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Capital raising and financing

options for Asian mining
Alberto Migliucci, Head of Southeast Asia Mining

October 20, 2009

Presentation at the China Mining Congress 2009

These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written
agreement with Credit Suisse.
Table of contents

1. Overview of global mining industry

2. Overview of Credit Suisse

3. Financing mining projects

H:\Projects\Conference\China MC Migliucci - Presentation.ppt

1. Overview of global mining industry

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
! 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
! All deals face increased hurdles
! Project financings are struggling in the current environment - highest quality assets will
come back first

M&A ! Global mining M&A has dropped off significantly in 2009

activity ! The dramatic changes in commodity markets has led to deals being re-negotiated - some
have been repudiated
! Drivers for consolidation remain in place but M&A targets (both assets and corporates) are
being reassessed given the new environment
! A wide variety of players see value in the sector – Sovereign Wealth Funds, off-takers,
sponsors, etc.
Global mining sector update
LTM share price performance Valuation multiples
Commodity Commodity Prices Global 20.0x 17.6x

Indices (rebased to 100) 10.0x 4.2x 5.8x

base metals 0.0x

300 Reduced volatility over the 300

EV/EBITDA '09 P/E '09

past few months 20.0x


Zinc & Lead 5.9x 7.4x

200 0.0x
EV/EBITDA '09 P/E '09

100 30.0x 21.7x
Nickel 20.0x
10.0x 4.4x
11.2x 10.3x

EV/EBITDA '09 P/E '09

20.0x 14.3x
100 Copper 8.6x
10.0x 3.2x
EV/EBITDA '09 P/E '09

Gold & Silver 20.0x
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

Global Diversified Base Metals Zinc & Lead Nickel

Global Coal
20.0x 14.5x
10.0x 4.1x 5.2x
Copper Gold & Silver Global Coal
Gold (rebased to 100) Zinc (rebased to 100) Lead (rebased to 100) EV/EBITDA '09 P/E '09

Copper (rebased to 100) Nickel (rebased to 100) NEWC (rebased to 100) Dec 2008 Sep 2009

Source: Factset as of 27 May 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

2. Overview of Credit Suisse

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

Credit Suisse is the undisputable investment banking leader

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

“Our specialists understand the physical markets and the

fundamentals and work with our alliance partner
! Voted Coal House of the Year 2009 in the Energy Glencore to get real, up-to-date information on flows in
Risk Awards 2009 for building its position as the market. We think this adds a lot of value to our client
one of the top 3 market-makers in financial base, both institutions and corporates, giving us a real
edge compared to other banks in the market”
coal markets from scratch over the past 18
months “Our specialist coverage has allowed us to expand our
client base past the usual corporates hedging their
! Differentiating alliance with Glencore, coupled revenue stream or input costs, and enabled us to leverage
with strong emerging market platform in Credit Suisse’s relationships with commodity hedge
countries such as Indonesia funds, macro and multistrategy hedge funds as well as
credit and equity funds that have exposure in companies
with significant coal price risk”
! Dedicated coal derivatives team of 4 coal and
freight traders and 35 sales staff Alex Toone
Global Head of Commodities Sales,
Credit Suisse
! Customer base grew tenfold in 2008

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

2009 2008 2008 2008

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

2008 2008 2008 2008

“Best M&A House”

! Euromoney
− “Credit Suisse has delivered a strong record across all regions and in several different countries…it’s Credit Suisse’s achievements in Russia, Brazil and China that really stands out”
− “In China, Credit Suisse showed its strength in the technology sector when it helped Focus Media on a $1.4 billion sale of its outdoor digital advertising business to the country’s biggest
portal website, Sina…. It is the biggest ever technology M&A transaction in China.”
− “Credit Suisse’s most impressive deal in the region was acting as adviser to the biggest shareholder of Wing Lung Bank on the $4.7 billion sale of the bank to China Merchants Bank...The
deal is the biggest Hong Kong bank M&A transaction in the past seven years.”
− “Other impressive deals in Asia include the biggest ever M&A deals in Indonesia and the Philippines, and the largest ever cross-border transactions between the Middle East and Asia, and
between Malaysia and Indonesia.”
! The Asset
− “Credit Suisse continues to dominate Indonesian market with strong leadership across all products as it retains the Triple A accolade for Best M&A House Awards”
− “As the only investment bank to be involved in the three largest and high profile cross-border deals in the 12-months to September 2008, Credit Suisse is an easy choice for the Triple A
Best M&A House in Singapore”
− “Credit Suisse continues to execute deals and secure landmark mandates amid the decline in transaction volumes due to unfavourable domestic economic conditions [in Vietnam] and the
prevailing global credit crunch”
− “Credit Suisse manifested leadership in M&A transactions in South Korea, leading several cross-border deals that helped transform Korean companies… ”

3. Financing mining projects

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
! Lack of deep local bank markets in most mining countries, even Australian
banks are slowing credit growth
! 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

! Emerging market credit spreads are at all time high

! Local and foreign bank markets are open to deals with right structure and
pricing. Pricing has moved up and structures are tighter

Credit markets are going through unprecedented volatility with limited liquidity

Impact of current credit market turmoil (cont’d)

! Development / exploration funding most impacted. Growth / expansion

capital still available to mid-large size operators

! Industryalso saw inexperienced / new entrants take on greenfield ventures

Type / during commodity boom (especially in Indo), most of the financiers to these
operations are now struggling with recovery

! Better investor reception for structured / secured deals with security over
cash flows. Structure needs to be secure to attract investors

! Hedge funds / institutional investors looking for value in equity

Flight to ! Banks like CS continue to be selective with whom they work

! Itsclear now that some of the weak players in current commodity price
environment will fail

Investors are increasing pushing for a flight to quality in credit names

Mining project lifecycle

NPV Production
Offtake start-up

Independent areas

Define budget and

work program

Phase Working interest Exploration Development Production

Characteristics Low / medium capex High capex Low capex

High risk Medium risk Low risk
Activities 1.Acquire 1.Geological / 1.Pre-Stripping 1.Mineral production
survey data subsurface / 2.Construction 2.New mines/areas
2.Bid for geophysical study 3.Infrastructure 3.Reclamation &
working area 2.Seismic study (2D 4.Processing rehabilitation
/ 3D)
3.Exploration drilling
4.Core tests

Available source of financing for mining projects
Pros Cons
Local Commercial "Lower cost of funds !Regulatory constraints
"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
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
!Limited flexibility on structure
!Bond markets are currently
Project financing

! Typically covers construction period to end of useful life

! Requires contractual arrangements on:
− Procurement of asset / equipment from reputable suppliers
− Customer contracts (long-term take-or-pay contracts)
− Third party or reputable operator
− Size of US$100-500mm, economies of scale
− Non-recourse project company

Operator Equity
Equipment Services

Suppliers Project Co / Asset Customer

$ Upfront Owner $ Periodic


Lease financing

! Suitable for moving assets or assets that may be redeployed

! Lessor owns the assets during the life of the transaction
! Possible tax advantages for the lessee
! Typically only upon delivery of asset / equipment to lessee

Lessee Customer
$ Periodic
$ Periodic


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

Asset Owner Customer
$ Periodic

$ Secured

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

! Private deals can be structured as loans or bonds

! Focused now on restructuring given the economic
! 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

Alberto Migliucci
Director - Investment Banking
Head of Mining and Oil & Gas, South East Asia


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