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1 19 th Industrial Minerals Congress Athens, Greece, 3-4/ 2008 11/3/2008 10:46, Draft No 9.

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Presentation on theme: "1 19 th Industrial Minerals Congress Athens, Greece, 3-4/ 2008 11/3/2008 10:46, Draft No 9."— Presentation transcript:

1 1 19 th Industrial Minerals Congress Athens, Greece, 3-4/ 2008 11/3/2008 10:46, Draft No 9

2 2 Globalisation and the Industrial Minerals Industry Vasili Nicoletopoulos Managing Director [Development] Premier Chemicals LLC, USA

3 3 What is Globalisation?  Is it the possibility to have free movement of people, goods, capital & services throughout the globe ? The movement of billions of dollars around the global financial system  Or is it the homogenisation of all rules, including political and social norms, environmental standards and safety rules? Affecting people at the bottom of the pile

4 4 Basic Pros and Cons u Proponents : ‘it is the driving force behind growth in the world economy in recent years, as well as the cause of the [associated] commodities boom’ u Opponents [from Stiglitz to Chomsky & Hobsbawm] : ‘it amounts to Americanisation ie dominance of one country, to rising inequalities, and to destruction of the environment’

5 5 Key Questions: Does Globalisation…  Foster Economic Growth?  Benefit the Consumer?  Benefit the Worker?  Benefit the Environment?  Benefit Developing Nations?  Promote Human Rights?  Foster Growth of Democratic Governments?  Improve Quality of Life?

6 6 Globalists’ Arguments…  Accelerates economic growth, increasing standards of living, albeit w/ winners and losers  Benefits the consumer, increasing income, offering a greater variety of lower-priced products and services  Increases employment, wages and helps improve working conditions [e.g. workers’ rights]  Helps clean up and protect the environment: national wealth for environmental improvements

7 7 …Globalists’ Arguments  Helps developing nations: acceleration of economic growth and lifting of millions out of poverty  Helps protection of human rights: economic and political freedom closely linked  Fosters the growth of democratic governments, which have almost doubled worldwide in the last decade  Globalisation and technology result in a quality of life unimaginable 100 years ago. Life expectancy, literacy, human health, leisure and living standards improved dramatically worldwide

8 8 Antiglobalists’ Arguments…  Subjects people to financial crises and poverty in the name of corporate greed  Has resulted in record corporate profit rates while worldwide income gap widens  Results in jobs being shipped overseas to low-wage factories with poor working conditions and abuses of workers’ rights  Exploits local environments in the quest for corporate profit and contributes to worldwide global warming

9 9 …Antiglobalists’ Arguments  Subjects developing nations to severe trade and financial lending practices, keeps nations trapped in debt and poverty  Supports a world trade in human bondage and slavery estimated in the millions  Threatens sovereignty of the nation-state undermining national laws and regulations with power of world trade and finance bodies  Threatens public health, local economies and social fabric of agricultural based societies

10 10 Analysis…  Started as internationalisation of commerce in goods: an ancient and evolutionary phenomenon  Then came transport and communications technologies  … followed by freer movement of capital, labor and services  In modern times, US [+UK] the driving forces  Collapse of communism  An excellent period of economic growth, esp ’02-’07

11 11 Seven New Factors Eased Globalisation … 1. Institutions, like the EU w/ now 27 members [+4 candidates] and most policies originating in Brussels :environmental, social, health and safety, antimonopoly, antidumping, R&D, financing 2. Information globalisation :internet, e-mail, search engines, data bases, e-press, mobiles, Google Earth 3. Energy developments: demand/prices at a high point, ex- Comecon pay @ market rates, links w/ environment 4. Environmental globalisation: greenhouse emissions

12 12 …Seven New Factors Eased Globalisation 5. New finance tools and mechanisms: euro, stock exchanges - themselves globalised & on-line, new financial schemes eg options/ real options / derivatives, mathematics and computers software/hardware 6. The role of BRIC as suppliers and consumers : a shift in the global economy’s centre of gravity 7. International organisations: lobbying groups, environmental NGOs

13 13 But Recently = ? …  Partial return to so-called ‘protectionism’?  Davos ’08: ‘struggle for the 3 basic commodities - food, energy and water’  Australia may probe Chinese move on Rio Tinto  Reform fatigue in the new [+some old] EU member states  Markets in turmoil, looking for decoupling [=deglobalisation?]  Talk of ‘a new type of stagflation’  New powers: ‘Americanisation’ gives way to Multipolarism. Many of the world-class companies of the future will come from the ‘new economies’ rather than the ‘new economy’

14 14 …But Recently = ?  The role of BRIC as investors: FDI from China in Africa w/ Chinese companies searching for raw materials  Costs of food and energy rising fast : biggest long-term driver is growing wealth in China and India  Environmental [sustainability] problems, worldwide  Increase in transport costs  Increasing role of sovereign wealth funds* and [in the other end of the scale] of individuals such as Soros & Buffet  Subprime > credit squeeze, $/euro, energy and food prices  Global financial system now so complicated that nobody really knows how deep its’ problems run! ----- * ‘ Yesterday’s bad guys come to the rescue’ …of UBS, Morgan Stanley etc

15 15 Globalisation in Minerals: Driving Forces… From the supplier’s viewpoint:  access to mineral resources  access to markets  synergies & economies of scale in production  partial abandonment of state ownership  decline in transport costs [until…]

16 16 …Globalisation in Minerals: Driving Forces…  A new era of resource wars?  Oil and gas trends> Metal ores and metals>Industrial minerals

17 17...Globalisation in Minerals: Driving Forces…  BRIC affecting all mining [and shipping!] worldwide  China booming, polluting, increasing in costs, rich in industrial minerals. But… ‘from dumping to rationing’ ?  India following  Russia and Brazil major in industrial minerals, energy  Chinese [+Russian] mining giants invest abroad: Latin America / Australia / Africa/ China and now North America

18 18...Globalisation in Minerals: Driving Forces  London still the center of mining finance, but …  EU directives and regulations : Natura, REACH, Emissions Trading Systems, IPPC Directive/BAT, Waste directive …  Trade institutions respond to many of these challenges w/ info, lobbying, networks: Euromines, Eurometaux, IMA, The World Mining Council  M&A : a key element of globalisation

19 19 M&A in Mining… *Source: Raw Materials Data, Stockholm

20 20 M&A in Mining… *Sources: Metals Economics Group, The Economist, D.Humphreys

21 21 M&A in Mining ’99-’01… *Source: D.Humphreys  Bad market conditions, low prices, low morale  Hence M&A mostly defensive/cost-cutting/consolidation/ rationalisation  Economies of scale  Exploration vs. M&A  Followed similar moves in the oil industry

22 22 … M&A in Mining ’99-’01 Source: D.Humphreys

23 23 M&A in Mining ’05-’06…  Bull market, hence different M&A drivers:  Expansion mood: ‘growth and opportunity’, rather than ‘cost-cutting and restoration of profitability’  Companies had excess cash and bought, rather than returned to shareholders  Strong demand from China, India

24 24 …M&A in Mining ’05-’06  Commodity diversification  Resource availability: low exploration, difficult permitting [politically, environmentally]  Economies of scale  Exploration vs. M&A

25 25 …M&A in Mining ’05-’06

26 26 Industrial Minerals are Different  Deposits more dispersed  A long-term commitment necessary  Complex marketing and market development  Wide range of applications  Pricing not set by a stock market  Sophisticated processing often necessary  Shipping : an important aspect

27 27 M&A in Industrial Minerals … In next six slides:  M&A in ind mins  Private equity capital in ind mins : examples

28 28...M&A in Industrial Minerals… *Source: The Core 1/08 Year over year, ’06-’07 No of transactions in ’07 +57% over ’06

29 29 …M&A In Industrial Minerals… by mineral ’06-’07 *Source: The Core 1/08 Lime and Clays most active mineral targets

30 30 M&A in Industrial Minerals 2008 Source: The Core 1/08, Nicoletopoulos Consulting TARGETTARGET COUNTRY MINERAL ACQUIRER RTM BoraxDenverBorate Keliber LiFinland Lithium Carbonate Nordic Mining SlovmagSlovakiaMagnesiteMagnezit General ChemicalUSSoda AshTCL US Silica Co.USSilica Sand General Chemical Ind. Products Keliber OyFinland Lithium Carbonate Nordic Mining

31 31 M&A in Industrial Minerals 2007 Source: The Core 1/08, Nicoletopoulos Consulting TARGETTARGET COUNTRY MINERAL ACQUIRER Searles Valley Minerals Inc. US Borate, Soda Ash, Na2S04, Salt Nirma Van MannekusGermanyMgO50% Grecian Magn Birch Mountain Resources Canada Limestone/Aggrega tes Tricap Partners Oglebay Norton Company US Lime, industrial sands Carmeuse Ceture KimtasTurkeyLimeCarmeuse Advanced Industrial Mins Sierra LeoneCoal Hidalgo US Silica Co.US Industrial Sands Harbinger Capital Partners Hill & Griffith Co. US Bentomite,Carbon S&B Zemex Industrial Mins Inc. US, Canada Attapulgite, Mica General Chemical Industrial Products

32 32 M&A in Industrial Minerals 2006 Source: The Core 1/08, Nicoletopoulos Consulting TARGETTARGET COUNTRY MINERAL ACQUIRER Trisil Minerals Inc.US Riprap, Crushed Rock, Guard Rock Global Industrial Services Unifrax CorpUSCeramic FiberAEA Buffalo FluorsparSouth AfricaFluorsparSallies Zemex SMPIUSTalcWold Talc MinelcoUKVermiculiteHoben Int’l Royal DSM NVThe NetherlandsIodineSQM Izocam stakeIstanbul Mineral /Glass/ Stone Wool, Fibre Glass St. Gobain Engelhard Corporation Newark KaolinBASF

33 33 Venture Capital / Private Equity in Industrial Minerals M&A Source: Nicoletopoulos Consulting  The Carlyle Group bought PQ  Hg Capital …Omya talc division ‘Mondo Minerals’  GP Investments …Magnesita  Resource Capital Fund …QMAG, NYCO Minerals  Rhone Capital of the USA …Almatis GmbH, LWB Refractories  Palladium Equity Partners …Prince Minerals  3 i sold UCM

34 34 Company Policy Recommendations…  Whether they like what is going or not, modern industrial minerals companies cannot ignore the realities of globalisation, nor of the developments of the last months: appropriate strategies should be explored  In particular, im companies should …

35 35..Company Policy Recommendations…  Be always alert re market as well as administrative issues  Participate in alliances, initially to test the waters  Get involved in distribution channels [and in shipping?]  Perform joint R&D projects, eg in EU Framework projects  Be prepared for major M&A s and alliances ; their customers [eg refractories] and their customers’ customers [eg steel] are doing it ! But : beware of competition policy, especially ‘market definition’ and ‘producer vs consumer surplus’

36 36...Company Policy Recommendations...  Be socially and environmentally aware and proactive  Communicate, esp. on environmental matters  Engage communities [and more…] early in new projects.  A common [unfavourable] perception : ‘mining benefits are national, costs are local’  Be active in international institutions and associations

37 37...Company Policy Recommendations…  Use financial institutions & consultants as antennae  Employ cosmopolitan, multilingual staff  Make full use of IT  Keep improving management, corporate governance and financial reporting  Set a clear strategy and business plan, but be prepared to scrap it if a great new opportunity arises  Lastly, be prepared for a market downturn: good times do not last forever !

38 38 …Company Policy Recommendations: A Concluding Comment  Ours is a mature industry, highly competitive and cyclical  Assets are depleting, for technical as well as administrative reasons  Demand for mineral products may be still good, but projects will be harder to do  The risk-reward structure is changing  There is polarisation towards: -large diversified companies and -small companies to pioneer new regions and fill niches of the market It is very difficult to do both !

39 39 Thank you ! V.Nicoletopoulos

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