Why Copper
By Tshepo Magagane – M&M Executive
Why Copper – VC like returns! Right Investing teams crucial – origination differentiator…
A Chat with a mining entrepreneur who has run an LSE listed company and he summarized his position “metals that go into proven technologies”!
That is Copper – it is simply about conductivity – we know about Copper Clad Aluminium – it will be a marginal thing – nothing beats Copper!
When last did you hear about a new discovery – a lot of these announcements are for things we already knew about – mostly things that were stuck there in some libraries!
But there is a way for Capital to play this – a huge capital chasm – which needs to be filled!
Globally, you need min USD200bn of equity-like capital to unlock the known deposits!
Specialist AuM in the mining sector sits at USD17-20bn and most of that has been deployed over the last decade!
How was it possible to unlock these projects previously? Merchant Banks – the teams are no longer there – capital/liquidity/solvency B III rules – so not coming back!
For Zambia to hit the 3Mtpa target, it is going to need USD12-15bn for independent projects to contribute their 800ktpa!
The IRR are spectacular to risk unlock these projects – just think Khoemacua – I estimate that those guys did an equity injection & cure of USD50m and they sold the asset for USD2bn in 7yrs!
Already the ore is not there (speak to smelters) – incentive prices for Tier 1 projects is USD44k/tpa (SAmerican low grade will be over USD80k/tpa) – you get a portfolio of good projects in the Copperbelt is really like sitting on a gold mine!
PS: Khoemacau distress into commissioning – mining complex re: financing & technical – was at the coalface (why right investing teams are so crucial)
- Listed Aus Co – mgmt. got it all wrong – blocked bid for ListCo and appointed a Aus IB to do the sale process (generalists – exasperation)
- Merchant Bank I was at had exposure through cap structure – could see the production reports (low grades, dilution, recoveries) and tell that ListCo was going to breach covenants
- I remember trying to get the PF guys to get me in front of mgmt. in Aus to rescue this
- Way late to try and rescue junior equity – Aus IB had “reached” out to Scandis but when a colleague with strong relationships with decision maker did – it has never come through their desk
- Pressure from Group mgmt. (deer in the headlights and decision quality nosedives – running around / pointless opining – dear lord) – Structured such as COF fine as you waterfall them but senior has issues – need to get out at par
- Listed Equity – not suitable for developing projects – issue = 90% down, equity too expensive & no equity-cure
- Global Head’s friend Head of Principal Investing at another – he was already thinking about it, and on our way to dinner I go “I know they are going through MBO but would he have no interest” – why SPV
