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Mining Journal does some heavy sifting

Investors, junior miners and analysts will meet this month for the inaugural Mining Journal Select conference in London, running from June 26-27.
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The idea behind Mining Journal Select is not to bury investors in projects in need of funding from all parts of the globe, but rather to provide them with a narrower, better view of the quality coming down the development pipeline.

As shown at many conferences already this year, the number of mineral commodity bulls is growing, along with optimism and confidence. 

But with a burgeoning market comes a torrent of news, information and, yes, events, which can quickly dull investor receptiveness and cause powerpoint fatigue.

So, is there an appetite among investors for a new formula?

Blackrock Asset Management director Cailey Barker, a speaker at MJ Select and investor in mining projects, said conferences were useful to investors in that they were an "efficient way to meet a number of companies in a short space of time, gauge the general mood of the sector and stay in touch with current themes".

Arden Partners mining analyst Charles Fitzroy agreed the events were a good way for investors and mining companies to meet, but to add value, they needed to be a "focused experience", rather than rows of trade stands.

He said MJ Select's focus on quality in the investment pipeline gave it a different feel.

"There are so many projects out there trying to get funding, and investors only have so much bandwidth … It's about a smaller, more select, more focused audience. It's all about the one-to-one conferences," he said.

Pala Investments managing partner Stephen Gill, who is also Nevada Copper's non-executive chairman, agreed that only selective conferences were useful, as the growing number of events was increasing the danger of them becoming repetitive.

Looking at it a different way, Bernstein senior research analyst Paul Gait pointed out that, while the events could be useful for understanding maket and industry macros and mood, which was helpful in persuading investing concerns, they could also be a double-edged sword.

"On one hand, the problem is you can get echo chamber economics whereby we start telling each other stories and by virtue of Chinese whispers that go around a convention hall, suddenly it's gospel … it's depend on whether the information you want to gather is of greater quality than the emotional impact of the echo chamber," he said.

Unsurprisingly, participating mining companies mostly saw value in conferencing events, as they were good networking opportunities and meeting investors and selling their projects was the name of the game up to a point.

Hot Chili managing director Christian Easterday said it was "always good to keep a strong line of communication open with the global resource investment community".

Trilogy Metals CEO Rick van Nieuwenhuyse said meeting investors one-on-one was key.

"They get to know management - what makes us tick - and discuss more detail and nuances than can be communicated in a press release," he said.

Best of the best

Conferences obviously need to create an environment conducive to high-value conversations and exchanges - people pay good money to attend - but bringing the right investors and companies together still doesn't get the financing box ticked.

To win new investment projects have to tick a number of boxes.

Barker said the best global opportunities were usually those that attracted "the imagination away from the norm - exciting commodities, new geographical frontiers, new geological terrains, world class discoveries".

To find these, Blackrock has an investment process that principally looks at a number of factors from a bottom-up perspective, such as asset quality, valuation and environment, social and governance (ESG), among others, but also from a top-down standpoint.

Opportunities are then reviewed on a relative basis against other investments and the construct of portfolios.

There are so many projects out there trying to get funding, and investors only have so much bandwidth

"In an ideal world, it would be a high-grade, easy-to-mine and process project of a world-class size in a safe jurisdiction. However, those assets are few and far between, so there is nearly always some degree of compromise," Barker said.

According to Pala Investments vice president Jessica Fung, with capital limited and opportunities seemingly endless, investors looked at the entire supply chain, the "technological overlay" and the biggest risks before making investment decisions.

Speaking at one industry event, she named the biggest risks to consider as regulation, financing costs, execution and the investment time horizon. Regulation was top as it could change policy, the commodity demand outlook, and impact development.

Industry players gave an exhaustive list of ideal characteristics for good investments, including "realistic management", the right commodity in the right jurisdiction, a location close enough to a local workforce (but not too close), proper stakeholder engagement, good growth potential, longevity, and manageable infrastructure costs.

Hallgarten & Company's principal and mining strategist Christopher Ecclestone was of the view that a lack of infrastructure was a "project-killer and a fatal flaw in the last boom".

Gait described a good project as a classic tier-one asset with a long-term significant higher-grade resource, which would employ both first-quartile operating and low capital costs in a safe mining jurisdiction where the environment was geopolitically stable and there were good ownership rights.

"That's what makes a good project, but the trouble is there aren't any. The glory days of mining where that was possible are past. You are always having to make compromises on one or more of those variables and it's those compromises that make the investment choices and investment decision difficult," he said.

Gill was of the view that any project aimed at producing a commodity with supply constraints would be differentiated, as it would be buffered against macroeconomic volatility, while Fitzroy thought a multi-metal asset, particularly with a focus on a growth metal such as copper or nickel, would offfer greater protection from cyclical volatility.

 elect miners will get a chance to present their projects to investors in ondon Selected miners get a chance to present their projects and credentials to investors in London


Caution still the watchword

In general, caution remains the watchword of the day in the resources investment space, despite the increasing prevalence of positive spin.

Whether there is greater appetite for risk usually depends on the stage of the cycle, according to Barker, but he's noticed the investment community is currently more risk averse than in past cycles and there is a higher degree of scrutiny and more regulation to consider.

"The mining sector is probably the healthiest it's been for a very long time. However, there is wide perception that it's at its peak and demand, particularly from China, will soften, margins will compress and capital investment will return," he said.

"This, coupled with increased geopolitical risk, has led generalist investors in particular to be more cautious. This has led to significantly reduced market liquidity in our space, making it a very challenging trading environment, which we have to be extremely cognisant of."

According to Gait, the "scarring effect of the last three or four years are still very fresh in people's minds and it's creating a reticence to actually open the cheque book, as it were, and allocate fresh capital … it's still a very significant degree of caution and that's healthy".

However, he did see confidence building.

"It's still not, by any means [fully recovered], the valuations are still stretched, which tells you really that there hasn't been a huge inflow of capital," Gait said.

Fitzroy agreed: "I think a lot if investors are quite cautious, they've seen a lot of games in the natural resources sector over the past few years. On the whole people are keener on projects which have some aspect of de-risk in slightly safer jurisdictions."

Brownfield versus greenfield

With the ongoing aversion to risk, brownfield projects might logically take precedence over greenfields projects.

However, investors seem open to both, with projects generally being assessed on a case-by-case basis.

"Greenfield projects are more commonly better value in my view, but you overlay that with the appropriate risk factors and you may easily find the opposite," Barker said.

"We look at all stages of the production cycle. I think there has been some re-activation of interest in exploration stories, which is very encouraging," he said.

However, analysts including Ecclestone were of the belief that brownfield assets were batter value for investors "by a million miles", as total greenfield projects were still "an anathema to most investors" due to generally long lead times. 

A lot if investors are quite cautious, they've seen a lot of games in the natural resources sector over the past few years

Gait agreed: "It is inevitable … brownfields have a low capital intensity on average, they have synergies with the operator, on infrastructure that already exists in a mine, you can use up spare milling capacity, spare rail capacity, you've got legacy power contracts that might have spare energy. Those all contribute."

He added there also tended to be an established workforce and operating environment, while technical risk was often better understood.

On the socio-economic front, local communities tended to be more supportive of brownfield projects, as they'd already seen the economic benefits of mining while those exposed to greenfields projects only saw the risks and disruption and feared the change and impacts without seeing the offsetting economic benefits.

In Fitzroy's opinion, there was "very limited appetite for exploration and greenfield, except for specialist investors".

What's your poison?

Whether brownfield or greenfield, battery minerals continue to be flavour of the month.

"Battery metals are hot, base metals also," was Ecclestone's take, although he noted it was strange "investors who are in a high-risk space like cobalt think they are actually in the safest thing around".

Barker noted the battery material space was particularly exciting, although Blackrock invested in most commodities.

Gait said the battery minerals sector was where "the qualitative narrative can be aligned with the quantitative, financial analysis to try create a find that is more conducive to the deployment of fresh capital".

Of the four primary battery metals—  copper, lithium, cobalt and nickel — he said cobalt and lithium were generating the most significant returns at the moment, although it was easier to see where investment could be made in copper and lithium. 

"If you can get your hands on something that vaguely smells like cobalt, there is a lot of money to be made in that at the moment [and] we've never seen such high returns in any industry as we are generating in the lithium market at the minute," he said.

However, he said it was difficult to see too far into the future, with the spot price not a good indicator of long-run value for commodities.

Arden's Fitzroy said while there had been a huge focus on battery metals some of that interest was declining, with investors looking more at metals involved in the battery metals space, but not completely dependent, such as zinc, nickel and copper.

"People are looking for projects that can offer a premium, so for example hydrate concentrate, low impurity, safe jurisdiction, good management and low funding requirement and good growth potential in those sort of commodities," Fitzroy said.

Getting a foot in the door

Investors' focus on battery metals bodes well for a number of the companies chosen to appear at MJ Select, with the majority having some focus on copper, cobalt or lithium.

Most found it fairly easy to get facetime with investors, using a range of methods from conferences and roadshows to personal contacts.

Central Asia Metals chairman Nick Clarke said the company favoured two full roadshows annually, which was how it had raised $153.5 million in equity in November and $120 million in new debt provided by its offtake partner Traxys, as well as ING and SocGen.

This funded the acquisition of the Sasa zinc-lead mine in the Republic of North Macedonia, which with the Kounrad copper mine in Kazakhstan gives CAML two low cost, cash generative base metals operations that provide the company with confidence to pay dividends to shareholders.

Hot Chili also found it relatively easy given its contacts, stakeholders and relationships, although Easterday added most funds had only been showing interest in resources over the past six months.

"It is gaining momentum in particular commodities outside the more recently fashionable commodities of lithium, cobalt," he said.

Hot Chili is developing its flagship Productora copper project in Chile and recently raised $4 million via a heavily oversubscribed capital raising, with a range of investors taking part, including major shareholders, high net-worth individuals, institutional funds and small cap funds from Australia.

Nevada Copper has seen an increase in interest from fund managers since its recent personnel changes, with Gill noting the new team headed by CEO Matt Gili and a newly formed advisory board including Tom Albanese and Ernie Nutter, among others, had helped.

He said investors were "growing to understand the new strategy focused on staged-capital development and the strategic position" of owning Pumpkin Hollow, the only new, permitted, copper mine in North America.

 evada oppers umpkin ollow copper project is the only new permitted copper mine in orth merica Nevada Copper's Pumpkin Hollow copper project is the only new, permitted copper mine in North America

Trilogy's Van Nieuwenhuyse claimed the company's "compelling" and "unusual" story was making it fairly easy to get time with fund managers, though he noted that in general there was still a fairly low interest level overall in the resource sector. 

"For as clear as it is that copper is already in deficit supply, there does not appear to be as much conviction towards investing in exploration and development-stage stories yet," he said.

"That will come as the market realises that grades continue to decline at the world's existing operations, while demand keeps growing due to concerted global effort to produce more non-carbon-based alternative energy and transition our transportation fleets to electric vehicles."

Trilogy is developing the Arctic project in Alaska, which has one of the highest-grade copper deposits globally at 5% copper-equivalent.

It is also developing the Bornite copper project, which has a resource of 125 million tonnes grading 1% in an openpit mining scenario, and 58Mt grading nearly 3% copper in a potential underground scenario and a 77 million pound (34,927 tonne) cobalt resource.

While it had been fairly difficult for Phoenix Global Mining to get in front of fund managers who were not known personally, CEO Dennis Thomas noted more doors had opened since it completed a preliminary economic assessment on the Empire copper project in Idaho, USA, in April and it was expected to improve further as the completion of the bankable feasibility study approached. 

"Our market capitalisation is still below the minimum required for many of the funds to invest in us," he said. However, he said both the company's financings in the past year had been oversubscribed, as was the company's pre-IPO. 

Thomas said Phoenix was looking at further financing possibilities in North America to expand its North American shareholder base, as well as engage equipment suppliers and metal offtakers who had already expressed interest as part of the construction-financing process. 

"Our aim will be to dilute as little as possible on an equity level," he said.

While the mining industry has seen improvements in investor sentiment, it is clear that it is still not easy on either side. For investors, decisions must be made about what characteristics make for good investments, while keeping risk low. On the exploration/mining side, the challenge is getting a foot in the door and standing out among all the others.

Arguably, those involved in the battery minerals space, especially copper, lithium and cobalt,  will be in a good position as the green energy revolution gains momentum, although this also depends on how quickly electric vehicle demand grows.

A key question remains: where are we in the current investment cycle?

Are the good times just getting started again?

One thing is for sure, there will be a lot to discuss at MJ Select.