India-Canada India Canada Partnership and Opportunities

Presentation PDAC 2011

Metals and Mining Sector in India

Metals and Mining Industry in India is dominated by both large Government-owned entities/ Public Sector Units (PSU) and various private sector players (domestic and foreign)

Public

Private

Ferrous

Coal India NMDC Ltd RINL

Non-Ferrous
Hindustan Copper

Sterlite Industries

Hindustan Zinc

Note:- Government has divested majority stake in Hindustan Zinc and BALCO to Vedanta Group and hence, these are listed in private sector

Market Capitalization of listed companies amongst above ranges up to ~USD 48 bn

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Key Facts
Mineral ~25 bn tons of iron-ore resource Iron-ore Average metal content of ~60% as compared to world average of 40-45% Net exporter of iron-ore; rapid growth in exports led by Chinese demand At ~58 bn tons, India has 7% of the Worlds coal reserves Coal High ash content; relatively lower quality Coking coal reserves ~16% of Indian coal reserves dependence on imports Bauxite Proven reserves of ~3.3 bn tons Reserves consist primarily of Gibbsite easy conversion to alumina Proven reserves of ~1.4 bn tons Copper Strong growth potential; per capita consumption of 0.5 kg (world average of 2.7 kg) Large gap in copper mining capacity most copper producers import concentrate Total lead-zinc ore reserves of 523 mt Zinc 8-10% metal content compared to World average of ~5% Demand for Zinc expected to increase at CAGR of ~12% over next 8-10 years Limited resources of economically viable grade; gold-ore reserves of 19.3 mn tons Primary gold production ~1,788 kg in 2009-10 Total diamond reserves of 1.2 mn carats; production in 2009-10 of ~4,503 carats Expertise in cutting and polishing Key Facts

Gold Diamond

Hardly any exploration activity

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Key Highlights - Indian Companies

Partnership with an Indian Company provides a unique opportunity for Canadian companies to participate in robust domestic growth prospects in India Indian Companies will typically prefer a friendly partnership model Most of the companies have historical track record of robust operational performance and believe in long term partnerships Indian Companies follow environmental norms are involved in Corporate Social Activities Continuous focus on importing new mining and exploration technologies for operational improvements Large listed companies - ability to raise funds (domestic and international markets) Have already invested internationally (eg. Tata Steel, Essar Steel, Hindustan Zinc, Hindalco, etc.)
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Government Support for Outbound Investment in Resources

Indian regulations support and facilitate investment by Indian companies in natural resources outside the country Government is very supportive in this regard and has taken a special initiative in this regard by having a common strategy for Public Sector Units (PSUs) in the sector for making investments in the resources space Sufficient autonomy to large PSUs for such investments Company
International Coal Ventures (ICVL) NMDC NALCO Hindustan Copper

Resources
Coal (JV between SAIL, CIL, RINL, NMDC and NTPC for securing metallurgical coal and thermal coal assets in overseas territories) Iron Ore, diamond potash Ore diamond, Bauxite Copper

Government Support for Foreign Investment in Resources

Inbound
Private investment (both domestic and foreign) has been permitted for the exploration and exploitation of all minerals Level playing field between Government owned and private companies Time limits prescribed for conveying a decision on applications for grant of mineral concessions and for approval of mining plans 100% Foreign Direct Investment (FDI) allowed in the mining sector under automatic route This includes all non-atomic minerals including diamonds and precious stones and metallurgy and processing Foreign company needs to be registered as an Indian Company u/s 3(i) of the Companies Act for obtaining mineral concessions. No limit on the extent of foreign equity Prospecting license granted for 3 years and can be extendable by 2 more years Mining lease granted for a long duration of minimum 20 years and up to 30 years In order to expedite the process, time limits defined for issuance of various licenses`License Reconnaissance Permit Prospecting License Mining Lease Time Period - Existing 6 months 9 months 12 months Time Period Proposed 3 months 4 months 4 + 3 months

New Proposed legislation to provide redress mechanism if time limits are not met
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Government Support for Foreign Investment in Resources

Inbound
Proposed New Mining Legislation further seeks to boost to foreign investment in mining sector in India

Some of the key proposals include (discussed in detail earlier) Transferability of mining Concessions (this is one of the key reasons for limited M&A activity both domestic and inbound in mining) Transfer of mineral concession (including data) allowed for RL/PL transfer (Intimation to State Government sufficient) Only prior approval of State Government required in case of mining lease Approval can only be withheld in case of non-eligibility of transferee

LAPL for high technology reconnaissance cum exploration for exploration of deep-seated (non g gy p p p ( bulk) minerals to an applicant only on chronological priority Assured and seamless transition from exploration to mining in case conditions of license are met Exports permitted

Government Support for Foreign Investment in Resources

Inbound
Reconnaissance permits have been granted to many for geographical, geo-chemical, photo geological and noninvasive surface geology for searching or locating mineral deposits viz. ACC Rio Tinto Exploration Ltd. De Beers I di S D B India Survey P t Ltd Pvt. Anglo American Exploration India Pvt. Ltd CRA Exploration India Pvt. Ltd De Beers India Minerals Pvt Ltd Exploration India Pvt Ltd Geomysore India Pvt Ltd

Capital Raising Opportunity for Indian Companies in Canada

Canada could be an attractive destination for raising funds for Indian Companies Some of the key benefits of raising capital in Canada could be Access to a potentially new set of investors and increased visibility Fund-raising for New Ventures/ Exploration activity Restricted access to Indian Capital Market as there are conditions related to minimum issue size, dilution, past financial track record etc. No significant presence of venture capital or private equity for mining exploration in India A Canadian Company with access to funds may enter India for exploration purposes

Acquisition Financing Large number of Indian Companies are looking at acquiring assets globally However, the existing regulatory framework has restrictions on bank lending for acquisitions Indian companies could create overseas SPVs which can raise capital in Canadian market for acquisition of assets globally

Capital Raising Opportunity for Indian Companies in Canada

Potential Options for Listing on TSX
Issue of Global Depository Receipts (GDRs) Only Listed Indian companies can issue depository receipts Depository Receipt issued against underlying equity shares of the Issuer Company GDRs issued cannot in aggregate exceed 51% of the issued and subscribed capital of Issuer Company Issue of Foreign Currency Convertible Bonds (FCCBs) Only Listed Indian companies can issue FCCBs Basic premise is to optimize the interest rate and equity market scenario to reduce cost of funds Holding Company Structure Alternative to above options is to have a holding company incorporated overseas be listed on TSX Listed HoldCo to invest in the Indian company (which may be listed or unlisted)

Annexure - Precedent Transactions

Precedent Transactions
Integrated Players - Access to captive sources of raw materials abroad
Past Deals Acquirer Target Mineral Year Capacity of the target Deal Value (US$ mn) 80% stake in project; Tata Steel to reimburse 80% of NMLs cost for DSO project and arrange funding up to CDN 300 mn of capital costs for the Project 52 (PL licenses) 1500 over a period of time (75:25 JV) ~450 ~65 (35% stake & 40% offtake) 6 (Token money) + royalty payment 5% stake in the project

Tata Steel

New Millennium Capital Corp DSO Project (Canada)

Iron ore

2010

4 mn tons starting 2012

JSW Tata Steel JSPL Tata Steel JSW Tata Steel

Mines in Chile Sodemi, Ivory Coast (West Africa) El Mutun (Bolivia) Riversdale Mining, Mozambique Coal mine in Mozambique, SA Carborough Downs, Australia

Iron ore Iron ore Iron ore Coking coal Coal Coking coal

2008 2007 2007 2007 2006 2006

~1200 hect. 500 mn tons 20 bn tons ~25000 hect. ~200 mn tons ~58 mn tons

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Precedent Transactions
Semi-integrated players - Moving up the ladder
Acquisition of pure resource players / assets abroad Acquirer Ispat Industries Bhushan Steel Ispat Inds SKS Steel & Power Monnet Ispat Target Coal mine, Mozambique Bowen Energy, Australia Coal mine, Columbia PT Kartika, Indonesia Coal mine, , Indonesia Iron ore mine, Brazil Iron ore mine, Brazil Minnesota steel, USA Year 2008 2008 2008 2008 2008 Mineral Thermal coal Thermal and coking coal Semi coking coal Thermal & coking coal mines Thermal coal Reserves ~70 mn tons ~ 1bn tons ~60 mn tons Thermal coal 12 mn tons Coking coal 6 mn tons 280 mn tons 116 Joint-venture (other details not available), acquired 59.6% stake in Bowen Energy Not disclosed Not disclosed 50 Not disclosed. (Mine to be used for the 2.5 mn ton steel plant to be developed in Trinidad & Tobago) Not disclosed 90 (total consideration for mines + 2.5 mn tons steel making) for 100% stake Deal Value (US$ mn)

Essar Steel

2009

Iron ore

~7,900 hect.

Ispat Industries Essar Steel

2008 2007

Iron ore Iron ore

500 750 mn tons ~1 bn tons

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Precedent Transactions
Access to high end and high growth markets abroad
Global acquisitions by Integrated players Acquirer JSPL Essar Steel Maharashtr a Seamless Tata Steel Essar Steel Essar Global JSW Target Shadeed Iron & Steel LLC, Oman Servosteel, UK Seamless pipe mfg unit, Romania Corus, UK Minnesota steel, USA Algoma Steel, Canada Jindal United Steel, Jindal Enterprises & Saw pipes, US Stake (%) 100% 100% 100% 100% 100% 100% Year 2010 2010 2008 2007 2007 2007 Capacity 1.5 mn ton HBI Steel processing 0.5 Seamless pipes 0.2 ~18.2 mn tons Steel 2.5 Steel 2.6 Plate Mill 1.2 mn tons, Pipe Mill 0.55 mn tons Deal Value (US$ mn) 464 n/a 63 12,150 90 1,580

100%

2007

810

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Precedent Transactions
Power and Infrastructure companies acquiring Coal mines abroad
Capacity of the Target Kaltim Prima coal mine: 40.3 Mn Tonnes Arutmin coal mine: Production 19.3 mtpa 1.371 Bn Tonnes (reserve) 4 mtpa Deal Value (US$ Mn) Stake acquired 30% in both target mines 100% Acquirer Target Mineral Year

Tata Power

2 Coal Companies of Bumi Resources (Indonesia) CIC Energy (Canada) Griffin Coal Mining Company Pty Ltd (Australia) Resource Generation (Australia) Linc Energy (Australia) Aries Coal Mines (Indonesia)

Coal

2007

1,100

JSW Energy

Coal

Ongoing

383

Lanco Infratech

Coal

2010

789.6 (E)

100%

CESC Adani Enterprises

Coal

Ongoing

6 mtpa (Expected) Resource- 7.8 Bn Tonnes Resource- 100 Mn Tonnes Reserve- 64 Mn Tonnes

9.9

10%

Coal

2010

3,000

100%

Essar Power

Coal

2010

175-200

100%

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Precedent Transactions
Non-Ferrous Companies acquiring assets abroad
Acquirer Hindustan Zinc Binani Zinc Target Anglo American Zinc ( ) (UK) Meridian Minerals Limited (Australia) Konkola Copper Mines (Zambia) Mount Gordon Copper Mine (Australia) Straits St it (Nifth) Pty Ltd Pt (Australia) Mineral ZInc Zinc Year 2010 2010 Deal Value (US$ Mn) 1,338 Stake acquired 100% -

Vedanta Resources Birla Minerals Pty. Limited (Subsidiary of Hindalco Industries) Birla Minerals Pty. Limited (Subsidiary of Hindalco Industries)

Copper

2008

213

79%

Copper

2003

16

100%

Copper

2003

49

100%

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