The Capital Projects Symposium ended with a panel discussing what matters to financiers when evaluating a mining project. From left to right: Michael Samis, Paul Nielson, Shaun Usmar and Vikram Jayaraman.
Capital expenditures for mining projects increased in 2021 and the trend is expected to continue this year. According to GlobalData, the estimated Capex of 20 major miners will increase by 22% to reach $70.4 billion in 2022. In the past, when the money flowed in, the sector did not always use it well, leaving many many investors hesitant to finance the new generation of projects.
At CIM’s recent Capital Projects Symposium in Toronto, the event concluded with a panel discussion on what really matters to financiers when it comes to backing or buying mining projects and companies . The symposium was established in 2020 to focus on improving project results through the examination of development and delivery methods, contracting models and financing options in the mining sector, and was held for the first time in person in Toronto at the end of March.
Moderator Vikram Jayaraman, DRA Global Vice President, Origination, led Michael Samis, Director at SCM Decisions, Paul Nielson, Director and Head of Development Portfolio at Waterton Resource Management, Shaun Usmar, Founder, CEO and Director of Triple Flag Precious Metals and Alex Black, President and CEO of Rio2 Limited (who participated via video call), on a discussion that shifted the focus from project execution to project financing
Usmar shared his belief that mining has turned generalist investors against the industry by not delivering on the promises made in return for their money.
“We broke a contract with generalist investors. We are less relevant,” he said, asking “Why should these pools of capital come to us?
Usmar, however, is optimistic that once the “greed phase” of mining’s eternal boom-bust investment cycle begins, investors will be tempted into mining again. , even if they are still suspicious. Usmar told the audience that once that happens, “the people in this room will have a part to play” in making sure investors know what they’re getting into and that mining companies are up to it. expectations they create.
Nielson answered a question about how Waterton assesses struggling businesses before making buying decisions about them. “The answer is a combination of: fatal flaw – yes or no. Is it irreparably damaged? Or is it something that, with patience and capital, can be fixed? If it’s patience and capital, that’s our thing. Look at the industry: patience and capital are not what most people have. »
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He explained that it is difficult to really assess what is going on in a struggling business because “if a business is going through a catastrophic spiral, good data management is not its priority”. This leaves it up to the buyer to make a judgment call, based on experience, and to provide themselves with enough financial leeway to avoid the challenges that are sure to arise.
Samis explained that, in his view, young miners do a poor job of telling their own stories to investors and explaining to those same investors how their capital will be used, and that is something they should change. if they want to attract more money.
“That’s what really surprised me with the small businesses: they’re all there, explaining why they’re so great. ‘Hey look, X dollars per ounce’, but you don’t see a lot of people talking about ‘this is how we’re going to go through the next stages of exploration and design, this is what’s going to kill our project. Here’s how we’re going to get capital. Here’s how our design reduces project risk. And that’s the story that I think is the most interesting for potential investors.
He added that, especially in the case of companies with marginal projects, hearing what the plans are to reduce risk and manage the project “in a sensible way” in order to “make money for the investors” should be the real purpose of their marketing. and sales pitches.
Black, whose Rio2 team aims to build a heap leach gold mine in Chile with a phased approach, was asked about his thoughts on capital deferrals and had the crowd laughing when he replied: “From a junior perspective, that’s what it’s all about. .”
He explained that the goal for juniors is to start a project and “keep it as simple as possible”. Black then offered some of his own management philosophy. “As a CEO, I never really focused on NPV (net present value). Most small businesses focus on NPV and seek to sell their projects or businesses, which ultimately doesn’t usually happen. I mean, the takeout ratio is very low actually.
He added that what seems to work for him and his businesses is to focus on the margins, and make sure he doesn’t have a marginal project, and then “look at the optionality of what you have. and put it into production and then go from there to indicate.”
After the end of the initial questions to the panels, a freer approach was adopted for the discussion, which led to a return to the subject of aggrieved investors.
“Really,” Nielson observed, “our industry has destroyed so much investor capital. When things are cheap, investors look ahead and say, “They’re probably going to get cheaper.”