Investment in the mining industry will remain bleak for at
least the next 12 months and probably more, attendees of this
year’s Mines and Money London conference glumly
conceded in December.
Low mineral prices, overstocked inventories and a
of the health of mining companies and their
assets continue to undermine sentiment in the sector, but most
industry commentators were confident that what has come down,
must go up again at some point.
As usual, the focus at the 2014 event was split
between the prospects for non-correlated assets such as gold
and industrials metals and minerals such as iron ore, copper,
lithium and graphite.
Influenced by different macro-factors, both sides
of the industry are united by the need to cut costs, which were
inflated by bullish commitments during the high times of the
commodities supercycle, and the difficulty of raising fresh
capital to develop new and existing projects from the pockets
of wary investors.
But mining companies were warned that they need
to take responsibility for past mistakes and illustrate a
proactive approach to spending discipline and reforming
business models in order to win back investor confidence,
rather than blaming the wider economic climate.
"You can’t rest on a compelling
economic backdrop to justify [poor shareholder] returns," Joe
Wickwire, portfolio manager at Fidelity Investment Management,
He said that many investors no longer believe in
"China’s growth story", but that this negative
sentiment has already been priced into the market, along with
the prospect of higher interest rates that will curtail
spending on large infrastructure projects and concurrent raw
"Things are being looked at from a
glass-half-empty standpoint," he said, explaining that this
keeping confidence in commodities low for now but
would theoreti-cally prevent a larger crash in the future.
Dan Oliver, founder of New York-based Myrmikan
Capital, took a more bearish view of the impact slowing
economic growth in China will have on mineral prices.
"A rising commodity price forgives a lot of
mistakes, but the China bubble is the elephant in the room -
when it bursts, prices will go even lower," he warned.
The Mines and Money conference came to
London in December 2014
According to Joe Foster, portfolio manager at
Lombard Odier World Gold Expertise Fund, both bullish and
bearish investors are always looking forward to the next leg of
the commodities cycle and will seek to back mining projects
that are production or construction-ready in order to maximise
benefits from anticipated growth in demand.
"They are looking for projects that are about to
enter the pipeline and can catch the upswing (…) and
have the potential to be scaled up," he said.
Companies with large capex commitments and
lengthy development timelines are unlikely to tempt investors,
Foster said, hinting that this was a sobering truth for
companies that had commenced development projects at the wrong
time in the cycle.
As for those companies at the mid-development
stage saddled with heavy debt commitments, speakers at Mines
and Money said that many miners had found themselves in limbo,
unable to raise the finance needed to take projects forward
while simultaneously burning through cash reserves just to
Mark Tyler, senior investment banker at Nedbank
Capital, said that contrary to widespread misconceptions,
lenders were not in the business of offering punitive financial
deals that would cause mining projects to fail when the going
"Lenders would rather get their money back than
have their pound of flesh," he said, although he admitted that
mismanagement of funds often leaves banks with no choice but to
call in debts and take over assets when projects run into
Getting back on track
One notable omission from this
year’s conference was the willingness to put a
firm date on the recovery of the resources sector, although
some were brave, or foolish, enough to suggest that 2016 would
see the beginnings of an upturn.
Others were less sanguine, particularly for
industrial correlated assets, whose fortunes are tied to
factors beyond the control of the mining industry.
"If you’ve been investing in this
space in the last three to four years, your portfolio probably
looks like a train wreck," Chris Berry, founder of the
resources investment advisory firm, House Mountain Partners,
"It’s been a rough few years in
commodities, and that’s probably going to continue
for the next few years," he added.
He pointed out that while mineral prices have
fallen from the spikes seen at the beginning of the decade,
many are still high on an historic basis. "The challenge is
that costs have continued to rise while prices have stagnated,"
Berry explained that mineral prices face a number
of headwinds, including a strong US dollar, weakness in key
markets like the Eurozone and slowing growth in China.
"China is slowing but I don’t think
there is going to be a hard landing - it is my opinion that it
will be a far more managed and nuanced story than we have seen
in the past," he said.
The "good news", according to Berry, is that the
current malaise, while painful, is only temporary. "When the
various excesses are worked through, be they in inventories, or
labour, or whatever, things will start to pick up," he
Berry urged resources investors to take a leaf
out of Silicon Valley’s book and look for
"disruptors" linked to new technologies in the commodities
space, such as the lithium, graphite and rare earths stories
behind green energy and electric vehicles (EVs) and the growth
in demand for oilfield mineral lead by hydraulic
Focusing specifically on lithium, Berry told
IM that the outlook for this "speciality
sector" was positive, but that winners and losers would be
determined by companies’ ability to successfully
implement cost-cutting, recovery maximising technologies.
"Look for technologies that can compete at the
lowest cost and exploit inefficiencies in existing practices,"
he told investors.
Focus upbeat after meetings
Elsewhere, Focus Graphite confirmed to
IM in an interview that while it was focusing
on the battery market, it was also working on value-added
And, despite the fact the presentations were
gloomy, Focus president, Don Baxter, told IM
that the company had had some positive conversations at the
event with investors.
"[In terms of] financing a graphite project in
the market I think this will be easier than financing projects
like gold or base metals," he told IM.
"We’ve had some meetings based
around that and follow up meetings and there’s
definitely interest in what we are doing. As financial types
look at projects that are not happening and not exciting they
are seeing the graphite space as having potential," he
The Canada-based company expects to begin
construction at its Lac Knife flake graphite deposit by next
"We’re just about ready to start
detailed engineering, which should allow us to put a shovel in
the ground next June pending financing," Baxter said.
The company filed its Environmental and Social
Impact Assessment (ESIA) with the Quebec provincial authorities
on 1 December 2014, in which it outlined the potential benefits
of the project, stating how it would mitigate any risks
This follows the completion of its feasibility
study in August and the signing of a pre-development agreement
with the Uashat mak Mani-Utenam (ITUM) First Nation, an
indigenous group to the area.
Fragile graphite prices approaching 2015 have led
to some fears there may be an oversupply in the market.
However, this is a view that Focus does not subscribe to.
"I do not really buy into the whole oversupply
situation [argument], if anything goes into oversupply it will
be the [flake] fines, the majority of the companies out there
will never build a mine," Baxter said.
Highfield Resources Ltd. lodge mining
Highfield Resources Ltd. told IM
on the sidelines of the conference that it had lodged its
mining concession application with the Navarra and Aragon
autonomous community authorities for its Spanish Muga potash
The plan contained an edited mine plan that is
capable of producing more than 1m tpa muriate of potash
"In the next 12 months we’re looking
at getting our initial project into a construction ready
state," Highfield’s managing director, Anthony
Hall, told IM, adding that the company hopes
to enter production at Muga between late 2016 and early
Highfield estimated that its new mine plans will
give an initial production life of 19 years for the Muga
project. Two declines will be constructed under the plans,
which include two 400 tonnes ore per hour processing lines,
which will be upgraded to 800 tph after 19 months.
The 100% Highfield-owned project, which covers a
300 metre deep sylvinite resource over 110km2, will
also require approval by the Spanish government.
Spain has improved as a mining district over the
last year, Hall told IM.
"Spain changed its environmental approvals
legislation in November last year, and it actually shortened
the timelines from 8-10 months to six months," he said, adding:
"The other thing people don’t mention about Spain
is that it does actually have mining tax incentives."
"There’s an accelerated depreciation
regime for mining projects. In addition to that,
there’s a capital reserve fund where you can
effectively allocate funds to provide capital support for
mining projects," said Hall.
Highfield owns four potash projects —
Muga, Vipasca, Pintano and Sierra del Perdon — in the
Ebro potash producing area of northern Spain, which
collectively cover nearly 400km2. Sierra del Perdon
includes two formerly operating mines.
Hall also noted that Israel Chemicals Ltd. (ICL)
already operates mines locally, and suggested to
IM that this, combined with the Sierra del
Perdon brownfield project which operated for 34 years until
1996, means that Highfield’s mine plans can be
drawn with relative certainty.
"The nice thing about that [Sierra del Perdon] is
that we know that it operated via a decline into its
mineralisation — effectively there were three
declines. The other three projects that we’re
trying to [bring forward have] identical mine [plans] to the
way that one operated," said Hall.
"We’re in a very fortunate position
that we can build potash projects at fantastic margins at
(…) current potash prices," Hall said, adding: "We also
take the view that potash prices are unlikely to get back to
where they were eight to ten months ago."
Potash prices fell significantly in the period
that followed the Belarusian Potash Co. (BPC) split, as
Uralkali increased its output at the expense of prices to gain
"There’s going to be some —
ultimately — price management by the majors that
effectively try to keep out a lot of other non-producing
projects. You’ve got to take the view that
it’s an oligopoly — which it really is
— with five majors controlling the majority of the
output," Hall told IM.
"Oligopoly pricing tends to suggest that you
price it to a point where you keep everyone else out to
maximise profit, which is not where they [the majors] were 8-10
months ago; I think they had actually, perhaps, got a bit too
aggressive with pricing," he said.
Despite industry wide financing woes, Hall told
IM that the company has a "strong cornerstone
investor that has certainly given us indication of being
favourably disposed to continuing to support the projects
See IM’s interview with Anthony