BOTSWANA RESOURCES SECTOR CONFERENCE

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BOTSWANA RESOURCES SECTOR CONFERENCE
Financing African mining projects26 July 2007
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Introduction

• The development of mines are generally financed
  through debt equity.
• An overview is provided of exploration trends,
  major capital raising centers and how the JSE and
  BSE are contributing towards this.
• An overview is also provided of how best to
  approach raising debt and the time frames
  involved.
• Vanilla bank debt for exploration activity is not
  available as it represents equity risk. Equity
  funding required for pre-feasibility.
• An acceptable mix of debt and equity is prudent
  to any project to ensure the optimization of any
  tax shield on interest payments, lowering the
  cost of capital and maximizing cash flow
  projections.
• A large number of mining projects in the world
  are either under-funded or inefficiently funded.

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The Mineral Project Feeding Chain
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Worldwide Exploration Budgets by Company Type
(as a percentage of worldwide exploration)

• The contribution to exploration expenditure by
  Intermediate and Junior companies worldwide has
  increased substantially over the last 5 years.
• Major mining companies continue to dominate SA
  exploration expenditure. The contribution to
  exploration expenditure by Intermediate and
  Junior companies in SA is disproportionately low
  by world standards.

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Global Exploration Budgets per Region

• As an individual country SA ranks 7 in the world
  after Canada, Australia, the US, Mexico, Russia
  and Peru

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Where are the companies? - JSE
 
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Jubilee Pan African Gold IPSA
Sxr Uranium One Teal GBG First Uranium Anooraq
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Aquarius Tawana GVM Metals
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Where are the companies? - BSE
 
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African Copper African Diamonds
LionOre IAMGold CIC Energy Corp
530
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Diamond Ex Discovery Metals A Cap Resources
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Global playing field - trends
 
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• AIM is gaining market share particularly at the
  expense of the ASX
• Many more companies are listed on multiple
  exchanges. JSE BSE benefited from this
• Australian industry concerned at the loss of
  listings to countries with tax incentives

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BSE Market Capitalisation by Sector

• BSE is one of Africas best performing
  exchanges, which has allowed it to be the 3rd
  largest stock
• exchange in terms of market capitalisation,
  in Southern Africa.
• There was a Significant growth in the Mining
  and material sector over the past 6 years.

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BSE Top Ten Foreign Companies by Market
Capitalisation

• BSE plays host to the most preeminent
  companies doing business in Botswana. These
  include
• various foreign companies of which 7 of
  the top 10 in 2006 are primarily involved in
  Resources.

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BSE standardised performance compared to other
markets
Source BSE Annual Report 2006
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Financial Centre for Africa Strategy

• SAs government strategy to support initiatives
  like NEPAD has direct benefits for SA companies
  looking to do business in Africa

• SAs financial services legislation has undergone
  a complete overhaul since 1994
• National Treasury is following a policy of
  continued Exchange Control Relaxation
• Limits on Banks ability to hold foreign currency
  assets has been relaxed with strong bias towards
  investments in Africa
• African companies may now list securities on the
  JSE and the South Africa Bond Exchange.
• Most South African Banks have limited recourse
  and project finance expertise and appetite for
  the rest of Africa

• African companies, governments and project
  promoters can now access SA capital via SAs
  sophisticated banking sector and world class
  securities exchanges
• SA capital markets have traditionally attracted
  significant global investment flows

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Emerging Stock Markets
Source JSE Annual Report 2006

• The JSE holds a treasured position as one of
  the top 20 exchanges in the world in terms of
  market
• capitalisation and is a leading emerging
  stock market.
• Deep pools of capital exist for companies
  to tap into when listing on the JSEs highly
  efficient and
• transparent markets.

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Recent market performance
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The mid-cap and junior mining sector is near
invisible
4.9

• The top 9 mining companies constitute over
  94 of the total market capitalisation of all
  mining
• companies on the JSE 36 companies
  constitute the remainder

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Junior mining and exploration companies on the JSE

• In the last 12 years there has been a net
  increase of only 6 true junior mining or
  exploration companies
• on the JSE

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What has changed?

• Exchange controls have been relaxed in favour of
  dual listings by African companies
• SA investors have developed an appetite for
  junior miners
• The JSE has been very supportive
• Most importantly the commodities boom is the
  wind at our backs

Nedcor Securities and Nedbank Capital are well
positioned to assist in raising capital via JSE
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The Junior Mining and Exploration sector has
grown spectacularly
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The Junior Mining and Exploration sector has
grown spectacularly
2,009,037

• An informal junior mining sector index would
  hold a respectable position amongst the JSEs
  sector indices

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There has been a proliferation of alternative
asset managers
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Fighting with one hand tied by its back?

• Development of the TSX and AIM closely linked to
  tax incentives
• TSX flow through shares
• AIM capital gains tax and inheritance tax
  rebates
• ASX is losing business to the TSX and AIM
• And the JSE suffers under exchange controls!!

But there is some good news
Trevor Manuel, Minister of Finance, Budget Speech
February 2007
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Timing of Debt Raising

• Timing of debt raising is of strategic importance
  to listed junior mining companies.
• Project finance can take a while to complete.
  Important to mandate a debt advisor and/or
  arranger/underwriter before a final BFS is
  released.
• Debt provider will provide guidance as to content
  of BFS, thereby saving time and also on the
  structuring of the deal.
• Easier to manage markets expectation in terms of
  assuring shareholders that a mining project
  will be coming on-stream. Raising of further
  equity - a lot easier.
• Important to engage an underwriter/bank who
  understands your commodity and one with whom a
  partnership can be developed.

Consideration to be given in appointing a debt
advisor
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Why appoint a debt advisor ?

• Focused Unit serving the best interests of its
  client
• International Best Practice
• Independent / Impartial Advice
• Able to identify structure what is acceptable
  to Financial Institutions
• Earlier involvement in Transaction to structure
  acceptable Project Financing enhancing
  shareholder returns
• Client should see thorough professional service
  across all disciplines
• Corporate Finance Advisory Debt Advisory
  Structuring Arranging

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Typical advisory map
Sourcing
Structuring
Evaluation
Financial Closing
Key decision Choice of debt Advisor
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Export Credit Agencies

• New Policy regimes have been implemented at ECIC
  to facilitate the following
• The realisation of Nepad
• Intra-African Trade
• Regional economic integration
• Industrial development of the African continent
• Part of progressive removal of exchange controls
  and
• Enhance South Africa as the financial hub on the
  continent

The 50 minimum threshold has now been removed
such that no minimum level of SA Content is
prescribed
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Project Finance timeline
Capital Raising could be a 8-12 months lead time
At best 12 Months to raise project finance
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Conclusion

• Nedbank Capital is focusing on projects in the
  rest of the continent
• As a specialist resources advisor and financier
  Nedbank Capital professionals include Mining
  Engineers, a Geologist, Chemical Engineer and
  Metallurgist
• Provide debt advisory, arranging and underwriting
  services to mining companies and projects in
  Africa and the rest of the world
• Nedbank Capital has a number of initiatives
  underway to encourage the development of the
  junior mining sector on the JSE which is an
  appropriate destination for raising capital for
  African mining projects
• Nedbank Capital is excited about the
  opportunities and currently level of activity in
  Africa

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Thank you