EmergingPlayersinthe MiningIndustry

DavidHumphreys DaiEconAdvisors

WorldBankconferenceonExtractive Industries,WashingtonDC,36March2009

Mineandmetalproductionsince2000
%ofglobalgrowthover20002007

Sources:worldsteel,UNCTAD,WBMS,BrookHunt.

Industryexplorationexpenditurebyregion
US$million

Source:MetalsEconomicsGroup

Globaldistributionofmineralreserves
%oftotal

Source:USGS,January2007

Worldslargestminingcompanies
Byvalueofmineproductionin2007
Company 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Vale BHPBilliton AngloAmerican RioTinto FreeportMcMoRan NorilskNickel Codelco Xstrata BarrickGold GroupMexico StateofChina Teck NewmontMining AnglogoldAshanti GlencoreInt Country Brazil Australia UK UK USA Russia Chile Switzerland USA Mexico China Canada USA SouthAfrica Switzerland %oftotal 5.6 5.1 3.8 3.8 3.3 2.9 2.9 2.9 1.6 1.6 1.5 1.1 0.9 0.9 0.8 16. 17 18 19 20. 21 22. 23. 24. 25. 26. 27. 28. 29. 30. Company KGHMPolskaMiedz Antofagasta ImpalaPlatinum Vedanta GoldFields Kazakhmys PTAntam StateofIran Alrosa Lonmin Goldcorp Metalloinvest AcelorMittal SumitomoMM ENRC Country Poland UK SouthAfrica UK SouthAfrica UK Indonesia Iran Russia UK Canada Russia UK Japan UK %oftotal 0.8 0.8 0.7 0.7 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0,5 0.5 0.4 0.4

Source:RawMaterials Group

Worldslargestminingcompanies
Byvalueofmineproductionin2007
Company 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Vale BHPBilliton AngloAmerican RioTinto FreeportMcMoRan NorilskNickel Codelco Xstrata BarrickGold GroupMexico StateofChina Teck NewmontMining AnglogoldAshanti GlencoreInt Country Brazil Australia UK UK USA Russia Chile Switzerland USA Mexico China Canada USA SouthAfrica Switzerland %oftotal 5.6 5.1 3.8 3.8 3.3 2.9 2.9 2.9 1.6 1.6 1.5 1.1 0.9 0.9 0.8 16. 17 18 19 20. 21 22. 23. 24. 25. 26. 27. 28. 29. 30. Company KGHM Antofagasta ImpalaPlatinum Vedanta GoldFields Kazakhmys PTAntam StateofIran Alrosa Lonmin Goldcorp Metalloinvest AcelorMittal SumitomoMM ENRC Country Poland UK SouthAfrica UK SouthAfrica UK Indonesia Iran Russia UK Canada Russia UK Japan UK %oftotal 0.8 0.8 0.7 0.7 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.4 0.4

Source:RawMaterialsGroup

Emergingmarketplayers
Company Vale NorilskNickel Codelco GrupoMexico AnglogoldAshanti KGHMPolskaMiedz Antofagasta ImpalaPlatinum Vedanta GoldFields Kazakhmys PTAntam Alrosa Metalloinvest ENRC Country Brazil Russia Chile Mexico SouthAfrica Poland UK/Chile SouthAfrica UK/India SouthAfrica UK/Kazakhstan Indonesia Russia Russia UK/Kazakhstan Principalproducts(worldrankingin2007) Ironore(1),Nickel(2),Platinum(7),Copper(14),Aluminium Nickel(1),Copper(8),Platinum(4),Palladium(1),Cobalt(2) Copper(1),Molybdenum(2) Copper(6),Molybdenum(3),Silver(9) Gold(2),Uranium(10) Copper(9),Silver(3) Copper(10),Molybdenum(5) Platinum(2),Palladium(3) Zinc(5),Copper,Cobalt(5),Ironore,Aluminium Gold(4) Copper(11),Silver(5) Nickel(4) Diamonds(2) Ironore(4) Ferrochrome(1),Ferromanganese,Ironore,Aluminium

Source:DeutscheBank,BrookHunt

Marchoftheemergers.Whynow?
Statedisengagementfromsectorhaspermittedcompaniestoattract entrepreneurialtalentandadoptmorecommercial,expansionaryobjectives Companiesareoftenbasedinmineralrichcountriesandenjoyprivilegedaccess tounderdevelopedlocalresources Strongcashflowsfromhighcommoditypricesandimprovedstandardsof corporategovernancehavegivencompaniesbetteraccesstocapital Anambitiontoimprovetheriskprofileofthecompaniesthroughdiversification hasencouragedcompaniestoseektoinvestglobally Astrategicrequirementtosecurerawmaterialsfortheirdomesticmetallurgical operationshavemotivatedcompaniestoinvestupstream

Acquisitionsbyemergingmarketcompanies
1999 VedantaacquiresCopperMinesofTasmania 1999GrupoMexicoacquiresAsarco 2002RusalacquiresFriguiaaluminarefinery(Guinea) 2003NorilskNickelacquiresStillwaterMining(US) 2004VedantaacquiresKonkolaCopperMines(Zambia) 2005RusalacquiresholdinginQALaluminarefinery(Australia) 2006ValeacquiresInco 2006RusalacquiresAlsconaluminiumsmelter(Nigeria) 2007RusalmergeswithSualandGlencoresaluminabusiness 2007NorilskNickelacquiresnickelassetsofOMGandLionOre

InvestmentsinnonferrousmetalminingbyChinesecompanies
Company JinchuanGroup Typeofinvestment AcquisitionofminoritystakeinAlbidon(2006) AcquisitionofmajoritystakeinTiominsKwaleproject Tiomin(2006) MinoritystakesinAllegianceMining(07),MetalsX (07)andFoxResources(08) AcquisitionofTylerResourcesanditsBahuerachi project(2008) ChinaNonferrousMetalMiningCo (CNMC) ZijinMining ChinaMinmetalsandJiangxiCopper AcquisitionofChambishimines(1998) DevelopmentrightstoTumurtinObi(2003) AcquisitionofRioBlancomine(2007) DevelopmentrightstoAnayk(2007) AcquisitionofNorthernPeruCopperanditsGaleno project(2008) Chinalco AcquisitionofAurukunproject(2006) AcquisitionofDakNongproject(2006) AcquisitionofPeruCopperanditsToromochoproject (2007) Acquisitionof9%stakeinRioTinto(2008) ChinaMetallurgicalConstructionGroupCorp (CMCC) AcquisitionofSaindakmine(1998) DevelopmentrightstoDuddarproject(2004) AcquisitionofRamuRiverproject(2004) Country Zambia Kenya Australia Mexico Zambia Mongolia Peru Afghanistan Peru Australia Vietnam Peru Global Pakistan Pakistan PapuaNG Commodity Nickel Titanium Nickel Copper,zinc Copper Zinc Copper Copper Copper Bauxite Bauxite Copper Various Copper Zinc,lead Nickel

Norilskisremote

itgetscold

butisbasedonaveryrichorebody

NorilskNickel:somekeyfacts
Largestnickelproducerinworld(+bigproducerofPGMs&copper) Lowestcostproducerofnickelinworld LargestminerinRussia Oneoflargestminingcompaniesinworld 80,000employees Ownership:Coreholdings,Interros(c.30%),(Rusalc.25%) QuotedonRTSandMicex Revenues:80%fromRussianoperations Markets:Europe64%,Asia15%,NAmerica13%

NorilskNickelmodernisation
2001LaunchesADRprogramme 2003Firstdatareleaseonproduction(basemetalsfor2002) 2003 FirstIFRSaccounts(for2002).Appointmentofindependentdirectors 2003AcquiresmajorityinterestinStillwaterMining 2004Firstdisclosureofmineralreserves(basemetalsfor2002) 2004ObtainscreditratingfromS&P(investmentgradein2006) 2005Startofdivisionalreorganisation 2005Firstcorporatesocialreport(for20032004) 2006Fulldisclosureonproductionandreserves(includingPGMs) 2006Commitstomajorinvestmentprogrammeforcoreoperationsinfarnorth 2006SpinoffofgoldbusinesstoPolyusGold 2007AcquisitionofnickelassetsofOMGandLionOre 2008RusalacquiresstakeinNorilskNickel.Statemakesloanstocoreshareholders.

Challengesforemergingmarketplayers
Finance Dryingupwithcreditcrunchandgeneralrisk aversiontowardscommoditiesandemergingmarkets Governance Skewedshareholderstructuresleadingto tensionsbetweendifferentgroupsofinvestorsindownturn, themoresowherethestatebecomesinvolved Globalisation Downturncreatespressurestoprioritise objectivesofdomesticemploymentandinvestment Managementdepth Challengeofbroadeninganddeepening managementskillswillbetougherinaslowgrowthmarket

Pointerstothefuture

Roleofemergingplayerswillneverthelessgrowbecauseof: Goodaccesstounderdevelopedmineralresources Incentiveofgrowingdomesticmineraldemand Betteravailabilityoffinanceandmanagement

Developmentimplicationsunclear: Naturalunderstandingofdevelopmentneeds Butsusceptibilitytomultiplesocial/politicalobjectives

EmergingPlayersinthe MiningIndustry
DavidHumphreys DaiEconAdvisors

WorldBankconferenceonExtractive Industries,WashingtonDC,36March2009

Backupslides

TheNorilskNickellegacy
1935 NorilskestablishedasamininggulagonTaimyrpeninsula 1936 SeveronickelcombinefoundedonKolapeninsula 1940IncobuildsPechenganickelinwhatwasthenFinland 1957 Norilskgulagformallydismantled 1960 LargeneworebodydiscoverednearNorilskatTalnakh 1989 MMCNorilskNickelformedfromTaimyrandKolaoperations 1993 FirstlegofprivatisationofMMCNorilskNickel 1997 FullprivatisationofMMCNorilskNickel 2001 InstallationofMikhailProkhorovasGeneralDirector 2001+Modernisationofcompanybegins

NorilskNickeloperationsworldwide
ExplorationJoint Ventures

TalvivaaraProject(5.5%)

KolaMMC

PolarDivision

Harjavalta CanadianRoyaltiesInc(7.2%) StillwaterMiningCompany(54%)

GipronickelResearchInstitute

NNCorporateHeadquarters Chitacopperproject NorilskNickelEurope,UK NorilskNickelChina NorilskNickelHongKong

NorilskNickelUSANorilskNickel MetalTradeOverseas, Europe,Paris Switzerland

ExplorationprojectinBurundi HoneymoonWell TatiNickel(85%) BCL(6.2%) NNCawse NkomatiNickel(50%) Black Swan Avalon Waterloo

Lake Johnston Miningoperations Developmentprojects Smelting/refiningoperations Headquarters&DistributionNetwork

Source: Companyinformation

TheRussianFederation

CommentontheRusAlNorilskaffair
Themoststrikingthingabouttheaffairisthatasetof businesstycoonshave,sofar,behavedinawaythatisalot morecivilisedthananythingseenfromtheRussianstate. Whenstatefirmswantaprivateasset,theysendinthetax police,thesecurityservicesandafewhealthandsafety inspectors,beforemakinganoffer.Here,bigprivatefirmsare dealingwitheachothermostlyusingbankersandlawyers. Whatmatters,intheend,isnotjusttheoutcome,butalso howitcomesabout.ItishearteningtoseeaRussian companywithprofessionalmanagerswhonolongertreat minorityshareholdersasjustanobstacle.

th ThemeaningofNorilsk,TheEconomist,15 March2008