Unlocking Value in Rwanda’s Extractive Industries Sappera

1.

Unlocking Value in Rwanda’s
Extractive Industries
Sappera Limited (Rwanda)

2.

Table of Contents
Highlights
3
Sappera’s Strategy
4
The Business Today
5
Sappera Customers
10
Trading & Shipment Activity
11
Why Rwanda
12
The 3T’s
13
Rwanda Production Figures
17
Funding & Financials
18
Trading Risk Management
21
2

3.

Highlights
Building value through Rwanda’s mineral supply chain
Rwanda and the Great Lakes
Region supply a significant
percentage of the world’s 3T’s
Tungsten, Tin & Tantalum (the
3T’s) constitute essential inputs
for the electronics and specialist
steel making sectors
Sappera participates in the
trading of Rwanda’s 3T’s to major
global trading houses and end
users
Well positioned for growth and
local value enhancement
Sappera (“the Company”) has an established presence in Kigali including:
– Scalable modern warehouse facility
– Secure premises with 24 hr armed security and CCTV
– Minerals processing “line” to concentrate and package minerals
Developed clear processes for mineral export including iTSCi approval
Completed 8 trades to date
Validated business model to investors
Negotiated clear “off-take” agreements with a major international trading house
as well as direct channels to other potential partners and/or end users
Along with principal capital, structured trade finance facility with local bank
Positioned for growth with the ability to achieve high returns on capital
employed
Spanning the supply chain from extraction to high end electronics’ applications
3

4.

Sappera’s Strategy for the 3T’s & Rwanda
Capitalise on the market conditions and appetite for new supply sources
Aggregate supply across the 3T’s
Consolidate buying relationships within the
fragmented regional market
Become the regional “clearinghouse” for
minerals
Standardise trade relationships by thorough
documentation
Grow market share through transparent dealing
Remain Compliant with international mineral
trading regulations
Tungsten (continue trading)
To date Sappera has
completed shipments of 87
tons of tungsten through 8
completed trades (2 trades
in process of completion)
Opportunity exits for new
sources of low cost supply
to take market share, due to
China’s mine production
costs
Sappera plans to expand its
purchases of this mineral
and selectively review mine
acquisition and/or
development
Tantalum (buy in the market)
Sappera has not sold any
coltan to date but is in
contact with local sellers
US buyers have visited
numerous times seeking to
establish supply
relationships & potential
partnerships in mines
In short term, Sappera to
buy tantalum, within a year
bring on board senior
geologist to develop a
resource
Developing over time its
small scale exploitation
license and prove out
reserves will significantly
increase the value of
Sappera
Tin (buy in the market)
To date have not sold tin,
have agreements in place to
sell tin to trading houses
and smelters
Tin is quoted on major
metals exchanges like the
LME, therefore there’s more
flexibility around “hedging”
and risk management
Sappera has ownership in a
small scale tin mine with an
exploitation license. Short
term acquire volume from
local market, develop mine
12 mo’s out
4

5.

The Business Today
Positioned for growth & value enhancement to customers
Simply put, Sappera buys,
processes and packages
minerals locally and sells to
international consumers
Facilities capable of up to
25 MT production per day
Risk management achieved
through:
– Professionalism of
logistics company
– Insurance
– Bonded warehouse at
final destination from
which ownership
transfer takes place
Clear payment terms are
contractually governed with
Sappera’s buyer
Sappera generally receives
payment within 8 days of
cargo being shipped from
Kigali
Sappera Limited (“Sappera or the Company”) was stablished in June 2013
in Kigali, Rwanda
To date the Company has achieved the following:
– Renovated warehouse and production facilities
– Acquired necessary plant and equipment to concentrate products
– Built relationships with global trading partners as product “offtakers”
From October 2014 through February 2105 the Company completed 8
tungsten trades with Noble Group and demonstrated the profitability of
its trading cycle
Mining titles and properties have also been acquired. Today the Company
has a controlling interest in 16 titles, two have a degree of small scale
activity and small scale exploitation licenses are in place
5

6.

Management
Capable of managing growth, experienced in commerce
Thomas Campbell, CEO
Benn Townsend, General Manager
Thomas Campbell is an experienced trader and business
entrepreneur with a track record in starting up domestic
and international ventures. He is widely networked in
China, the United Arab Emirates and Africa. Thomas is
passionate about socially responsible mining and
commodity trading and established Sappera in 2013 as a
platform for trading minerals. Thomas has previously been
a founding partner in numerous media businesses
including Football Icon and Football’s Next Star.
Benn Townsend started his career by helping a family
member purchase 2 retail bakeries, expanded it to nine
retail units. Next Benn entered into the Retail Motor
Industry with high end auto brands. His experience in
businesses with demanding customer care and attention to
detail, coupled with administrative skills, adds to Sappera’s
capability to provide proper service to customers.
Jonathan Frost, Director
Julius Muhizi, Assistant Manager
Jonathan brings over 20 years of International business
and trading experience to Sappera as well as a wide range
of international relationships of companies in the
consumer electronics industry. He commenced his career
as a Commercial Property Surveyor, but quickly moved into
the then rapidly expanding mobile telecoms market where
through his own company he could leverage his skills in
fast moving consumer driven products. In the mid 1990’s
he sold his business to a large multi-billion US Nasdaq
listed distributor where he then ran their Pan-European
Business for 3 years, annually achieving triple digit sales
growth and achieving revenues in excess of $500m. Upon
exiting this business, he set up and ran his own private
investment vehicles from Monte Carlo focusing primarily
on real estate, specialist trading opportunities, renewable
energy and water filtration. From such activities, a number
of these businesses have subsequently been sold-on or
taken to a primary listing where he achieved attractive
returns on investment.
As well as being a partner in a tin mine, Julius is the
Assistant Manager responsible primarily for sourcing
minerals from the local market place. Julius is Rwandese
and has over five years’ experience in the mining sector. In
addition to his duties he holds the position of President for
the Eastern Region Miners Association and through his vast
network of fellow miners he is able to ensure an ongoing
supply of minerals and access to local sellers/traders.
Mimi Mukakigeli, Purchasing
Mimi has been with Sappera since the inception of the
Company. She is an experienced "tough" negotiator and
working alongside Julius, helps coordinate inbound
supplies of minerals and has developed strong
relationships with a number of key suppliers.
6

7.

Processing & Production
Simple materials handling & disciplined approach to documentation
Step 1
Alex Stuart International
Rwanda (ASIR) provides
third party assaying and
logistics validation ……. Plays
key role in providing comfort
to Buyer & Seller
Transparent and quick
payment for suppliers of
minerals
Documentation and rigid
back office administration is
key the following:
– Meeting government
export and taxation
requirements
– Performing to
international best
practices for export of
minerals (iTSCi req’s)
– Invoicing Sappera’s
Buyer
– Releasing bank funding
for purchases of
minerals
✓
✓
✓
✓
ASIR issue and
document Container
Inspection Certificate
Paperwork completed
Shipment from site to
bonded warehouse in
Dar es-Salam
✓
✓
✓
Miners deliver mineral
to Sappera warehouse
Alex Stuart assays &
defines purity
Price agreed
Miner paid
Step 2
Step 4
Step 3
✓
✓
✓
Minerals blended
and concentrated,
products bagged
Final Assay done by
ASIR
Tagging overseen by
GMD inspector
✓
✓
Milling of minerals
within Sappera’s
secure facilities
Plant & Equipment
standard & easy to
operate, maintain &
repair
7

8.

Mineral Purchase & Supply Flow
Disciplined approach to acquisition, sales and trade flow documentation
8

9.

Human Resources
Capable team focussed on execution and attention to detail
Small team but established
relationships and procedures
in place to allow Rwandan
team to focus on processing,
production & documentation
Plans in place to grow the
marketing team, with 3-5
representatives in the field
constantly
meeting
with
mines and local sellers
and
Financial
control
disciplined cash management
is key, reviewing candidates
for CFO role
In discussions with a senior
geologist
with
broad
international experience to
develop mine potential
9

10.

Sappera Customers
Large diversified global trading houses, metal smelters & end users
2013 Revenues
Noble Group
Current Client or Draft Terms Rec’d
USD 82.4bn
AMC
GBP 750m
MSC
USD 425m
Source: Company’s Public Annual Reports
Noble Group is Sappera’s main
client for the sale of Tungsten but
they will also take Tin and
Tantalum
GAM are a leading US based
global company in the Tantalum
market
AMC & MSC are smaller but still
very capable of buying significant
volumes of tin from Sappera, plus
AMC has appetite for other
mineral volumes
Large roster of other potential
clients including some of the
largest global trading houses
Potential Client List or Expressed Interest
10

11.

Trading & Shipment Activity
Diverse set of suppliers, additional product pipelines being developed
Average Shipment Invoice in USD
Suppliers to Sappera are many,
ranging from small scale mines
to local “aggregators”/traders
$160,000
$140,000
$120,000
Top 4 clients by quantity
purchased by Sappera
represent nearly one-third of
all purchases
$80,000
$60,000
Sappera has clear relationships
in place to secure relatively
constant flows of raw materials
& expand new supply sources
$103,282
$100,000
$40,000
$20,000
$0
1
3%
9%
4%
1%
1%
2% 1%
5
6
7
8
12,000
4%
Wtd Av.
10,962
10,000
2%
3%
4
Average Shipment Weight (KG's)
14,000
2%
3%
4%
3
Shipment Number (Oct '14 to Mar '15)
Sappera Supplier Diversification
(through 8 Trades)
1%
2
8,000
7%
2%
1%
4%
3%
5%
8%
4%
5%
5%
2%
2%
1%
3%
8%
6,000
4,000
2,000
0
1
2
3
4
5
6
Shipment Number (Oct '14 to Mar '15)
7
8
Wtd Av.
11

12.

Why Rwanda
Significant supplier of 3T’s to the world’s steel & electronics industries
It has the 3T’s – tungsten,
tantalum & tin
Stable government and
business friendly
Fragmented market with only a
few large players
Opportunity to aggregate
supply as well as develop over
time own sources from mining
concessions
Platform for Sappera to
leverage its market position
and access in Rwanda to
provide buyers with new
channels and secure supplies of
strategic metals
As Central Africa becomes a more accepted source of the 3T’s, the major
trading houses and end users are directly seeking to acquire and if
possible, lock in and secure, exclusive sources of supply
Recently there has been some funding activity taking place in Rwanda
where major trading houses have provided production loans to tin miners
in order to secure a greater volume of supply, this has also been the case in
the DRC
We believe that the trend for trading houses, as is evidenced by the likes
of Glencore, will be to financially engineer ownership and/or rights to
reliable sources of Rare Earths and strategic metals
Although global GDP growth has impacted the global economy, in
particular noticed in China’s raw materials consumption patterns,
Chinese mills and smelters still neeed access to specialty metals
Along with the sale to the traditional Asian smelters, the markets in the
EU and North America are buyers and help provide client diversification
for companies with the right international market connections.
Rwanda forms the right platform for Sappera to develop Rwanda as a hub
for the aggregation of legally supplied product from the surrounding
countries of Central Africa due to its positioning and direct road access to
East African ports
12

13.

Tungsten
Strategic Metal with Attractive Market Requirements, today Sappera’s core product
To date Sappera has completed
shipment of 87 tons of tungsten
through 8 trades
Strategic metal – critical to a
wide-range of manufacturing
uses
Due to its hardness and heat
resistance, tungsten alloys and
some tungsten compounds
cannot be easily substituted
China not the most “accessible”
nor the lowest cost producer
Opportunity for new sources of
low cost supply to take market
share
Because of its hardness and wear resistance, Tungsten is used in a variety
of industrial sectors as well as within customer products
For the steel/metal and tooling industries it is used as for hardening steel,
making drill tips, cutting equipment and high-temperature resistant
alloys
It is also used throughout the mining, metalworking, petroleum,
construction, military and jewellery industries
Within the aerospace sector it is a critical component of engine valves ,
airplane flaps and turbine blades
Consumer products include ball-point pen tips, tungsten filaments in light
bulbs, LCD panels, TV tubes, laser printers, window heating wires, car
horns, electrical switch gear, and is even used in golf clubs
Used in the vibrating mechanism of mobile phones, medical and dental
equipment
13

14.

Tantalum
Key metal for Sappera to carve out preffered global distribution channels
Rwanda is among the world’s
top producers of Tantalum
Opportunity to develop
reserves will catapult Rwanda
as a destination for strategic
buyers
Besides electronics, it is a key
metal in many specialist
industries such as healthcare
due to its unique properties
One of the main uses of tantalum is in the production of electronic
components largely due to its high capacitance. This makes tantalum
capacitors attractive for portable electronics such as mobile phones.
Tantalum has found wide use in the making of surgical implants as it
can replace bone, for example in skull plates, as foil or wire it connects
torn nerves and as woven gauze it binds abdominal muscles
It is very resistant to corrosion and so is used in equipment for
handling corrosive materials
Tantalum alloys can be extremely strong and have been used for
turbine blades, rocket nozzles and nose caps for supersonic aircraft.
PLEASE SEE NEXT SLIDE FOR AN INFO GRAPHIC ON TANTALUM
14

15.

Tantalum’s Market Presence
Widely used across numerous sectors, Rwanda - a major global producer
Refined Tantalum Products
Intermediate Manufactured Products
Final Goods Consumer Products
Source: British Geological Survey, Tantalum-Niobium Int’l Study Ctr
Cutting Tools
Tantalum Carbide
Sputlering Targets
& semiconductors
High temperature
alloys for air & land
based turbines
Tantalum Ignot
Cathodic protection systems
for steel structures
Chemical process equipment,
(ie. valves, linings, heat exchangers
Tantalum Metal
Computer hard
disks (6% Ta shape
memory.
Missles/Projectiles
(ie. anti-tank)
Prosthetic devices,
skull plates, mesh for
bone replacement,
stents
Lithium Tantalate
Tantalum pentoxide
Cell phones, TV’s, inkjet printers
Tantalum Oxide
Ta Capacitors
Tantalum Powder
Ta Capacitors
in other equipment
Anti-lock brakes, cell phone
signal masks, GPS systems
15

16.

Tin
Stable Component of Rwanda’s Mineral Exports
Tin is an important metal used
in a variety of industrial and
commercial applications
Rwanda and the DRC clearly
have tin reserves but there is
little available information
Rwanda has a few tin mines of a
commercial scale and calibre as
most are artisanal mined,
certain trading groups are
working to lock-in supply
Tin has been a metal used by man for many centuries and are a par of our
everyday life, tin cans have, in 200 years, changed the way the world eats
Today, households in Europe and the US alone get through 40 billion cans
of food a year, according to the Can Manufacturers Institute in Washington
DC.
Tin has many uses. It takes a high polish and is used to coat other metals
to prevent corrosion.
Alloys of tin are important, such as soft solder, pewter, bronze and
phosphor bronze. A niobium-tin alloy is used for superconducting
magnets.
Most window glass is made by floating molten glass on molten tin to
produce a flat surface. Tin salts sprayed onto glass are used to produce
electrically conductive coatings.
iTSCi has been active in
creating transparency around
certain conflict minerals and
working with smelters and
other groups to promote the
trading of “conflict free”
minerals
16

17.

Rwanda Production Figures
Rwanda has significant room to grow in W & Sn, should maintain/grow Ta production
160
Rwanda is a leading producer of Tantalum,
equal to 25% of 2013 global production
In Tin, Rwanda produced 20,000 tons in 2014,
equal to about 1% of global production
140
Tantalum Mine Production (‘000s MT)
120
2012
100
2013
80
60
Tungsten figures were not provided, Rwanda
certainly ships tungsten but the figure needs
to be confirmed
40
20
0
Top five countries produced above 85% of the
volumes of the 3T’s, thus the market is very
concentrated from a production perspective.
140,000
70,000
Tungsten Mine Production (MT)
60,000
Tin Mine Production (MT)
120,000
100,000
50,000
40,000
2012
80,000
2013
30,000
2013
60,000
2014
20,000
40,000
10,000
20,000
-
-
Sources for all Data the USGS
17

18.

Funding Requirement
Driven by the Payment Cycle Governing Mineral Shipments
Funds are required to
bridge the less than two
week invoice payment
period from product
shipment to delivery at
customer’s bonded
warehouse
With high velocity of
turnover and gross
margins of approximately
18%, strong monthly cash
flow before tax can be
achieved
Critical period to stabilise
the Company is the first 2
months
18

19.

Pro Forma Financials
Strong cash flow generation relative to capital employed
Pro Forma Income Statement - 12 mo's
Based on the indicative
volumes and historical gross
margins achieved, the before
tax margins allow Company to
have strong free cash flow
The cash flows indicated
require $1.6m in total funding
by the third month
Investor IRR’s, due to recycling
of capital, are in excess of 30%
All figs in USD
Revenues
Cos
Gross Profit
Operating Costs
Operating Profit
Interest
Profit Before Tax
Q1
Q2
Q3
Q4
Total
7,564,073
6,010,000
1,554,073
813,621
740,451
53,625
590,960
10,826,366
8,632,000
2,194,366
1,038,473
1,155,892
53,625
1,090,267
10,826,366
8,632,000
2,194,366
1,038,473
1,155,892
53,625
1,090,267
10,826,366
8,632,000
2,194,366
1,038,473
1,155,892
53,625
1,090,267
40,043,169
31,906,000
8,137,169
3,929,041
4,208,128
214,500
3,861,762
Gross Margin - Sappera Tungsten Shipments
35.0%
The Pro Forma Income
Statement for the first 12 mo’s
ramps up trading volumes to 20
tpw, 10 tpw & 20 tpw of
tungsten, tantalum & tin
respectively
30.0%
25.0%
18.3%
20.0%
15.0%
10.0%
5.0%
0.0%
1
2
3
4
5
6
7
8
Wtd Av.
19

20.

Facility Drawdown & Repayment
Strong cash flow generation as of 2Q
From week 8 to 12 the cash flow is smoother and
operations are cash flow positive
Key to cash flow security is to:
–
–
–
Have sufficient cash for first 8 weeks
As the 10% invoices are paid, Company is then is a
position to accrue cash
From the 2Q onwards, Company should have a
healthy balance sheet
All figs in USD '000s
Week's Facility Drawdown
90% Invoice Paid
Facility Repaid
Facility In Use
10% Repaid (8 weeks)
Cos
Operating Costs
Finance costs
Net Cash Flow from Ops
Cummulative CF
Wk 1
311
0
0
311
0
Wk 2
311
0
0
621
0
Wk 3
311
298
(311)
621
0
Wk 4
311
298
(311)
621
0
Wk 5
474
298
(311)
784
0
Wk 6
474
298
(311)
947
0
Wk 7
474
467
(474)
947
0
Wk 8
474
467
(474)
947
33
Wk 9
748
467
(474)
1,222
33
Wk 10
748
467
(474)
1,496
33
Wk 11
748
750
(748)
1,496
33
Wk 12
748
750
(748)
1,496
52
Wk 13
748
750
(748)
1,496
52
262
262
262
262
411
411
411
411
664
664
664
664
664
45
4
0
45
4
0
45
4
(12)
45
4
(12)
59
4
(12)
59
4
(12)
59
4
(7)
59
4
26
80
4
26
80
4
26
80
4
35
80
4
53
80
4
53
0
0
(12)
(25)
(37)
(49)
(56)
(30)
(4)
22
57
110
164
NB – cash flow figures are before corporate tax
20

21.

Trading Risk Management
Contracts structured to mitigate FX risk, where possible use “relative
pricing” to purchase minerals locally
Contracts and commodity
prices are all priced in USD
No trade FX trade risk between
Sappera and its buyer
Local currency risk as noted in
the graph to the right has
largely stayed within a 10%
range versus the USD
There is a high probability that
the USD will remain a strong
currency relative to emerging
and frontier markets for the
foreseeable future
Product and customer
diversification will further
allow management to manage
correlation of business to
concentrated customer set
Pricing today is largely
“relative” to the mineral’s
pricing, ability to maintain
trading “spread” allows a
degree of protection against
volatile market swings
Risk management of the business ultimately rests with the management
Tungsten is priced by the LMB on Wednesdays and Fridays. As
management gain a longer track record, better pricing terms will be
negotiated that allow for “more predictable” pricing and less duration risk
In addition for certain products like tin, as management have greater
pricing and develop deeper relationships with buyers, there are risk
management tools that can be used to reduce pricing risk
21