Funding groups have been told they need to
persevere with investments in the mining sector and allow
companies time to deliver on promises, rather than pulling
their cash out of operations that don’t bear fruit
|Investors have been
urged to be patient with mining investments (source:
Speaking at the Mines and Money 2015
conference in London today, a panel of industry experts
discussing how fund managers are reviewing portfolios under
current trying market conditions suggested that investors are
sometimes too quick to follow the vagaries of the market.
Neil Gregson, managing director of global
resources at JP Morgan asset management, said that fund
managers tend to put money into a venture when "the market
thinks it has found something" and the market cap goes up, but
few are prepared to see their bets through when valuations
start to decline.
"We never knowingly kiss a frog. We always
kiss the princesses and sometimes they turn into frogs," he
said, admitting that not all investments would come good, but
hinting that withdrawing support after only a short period of
time can hasten the demise of promising projects.
According to Jamie Horvat, director of
global equities at M&G Investments, the mining sector has
been all but abandoned by the investment community.
"This whole area of investment space has
been forgotten about – nobody wants to be in mining
right now," he said. Horvat likened the current trough in
project financing to the situation seen between 1997 and 1999,
when mining was going through its last major downturn and
investors were fleeing to the havens of technology and
Joe Wickwire, portfolio manager at
Fidelity Investment Management, said that investors were
looking for management teams they could trust with their
"They are looking for managers that
recognise the need to run their business as a business, rather
than just a production vehicle," he said.
"In the commodities space, I think we are
seeing a resizing across all of the industries," Wickwire
added, noting that the necessary shrinkage of the supply side
had been delayed by currency movements. The effect of the
strong US dollar set against weaker lower currencies had been
to "keep the undead alive", Wickwire explained, meaning that
many unviable mining projects that should have been forced to
close have been kept in production.
To stream or not to
Alternative financing options such as
streaming were also debated, with speakers disagreeing over
whether such funding channels were really in the best interests
of the industry.
"If you’re a mining company
and you choose to sell a stream in the current market, I think
that’s a very foolish thing to do," said Rob
McEwen, CEO of TSX-listed gold and silver miner, McEwan Mining
He explained that the attraction of
streaming to many companies was the fact that it was
non-dilutive, but likened streaming companies to "sirens on a
rock, selling a Faustian bargain".
"When you get into production, you find
that what you’ve given to your shareholders,
you’ve given away," he said.
Pierre Lassonde, chairman of Canada-based
royalty and streaming business, Franco Nevada Corp., disagreed,
saying that it was not in a streaming company’s
interest to burden a miner to the point that they keeled over
shortly after entering production.
Frank Holmes, CEO of US Global Investors
Inc., also said that streaming could have a beneficial impact
on a company, besides providing them with much needed cash. He
said that signing up to a streaming or royalties deal prior to
entering production meant that companies often tended to be far
more disciplined in their operations and that option to buy
back royalties at a premium meant that miners were not saddled
with such deals for life.