Mining and Society Part 2 – Mining’s relationship with investors

Mining and Society 2


In June 2021, Swann Group founder, John Murray, was invited to present at the Critical Minerals Association‘s G7 event in Cornwall to discuss the importance of mining to society. 

In his talk John highlighted six issues facing mining beyond the immediate challenge of the pandemic. 

In this series of articles, John expands on his G7 presentation and explores those challenges in more detail. In some cases, he makes suggestions for how we might address them, based both on interviews with some of the mining greats and his own lifetime of experience in the industry. In others, he poses questions to provoke thought and discussion for inclusion in a future update.

The articles are gathered in a single publication readers can download from the Swann Group website research page:  

In this first article John explores mining’s search for investment.

Part 2 – A lack of external investment

If mining fails to build a new compact with society it will become increasingly difficult to attract funding from traditional sources.

This imperative is made even more critical owing to the rise in ESG-focused investments, which in Europe in 2019 amounted to EUR 1.66 trillion AUM, representing 15.1% of total mutual fund assets (PwC – The growth opportunity of the century).

The vast majority of the European institutional investment community expect that ESG and non-ESG products will converge next year, and 77% will stop investing in non-ESG products then.

By 2025, PwC forecasts European ESG investments to reach EUR5.5 – Eur 7.6 trillion, representing up to 57% of the total. Persuading these investors that mining should be the target of their decisions will be challenging.
Organisations have a choice about how to respond. The temptation of greenwashing, which will render ESG meaningless in the same way CSR often became meaningless, will be too difficult to resist for many.

For the less myopic, making positive change is obviously the best option, providing better returns for shareholders and investors, improving the running of the business, and contributing to a more positive profile for the industry.

Why invest Sources of FundingChallenges
Exposure to underlying commodity – proxy for gold, copper – ETFsTraditional banks – corporate debt, project finance, PXF, structured debt, receivables, reserve base lending, trade finance, inventory financeRisk assessment – perceived and real – technical, geo-political
Capital growth – IRR, DCFBond Issuance – convertibles, hybrid, fixed income, floating rate notes, project bondsCyclical nature of commodity cycle
Counter cyclical – defensive, portfolio management (long / short strategies)Government agencies – Export Agencies, IDC, World Bank, EBRD, Coface, KfWESG issues increasingly important and will negatively impact valuations and trading multiples
Yield – dividend stream, buy backs – and time frame / consistencyTraditional equity- IPOs, placements, rights issuesComparative performance – industry / corporate / commodity
HedgingPrivate equity – ordinary, preference sharesRiding the China investment proxy wave – Belt & Road investment for next 20 years
Sovereign wealth funds – ordinary, preference sharesOff take demand perception – Electric Vehicles v source of power generation
Royalty agreements, streaming agreementsInvestment growth – brownfield, greenfield, price taker or price influencer
End users – off-take funding, PXF, trading housesCapital intensive – cash burn when cash is king
Production hedging – off take, conversion cycle financeEquator Principals impacting debt availability.
Mezzanine funding – PIK, warrants, subordinated instrumentsETITI, ICMM issues
High net worth individuals and Family OfficesEthical perceptions
Table 1: The changing face and shape of money

There is a chasm between investor perception and mining reality that needs to be closed, nevertheless with the right positioning and messaging, we anticipate mining will continue to attract investment from those able to take a longer-term perspective.

In the next article in this series, John looks at mining’s adoption of technology.

Image (c) Shutterstockn | Parilov