Presentation on theme: "Consolidation – Then and Now Robert Champion de Crespigny AC Chairman, Buka Minerals Limited Sydney Mining Club, 7 October 2004."— Presentation transcript:
Consolidation – Then and Now Robert Champion de Crespigny AC Chairman, Buka Minerals Limited Sydney Mining Club, 7 October 2004
1)Australian equity markets were a major source of exploration capital a.a boom in the small end of the gold business b.boom in mining services and finance 2)… but little equity for established miners seeking to grow, unless you were foreign and had a track record a.Placer, Homestake, Newmont, etc 3)To grow beyond organic growth, you needed (and still need) access to offshore markets - that required size Consolidation – the 1980s
1)Equity capital and premium prices followed the successful miners and explorers a.the North American markets began to dominate the equity side of mining finance b.North American institutions became the dominant investors and shareholders c.… and they were only interested in large capitalisation stocks, preferably home-grown 2)The result was mass consolidation in Australian mining a.between Australian companies seeking to compete b.by North American companies using their financial muscle c.by South African companies seeking to diversify Growing a mining company in the 1990s
Consolidation in the global gold sector Battle Mountain LAC Homestake SuttonGetchell Highlands Gold Santa Fe Newmont Gold Normandy Franco- Nevada Anglo Gold (6.0Moz) Gold Fields (4.5Moz) Aurion Gold Niugini Mining Homestake Australia Plutonic Prime Resources East Arican Gold Mines Goldfields (Australia) TVX North Flinders Mt Leyshon Great Central Dalta Gold RangerTarkwaARMgoldEvander Elandskraal Kalgold Ashanti AcaciaMinorcoWMC Gold Randfontein Newmont (7.5Moz) Barrick (5.7Moz) Placer (3.7Moz) Harmony (4.0Moz) Hill 50 New Hampton BendigoAbelle Source: AME Mineral Economics, N M Rothschild & Sons
Australia vs North America in the 1980s & 90s KEY ATTRIBUTES Australian Gold Companies North American Gold Companies Exploration Focus Brownfields, localGreenfields, emerging markets Mine Developments Re-working old mines - Eastern Goldfields New mines - Nevada, Chile, Peru Mine Lives 5-10 years15-25 years Reserve Growth ModestDramatic Growth Focus MergerExploration, merger Financial Markets Modest supportStrong support Valuation Basis DCFPremium to DCF Financial Returns to Investors Modest, cyclicalStrong, based on reserve growth
1)By 2000, the ranks of Australian mining companies had been decimated a.large parts foreign owned b.the Australian majors had become international c.the mid-ranked Australians disappeared 2)… and a new generation of investors did not understand mining a.they didn’t need to and b.it didn’t pay, we were in a 10 year bear market The result
1)A handful of majors a.foreign – Rio, Anglo, the gold majors b.Australian – BHPB, WMC 2)A number of significant company failures (Pasminco, Western Metals, Gympie, Sons of Gwalia) 3)A tiny mid tier 4)A diminishing number of active smaller companies The Australian mining industry in 2000-04
1)The disappearance of the listed Australian mining industry has coincided with a mining boom 2)… resulting in a high level of industry profitability and major capital investment in new capacity 3)… but mineral exploration is surprisingly subdued. Why ? a.the effects of consolidation b.the disappearance of the “cashed-up junior explorer” c.very few “exciting” discoveries d.junior companies focusing on production vs exploration In 2004 - Golden times for the industry
1)Some seeds were sown in the nickel boom a.exploration-driven success with Jubilee and MPI b.several strong juniors, but mostly re-working old mines 2)… and success by enterprising locals offshore (Oxiana, Kingsgate, Pan Aust) 3)But there has been no broadly-based recovery in the locally-owned mining industry 4)… and local investors have largely stayed on the sidelines So how do we rebuild an Australian-owned mining industry?
1)The Australian industry has not delivered real exploration success a.comparison to the North American majors b.distinction between bulk commodities and metals 2)Australian institutions have not seen the same value in Australian-owned resources assets a.cycle-pickers rather than long term investors b.thus the need to secure equity offshore c.disadvantage relative to North American and UK-based companies (pool of funds, Canadian property, etc) Two underlying issues
1)Exploration success a.exploration funding will follow success 2)Aggressive mining entrepreneurs a.we have some – Andrew Forrest, Keith Liddell b.… but we need more The financial markets won’t lead the charge, but we need them to follow Two prerequisites?
1)Australia remains a competitive location for exploration 2)Macroeconomic stability 3)Supported by a favourable regulatory environment a.pro-development Federal and State governments b.Australia and its states always rank well in industry competitiveness surveys c.moderate tax and royalty regimes d.streamlined native title resolution processes e.no corruption Exploration – the landscape
1)Much of country is under cover 2)New exploration techniques allow exploration under this cover … and remains highly prospective & under-explored
1)Exploration expenditure has been low for some years in line with weak prices 2)Gold exploration dominated, but was mostly around existing mines 3)Resulting in only a handful of new mine discoveries in this decade a.Prominent Hill Au/Cu, S.A. (Minotaur / BHP) b.Wingina Well Au, Pilbara (De Grey) c.Waterloo Ni, Yilgarn (LionOre)... who can think of any more? … but there have been few recent discoveries
1)Create a more favourable climate for exploration a.South Australian initiatives b.taxation incentives and R&D treatment play a part, but not an important one 2)Encourage investors to support junior explorers a.Lion Selection has been a strong supporter b.other funds are being established 3)Encourage producers to re-invest profits in exploration a.it is the major driver of long term value creation … but the most important catalyst will be exploration success What will change this?
Total Australia $735 million South Australian exploration initiative Exploration Expenditure by State - 2003
SA initiative – ‘A Plan to Accelerate Exploration’ 1)Package designed to remove or overcome impediments a. combined State-wide and region-by-region approach 1)Addresses issues such as a.land access b.difficulties of exploring under cover 2)Action plans include a.State funded R&D programmes b.increased PIRSA staffing c.“dollar-for-dollar” partnership on drilling in target regions d.Resource Industry Ambassador 3)Spending $22.5 million over 5 years a.Aimed at boosting annual minerals production to $3 billion by 2020
ListedASX: BKA Issued Capital138.5 million ord. shares 100.0 million options (at $0.20-$0.225) Market Cap.$48 million $73 million (fully diluted) BoardRobert Champion de Crespigny AC, Chairman John Richards, Managing Director Mark Carnegie Angus Collins Tom Klinger Ronald Walker AC CBE HoldersInvestor Group30.5% Triako Resources24.7% Delphic Holdings16.2% Buka - Profile
1)Buka has traditionally been an explorer-developer a.Lady Annie pre-feasibility study completed on 13,000 tpa SX-EW copper project ready to go but lacking critical mass b.Lady Loretta JV with Noranda high quality undeveloped zinc resource awaiting an improvement in the zinc market Our strategy at Buka
1)Buka is now a 21 st century resource finance house a.an investor and financier of resource companies and projects b.an opportunistic investor c.a friend to emerging mining companies 2)A very different model from previous mining houses a.very small executive team b.active Board of Directors 3)Initial investments a.CopperCo b.Gympie Gold Our strategy at Buka
1)Buka is the cornerstone shareholder (22%) 2)Buka’s Lady Annie is the cornerstone asset 3)A regional exploration play a.large land position north of Mt Isa b.oxide and sulphide copper focus 4)… and a strong management team a.Brian Rear b.Mineral Securities CopperCo
1)Buka is in syndicate with Mizuho and Investec a.formed to acquire Gympie Gold debt b.now acquiring Gympie Eldorado assets 2)$4-5 million 2004/05 exploration programme commenced a.stop-start exploration history has not done the field justice b.key target is South Inglewood prospect Buka and its partners have relaunched exploration at Gympie Eldorado