Partnership Structures in the Development of

Mining Projects
Strategic Options & Selection Process

Bryanston Resources GmbH * Bahnhofsplatz * 6300 Zug * Switzerland

Even large corporates fail in managing project risks and are

forced to take LARGE WRITE-OFFS
Impairments
in $m in FY 2012

Company

Press Highlights
Miner Rio Tinto PLC (RIO.LN) said Thursday it expects to
recognize a non-cash impairment charge of $14 billion in its 2012
full year results (January 17, 2013)

13,953

BHP Billiton takes a $2.84bn write-off for Fayetteville shale

assets. BHP Billiton has become the latest company to report it
would write off the value of U.S. and Canadian-based assets due
to weak North American natural gas prices.(August 03, 2012)

5,595

ThyssenKrupp AG (TKA), Germanys biggest steelmaker,

canceled its dividend after posting a second straight annual loss,
following a 4.7 $bn write-down of its Americas unit.

4,860

Kazakhmys shares plunged after the miner wrote down its stake
in ENRC by 1.2 $bn at its full-year results on Tuesday (March 05,
2012)

1,544

A top Glencore (GLEN.L) shareholder, Abu Dhabi's Aabar

Investments, has written off more 392 $m of its 1 $bn investment
in the commodities trader less than two years after taking part in
its record listing (16 November 2012)

978

Copyright: Bryanston

The development of large-scale MINING PROJECTS is a

major RISK to companies
Key Challenges in Large-Scale Project Development
Policy, Regulatory and Stakeholder
Access to reserves: Political constraints and competition
for proven reserves
Uncertain policies under worsening fiscal terms & unstable
conditions

Technology Commitment
Decision on a particular technology locks in sunk cost an
increases exit barriers
Substitutional or more cost-competitive technologies might
become available during the project development phase

Market Risks
Commmerciality of product and access to end customer
markets
Price development uncertainty and subsitutional products
Capital Market Access & Project Financing

Project Management
The right skill, technology, people, know-how and material
at/in the right time, order, quantity, place, quality and price
within the budget
Health, Safety and Environment
Reflecting both increased public pressure and increased
operational challenges
Shortage of personnel with the necessary skill sets and
increased competition for talent

Cost and capital expenditure containment

Budgetary uncertainty
Supplier uncertainty in capex-extensive plant setup
Cash cost sensitivity regarding a variety of input factors

Color
Key

Pervasive, Largely Uncontrollable Risks

Poorly Defined and somewhat Controllable Risks
Direct Controllable Risks
Global Financial & Economic Risks

Copyright: Bryanston

In the OIL & GAS INDUSTRY partnerships in joint projects are

common practice typically with a lead operator

Company

Sales in $bn

Assets in $bn

Own operation

JV & Associates

228

225

95

136

354

453

231

Own operation

JV & Associates

163

171

102

113

467

121

104

205

82

203

334

Leveraging operations via partnerships up to 40-50% is

usual business practice
own operations

Joint Venture and Associates

Source: Company Information, Bryanston Analysis

Copyright: Bryanston

Strategic partnerships increase the OPTION SPACE for

corporates

Key Benefits
1

Description

Capital &
Capabilities
2

Partnerships offer access to required capital and

capabilities (e.g. know-how, personnel, equipment,
market access etc.) to successfully execute largescale mining projects

Third Parties contribute on with their CAPABILITIES to derisk

projects, reduce uncertainty and boost performance
Stage Dependent Capital & Capability Planning
Exploration
Performance

STAGE

Development
Performance

Mining
Performance

Processing
Performance

Marketing
Performance

Corporate
Performance

Equity
Debt
Strategy
Operations
Labour
Force
Property,
Plant &
Equipment
Local
Relations
Offtakes
Sales
Channels

Exit
Channels

Capital and Capability contribution depend on project

development stage
230713_Partnership Structures in the development of large-scale mining_JC4

Leverage &
Exposure

Partnering allows to engage in several projects due to

decreasing the required resource allocation at a
single project
Market and commodity exposure can be increased by
leveraging existing resource allocation

Copyright: Bryanston

LEVERAGING a partners resources allows to increase the

regional and commodity EXPOSURE

Between 1989 and 1997 trade

expanded by more that 400 %,
and in 2011 China became
Africas largest trading
partner.

North Africa

West Africa

While Africa
may have been
marginalized
by the West,
Asia
can be the
new Silk
Road

According to the World Bank,

investments in the exploration
of mineral resources in Africa
are expected to double every
decade.

Description

Benefitting from a partners

capital and capability frees
own resources to be
allocated to other projects

Other investment
opportunities can be
targeted which otherwise
could not be realized due
to resource constraints

Strategic exposure to
markets and regions can
be pursued

East Africa

Southern Africa

Central Africa

Capital and Capability contribution depend on project

development stage
230713_Partnership Structures in the development of large-scale mining_JC4

The engagement in various projects allows the

creation of an optimal investment portfolio with a
better risk/return profile than single investments

Copyright: Bryanston

The engagement in multiple projects allows for creating

OPTIMAL INVESTMENT PORTFOLIOS
Description
Risk Diversification

Expected
Return

Mining projects differ in their

riks return profiles

In efficient projects expected

returns correlate with
associated risks, i.e. High
return project bear high risks

If partnerships increase the

options space to engage in
several project optima
investment portfolio can be
built

Efficient portfolios have a

higher return at lower risk than
the individual projects

Project 1

Optimal Investment
Portfolio

Project 2

Risk Diversification

Return Volatility
(Risk)

230713_Partnership Structures in the development of large-scale mining_JC4

Copyright: Bryanston

Copyright: Bryanston

Third Parties contribute with CAPABILITIES to de-risk

projects, reduce uncertainty and boost performance
Stage-Dependent Capital & Capability Planning
STAGE

Exploration
Performance

Development
Performance

Mining
Performance

Processing
Performance

Marketing
Performance

Corporate
Performance

Equity
Debt
Strategy
Operations
Labour
Force
Property,
Plant &
Equipment
Local
Relations
Offtakes
Sales
Channels
Exit
Channels

Capital and Capability contribution depend on project

development stage
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Copyright: Bryanston

LEVERAGING a partners resources allows to increase the

regional and commodity EXPOSURE

Between 1989 and 1997 trade

expanded by more that 400 %,
and in 2011 China became
Africas largest trading
partner.

Description

Benefitting from a partners

capital and capability frees
own resources to be
allocated to other projects

Other investment
opportunities can be
targeted which otherwise
could not be realized due
to resource constraints

Strategic exposure to
markets and regions can
be pursued

East Africa

West Africa

While Africa
may have been
marginalized
by the West,
Asia
can be the
new Silk
Road

North Africa

According to the World Bank,

investments in the exploration
of mineral resources in Africa
are expected to double every
decade.

Central Africa

Southern Africa

Capital and Capability contribution depend on project

development stage
6

Copyright: Bryanston

Engaging in multiple projects allows to create RISK

DIVERSIFICATION and OPTIMAL INVESTMENT PORFTOLIOS
Description
Risk Diversification

Expected
Return

Mining projects differ in their

risk-return profiles

In efficient projects expected

returns correlate with
associated risks, i.e. High
return project bear high risks

If partnerships increase the

option space to engage in
several projects, an optimal
investment portfolio can be
built

Efficient portfolios have a

higher return at lower risk than
the individual projects

Project 1

Optimal Investment
Portfolio

Project 2

Return Volatility
(Risk)

Copyright: Bryanston

The oil & gas industry proves SUCCESSFUL PARTNERSHIPS

yield mutual advantages
Co-optation

Downstream partnerships

The case of BPCL & ONGC

The case of Arawak & Vitol

Bharat Petroleum (BPCL)

Arawak Energy

Owns refinery and permission to set up petrol

pumps

Discovered a crude oil field in Kazakhstan

Needed substantial funding for oil field

development

Wanted to release cash from future exports to

assist in the development of operations

Supports ONGC in the development of their

retail network on a non-monetary basis
Oil and Natural Gas Corporation (ONGC)
ONGC takes 26% equity stake in cash in
BPCLs refinery

Owns license to set up petrol stations

Benefits from refinery and BPCLs know-how

Vitol

Vitol entered an off-take agreement with the

producer

Facilitated a loan funding to the producer based

on security of the off-take agreement

Vitol pays part of the value of each cargo

directly to the bank, repaying the producers
loan

http://articles.timesofindia.indiatimes.com/2004-02-27/india-business/28333641_1_greater-nile-oil-project-raha-mumbai-high

Copyright: Bryanston

Partnership Selection Framework - Overview

1

Selcection Criteria

Exposure Gearing

Give & Take Profiling

Partner Selection

Genuine Financial Strength or

Capital Raising Ability

Participation Level (Single Project

vs. Portfolio)

Complementary Capital &

Capability Set

Relevant Skills and Capabilities

to develop project

Project Stage

Strategy Alignment

Regional Focus

Expected project economics (e.g.

cash flow timings, amounts,
investment returns, amortisation)

Target Commodity / Strategic Fit

Compliance to Code of Conduct/

Code of Ethics

Size & Quality of the deposit

Trustworthy business partnership

Transaction dynamics (size,

structure, covenants, control
rights)

Transaction Timing, Speed and

Professionalism

Terms & Conditions

Project Value-at-Risk

Complementary required skills,

capital & capabilities

Screenshot

Do we need a partner ?

What kind of partner

do we need ?

Which specific partner do we

want to cooperate with ?

Copyright: Bryanston

POTENTIAL PARTNERS differ by their interest in engaging

projects and consider different project characteristics (I/II)

Downstream Industries

EPCs

Competitors

Commodity Trader

Secure off-take agreement to hedge procurement in

exchange for Debt & Equity

Upstream Integration for Portfolio Diversification

Option on plant erection after bankable feasibility

study

Joint Plant Optimization groundwork

Usually funding of BFS and pre-production phase

Sometimes funding of mine erection (attractive entry
valuation with significant upside)

Rarely early stage projects

Late-stage exploration project with strategic regional and

commodity fit

Entry after definition of mining method

Earlier entry considered as call option

Competition strategies in joint infrastructure

development and processing synergies

Similar adjacent projects in (pre-)production

Direct proximity and same commodity

Joint acquisition and use of equipment (rarely)

Limited synergy level in exploration phase

Off-take and Marketing Agreements in exchange for

Debt/Equity or establishing contact to other parties
such as potential future customers

PE, Funds & Banks

Preferred Project Type

Give & Take

Partner Type

Prefixed M&S commissions, contract duration and

prices

Right Risk/Return profile according to their strategy

with Management Team on the ground

Debt/Equity participation by their investors

Deploy capital but no/little injection of know-how

and Skills

10

Cash near late-stage development projects but also in

exploration phase when valuations are still low
Production/Exploration hybrids that reinvest production cash
flows into further exploration

Strategic fit (commodity and region)

Right stage (mostly pre-production, pre BFS) of the project in

the mining lifecycle (right step of mining value curve)
Transaction size in strategic sweet-spot if majority stake
required
Controlling rights and covenants
Rarely Greenfield Investors (compliant resource estimation
necessary)

Copyright: Bryanston

POTENTIAL PARTNERS differ by their interest in engaging

projects and consider different project characteristics (II/II)

Governments

(Chinese) state owned funds

Development Banks & NGOs

Family Offices & High Net Worth

Individuals

Preferred Project Type

Give & Take

Partner Type

Economic regional growth, wealth increase,

societal interest, taxes & Royalties

Deploy rights, favourable conditions and

infrastructure

Act as catalyst facilitator in a challenging

environment

Strategic influence on asset development, supplier

selection and commodity export

Strategic commodity exposure

Deploy capital and engage Chinese third parties

(such as EPCs or Offtakers)

Interest in economic regional growth, wealth

increase, societal interest

Co-Investment and fundraising support to access

their network

Support of Public-Private Partnerships

Risk/Return profile according to their strategy and

their ability to influence the outcome of the projects
(e.g. aiming for board seat despite minority stake)

Deploy equity but no skills/know-how

11

Greenfield Projects for Land Development

Cash near projects that generate taxes and royalties

Projects that create infrastructure useful to the public sector

Strategic commodities, at late stage or ideally already in

production (consider even premia on transactions for assets
in production)

Greenfield Projects for Land Development

Projects that create infrastructure useful to the public sector

Aim for a controlling stake or deal structure that offers

influence of a projects outcome
Expect returns >25% IRR
Transaction size in strategic sweet-spot (significantly lower
than that of strategic investors or large funds)

Copyright: Bryanston

Projects can be MATCHED ALONG THE MINING VALUE curve

with the give-and-take profiles of potential partners
Exploration grassroots

Asset life
cycle

Concept

Exploration / Discovery
Drilling

Discovery

Exploration Feasibility phase

Pre-feasibility

Development
Bank & NGOs

Feasibility

Financing Construction Commissioning

Production /
Mining
Start of operation

Trader

Downstream
Industries

Asset Value

Development / Mine
construction

Family Offices &

High Net Worth

EPCs & DCM

Banks

(Chinese)
state-owned
funds
Competitors

Government
Government

Value Add
activities

Initial exploration
Sampling
Geo Mapping

Resource category
(upper limit)
Investment Size
Duration /
Investment Horizon

First value estimate (inferred

resource)
Drilling & Trenching

Final resource model

Business & financing
Takeover offers

Indicated &
Measured

Inferred

Mine Erection and

Infrastructure Setup incl. Rail &
Roads

Probable & Proven

Managing take-off
Generating significant sales
through value-in-use and
commercial Strategy

Proven

$1-5m

$5-20m

$20m-$1Bn

Case by case

Few months to
1 year

Few months to few

years

Few years

Up to 10 years

10+ years

Note: DCM= Debt Capital Markets, Private Equity Investors and other Investment Funds invests along the mining value curve according to their investment strategy
Source: Bryanston

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Copyright: Bryanston

Mitigation of partnership risk already starts at the PARTNER

SELECTION phase
Partner Selection
Selected
Partnership Risks

Long-listing

Define potential partner type based on need assessment in first step

gearing and give & take profiles in second step

Long-list potential partner based on size, strategic consideration and

indication of willingness to cooperate

CONTROL

Business Decision Influence

Technology/ Know-How and

Intellectual Property leakage &
involvement of third parties

Fraud & Default

EXPECTATION

Strategic Misalignment and Shift of

Goals

Quantity, Quality, Timing and Budget

of contribution

Partnership Termination

SCRUTINY

Shortlisting & Bundling

Comprehensive, comprehensible
communication

Measurement and Review system

Governance system

Rank potential partner long-list according to attractiveness and likelihood of

partnership
Approach potential partners with target description and value proposition
Draft Memorandum of Understanding (MOU) to start discussion about
potential partnership structure and terms & conditions
Match partner give & takes with project development requirements
Choose perfect fit partner to close partnership or develop partnership
bundle with complementary partners

Closing (with one or multiple partners)

Memorandum of Association (MoA): Clarity on goals, roles, responsibilities,

accountability, information & resource sharing, exit strategy

Formal Partnership Agreements (FPA): Include precise details of financial

resources, performance indicators, details on staffing, detailed and precise
aims and objectives, any business plan and the finite period of the
partnership

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Copyright: Bryanston

Thank you for your attention!

Ralph Nowak
Managing Director CIS

Bryanston Resources GmbH

Bahnhofplatz
6300 Zug
Switzerland
Tel. +7 916 323 3080
www.bryanston.ch
Ralph.Nowak@bryanston.ch

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Copyright: Bryanston