The mining sector needs to string together successive quarters of strong operating performances and “no crazy M&A” if it wants to earn back the trust of investors, the 121 Mining Investment London conference was told.
And project execution needs to be improved while only new developments with strong internal rates of return will attract funding support.
The 121 Mining Investment conference got under way in London’s County Hall this morning with a packed-out audience of more than 300 investors and 100 mining company executives.
Participating in an opening session panel discussion, Baker Steel managing partner Mark Burridge was one of several high-profile investors to acknowledge that the equities markets remained nervous about a return to the mining sector.
“We have an investor base that is sceptical … after the last five to 10 years of capital destruction,” Mr Burridge said.
“We see a sector that is hugely undervalued compared with other sectors but the sector needs to stick to its business strategy and be financially disciplined.
“If we can get a few quarters of solid (operating) results and no crazy M&A and no low-return capital projects to be built, investors will get back.”
Mr Burridge’s views were echoed by JP Morgan Global Natural Resources Fund portfolio manager Neil Gregson and New City Investment Managers portfolio manager Robert Crayfourd, who said investors wanted to see the improved fiscal discipline across the sector maintained and projects developed well.
The balance sheet deleveraging over the past few years was commendable and had to continue.
Stephanie Clement-de-Givry, global head of metals and mining finance at Societe Generale CIB, said debt funding was available for good projects though she worried about a lack of equities market support.
“I need to kill the myth that there is no senior debt for good projects. There is, if it is a good project and well run,” she said.
“Good projects will always be financed but in the last cycle a lot of short cuts were taken on due diligence and on (project) permitting.
“It’s discipline that you have to have as a management team with managing a project which will have a major impact on your ability to raise capital.
“But what worries us particularly with the juniors is that equities support is not there.”
The panel agreed that the biggest growth opportunities for the mining sector were internal, particularly through improving corporate strategies and existing operations with debottlenecking activities, and disciplined project execution.
They talked of wanting management of emerging companies, in particular, to focus first and foremost on delivering one project before being distracted by other opportunities.
The panel also discussed the likelihood that a lack of new development projects worldwide, in part because of the necessary belt-tightening and balance sheet deleveraging, could support a positive demand-supply situation that may encourage some smart merger and acquisition activity.
New City Investments Managers’ Mr Crayfourd said that in the gold sector the value differential between large and small caps was so significant that it could justify some nil-premium mergers among mid-tier players to create bigger vehicles more attractive to investors.
