Plenary 3 - Duncan Turner & Alistair Dick - Restructuring at The Coalface

 

 Advisory

 Restructuring at the coal    face

 Strictly Private and Confidential 

8 June 2016

 

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 Introduction n and who we are  Introductio Restructuring experts with recent experience in mining sector  Duncan Turner 

 Alistair Dick

 Partner 

 Partner 

Tel: +44 (0) 20 7804 7823 [email protected]

Tel: +44 (0) 20 7212 3533 [email protected]

• Over 15 years restructuring restructuring experience experience • Often wor work k on cross border border situations situations with multiple multiple stakeholders • Recent sector sector experience experience includes: includes:

• Leads PwC’s PwC’s corporate financial financial restructuring team, team, advising management teams, boards and shareholders on financial restructuring • Previously head of debt advisory advisory and restructuring restructuring for Rothschild Rothschild in Aust Australia ralia and SE Asia • Extensive mining experience experience including: including:

− − − − −

Advising Advisi ng the the board board of of New Worl World d Resou Resource rces s Advisi Adv ising ng the the lender lenders s of Lond London on Mini Mining ng Plc Plc Advisi Adv ising ng on the the restruc restructur turing ing of of Stemco Stemcorr,

international commodities trader 

Advisi Advi sing ng o on nam min ine e in Uk Ukra rain ine e Advisi Adv ising ng on on a mine mine in Sout Souther hern n Afr Africa ica

• Other recent recent experiences experiences include: include: −

−

Advising Adv ising the lende lenders rs of of Royal Royal Imte Imtech ch NV NV in the Advising Adv ising the board of Vestas Vestas Wind Syst Systems ems on

8 years years as a mining mining lend lender er in UK, UK, Aus Austra tralia lia and and

SE Asia

Advisi Adv ising ng bond bondhol holder ders s to to Mira Mirabel bela a Nic Nickel kel on a

debt for equity swap −

restructuring of  €  € 2bn of debt −

−

Advising Adv ising on copp copper er,, coal coal and gold comp companies anies

on financings and restructurings • Currently advising advising a listed O&G company company and PEowned mining related company on restructurings

the refinancing of  €  € 1.5bn of liabilities Restructuring at the coal face PwC

Strictly private and confidential

8 June 2016 2

 

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Commod Comm odit ity y pr pric icin ing g si sinc nce e 20 2013 13 There has been a correlated downturn in several key commodities Evolution of selected commodities (2013 - 2016) 160

 Approximate minimum point – Jan 2016

140

120

100

80

60

40

20

-

LMELME-Co Copp pper er Grad Grade e A Cash Cash U$/M U$/MT T REB# REB#(L (LCP CPCA CASH SH)) U$

LMELME-Ni Nick ckel el Cash Cash U$/M U$/MT T RE REB# B#(L (LNI NICA CASH SH)) U$

Steel Steel Iro Iron n ore Fe62% Fe62% AUS CIF China n a REB#( REB#(SHC SHCNI6 NI62) 2) U$

Gold Bullio Bullion n LBM U$/Tr U$/Troy oy Ou Ounce nce REB#(G REB#(GOLD OLDBLN BLN)) U$

Lo Lond ndon on Platin Platinum um Free Free Market Market $/T $/Troy roy oz REB#(P REB#(PLAT LATFR FRE) E) U$

LME LME-SH -SHG G Zinc Zinc 99.99 99.995% 5% Cas Cash h U$/MT U$/MT REB#(L REB#(LZZC ZZCASH ASH)) U$

Coal Thermal API 8 China 1st Fut. - SETT. PRICE REB#(SCICLM1) U$

Restructuring at the coal face PwC

Strictly private and confidential

8 June 2016 3

 

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 Bond prices of selected miners Traded down significantly since H2 2015 selected d mining companies companies (2013 - 2016) Bond prices for selecte

Merrill Lynch index of wider  corporate bonds (rebased) 120

100

80

60

Freeport Freep ort McMo McMoRan: Ran:  Anglo American: Vale SA: No Nob ble Grou roup: Te Teck ck Re Reso sour urce ces: s:

$2bn (BB) $0.75bn (BB) $2.25bn (BBB-) $1.1 1.18bn 8bn (B (BBB BB-) -) $0.5 $0.5bn bn (B (B+) +)

Period where bond prices of mining companies have underperformed versus wider corporate bonds

40

20

-

Merrillll Ly Lynch nch Glob Global al Market Market Corp Corporat orate e bond bond index n dex MERG0BC MERG0BC

Freeport Freeport-McMo -McMoRan Ran Inc F FCX CX 3.55 3.55 03/01/2 03/01/22 2

 Anglo American PLC AALLN 2 3/4 06/07/19

Vale SA VALEBZ 4 3/8 01/11/22

N ob ob le le Gr Gro o up up L ttd d N OBL OBLSP SP 6 3 //4 4 0 1/ 1/ 2 29 9 //2 20

Teck Teck Re so so urc urce e s L td td TC TCKB KBC C N 4 1 /2 /2 0 1/ 1/ 15 15 /2 /2 1

Restructuring at the coal face PwC

Strictly private and confidential

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 Miners subjected to rating downgrades Coupled with increasing leverage  Anglo American

   e      d    a    g    r     t    n    e    m     t    s    e    v    n     I

 A-

BBB+

BBB

 Vale

Freeport McMoRan

Noble Group

35

7

30 6

5.6x, 25

BBB-

5

BB+

4

20      d      l

   e      i     Y

3.1x   3.2x

2.9x BB

3

BB-

2

2.6x,

2.6x,

15 2.6x

2.2x,

B+

1.4x  

  1.6x

10 1.6x,   1.6x, 5

1

0.6x

0.4x, 20 1 12 2

2013

2014

2015

20 1 16 6

20 01 12

2013

2014

2015

2016

2012

2013

2014

201 5

2 01 016

2 01 01 2

2 01 01 3

2 01 01 4

2 01 01 5

2 01 01 6

Bond yield

Source S&P

 

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 Pressure points One or more key factors can trigger a restructuring situation Single Asset financing

Operational Liquidity need

In ramp up/ operational issues

Restructuring at the coal face PwC

Strictly private and confidential

Highly leveraged

Best to avoid

Debt maturity

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Overvi Over view ew of op opti tion ons s Different routes are available to address balance sheet pressure Closure/care and   maintenance

Consensual restructuring

Cost Reduction

 

Asset sales

Options Third party  investment

New funding options

New equity    Cut dividends

Restructuring at the coal face PwC

Strictly private and confidential 7

8 June 2016

 

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Them emes es co comi ming ng ou outt of re rece cent nt re rest stru ruc ctu turi ring ngs s Th Not all solutions result in a permanent outcome

Position on cost curve

Forum shopping

New 3rd party  investment often not part of solution (yet)

Limited debt trading

Each situation ha has s it its s own challenges

Eventual deal often not an end solution

Ongoing price uncertainty  Government as a stakeholder

Restructuring at the coal face PwC

Strictly 8 private and confidential

8 June 2016

 

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 How lenders can act in a restructuring

Sceptica Scept icall of  marke ma rkett pri price ce forecasts

Rarely Rare ly wa want nt to own ow n as asse sett

Security Securi ty rig rights hts can  be limited or imperfect

Restructuring at the coal face PwC

Keen to av Keen avoi oid d crystallisi crysta llising ng a loss

Strictly private and confidential

Limite Limi ted d ab abil ilit ity y to trad tr ade e ou outt

Can Ca n pu putt ne new  w  mo mone ney y in (typ (t ypic ical ally ly on a super sup er sen senior ior  basis)

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Outlook

 Further  restructurings likely

Restructuring at the coal face PwC

Strictly private and confidential

 Improving market  may enc encour ourage age more mo re eq equi uity ty or th thir ird  d   party investment 

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