Two panels during the second day of the three-day Mines and Money (M&M) Asia conference focused on the most attractive metals over the next year and on mergers and acquisitions (M&A) in the gold sector.
In the first panel, Jayant Bhandari, an analyst with Anarcho Capital, was bullish of almost all metals in the longer term, noting that consumption had doubled over the past 25 years, and was expected to double again within 20 years. He warned, however, that the industry had a bad track record on over-production.
Warren Gilman, the CEO of CEF Holdings, accepted that all metals would increase in the medium and long-term but the only metal he thought likely to increase in price over the next 12 months was uranium. Gold, he said should be benefitting from stagnating interest rates and central-bank buying but it had "done nothing". Accordingly, he is now "confused" about the precious metal, and it no-longer excites him.
Another advocate of uranium is Andrew Ferguson, the CEO of APAC Resources, who is also bullish for iron ore — the latter because of the disruption caused by Vale SA's closure of tailings dams in Brazil. Helen Lau, an analyst with Argonaut Ltd, agreed about iron ore and uranium, and added copper as a target metal. Copper and iron ore, she said, were likely to benefit over the next 12 months because of supply issues, whereas uranium would start benefitting from rising demand, especially in China.
Ian Hiscock, CRU's head of consulting for South East Asia, disagreed about copper supply disruption, saying it had been less damaging than usual this year. He also didn't see the appeal of uranium, noting that falling demand from the US, Japan and Europe would offset the rising consumption from nuclear reactors in China (which, he calculated, also has a stockpile of some 100,000 t of U3O8). Mr Hiscock agreed, however, that iron ore prices would rise this year (CRU is looking at US$75/t) because of the Brazilian supply being removed from the market.
A second panel on Wednesday, April 3, focussed on M&A activity in the gold sector. Peter Marrone, executive chairman of Yamana Gold, criticised the recent spate of M&A activity, much of which is, he said, being driven by the markets, in the belief that bigger is better. This is not necessarily true, he told delegates, only "better is better". Indeed, if there is to be another gold bull market, then medium-sized companies will outperform the larger enterprises.
Steve Letwin, the CEO of IAMGOLD, disagreed, noting that there were 17 mid-tier gold companies, and that consolidation was necessary to ensure that the industry was able to finance itself. General investors are no-longer interested in mining, and it was necessary for mining companies to adopt a self-financing model.
Andrew Ballingal, the chief investment officer of Ballingal Investment Advisors, agreed, noting that mining's 'super-majors' are still small in terms of equity markets generally; mining, he said, "barely registers on the global stage". George Fang, executive director of Zijin Mining Group, was optimistic of M&A activity in gold, and described the precious metal as 'strategic' to China.
There was considerable disagreement amongst the panel over the payment of control premiums in takeovers. Mr Marrone stressed that takeovers were not necessary to deliver synergies, and that these could often be done at the operating level (as, indeed, Barrick Gold and Newmont Corp. have agreed between their operations in Nevada). Mr Letwin was adamant that control premiums had "disappeared in North America" (but added that they might still exist elsewhere), and management would be "crucified" if they paid above the market price.
Mr Ballingal, representing investors, pointed out that he liked premiums, otherwise he could sell in the market rather than await a takeover. Randy Smallwood, the CEO of Wheaton Precious Metals, commented that premiums were justified if a company's assets were unreasonably discounted by the markets, and value could be liberated by a new company.
World Wide Ledger
The second day of the M&M Asia conference had started with a thought-provoking keynote presentation from Leanne Kemp, the founder and CEO of Everledger, an emerging-technology company that tracks the provenance of high-value assets on a global digital ledger. Ms Kemp is building a verification system that asserts transparency along the entire supply chain process, and is currently focused on the diamond business.
Ms Kemp comes well qualified, being a member of the World Economic Forum's Blockchain Council and co-chair for the World Trade Board's Sustainable Trade Action Group. She founded Everledger in 2015, and the platform is already being used to help insurers, claimants and other stakeholders combat fraud and money laundering in the diamond business.
Ms Kemp stressed that the world-wide-web was not created with trust in mind, and this has become an important shortcoming. The future, she said, is in a world-wide ledger, where artificial intelligence, machine learning and block-chain technology can come together to provide trust in on-line processes. This has particular ramifications for the diamond sector, where the largely paper (and hand-shake) based processes of the Kimberley Process are being replaced by digital validation; essentially an enablement of existing protocols.
Although diamonds provided the specific example of this technology in action, Ms Kemp stressed that consumers will demand more and more data. "Traceability", she said, "will be part of industry", and the mining sector will have to capture the digital footprint of everything it produces.