“Anybody who says that the super-cycle is over is an idiot, it’s just been deferred for a little bit”, mining tycoon Robert Friedland told a packed audience in London last week.
I was there for the 12th annual Mines and Money show. And if you’re in the mining business and haven’t been to London lately, the Mines and Money show is a great excuse to visit one of the world’s most colourful cities. I thoroughly enjoyed the high tea, fish and chips, pints at the pubs, and of course the conference, which was held just outside the glitzy Mayfair area.
Many of the mining industry’s leaders presented at the conference, including:
- Evy Hambro
- Clem Sunter
- Robert Friedland
- Mark Bristow
- Frank Giustra
- Ross Beaty
The event was very well attended, considering the ticket price to get in isn’t cheap (~$3,000). Not surprisingly, the crowd was made up of mostly highly motivated fund managers, investors and analysts.
Among the attendees were some of the largest money managers in the natural resources sector, including Evy Hambro of Blackrock and Neil Gregson of JP Morgan, as well as representatives from most of the bulge bracket and boutique banks.
There was also a heavy private equity flavor to the show, which I think highlights the deep value that is being seen in the mining sector.
Mining private equity pioneers Resource Capital Funds, Denham Capital and Pacific Roads were there as well as newer groups such as Greenstone, Tembo and our friends at Appian Capital.
There were a number of dynamic panels, including one with Marcel de Groot (Pathway Capital), Joe Wickwire (Fidelity), Joe Foster (Van Eck) and Daniel Oliver (Myrmikan) which discussed the investment cycle and whether we are in a ‘new normal’ or whether the cycle will repeat (the jury’s out).
The mood was much more upbeat than I expected. However, the prevailing sentiment in the conference was that there’s more pain to come. The good news is that the cream should start to rise to the top allowing for the best management teams to get funded.
Investing legends Ross Beaty and Frank Giustra both talked about the contrarian opportunity that’s present in the mining sector today.
“Anything that’s universally hated should be bought. That’s just the reality,” Giustra said of the current downturn in the commodities sector, which he says is the worst he’s seen in 35 years in the business.
Investors I spoke with said they have been writing cheques and will continue to do so for companies with high-quality assets that have been discovered and developed by strong technical teams.
Although share prices have already been hammered, most of the experts feel that true value is still relatively difficult to find, especially given the fact that the majority of ‘dog’ companies have yet to disappear.
Michael Scherb, founder of mining private equity juggernaut, Appian Capital, agreed: “Despite low share prices, it is still hard to find value in the market”.
Fund managers and analysts repeatedly mentioned two commodities, uranium and zinc, anticipating a supply crunch coming for both commodities.
I particularly enjoyed Clem Sunter’s talk.
Mr. Sunter was the former CEO and Chairman of Anglo American’s gold and uranium divisions at a time when they were the largest gold miners in the world, producing over 10 million ounces annually.
He is now known for his work in scenario planning and specifically for his book “The Mind of a Fox” which has been used as a reference by major US corporations including Visa, Sisco and General Electric as well as governments around the world including the US Department of Homeland Security.
“We wrote the book because we wanted to get across to people that you’ve got to look outward like a fox and consider the different scenarios before you look in at what you’re going to do about it and adapt your strategy to it,” he told the audience which included Randgold boss Mark Bristow.
I am currently reading Sunter’s book, and I highly recommend it (buy it on Amazon here). The book brings scenario planning from the abstract to the useful by putting emphasis not on various scenarios that may or may not occur and deploying mathematical probabilities to them, but by focusing on the ‘flags’ that are relevant and will often foreshadow changes in the future.
When asked about the flags flying in the mining sector currently, he said, without hesitation, that the number one flag is climate change.
“Nobody in the mining industry has yet to say, ‘what could a whole new set of rules limiting carbon emissions do to our industry? What are the threats and what are the opportunities because there are both’,” he said.
Sunter believes that Europe and Japan will continue to be low growth environments for some time as their aging populations drag on their economies. At the same time he believes the US remains a potential growth driver for commodity consumption.
“China remains a real wild card,” Sunter added. “Someone born in 1978 when the one child policy came into effect is 36 years old today, so China currently is not affected by that policy. But in 15 years time China is basically going to go off a demographic cliff and you’re going to have more people over 50 than under 50.”
Sunter referred to one of his early mentors, Pierre Wack, who headed scenario planning at Royal Dutch Shell in the 1970’s and guided them through two global oil crises which ultimately shaped Shell’s future.
One of Mr. Sunter’s favourite quotes from Wack was: “It’s much better to be vaguely right than precisely wrong.”
Check out Mr. Sunter’s website at mindofafox.com.
Blackrock’s mining chief Evy Hambro, who manages roughly $20 billion in assets across various funds, gave another great presentation.
“We need more transparency,” he said, “we don’t need more spreadsheet mining; the throwing away of money to increase production and the spending of more and more capital. Miners need to reset production to where it is sustainable.”
Hambro continued: “The primary thing investors want is for the company they are invested in to make more money when the gold price goes up. They need to know that with every ounce that’s mined there’s a margin attached to it.”
Hambro pushed for tighter capital restraint and more dividends stating: “Investors don’t want capital ploughed back into the business chasing production growth rather than value creation.”
Mark Bristow, CEO of Randgold Resources, and one of the most respected CEO’s in the mining business, also shared his views on the mining industry today.
“The single management tool that has served us best at Randgold is a clear set of filters that we use in all of our investment decisions,” he said.
He says principal among those filters is using $1,000 per ounce flat gold price assumption in all analysis of potential development projects.
Randgold is the best performing gold stock over the past two decades and has consistently performed throughout the cycle.
“Sustainable profitability requires the optimal exploitation of a world-class ore body (one that has 3 million ounces of recoverable gold and is capable of generating a +20% IRR) which in return requires an impeccably thorough and completely realistic feasibility study,” Bristow says.
He was unapologetic in his disdain for the industry as a whole given its performance over the past decade. He is sympathetic with those nations that have become ‘hostile’ toward extractive industries because the companies in those areas haven’t done what they promised.
“The gold mining industry really shot itself in the foot. When you have 40 mines built in sub-Saharan Africa since 1990 and only 5 that have returned their capital and are able to actually pay taxes, people get pissed off,” he explained.
Bristow says the juniors used to be ‘custodians of high-risk dollars’ and were led by the best geologists and engineers who would trail blaze the new frontier, but now says they have become ‘the caretakers of old dogs’.
Robert Friedland, the billionaire mining mogul, pronounced that mining professionals are ‘idiots,’ and that if they really want to become rich, they should code an app.
He talked futuristic travel, deadly pollution, starving children and his new movie aptly dubbed “Copper”, all the while going over his scheduled time by nearly 50% (which nobody noticed).
“It’s all in the power of public media, people have no idea where things actually come from. Everything you’re touching is mined or grown and the process of agriculture is extremely metals intensive,” he proclaimed.
Friedland’s talk was upbeat and entertaining, which was appreciated as jet lag and the previous night’s pub activities took a toll on my focus.
All in all, the conference was definitely worth attending, even if it was missing some of the high-quality companies from Vancouver.
So, if you’re a Canadian-based junior with a solid project and technically sound team (no fairy tales welcome) who can’t seem to find a bid in North America, all is not lost. London should be your next trip.
A special thanks to the Mines and Money team for hosting us. See you next year!