How has the pandemic affected you as debt finance providers? How have your criteria changed through the pandemic?
From a client point of view, it depends on who you are. What that means is if you’re a mining company in the predevelopment phase, and you haven’t raised your capital, then you will be the hardest hit. And I say that because we are telling our clients who are yet to commence their development that they need to ensure their feasibility studies are COVID-19 compliant.
If you are in the development phase, where you’ve raised your capital and you are busy with your construction programme, then you should not be too affected providing you can access raw material and providing lockdown doesn’t slow down your logistics chain. The third category of mining companies is those in production and looking to expand through additional brownfields projects. So, depending on who you are and where you are in the development cycle will determine Nedbank’s credit appetite for mining companies.
In terms of ability to do due diligence on these projects, how have COVID-19 travel bans impacted you?
Significantly. We were in lockdown for seven months. South Africa’s international borders were closed, so you couldn’t travel unless you were on a repatriation flight, or if medical supplies needed to be shipped. Therefore, due diligence reviews became incredibly hard for Nedbank. We tried virtual site visits on a few occasions, and that worked to some extent, particularly for existing operators looking to expand their operations. Largely, we’ve been grounded and unable to travel. So, that has impacted our business, particularly with greenfields projects and the junior mining project financing side of the business. But on the larger corporate lending side, we’ve been able to get around it.
Overall, where has your money been directed in 2020?
A lot of credit support has been given to existing clients of the bank. We recognized early on that this pandemic was probably the most unpredictable event in our history, and a decision was made that we would stay close to our existing clients and offer them credit support to ensure they stay in business. We made it very clear to incoming clients that we would continue supporting them, providing their feasibility studies were, as I mentioned earlier, COVID-19 compliant. And I say COVID-19 compliant because there has to be an impact, from a capital procurement point of view, on any new project that’s being developed today. And we wanted our clients to reopen their feasibility studies to ensure they are using the best possible estimates and relooking at the assumptions that their studies had a high degree of confidence.
“I’m of the firm view that we are at the start of a commodity super cycle. I think it’s quite evident if we look at the way commodity prices are trending.”
Have the commodities that you’re interested in changed or evolved over the year?
They have remained relatively constant and I think that’s quite an important point. Gold can almost be put to one side because it’s been the best performing commodity, as we know. Gold prices have hit levels that we’ve never seen before, certainly in living memory, and we continue to be quite bullish on gold. Base metals, particularly copper, zinc, and nickel, have fared very well, and have been outperforming since the pandemic started. We remain quite bullish on base metals.
On the new-age commodities, particularly graphite, lithium, and cobalt – key ingredients for the battery minerals markets – we remain interested in those but are cautiously optimistic. It is difficult to separate the hype towards a certain commodity, or category of commodities, from actual reality. With lockdown, the demand for tech products has skyrocketed and this is evidenced by market caps of tech companies like Apple, Google, and Microsoft. But it is incredibly hard to build a credit case around these upstream producers. I’m not saying it’s impossible. We just have to be very measured in how we approach mining companies, particularly those looking to extract battery minerals.
With the new administration in the U.S. heavily favouring green development, and as we come out of the pandemic, do you think you will favour those new-age commodities a little more in the future?
I think so. It all comes back to being able to measure sustainable demand, and not be tainted by traders that have a track record of skewing the market. If there is sustainable demand that we can measure, it will create a lot more certainty and hopefully remove the hype from that market.
We are very bullish on renewable energy, particularly for mining companies. For example, wind turbine construction requires base metals. We remain quite confident that battery minerals need to be understood, and need to be analysed, and the more we progress into the future, we are going to have to make sure that we are ready for battery minerals.
That topic ties in very nicely to another hot issue at the moment, which is around ESG. What is Nedbank’s take on ESG?
I would like to clarify the distinction between ESG, in the context of our clients, versus socially responsible investing, or SRI. ESG in the mining sector is critically important for Nedbank, to ensure that all our clients are compliant from an environmental, social, and governance perspective. And there’s no getting around that, particularly for commercial banks.
SRI is where we look at our entire portfolio to create an equilibrium point to ensure that we put more money into mining operations that have a smaller carbon footprint. ESG is progressing quite rapidly and we are here supporting our clients that want to embark on decarbonization projects by providing them with sustainable financing solutions.
How would you rank criteria for ESG?
All three elements are critically important, and there’s a great degree of interdependence on all three. You can’t have good governance without a responsible social management programme, and vice versa. If you do a deep-dive into each pillar in the ESG realm, you’ll find that, ultimately, it all comes down to backing clients who really focus on each element in an equal way. There isn’t one more important than the other.
Looking forward into 2021, what do you see as being the most important trends?
I’m not a commodity analyst, but I’m of the firm view that we are at the start of a commodity super cycle. I think it’s quite evident if we look at the way commodity prices are trending. For me, 2021 is the year where we are going to see excessive cash generation by companies, which is a good thing for African host governments, in the form of increased taxes and royalties, to help them tackle COVID-19.
It’s a year of humanity as well. Mining and humanity, in my view, go hand in hand, and we need to see more partnerships develop between mining companies and host governments. It’s about how we – and that’s the mining sector, government, and financiers, and investors – come together and pool our resources to fight this pandemic.
You can find out more about Nedbank Corporate and Investment Banking here: www.nedbank.co.za/cib