development stage gold companies value proposition timeline
TRANSCRIPT
Development Stage Gold Companies Value Proposition Timeline
American Exploration & Mining Association 120th Annual MeetingReno, Nevada
Joel Schneyer – Managing Director
December 4th, 2014
Difficult Investment Landscape for Miners
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Source: Novagold ‐ Presentation San Francisco Gold Conference November 2013
Mexico: New 8% tax on gold profits
South America1.Peru: Construction halted at largest mine due to gov’t review and social unrest.2.Ecuador: Political obstacles and windfall tax discourage foreign investment in mining.3.Venezuela: Five mining companies seeking compensation through World Bank’s arbitration court following nationalizations.4.Bolivia: Nationalization of various natural resources assets.5.Argentina: Miners required to repatriate revenues from foreign sales, limitations imposed on foreign exchange. Controls on imports of equipment/supplies have also been tightened
Africa6.Ghana: Increase in tariffs on mines and introduced a windfall tax, halting project expansions.7.Guinea: New law gives government a 35% stake; threat of nationalization.8.Mali: Recent military coup creating political uncertainty9.Kenya: Rising mineral royalties and drilling fees for mining.10.Congo: Plans to revise mining code, raise taxes and increase stake in mining projects11.Zimbabwe: Gov’t plans to seize control of foreign‐ owned mines.12.South Africa: Ongoing dialogue to nationalize mining industry.
Russia, Asia & Australia13.Indonesia: Newly proposed legislation limits foreign ownership of mines to 49%.14.Philippines: New royalties and taxes being imposed on mining companies.15.Mongolia: Drafting investment law to restrict foreign ownership.16.Australia: Government passed Mineral Resources Rent Tax of 30%17.Kyrgyzstan: Parliamentary motion calling for increased government stake in one of its largest mines
Recently Highlighted Regions/Countries with Heightened Geopolitical Risk
Disconnect Between Gold Miner Indexes and Broader Market
3
Source: Metals Focus
$548
$1,066 $1,045
$/oz
Mining Cost Inflation
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Source: Metals Focus
$/oz
Industry Cash Cost Curve H1 2014
5
Source: Metals Focus
Industry All‐In Sustainable Cost H1 14
6
Source: Metals Focus
$/oz
$535/oz
Margins Under Pressure
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8
The Institutional Money has lost confidence …
˗ that costs can be controlled
˗ that capital discipline will occur
˗ that restructurings can deliver on promises
˗ that returns on capital employed will improve
˗ that the industry won’t pile back into too many new projects or expensive deals when
prices rebound
˗ that resource nationalism will not overwhelm the industry
˗ that commodity prices will not collapse
˗ that “stuckholders” have an exit
… and the markets reflect this loss of confidence
Institutional Money Is Not Buying Public Gold Company Lottery Tickets
Why Buy An Illiquid Share When You Can Buy An ETF?
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No control – generally passive
Upfront payment for metal – generally passive, much more important financing source today
Rise of PE as active investors and generally absolute control
May have board representation, early toehold in projects
The rise of state backed investments (e.g. China and Korea)
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Company
Project
Retail
Sovereign Wealth
Institu
tiona
l Mon
ey
Private Equity
Streaming & Royalty
Strategics
Merchant Traders
Mutual Funds
Major Shift In How Institutional Money Invests In Sector
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Development Stage Gold Companies trade at an Enterprise Value of $16 per ounce of M, I, & I (NI 43‐101) with average estimated project development costs of $91 per ounce
*EV = (share price x # shares) – current assets + total liabilities**9/29/2014 share prices at close Au=$1219.50/oz, Ag=$17.58/oz
However The Development Stage Business Model Looks To Be Unsustainable
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Once the Project enters the Development Investment Analysis Phase (PEA – Prefeasibility – Feasibility), companies see a long period of share price erosion as studies, permitting and de‐risking drag on
Life Cycle of a Gold Mining Share – Dec 2013 119th Annual Meeting
De‐risking&
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Once the Project enters the Development Investment Analysis Phase (PEA – Prefeasibility – Feasibility), companies see a long period of share price erosion as studies, permitting and de‐risking drag on
Life Cycle of a Gold Mining Share – Dec 2014 120th Annual Meeting
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Development Stage Gold Companies Trade on Average at $16/oz Resource
Costs to Complete Drilling, Feasibility & Permitting ~$10/oz Resource
Capital Development Costs $91/oz Resource
Owners Costs Not in Feasibility (25%) $23/oz Resource
Total $140/oz Resource
Actual Trading Market Multiples
• Small Gold Producers $71/oz Resource
• Intermediate Gold Producers $70/oz Resource
• Large Gold Producers $129/oz Resource
• Silver Producers $128/oz Resource
So What Is the Problem?
Focus On Sustainable Development And What You Can Control
Mining investors are increasingly focused on investment returns. Focus less on project IRR’s and more on Project rank on cost curve
Attractive Returns & Economic
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Staged Development
Low Political Risk
Available Workforce
To minimize capital risk, design around an initial high grade starter pit with scaled expansion & investigate the lower cap intensity heap leach option
Conventional process circuit. Will take project thru “detailed engineering” before seeking project finance
Favorable jurisdiction with long established mining laws
Host jurisdiction has available trained and or trainable work force, only need modest number of expatriate supervisors
Permitting & Social Issues
Have local stakeholders (partners) with financial stake that are on record supporting project and EIS process
Completion & Overrun Risk
The Headwaters Difference
DEAL OF THE YEAR ‐ TMT
INVESTMENT BANK OF THE YEAR
INTERNATIONAL DEAL OF THE YEAR PROFESSIONAL (B2B) SERVICES
INTERNATIONAL DEAL OF THE YEAR CONSUMER SERVICES
INTERNATIONAL INVESTMENT BANK OF THE YEAR
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