Strategies in Volatile Times – MineAfricaJames E. Kofman – Vice Chairman, UBS Securities Canada

January 13, 2009

2

UBS: Global Investment Bank of Choice for Canadian Companies

Source: FP Datagroup, Bloomberg

C$2.9 billion

Joint bookrunner on private placement and joint lead manager on

bought deal equity offering2008

US$460 million

Joint bookrunner on convertible bond offering

2008

C$267 million

Joint bookrunner on bought deal equity

unit offering

2008

US$2.8 billion

Financial advisor on restructuring

Pending

US$17.1 billion

Financial advisor on merger with Thomson

Corporation

2008

€3.0 billion

Joint bookrunner on3-year fixed

rate bond issue

2008

In a challenging year who led the largest deals in Canada?

Bringing global capabilities to our Canadian clients

Largest M&A Transaction

Largest Equity Offering

Largest Corporate Debt Offering

Largest Equity-linked Offering

Largest Public Equity Unit Offering

Largest Corporate Restructuring

3

What Went Wrong, Subprime Loan to CDO

Mortgage Loans ABS Bonds // ABX Index ABS CDO CDO of CDO

AAA Bond

AA Bond

A BondBBB Bond

Unrated EquityBBB Bond

Unrated Equity

A Bond

AAA Bond

AA Bond

BBB Bond

AA BondA Bond

AAA Bond

Unrated Equity

$1B of subprime mortgage

loans

4

Looking Back at 2008

It begins with the financial crisis

NATIONALISEDNATIONALISED

NATIONALISEDNATIONALISED

NATIONALISEDPart-NATIONALISED

Rescue package

COLLAPSED & Sold

Rescue package

COLLAPSEDTaken over

Taken over

Rescue package

Rescue package

Rescue package

Rescue package

Rescue package

Rescue package

Rescue package

Rescue package

SPV Package

Rescue package

Rescue package

Rescue package

Rescue package

Rescue package

Rescue package

5

The Tangled Web

Investment Banks

Bond defaults hit money

market funds

Money market fund exposure

CP market seizing

Swap counterparties

dump collateral

Stock prices hit

Failure of interbank funding

Insurance of structured

notes

AIG

Difficulty in wholesale

funding

Fear of systemic risk

Confusion from scale

and complexity

CDS counterparty

exposure

Commercial banks

Falling equities

Risk aversion, high cash

levels

Long only funds

Withdraw stock lending

on counterparty

concerns

Short squeeze on “hard to

borrow” stocks

Reduce net equity

positions

Fear of under performance at

year end

Hedge funds

30% + in cash

Fears of mass redemptions

Corporates

Lending tightened

“2/20” and Regulation Changes

6

0

100

200

300

400

500

1984 1988 1992 1996 2000 2004 2008

TED

Spr

ead

(3m

T-b

ill v

s. L

IBO

R)

Interbank Lending Cost

TED Spread

Down 329 pts from the peak

Current = 135

7

Credit Default Swaps

Entity 31-Dec 19-Sep 12-Sep 1-Jan

117 153 150 49

189 204 188 73

290 369 186 68

119 145 130 50

155 331 367 125

402 554 240 98

201 226 136 50

128 486 400 106

8

Relative Credit Market Performance World Equity Indices

Market Value and Performance

Last

Trade 2008 YE

Americas Value % Chg % Chg (USD)

Dow Jones 8,776 (33.8) (33.8) S&P 500 903 (38.5) (38.5) Nasdaq 1,212 (41.9) (41.9) S&P/TSX 8,988 (35.0) (47.1) Mexico Bolsa 22,380 (24.2) (40.5) Brazil Bovespa 37,550 (41.2) (55.3)

Europe/Africa/Middle East DJ Euro Stoxx 50 2,448 (44.4) (46.8) FTSE 100 4,434 (31.3) (49.5)

Asia/Pacific

Nikkei 225 8,860 (42.1) (27.7) Hang Seng 14,387 (48.3) (47.9) S&P/ASX200 3,722 (41.3) (52.8) Shanghai SE A Share 1,912 (65.4) (62.9)

0.00

4.00

8.00

12.00

16.00

20.00

24.00

Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08

Yie

ld (%

)

10-Year Treasury Rates

6-Month LIBOR Rates

Broad Market Index

20.00

2.37

1.85

9

Market Volatility

VIX Index Number of Days where S&P Declined 1.5% or More

5

15

25

35

45

55

65

75

85

2001 2002 2003 2004 2006 2007 2008

VIX

Inde

x

September 11

Accounting scandals

War in Iraq

Economic concerns

Credit concerns

1720

22

31

37

49

13

42

4

19

55

0

10

20

30

40

50

60

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Num

ber of

day

s

10

The “Un-Wind”

Oil vs. Banks Trade (WTI vs. BKX index) DJAIG Commodity Index

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-07 May-07 Oct-07 Mar-08 Jul-08 Dec-08

Oil

/ KBW

Ban

k In

dex

(Exc

hang

e Ra

tio)

From peak to current: (65%)

From "BS" event to peak: +108%

60

80

100

120

140

160

180

Jan-04 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

DJA

IG C

omm

odity

Inde

x (reb

ased

to

100)

`

11

CS/Tremont Hedge Fund Index

Redemptions Start

Hedge Fund-Owned Share Performance

(47)

(39)

(21)

(14)

(60)

(50)

(40)

(30)

(20)

(10)

-

2008 YTD Sept-Dec 08

Pric

e pe

rfor

man

ce (%

)

High % Ownership by HFs Low % Ownership by HFs

350

370

390

410

430

450

Jan-

06

Apr

-06

Aug

-06

Dec

-06

Apr

-07

Jul-0

7

Nov

-07

Mar

-08

Jul-0

8

Nov

-08

CS/

Trem

ont H

edge

Fun

d In

dex

12

Equity Funds Flow

Canadian Domestic Equity Mutual Fund FlowsUS Mutual Fund Flows

2006 2007 2008

(80)

(60)

(40)

(20)

0

20

40

J FMAM J J ASONDJ FMAM J J ASONDJ FMAM J J ASON

Ave

rage

Mon

thly

U.S

. Equ

ity F

low

s (U

S$bn

)

(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Oct

07N

ov07

Dec

07Ja

n08

Feb0

8M

ar08

Apr

08M

ay0

Jun0

8Ju

l08

Aug

08Se

p08

Oct

08N

ov08

Net

Sal

es e

xcl.

Re-in

vest

ed D

istr

ibut

ions

(C$b

n)

13

A Weakening Labour Market Has Cut Into Consumer Confidence

Financials Led Us Here…Now It’s The Economy

40

60

80

100

120

1978 1983 1988 1993 1998 2003 2008

Uni

vers

ity o

f M

ichi

gan

Con

sum

er S

entim

ent In

dex

0

2

4

6

8

10

12

US U

nemploym

ent Rate (%)

US Unemployment Rate (%) Consumer Sentiment Index

14

The Case For and Against Equities…

Equities have had their worst year since the MSCI World Index began in 1969

Equities have fallen 45% from their October 2007 peak in price terms

Global equities trade at a trailing PE of 11.1 times, the lowest PE since 1982

Over 80% of the MSCI World universe is now trading at PE multiples of less than 20x trailing earnings

At less than 1.5x, current global P/BV is at a level last reached in 1984

Today’s global dividend yield is 3.8%, a yield last seen in 1984

FOR AGAINST Global growth is expected to fall sharply in

2009 to 1.0%

Profit margins typically trough going into a recession, allowing margin expansion to drive a strong rebound in earnings. Profit margins remain close to their peak, threatening earnings recovery

In previous earnings cycles, global earnings have fallen 30-40% from their peak, but so far EPS is down only ~20%

Downgrades to earnings estimates have only begun

TED spreads remain well in excess of historic “norms”

Equity volatility has reached new heights

Equities look cheap compared to historical levels…

…but significant global volatility and economic concerns pose a serious risk

15

TSX Had Been Outperforming Global Markets

Total Relative TSX Performance to MSCI World Index (US$)

The Canadian markets have outperformed the world indices for eight of the last ten years

14.4%

(26.4%)

6.4%

20.3%

3.9%

19.7%

5.8%

21.7%

(3.9%)

18.1%

7.1%

(5.8%)

(1.2%) (4.5%)

(6.8%)

(35%)

(25%)

(15%)

(5%)

5%

15%

25%

35%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Rela

tive

%ou

tper

form

ance

(US$

)

16

Global Equity Issuance

Canadian Equity Issuance Global Equity Issuance

14

23

18

10

17 17

23

13

18

29

21

0

5

10

15

20

25

30

35

40

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Proc

eeds

(C$b

n)

0

75

150

225

300

375

450

# of issues

Proceeds (C$bn) Number of issues

0

5

10

15

20

25

30

35

40

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0

75

150

225

300

375

450

Proceeds (C$bn) Number of issues

622

943

783

602572

450

345

457

366

529

629

0

250

500

750

1,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Dea

l Val

ue (U

S$bn

)0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

# of Issues

0

5

10

15

20

25

30

35

40

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0

75

150

225

300

375

450

Proceeds (C$bn) Number of issues

17

2.00%

2.75%

3.50%

4.25%

5.00%

5.75%

6.50%

7.25%

8.00%

8.75%

9.50%

10.25%

O N D J F M A M J J A S O N D

Yie

ld (%

)

+75

+125

+175

+225

+275

+325

+375

+425

+475

+525

+575

+625

Corporate Spread Index (bps)

Implied Yields 10-yr UST Corporate Spread Index

Coupons remain stable during Bear Stearns crisis in March

All-in yields moved drastically wider, but have tightened

Investment Grade Credit Market Conditions

2007 2008

18

High Yield Debt Volume

High Yield Debt Volume (US$bn)

Liquidity has dried up

3844

68

116

138

101

52

91

65

139

155

112

167

155

53

1 0 10

40

80

120

160

200

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Oct

-08

Nov

-08

Dec

-08

(US$

bn)

19

Global Debt/Equity Ratios

20%

30%

40%

50%

60%

70%

80%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E

Global Corporate Net Debt to Equity (Nonfinancial Companies)

20

M&A Activity and Share Price Movement

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Dea

l Vol

ume

(US$

bn)

200

400

600

800

1,000

1,200

1,400

1,600

1,800

MSC

I Price Index

Global M&A Deal Volume (US$bn) MSCI World Price Index

21

Factors Impacting the Global M&A Market

Financial need is the key reason to sell

Buyers balancing desire to preserve cash with unwillingness to issue shares at depressed prices

High premiums expected due to depressed share prices

Companies reluctant to buy while length and severity of the market downturn is still unknown

Activity expected to pick up once the “worst is over” and the markets stabilize

Hostile approaches are increasingly common due to gap between buyers’ and sellers’ price expectations

Large and well-financed buyers want clarity on forecast price decks before buying companies in the commodity space

Emerging market nations are still meaningful players in the M&A market

From the Seller’s Perspective

From the Buyer’s Perspective

Other Factors and Considerations

Acquisitions likely to be relatively “small”

22

Housing Cycles are Long in Both Directions Market Recoveries Take Time

Crises Do End

Quarters prior to and after recapitalisation plan

-8 -7 -6 -5 -4 -3 -2 -1 0 1 8765432

120

115

110

105

100

95

90

85

80

Bank re-capitalisation index = 100 in quarter

of re-capitalisation

Equity price index, average of previous crises

Source: UBS research, based on experiences of US, Finland, Norway and Sweden in late 1980s / early 1990s

(60)

(40)

(20)

0

20

40

60

80

100

1892

–189

4

1895

–190

1

1906

–190

7

1908

–191

0

1913

–192

1

1922

–192

5

1926

–193

2

1933

–194

0

1943

–194

7

1956

–196

8

1973

–197

6

1980

–198

4

1985

–198

9

1990

–199

7

1998

–200

6

% c

hang

e U

.S. r

esid

entia

l pric

es

U.S. residential price % increase (decrease)

3 years

7 years

2 years

3 years

9 years

4 years

7 years

8 years

5 years

13 years4 years

5 years

5 years

8 years

9 years

23

100

150

200

250

Jan-00 Jul-02 Jan-05 Jun-07 Dec-09 May-12Case-Shiller Index Case-Shiller Futures

(23%)

(10%)

Emerging from the Credit Crunch

Recapitalization, failure and consolidation of banks

Capitulation in capital markets

Distressed asset liquidity

Enduring legislation

– Industry Regulation

– TARP

– Market rules (eg. short sale, CDSs)

– Hedge funds

– Nationalization

– Rating agencies

– Accounting rules

– Reverse Glass-Steagall

Real estate price stability Banks resume lending

1 2 3

4 5 6

0 200 400 600 800 1,000 1,200

Enron

Worldcom

WaMu

Lehman

AIG

Pre-Bankruptcy Assets (US$bn)

3844

68

116

138

101

52

91

65

139155

112

167155

53

1 0 10

40

80

120

160

200

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Oct

-08

Nov

-08

Dec

-08

(US$

bn)

0

100

200

300

400

500

1984

1988

1992

1996

2000

2004

2008

TED

Spr

ead

(3m

T-b

ill v

s. L

IBO

R)

24

Redefined Metals & Mining Landscape

Global Mining Companies—2008 Peak vs 2008 YE

243

192

83

155

36

90

4129

2232

56

78

4635

2720

3032345060

112

269999

1223 18 14 123014

0

50

100

150

200

250BH

P Bi

llito

n

Val

e

Chi

naSh

enhu

a

Rio

Tint

o

Barr

ick

Ang

loA

mer

ican

Ang

lopl

ats

Gol

dcor

p

New

mon

t

SCC

Nor

ilsk

Kin

ross

Xst

rata

Free

port

Alc

oa

Impl

ats

Peab

ody

Ener

gy

Teck

Mar

ket C

apita

lizat

ion

($bn

)

As of 12/30/08 As of 5/30/08

24

25

Weakened Commodity Price Performance

Relative Commodity Performance—Since 5/30/08

(1%)

(33%)

(40%)

(47%) (48%)(51%)

(62%)(65%)

(70%)

(60%)

(50%)

(40%)

(30%)

(20%)

(10%)

0%

Gold Silver Zinc Nickel Aluminum Nat. Gas Copper Oil

Rela

tive

Perf

orm

ance

Sin

ce M

ay 3

0, 2

008

(100

%)

26

Gold Equities versus Gold Price Relative Performance

Gold Equities Significantly Oversold Relative to Gold Price

0.05

0.10

0.15

0.20

0.25

0.30

Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

XA

U/G

old

XAU/Gold

$415 $438 $517 $637 $834 $882

Average = 0.22x

27

What Happened to the Materials Bull MarketWhy are commodity prices struggling…

– Demand weakness2009 global GDP expected to be 1.0%, likely pushing surpluses up and negating positive effects of poor supply growth

– De-leveragingHedge fund selling has resulted in high volatility and pressure in the asset class

– Fund redemptionsFurther selling pressure generated from less sophisticated money

– US dollar strengthRecent strength has added to selling pressure in commodities. Could be a catalyst if reversed

– Chinese growth concernsDomestic construction activity and steel consumption has slowed

– Regulatory pressuresConcerns regarding disruptive impact of speculators in commodities markets – further regulation expected

1

2

3

4

5

6

28

Mining M&A Activity

Canadian Mining M&A Global Mining M&A

M&A activity in the sector has fallen off dramatically after a record year in 2007

83

105

23

61

96

32

0

20

40

60

80

100

2001

2002

2003

2004

2005

2006

2007

2008

Val

ue (U

S$bn

)

(67%)

73

29

4333

75

190 195

108

0

40

80

120

160

200

2001

2002

2003

2004

2005

2006

2007

2008

Val

ue (U

S$bn

)

(44%)

29

Top 2008 Mining M&A Deals—Canada

Canadian Deals

Date

Announced Target Acquiror

Deal Value

(C$mm)

07/29/08 Fording Teck 14,416

03/18/08 Royal Utilities Income Fund Sherritt International 1,380

08/22/08 Penfold Capital Severstal Resources 1,222

07/31/08 Gold Eagle Mines Goldcorp 1,211

11/21/08 Lundin Mining HudBay Minerals 1,008

07/24/08 Aurelian Resources Kinross 895

03/31/08 Metallica Resources New Gold 612

11/14/08 Forsys Metals Corp. George Forrest International 538

06/23/08 Skye Resources HudBay Minerals 507

07/14/08 Cadence Energy Barrick 401

30

Top 2008 Mining M&A Deals—Global

Global Deals

Date

Announced Target Acquiror

Deal Value

(C$mm)

07/29/08 Fording Teck 14,416

03/14/08 IPSCO Inc Evraz Group SA 4,025

03/03/08 Zinifex Ltd Oxiana Ltd 3,774

01/17/08 IronX Mineracao SA Anglo American PLC 3,493

07/17/08 New Hope-New Saraji Project BHP Billiton Mitsubishi 2,384

10/02/08 Northam Platinum Ltd Impala Platinum Holdings Ltd 2,281

02/02/08 J Mendes Ltda Usiminas 1,900

03/03/08 Oriel Resources PLC Mechel OAO 1,626

02/08/08 SHV North America Corp Nucor Corp 1,440

10/02/08 Mvelaphanda Resources Ltd Impala Platinum Holdings Ltd 1,395

31

Financing Alternatives and Potential Investors

Private equity funds

Convertible bonds

Corporate debt - Bank debt - Public debt - Term Loan B

Asset sales / JV

Royalty / streams

Common stock / warrants

Sovereign wealth funds

Royalty / streaming companies

Strategic investors

Generalist investors

Mining sector investors

Types of Financing

Potential Investors

Hedge funds

Other

1

2

3

4

5

6

Project finance

7

32

What are the Corporate Implications?

Understand direct / indirect exposure M&A opportunities for the strong / vulnerability for the rest

Market recovery will take time Commodities

Cost of capital will rise Shareholder relations are more important than ever

Global growth will slow and a “G7” recession is forecast

De-levering will elongate the recovery

“Do it when you can, not when you have to”

Market will be motivated to re-open on valuation attractiveness

Higher spreads, fees and tighter covenants likely

Cyclical weakness vs. secular strength

Supply contraction as high cost producers exit

Preserve liquidity

Use cash wisely

Raise capital to provide financial cushion

Be cautious about share buybacks

33

Is Humour a Sign of Capitulation?

“A banker, eh? Can you make a living at that?” “Honey, we’re homeless”

ON

E W

AY

WALL ST

First National

Bank & Grill

Source: The New Yorker, October 6, 2008