196 (24.05.18)


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Briefing

Good Week for copper miner Antofagasta, which has gone more than two years without an accident at any of its mines, chairman Jean-Paul Luksic told its AGM. Revenue at the group has risen 31 per cent in the last year to $4.7bn and profits have nearly doubled. “Success in safety leads to success in business,” Luksic said.

Bad Week for London-listed Vedanta. 11 protestors were shot dead at one of its copper smelters in India, which is in breach of local pollution standards. In ambiguous comments, chairman Anil Agarwal said he may “step back” from his executive role. “It could be.”

Triple Flag: Bidding High

Hedge fund Elliott has been an outspoken critic of mining giant BHP and steel firm Thyssenkrupp, but its own Toronto-based metal company is struggling to get up to altitude.
    Elliott launched a $1bn royalty and streaming vehicle, Triple Flag, two years ago. But competition has proved intense. Having paid a lofty $250m for a silver stream in Peru, it also bid high for a portfolio of royalties being shopped last year by mine finance group Orion, but was trumped by Osisko Gold Royalties, which paid C$1.1bn ($839m), making “jaws drop” inside banks linked to the deal.
    Triple Flag, which is led by Barrick Gold's highly-rated former finance director Shaun Usmar, has now paid $200m for a smaller royalty portfolio being sold by gold miner Centerra, including a 2 per cent claim over the Fosterville gold mine in Australia. But analysts again say the deal is pricey, coming in $90m above their models.
    Other new groups are also paying-up to enter the space. Cobalt27, which stockpiles physical cobalt, announced its first cobalt-nickel stream this week, paying $113m for a deal in Papua New Guinea. Shares in the seller, Highland Pacific, rose 29 per cent on the news to A$0.12.
    Elliott however, which was founded by New York-based hedge fund wizard Paul Singer, is known for tenacity. It famously waged a 15-year campaign against Argentina over its government bonds, seizing one of the country's ships after it docked in Ghana.

Gold Margins

Gold mining margins are being squeezed, as oil edges higher, hitting $70 to $80 per barrel this week, sending bullion to its lowest level relative to oil for four years. In the futures market, one gold ounce buys 17.8 barrels of oil, wrote Investec, down 18 per cent this year. Fuel accounts for one-tenth of a mine's operating costs, according to consultant SRK, making it the biggest cost after labour.

Appian: “Mini-Cycles”

Mining is going into an era of “mini-cycles” with small booms and busts followed in quick succession, says London-based private equity investor Michael Scherb.
    “Investors are getting shorter and shorter in terms of focus and you're going to have more frequent and shorter cycles,” he told Mining.comin an interview. Since 1954, the average holding period of a stock has gone from eight years to eight months, Scherb says, whilst CEO tenure has gone from twelve years to five.
    Scherb founded Appian Capital, which has made a name for itself in London in recent years, poaching hotshot mining bankers off rivals. Appian raised $375m for its first fund in 2014 and is a large investor in copper miner Avanco, which is in the midst of a $444m takeover wrestle.
    “Mining is the perfect industry for applying long-term value investing principles because it's so cyclical and you let the industry create the entry and exit windows for you.”

 

CONTENTS

Fracking for Copper:
BHP & Barrick Chase “Ultimate Prize”

Industry's key players looking at ways to replace mines with grids of wells, pumping metal out of the ground, up-ending mining's economics

Tom Butler: How to Stop Mining in World Heritage Sites

The industry's pulled together to obstruct mining in sites valuable for wildlife, writes ICMM's CEO Tom Butler

The Guggenheims, from Chile to the Congo

The Guggenheims' vast mining business, which controlled 75 per cent of the world's copper, holds valuable lessons for investors today