In his talk John highlighted six issues facing mining beyond the immediate challenge of the pandemic.
In this series of articles, John expands on his G7 presentation and explores those challenges in more detail. In some cases, he makes some suggestions for how we might address them, based both on interviews with some of the mining greats and his own lifetime of experience in the industry. In others, he poses questions to provoke thought and discussion for inclusion in a future update.
The articles are gathered in a single publication readers can download from the Swann Group website research page: https://the-swann-group.com/research/
In this first article John explores mining’s relationship with investors.
Part 2 – Mining’s relationship with investors
If mining fails to build a new compact with society it will become increasingly difficult to attract funding from traditional sources.
This imperative is made even more critical owing to the rise in ESG-focused investments, which in Europe in 2019 amounted to EUR 1.66 trillion AUM, representing 15.1% of total mutual fund assets (PwC – The growth opportunity of the century).
The vast majority of the European institutional investment community expect that ESG and non-ESG products will converge next year, and 77% will stop investing in non-ESG products then.
By 2025, PwC forecasts European ESG investments to reach EUR5.5 – Eur 7.6 trillion, representing up to 57% of the total. Persuading these investors that mining should be the target of their decisions will be challenging.
Organisations have a choice about how to respond. The temptation of greenwashing, which will render ESG meaningless in the same way CSR often became meaningless, will be too difficult to resist for many.
For the less myopic, making positive change is obviously the best option, providing better returns for shareholders and investors, improving the running of the business, and contributing to a more positive profile for the industry.
|Sources of Funding
|Exposure to underlying commodity – proxy for gold, copper – ETFs
|Traditional banks – corporate debt, project finance, PXF, structured debt, receivables, reserve base lending, trade finance, inventory finance
|Risk assessment – perceived and real – technical, geo-political
|Capital growth – IRR, DCF
|Bond Issuance – convertibles, hybrid, fixed income, floating rate notes, project bonds
|Cyclical nature of commodity cycle
|Counter cyclical – defensive, portfolio management (long / short strategies)
|Government agencies – Export Agencies, IDC, World Bank, EBRD, Coface, KfW
|ESG issues increasingly important and will negatively impact valuations and trading multiples
|Yield – dividend stream, buy backs – and time frame / consistency
|Traditional equity- IPOs, placements, rights issues
|Comparative performance – industry / corporate / commodity
|Private equity – ordinary, preference shares
|Riding the China investment proxy wave – Belt & Road investment for next 20 years
|Sovereign wealth funds – ordinary, preference shares
|Off take demand perception – Electric Vehicles v source of power generation
|Royalty agreements, streaming agreements
|Investment growth – brownfield, greenfield, price taker or price influencer
|End users – off-take funding, PXF, trading houses
|Capital intensive – cash burn when cash is king
|Production hedging – off take, conversion cycle finance
|Equator Principals impacting debt availability.
|Mezzanine funding – PIK, warrants, subordinated instruments
|ETITI, ICMM issues
|High net worth individuals and Family Offices
There is a chasm between investor perception and mining reality that needs to be closed, nevertheless with the right positioning and messaging, we anticipate mining will continue to attract investment from those able to take a longer-term perspective.
John Murray, Founder and Advisor
In the next article in this series, John looks at mining’s adoption of technology.
Image (c) Shutterstockn | Parilov