An Expanded Role for EBRD in Mining Finance: Exploration Stage Equity Kevin Bortz CERBA International Mining Conference Toronto – 4 March 2008
Agenda Introduction to the EBRD EBRD in the Natural Resources Sector EBRD and Health, Safety and the Environment EBRD in the Mining Sector EBRD Equity Investments Case Studies
Agenda Introduction to the EBRD EBRD in the Natural Resources Sector EBRD and Health, Safety and the Environment EBRD in the Mining Sector EBRD Equity Investments Case Studies
Cumulative commitments €35 billion What is the EBRD? International financial institution, promotes transition to market economies in 29 countries from central Europe to central Asia Owned by 61 countries and two inter-governmental institutions Capital base of €20 billion Cumulative commitments €35 billion Unaudited September 2007
What are the EBRD’s objectives? To promote transition to market economies by investing mainly in the private sector To mobilise significant foreign direct investment To support privatisation, restructuring and better municipal services to improve people’s lives To encourage environmentally sound and sustainable development
Foundations of EBRD operations 1 Apply sound banking principles to every project 2 Support but not replace private investors 3 Advance the transition to a full market economy
Sound banking principles Each project requires: careful assessment of risk / rewards for all parties commercial viability good prospect of returns
Complementary to the private sector Innovative and flexible financial structures Extending boundaries / breaking new ground (maturity, equity, political risks) Opportunity for commercial partners
IFI with investment banking skills Specialised knowledge of central and eastern Europe and the CIS Multi-national staff from our member countries In-depth legal know-how Dedicated teams with expertise in a variety of sectors
Agenda Introduction to the EBRD EBRD in the Natural Resources Sector EBRD and Health, Safety and the Environment EBRD in the Mining Sector EBRD Equity Investments Case Studies
EBRD, a major natural resources player As of today €2.3 billion have been lent to projects worth €14.3 billion of investment Metal ore mining 11% Petroleum refineries 14% Gasoline stations 1% Pipeline transportation 20% Oil and gas extraction 52%
Natural Resource sector objectives Increase private sector participation and promote direct foreign investment Reduce bottlenecks and ensure competitive market access Improve regulatory and institutional frameworks Set high standards of business conduct, transparency, corporate governance and environmental protection
Some EBRD resource partners
Agenda Introduction to the EBRD EBRD in the Natural Resources Sector EBRD and Health, Safety and the Environment EBRD in the Mining Sector EBRD Equity Investments Case Studies
Environmental mandate EBRD takes account of the environment in all its operations Every project is screened for environmental impact Around 17% of total commitments are designed to make environmental improvements
Environmental standards for EBRD projects Local, national, EU and World Bank standards and regulations Where standards cannot be met initially, project will include programme for achieving compliance Environmental Action Plan
EBRD environmental policy and procedures Ensure environmental soundness of all EBRD operations Invest in projects with specific environmental and energy efficiency benefits Disclosure of environmental information
Environmental appraisal Helps the Bank decide if an activity should be financed and how to address environmental issues Helps identify ways in which operations can be designed to provide environmental benefits
Environmental, Health & Safety Loans (EHS) Purpose: protect the environment, cut emissions and prevent accidents by investing in: Pollution clean-up Pipeline replacement Gas flaring and emission safety measures Energy efficiency But NOT production related investments that do not have an overriding environmental benefit Attractive Credit Profile: A loans from €3 million to €450 million with long tenors available (10 years+) Client-driven programme with straightforward funding procedure and simple monitoring
EHS Loans track record Projects totalling €530 million signed to date Mittal Steel Temirtau LUKOIL CGI MOL Rosneft SMNG Loans in € millions €75 m €75 m €223 m €33 m €150 m €52 m
Agenda Introduction to the EBRD EBRD in the Natural Resources Sector EBRD and Health, Safety and the Environment EBRD in the Mining Sector EBRD Equity Investments Case Studies
Mining Sector Investments Total EBRD debt and equity investment of EUR 240 million in support of EUR 1.2 billion in mining capital investments. 241,311 Total 7,300 Other 24,234 Iron Ore 10,125 Bauxite 30,375 Coal 169,277 Gold EBRD Mining Investments (EUR, 000)
Mining Sector Equity Investments Total Natural Resource Equity Portfolio of EUR 194.7 Million; Mining Equity Investments of EUR 44.8 million (23%); Five equity investments with an average size of just under EUR 10 million; Four out of five equity investments have been in the precious metals sector; Pipeline of more than a dozen equity investments in the mining sector.
Selected EBRD mining partners
Agenda Introduction to the EBRD EBRD in the Natural Resources Sector EBRD and Health, Safety and the Environment EBRD in the Mining Sector EBRD Equity Investments Case Studies
Equity Investments - Previously Maximum 20% stake USD 5 million – USD 20 million Board Representation Proven Reserves Bankable Development Plan EBRD Appetite Prospecting Exploration Development Operation Mine Closure
Equity Investments - Today Maximum 20% stake USD 1 million – USD 20 million Board Representation Positive Exploration Results Reasonable Exploration Program EBRD Appetite Prospecting Exploration Development Operation Mine Closure
Early Stage Equity Criteria Experienced sponsor with proven track record and financial capacity, or in parallel with a seasoned sector investor; Typical 4 – 6 year investment period, with exit strategies identified up-front (put option, IPO, sale to strategic investor, etc.); Positive mineralogy / metallurgy– confirmed by our own consulting geologist; Very rigorous analytical methodology.
Agenda Introduction to the EBRD EBRD in the Natural Resources Sector EBRD and Health, Safety and the Environment EBRD in the Mining Sector EBRD Equity Investments Case Studies
Case Studies Bulgaria – Chelopech EADS Kyrgyzstan – Kumtor Gold Company Armenia – Deno Gold Mining Company
Chelopech EADS (Bulgaria/2006) Signed in April 2006 USD 10 million direct loan, guaranteed by Dundee Precious Metals Mine produces copper/gold concentrate which is processed off-shore Financing of environmental remediation, resource definition and ore mining and concentrate production capacity
Kumtor Gold Company Kyrgyzstan Kumtor Gold Company is 100% owned by Centerra Gold EBRD and IFC made debt and quasi-equity investments into Kumtor Gold in 1995 EBRD and IFC converted some of their investments into equity investments in Centerra EBRD continues to be an investor in Centerra
Deno Gold Mining Company Armenia Loan of USD 4.5 million signed December 2005 DGMC acquired by Dundee Precious Metals in August, 2006 DGMC produces copper, gold, silver and zinc concentrate Original financing of equipment purchases for expansion and environmental improvements Currently considering USD 25 million for further expansion and delineation drilling program.
Contacts Kevin Bortz Director, Natural Resources Tel: +44 20 7338 7119 Email: bortzk@ebrd.com Raymond Conway Senior Banker, Natural Resources Tel: +44 20 7338 7675 Email: conwayr@ebrd.com European Bank for Reconstruction and Development One Exchange Square, London EC2A 2JN Fax: +44 20 7338 6101