Q&A with Jason Chang, Chief Executive Officer and Managing Director, EMR Capital
Can you start by telling us a bit about EMR Capital and your role there?
EMR Capital is a mining focused private equity manager. There are not too many of us in the world. The key differentiator is that EMR has deep operational DNA. Most of our executives are mining executives, so we deploy a strategy to either buy the entire operation, own it, operate it, improve it. Or we take a very substantial stake so that we can have significant hands on engagement in driving the strategy and operational process improvement process working alongside of cost management and shareholders to maximize value.
We are very focused. We don’t want to be all things to everyone. So, we invest and buy only certain types of commodities and in key regions. I’m a co-founder, CEO, and MD and have been since inception with a lot of skin in the game.
How has the investment philosophy or the focus for EMR Capital changed over the years? Can you talk about your strategic focus in terms of commodities and regions?
We have been focusing really on three key pillars. One is energy transition, one is inflation, hedge, and global growth, and the third is food security.
In terms of the energy transition, copper has been at the top since day one. We’ve been in copper for many decades. We do look at battery minerals. We continue to evaluate opportunities in battery minerals through our global presence including in Asian markets as well as the Americas. Our approach is disciplined selectivity – waiting for the right entry points to avoid overpaying in volatile segments and markets. One of the areas in which EMR has a key differentiator is the Asian and Australian markets where we have significant presence and a long and successful operational and investment track record. As such, we have a very intimate insight into the latest developments in future facing minerals, energy transition as well as the regulatory and government policies in the largest consumer market for metals and minerals.
In terms of food security, we are invested in potash. Our thesis is that with a rising population and less arable land, you really need more productive agriculture, and potash is one of the factors that can unlock this for humankind. That’s why you see some of the majors really going very hard on potash. At EMR, we were very early investors in potash. We’ve done it for over a decade, and we’re looking to build two very significant operations in potash, one in Spain and one in the US. And we’re very excited about that.
On the thesis of global growth and inflation hedge, we’re invested in both gold and silver. Gold is always something that we have great enthusiasm for. We bought a project in Queensland about five years ago, and it’s now Queensland’s largest gold mine, trending towards 200,000oz/pa.
So you have the energy transition, you have food security, and then you have global growth as our key themes. That’s been very much our strategy since day one and we have no reason to stray from that.
The last time we caught up, you had a big focus on future facing metals and minerals, and it seems like copper, potash and gold all seem to really tick those boxes?
Very much so. All of those commodities I just talked about, those themes are all future facing. Clearly we need more copper, we need more food, and we need more gold. So it all aligns very well that that’s more thematic lately. We’ve been big believers in many of these metals for a long time, but the volatility itself makes us a bit more cautious.
We aim to create value within a three to seven-year horizon, while retaining flexibility to hold quality assets longer where it makes financial sense. We focus on creating enduring value with clear monetization pathways. So, we have to be very, very fussy and make sure that there is a way to create what we call a liquidity event or monetization of that that asset within the three to seven-year time frame. But certainly, we are definitely keen on future facing metals and minerals and continue to be so.
How do you assess the different risks and challenges when it comes to investment opportunities?
We spend a lot of time performing due diligence on assets, reviewing hundreds of opportunities in a year. We have a large team of operational executives who do nothing other than source opportunities, review them, run it through the executive committee, then if it gets past the executive committee, it goes to the investment committee. So, it’s a big part of our business.
There are four main criteria that come to mind, the first being the quality of the asset or the grade. Bear in mind that these are not all mutually exclusive. Very often you don’t tick all the boxes, but quality and grade are very key.
The second that’s more prominent these days is the jurisdiction in which that asset is domiciled. We are increasingly focused on sovereign risk, which is really about government, the stability of the regime, and the consistency of the legislation or regulations in that country. This is one of the key factors that impacts the length of time it takes to develop an asset, monetize the asset, raise capital, receive permits, etc.
The third is community. We look to see if there are community issues surrounding the asset. Again, this has a bit to do with the sovereign risk, but can also be independent. We actively engage with communities to ensure our projects are welcomed, sustainable, and contribute positively to local stakeholders. In this regard, EMR has had a highly successful track record in community engagement and environmental sustainability in our operations. The Martabe gold and silver mine in North Sumatra, which we acquired in 2016 (and subsequently sold in 2018), is one of the many case studies where we were able to facilitate the economic growth and prosperity of the region through our operations there, employing mostly from the region as well as wider Indonesia and sharing our financial successes with the community.
Finally, we need to ensure that the asset itself has upside that we can operationally improve and unlock – this is how we’re going to drive returns. The returns that we are looking to derive are driven largely, but not entirely, by operational improvements.
Geopolitics have been a massive concern for the investment and mining industry lately. What are some of the main impacts of changing regulations on global markets?
Geopolitics are changing and have a big impact on the resources sector globally, and this does create different opportunities. Different governments around the world are reaching out to private capital such as EMR to understand markets, commodities, resources, and how to develop independent supply chains of critical minerals, for example. This has created greater awareness in government, greater awareness in the general population, and greater awareness in the markets. So that’s going to lead to better and more accurate valuation of the sector and what companies are doing across the entire value and supply chain. And it’s going to promote more private capital into this sector.
We saw some initial slowdown of outbound investments from regions like China to certain markets. But in Australia, we’re seeing a great turnaround. We expect to see broad-based global capital flows – globally and more particularly, from Asia and the Middle East. Asia, of course, is already the largest consumer of most of the core commodities and future facing minerals. As investors, the Middle East is going to be increasingly important and prominent to the sector. And I think the Australian government appreciates the importance of foreign capital into the sector there. I suspect other regions will move in the same direction, though it will take time. Notwithstanding the geopolitics, notwithstanding changing regulation and politics, we’re seeing new opportunities and, I suspect, the FDI into the mining sector from sovereigns like the Middle East and from private capital will be increasingly dominant in this space.
You also work as the deputy chair of the Australian Chamber of Commerce (AustCham) here in Hong Kong. How does your work in the chamber tie into your work at EMR? What’s the strategic importance of the Australian market for mining investment?
AustCham is one of, if not the largest chamber in the world, representing more Australian businesses than any other chamber. Australia has a long history in Hong Kong, so it is a very mature institutional market here.
Austcham has great access to information and to government, and assists us in understanding the IPO market in Hong Kong, for example, providing access to capital, investor sentiment and government policy. So it is, it is very relevant to what we do.
But also it is also part of EMR’s community engagement. Our philosophy is if you invest well, engagement with the community is very, very key. And certainly, being Australian myself, I’m very proud to be able to contribute to business and trade between Australia and the rest of the world through this role.
What are the biggest factors that are going to impact investment in the industry over the coming 12 to 24 months?
The biggest factor is going to be around government policy. We see that as a huge positive and can see that in the US, for example, they’re fast tracking the development of major projects in energy transition as well as gold. I think you’re going to see a significant focus from governments to cut red tape and fast track permitting. So that is a terrific thing for the mining sector which we’ve needed for a long time. On the other hand, we have a trade war and new government pronouncements occurring more regularly. This will create more volatility in the short term but longer term, the focus on cutting red tape in developing mines and permitting will be a clear positive for the sector and in particular, the core commodities.
The next big factor is going to be investor sentiment. It’s already increasingly positive and it will continue to be so moving forward. That’s some really good news for the sector and for a hub like Hong Kong, in terms of access to private capital, that’s going to be more and more dominant. Public markets will continue to remain important to the resources sector, but as we have seen, public markets have been increasingly volatile, and public capital is not always easily accessible for certain segments of the resources market. We are keeping a close engagement with public exchanges globally – including the US through to Asian exchanges which is increasingly prominent in the resources sector especially battery minerals, noting the world’s largest IPO this year was a battery producer, CATL, on the Hong Kong Stock Exchange. We continue to identify opportunities for investment as well as growth capital and monetization of our portfolio. Specialist mining private capital will play an increasingly (even though starting from a low base) important role, providing some stability and agility to resources companies globally. We’re also seeing a lot of capital coming out of newer regions, like the Middle East and even Hong Kong. I think this will provide a great platform for the mining sector.
