draft – for discussion only in 2013 russia ranked 3rd ... · tungsten • demand is to ... market...

1 Copyright: Bryanston

Draft – For discussion only

65%

2%

~0%

6%

12%

7% 5%

3%

In 2013 Russia ranked 3rd worldwide in FDI ranking – Siberia and Far Eastern regions still to realize potential

FDI 2013 global ranking

40

46

53

56

63

64

92

94

159

231

USA

Canada

Total world

Brazil

Ireland

Australia

1.461

Russia

China1

Singapore

UK

Virgin Islands

Most of FDI are attracted by European Russia so far…

Top 10 host economies, bn.USD, estimation Share of Federal District in the country FDI volume in 2013, %

Siberia & Far East: region of potential growth

§ New regional industrialization based on the vast local resource base with wide range of commodities

§ Mutual benefit from partnership with China, which is the biggest consumer of natural resources in the world

1) Including Hong Kong Source: United Nations Conference on Trade and Development, global investment trend monitor, Rosstat

Central Russia: growth of FDI proven §  Increase of income per capita caused high growth of FDI

in trade and real estate in Central Russia, esp. Moscow, Sankt-Petersburg, Moscow region in 2000s



Russian Far East is very rich in “traditional” commodities…

Source: State report on mineral resources of the Russian Federation 2012, Bryanston Research & Expert Interviews

Al Al Reserves, 0-10 Mt

Bauxite Reserves, 10-100 Mt

Far East

Siberia

Pb

Pb

Pb Pb Pb

Pb

Pb

European Russia

P

P

P

P P

P

P P

K K

Zn

Zn

Zn

Zn Zn Zn

Zn

Zn

Zn

Zn

Zn Al

Al Al C

C

C

C

C C

C

C

C

C

C

C

C

C

C

C C C

Fe Fe

Fe

Fe Fe

Fe

Fe

Fe

Mg

Mg

Mg Mg

Mg

Coal C C

C

C

Reserves, >50 Bt Reserves, 5-50 Bt Reserves, 2-5 Bt

Reserves, 0-2 Bt

Zinc Zn Zn

Zn Reserves, 10-30 Mt Reserves, 5-10 Mt Reserves, 1--5 Mt

Zn Reserves, 0-1 Mt

Iron ore

Fe Fe

Fe

Reserves, 2-10 Bt Reserves, 0.5-2 Bt Reserves, 0-0.5 Bt

Lead Pb Pb

Pb Reserves, 5-10 Mt Reserves, 1-5 Mt Reserves, 0-1 Mt

Phosphorus P P

P

P

Reserves, 20-100 Mt Reserves, 1-20 Mt Reserves, 0-1 Mt

Resources only, no reserves

P Potassium

K K

Reserves, >300 Mt Reserves, 0-300 Mt

Magnesium Mg Mg

Mg Reserves, >2 Bt Reserves, 1-2 Bt Reserves, 0-1 Mt



… as well as in commodities that we call “China 2.0”

Source: State report on mineral resources of the Russian Federation 2012, Bryanston Research & Expert Interviews

Mn Mn Mn

Mn

Mn Mn

Mn

Mn

Ni

Ni

Ni

Ni

Ti

Ti

Ti

Ti Ti

Ti Ti Ti

Ti Ti W

W

W

W

W

W

W

W

W Cu

Cu

Cu Cu

Cu

Cu

Cu

Cu

Cu

Cu

Cu

Cu

Cu

Cu

Pt Pt

Pt

Pt

Pt

Sn Sn

Sn

Sn

Sn

Sn

Sn Sn

Sn

TR

TR

TR

TR

TR

Significant reserves and reasonable logistic costs will be competitive advantage for Russian export to China

TR TR

TR

TR

Reserves, > 10 Mt Reserves, 1-10 Mt Reserves, 0-1 Mt


REE

Tungsten W W

W

W

Reserves, >350 Kt Reserves, 100-350 Kt Reserves, <100 Kt


Titanium

Ti Ti

Ti

Ti

Reserves, 100-300 Mt Reserves, 10-100 Mt Reserves, 0-10 Mt


Copper Cu Cu

Cu

Cu

Reserves, >10 Mt Reserves, 1-10 Mt Reserves, 0-1 Mt


Nickel Ni Ni

Ni Reserves, >1000 Kt Reserves, 100-1000 Kt Reserves only, no resources

PGM Pt Pt

Pt Reserves, >100 t Reserves, 10-100 t Reserves, 0-10 t

Manganese Mn Mn

Mn

Mn

Reserves, >30 Mt Reserves, 3-30 Mt Reserves, 0-3 Mt


Tin Sn Sn Sn

Reserves, >500 Kt Reserves, 200-500 Kt Reserves, 0-200 Kt

Cr Cr

Cr

Cr

Reserves, 1-10 Mt Reserves, 0-1 Mt


Chrome Reserves, >10 Mt

European Russia



Commodity Food/ packaging

Steel/ Construction

Other processing/ Electricity

High tech industrial

Electronics/ other high

tech

Mercury

PGM

Beryllium

Molybden

Vanadium

Indium

Tungsten

Lead

Tin

Cobalt

Germanium

Gallium

Arsenic

REE

Commodity Food/ packaging

Steel/ Construction

Other processing/ Electricity

High tech industrial

Electronics/ other high

tech

Alumina

Iron ore

Magnesium

Zinc

Coal

Silicon

Manganese

Chrome

Copper

Nickel

Uranium

Titanium

Bismuth

Silver

Source: Bryanston Research

Main application in “1.0 industries”

China 1.0 China 2.0 China 1.0 China 2.0

Picking the right commodity for investment means to discern “1.0” and “2.0” – based on deep industry demand analysis

Secondary application in “1.0 industries”

Main application in “2.0 industries”

Secondary application in “2.0 industries”

Special steels production: wear-

resistant, stainless, etc.

Aviation and space industry consumption

Indicative

Significant resource base in Siberia and

Far East



Commodity overview – selection: strong resource base in Russia

Commodity Global supply/demand Russian resource base

Tungsten •  Demand is to grow driven by China •  Supply scarcity due to China limits on export (~60% of

world reserves)

•  Large resource base represented mostly by brownfield deposits with established capacities

Titanium •  Titan demand is forecasted to grow faster than supply with China/Pacific markets being the main drivers

•  Large resource base (4th in the world) with mainly undeveloped deposits

Manganese •  Demand is to grow driven by steel production in China, oversupply is to move into balance by 2019

•  Extensive resource base with below avg. content (~9-32%)

•  Requires enrichment on site

Tin •  Demand is to grow fuelled by growth in electronics •  Supply is to decrease from 2017

•  Extensive resource base with low concentration ~1%

Copper •  China is the biggest consumer of copper, surplus on the market now with deficit re-emerging from 2016

•  Moderate resources, mainly sulphide ores associated with nickel

Chrome •  Demand is to grow together with steel demand, oversupply is to move into balance by 2018

•  Rather small resource base with Russia being a large importer

Nickel •  Asia accounts for 65% of world demand, most of which is attributed to China, with forecast to grow

•  Moderate resources, mainly sulphide ores associated with copper

Rare Earth Elements

•  Demand is to grow driven by China •  Supply is projected to grow slower than demand

•  Large resource base with content around ~0.4% & dependency on main ore utilization

Platinum Group Metals

•  Demand is to remain stable with European demand decrease balanced by growth in China and USA

•  Supply is to decrease slightly •  Large resource base

Source: US Geological Survey, Bryanston Research

Indicative



Geopolitically “China 2.0” commodities’ mining appears as an interesting option now...

Potential difficulties with long-term

western financing?

Potential decrease of Russian

commodities’ export to western countries?

Western sanctions

•  Increase of loan marginality on Russian market for investors and loan burden for project developers

•  Consideration of China as one key market for diversification of Russian commodities export

•  Increase of state support for projects in Far East of Russia

Potential mid term effects Potential long term effects

•  Potential challenges in raising capital for infrastructure and mining projects

• Shift from policy of state reserves accumulation to their investment into real economy

• Restructuring of Russian commodity flows and foreign financial sources in favor of Asia

• More self-sustainable economy development in Russia

Development of infrastructure for mining and export of “China 2.0” commodities can be an important step for Russian Far East development




... given significant state support in infrastructure construction under Federal Development Program …

Support on the federal level •  Major projects supported by government and dedicated

Ministry for the Development of Far East •  Government companies involved in mining and

infrastructure projects •  Private public partnership can reduce infrastructure risks •  Special Advanced zone Initiative is about to be

implemented

Support on the regional level

•  Regional authorities attract potential anchor companies •  Key support in dealing with legal and operational issues •  Serving as intermediary for investor, federal government

and people •  Development of regional human potential: growth of

skills and competences, involvement of the universities and NGOs

Source: State Program: “Social and economic development of Far East and Baikal region 2014-2025”, Bryanston Research

970715

2.040

1.180

2016 2015

1.080

2014

1.980

2019 2020 2017 2018

1.130

Planned state investments in Far East infrastructure

250203

2014 2017

24

3

2014 2017 2014

588 521

2017

Stretch of automobile roads, km

Number of new airports and landing strips

Cargo turnover, bln.t*km

State financing of program for Far East Region and Zabaykalsky Krai development, mln.USD

Preliminary



… and further forms of realized and planned support of regulation for companies

Selected projects infrastructure and main commodities

Elegestskoye coal field and railroad (TEPK, RZhD)

Kimkano-Sutarsky GOK (iron ore) and railroad bridge through Amur (Petropavlovsk)

Mayskoye gold field (Polymetal)

Novogodnee monto gold field (Petropavlovsk)

Natalka gold field (Poluys Gold)

Private projects

Private - Public projects

Timir iron ore project (Evraz)

Udokan copper deposit (Metinvest)

Selected projects

Vanino coal terminal (TEPK)

Suhodol bay coal terminal (SDS-Ugol)

Source: State Program: “Social and economic development of Far East and Baikal region 2014-2025”, Bryanston Research

Private-public partnership examples

• Kuznetsovsky rail tunnel on BAM (October 2012, Russia Investment fund, RZhD)

• Railroad to Elginskoye coal field ( January 2012, Mechel, RZhD)

• Railroad to Elegestskoye coal field (under construction, TEPK, RZhD)

Siberia and Far Easts projects’ support forms

Recent regional tax subsidies

•  In September 2014 Yakutia announced 0% profit tax rate for development of new mining fields in the first 5 years, 10% for the next 5 years, subsidies on the mineral extraction tax

• Subsidies on the property tax and partial compensation of debt payments are implemented in Kamchatsky Krai for new mining projects

Advanced economic growth zones

• New mechanism: tax holidays, easing of customs regime and construction approval, other state procedures (14 potential territories initially selected, incl. 4 in Primorsky Krai)

Preliminary



Recent panel discussion on key levers for Far East mining investments

Description Leverages

Virtuous circle

International experience – “Canadian model”

Cooperation with China

Rules of the game

Human resources

Management effectiveness

•  Availability of functional specialists and production personnel key for quick ramp up of mining assets

•  Fly-in-fly-out approach initially realized by companies

2

3

4

5

6

1

•  Strong need for qualified management at asset level •  Asset needs to be managed mainly from local site

•  Clear rules for promoting investments, communicated and followed through, thus positively impacting risk ratings for investments – e.g. special investment zones as shown on previous page

•  Development of financial infrastructure for attraction of investors in junior miner companies, based on experience of Toronto Stock Exchange (Canada)

•  Subsidies for exploration works, including removal of duties for foreign exploration equipment

•  Investment-friendly environment, open sales channels (prev. page) •  Infrastructural development, opportunities for public-private partnerships (prev. page) •  Companies invest, leverage effective management & HR •  Regional development concepts, boosting mid-/long term regional attractiveness

•  Cooperation in investments, sales channels, equipment usage, etc


Several levers already being actively addressed



Bryanston is active in principal investments, advisory and consulting in natural resources

Source: Bryanston

Bryanston Capital

Bryanston Advisory

Bryanston Consulting

Ø  Principal investments in raw materials

Ø  Principal investments in mining tech-nology / services

Ø  Active portfolio management

Ø  Fund management

Ø  Opportunity origination and due diligence

Ø  Financial Advisory / fund raising

Ø  Value-in use and commercial excellence

Ø  Strategy and operations

Ø  Transformation & turnaround

Ferrous Coal Minerals Agriculture Non –

ferrous

BRYANSTON HOLDING

Oil & Gas



We have a global presence and can draw on international experience and best practice benchmarks

Bryanston is the fastest growing firm in its space – app. 100 employees are serving clients globally

Opening 2014 Recent projects

Existing offices

Western Africa

North America

South America

Southern Africa

ANZ

South East Asia

Europe

Asia

London

Zug

Tel Aviv

Lagos

Johannesburg

Shanghai

Moscow

Rio de Janeiro

New Delhi

Perth

Munich

Singapore

Toronto

Harare



… Coking Coal Steel

We regularly conduct bottom-up market balance, trade flow as well as price & cost analyses for key commodities

Ø  Seaborne price forecast in 5 years

Ø  Regional price forecast in 5 years given the transport cost

Ø  Supply-demand impact on price

Ø  Key cost components in operations

Ø  Cash cost curves analytics

Ø  Comparison with cash cost curves for new projects

Ø  Global supply-demand ba-lance development in 5 years

Ø  Key global & regional trends in the selected countries

Ø  New projects in supply and demand

Ø  Overview of key exporting and importing countries

Ø  Analysis of exported and imported volumes

Ø  Supply-demand balance impact on trade flows

Trade flows Price forecast

Bryanston global commodity competence

center

Cost analysis

Thermal Coal

Supply-demand + + +

36Copyright: Bryanston

China supply & demand balance: China imports will further increase driven by demand from the regions

Thermal coal demand and change of shares

2018e2017e2016e2015e2014e2013e

Local demandLocal supply

Thermal coal supply and demand balance

Supply & demand difference

- x - x - x - x - x

x

- x

In Mt

Source: SXcoal; WorldBank; Bryanston Research; JP Morgan report 2012

Demand potential for Russian TC import exists in coastal provinces and northeast China

In Mt

2013 2018e2015e 2017e2014e 2016e

ChemicalCementPower

MetallurgicalCivil useTransportation

Industrial BoilerOthers

.


Country profile: Germany Total coal-fired PPs capacity reach X GW

Sources: Bundesnetzagentur; Bryanston Research, Bryanston global thermal coal production and consumption data base

Capacities are split between lignite and steam coal almost equally, each accounting for X GW

PPs are usually situated near local coal deposits to leverage the local supply

# Plant Capacity [GW]1 Niederaußem2 KW Jänschwalde3 Boxberg4 Neurath5 Scholven6 GKM 7 Schwarze Pumpe8 Frimmersdorf9 KW Voerde10 Staudinger11 BoA 312 BoA 213 Heilbronn14 Schkopau15 Lippendorf-116 Lippendorf-217 Heyden18 KW Herne

Other on steam coalOther on lignite

Major coal-fired power plants in Germany

5

2

311

8

6

7

12

1

10

9

18

Ruhr deposit

13

14 15

16

17

4

Steam coal PP

Lignite PP

Hard

Brown

GW


Increase in capacity, driven by Turkey, will lead to increase of import of thermal coal in Europe

New

2012

Phase-out

- X %

2018

Retirements outweigh new capacities in EU, but is balanced by Turkey race for power Coal demand supply balance in 2012–18

Thermal coal-fired PPs capacity changes (2012-2018) [GW]

• Turkey has x GW pipeline for new coal-fired PPs that may be challenged by regulation if country adopts EU environmental regulations

• Poland will undergo replacement program building more efficient PPs, while largely phasing-out old ones

• Germany will import more steam coal, since most new PPs are efficient steam-coal ones

• Industrial Emissions Directive is likely to trigger retirements of some coal-fired power plants, especially in the leading coal-consuming countries

Thermal coal demand-supply forecast in OECD EU [Mt.]

Source: IEA; Annual reports of European utilities companies; Bryanston global thermal coal production and consumption data base and research

2012 2018


China Import: China became a net importer in 2009 and will approach pure import status in the future

OthersColombiaCanada

MongoliaUSA

RussiaS. Africa

IndonesiaAustralia

1009

38

+ x %

131211

51

Imports of thermal coal in China by source [Mt]

Source: SXCoal, National bureau of statistics, Bryanston Research

Note: Lignite is not included in the thermal coal imports

Major importing provinces in China (>1Mt in 2012)

OthersTaiwanS.KoreaJapan

- x %

1312111009

Exports of thermal coal in China by destination [Mt]

TC Import routes TC Export routes



Our experience in mining and PE allows us to be a “one stop shop” for investment partners – excellent value for money

•  Expertise along the whole mining life-cycle •  Covering all aspects of PE deals •  Experienced professionals: practitioners,

bankers, consultants, technicians •  “Skin in the game” – always co-invest

PE project life cycle

Exit >5y Manage Exit <5y Acquire Due-diligences Screen-in

Screen-out

Originate

# of assets

Bryanston as experienced “one stop shop” partner

Time

Leveraging expertise in mining, operations, commodities, regions

PE know-how, efficient deal management

Efficient screening – Bryanston saves 50%+ on due diligence cost

Successful track-record, knowledge

of customer & asset buyer landscape

Operational engagement of a team

into asset management & asset value increase

according to best practices

Bryanston role



James Lyddon Senior Associate Bryanston Resources AG 14 Waterloo Place London SW1Y 4AR Tel. +44 780 925 1099 [email protected]

Thank you for your attention!

draft – for discussion only in 2013 russia ranked 3rd ... · tungsten • demand is to ... market...

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