You lead a private equity company with a focus on investing in junior miners. What is your main focus for investment ?
Preferred geographies would be North America, Mexico, parts of South America, and Australia, just like everybody else as well now. And for commodities, we’re old fashioned. We like gold, we like copper, potash, some of the bulk plays such as silica sands. I think there’s a great opportunity with battery metals but – you’ve got to weigh up every commodity, which of course is pretty tricky when you get to some of those battery metals because though everybody appears keen on them, some of their markets are more opaque than others – meaning it’s hard to understand the true state of supply and demand.
And what criteria do you use to make an investment?
We spent a lot of time developing our criteria for investment.’ We look at the quality of grade, geography is also so important, management teams, ESG (Environmental, Sustainability, Governance) factors are critical too.
But the thing that I get increasingly drawn to is what makes an investment different? I get very much drawn to the diversity of management teams and boards, because junior miners are generally pretty skinny in terms of the of the size of their teams. If I see management teams and boards that are not diverse, that to me is not necessarily a red flag, but it is an indicator that one has to look at this investment with more scrutiny.
If I see management teams and boards that are not diverse, it is an indicator that one has to look at this investment with more scrutiny
The world’s largest mining company, BHP, is a real leader in diversity and inclusion and I think you can tell it’s really had a successful impact on how they run their business and attract and retain talent. 50% of their top management team are women. And I think now that 50% of their board are as well. It’s not about gender diversity and inclusion simply for the sake of it. What they’re looking to do is bring different thinking into the organization. When faced with the complex problems that crop up in a mining business – what different thinking can we bring to the table rather than the same old thinking that mining as an industry has used for years.
We look at businesses to see what sets them apart. What is the diversity of the management team? How many women do they have on the board? Do they really embrace an ESG agenda or simply pay lip service?
In addition, a key question we ask all the time is: how will this investment make money for our investors? You’ll be surprised how often, if you ask that question to mining companies, they can’t answer it, except in a high-level way. To be frank, that is our number one question to ask and everything just kind of falls out from there.
What makes TSX/TSXV-listed juniors stick out in the mining industry to you? As a follow up to what you were saying about governance, do you see these Canadian companies leading the way on this front?
I think it’s actually the breadth of the opportunities. On the ASX (Australian Stock Exchange), you’ve got great junior mining exploration companies especially in Perth and Brisbane. There is a lot of activity in the Victorian gold fields these days which is great to see, but Perth is where the main game is at in junior mining in Australia.
Whereas in Canada, we’ve got Vancouver, Quebec, Toronto as real centres of junior mining activity. I think North America is the hottest place now for investments. So when you speak to investors about where they want to invest and their focus, so many investors are looking for deal flow in North America. I think a key driver has been geopolitical risk primarily.
Junior mining is a high-risk, high-rewards game, and sometimes investors get burnt. In particular, investors get worried when they can’t understand the sometimes arcane rules that govern how to succeed in investing in the junior mining sector. This makes them cautious to invest.
We’re coming up against the supply crunch across many of the key metals needed for the energy transition, such as copper and nickel, among others. How can investors play a more active role in mitigating this?
Investors want to participate – they want to invest and they want to be part of investing in junior mining. But the issue is where do they invest? With whom do they invest? How do they invest? Do they invest through private equity, through streamers/royalty companies? Do they do it themselves – investing directly in junior mining companies?
Part of the issue in investing in this sector is that there’s so much complexity around the commodities. Gold is at a great price these days (compared to where it was a few years ago)and it’s pretty straightforward. You can figure out how much it costs to mine the gold using the All-In Sustaining Costs criteria and, given the gold price is based on the spot market, how much profit is going to be made and it’s pretty straightforward. Copper is a bit more complex, but there’s more a bit more openness around the market.
When it comes to commodities such as lithium, the issues become slightly more complex. Are we talking about spodumene? Direct Lithium Extraction? Brine? What’s the true state if the market in terms of supply and demand for these commodities? Sometimes you are dealing with complex supply chains that are not just related to the mining of the product, , but also where concentrate can be refined, and then where the final customers for a product are located.
Do you see growing opportunities for investors to get involved in this? You look at investing in new technology companies that are part of the energy transition and companies that are adjacent to the mining industry.
I think junior mining companies have not been good at adopting new technology. The larger producers such as Rio Tinto, BHP, and Anglo-American have been pretty good at using digital technologies to reduce lower their costs. But in the junior exploration space, we’re still using drill rigs that are very similar to what they used to be many, many moons ago. And people are still using the same techniques that they’ve always used in terms of geological surveying and the like.
Mining services companies are the ones where you see some of the more interesting things happening in terms of, for example, people building roads using more sustainable materials than they have in the past, and applying technologies used in adjacent industries to mining. This is an industry that I believes needs greater encouragement – not just from the venture capital market.
I would give a shout out too to the Communitech technology hub in Kitchener, Ontario, just south of Toronto basically. It’s a huge hotbed of innovation development – I have spent time there and I think it’s places like this that will be where the next great mining innovations are developed.