KPMG's Experience in the Metals and Mining Industry: Selected Highlights

34 Pages·2014·1.96 MB·English

KPMG IN RUSSIA AND THE CIS
KPMG’s Experience
in the Metals & Mining
Industry: Selected
Highlights
kpmg.ru
b | KPMG’s Experience in the Metals & Mining Industry: Selected Highlights
© 2014 ZAO KPMG. All rights reserved.
© 2014 ZAO KPMG. All rights reserved.
Contents
Investment and fnancial activities
Transaction services 3
Due diligence on alumina assets of a diversifed industrial company 3
Initial public offering of the world’s largest aluminium holding 4
Our M&A and transactions support services 5
Restructuring 6
Debt restructuring of the world’s largest aluminium holding 6
Development of a fnancial model for an East European metallurgical holding 7
Other projects related to investment and fnancing activities 8
Performance improvement
Strategy 1
Development of a strategy for a Kazakhstan mining company 11
Preparation of a feasibility study for construction of a gold processing plant 12
Performance improvement 13
Performance improvement for a metals holding through lean production principles 13
Cost optimisation and performance improvement for a metals holding company 14
Other performance improvement projects 15
Accounting and corporate governance
Accounting and corporate governance 17
Financial statement preparation guidance 17
Valuation 18
Valuation of preferred shares of a metals and mining company for refection
in the fnancial statements 18
Valuation of property, plant and equipment for transaction cost allocation purposes 19
Internal audit 20
Assessment of the internal audit function at a mining industrial group 20
Risk management 21
Development of an internal control system for a metallurgical complex 21
Financial fraud investigation 22
Assessment of the legitimacy of a company’s fnancial activity 22
Other accounting and corporate governance projects 23
Audit, tax and legal services
Audit services 25
Audit experience in the metals and mining sector 25
Tax consulting 26
Tax support for the acquisition of international assets 26
Legal services 27
Development of a long-term incentive programme 27
Other tax and legal services projects 28
© 2014 ZAO KPMG. All rights reserved.
d | KPMG’s Experience in the Metals & Mining Industry: Selected Highlights
Foreword
Lydia Petrashova
Head of Metals & Mining
KPMG in Russia and the CIS
Since KPMG opened its frst offce in the CIS more than 20
years ago, one of our main areas of activity has been work
with companies in the metals and mining sector. Initially, this
primarily consisted of the provision of audit services, but
over time we have also provided an ever-increasing range
of advisory services, and as a result our professionals have
accumulated a wealth of experience of working with frms in
the industry. This brochure provides information on some of
our most interesting engagements, and on the metals and
mining team at KPMG in Russia and the CIS.
Within our advisory practice, we have developed various
key areas such as management consulting, transactions
and restructuring consulting, and risk consulting. In total,
KPMG in the CIS now employs more than 1,500 consultants
in addition to its auditors. The main advantages offered by
our professionals are their extensive practical experience
and knowledge of the specifcs of the CIS region, as well as
their experience of working in other countries.
We are always pleased to be of assistance.
© 2014 ZAO KPMG. All rights reserved.
KPMG’s Experience in the Metals & Mining Industry: Selected Highlights | 1
KPMG’s solutions throughout
the business life cycle
Project life cycle
TIME
Transactions Projects Operational excellence Compliance
» Market entry assessment » Project development » Operating model » External audit
development
» Financing and M&A » Feasibilities » Enterprise risk
» Cost and tax optimisation management
» Tax structuring » Financing
» Supply chain » Internal assurance
» Due diligence » Tax structuring
transformation
» Tax compliance
» Integration » Project execution
» Business intelligence
» Sustainability

» Finance / IT / HR

transformation
р. 3, 5, 11, 12 р. 13, 14 р. 6, 7, 14 р. 3, 4, 5, 19, 26
» Audit of fnancial statements
» Development of an internal control system, assessment of the internal audit function
» Financial statement preparation guidance, valuation of assets and liabilities for refection in the fnancial statements
» Assessment of the legitimacy of the companies within a group and of the top-management
р. 17, 18, 20, 21, 22, 25, 27
© 2014 ZAO KPMG. All rights reserved.
LEVEL OF ACTIVITY
2 | KPMG’s Experience in the Metals & Mining Industry: Selected Highlights
Investment and
fnancial activities

© 2014 ZAO KPMG. All rights reserved.
KPMG’s Experience in the Metals & Mining Industry: Selected Highlights | 3
rT sna tc a i no serviec s
Due diligence on alumina assets of a diversifed industrial company
gkcaB rdnuo Oru tsa sk eR slu ts
By 2006, the process of establishing the Our investigation was aimed at Despite the tight deadline, we managed
world’s largest aluminium holding had identifying any potential or unrecorded to form separate teams for each asset,
entered its fnal phase, and involved the liabilities associated with tax or legal to engage specialists to analyse the
merger of the aluminium and alumina risks, pension programmes and any areas requiring specifc knowledge and,
assets of two Russian companies and other circumstances at the company. ultimately, to carry out the investigation.
a Swiss diversifed industrial company. We also had to assess the company’s
The results of our work were used
In order to determine the value of the EBITDA for past periods for the
successfully in the valuation of
assets involved and to identify any existence of one-off and non-standard
the assets and determining a fair
risks related to their merger, each of the transactions, as these fgures provided
transaction price.
parties engaged independent fnancial the starting point for the determination of
advisors. the transaction value. On 27 March 2007, the world’s biggest
aluminium company was created.
One of the Russian companies The subjects of our research were
requested that KPMG perform an located in Jamaica, Italy, Sweden and The key success factor for our part of
independent fnancial and tax due Ireland. In order to make the best use the project was the availability of KPMG
diligence on the Swiss company’s of our knowledge of the industry to metals industry specialists and experts
alumina assets. meet the client’s requirements, and to on legal issues and pension obligations.
beneft from our knowledge of the local In addition, the uniform quality standards
specifcs such as tax legislation in the applied at all of KPMG’s offces allowed
relevant jurisdictions, we formed a team us to minimise the time required to carry
of professionals based in both our CIS out the necessary research and prepare
offces and in the countries where the a consolidated report.
relevant assets were located.
Different standards for preparation of
fnancial statements were applied in
relation to the various assets, so we had
the additional task of understanding
and expressing the identifed risks in
accordance with IFRS, the standards
used by the holding.
We were given just four weeks for the dy L i a Petrsa hvo a
whole project, which, given the wide Partner
geographical spread of the assets, was
a very tight deadline.
Olg a Plevoka
Partner
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4 | KPMG’s Experience in the Metals & Mining Industry: Selected Highlights
Initial public offering of the world’s largest aluminium holding
Background Our tasks Results
In 2009 the management of the world’s The frst listing of a Russian company In January 2010, less than four months
largest aluminium holding decided to list on the HKEx provided us with serious after the start of the project, the holding
an additional 10% of its ordinary shares challenges, primarily related to studying held a successful IPO on the HKEx
on the Hong Kong Stock Exchange the local legislation and specifcs of the and, in parallel, on France’s Euronext.
(HKEx). The proceeds were to be used fnancial market in Asia. The company sold 10.6% of its shares
to pay off part of its restructured loans, The HKEx requirements for issuers for a total of USD2.24 billion, enabling
which was one of the conditions for the are extremely strict: even at the initial it to reduce its debts signifcantly. The
restructuring of the holding’s debt. stage, the issue prospectus (the principal holding’s issue prospectus set a record
document of the company being listed) for Hong Kong, with 1,141 pages.
No Russian company had been listed
must be presented in a more complete
in Hong Kong before, and therefore the The preparation for and implementation
form than when listing on, for example, the
holding faced additional challenges. of this project involved a number of
London Stock Exchange, and the fnancial
participants aside from the company
Continuing our business relationship information contained within must be fully
itself: the KPMG team, legal and
with the holding, the KPMG Capital audited. This put us under tighter time
fnancial consultants and sponsor
Markets team was chosen as the constraints.
companies — in all, 15 parties from
consultant for this project.
Amongst our tasks as the designated Moscow, Hong Kong, Paris, the USA
accountant, we had to prepare an and the UK. This cooperation made it
accountant’s report and a confrmation possible to complete this signifcant
letter. We were also required to prepare project within such a tight deadline.
confrmation letters in relation to the
The key success factors for this project
forecast of revenue for 2009 and working
were the smooth teamwork of around
capital for the following 12 months.
70 professionals, the close cooperation
This task required a detailed analysis
between auditors and consultants from
of the company’s fnancial model and
KPMG’s international offces, and our
preparation of recommendations on
deep understanding of the processes of
its further development, as well as a
raising capital on the stock market.
sensitivity analysis of the model.
The restructuring taking place in the
company and the general uncertainty
in the global fnancial markets in 2009
resulted in additional requirements in
relation to the disclosure of information in
the issue prospectus.
Olga Plevako
Partner
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KPMG’s Experience in the Metals & Mining Industry: Selected Highlights | 5
Transaction support
Our M&A and transaction support services
Background • Technical support: the drafting Buy-side support
of a marketing presentation on the
Our Corporate Finance group includes Within our buy-side support projects,
asset; preparation of an information
a separate team of M&A experts we also provide a wide range of
memorandum for potential investors
dedicated to providing the full range of services, both administrative and
and a non-disclosure agreement;
services in support of the acquisition or technical in nature. Our clients may be
development of a fnancial model
sale of a business. interested both in acquiring a specifc
and its update when necessary; the
asset and in obtaining a general
The key success factor here is establishment and support of an
understanding of the business being
comprehensive management of the electronic data room; assistance in the
acquired, which affects the scope of
process, which enables us to maintain preparation of other presentations for
services we provide. Accordingly, we
control over the transaction, optimise meetings with potential buyers.
provide assistance in determining
its terms, and minimise the impact on
the company’s day-to-day activities, Factors contributing to the success of the acquisition criteria, prepare lists
as well as to limit the risk of unwanted our advisory services provided to metals of potential assets, and analyse the
disclosures. and mining companies include our in- compliance of the acquisition target with
depth understanding of the sector and the company’s strategy. Overall, as with
the access to all of the main investors sell-side support, we provide advice
Sell-side support
available through our global corporate and technical assistance at each stage
Our sell-side support work includes fnance network, which enables us to of the transaction, in order to make the
a wide range of services. The main quickly establish initial contact and acquisition process as easy as possible
services we provide include: identify interest in a transaction from for our clients.
international strategic and fnancial
• Administration and advisory
investors.
services: development of the
timeframe for work, with a detailed
allocation of duties and coordination
of work of all participants at each
stage; identifcation of potential
buyers, assessment of their interest
and subsequent cooperation with
them; assistance in negotiations to
obtain maximum value; continuous
consultation and support throughout
the project.
Robert Vartevanian
Partner
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6 | KPMG’s Experience in the Metals & Mining Industry: Selected Highlights
Restructuring
Debt restructuring of the world’s largest aluminium holding
Background Our tasks Results
The joint work of the banks, the company
Throughout 2009, we assisted a As one might expect with such a large
itself, KPMG and the other consultants
syndicate of international banks in project, we were assigned an extensive
engaged resulted in a thorough
restructuring the debt owed by the range of tasks.
restructuring plan being approved by
world’s largest aluminium holding. The
During the lengthy negotiations on the all participants in the process, which
sharp fall in aluminium prices around the
restructuring terms, the banks primarily assumed that the creditors’ loans would
end of 2008 had prevented the holding
needed information on the company’s be repaid in full within a reasonable
from meeting its loan obligations.
current position and whether it was timeframe, at a mutually benefcial cost
The company owed USD17 billion in
meeting its obligations, plus a forecast of lending.
total, the majority of which was due for
of the company’s fnancial status in the
payment in 2009. The company needed The key success factor here was the
coming 1-3 months. In order to provide
30 syndicated and bilateral loans to fact that we had a team of restructuring
this, we obtained cash fow statements
be comprehensively restructured. In specialists familiar with both the Western
for the last month and forecasts for the
all, apart from the holding itself, the banking system and Russian business,
next month from the company, analysed
negotiations involved 80 international specialists with extensive experience
this information in detail, focussing
banks, six of Russia’s largest banks and of analysing metals companies, and
on possible risks of the target fgures
the Russian government. specialists in fnancial modelling.
not being met, and presented to the
The international creditors set up creditors our comments on the actual We also involved other KPMG
a coordination committee, which state of affairs at the company. professionals in the project to perform
appointed KPMG as advisor on the specifc tasks, including tax experts,
To develop a long-term restructuring
fnancial restructuring of the holding. valuation experts and business process
plan, the creditors needed a long-term
optimisation experts.
forecast of the company’s fnancial
fows. To this end, we were asked to
comment on the company’s fnancial
model and its assumptions. In addition,
the creditors hired consultants to
advise on various technical issues, and
KPMG coordinated their work. Based
on our comments and reports, the
creditors were able to develop their own
independent cash fow forecast, which
they subsequently used in reaching a
decision on the restructuring.
For future control over spending, the
creditors needed a cash monitoring and
control system. We developed such a
system in the form of cash pooling and
integrated reporting based on actual
results, short- and long-term forecasts,
and the company’s strategy.
We also assisted in the preparation Andrei Mitrofanov
of the supporting documents for the Partner
restructuring process, which included
developing the defnitions of the
fnancial covenants.
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