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Resource Nationalism is entirely rational
Definition:
Countries efforts to extract maximum value and developmental impact for their people from
their finite natural resources
2Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
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.particularly as stated under fiscal pressure
$30T 80%
2060
10
40
0 02003 2004 2005 2006 2007 2008 2009 2010 2011
Central Government Debt ($T) Central Government Debt as % of GDP
3Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Includes the 41 countries who have continuous central government debt data from 2003 to 2011Source: World Bank
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But Resource Nationalism is viewed badly
Resource nationalism
a key threat to mining
Resource nationalism
a key threat to mining
Miners encounter thehard rock of resource
Miners encounter thehard rock of resource
ac oc , ctac oc , ct
Resource nationalism
Resource nationalism
The Telegraph (UK), Nov 2011The Telegraph (UK), Nov 2011
Resource nationalism isResource nationalism isWall Street Journal, Mar 2012
Wall Street Journal, Mar 2012
Resource nationalism:Resource nationalism:
miners number one fearand major threat to
global security
miners number one fearand major threat to
global securitythe usual suspects or awiderproblem?
RigZone, May 2012
the usual suspects or awiderproblem?
RigZone, May 2012
Mining.com, December 2012Mining.com, December 2012
Canadas veto ofCanadas veto of
Resource Nationalism#1 on mining risk list
Ernst & Young, Aug 2011
Resource Nationalism#1 on mining risk list
Ernst & Young, Aug 2011
spectre of resourcenationalism
Daily Telegraph (UK), Oct 2012
spectre of resourcenationalism
Daily Telegraph (UK), Oct 2012
4Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
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What is the disconnect?
Too many fingers in the wrong pie
Mining profits
Not growing the right pie The Mining Economy to create jobs, fuel development and attract investment capital
5Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
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Too many fingers in the wrong pie
At first glance, it might appear theres a bigger slice to take.
6Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Note: Data based on PwC Mine 2012 analysis of income statements from the top 40 companies but scaled up to represent the whole mining sectorSource: IHS Global Insight; Mine: PwC Mine 2013
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Mining industry is going through tough times
At first glance, it might appear
theres a bigger slice to take
Our industry has made this pie
look more attractive than it is
n rea y, marg ns an re urns
from mining are in decline
7Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Note: Cost per tonne is the weighted average of 8 major gold producers by total ore mined; average grade is the weighted average of 8 major gold producers by total ore mined;
Major Gold producers: AngloGold Ashanti, Barrick, Harmony, Kinross, Goldcorp, Gold Fields, Newmont and Newcrest.Source: Gold Fields company data; annual reports, Condemned to Excellence report(IAMGOLD Corporation, Dec 2012)
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Margins in the gold sector are under pressure
At first glance, it might appear
theres a bigger slice to take
Gold industry example: marginsin rapid decline
Our industry has made this pie
look more attractive than it is
$1,800 100%
MarginUS$/oz
arg ns un er grea er
pressure as gold price hassince fallen as low as$1300/oz
n rea y, marg ns an re urns
from mining are in decline
1,200
1,400
1,600
80Gold price
Avg cash costs
600
800
1,000
40
0
200
0
20
2006 2007 2008 2009 2010 2011 2012 2012
% margin (RHS)
8Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Source: Streetwise reports website
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as they are for the Top 40 global miners
At first glance, it might appear
theres a bigger slice to take
Top 40 Mining Giants - financialdistress
Our industry has made this pie
look more attractive than it is
25
30
%
n rea y, marg ns an re urns
from mining are in decline
Similarl the to 40 minin 10
15
20
companies are experiencing
serious financial troubles0
5
Gearing ratio Return on capital Net profit Return on Equity
2007 2008 2009 2010 2011 2012
9Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Source: PWC Review of global mining trends 2012
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Industry is not self-funding at present
At first glance, it might appear
theres a bigger slice to take
Our industry has made this pie
look more attractive than it is
n rea y, marg ns an re urns
from mining are in decline
O eratin cash flows not
sufficient to cover investments
10Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Note: Data based on PwC Mine 2012 analysis of top 40 companiesSource: IHS Global Insight; Mine: PwC Mine 2013 ;Note: Gearing ratio = Net borrowings / Equity
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Investors are deserting the sector
At first glance, it might appear
theres a bigger slice to take
Our industry has made this pie
look more attractive than it is
n rea y, marg ns an re urns
from mining are in decline
O eratin cash flows not
sufficient to cover investments
Equity model is at breaking point
11Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
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Industry is halting new investments
At first glance, it might appear
theres a bigger slice to takeA harsh environment with new projects increasingly
being delayed and cancelled
Our industry has made this pie
look more attractive than it is
n rea y, marg ns an re urns
from mining are in decline
O eratin cash flows not
sufficient to cover investments
Equity model is at breaking point
Mining investments under threat
12Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Sources: Factiva, Literature search
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and cutting back on existing operations
At first glance, it might appear
theres a bigger slice to take
Existing mines under pressure from pricedecreases and cost increases; greater taxes
will aggravate the problem
Our industry has made this pie
look more attractive than it is 150 jobs go as Tanami closes mineThe West Australia\n April 24, 2013
n rea y, marg ns an re urns
from mining are in decline
O eratin cash flows not
Xstrata's Sinclairmine in WA to close,follows closure ofnearby Cosmos
South African minerAmplats closes
shafts and cuts jobs
sufficient to cover investment
Equity model is at breaking point Brunswick Mine closes Bathurst-area
Dow Jones - May 2, 2013 an,
Mining investments under threat
.
CBC News - May 1, 2013
Sibanye Gold to Cut 1,110 Jobs to
13Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
e urn ea r x es o roBloomberg May 29, 2013
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This is why mining earnings is the wrong pie
At first glance, it might appear theres
a bigger slice to take
Our industry has made this pie look
more attractive than it is
,
mining are in decline
Operating cash flows not sufficient tofund investment
Equity model is at breaking point
Mining investment is under threat
The revenue pie shows just how little
14
there is still to take
Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Note: Data based on PwC Mine 2012 analysis of income statements from top 40 companies but scaled up to represent the whole mining sectorSource: IHS Global Insight; Mine: PwC Mine 2013
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This is the lose - lose pie
The more everyone takes, the
greater the risk the pie shrinks:
Rising costs of mining
combined with a greater
sca a e
jeopardise furtherinvestment
The result: loss of jobs and long-
term government revenues
15Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
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No development without growth
GDP growth is essential for governments targeting effective development and economic
transformation.
Increasedinvestor
confidence
Increased
political stability/certainty
Capacity
Development
+ EconomicTransformation
+
invest-ment
o e ver+
Increasedgrowth
Countries must both row AND develo .
16Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Growth OR development is untenable
Source: Brenthurst Initiative, 2003
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Growing the right pie: Mining GDP
GDP growth is essential for
governments targeting effective
transformationBRICS2010
7 other resourcerich countries
2010
Mining GDP is the right pie,especially for resource-rich
developing countries
Direct mining share
of GDP 2% ($200B)
In 2010 the economies of 40
countries were driven to a
Metals and Minerals accounted
for >25% of exports
17Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Source: ICMM: Minings contribution to sustainable development October 2012;Note: Top 7 countries selected from top 20 countries other than BRICS by 2010 production value and where production values is greater than 5% of GDP.
These include Australia, Chile, Peru, Ukraine, Ghana, Zambia, Papua New Guinea (South Africa included in BRICS)
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The Mining Economy has large multiplier effects
GDP growth is essential for
governments targeting effective
transformation3
GDP contribution of mining (indexed)
GDP is the right pie, especially forresource-rich developing
countries
Mining has boostedRSA GDP by R4682
0.9 2.6
Mining punches above its weight
with its GDP multiplier effect
billion or 18.7% oftotal GDP
11.0
0.4
0.3~2.5x for
South Africa
~3.2x forGhana
~1.7x inPeru
0 Directmining
1st roundImpact
Indirectimpact
Inducedimpact
Total directand indirect
effect ofmining
18Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Source: Facts about mining ins South Africa (South Africa Chamber of Mines, November 2012), The Socio-Economic Impact of Newmont Ghana Gold Limited (Newmont
Ghana Gold Limited, June 2011), The economic contribution of large scale gold mining in Peru (World Gold Council, May 2012). South Africa: IDC and Quantec study
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Job and livelihood multiplier effect is significant
GDP growth is essential for
governments targeting effective
transformation30
4 27
Number of jobs and livelihoodssupported by each mining worker
GDP is the right pie, especially forresource-rich developing
countries ~27x for S.20
14
Mining punches above its weight
with its GDP multiplier effect
~28x forGhana
~18-19x in10 8
One direct mining job supports
one indirect job and one impacted
job 0 Mine
1
Direct Secondary Informal Total
in SA, one job supports onaverage around nine dependents
tertiarysectors
indirectimpact
19Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Note: Peru study based on five mines and Ghana study based on analysis of one mineSource: The Rise of Resource Nationalism report (South African Institute of Mining and Metallurgy, February 2012), The Socio-Economic Impact ofNewmont Ghana Gold Limited (Newmont Ghana Gold Limited, June 2011), The economic contribution of large scale gold mining in Peru (World Gold Council, May 2012);
IDC and Quantec study
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Benefits go beyond jobs
GDP growth is essential for
governments targeting effective
transformationSkills / education
Multiplier benefits go beyond jobs
Capital inflowsCatalyst for other
industries
GDP is the right pie, especially forresource rich countries
Mining punches above its weight
with its GDP multiplier effect
Investin in minin creates obs,
Infrastructure Community developmentTechnology transfer
investment and uplifts
communities
20Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
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Growing mining activity has a dramatic impact
GDP growth is essential for
governments targeting effective
transformation
BRICS and 7 resource rich countries
GDP is the right pie, especially forresource-rich developing
countries
Full multiplier
effect of mining
=
Direct impactof mining
2.6x
7%
Mining punches above its weight
with its GDP multiplier effect
($850B)
=($340B)
Impact of a 1% increase in mining
Investing in mining creates jobs
and uplifts communities
One Year
ac v y n an o er resourcerich countries after:
countries creates ~$8-9B of valuein Year 1
$8-9B
21Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Source: ICMM: Minings contribution to sustainable development October 2012; Indirect effect estimated at 2.5XNote: Top 7 countries selected from top 20 countries other than BRICS by 2010 Production value and where Production values is greater than 5% of GDP.These include Australia, Chile, Peru, Ukraine, Ghana, Zambia, Papua New Guinea; First figure is weighted average; Second figure is numerical average
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GDP is the right pie, especially for
resource-rich developing
countries
BRICS and 7 resource rich countries
GDP growth is essential forgovernments targeting effective
transformation
Full multiplier
effect of mining
=
Direct impactof mining
2.6x
7%
Mining punches above its weight
with its GDP multiplier effect
($850B)
=($340B)
Impact of a 1% increase in mining
Investing in mining creates jobs
a uplifts communities
One Year Five Years Ten Years
ac v y n an o er resourcerich countries after:
countries creates ~$8-9B of valuein Year 1 compounded over
several years it is even more-
22
s gn can
Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Source: ICMM: Minings contribution to sustainable development October 2012; Indirect effect estimated at 2.5XNote: Top 7 countries selected from top 20 countries other than BRICS by 2010 Production value and where Production values is greater than 5% of GDP.
These include Australia, Chile, Peru, Ukraine, Ghana, Zambia, Papua New Guinea; First figure is weighted average; Second figure is numerical average
45B >$90B
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Growing GDP through mining is the win - win pie
Growth leads to more
investment
The result: increased
employment, developmentand national GDP growth
How do we get there?
It has been done before
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Peru acted to continue growth
The Humala government
recently enacted similar policies
to continue growth:800
(80-12)GDP at PPP (indexed to 100) CAGR
Direct mining
Proactively engaged with
industry and communities in afull review of all the options
600Peru 6%
1990:Fujimores
in 2010
n e up w a pragma c
focus on rent taxes
Seeks to ring-fence benefits400
2011: Humala
elected
.liberalisation
linked to mining to help
address sensitive local
community issues
200
1980s: Period of
0
1980
1985
1990
1995
2000
2005
2010
hyperinflation
24Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Source: World Bank data, March 2013
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Botswana partnered to grow the pie
Strong long term partnership to
ensure mutual success
40- ear artnershi to drive
2,000
GDP at PPP (Indexed to 100)
Botswana 10%
(80-12)CAGR
Direct mining
benefits for both Botswana
and Debswana
Limited government
1,500
GDP in 2010
involvement in production
Government invested in
social transformation
1,000
education 500Index
6%
0
1980
1985
1990
1995
2000
2005
2010
25Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
Note: SADC region GDP per capita has been calculated as total regional GDP / population. Countries included in the index are Angola, Botswana, Dem. Republic ofCongo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe. Data excludes Zimbabwebefore 2000 and it also excludes Namibia before 1990
Source: IMF data, March 2013
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Starting point: Ore bodies
Long term collaborative
partnerships (Miners,
Governments, Labour,
, .
leading to more investment
The result: increased
employment, development and
GDP growth
______________________________________
s ng cos s o m n ng.
combined with a greater fiscal
take
jeopardise further investment
The result: loss of jobs, a
shrinking pie
26Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
How do we grow the win - win pie?
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Starting point: Ore bodies
1. They cant be moved, changed orreplaced
2. Development is expensive andinherently risky with long lead times
.communities and the environment
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What can you do with them?
you dont
If you have them and theyreeconomically viable,
environmentally sound and
Determine full socio-economic viability by taking
the potential economic,
them
account
However, this is not possible in the absence of investors
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But how do investors feel about the sector today
Equity investors have become frustrated as miners have spent theirmone with little to show for it
Cash, not growth, is king: Miners are cancelling new projects andclosing existing mines: returns just do not warrant the risk
s eaves ore o es un eve ope a are econom ca y an soc a yviable (when the GDP multiplier is taken into account)
Moreover, the full potential benefit from mining on communities and theenv ronmen s no a ways e ng a resse or e vere
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How to align national interests with investors?
The role of mining companies
1. Acknowledge the role mining companies have played historically in exploiting resources and
people
.
3. Develop practices that crack the code on long-term sustainable community development beyond life of mine
4. Engage with government on how to fund infrastructure development, fuel growth in other
sectors and improve social outcomes
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Making progress but more needs to be done
Moving from philanthropy to systematic creation of shared value, recognising the impact of the
GDP multiplier effect
31Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013Ring-fenced benefits to drive value in host communities and beyond
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Example: Development of local suppliers at Cerro Corona
Establish the Pro-active and Long-term
2013-2014 2015-2016 2017-2018
To adjust GFLC's informationsystem to be able to identify localsuppliers in our system and in large
To guarantee competitiveness gapsare closed for 75% of localsuppliers
To ensure 75% of GFLC's localsuppliers are competitive andimprove their sales and profits.
contractors' systems
To identify competitiveness gaps oflocal suppliers
To prepare a training and technical
To ensure 50% of local suppliershave at least 3 important clients
To ensure over 50% of local
suppliers' employees are from the
To promote a cluster of minesuppliers in Cajamarca tocontribute to the developmentof mining in the Region andcreate local jobs.
assistance p an or oca supp iers inorder to improve competitiveness
To select an external operator toexecute a training and technicalassistance plan for local suppliers
s r c o ua gayoc
To replace suppliers from Lima forcompetitive suppliers fromHualgayoc and Cajamarca
Total purchases from local suppliers 2012: US$31m (14% of total)Estimated Cost: US$500,000 over next two years
32Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013
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How to align national interests with investors
The role of governments
1. Seek collaborative partnerships with minerswho are better able to operate and develop orebodies and who are good social partners
. u n p ace s a e, compe ve ax sys emsthat allow equity investors to earn competitive risk-
weighted returns, with governments benefittingincreasingly from the upside
.account when assessing economic viability andsocial acceptability (requires a good understandingof the multiplier benefit as well as the full costs of
mining)4. Create a climate conducive to responsible
investment: provide policy certainty (and thenstick to the rules); develop infrastructure and thebroader economy; partner to manage input costs;
5. Adopt a use it or lose it approach (within anoverall win:win context) to ensure all sociallyacceptable/ economically viable ore bodies can bedevelo ed
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Not easy to do, but the upside is vast
Challenge Mitigation
Partnership Working and collaborative partnerships betweenminers, governments, labour and communities
Balance Balance long-term growth strategies with short-termsca mperat ves
Transparency Total transparency in reporting individual asset
Certainty Long-term commitments from governments not tochan e the rules of the ame
Simplicity Simple rules of the game that align interests and canbe applied to all assets
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Conclusion: Winning nations will choose the high road
Engage to develop collaborative long term partnerships
increase investment
Drive GDP growth: every 1% increase is worth ~$8-9B in
just one year in just 12 developing countries________________________________
Fight for a share of declining profits
but radically reduce investment in the long term
` ,
Governments who recognise investors need fair risk-weighted returnsMiners who recognise the need to deliverfull potential socio-economic returnsLabour / Communities who temper demands to what can be delivered/ sustained
35Resource Nationalism: How to grow, not shrink the pie | Nick Holland | September 2013