kpmg at pdac 2015 seminar - risky business
TRANSCRIPT
1© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
What is Risk ?
“To expose someone or something valued to danger, harm or loss.”
Source: Wikipedia
2© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
“Risk comes from not knowing what you are doing” - Warren Buffett
What is Risk ?
3© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Risk Management
The process of identification, analysis and either acceptance or mitigation of uncertainty in investment making decisions.
Source: Wikipedia
• The Company regularly identifies risks through a risk register which is updated on a quarterly basis
• The risk register uses a scoring system to rank all risks according to likelihood and potential impact
• Mitigating measures are then determined and implemented as needed
• Management reviews the risk ratings and determines if any additional responses are required to reduce risk exposures
Lundin Mining – How Do We Deal with Risks?
Identify Risks
Assess and Rank
Identify & Implement Mitigation Strategies
Assess Residual Likelihood and
Impact
Review Risk Ratings and Determine Strategy to
Reduce Exposure
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Identified Risk:
• Historically, Lundin has had relatively high political risk through its stake in the Tenke Fungurume mine located in the Democratic Republic of Congo
Mitigation Strategy:
• Embark on a strategy of growth outside of “higher risk” jurisdictions –geographic diversification
• After careful consideration of numerous opportunities, the Company acquired partial or complete interest in the Kokkola cobalt refinery (Finland) in 2012, the Eagle mine (USA) in 2013 and the Candelaria mining complex (Chile) in 2014
• These acquisitions had the effect of reducing the Company’s overall political risk profile, as well as significantly increasing our growth profile
• Each acquisition also resulted in a new set of risks that need to be carefully considered and managed, as well as opportunities
Acquisitions as a Mitigation Strategy
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• Lundin acquired a 100% interest in the high grade Eagle nickel/copper mine from Rio Tinto for $315 million in cash
– Low financial risk - paid with cash on hand & revolving credit facility
• High quality, low-cost asset with similar scale to our existing operations– Low operational risk - underground mine with standard processing methodology
• At time of acquisition the project was approximately 50% complete – Moderate development risk as project was acquired during construction phase – Construction was subsequently completed in 2014 ahead of schedule & under budget
• Opportunity and risks identified to refresh & refocus local stakeholder engagement– Community relations have improved and local engagement remains a high priority
Eagle Acquisition (2013)
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Candelaria Acquisition (2014)
• Lundin acquired an 80% interest in the Candelaria copper mining complex from Freeport for $1.8 billion in cash
– Moderate financial risk due to scale of acquisition cost relative to Lundin’s size– Financial risk mitigated by streaming portion of Au/Ag for upfront payment of $648M
• Large-scale open pit operation which doubled Lundin’s copper production– Moderate organizational risk due to large scale of operation– Risk mitigated by retaining highly experienced local staff and transition services
provided by seller
• Located in Chile’s Region III with wholly-owned infrastructure (port, desal plant) – Low jurisdiction risk for LUN’s first operational entry into South America– Chilean presence allows LUN to further seek regional consolidation opportunities
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Geographic Diversification
• The Company’s exposure to the DR Congo has been reduced by more than half following the recent acquisitions
• In 2015, more than 50% of the Company’s revenues are now expected to come from the Americas (ie. Chile and USA)
Lundin in 2013 2015 Forecast(Post Eagle & Candelaria Acquisitions)
Chile33%
USA19%
Portugal19%
DRC15%
Sweden10%
Spain4%Sweden
19%
Spain13%
Portugal37%
DRC31%
Attributable Cu Eq. Production by Country
Note: Equivalency calculated according to the following prices: $3.00/lb Cu, $1.00/lb Zn, $8.00/lb Ni, $12.00/lb Co and $1.05/lb Pb9
Well-Diversified Base Metals Exposure
• The Company continues to have well-diversified exposure to copper, nickel and zinc
• Beyond 2015, the Company looks to maintain its focus on copper while continuing to maintain excellent exposure to nickel and zinc
Copper58%
Nickel10%
Zinc21%
Cobalt6%
Lead6%
Copper64%
Nickel17%
Zinc13%
Cobalt3%
Lead3%
Attributable Cu Eq. Production by Commodity
Lundin in 2013 2015 Forecasts(Post Eagle & Candelaria Acquisition)
Note: Equivalency calculated according to the following prices: $3.00/lb Cu, $1.00/lb Zn, $8.00/lb Ni, $12.00/lb Co and $1.05/lb Pb10
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TSX : IMG NYSE : IAG
IAMGOLD CorporationEnterprise Risk ManagementMarch 2, 2014
Click to edit Master title styleIAMGOLD’s Gold Assets – Global
Four Operating Gold Mines: Current Production 845k oz. 131
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Click to edit Master title styleERM – Process Overview
Link to Strategy and Operations
Document, Consolidate and Categorize Risk
Prioritize Risks by Impact and Likelihood
Establish Risk Oversight and
Assign Ownership
… refreshing the risk set…
Explore Opportunities
Reframe Risks for Opportunity
… prospecting for upside opportunity…
Prevent / Minimize Risks Prepare Response
… protecting against downside loss…
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Click to edit Master title styleRisk Culture
Definition
In risk management, accountability represents the duty of an individual or organization to account for its activities, accept responsibility for actions, to be answerable and to disclose the results in a transparent manner.
Objective
Management shall be accountable and responsible for managing actions associated with effective risk management including proactive risk mitigation, engage in implementing improvement opportunities and timely reporting.
Risk Accountability
Everyone understands IAMGOLD’s approach to risk, takes personal responsibility to manage risk in everything that they do, and encourages others to follow their example
Key Factors to establish a sound “Risk Culture”
Set right tone-at-the-top
Broad and consistent communication
Coach employees to be risk managers
Clarify expectations and requirements
Support identification and escalation of issues
Link performance and risk management
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TighterLinkage to Strategy and
Operations
Identify, categorize and document strategic and
operational risks
Prioritize risks by impact and likelihood
Greater Focus on Downside Protection
Risk preventionRisk minimization
Response preparation in the event of occurrence
Consideration for Upside
Opportunities
Reframe risk for opportunities
ERM – Risk Parameters and Priorities
Threaten viability of the enterprise
Destruction of value
Materially affect longer term performance
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EmbeddedVulnerabilities
Operational
Compliance
Organization
Finance
External
Strategy
Embedded Vulnerabilities and Risk Identification Framework
DEFINITION
Conditions or weaknesses already present within IAMGOLD’s capabilities and resources that increases the likelihood and/or the severity of risks
Such as . . . a weak balance sheet or high cost structure
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Click to edit Master title styleIAMGOLD Risk Universe
Strategic Cost containment / reduction Capital allocation Pipeline shrinkage Acquisition / Dispositions Joint venture Exploration Capacity constraints Investor relations\ Erosion of relative shareholder value
Compliance Fraud and corruption Legal Regulatory Title Standard of business conduct
Finance Access to & cost of capital Capital structure and liquidity: Dividend Debt level
Taxation: Strategy and planning Compliance
Financial reporting
Operations Reserves and resources
Life of Mine (LOM) Environment / sustainability Mine development Security Health Safety Capital projects Technical Labour relations IT/Network
External Gold price volatility Country / Political risk Energy and input volatility Community Engagement Social relations Competition for properties and talent Commodity - FX volatility Supply chain Resource nationalism Hostile takeover
Organization Leadership Governance: Performance Oversight and authority Control environment
Human Resources: Talent management (attraction and
retention) Succession planning Compensation & benefits
Embedded Vulnerabilities High All In Sustaining Costs Insufficient capital to develop several projects Limitations on debt capacity Declining production profile / finite resources Operations in higher-risk jurisdictions Pipeline shrinkage
Geo-technical failures Limited control over joint venture Declining market capitalization Shareholder activism Pandemic: Ebola Illegal mining
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Click to edit Master title styleCorporate strategy and risk relationship
Strategic Directions, Objectives and Initiatives Key Business Risks
Link
Bus
ines
s O
bjec
tives
To
Ris
ksE
valu
ate
the
sign
ifica
nce
of th
e ris
k to
bus
ines
s ob
ject
ives
Achieve 10% CAGR in production over
next 5 years
Develop robust pipeline to sustain production at the
higher level
Reduce cash cost to remain in the 2nd
Quartile of Cash cost by year end 2015
Capital prioritization and discipline for achieving a risk adjusted cost of
capital for desired short and long terms
returns
Cash Cost Per Ounce
CapitalAllocation
RegionalStrategy
Increase reserves by 124% to 26MMozs by
year end 2016
Increase resources by 69% to 47MMozs
by year end 2016
1. Threat of increased unpaid state participation in mining
2. Unfavourable revision of tax terms applicable to investment
3. Unlawful expropriation
8. Compliance breaches due to fraud, kick backs, commissions and facilitation payments to secure business
Strategic
Operational
Compliance
Financial
Brownfields development
Alternative Energy
Reduce equity production – sale of
Tarkwa and Damang and acquire Sadiola
Niobec Value enhancement
9. Large capital expenditures and cost pressures impacting the cash flow
10. Volatility in the market price for variousminerals directly impacting the earnings
4. Shortage of critical resources, equipment and skilled labor adversely affecting costs and projects scheduling
5. Threat to physical security of the mines6. Loss of production due to catastrophic
failure of key production components (such as conveyers, mills, etc)
7. Supply chain disruptions impacting ongoing operations, infrastructure development and exploration activities
Zero Harm
M&A Plans
Implementation of Regional Organizational
Model
Portfolio risk diversification – Focus on the Americas (e.g..
Colombia)
Review of REE potential
Niobec spin out or strategic investor
Increase Dividends
1919
kinross.com
KINROSS GOLD CORPORATION
OVERVIEW
54%
19%
28%
Americas West Africa RussiaGLOBAL PORTFOLIO
Operating mineDevelopment project
Round Mountain
Kettle River-Buckhorn
Fort Knox
La Coipa
Paracatu
Maricunga
KupolDvoinoye
Chirano
Tasiast
AMERICASRUSSIA
WEST AFRICA
2.45-2.65M ounces
2015E GOLD EQUIVALENT PRODUCTION(1,2)
1) Unless otherwise noted, gold equivalent production, gold equivalent ounces sold and production cost of sales figures in this presentation are based on Kinross’ 90% share of Chirano production and sales. 2) For more information regarding Kinross’ production, cost and capital expenditures outlook for 2015, please refer to the news release dated February 10, 2015, available on our website at www.kinross.com. Kinross’ outlook for 2015 represents forward-looking information and users are cautioned that actual results may vary.
kinross.com
“CRADLE-TO-GRAVE” MANAGEMENT OF RISKKINROSS ENTERPRISE RISK MANAGEMENT PROGRAM
Exploration Project Study / Execution Operation Closure
Life of Mine (LOM):
Focus:• Access• Resource
quality• Licence to
Operate• ….
Focus:• Safety• Design• Budget• Schedule• Quality• License to
Operate• …..
Focus:• Job Hazards
(FLRA’s)• Security• Asset Loss
Prevention / Failure Modes (ERA’s)
• Business Interruption• Site Responsibility
Plans• …..
Focus:• Obligations• Funding• Security• …..
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kinross.com
RISK UNIVERSE - SOURCES OF RISKKINROSS RISK MANAGEMENT PROCESS
● Community Relations
● Energy● Environment● Equipment● Financial● Government
Relations● Human Resources● Infrastructure● Legal● Mining● Modelling
● Permitting & Regulatory
● Processing● Project Execution● Reputation● Health & Safety● Security● Supply Chain● Systems & IT● Tax● Treasury● Water Management● etc.
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kinross.com
AGGREGATED MANAGEMENT OF RISKKINROSS ENTERPRISE RISK MANAGEMENT PROGRAM
Key Risk
Rating Rank
H&S 1
Equip-ment
2
HR 3
Tax 4
Ops. 5
Credit 6
Risk List
Health & Safety
Strategic
Human Resources
Political
Operational
Environmental
Financial
Community
Risk Identification
Aggregation
Risk Assessment Mitigation / Monitoring
Risk Owner
Risk Mitigation Plan
Action Plan
Due Date Status
QuarterlySLT / Board
Key RiskReporting
n > 500 n < 175 n < 20
SBP / PlanningSessions
Risk Workshops
Engineered Risk Assessments (ERA’s)
Asset Loss PreventionSurveys
Insurance Surveys / Assessments
HS&E Audits
Regulatory Inspections
C.I. Reviews
Security Assessments
Project Gate Reviews
Political Risk Assessments
Internal Audits
Employee Surveys
Assessments -Corporate Functions
(eg. Legal, Tax)
Site Responsibility Audits
etc.
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25© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Risk
Questions
26© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Final Thoughts ………
The biggest risk is not taking any risk…..In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks – Mark Zuckerberg
Only those who will risk going too far can possibly find out how far one can go – T.S. Eliot
A ship is always safe at shore – but that is not what it is built for - Albert Einstein
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.”
Thank You!
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.