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Mining and the lack of external investment

Mining must build new compact with society to attract funding from traditional sources.

Mining and the lack of external investment Mining and the lack of external investment Mining and the lack of external investment Mining and the lack of external investment Mining and the lack of external investment

Swann Global

Introduction

In June 2021, Swann Group founder, John Murray, was invited to present at the Critical Minerals Associations G7 event in Cornwall to discuss the importance of mining to society.

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 make 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 second article John considers the difficulties in raising funding for mining.

Mining and the lack of external investment

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 green washing, 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.  

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 investors able to take a longer-term perspective.

Why Invest? Sources of funding Challenges
  • Exposure to underlying commodity - proxy for gold, copper - ETFs
  • Capital growth - IRR, DCF 
  • Counter cyclical - defensive, portfolio management (long / short strategies) 
  • Yield - dividend stream, buy backs - and time frame / consistency
  • Hedging 
  • Traditional banks - corporate debt, project finance, PXF, structured debt, receivables, reserve base lending, trade finance, inventory finance
  • Bond Issuance - convertibles, hybrid, fixed income, floating rate notes, project bonds
  • Government agencies - Export Agencies, IDC, World Bank, EBRD, Coface, KfW
  • Traditional equity- IPOs, placements, rights issues
  • Private equity - ordinary, preference shares
  • Sovereign wealth funds - ordinary, preference shares
  • Royalty agreements, streaming agreements
  • End users - off-take funding, PXF, trading houses 
  • Production hedging - off take, conversion cycle finance
  • Mezzanine funding - PIK, warrants, subordinated instruments 
  • High net worth individuals and Family Offices
  • Risk assessment - perceived and real - technical, geo-political
  • Cyclical nature of commodity cycle
  • ESG issues increasingly important and will negatively impact valuations and trading multiples
  • Comparative performance - industry / corporate / commodity
  • Riding the China investment proxy wave - Belt & Road investment for next 20 years 
  • Off take demand perception - Electric Vehicles v source of power generation
  • Investment growth - brownfield, greenfield, price taker or price influencer 
  • Capital intensive - cash burn when cash is king
  • Equator Principals impacting debt availability.
  • ETITI, ICMM issues
  • Ethical perceptions


The changing face and shape of money

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Swann is an executive search and advisory specialist with a international presence. For more than 25 years we have partnered with global organisations that provide the materials, energy and infrastructure that make the world work.

Our services are delivered through three specialist practices: the Executive Search Practice, the Advisory Practice and the Board Practice.

HEAD OFFICE:

  • The Bloomsbury Building, 10 Bloomsbury Way, London, WC1A 2SL
  • Tel: +44 20 7770 6799
  • Website: the-swann-group.com

SOCIAL MEDIA:

category-img

Swann is an executive search and advisory specialist with a international presence. For more than 25 years we have partnered with global organisations that provide the materials, energy and infrastructure that make the world work.

Our services are delivered through three specialist practices: the Executive Search Practice, the Advisory Practice and the Board Practice.

HEAD OFFICE:

  • The Bloomsbury Building, 10 Bloomsbury Way, London, WC1A 2SL
  • Tel: +44 20 7770 6799
  • Website: the-swann-group.com

SOCIAL MEDIA: