PDAC: Investment bankers discuss state of the mining industry

The capital markets sessions are among the most popular events at the Prospectors and Developers Association of Canada’s annual convention. For the fifth year in a row, investment bankers came together to discuss the main themes and key issues facing the mining industry – from raising capital to attracting back the generalist investor to the demands of ESG. Anthony Vaccaro, publisher of The Northern Miner, moderated this year’s panel of four bankers – all of whom lead their banks’ metals and mining divisions. The panelists were Michael Faralla of TD Securities, Ilan Bahar of BMO Capital Markets, Chris Gratas of CIBC Capital Markets and Ryan Latinovich of RBC Capital Markets.

Anthony Vaccaro: When you look at the top performers last year in this chart – palladium, nickel, platinum – all of which are used in electric vehicles – and then you look at the performance of lithium and cobalt which did not do so well and did not have the same type of performance they did three or four years ago, what’s going on there?

Ryan Latinovich: From a larger picture perspective, certainly electrification is a theme beyond cars. Cars are the headline that people look to but we look at things in our group on larger than cars in terms of grid access, power supply, longer term battery implications. Clearly cobalt is one of the commodities that caught a lot of headlines and had a lot of early wins in terms of momentum behind that thematic, as did lithium. The technology story behind batteries, EVs, grid power supply and how to store that type of power is yet to be played out. I think what you saw is a little bit of a shine coming off some of those commodities you point to at the bottom end of the chart, but nickel. The outlook for nickel in our view at RBC is very robust, it’s the greatest return to current prices that we have in our long-term forecast is for nickel, that and copper are clearly ways to play the electrification space and the outlook for those commodities is very strong.

Chris Gratias: These charts are always interesting but you always have to remember what the starting point is. If you look at it this on a longer term basis, to Ryan’s point, lithium and cobalt have really run up, so they are still at reasonable long-term prices compared to history. They had such a good run in 2017 and 2018, those negative numbers in 2019 are really just from the starting point. These things are volatile and do move around, so you play this board, and if you looked at 2019 to date, given what we’ve seen recently, obviously gold has really outperformed. Copper has had some softness, although I would flag when I think about where we are in the copper cycle, and this gets to Michael’s point around the longer term supply and demand dynamics, which look very positive. If this is as tough a market as we’re going to get with uncertain demand out of China given what’s going on, and copper goes to $2.50 per lb., it was less than $2 in 2016 and obviously through the financial crisis well lower than that. So if a downside copper price is $2.50 that’s still pretty good for longer term fundamentals.

Ilan Bahar: Institutionally we completely agree with the theme of the electrification of vehicles. The question is how quickly will adoption come, what parts of the world and what will the batteries look like and those questions are still out there and I don’t think there’s unanimity around the path but the fundamentals are there. We as an institution really like cobalt, and similarly for copper. You sit there and think about all the infrastructure requirements around electrification, and copper should be very well supported. I do feel quite good about the environment we’re in despite the coronavirus and despite the supply and demand fundamentals we’ve seen. Commodity prices are strong, balance sheets are healthy, companies are generating free cash, the business is in a much better place than it was in 2008 and a much better place than it was in 2015.

Anthony Vaccaro: Palladium is mostly used in catalytic converters in traditional internal combustion engines so what is your take on palladium? Are you seeing deal flow coming in for palladium or is the consensus this is really a shorter term thing and really it’s all about electrification?

Michael Faralla: It’s important to look at all of these commodities in a longer term context. Similar to everybody else, we strongly believe in energy transition and think it’s an inevitability and therefore you look at EV penetration as a proxy for that and there’s a wide range of forecasts but I think everybody believes it’s going to be an extremely important part and in fact an essential part of the future for energy. In the short-term, however, you have the short-term realities of, in the case of palladium, limited supply coming from challenging parts of the world, and so arguably under-investment in that supply because capital is not flowing into those places South Africa and Russia, which are the two largest suppliers of palladium. In a context where we’re still producing 100 million cars a year, of which 98% of them are internal combustion engines (ICEs) and therefore we need catalytic converters and increasing environmental regulations around those emissions in the short term, requiring a spike for palladium. But I think you need to look at the longer term trends. If we’re producing 120 million cars a year in 2030 and 10% to 15% of them are electric, we’re going to need five to seven times as much of the battery metals than we need today. And so those are the long-term trends that are likely to drive the longer term prices of these metals. Lithium and cobalt are small markets that are thinly traded and not quoted on a terminal exchange like the LME in any kind of liquid or transparent way and so there are going to be short-term price impacts that relate to supply and demand in the short term. There are what I would describe as trading opportunities around short-term supply and demand imbalances. I think our clients are more focused on longer term opportunities. When you’re building a mine it is a five to twelve year investment for a mine that’s going to be producing in the case of base metals for fifteen to 50 years. So the longer term supply and demand is really what drives those investment decisions at long-term prices that are probably lower than high spot prices today or maybe even higher in some cases than low spot prices today.

Anthony Vaccaro: Recently Volkswagen’s CEO has projected that they’re going to pass TESLA in the number of EVs they are building. It seems that fuel cells are back in the news again. Robert Friedland recently spoke at the pre-PDAC Red Cloud event and was touting platinum, which plays a key role in these fuel cells that emit only water. Is that for real?

Ilan Bahar: I defer to Robert’s view. I’m not going to debate that view.

Anthony Vaccaro: Does it portend well for platinum prices?

Michael Faralla: I think it’s hard to predict and I’m certainly not a fuel cell expert. My sense is that there is going to be a range of technologies the world is going to explore to help manage this energy transition. Fuel cells have been around for 20 or 25 years. There’s a great Canadian company that isn’t a mining company called Ballard Power, whose share price has tripled in the last three years because people are looking at that fuel cell technology and it may have an application in bigger vehicles like buses for example, not so much in smaller vehicles like cars. So I think it’s around applicability and technology evolution and cost performance, which are all the things that usually drive adoption of these things.

Anthony Vaccaro: Let’s turn to financing figures. Here we’re looking at global equity financing for the mineral sector, and you can see the orange represents Canada’s role in equity financings and the dotted line represents the percentage that Canadian financing makes up of the global. The telling thing there is how consistent Canadian financing is relative to the global one where there’s a lot more volatility. We’re seeing an overall decline, though, that’s the concerning part.

Chris Gratias: It’s not a pretty chart to look at.

Anthony Vaccaro: Does it concern you?

Chris Gratias: Yeah and this gets back to time period as well. What’s missing on this page is equity levels. When we were going through the last super cycle, it was much higher than this. So this is not just a short-term trend, this is a longer-term trend. I think 2019 was probably the slowest year for mining equity issuance in Canada in 15 years. So that’s frankly one of the biggest challenges we have in our business and then with clients it is access to capital, and it’s tough and when you add in the volatility we’re seeing, it’s that much more difficult. One interesting stat out this morning that I heard was that there wasn’t a single U.S. investment-grade bond issued last week… That’s extremely, extremely rare. I think the challenging times are very hard. There’s not great capital formation in the public markets, and that’s why I think we’re seeing alternative forms of capital increase, and the benefit of tough financing markets is that it does push people into thinking more creatively and that’s why we have seen a pick-up in M&A activity.

Ilan Bahar: I agree. Last year in Canada and globally was the least amount of equity raised in the last fifteen years for the mining industry. It’s interesting. The large producing companies that have liquid stocks can raise money, let’s put aside last week, because last week was an anomaly in the market. But let’s say we get back to normal markets that we saw last year. Through all of last year a large royalty company or a large producing gold or base metal company could probably raise capital. It wouldn’t be difficult. The issue is they don’t actually need the capital, the junior space needs the capital, and in the junior space it’s been a real struggle and it continues to be. And really what they’re turning to for financing is entrepreneurs, other mining companies, thankfully we have flow through in Canada which is a good source, and the royalty and streaming space. And it’s unsustainable. Something has to give, the junior companies need more investment or otherwise we’ll just stop seeing exploration. And frankly we’ve seen a lot of that already.

Anthony Vaccaro: What are the macros behind this?

Michael Faralla: There have been two trends that have helped propel that downward trend. One specific maybe to the Canadian market more so, and then one more broadly. The first issue that we’ve seen over the last 10 years is this increasing shift to passive investing in ETFs, and that means increasingly we’re seeing capital and public equity flow to index followers and passive fund allocators, which really have no ability to provide capital in an active way to companies looking to raise capital, juniors and so on, and that’s a trend that we’ve seen worldwide and it has also impacted the Canadian market as well. The second trend we’ve seen is the decline of assets under management in specialty or specialist mining fund managers and that was a strong point for the Canadian capital markets going back to the last cycle. Those assets under management have probably declined by a factor of 75% over the last ten years. So we have a shift to passive and also a shift to more generalist fund managers from mining specialty fund managers. To Ilan’s point, those generalists absolutely are looking for mining exposure, are happy invest and to put money into large cap producers and so they still have good access to capital, but for the juniors which rely on more of an expertise to understand the story, the exploration and so on, there’s just less of that capital available. So until we see those trends reverse, and the passive one probably isn’t going anywhere for a while, unless you have a crystal ball. But until we see money flowing back into more mining specialist investors’ portfolio managers or more risk appetite among retail investors looking to go back into the mining space, from perhaps other more speculative investments that we’ve seen in Canada, like cannabis, for example, that’s part of this trend, and those fund flows will need to reverse before this reverses dramatically.

Anthony Vaccaro: What’s it going to take to get the generalist investor back? Is just a simple function of the commodity price? We’ve seen gold do quite well until recently.

Ryan Latinovich: I think about the financing market in terms of both a push and a pull. As a practical matter when we look back on those bars to the left of that screen, and certainly going back even further, our larger mining companies were doing deals of size and those plus $250 million or plus $100 million equity deals do a lot for moving those bars higher. Commodity prices have been fairly strong. Mining companies and gold mining companies in particular spent the last four or five years fortifying their balance sheets, optimizing their portfolios, and frankly don’t need to raise capital for big-spend projects. What we see as a consequence of that is the natural remainder of companies that are looking for capital are on the smaller end of things. I’m a bit optimistic. Canadian capital markets from my perspective is the healthiest ecosystem on the planet. Ilan mentioned a number of those levers we have to our advantage here. What we see historically as our percentage of ability to raise capital for the rising stars in the industry, the guys that are finding the next projects for the big guys to take on, is very, very healthy. There’s no question that that’s come under a bit of pressure lately as the specialty mining funds, those who have the technical capabilities to filter through rising star projects and figure out which ones they want to make a bet on, those funds, actively managed funds, have come under pressure through flow-of-fund issues. Generalists, on the other hand, what we’re seeing here is a bit of a bar bell of the mining space portfolio. What we’ve got is lots of liquidity, lots of flows chasing index-like stuff, and whether that’s through closet indexing through the large-cap names, the royalty companies, lots of liquidity, lots of demand. On the smaller end of things, the cheque sizes are smaller, so these charts don’t work out very well. But when we do have folks looking for mining and looking for alpha, how to generate alpha in mining, the natural spot to do it is on the smaller stories. Smaller cheques can actually get outsized alpha on those sorts of things, so I continue to be pretty optimistic in terms of the ability for good projects, good management teams, to find capital on the smaller end of things, it won’t necessarily help these macro charts get large, but as we see and as we know in the Canadian mining space, and the Canadian capital markets, is very, very, strong for supporting that stuff.

Chris Gratias: If I can add one last thing about your question on generalists and when will we see more of that money come back. I think a broad statement is, generalists are each benchmarked to a different index so you’ve got to look at what those benchmarks are and what the weighting of mining and materials are in that index. I think the first comment is, generalists are still significantly short or underweight mining. So as commodity prices perform well, stocks perform well, the weighting in the index that they’re benchmarked to goes up. They can only sit on the sidelines for so long, so an improvement in commodity pricing will get the generalists to re-weight back to where their benchmarks are.

Ilan Bahar: I think it’s a time when the mining industry has a great opportunity because when the world is focused on ESG, pollution levels, move to electric vehicles, a transition to less carbon usage, all of those things are things the mining industry supports. All the materials you need for an electric car are mined, all the materials you need for a solar power plant, are mined, so I think there’s actually an opportunity for the mining sector here to brand itself in a way that supports generalist investors turning to the industry and reallocating more capital and I think as a group, the mining sector realizes that. The largest companies with the support of institutions like the IMS are working together to find a way to access that capital, but I think there is an opportunity to do that, and historically the sector as a whole hasn’t worked together to brand itself that way.

Anthony Vaccaro: Let’s look at equity financing for exploration. We’ve already covered the glass half empty, the glass half full is that Canada remains incredibly resilient through all of that. Is that all Eric Sprott in 2019? What is it about Canada that allows us to be this resilient?

Michael Faralla: I’ve already touched on a couple of things and most of which have already been discussed, but certainly flow-through financing for Canadian projects has been a huge benefit and support for the sector, and for projects in Canada and I think we’re seeing renewed exploration in places like the Yukon, and in the Far North, and in the Northwest Territories, right across the country, so that’s been quite positive and people have this view that all the great deposits have been found in Canada, but that’s not true at all as we are seeing new mines get built all the time and in fact in some cases old deposits get reimagined as new mines in a new commodity price environment. The challenge if you look globally, and the rest of the world is the important part of this chart, because we really have seen a really cyclical amount of exploration spend more broadly, and I think that’s the challenge for the world. You look at large mining companies. They seem to have taken a view of outsourcing their exploration departments for the most part to juniors and in many cases are actually looking to finance that exploration directly through joint-ventures or through strategic toe-hold stakes in those companies. And a lot of that might not get picked up in this data if we’re only focused on public financing. So that certainly has been a trend that we’re seeing increasingly. And I’d point to the majors and their own exploration budgets. I think Rio Tinto just announced that they’re spending $600 million on exploration in 2020 alone, which is a significant exploration budget globally. So while this is a worrying trend and a function of all the challenges for access to capital that we’ve talked about, there are some bright spots – Canadian flow-through and the seniors looking to invest in exploration through junior partnerships.

Anthony Vaccaro: We have seen companies like Agnico and Barrick taking those 19%-20% stakes. Is this trend sustainable? Are we seeing more of that?

Ryan Latinovich: Certainly in the last several years there has been a pretty material uptick in that type of thing. It’s always been part of Agnico’s DNA, but we’ve seen other companies get a lot more active in that type of investment framework. That’s a trend we would expect to continue. It reflects some of the other things we’ve been talking about which is, the ability for some of those smaller stories to find, call it normal way public financing, has been more challenging in recent years, and so for projects that deserve to move forward that need to move forward more options are coming on the table and a strategic investment framework is one of those avenues that can be attractive to a junior, not least of which is a sanctioning or a level of credibility, the implied merits of the project being amplified through an investment of a more senior company that has obviously done its work. That’s a positive tailwind oftentimes for a story and puts names that sometimes may have been not so much on the dashboard – the heads up display of investors – certainly make it a more prominent name. So I think we’ll see that continue. It’s easy to get a little bit demoralized when we look at charts going down into the right. We’ve talked about the eco-system. As a practical matter, and don’t quote me on this number today because I haven’t refreshed it in a while, but there are about 2400 publicly listed mining companies on the planet and 1400 of them are listed either on the TSX or the TSXV so in terms of pool of opportunities, that is one of the reasons why we see that type of a chart with that dashed line. That is strengthened by flow-through and it’s one of the safest mining jurisdictions in terms of its political stability and things of that nature, combined with the flow through structure, combined with a capital markets framework that supports, and it’s in our DNA in Canada – to support that kind of junior financing. And I think we’ll see that type of a chart irrespective of the bars, I think we’ll see Canada’s percentage hold in there quite strong no matter what the environment and that’s something we should be proud of.

Anthony Vaccaro: We’re seeing private placements becoming an increasingly important factor. How is that affecting your business?

Ilan Bahar: For us really, most of the time we would prefer to be issuing and supporting our clients issuing equity through public offerings. Stock is freely tradeable. It broadens the universe of investors. People don’t have a four-month hold – it doesn’t restrict the people that can buy the stock with an accredited investor – so generally speaking we prefer to be supporting the issuance of capital that way. Private placements, it’s a mechanism that exists which helps companies that aren’t able to issue through public offerings or choose not to. The data point that is interesting to me is the decrease in the public offerings, not so much the private placement amounts, and I think that’s a reflection of the discussion we’ve just had on access to capital, which is, assuming companies are issuing equity through a broker, generally we’d be guiding them toward a public offering and to the extent that it was a healthy capital market environment we’d see more of that.

Michael Faralla: I’m guessing a part of that is, as we’ve seen, larger public companies having less need for public capital because they’ve been working on cost structures and getting balance sheets in shape and with high commodity prices particularly in the gold sector are generating cash flow, issuance activity really has become much more focused on the junior end of the market and in many cases those companies are either not eligible or ready to file a prospectus. But I think Ilan is right. We’d always encourage companies to go through the work to have the materials and documentation ready for public scrutiny and to file a public offering rather than a private placement. It’s hard to pinpoint the one factor that might be driving that, but we’ve certainly seen the decline in the public offerings and I think that’s a function of all the things we’ve been talking about.

Ryan Latinovich: We don’t really get fussed about it. I agree with Ilan. With the margin we’d rather do a public deal in terms of investor appetite being willing to take stock that’s not a four month hold. That’s self-evident. But I would say for us the mechanism of raising capital is not really the key marker for us. What we will see here and we’ve already talked about some of the thematics in terms of the pool of capital has shrunk, and therefore as you’re looking to formulate a financing plan, there is a natural, more collaborative type of approach that needs to occur between the companies and the providers of capital, and sometimes banks can play a role in that and sometimes it’s a bit more of an active dialogue between the individual shareholder bases and those companies, and we’ve seen some of that play out in more kind of a private placement type of format and that’s why you see that continue to be pretty healthy, overlaid by the natural point which we’ve already said which is the need for larger scale public financings has really diminished.

Chris Gratias: One thought is that what’s not on the chart is the amount of capital raised through the royalty and streaming model; so a lot of that gap is being solved and met by that form of capital, which has been significant.

Anthony Vaccaro: What about exploration and the declining capital coming into exploration? Last year was a record year for M&A in the gold sector anyway. Are we seeing it’s become more expensive to find ounces in the ground than it is to acquire them in the market given lower equity valuations?

Michael Faralla: M&A last year was really driven more by very large transactions: We had Goldcorp-Newmont and Detour-Kirkland Lake and several other transactions that occurred plus non-core asset sales from both Barrick and Newmont and really what’s driving that is not so much trying to find and replace ounces in the ground, but more strategically growing production, putting world-class assets together in a portfolio, and growing each one of those businesses. Both at the larger end with the three deals that I mentioned but also with the non-core asset sales where you have intermediate producers, well capitalized, operating well, looking to grow and diversify jurisdictions in some cases, picking up smaller assets that weren’t necessarily a good fit for the larger companies but would fit well within those smaller but still considerable portfolios. So I actually don’t think we have necessarily seen a huge move to junior company M&A and the seniors looking to replace reserves and resources and their development pipeline just yet, but that certainly could be a theme for the future going forward.

Ilan Bahar: I would agree with that. Most of the M&A last year was for producing assets. A lot of the M&A was actually catalyzed by the Randgold / Barrick deal the prior year. That kicked off a wave of M&A in the gold space and we’ve seen a number of transactions that have come to market and a number that haven’t come to market too, and then the non-core asset sales that followed. A lot of the M&A was catalyzed by larger M&A. Our M&A business is very busy, despite what the market has done; despite some commodity prices disappointing, we continue to see a very significant amount of dialogue. I would agree with Michael. It isn’t large companies looking to buy explorers and developers. That does happen for high quality projects but generally speaking it’s actually companies looking to consolidate. We saw the Equinox/Leagold deal recently, that was a consolidation transaction, a merger of two companies. There’s synergies; the market traded that transaction well. So transactions like that where companies are consolidating, there’s less G&A in the resulting company etc., there’s a lot of activity there. At the junior end, junior companies are feeling the need to transact to pool capital, to generate investor interest, the liquidity of those stocks has dried up so significantly versus where it was a few years ago, that you just can’t generate institutional investor interest so you need to have a certain level of scale to do that. So there’s activity at the junior exploration end, there’s activity in the intermediates, but the interaction between the two isn’t what you’d expect.

Chris Gratias: We’ve talked a lot about the challenging markets’ access to capital, especially for the junior level space. So I do think that the trend of, not that bigger is better, but having a more diversified portfolio changes your access to capital going forward, whether it’s from the banks or the public markets. So that’s a theme to progress your business and then to invest in your business in a risk-adjusted way, taking on a $500 million capital project for a single asset company is very different than taking a $500 million project on for a multi-asset company, and then getting support from investors. While last year was, when you look at the numbers, the environment was really driven by a couple of very big deals, if you actually look at the number of transactions, it hasn’t really changed much. Last year, we all keep our own stats on this, but we tracked deals in the precious metals space over $100 million. It was exactly the same number of deals last year as there was in 2018 and than there was in 2017.

Ryan Latinovich: I would agree with that and the one comment I’d add to Ilan’s point is, from our perspective, we’ve really never been busier in terms of being involved in some pretty active dialogues for that consolidation theme and I think people, management teams, boards, have come to the view that there is merit in that consolidation for all the reasons Ilan said. Access to capital in the future, getting some scale to be “more relevant” for some of the investors who do have capital to deploy. So those dialogues are going on but as we all know, those type of consolidation type of opportunities are, there are a lot of stars that need to align – valuation, stage of the projects, geography, all those things need to align very well in terms of mindset of management and board as well, so those deals while they’re very active in terms of dialogue and we all have more than our fair share of those types of things in our pipeline, a lot of things need to line up well for them to actually show up on one of these graphs. But I take comfort in the fact that there has been a bit of mindset shift in terms of the merits of that type of a business combination and that mindset shift has happened. It didn’t just turn on a dime. It’s been an evolution over the last several years based on some of the market realities that we’re seeing. But that shift and that mindset is a verycritical condition precedent in order to get some of this consolidation going in this space that many people think is required.

Michael Faralla: Also the Randgold/Barrick deal really spurred a shift in thinking about doing non-value-destructive M&A so we’ve seen, versus the last big gold cycle, we’ve seen less high premium deals done, and more either merger of equals, where the Leagold/Equinox deal was an example. We saw some of those being quite well received by the markets where investors are seeing the benefits and merits to consolidation for the purposes of gaining scale and having better access to capital; the ability to prioritize project pipelines, offsetting or maybe outweighing the desire to get a one-time high premium bump on an M&A deal. And I think the other challenge that companies are facing is the single-asset mining company, while very successful in the last bull market with lots of access to capital to develop a single project, are really struggling in this environment, where the risks to a single operation having operational variability and challenges quarter to quarter, are becoming something that the capital market is not that interested in investing in or being exposed to. So that’s another factor driving consolidation and we’re seeing a lot of single asset mining companies being a part of that.

Ilan Bahar: One last point to follow on from that. Risk-sharing continues to be a theme. It can be in the context of a single asset company but certainly we’ve seen some of the largest companies in the space risk share by joint-venturing on development projects and I think that’s a theme that we will continue to see. We went through a wave leading up to probably 2011 where a lot of the M&A that we were seeing was based on a view that it was generating value. Now we’re seeing M&A driven by a balance of value and risk. It’s sharing of joint-ventures, it’s diversifying a single asset risk, so boards have shifted their perspective versus what you would have seen a decade ago.

Anthony Vaccaro: There’s also the view that M&A can actually alleviate one of the big criticisms of the whole sector, which is mismanagement by some companies. That ideally, it’s the best management teams are making the acquisitions. Can that lead to be more deals being done?

Michael Faralla: I think what we’re seeing is activist investors getting more involved in the mining space, in the gold space, than we’ve seen previously and typically an activist investor is critical of management and so I think it’s probably the buy side that are at the root of trying to affect change that way with their own investee companies.

Ilan Bahar: It’s an interesting time. There’s a push and a pull between the companies and the investors. For those who follow the gold space, some time ago a group of investors formed something called The Shareholders Gold Council—which has some well-known gold funds and some others that are closer to activists. But there is a push and a pull. When that was formed there was a lot of skepticism in the industry around the purpose of that council, the effectiveness it would have. We’ve seen some proxy fights, we’ve seen other things happen behind closed doors, but really what’s happening is the pool of actively managed money has shrunk, and so the number of active, resource- or gold-focused institutional investors that have a lot of capital, it’s a pretty small number of people, and so they exert more influence than they used to, and we’re just starting to see more of that, so that is driving activity, it’s driving M&A, but it’s also driving the way companies are thinking about ESG. The way they’re thinking about return of capital; how they communicate to the market. There are lots of changes being affected as a result of these investors influencing the industry more than they used to.

Anthony Vaccaro: Is that why we’re seeing more activity on the gold side rather than the base metals side? There doesn’t seem to be as much M&A on the base metals side.

Chris Gratias: Yeah that’s a very relevant and interesting point. I’m actually surprised that we haven’t seen more activity in the non-precious metals space. There was a need for it in the gold space, too many public companies with single asset type of risk and exposure, so I think there was a need for consolidation in the gold space and that’s what we continue to see in all of our businesses is that desire both from the company side and also the investor side, is why we’re seeing the pick-up in precious metals. Take the copper industry as an example and the longer term fundaments we are talking about in terms of the supply and demand imbalance in the not so distant future, every corporate that we talk to, they are very bullish copper prices and are using long-term copper prices above current spot price when they are evaluating opportunities. You can argue in a down market, that’s the best time to be buying. Typically companies get a little gun-shy at times to announce an acquisition in a down market, but once you start to see base metal prices move back up, I do think you’ll see a pick-up in M&A activity in the non-precious metal side of our business.

Ryan Latinovich: I don’t disagree with anything Chris said but I’d make one point which is, to a degree, when we start thinking about the buckets of base metals and gold, and start talking about the velocity of deals, some of that has got to do with the practical realities of the structure of both sides of this business. The average reserve life in the gold space is roughly about ten years or slightly less, and in the copper space it’s longer, it’s 20 years. So you’ve got a natural change in the tempo in terms of replacing those types of reserves. Bigger projects, bigger capital tickets, bigger company type of undertakings oftentimes in the base metals, and in the gold space, a lot more companies, easier to get earlier stage projects off the ground, and so that naturally generates some of this tempo that we’re talking about – that when we reflect back in terms of, ‘oh there seems to be more activity in the gold space, there’s a broader number of investible names in the gold space in terms of the quantum of companies’ and that tends to generate some of that different pace.

Michael Faralla: The other challenge is that it’s easier to do deals in a rising commodity price environment where management teams on both sides feel more comfortable that they’re either getting a good deal or achieving good value on a sale and I think it’s tough when transactions have been priced at long-term price that are above spot price, it’s harder for management teams to commit to that, and on the sell side, companies in a depressed commodity price environment may feel they are under-valued and therefore less willing to transact so I do think that we need to see a bit more positive momentum in the base and bulk metal commodity prices for those types of transactions happen.

Anthony Vaccaro: Is there a ray of hope for the junior mining companies?

Ilan Bahar: Part of it is that we haven’t seen a very, very long list of high quality, world-class projects coming out of the junior space. We’ve seen some, but in this capital environment there’s isn’t a whole lot of capital to go around. We’re not seeing the level of discovery that we used to see. Does BHP, or do the largest companies need to buy these juniors? They have interesting projects in their own portfolios which compete with those, or in some cases maybe are higher quality. So we’re not seeing the largest companies, selectively they are. But they’re looking for first or second quartile assets and if it doesn’t meet that bar they’re not going to transact. I do think, though, as consolidation happens, we’re seeing these junior companies come together, they’re creating intermediates; we’ll continue to see more companies move their way up and then those companies will start looking down. So I do think the off-ramp is there, it will come, I think it’s selective and always the better projects with the better management teams will find a way.

Anthony Vaccaro: All the major banks have funds that are screening for ESG. What are some of the implications of that?

Michael Faralla: I’ll make two points. It is important to state first of all that the mining industry generally, except for coal, which I’ll put aside for one second, actually doesn’t produce carbon, it’s not one of our products. In fact, as Ilan said, mining companies are increasingly producing the metals that are critical for energy transition, so mining companies need to think about and brand themselves more as a positive factor for change in this energy transition. It’s not just specifically for battery metals like nickel, and cobalt and lithium, but it’s also copper, which is incredibly important, but also aluminum, which is incredibly important for lightening vehicles and potentially even being an alternative for energy transmission in large-scale applications, so there’s an opportunity for mining companies to be at the forefront of energy transition. And at the same time mining companies are actually thinking about how to produce the metals in a more energy-efficient and more environmentally responsible way. I think Barrick just announced it’s building a huge solar farm in Nevada to replace a 110-megawatt heavy oil or coal-fired power plant there, so that’s just one of many examples of mining companies being proactive. The second point about ESG and it’s more about the ‘S’ and ‘E’ part of it is that mining companies have been operating in difficult jurisdictions in remote places and in non-first-world countries for decades and so many mining companies are acutely aware of the issues of managing ESG in order to ensure they have a social licence to operate in the places that they do, and the most successful mining companies are going to be very good at certainly the ‘S’ and the ‘G’ and increasingly the ‘E’ part of ESG in order to maintain their licence to operate and be able to operate successfully.

Chris Gratias: I completely agree with what Michael just said and would reinforce – I think there was a comment by one of the CEOs who said mining companies have been focused on ESG for a very long time, it’s just now that investors seem to be more focused on it than they have before. So this is nothing new for mining companies. I think the industry does a very good job of creating value, sustainability in the places they do business. It’s part of the DNA and has been for a very long time. We actually look at some of the independent research that screens how mining companies rank relative to other industries, because of all that history, mining companies already rank very highly on these ESG screens and it’s just the investors that are now tying it more closely to their investing philosophy. I think the industry has positioned itself very well. And in an environment with more focus on ESG to be leaders and show this has been part of their DNA for a very long time.

Anthony Vaccaro: I think the CEO you were referring to was Mark Bristow at Indaba. Teck set an incredibly lofty goal of having no carbon by 2050. Is this a trend you see continuing.

Ryan Latinovich: I do. It’s simply a reflection of what the investment community is looking for and demanding in terms of its investment opportunities. We have got a whole group now at RBC that does nothing but focus on ESG. They published a report in January and in the last year it is the single-most-read research report that RBC produced in the last 12 months. It’s across all sectors. There’s a combination of people who are digging materially deeper into the ESG thematic but also people who are trying to get themselves up the curve as a practical matter. The mining space generally hasn’t done a great job of marketing itself, but it has been at the forefront of these topics for decades. We talk about sustainability, we talk about investing in communities that typically have very few avenues for external dollars to come in – these dollars being redeployed in the communities with the support of the government, these are benchmark leading approaches that the mining space has taken and is something frankly that we should be a lot more proud of and be on the front foot on. There is a lot of focus on the ‘E’ and the carbon metrics and things of that nature and at the end of the day mining is an industrial business. There’s a lot of leadership that’s happening at mine site levels to try to get smarter in terms of how to use heavy equipment to do some pretty heavy lifting type of work that is required in the mining space, and the mining industry is doing a better job of it but it’s early days and there’s lots more room to grow.

Ilana Bahar: I think the whole world is going through an evolution in figuring out exactly what ESG looks like. What are the scores that matter? Is it this rating or that rating? It’s not just specific to mining but across the board there’s a disclosure phase that everyone is going through right now around disclosing what you already do, and what systems you already have in place and making sure the disclosure matches what the scoring systems need. So right now there’s a bit of a disclosure process that everyone is going through. What will be more interesting is, and we’re already starting this with some of the larger mining companies, is once you get through that, what are you actually going to do? Are you going to decrease water usage, are you going to reduce your carbon emissions. Things like that. The largest companies are already talking about what they’re going to do. And they are ahead of us. They are all very focused on it. The question is the intermediate and junior companies – how are they going to afford to do some of these things? If you’re building a mine in West Africa, can you choose to build a solar power plant instead of using heavy fuel? That’s where it’s going to get a bit more difficult because at the junior end, it will be difficult for the companies to keep up with what investors are asking for, whereas for the large companies, they are already ahead of the game, and unfortunately again I think it will create a bit of divergence in terms of access to capital.