on private sector growth

Unreliable electricity and inadequate roads especially burdensome/ problematic for 2011

These problems will only increase as mining expands into ever more remote regions


Risk 3: Corruption

African countries and corruption have a long and unhealthy relationship

During 2010, 64.5% of approximately 15,000 transactions in Tanzania were characterised by requests for bribery payments

Corruption

⇒“Dishonest or fraudulent conduct by those in power, typically involving bribery”

Oxford Dictionary 3rd edition

Bribe

⇒“Dishonestly persuade (someone) to act in one’s favour by a gift of money or some other inducement”

Oxford Dictionary 3rd edition


Extractives and corruption

More often than not extractives companies are operating in countries with a high risk of corruption; often corruption is endemic

The extractives industry will require the issue of many licences, concessions, permits and consents, which are nearly always discretionary and involve public officials

There is a very high use of agents and third parties, many of whom are operating in high-risk countries and dealing with public officials

The vast majority of cases involve agents paying bribes on behalf of the parent company

Vetco International (Panalpina case)


It’s not just about legal risk

Project

Fraud risk

Security ris

k Reputation risk

Political riskLegal risk

Commercial risk


Issues – Big picture

Political and macro economic stability

Integrity/corruption

Regulatory issues

Social & environmental issues

Availability of reliable infrastructure

Security


Political and macro-economic threats

The political environment and key players

Regulatory bodies

Political stability

Prospects for the next legislative and presidential election cycles

Macro-economic policy-making agenda

Foreign relations

Insurable risks


Operational environment

Regulatory and governance threats

Regulatory environment

Security of tenure

Taxation and royalty schemes and potential changes to these regimes

Bureaucratic and judicial systems

Social and environmental threats

Overview of society

Land access and ownership issues

Labour and employment issues

Artisan mining

Social and environmental issues

International and local NGO and media scrutiny

Infrastructure threats

Power supplies

Transport and logistics

Public health situation

Information and telecommunications facilities


Security threat environment

Terrorism

Organised crime

General crime

Political and socio-economic unrest

Labour strikes and unrest

Public and private security provision


Navigating the legal minefields – David Eliakim, Mallesons

Usual cross-border issues associates with multiple regulators

⇒Australia:

˿ FIRB

˿ ASX

˿ ACCC

⇒China outbound investment approvals

⇒Africa:

˿ South Africa as a case-study

˿ Exchange Controls

˿ Competition authorities

˿ JSE

˿ Takeover Regulation Panel

˿ Department of Mineral Resources

⇒US$25bn MTN/Bharti mobile phone deal fell over when South African and Indian currency control authorities could not agree


Navigating the legal minefields – David Eliakim, Mallesons


Asia-Pacific competing as a place where Africa raises capital: ASX & HKSE – David Eliakim, Mallesons

Historic dominance of LSE (AIM) and TSX

Emergence of ASX

HKSE as the future

⇒More capital was raised on the HKSE (US$52.8 billion) in 2010 than on all the US exchanges combined (US$42 billion).

⇒Our Hong Kong offices have seen a flurry of resources IPOs on the HKSE which they attribute to factors such as the resources boom generally and the desire of issuers to associate themselves with the China story.

⇒The HKSE has developed a reputation for resources, with Singapore having more success in REITs


Bringing it all together: Panel members comments on each others’ presentations – Paul Schroder, Mallesons


Q&A – Paul Schroder, Mallesons

10753682_410753682_210753682_2 deal-making in africa 16 june 2011 sean chilvers (macquarie), adam...

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