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Africa – Where to from here? 2008 Mark Cohen Resource Banking Africa Standard Bank’s Corporate and Investment Banking Division
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Page 1: 14 - Standard Bank

Africa – Where to from here?

2008

Mark CohenResource Banking AfricaStandard Bank’s Corporate and Investment Banking Division

Page 2: 14 - Standard Bank

2

Standard Bank is a global organisation with expertise in all aspects of banking and financial advisory services

South African head quartered financial services company. With over 50,000 employees globally Global presence operating from 17 African countries and 22 other countries globally Largest African banking group by assets, market capitalization and earnings

- Total assets of USD150 bn*, Market capitalisation of USD17 bn* Headline earnings of USD1.7 bn**

* At 31 December 2007

** For the year ended 31 December 2007

Source: Standard Bank analysis

Corporate and Investment Banking

Provides corporate and investment banking and related services to large corporates

Services offered across our African and international bank networks

Personal and Business Banking

Provides banking, investment, insurance and other financial services to individuals and small to medium-sized enterprises

Products offered throughout South Africa and in certain African countries

Investment Management and Life Insurance

Subsidiary, Liberty Life, provides a range of life cover and investment products to individual and corporate clients

African achievements and awards 2007/8 Bank of the Year for Emerging Markets – The Banker Magazine 2007/8 Ranked best sub-Saharan bank – The Banker Magazine 2007 Ranked 106th in the Top 1 000 World Banks Awards – The Banker Magazine 2007 Best Project Finance House in Africa – Euromoney Magazine 2007 Best Debt house in Africa – Euromoney Magazine

African roots with a global reach, and 145 years experience on the African continent

Page 3: 14 - Standard Bank

3

Standard Bank has a focused and dedicated Global Mining and Metals Capability

Capabilities

The Mining & Metals’ team provides financing, advisory, trading and hedging services exclusively to the mining, metals and minerals industries

The Mining & Metals’ team of professionals is based in Johannesburg, London, New York, Sydney and Shanghai and is supplemented by staff in Moscow

Advisory Services

Mergers and acquisitions

Corporate finance and strategic advice

Divestitures and asset sales

Valuations and fairness opinions

Project finance and debt-related advisory

Privatisations

Products & Services

Comprehensive industry knowledge and relationships

Global coverage including cross border capability and emerging market expertise

Extensive mining and metals financing and advisory experience

Ability to lever off other Resource Banking products

Key strengths

Financing Services

Arranger and agent for:

Recourse and non-recourse project finance

Structured hedging and trading programs

Asset-backed finance

Corporate credit facilities

Deals of the year awards

Africa’s largest copper mine financing

US$583.8 million senior and subordinated project finance

Equinox’s Lumwana Copper Project

Finland’s first nickel mine

US$320 million senior project finance

Talvivaara Nickel Project

Page 4: 14 - Standard Bank

4

African Footprint

CountryCorporate & Investment

Banking

Personal & Business Banking

South Africa ✔ ✔

Angola ✔

Botswana ✔ ✔

Congo ✔

Ghana ✔ ✔

Kenya ✔ ✔

Lesotho ✔ ✔

Malawi ✔ ✔

Mauritius ✔

Mozambique ✔ ✔

Namibia ✔ ✔

Nigeria ✔

Swaziland ✔ ✔

Tanzania ✔ ✔

Uganda ✔ ✔

Zambia ✔ ✔

Zimbabwe ✔ ✔

Standard Bank Group trades under the name Standard Bank in Angola, Lesotho, Mauritius, Malawi, Mozambique, Namibia, South Africa and Swaziland;

Stanbic Bank in Botswana, Democratic Republic of Congo, Ghana, Madagascar, Tanzania, Uganda, Zambia and Zimbabwe;

Stanbic IBTC in Nigeria

CfC Stanbic Holdings in Kenya

Page 5: 14 - Standard Bank

5

Copper Consumption - China

3,000

5,000

7,000

2005 2006 2007 2008 2009 2010 2011

Cu

(k

t)

African Supply Growth

0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2008 2009 2010 2011

Cu

(k

t)

African production and Chinese consumption – a Balancing Act

Source: CRU

The following scenarios were presented at last years Mine Africa and the potential impacts on price

The scenarios have fundamentally changed in the space of 3 months

Apparent Global Demand has fallen dramatically and whilst Africa has under-delivered and looks to continue this way for some time

“Africa delivers”

“African projects hit bottlenecks”

“China marches on”

“China slows”

‘Slow China’: China growth 8.5%,

‘Fast China’: China growth 16% BRI 9.5%

Page 6: 14 - Standard Bank

6

Copper price: High-price period or short-lived spike?

?

Previous ‘spikes’ are long-lived BUT so are the lows

The historical high and low spikes have been pronounced

The historical periods of high prices and low prices have been lengthy

Last year the question was: Is a USD 1.20-1.50/lb a realistic long term price forecast for copper? Projects have been using 1.80 – 2.20/lb, the question now begs are we returning to a protracted stay at old long-term prices

Source: CRU

?

0

50

100

150

200

250

300

350

400

450

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

US

¢/lb

(2

00

6$

)

Page 7: 14 - Standard Bank

7

8

17

26

35

44

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

$/bbl

Early 80’s (tight US monetary policy)Early 1990's (Housing market and credit problems)

2001- 2003 dot-com, 9/11

1998 Asian crises

Growth down – commodities down

Sources: Standard CIB Global Research; Bloomberg

WTI crude and previous downturns

Growth outlook deteriorating

The current Global crisis is a combination of the 4 highlighted downturns

Page 8: 14 - Standard Bank

8

-2.4

-1.2

0

1.2

2.4

Jan-0

0

Jun-0

0

Nov-0

0

Apr-

01

Sep-0

1

Feb-0

2

Jul-02

Dec-0

2

May-0

3

Oct-

03

Mar-

04

Aug-0

4

Jan-0

5

Jun-0

5

Nov-0

5

Apr-

06

Sep-0

6

Feb-0

7

Jul-07

Dec-0

7

May-0

8

Oct-

08

bps

Monetary conditions using the Fed funds rate Monetary conditions account for credit problems

US monetary and credit conditions

US monetary policy conditions still bearish despite rate cuts

Source: Standard CIB Global Research

Expansionary conditions

Restrictive conditions

The negative factors

Perceived default probability has increased and CDS spreads on the rise

Sources: Standard CIB Global Research; Bloomberg

0

180

360

540

720

Jan-0

7

Feb-0

7

Mar-

07

Apr-

07

May-0

7

Jun-0

7

Jul-07

Aug-0

7

Sep-0

7

Oct-

07

Nov-0

7

Dec-0

7

Jan-0

8

Feb-0

8

Mar-

08

Apr-

08

May-0

8

Jun-0

8

Jul-08

Aug-0

8

Sep-0

8

Oct-

08

Nov-0

8

bps

South Africa BHP Rio Tinto Brazil China

Page 9: 14 - Standard Bank

9

Consumer confidence and spending decline

Consumer confidence indices Motor vehicle sales (US, EU, Japan, China, S. Korea)

Sources: Standard CIB Global Research; Bloomberg Sources: Standard CIB Global Research; Bloomberg

2.5

3

3.5

4

4.5

Jan

Fe

b

Ma

r

Ap

r

Ma

y

Jun

Jul

Au

g

Se

p

Oct

No

v

De

c

Millions

2005 2006 2007 2008

40

60

80

100

120

Jan-0

4

Aug-0

4

Mar-

05

Oct-

05

May-0

6

Dec-0

6

Jul-07

Feb-0

8

Sep-0

8

Index

US EU Japan China

The negative factors

Page 10: 14 - Standard Bank

10

3bn people could more than double energy consumption and by inference metals and minerals

Sources: Standard CIB Global Research; BP; IMF

0.48

0.61

0.74

0.87

1

0 1 2 3 4 5 6 7 8 9 10 11 12

Tonnes of oil equivalent per capita

HDI

Human development vs. crude oil consumption

There are still positives

Page 11: 14 - Standard Bank

11

Outlook – recovery on the horizon

Global financial risk remains elevated

There are substantial recovery and stimulus packages in the US, Europe and China

Demand and supply-side of the economy under severe pressure in developed markets

EM commodity demand should remain, but Demand growth should be lower Financial risk is spilling over into Emerging Markets real GDP growth

Look out for Emerging Markets Foreign Exchange

Should LIBOR rates decline, and policy stays expansionary, support could start filtering through. Brunt of the MP stance felt:

Almost immediately by gold With a lag of 12 months on energy With a lag of 18 months on industrial metals

Page 12: 14 - Standard Bank

12

Africa snapshot – Never before has Africa been so well poised

Economist, May 2000

Broad-based GDP growth Fiscal balance

0

2

4

6

8

10

Asia Africa MiddleEast

CEE World LatinAmerica

G7 Euroarea

Per

cen

t

0

1

2

3

4

5

6

7

1960s 1970s 1980s 1990s 2000s

Per

cen

t

Oil importers Oil exporters

-4

1

6

11

97-02 2003 2004 2005 2006 2007e 2008f

% o

f GD

P

AfricaOil importing African countriesOil exporting African countries

Average real GDP growth

Page 13: 14 - Standard Bank

13

Africa snapshot – The wait has been long

External Debt

Current account balance GDP per capita

2

4

6

8

10

12

97-02 2003 2004 2005 2006 2007e 2008f

Res

erve

s/m

onth

s of

impo

rts

AfricaOil importing African countriesOil exporting African countries

-8

-6

-4

-2

0

2

4

6

8

1980 1984 1988 1992 1996 2000 2004 2008f

% o

f GD

P

Asia Africa

10

15

20

25

30

35

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

2007 GDP per capita (US$)

India

Africa

ChinaBrazil

Russia

0

10

20

30

40

50

60

70

80

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

% o

f GD

P

Asia Africa

Reserves to imports

Page 14: 14 - Standard Bank

14

$/mt

-

500

1,000

1,500

2,000

2,500

3,000

3,500

319

1694

2415

3221

3628

4069

4516

5075

6953

7297

7992

9756

1002

0

1024

5

1083

5

1127

9

1182

4

cumulative productionZ

inc

Zinc cost curve p50 zinc spot p70

Cost Curves and Africa’s Mines

$/mt

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

64.1

404

454

682

766

817

1115

1240

1265

1354

1455

1606

1687

cumulative production

Nic

kel

current Nickel cost curve p70 p90 current price

$/mt

-500

500

1,500

2,500

3,500

4,500

5,500

6,500

7,500

8,500

6.0

61

2878

3813

7240

8496

9144

10005

11078

11502

12028

12484

13016

14069

14780

15096

15728

16181

16324

cumulative production

Co

pp

er

copper cost curve current copper price p50 p70 p90

African projects are at different points of the cost curve

Average estimated cost of production (including depreciation) for African Copper projects is USD1.40/lb in 2006 money

How will these African projects as well as new greenfields and brownfields projects be affected by dropping commodity prices? From both operating and capital costs

Page 15: 14 - Standard Bank

15

African opportunities/project activity going forward

Short to medium term “wait and see” with pockets of opportunities

Industry consolidation via:

Strategic Partnering and Investment Merging of Explorers and Juniors Acquisitions of green and brownfield projects

Strategic Partnering and Acquisitions to be done by:

Multinational Resource Companies Chinese, Indian and Russian Resource Companies

Renewed focus on “quality” assets and projects

Africa to remain a swing producer/supplier

Page 16: 14 - Standard Bank

16

Some Insights and Challenges

Internal bureaucracy

Differential legislation and governance

Mineral rights

Young democracy

Resurgence in violent upheaval

Skewed views of mining companies

Citizen empowerment, Indigenisation and Economic Empowerment

Page 17: 14 - Standard Bank

17

DisclaimerThe analyst(s) who prepared this research report (denoted by an asterisk*) hereby certifies(y) that: (i) all of the views and opinions expressed in this research report accurately reflect the research analyst's(s') personal views about the subject investment(s) and issuer(s) and (ii) no part of the analyst’s(s’) compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed by the analyst(s) in this research report.

Conflict of Interest

It is the policy of The Standard Bank Group Limited and its worldwide affiliates and subsidiaries (together the “Standard Bank Group”) that research analysts may not be involved in activities in a way that suggests that he or she is representing the interests of any member of the Standard Bank Group or its clients if this is reasonably likely to appear to be inconsistent with providing independent investment research. In addition research analysts’ reporting lines are structured so as to avoid any conflict of interests. For example, research analysts cannot be subject to the supervision or control of anyone in the Standard Bank Group’s investment banking or sales and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the research analyst’s published research. Therefore, the proprietary interests of those sales and trading departments may conflict with your interests

Legal Entities:

To U. S. Residents

Standard New York Securities, Inc. is registered with the Securities and Exchange Commission as a broker-dealer and is also a member of the FINRA and SIPC. Standard Americas, Inc is registered as a commodity trading advisor and a commodity pool operator with the CFTC and is also a member of the NFA. Both are affiliates of Standard Bank Plc and Standard Bank of South Africa. Standard New York Securities, Inc is responsible for the dissemination of this research report in the United States. Any recipient of this research in the United States wishing to effect a transaction in any security mentioned herein should do so by contacting Standard New York Securities, Inc.

To South African Residents

The Standard Bank of South Africa Limited (Reg.No.1962/000738/06) is regulated by the South African Reserve Bank and is an Authorised Financial Services Provider.

To U.K. Residents

Standard Bank Plc is authorised and regulated by the Financial Services Authority (register number 124823) and is an affiliate of Standard Bank of South Africa. The information contained herein does not apply to, and should not be relied upon by, retail customers.

General

This research report is based on information from sources that Standard Bank Group believes to be reliable. Whilst every care has been taken in preparing this document, no research analyst or member of the Standard Bank Group gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy or completeness of the information set out in this document (except with respect to any disclosures relative to members of the Standard Bank Group and the research analyst’s involvement with any issuer referred to above). All views, opinions and estimates contained in this document may be changed after publication at any time without notice. Past performance is not indicative of future results. The investments and strategies discussed here may not be suitable for all investors or any particular class of investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Members of Standard Bank Group may act as placement agent, advisor or lender, make a market in, or may have been a manager or a co-manager of, the most recent public offering in respect of any investments or issuers referenced in this report. Members of the Standard Bank Group and/or their respective directors and employees may own the investments of any of the issuers discussed herein and may sell them to or buy them from customers on a principal basis. This report is intended solely for clients and prospective clients of members of the Standard Bank Group and is not intended for, and may not be relied on by, retail customers or persons to whom this report may not be provided by law. This report is for information purposes only and may not be reproduced or distributed to any other person without the prior consent of a member of the Standard Bank Group. Unauthorised use or disclosure of this document is strictly prohibited. By accepting this document, you agree to be bound by the foregoing limitations. Copyright 2008 Standard Bank Group. All rights reserved.


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