An Uncertain World

The UK is at the centre of global political chaos, and it is an unsettled period for mining, with speakers at the recent Mines and Money conference in London casting doubt on the efficiency of gold-mining M&A.

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It has been a weird week in the UK. Quite apart from the government been held in contempt of parliament for the first time in over 800 years, the Beefeaters are threatening to go on strike.

Royal Palace staff, including the Beefeaters (the popular name for the Yeomen Warders of the Tower of London), are being balloted for strike action over proposed cuts to their pensions. The Yeomen Warders were formed in 1485 by King Henry VII. He was the first monarch of the Tudor dynasty, and his heraldic symbol, a rose, is still part of the Yeoman's badge (in case of confusion, they are not Yeomen of the Guard, which is a distinct corps of Royal Bodyguards).

Wikipedia tells us that the name Beefeater is of uncertain origin, but the term was in common usage in the 17th century as a slang term for the English in general. The earliest connection to the Royal Household came as a reference to the Yeomen of the Guard by Cosimo III de Medici, Grand Duke of Tuscany, who frequented the Court in 1669. He stated, "A very large ration of beef is given to them daily at the court, and they might be called Beef-eaters". Some etymologists have noted the term's similarity to hláf-æta, the old English term for a menial servant (literally loaf-eater).

The 38 Beefeaters currently at the Tower of London are all retired from the armed forces and must be former warrant officers (with at least 22 years of service), and hold long service and good conduct medals. Clearly, this is not a group ordinarily given to strike action.

The ongoing fierce debate over the withdrawal of the UK from the European Union (Brexit) took a surreal turn on Tuesday, December 4, when Theresa May's government became the first in history to be held in contempt by parliament.

The English parliament dates to 1215 when, under Magna Carta, King John agreed that the monarchy may not levy taxes save with the consent of his royal council, which gradually developed into a parliament. Although the relationship between parliament and the monarchy has not always been easy (a beheading comes to mind), never before has parliament called its own leaders to account.

The government's historic transgression was not following a 'request' from parliament to publish the legal advice given to ministers on the government's Brexit deal with the EU. This advice is historically given in confidence but was thrown into disrepute by Tony Blair in 2003 when his government published a summary of the legal advice received on the Iraq war that turned out to be more positive than the full document, which was leaked two years later.

A proper examination of details was a central topic during a 'fireside chat' by Naguib Sawiris at the recent Mines and Money (M&M) conference in London (which is the subject of a separate article on the Mining Beacon website). Mr Sawiris is one of the wealthiest people in Africa and has invested half of his US$5 billion wealth into the gold-mining sector.

Mr Sawiris told M&M delegates that too many mergers and acquisitions (M&A) in the mining sector have been undertaken without proper regard for the cost of acquiring gold in the ground. He blamed too many miners and bankers on boards, rather than businessmen. There was also a need, he said, to instil entrepreneurship in staff.

Too many people follow the consensus view, according to Mr Sawiris, rather than looking for value creation. This was a view espoused at the M&M conference by the president of Agnico Eagle Mines Ltd, Ammar Al-Joundi, who told delegates that the mining industry "has to change".

In a keynote presentation (also the subject of a separate article), Mr Al-Joundi noted that the industry's old reality was to grow at any cost, which was helped by the ready availability of equity finance.

Mr Al-Joundi commented that the gold-mining sector has been guilty of two big sins over the past 20 years. The first is the destruction of capital value by adding marginal ounces to mine plans. The second sin is undisciplined M&A, with US$80 billion of write downs since 2010, 75% of which have been due to poor M&A deals.

Both Mr Sawiris and Mr Al-Joundi were damning of the gold-mining industry's poor M&A record and emphasised the need to evaluate proposed transactions carefully.

A recently published book adds weight to their argument. In 'Modern Monopolies', Alex Moazed and Nicholas Johnson stress that in takeovers and mergers the whole has to be greater than the sum of the two parts. Too many deals, they say, "smack of empire building" and the outcome was the "winners' curse", with shareholders taking a haircut.

M&A announcements deliver a "sugar hit", according to the authors but the bounce soon collides with reality. The mantra of "big is beautiful" doesn't always work; it didn't for dinosaurs.

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.