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Table of contents
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1. Overview of global mining industry
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Perspectives on recent global trends in mining
Price ! Commodities markets remain volatile though recovery seen in recent months
outlook − Strengthening US dollar and global macro-economic concerns
! Commodity prices are expected to remain under pressure in H2 2009 and recover in H1
2010 on the back of production cuts and demand recovery
Capital ! Significant rise in project capital costs has led many companies to reassess their project
costs pipelines
! However, recent drop in raw materials costs and depreciating currencies likely to help
! Share prices for many mining companies were down 50%-75% 1H 2009 vs 1H2008
Valuations
! Strategic investors still pay top dollar for high quality coal assets
− Rio Tinto asset sale to Chinalco at 124% premium to market enterprise value
− Jacobs Ranch coal mine sold to Arch Coal for 10.4x pro-forma 2008 EBITDA
! Financing remains challenging - limited capacity and financing costs have increased
Financing
significantly
! All deals face increased hurdles
! Project financings are struggling in the current environment - highest quality assets will
come back first
diversified
10.0x
Indices (rebased to 100) 10.0x 4.2x 5.8x
200
100 30.0x 21.7x
Nickel 20.0x
10.0x 4.4x
11.2x 10.3x
0.0x
EV/EBITDA '09 P/E '09
0.0
20.0x 14.3x
100 Copper 8.6x
5.5x
10.0x 3.2x
0.0x
EV/EBITDA '09 P/E '09
(100)
30.0x
Gold & Silver 20.0x
10.0x
8.5x
13.8x 15.9x 20.4x
0 (200) 0.0x
EV/EBITDA '09 P/E '09
Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
Copper (rebased to 100) Nickel (rebased to 100) NEWC (rebased to 100) Dec 2008 Sep 2009
! Strong volatility in the global metals and mining universe over 2009 but valuations have since
stabilized over the past few months
! All commodities suffered significantly in the wake of the crisis except for gold
! Gains registered by base metals miners, precious metals miners and coal miners in the first
half of 2008 were wiped out in the second half
Share price performance and commodity prices have been severely dampened by
the global financial crisis but recent stability could point towards a recovery
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2. Overview of Credit Suisse
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Credit Suisse’s leadership is widely
acknowledged by the investment community
“Tough decisions taken in 2007 and 2008 leave Credit Suisse’ investment bank in a prime position for the
years ahead”
“By concentrating on client-related business, the firm has been able to increase market share across all of its main
businesses. That sounds like the very model of a modern investment bank.”
The Banker recognized the success of Credit Suisse’s client-focused model, disciplined approach to risk
2009 taking, progress on cost and efficiency measures and our distinctive business mix.
“Credit Suisse is our top pick within global investment banks, Credit Suisse offers investors a cost-cutting story and owing to fair value
ticking all the right boxes: i) ongoing market share gains in IB, ii) accounting, fewer asset quality concerns than most European banks…
restructuring of cost and risk taking businesses within IB, iii) no we like owning the "best in class" European investment bank and
management turnover, iv) limited credit risk, v) and capital strength.” rate it a Buy.
JP Morgan Bank of America – Merrill Lynch
While 2009 will remain a challenging year, we believe that Credit Suisse Credit Suisse … was quick to scale down its balance-sheet, has plotted a
has sufficient levers to exploit good openings in the market such credible strategy for its investment bank and pulled well ahead of
as trading conditions in 1Q09 and asset outflows from competitors… UBS.”
Though levered, Credit Suisse has capital flexibility vs. peers to
profit more from any improvements/opportunities
Morgan Stanley The Economist
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Credit Suisse – Coal House of the Year
Credit Suisse “We are involved in more than 60% of all options
transactions in the market.”
Meindert Witteveen
Coal House of the Year Head of Coal, Freight and UK Gas Trading,
Credit Suisse
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Best M&A franchise
Best Emerging Markets Best M&A House Best M&A Deal Best M&A Deal
M&A House Singapore Australia Australia
Commonwealth Bank Group/ Commonwealth Bank
Bank of Western Australia and Group/Bank of Western
St Andrew’s Australia Australia and St Andrew’s
Australia
Best M&A House Best M&A House Best M&A Deal Best Syndicated Loan
Korea Indonesia Australia Australia
Primary Health Care A$2.5bn loan for Primary
Acquisition and Financing of Health’s hostile acquisition
Symbion Health of Symbion
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3. Financing mining projects
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Impact of current credit market turmoil
! Depressed commodity prices also not helping
! Limited new issuance in capital markets from HY Asian issuers for last 12
months
! Lack of deep local bank markets in most mining countries, even Australian
banks are slowing credit growth
Liquidity
! Regional banks (DBS, Korean, Taiwanese, Chinese) and international banks
(Japanese, French, German, US) have changed focus to their home markets
as they are tied by strings that come with stimulus / govt support
! Contractor / supplier financing is one alternative
! PE / Equity sale is another
! Local and foreign bank markets are open to deals with right structure and
Pricing
pricing. Pricing has moved up and structures are tighter
Credit markets are going through unprecedented volatility with limited liquidity
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Impact of current credit market turmoil (cont’d)
! Better investor reception for structured / secured deals with security over
cash flows. Structure needs to be secure to attract investors
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Mining project lifecycle
NPV Production
Offtake start-up
Secondary
agreement
Positive
Independent areas
reserve/resource
certification
Commercial
discovery
0
Timeline
Negative
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Available source of financing for mining projects
Pros Cons
Local Commercial "Lower cost of funds !Regulatory constraints
Banks
"May offer the tightest margins !Limited level of risk appetite
!Limited access to USD funding
Foreign "Higher risk appetite than local banks !Selective industry / sector coverage
Commercial Banks
"May offer competitive rates to !May not have sufficient presence or
local knowledge
establish relationship and market
foothold
Project Financing "Well-established financing structure !Highly complicated
"Available for greenfield projects !Execution could potentially take 12-
18 months or longer
Lease / Asset "Basic form of financing structure with !Limited leverage
backed financing clear security package and cover
Cashflow "May allow for tighter pricing and longer !Complicated execution process
Securitization tenure !Cashflows have to be captured and
deployed offshore
Bond Markets "Less stringent on structure (eg. !Corporate lending deals vs. project
security and amortizations) asset
"May allow for tighter pricing and longer !Typically require corporate audited
accounts, ratings and offering docs
tenure
!Limited flexibility on structure
!Bond markets are currently
challenging
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Project financing
Operator Equity
Equipment Services
Debt
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Lease financing
Services
Equipment
Lessee Customer
Suppliers
$ Periodic
$ Periodic
Lessor
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Cash flow securitization
! Typically for operating assets generating cash flows
! Diversification of assets / customers improving deal economics
! Requires security over assets and cash flows
! Requires long term contracts with customers on take-or-pay basis and/or collateralisation of
cash flows
! Diversification of assets and customers improves pricing on these deals
! Structure can be applied to bank, bond markets or private financings
Services
Asset Owner Customer
$ Periodic
Assets
secured
Lenders
$ Secured
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Emergence of Private Placement Market
! Over the last 4-5 years the private placement market has matured significantly
! Private placement market offers an alternative to traditional bank and bond /capital markets
! Private placements allow access to institutional investors and allows issuers to share
forward looking projections / business plans that are not allowed in bond markets
! Private placement investors require access to management and due diligence, thus allowing
issuers to better sell their credit story
! Estimated issuance of $20-25 billion in the structured private placement market since 2003.
Credit Suisse leads this market with over $11 billion of private placements
! Ideally suited to mid-size companies which are not ready for listed bond market or have
limited access to bank market
! Private market should be used in addition to bank lines and should not be treated as a
replacement for the working capital bank lines
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Conclusion
Banks
! Focused now on restructuring given the economic
crisis
! Increased losses and defaults in mining projects
! Less aggressive, specifically on
− Greenfield
− Commodities
− Execution/Development risks
New Lending
! Back to basics
! Higher grade credits
! Well collateralized structures
! Larger corporates
! Local banks still have local currency appetite
Credit Suisse
! Appetite on a selected basis
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H:\Projects\Conference\China MC Migliucci - Presentation.ppt
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Alberto Migliucci
Director - Investment Banking
Head of Mining and Oil & Gas, South East Asia
www.credit-suisse.com
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