Mines and Money caught up with Tim Goldsmith, Global Mining Leader at PwC following his presentation at Mines and Money Hong Kong. We discussed the capital raising markets and Tim’s thoughts on the range of options available to mining companies; including private equity, streaming, IPOs, debt and strategic investors from emerging markets.
M&M: 2012 wasn’t the best year for capital raising in the mining industry. When do you expect things will lift and what’s going to drive that change?
TG: 2012 was a shocker. It really was. It’s just hard to find any great redeeming features of it. I’m not convinced 2013 is going to be much better; I think it would be better, but that’s from such a low base it’s not even really worth talking about. My sense is we’re 18 months away, and the reality is that people aren’t interested in investing because it’s seen as just too risky. And I think, as the world gets more calm, people will be more willing to go into risk investment. Interestingly, there’s a lot of money out there, looking to back the mining sector, but it’s not through the IPOs.
M&M: What sorts of company or project characteristics are gaining the attention of investors in this climate?
TG: Good ones. I guess that’s very simplistic thing, but I think the reality is, now is not the time to have marginal projects. You do need to have the more outstanding ones to get funded. That’s just the way of the world at the moment. Risk money is not looking to enter the market; so therefore, the stuff which is coming in is only going for the very best. So, I don’t think commodities really matter, although people will always prefer the ones which are in tighter supply than others, but the reality is good projects are vital.
M&M: And what sort of strategies can management of mining companies implement to improve their capital raising prospects?
TG: Sure. I think the first issue is make sure that you’re well-planned, so you know when you need capital, and you are guarding what you have very closely, making sure you absolutely maximise it. As opposed to letting half of it get wasted away, and then realise, oh dear, now I’ve got to go to the markets. So, the first one is to serve what you’ve got very carefully. The second one is, identify what it is your story is really about, and make sure you’re talking to the right people, in the right location. Again, it sounds fairly simple, but it’s amazing how many don’t do that.
M&M: We just saw the biggest streaming deal ever take place, between Silver Wheaton and Brazil’s Vale; Are you expecting more of these mega-deals to be taking place throughout 2013 and beyond?
TG: Right. Look, I think streaming is here to stay, and it’s a source of funding undoubtedly. It doesn’t always end up cheap, but it does end up being something where you might not be able to get access to funds otherwise. The Vale one was slightly different, because there was a major involved. I think normally this is at the exploration or near-production stage, the development stage. It certainly is an option which any mining company should be looking at, particularly if other options aren’t there. So, I think it’ll grow in the future, and not go the other way.
M&M: As more mining companies turn toward streaming or royalties, are there any weaknesses in the model that they should be aware of?
TG: Well, I’m not sure weaknesses in the model would be a fair thing to say. I mean, the reality is that if you’re a streaming company and you’re trying to make money, and you’re taking relatively high-risk exploration whatever-it-is, so, of course you’re therefore charging a fair return onto you, because it’s high-risk. So, ultimately, if you do build a successful mine, it becomes a very expensive source of funding. But, of course, if you don’t build the mine, it’s a very cheap source of funding. I think that’s the piece, that if you’re the mining company, you just got to be wary about what the cost of it is, but to me, it’s very real that it’s an option, and you shouldn’t be ignoring any option at this stage of the game.
M&M: We’ve been hearing a lot about private equity investment, and the level of private equity investment raising in this sector, are you expecting that to continue? And are you expecting to see a new wave of PE funds entering the market?
TG: I think that they’ve been coming for ten years, and there’s probably been a more rapid growth in the last year than we’ve had for quite a while. And, yeah, I do think it’s going to keep on coming, because I think there is an awful lot of money that does want to kick the sector, and I think, today, there’s an awful lot of people saying, “We don’t mind going to the exploration, but we want to get the quality of it.” There’s an awful lot of exposed exploration projects out there which need funding. So, it all matches to say, “Yes, I think this will happen.” The key to those private equity firms is to have really good geologists who can identify the good from the bad. It’s a fantastic time to have money, wanting to invest into exploration. You are, relatively unique, than maybe other private equities, because there are only a dozen, or whatever it is with those guys, so the options are just fantastic. So, yeah, I’m very supportive of it, I think it will be very positive in the industry. Frankly, the rest of the exploration industry is looking like it’s in quite a lot of trouble.
M&M: What about the climate for launching an IPO; What’s the climate like at the moment? And what sort of advice would you have for a mining company looking to launch an IPO now?
TG: Yeah. Look, the climate’s not good. We haven’t seen many IPOs in the last 15 months. The odd one trickles through, but it’s a trickle, not a flood. If you are wanting to enter an IPO, there’s normally a six to eighteen month process to get yourself ready. You should be starting that process. When the window’s open, you don’t want to then be just starting to work out what you’re going to do, because we don’t know when the window will open and we don’t know how long it will open for. So, you need to be ready to go. So, I think the advice to a mining company is, go through the process, understand what needs to be done, and prepare yourself. Now, of course there is cost to that, and if you don’t have the money to do that, you need to just temper that. But I think the reality is, even without spending money, there’s some basic things which can be done which can help get you on your way.
M&M: And apart from those that we’ve already covered, what other alternative capital raising sources are there out there for miners?
TG: Well, debts we haven’t really touched on, but they tend to be for established or bigger companies. There’s all kinds and different types of debts you can get, and there’s also strategic investors, particularly Chinese, but not just Chinese, other emerging markets. Again, I think if you’re a mining company, you’ve got to look at all of the sources of finance. You can’t afford to ignore any of them; work out which one’s best for you.