Day One: Alternative Money
The first day of this year's Mines and Money conference in London included a session on alternative finance, which included a discussion on streaming, royalties and crowd funding. The latter might become important as traditional support declines.
The four-day Mines and Money (M&M) London conference started on Monday, November 26, with a keynote address from the executive chairman of Yamana Gold, Peter Marrone (to be covered in a separate report) before separating into separate sessions. One of these break-out sessions was on private equity and alternative finance.
In a session hosted by Mike Pickersgill, co-head of the mining and metals practice at the Canadian law firm Torys LLP, Jennifer Maxwell, a partner at Blake, Cassels & Graydon LLP, discussed trends in alternative finance for the mining sector.
Ms Maxwell started by noting that mining companies need to keep extensive documentation for whichever financing they might require in the future and stressed the need to consider the corporate structure where there are multiple assets, especially if they are in different jurisdictions.
Blake offers support for various financing alternatives, and Ms Maxwell mentioned strategic investors, targeted private equity (PE) funds, earn-in agreements and Capital Pool companies. The latter is a relatively new phenomenon that is unique to the Toronto Stock Exchange, where companies pool together to offer funding (generally for amounts between C$0.5 million and C$5.0 million, which must be invested within a defined timeframe). There are currently some 60 such companies active on the TSX.
Of particular note was Ms Maxwell's reference to equity crowd funding, which she admitted was "not anywhere yet" but could offer a partial solution in the future. The benefits include a broad base of investors, little required documentation and companies can remain private. The disadvantages include a disassociation with capital and a higher threat of litigation.
The vice president of Switzerland-based PE fund Pala Investments, Kate Southwell, said her company, which was founded in 2006, had a broad mandate, essentially anywhere where there were "value-creation opportunities". There was a focus, however, on liquid portfolios, and there was currently a particular interest in battery metals.
Pala has identified a trend towards overpayment in acquisitions, especially where there were strategic imperatives, or particular synergies in the amalgamation. Pala also expects a consolidation of the industry, for reasons of both size and diversification, and expected heightened competition in most sectors.
The head of private equity funds at Resource Capital Funds (RCF), Ross Bhappu, described himself as "excited" about the investment opportunities in the mining sector at the moment. Mr Bhappu (for whom a separate interview has already been published), noted that RCF started in 1998 and now has five offices and employs 90 people. Committed capital amounts to some US$4.7 billion, and since inception the company has made about 180 investments in 30 commodities in 51 countries. Like other investors, Mr Bhappu stressed the need for a "line of sight to an exit".
RCF has two main strategies, reflected in its separate funds; the PE fund, which focuses on advanced-stage assets, and the Opportunities fund, which focuses on early-stage properties. The main target for the latter funds is the estimated 650 projects that have announced capital expenditure requirements of under US$500 million (according to data from S&P Global Market Intelligence). This is, according to Mr Bhappu, a "good time to be investing".
The focus in the afternoon session was on royalty and streaming finance, with a panel comprising Haytham Hodaly of Wheaton Precious Metals, Frederick Bell of Elemental Royalties, Shaun Usmar of Triple Flag Mining Finance and Julian Treger of Anglo Pacific.
The panel was chaired by Mike Amm of Torys, who commented that streaming finance had evolved from gold loans and was no-longer obscure, being effectively now part of the mainstream financing package (the amount of current streaming commitments varied from US$20-30 billion, although this is still less than 2% of the industry's total financing requirement).
Mr Treger explained that Anglo Pacific focused on non-gold streaming because of its limited access to capital, and only invests in safe jurisdictions (the company has 15 royalty and streaming investments at the moment). Its largest investments are in coal and vanadium (the latter being the largest in the world), with a focus on high-grade deposits.
Mr Usmar (a former CFO of Barrick Gold) admitted that not all streaming deals were advantageous for mining companies, but Triple Flag endeavoured to reach an agreement that was fair for both sides. The company has US$800 million of committed funds in 30 investments at the moment, mainly in precious metals (preferably produced as a biproduct). Triple Flag, he said, does not try to run the mining business and sees itself as a long-term investor (certainly "seeing out cycles").
The largest company in this space is Wheaton Precious Metals, which was formed in 2004 (effectively inventing the streaming concept) and now has an annual cash flow of some US$550 million. The company has completed 30 transactions on 19 mines and 10 development projects. Mr Hodaly emphasised that he looks at geology, the economics of the project and the mine plan, and adjusts for country risk. He also, however, puts a value on exploration potential.
At the small-end of the spectrum, Mr Bell founded Elemental Royalties after taking an earlier exploration company to an IPO in 2014, and typically only invests US$5-20 million in each opportunity. The private company is "agnostic" on commodities and was one of the first to stream mineral sands. Elemental Royalties has completed five transactions so far.
Mr Treger commented that the advantage of streaming finance is that it is cheaper than PE and offers a longer-life investment than most alternatives. My Hodaly added that streaming is also very flexible,
with various products being available.