Coal

Coal – imagine having a 7bn market cap and you are adding almost half a billion in cash each quarter😂😂

Have been doing this in various roles for over 2 decades – it is important to block out a lot of noise – dear me, there is a lot of noise – even some years back when I said “coal will still be used in 2050, you can bring a new coal mine into production and still print cash for 30yrs, why are these companies selling these assets?”

Have seen it all:

1. M&A in the 00s when I started – we started to do Demand models weighted by China – we would be having champagne breakfast almost every fortnight – a company on the LSE would have the word “rock” in it and a rumour would start sending it up 40% (would have nothing to do with mining)

What is different a. The traditional model of exploration company -> junior -> mid-cap -> and then being acquired by multi-commodities has broken down; there is no sufficient amount of projects being defined and coming through the stage; why you see these rumours around big mining companies b. Approvals for M&A is going to be more challenging – it is no longer just “market concentration issues” but now “national security grounds” – deals are going to happen at an asset level (and led by sovereigns)

2. GFC – I saw companies that were trading on PER of 1.5x; think about it “the market was saying the company would not exist in less than 2yrs”

3. Early 10s – I used to carry around these teasers for Gulf investors as they wanted any iron ore asset they could find

4. China worries leading into the mid-10s – everyone was saying mining companies were going to go bankrupt – I even did simple replacement cost analysis for Copper assets in the diversifieds ie saying, even if you set all other assets to zero, the value you would get in a liquidation scenario would be greater than market caps then

5. Mid-10s – wrote about “Intensity of Metal Use” for base metals even if you take away Chinese steel and saying “position in base metals”

See through-the-noise; “through-the-cycle” – understand why you are investing in each commodity!

Tshepo Magagane

Executive Director – Pangaea Advisory / Partner – The Critical Minerals Fund