Market Dynamics: The podcast discusses the challenges faced by the western mining sector, highlighting the higher cost of capital compared to emerging markets, which have a more diverse pool of capital sources.
Investment Strategies: Western miners traditionally rely on equity markets for project funding, but emerging markets offer cheaper debt options, with Japanese and Chinese bond rates significantly lower than those in the US.
Geopolitical Influence: The conversation touches on the geopolitical shifts affecting capital flows, emphasizing the need for mining companies to adopt a multipolar approach by partnering with diverse international stakeholders.
Capital Formation: The podcast highlights the difference in capital formation between western and emerging markets, noting that western markets are 85% institutionally owned, while emerging markets like China have a higher retail investor presence.
Financing Trends: There is an increasing trend of energy traders entering the metals market, providing alternative sources of capital through offtakes and hybrid structures, as traditional banks pull back from financing traders.
Future Outlook: The discussion suggests that the future of mining finance will involve more complex capital structures, including partnerships with Japanese trading houses and leveraging lower-cost debt from emerging markets.
Inflation and Commodities: The potential for countries to store wealth in metals as a hedge against inflation is explored, with implications for future metal prices and the cost of building new mines.
Industry Challenges: The podcast concludes with a discussion on the difficulties faced by mining companies in navigating political risks in emerging markets and the importance of having a strong management team to create value.
Transcript
And that's why the mining sector in the west is capped. And that's the underlying problem for western markets is the incentivization is not the same as an emerging market which has a much more diverse pool of capital. Fascinating. I mean we we did a deep dive in the forest and as well been been reading about like sort of sino gold and that sort of the same sort of time when that kind of got started and >> it's crazy it's crazy to to to read about you know Jay Klein at the time speaking about journeys that would take 15 hours and by the time he sort of left the country in that venture it's taking 5 hours cuz there's highways crossing valleys there's you know plane trips going there's airports being built in places where barely a city before. >> Well, sometimes there's no cars. So, I remember we'd catch a train out from Beijing West train station like most Thursdays nights and we wouldn't even know where we were going. We'd get into third class. would just play poker, eat nuts, and drink beer in in the train. And like all all the all the passengers would come and play with us and talk to us. And um and then you'd get just get off somewhere and you know try and find a restaurant and somewhere to stay and you know the next day you'd have 500 people outside of wherever you were staying trying to sell you something and might get a couple of horses and away you go into the Yeah, that's amazing. Like you you'd knock on a door and say, you know, have you got dinner? And they go, what do you want? chicken, cow, pig, you know, okay, we'll have lamb. They build a fire on the road outside of the house and they'll they'll put the lamb on it, give you some beer. You're just sitting. There's no cars going past. It's um it's crazy. >> What an experience. >> All right, >> JD, we're uh we're joined by Willow today. And Willow, you're unlike any other guest I think we've ever had on our show. Not just because you're an investment banker and we you know we usually don't let investment bankers on the show but um but because I mean you're one of the you've got one of the most unusual um I guess stories or like your your own journey. You grew up in South Australia, went to high school in Japan, uni in China, 27 odd years um with JP Morgan, SCB and HSBC doing enormous kind of you know metals and mining M&A transactions. A lot of our listeners would be familiar with the likes of you know John Deep for Northern Star or Red Chris for Ukraansi Yanko Rio. I mean these were these were big big deals. You were a part of them. These days you've um you've kicked off uh Pacific one which is you know a business you own and continuing your career. I think you've got a pretty unique lens of the world. Not only your your history, your trajectory, but your insights into that the kind of Asian capital world having lived there, you know, speaking the the languages yourself. We're delighted that you're joining us and um as we're going to kind of reflect on the week that's gone and uh and some of the big themes that as we look ahead. Welcome to Money Mine. >> Great. Thank you. Thank you guys. It's a great service. I listen to you every week and I know a lot of other people do as well. It's fantastic. >> That's flattering Willow. We're very excited and I think for the the reasons that Trav just outlined, your background makes you pretty uh uniquely suited for the conversation we're going to have. So, >> although he's got to be cy when we ask him about companies, mate, because >> every investment banker will actually not really tell you what they really think when you ask him about companies. It's just it's good business good business. >> Not publicly. Yeah. On the theme of geopolitics and uh cost of capital, where funding is coming from in the resources world, where it might come from in 5 years and 10 years time though, you're you're pretty primed. So, I think we should start the conversation in that kind of spot because we caught up a little while ago and we spoke about the big shifts underway as well as your positioning in in Asia and how you sort of see the flows as well as your experience in working in junk bond markets in in debt markets. So I want to I want to sort of start this conversation at at a kind of broad level and understand what you think are the big trends in the cost of capital and how miners are getting financed as we sort of see it today. >> Yeah. So if if you're a western listed miner, you've you've always kind of done it one way. You you get project funding, you you go to the equity market and you raise equity. And when emerging markets were pretty small, you know, that was that was the only way did it. Um, some of the bigger projects the Japanese financed, you know, along with the majors, iron ore and coal and and copper and other things and and that was very effective. And you know over the last 10 years especially we've noticed that a lot of the western countries have really been hollowed out in terms of their industrial capacity and that includes uh mining and certainly processing. And one of the surprising things to me is a lot of the western politicians don't actually try and solve the problem. They just band-aid over it with you know handouts. Um I mean what what is the problem? The problem is that um the two things western equity capital is is now a lot more expensive than emerging market capital. I don't really like to call it emerging markets cuz China, Japan, Korea, they've emerged, you know, they're they're the industrial economy is not not the west anymore. So it's an average of 66% more expensive is Western equity capital when you look at um you know very similar companies and a number of them over the last 10 years. So that's that's a huge difference. And then debt capital, I mean that's very easy to to reference. You've got um Japanese and Chinese 5-year bond rates which are below 2%. You've got US and most Western countries about 4 and a half%. I mean that that makes a huge difference to your IR on a on a project. And so if you're just doing it with Western capital, you're competing against companies whether government sponsored or not that that are competing with far lower cost of capital and therefore much higher IRRs. And so how do you acquire a a you know a copper mine for example with a much higher cost of capital relative to your competitors? can't >> to to tap into that point because I think we start talking about cost of capital and we're at real risk of losing the people that are not from a finance kind of background. So >> it's everything it's everything in a capital intensive industry. >> Yeah, exactly. So if we can really break it down to to the nuts and bolts and what the ramifications of a high cost of capital are for, you know, from say an Australian perspective or from a minor perspective. >> Yeah. So if if you're a Zigin for example and you trade on 12 times EBIT DAR and you're you're buying something at four times EBIT DAR fantastic cuz that four that EBIT DA just goes straight to your 12 times and there's value created if you're trading on four times EBIT DAR and you're buying something for four times EIDA well pretty hard to create value off the bat from that and you certainly can't pay what Zigin can. So that that that's just a simple example and and the same applies to let's say you're investing a billion dollars of capital in into a project and you need a required rate of return. That's very hard when your cost of equity is is so low. Um so so high sorry um and we've skipped over a little bit because the key point is why why is that c I mean cost of debt you can probably understand you know the western countries are in a higher lever um but why is cost of equity uh so high for western companies given that all we hear is that oh you know the US market has higher multiples and and it does it it does for other industries it does certainly for tech and it does for infrastructure Well, why mining? Well, if the problem with the western equity markets is that they're now 85% institutionally owned, right? And what does that mean? That means you just crowd capital into where the LPS or the, you know, the ultimate al asset allocators want. And what do they want? Well, they want they're happy to have volatility and operational cash flows like tech, but it has to be capital light. So, I have to be able to invest in like 10 of them to to have two or three of them come off. Fantastic. And if it's capital heavy, well, it better not be volatile. So, infrastructure, love that. In fact, I don't really care what I pay for infrastructure as because I know the return that I'm getting. But mining's in between, isn't it? It's it's high capital intensity and it's very high volatility. And as a generalist, which I used to be, you know, that's the worst of both worlds. Why why am I going to bid more than four times EBIT DAR for a company like that? And that's why the mining sector in the west is capped. And that's the underlying problem for western markets is the incentivization is not the same as an emerging market which has a much more diverse pool of capital. So retail in China for example is 80% of the stock market. Completely different. I mean that's that's how western markets were 50 years ago. And that there in lies the difference in capital formation and the difference in capital cost. And then that um gives an advantage to those those companies and it's it's not just China it's it's it's Korea, Indonesia, India, Saudi um yeah >> so when you think about the the equity markets though the you know quite famously that the Chinese broader indices they haven't uh performed phenomenally well in in recent decades say the last 15 years since the the the GFC FC despite that they have gotten bigger there. There's more and more companies being being listed there. So the the kind of gross market cap is growing whilst the performance kind of hasn't. Is that something you think is part of the the natural evolution and in time will do well or because of the system there that that's not going to perform in time? >> Well, when it's a retail centric market um you know sometimes you don't get the valuations that you would in the US. So you know if you go back seven or eight years a lot of the um Chinese tech companies listed in the US for the higher valuations that that makes sense. Um but most of the manufacturing either directly or indirectly and heavy industrials have all gravitated towards those markets and and either it's you know chemicals I think China is twice the size of the US and EU combined in chemicals output. So you look at a hydroxide plant, you go, well, why can't it work in the west? We you don't have the supply chain backing it up. You don't have the cost of the inputs that can compete. >> And and if we think about these these sort of pools of money kind of traversing those two, east, east, and west with a specific example in mind, FMG a little while ago announced this, remember the uh US $2 billion bond bond deal. How do you think about those bits of financing because they're they're a relatively, you know, unique piece or maybe the first of that kind of type of financing. Do you think that's something we continue to see more of? >> So, you should be able to get a a lower interest rate because the underlying government bond is a lower interest rate in China. So, that's great. But then because you're reporting in Australian dollars or US dollars and that's your functional currency, you you're going to have to swap it back um into that Western currency and that's expensive and that's the reason why a lot of people don't do it. But in the case of Forscq, they sell to China and they can sell in R&B and that would naturally hedge their R&B exposure and thereby reduce their net cost of interest. So it can work. It's not for everyone, but in 5 years time it'll be a lot more popular to do that. >> Isn't that interesting? Right. So they they get a a 2% I mean it's like you look at it and you're like this is the lowest cost of capital you can have as a western miner. um to well lowest cost of debt borrowing a 2% coupon on a on a $2 billion loan but you know are they are they are they able to do that and because because like China has a a political or will to you know want to toddlerize as well like if um if they're selling in R&B is that is that is there some advantage and incentive for for that >> I think we all overestimate the government's hand in a lot of this and that is the Chinese banks wanting to expand outside of China. I mean, look at what they've done in Indonesia. The Chinese government, the Indonesian government didn't have much to do with that really. It was Sing Shan and a whole bunch of very private, very proud Chinese companies that put, you know, maybe 50 billion in capital now in Indonesia and nickel to build up all of that industrial um size. And and it's only now that the governments are kind of getting involved. >> The capital came in because of the >> the government goal setting. >> Yeah. I mean the the industrial park like tax tax breaks for you know big big windows of time and everything that was the the landscape that allowed capital to to accumulate though was it not >> that was that was part of it >> part of it but you know the the capital from tingan wasn't government capital sure like every government you have an industrial policy that encourages lending to certain sectors but it doesn't dictate oh we're going to go and spend450 billion dollars in Indonesia and and ruin the nickel market. >> Mate, we've just got to jump in with a quick public service announcement. We are one short week away from Africa Down Under ADU next week. >> Less than less than a week, mate. The conference starts on Wednesday next week. >> It's only a few sleeps to go. >> 3rd to the 5th. So, it's a Wednesday to the Friday. We're going to we're going to be there. Come come come check like we'll be there Wednesday morning. So, if you're going to buy your tickets to come to Africa Down Under, now is the time to pull the trigger if you're going to go. I don't I don't even think there's many tickets left, mate. They're selling like hot cakes. So, you >> hot cakes. There's a number of reasons why you want to get yourself down there. You've got the biggest African miners. You've got the up and cominging ones. You got the the juniors that are doing big things. We've seen deals. >> Don't forget the delegates are from all of the different countries, mate. >> A lot going on that front. When you invest in Africa, you need to understand the playing field. You want to get in front of the face of these delegates. You want to speak with them. >> The biggest African mining convention outside of India. Phenomenal. >> That's crazy. Right here in Perth. Get your tickets in the show notes. Africa down under September 3rd to 5th. Yeah, it it is a fascinating e example in in terms of more money that's coming into the metals and market space. Traders and the the commodity traders with a lot of these guys being, you know, energy first traders, they've entered the the space. We saw another example just recently with um uh Kapushi, the Ivanho mine, and a deal with Mccuria, who have always been an energy trader. Is is that another sort of source of capital? I mean, they're really musling in on one another now. Do do you see that trend continuing? >> That's fantastic, isn't it? Because go back maybe seven or eight years, there was a few big bankruptcies in in trading companies, particularly in Asia. Only I think was one of them and there was a few more. And um so a lot of the banks pulled back from financing the traders into particularly metals deals. Um and you you remember maybe 15 years ago there was all of that LME um all of those LME problems um with security over and then a lot of the banks got out of it. So it was very hard for the traders to get any size and the metals market is what 8 to 10 times smaller than oil. So it's like well let's just stay in oil and make money there which a lot of them have made huge amounts of money and now they need to expand outside of oil and so metals is obvious but Glinkor and Traf have had the lion share of the the best markets. Um so now you've got 8 to 10 others that are heritage oil but coming very very aggressively into providing funding. So either offtakes or prepay or hybrid type structures that's different from equity. um you can have equity warrants or or debt and it depends how it's structured, but the banks tend to sit behind those prepaid facilities and lever it to between 50 and 80%. So the trading company ends up not having to put so much equity into those facilities >> and and from another sort of source of capital, you've got the the streamers and the royalty players getting bigger and bigger. If if we kind of piece it all together, what what do you make of the this the statement that there's a a shortage of money for mining companies? >> There's definitely a shortage of capital for mining companies at certain stages of their development. So, right now, I mean, and it's fantastic that the the Perth retail brokers and brokers are raising all this money for for for mining development companies because that's really hard capital to to get. Um, so the exploration capital is a bit easier now to get, but the problem is when you come to actually funding the the the construction or or the bigger capital and you're a 50 million buck market cap company and you've got 400 million of capex to spend, you know, how do I do that? Um, and there's not necessarily capital available for that from traditional sources. And that's why, you know, we sit there going, you've got to you've got to look at layering your capital structure. So, how do I get a Japanese trading house in here? How do I get um a royalty structure in here? How do I do offtake? How do I then bring Japanese or Korean or XM bank debt in at the project financing level at a lower cost? And how do I layer all of those um capital structures so that the equity market understands what I'm doing? It's not too complex, which is very important in an Australian context. and and so my cost of capital is low enough that it justifies me doing the project. >> That Hud Bay example that we spoke about a couple weeks ago, that feels like a prime example to to put forward in in unlocking like the first kind of steps of that with the Japanese trading houses coming in, right? >> Yeah. Fantastic. I mean, what what a great result for Hud Bay, you know, both of them. Um but but Hud Bay in in particular. So, they've basically just taken all of the capital capex needs away from themselves. Mitsubishi comes in and funds it all. Pudbay was trading at, you know, round numbers, let's say seven times. They've brought in capital at 1.1 times MPV. Great value arbitrage. I mean, everyone that can do that should do that. Even if you don't even need the capital, you should be buying back shares to reduce your your equity count because you're replacing expensive equity with with cheap equity. >> The inevitability of um of the world's need for these metals, it's just like it's so compelling. It's so obvious. But where is the capital going to come from to bring you know these new developments online if it if it is you know scarce? So it's not going to come from western equity markets. That's where it's not going to come from. And where it is coming from is industrial i.e. Korea, Japan, China, Indonesia and emerging markets. I mean the the capital coming out of Indonesia now is enormous and a lot of it we don't see because they might not be public companies or they're not listed on ASX or NYC but that is huge capital. >> Is that because they understand like the the need for these materials because they have the know the industrial downstream component some respects or they're tied to it in some respects. So they're they've got the foresight to think you know 20 30 years in the future. I I well yes partly because if you you know live in Jakarta or you live in Shanghai or or um you live in Riad you see masses of construction every day and okay things are growing let's let's get on board that train but I think the the bigger issue is is when you're growing an economy those materials are really important and the security of those are really important but more than anything they're just arbitrageing the the higher cost of capital in the So they're saying, well, this is a gap in western markets where where it's too expensive for them to play. We, you know, and and maybe the the processing is too environmentally unfriendly and and there's a whole lot of other issues, but that's a gap that our capital can play in that we're not competing with the West. >> Tell me tell me more about like yeah, the ways in which you're seeing this capital um you know, find its way into into Western projects. Um, yeah. So, and and this is the thing. It's not it's you can't just go out to auction and say, you know, highest bit of wins to be my partner. That's not how it works. I mean, these are big sophisticated companies usually that that have their own checks and balances and their own systems and their, you know, every time table's different um and they're all looking for a different thing. So, it's a bit of a challenge particularly to a midcap or a small cap to Yeah. You can you can go to Japan and have a whole heap of meetings, but what does that mean? And then how do I compare that to Korea or Indonesia or China or Saudi or UAE or India? Um, there's no one you can go to that's that's going to compare all of those together and say that that's what makes sense for you because most of the service providers have they either want you to raise equity or they want you to do a high yield bond or they you know they've done a few deals in Japan so that's great. We want to go there but they don't know about the other side of it. So it's very, you know, they don't know about offtake agreements. So it's very hard to layer that capital structure efficiently. Um, that's the opportunity for P1, isn't it? >> I was going to say that's where that's where a great advisor would sort of fit in. How do you how do you piece in uh US junk bonds and that and that kind of market because they've um had an interesting history uh financing Aussie resource projects. Yeah. So I I was at um JP Morgan for a long time and you know they have a very powerful US um centric high your bond desk which is >> I've heard Chris Allison talk about it. Yeah. >> Right. So it's a it's it's a great market. You know it's not not something to be scared of it. Um because before you know you obviously had forescu right and that was that was a fantastic way of financing what what they achieved and >> and what no one else kind of would have financed >> right because because you can get capital it's just a it's just price right and I think I think actually min said that on on the call it you know execution risk is not big it's just a question of price and And that and that's great. It's bullet finance. So you you know for 5 years plus you can sit there and you've got the finance and the next 5 years cycle doesn't really matter so much. Um uh but then you then you just simply roll it over and whatever price you know it is at the time that's how you've got to time it. and and the the you know with regards to that priciness you know the cost of that how do you piece that in with what it might cost from these Asian kind of players that you think about. >> Yeah. So I mean that's purely debt. Um and usually it it's a little bit more costly than a loan. Um only a little bit and that changes over time. Um uh so that's debt from Asian players and and you know leaving R&B loans and debt aside um uh you know a lot of the capital's equity like so you know I guess the next step down is is kind of offtake and prepays with with warrants so equity warrants to to give a bit more of a return and then you go all the way down to a Liscoco equity investment minority or or an asset level investment um minority which the completely different style of of capital. >> Yeah. And the the I suppose like the growth of the Nordic bonds to to finance more spicy types of projects is is a is another trend that we're kind of pretty to at the moment as well. >> Well, I think I think given private capital is growing so fast that that sort of structure is is going to make a lot more sense and open other doors for for mining companies. So the Nordic bond is, you know, yes, I think originally it, you know, it was for Nordic moms and dads at home, but it's just a structure that then you can sell to lots of different credit funds and um and I think we'll see more structures like that over time. >> So where like where does the cap like let's say, you know, Minres raises money in the US junk bond market. Are they US investors or are they are they are they investors that are actually like Asian? Uh I I didn't set up that question but that is a good question. Um so that used to be principally US investors. So a book would usually be like 80 90% US very US-heavy but over time all of those US funds have established their offices in Hong Kong and Singapore and other other parts of the world. And so now the book is at least 50 50 you know US um Asia and sometimes a lot more Asia heavy. And the reason the reason for metals and mining in particular is that Asian um issuance is much larger in metals and mining than it is in the US because there's a lot of companies there's a lot of need. A lot of the Chinese companies raise short-term debt and bonds from markets and that's the way they've financed themselves. And so if you're a portfolio manager sitting in Hong Kong, you're going, "Yeah, I've I've seen this this sort of gold company, you know, a hundred times before. I've seen this sort of aluminium company. I know how the supply chain works because I already have investments in bonds in a in a bunch of the the peers. And that's why for metals and mining company companies, Asia is a really important part. So is the US. It's um but it's important to understand that they're two different buckets of capital. >> So the way the way in which the the I suppose the government forces in very recent history are trying to level the playing field from a cost of capital. It's um >> I I'll get angry kind of talking about it, but but it's it's frustrating in a lot of ways. is do you have the same frustration in in um in I suppose the you know the approaches we've seen today of government to lower the cost of capital of of western mining you know projects and companies >> yeah I mean look I mean and we could talk about geopolitics for a long time but clearly you know the US is not as strong as it was 10 years ago um and China on every objective measure is a superpower like it or not it it just is um I'd say the west bandaid some of these problems. You know, they're short-term sugar hit, get a good headline, photos are happy because something's being done, but no one really understand, you know, it doesn't appear that the governments really are even bothering to understand what the underlying problems are. What what are the causes for a lot of these things? And then I'm I'm sure some in the government are, but but if they did, then you would form policies, underlying policies to address some of those issues, not not handouts and band-aids and sugar hits. And the problem is the more we sugar hit, you know, the less economic it becomes. I mean, in rare earth, I I get it. you you need security of supply and and it's not that big an industry so it's you know it's relatively easy to solve but you've what have you really done you've now got a structurally higher cost supply of of inputs into the industrial complex you know and in the military I mean as we've seen in Ukraine you need very cheap production to to multiply your your forces and having high cost inputs is not the answer >> you you said we could kind of speak for hours about this this geopolitical theme and and I think we easily could. So, let's tap into it for for a bit because it's kind of implicit what we were talking about with with the funding there. You know, it's it's it's the kind of read through line and is it going to be that easy to have capital flow from from east to west and all these sorts of things. So, do do you see there being difficulty in, you know, countries like Indonesia, for instance, if we're trying to have that money come in to Australia, like they're in a a kind of funny middle ground between Asia, China and Australia and the US. Do you see there being blockages on a geopolitical front to that capital flowing? I hope not because what what is happening now is becoming a multipolar world and lots of bilateral negotiations between countries which are you know is different to what we've seen in the last you know since World War II. And if you're seeing that, I think you've as a company, you need to start to be multipolar as well. So if I'm thinking about my So what's the easiest way to equalize the cost of capital? Well, it's get a partner in with a lower cost of capital than I do and supplement my capital with that partner. Now, do I just pick one country and that's the country I want to go to? I don't think so. I think from now on you need to be multipolar. You need to have a Japanese partner, a Korean partner, a Chinese partner, a Indonesian partner, a Arab partner, an Indian partner. I mean, that would be fantastic. And then none of them have power over you, but you have access to each bucket of capital depending on what you want to build, expand, buy, because it's all different. It's all different costs and it's all different terms and they're all different cultures. When you think about the the mining companies that could potentially do something like this, you'd have to be of some sort of scale. And at least in the West, there's really not that many mining companies that are of sufficient scale that could have the bandwidth to set up relationships in all the countries you've just mentioned. Do you think I'm right in saying that? >> Yeah. So I think Simito met Metals just put 5.5 million into Miridor for example and and you know how how does that how does that form? How how how was that originated? How many counterparties would have Miridor talked to before they decided on on that? Um I I think it's really hard to navigate and then you know you go to the Middle East and you can fly around for weeks and I mean it's a big place. There's lots of cities and they're all different countries. you know, it's not a and and and you know, Asia is obviously very different depending on the countries as well and and it's for a lot of the companies they they they some some of them will see a lot of the the counterparties, but they'll often be the traders as opposed to the investment guys and so do you are you really talking to the people that you need to talk to to influence an investment decision? >> And and do you think one of the other sort of ramifications of this multipolar world is inflation? Yeah, un undoubtedly, you know, because if we're reducing the efficiency of the supply chain, then you're getting cost imposts at every point. And the more closed you get, the higher inflation you're going to get, particularly if you reduce interest rates. >> You you've got you've got some u some interesting views you shared with us when we caught up a couple weeks ago, mate. um just in relation to to how how people might choose to combat inflation and look for stores stores of value. Do you mind sharing that? >> Yeah. Right. I I'm I mean this is obviously all very personal um opinions, but uh you know if I'm a government anywhere else than the US, I I historically have just looked to US treasuries as my store of value. That's where most of the world uh look to store their value. and and now that's looking less certain and and certainly you don't want to have most of your wealth parked in that store of value. And so gold and bitcoin and maybe silver are the first first places to turn to because there's no real alternative like a digital R&B currency is not not ready and and people aren't ready to accept that wholesale yet. So, so where to next? Cuz gold's only a certain size and it's already gone up. Bitcoin, not sure whether that's a store of value or of a or a good way to transfer value. But if I was a Middle Eastern government, I would start buying and storing metals with positive contango. So, they're, you know, aluminium, copper, zinc, um, nickel. And I mean, that is a store of real wealth. It can't be taken away from me because the property laws change in a country. It it it can't it's not going to change because someone changes interest rates or I can't move my money from here to there. It is a real store of wealth. And I I think that's probably the next leg in in metals as everyone searches for somewhere to put to park uh their reserves >> that that has uh pretty real borders to it as well because of the the physical kind of constraints of of a lot of these things. And you speak about doing it with gold, but gold being a finite kind of market. It's the same issue with with a lot of these. So, we're not there yet, but they'll they'll touch a boundary and if you know a a number of countries of significant wealth try to do this, we touch that boundary pretty pretty soon as well, don't you think? >> Yeah, I think we're we're starting to see it. I mean the the there's a lot of economies that are slowing you know the industrial output of China for example has slowed steel's slowing you know that that naturally feeds into um copper and other metals but but we're not necessarily seeing those metal prices weak I think because we are seeing um a bit more storage that's off LME and off um yeah not public >> when when you say like like storing the ones with positive contango are you are you talking about any any financial trades to to go along with just buying the physical and storing it or you just you're just saying that the ones with positive contango would be more attractive general. >> Uh you you could do I I don't think you'd make it that complex necessarily. You you just want to store your wealth in a diverse set of assets particularly ones that can't be taken away or don't inflate away. So it doesn't really matter what inflation is when you've got metals because that's going to match or better inflation. This could have pretty pretty severe implications on metal prices in a in a pretty short period of time if if you know multiple uh yeah like Arab countries come to a similar conclusion at a a similar point of time and start doing that. >> Yeah. >> Even worse than that if you think multi-polarity could be bad for inflation. What this could do to the the price of a a computer, you know, anything, a fan, an air conditioner be pretty pretty huge, >> right? you know, I think we're living through the start of a of a massive change in geopolitics, which um is is exciting and terrifying at the same time. >> And I I tend to think with these things that people don't really act until the the problem is really in their face or the problem has started to happen. So the the >> we got to lower we got to lower interest rates, right? cuz people don't think inflation is going to be an issue like >> well the the value of treasuries really has to start deteriorating to a serious degree before people will act on on these things and maybe they diversify their measure to euros yen bitcoin gold and then you start to see the metals kind of move >> yeah I I think it's I mean look there's a natural status quo bias that you want things to remain the same because that's the easiest way to think about the future but ultimately they they never do and It's usually long cycles, but um that means when they they shift, they shift big. >> And and for the mining companies out there, this would in effect pull up the bridge behind them. The ones that have built the project would kind of get to the promised landish because they are now receiving higher prices, but the builds to build a new mine would go up significantly because >> the input costs go up. though it's it's got a kind of compounding effect. So how do you think about the the mining companies in this world? >> So that's right. So you'd have inflation of costs, but um you'd also have a lot more M&A where it's not just countries, it's going to be families and and and big companies with big reserves. They want to store that wealth. And for gold in particular, but also other metals, buying metal in the ground is still metal. It's just not mined yet. So that that's still a hedge against inflation and geopolitics. It's just that you're owning land. Um, so I I think it's got big big positive implications. So, you know, and bringing this back to maybe a mining company, running a mining company is hard. you know, it's not just the financials and it's, you know, it is native title, it is regulatory, it is you've got you've got so many moving pieces and you know it's very very difficult to go from a explorer and a developer to actually constructing a mine but but please keep going because you know I think the rewards will come. And I I feel like with all the topics we've spoken about, Willow, there's one we need to piece in here, and that's energy. Because energy, when you think about like the cost of energy in China versus the US and where that's kind of heading in a in a world trying to combat climate, um it it is a significantly moving part, especially if we pull in the the Arab states as well, which have a very cheap cost of of energy. So what ramifications do does the price of energy have on all these things that you've been thinking about? >> Well, I think it it it's so yes, it's energy, but it's more using that as a concept. So So what the US was really good at in the 40s, 50s, and 60s was underlying productive infrastructure, right? And that includes energy. And so, you know, let's just take a few of the the the building blocks. So the inputs into some of these um processing units. So, you know, China has twice the electricity capacity of of the US. That that is amazing. And building absolutely massive infrastructure um to to underline that advantage. It produces twice the chemical content that the US and EU does combined, right? That that is just such a big advantage in in unit cost. Um uh in in rail freight it's about twice as big as uh the US. I mean in mining engineers there's 20,000 mining engineers every year graduating in China. There's >> maybe a thousand in in you know in Australia. >> Way less. >> Yeah. Exactly right. The scale is just a completely different um size. And all of that is in productive capacity. It's not in super yachts and it's not in watches and it's not in handbags anymore. It is in productive capacity. That is very very powerful and it and then it multiplies over the rest of the economy. >> But China, you'd imagine would want to get to that that higher level where where brand attaches value and and you can become a a service type economy like this is what all these other countries did a while ago. So yes, and I guess we all sit here going, "Oh, well, labor cost is cheaper in China." It's not that much cheaper in in some ways it's it's more expensive, but labor is not a key input into a lot of this anymore because robotics is kind of taking out. So where do we do we care whether robotics are in China or the US or any other country? We don't. All we really care about is the input the other input costs like electricity, chemicals, copper. You know what? What makes robotics? Rare earths, copper, aluminium. You know, where does 60% of the world's copper go to? China. 6% goes to the US. >> Jeez, there's a a lot to think about there. it there's a lot to reflect on in uh the whole yeah that entire bit you know super fascinating I feel like that those are the themes that are going to kind of define the next next decade in in our industry geopolitics for sure um and yeah appreciate you sharing them we're going to pivot to talk about some some news of the week and um this is like a relatively new new thing we've been doing Willow but grade control is uh one of the segments where you know give a letter A to F on uh on on on a certain kind of corporate action of the week. Are you up for that? Are you are you actually going to give grades to companies or >> Yeah, because I'll give them all A's because they're either >> prospective clients. First up, BHB have signaled that Nickel West is up for sale again. Now, to give you a slight out, you can um yeah, you can get creative on on the grading. I I'll say I'll leave it at that. Well, I think all of the majors need to simplify like Rio just announced as well. And if they're not going to productively develop and harness these assets, then let's try and maximize value by by working out who's the best operator and owner of those assets. So, I think it's a great idea that concentrate on your most productive assets and give someone else a chance on the others. Yeah, I I I um I'll give them I'll give them an an A when they actually like transact here. I think they're going to have to pay someone to take Nickel West off of them because of the um the pretty inordinate rehab liability associated with um with what's happened at Camp Alberta there. But um but I mean this, you know, the return on capital they were getting at in the nickel business even in the years before the nickel market went to to ship were were like atrocious compared to the other parts of their business. This this wasn't like a um a game changer for for BHP. It's like a social project to to keep big employment in WA and I think they were kind of just stuck with it. You know, they're finally going to part ways with it. It'll be a change for West Australians, but it's kind of inevitable. >> So, yeah. So, what if no one buys it and and then the government's forced to keep it because why doesn't BHP just go to the government say, "Well, you gave a hand out to all of these guys." >> They already did. They already did, right? that was like, you know, they they put the foot on the on the government's neck in the leadup to them actually announcing that this would go into car maintainers. I mean, the cost involved to restart a smelter, >> but but since >> since then, to your point, like Nearstar and all these guys have have got handouts and likely more handouts to kind of come. So, it's a a really sort of poignant question to to frame and let's hope we don't get to that. So what if the government comes back and says sorry what if there's the only buyer is Chinese of the smelter not the mines and they've got the tech and the and the capital >> to fix it and and create jobs >> you know what you know >> that's a very interesting question the first big test of furb >> that would that that would be a that would be a big test >> yeah that would be a big test >> what the Chinese did with with us for 30 40 50 years was have joint ventures we would go there there would be JVS and we would learn and it's you know eating a bit of your own humble pie but bring them in and have it as a joint venture where we actually learn why they can do stuff so much cheaper and you know maybe some of those things actually aren't attainable for us but there sure as hell will be a few things that we can learn from and that could potentially be one way to to put forward a solution. Can you imagine the car industry in Australia without Toyota, Mitsubishi, Nissan, GM, and Ford? >> Don't have an industry. >> Yeah. >> So maybe maybe there's a bit of that. >> Yeah. >> We might need to get creative on a a solution and I'm sure BHB is already having to. >> I' I'd actually I'd actually prefer, you know, FB approved that than than see other form of like government hand out or bail out here. That happens, I'm changing my citizenship, mate. I'm I'm done. >> Welcome to Singapore. Does China need a new citizen? I may not join that. >> All right. Uh, next one that I want to talk about is W just very recently come out with the uh, trading halt that Bikina wants to up their stake in the Kiaka subsidiary. Uh, yeah. What do you grade this one? So it just underlines well that's greater an A because you know they might be a client later but uh it just underlines how dangerous emerging markets are. I mean e even so it's very hard for a junior to have any kind of political force in a country like that. But even if you look at EGA and their dispute with um uh Guinea I mean EGA's just pulled out and they they've had their license taken away. That's 1.4 4 billion in capital that the UAE put into Guinea. I mean, I think someone in the UAE is going to notice. And why did Guinea do that? Well, gee, there's a few other countries that have some influence over the Guinea government, don't they? So, >> well, as as I understand it, they they did fail to to meet a few promises. So, it's not completely black and white in in the Guinea Gana scenario. >> Yes. >> Yeah. I mean, I I think you're you're bang on right with with regards to to WAFT. Like the the EM risk is something we've all kind of been aware of and that's why they've traded at such a a low multiple. Like yeah, they've had a great run the last sort of three years, but we're they've executed phenomenally and they are on the cusp of doubling their kind of production. So very very curious to see what the outcome is. You love you love Wolf because you see the cash flow they make, but you always like the the true test, you talk about the true test of fair, but the true test for Wolf is like, can they ever get that money out? Well, they've had five of these types of things in the last few years and every time they just bounce back within a within a couple days, >> but they're like that's the you know, like there'll be a government coupe or whatever and they do you always buy the dip on the C coupe or the >> Yeah. Yeah. Whatever whatever. But there were was a change in mining code as well and this is like an, you know, hey, yeah, you're not being grandfathered, you're jumping on the new code and let's see what sort of valuable consideration turns out to be. If they can't if they can't spend the money like X like that they make it at um a Kiaka and Sabra if they can't spend that X Bikina Faso then all they inevitably do all they can inevitably do is just like reinvest in the country become a larger portion of Bikina Faraso's GDP and become more beholdent to the government in the process like that point >> Argentina >> exactly the same until recently >> next up what have we got mining services a bit of a slightly um change in tech here, but the mining services multiples have expanded dramatically in the last month to to two months. Curious to to hear how closely you pay attention to these ones, Willow. >> Um, sure. So, I I think it's a it's a wide variety of different companies, right? And if you're just doing dry hire, you know, big trucks that are capital intensive and you're a small cap, you're never going to win. That is never a win because your cost of capital is always going to be too high to compete with particularly McMahon which now get their money from Indonesia um Burma Indonesia um how long will T be around you know so that that big dump truck open pit stuff is is difficult and I suspect you'll see some other capital coming in to support um the existing players or or or form new players. Um the the the industry leader is is probably FLS Smith in which is a Danish company and that does a lot of the processing equipment and conveyor and whole bunch of different stuff. They trade on 9 and a half times debit d and it's 80% uh services mining services mainly but sorry the the um the the other bit of that is that underground services are completely different and it's really difficult to find skilled underground people. >> The skill set of being an underground you know mining service provider versus open pit is very different. It's more specialized being underground and that specialization is scarce. But the people who have that specialization JD of underground service providing or underground mining, they always repeat one thing to me whenever I talk to them. We use Sanvic ground support. It's the >> Sanvic ground support. Just like the best people want to work with the best people, the best people also want to use the best equipment in the industry. And that is provided by the team with the R&D squad at the cutting edge of technology. Sanvic ground support. >> Not just the best the best ground support, mate, but the safest ground support, most innovative like you talk about. And >> they too have the best team. >> It's true. And it goes one step further. They've also got manufacturing and distribution hubs in every corner of the world. So they can get on the phone with you quickly or you can just put your order in through the new app that they've got and they can get that out to you quick smart so that you keep getting the tons out of the ground and keep producing that metal that makes the world go round. I don't think there's ground that can't be supported by Sanvic ground support. >> Go Sanvic ground support >> and and management teams. Um, and when we're talking to non-Australian capital providers, we every conversation is stop looking at just the geology. Start looking at the management team that is going to produce the value because a a really good management team can produce huge value out of a average geology. A bad management team can destroy any geology. There's there's um not not all mining services companies are the same. Not all of them are are capital intensive. A lot of them are, but like some of some of them are capital light. >> Oinker you had zi on the other day. >> Yeah. Yeah. And like that's that's a you know great example. Parallel that is still listed on the ASX like um G&G like you bring up the chart four bucks 40 um trading on like I saw I saw one broken note trading on 24 times FY26 earnings now. like kind of remarkable multiples. But if you go back in time and you know back to when the period that Jimmy was talking about with the Senko, the multiples of that he was talking about with with the Senko at one point in time was just astronomical as well. Like we we have lived through an era where mining services multiples like were were crazy. >> Where are all the new mine >> builds? And and and now we're now we're seeing like ASX listed mining services companies both capital heavy and capital light um expanding pretty heavily on the uh you can see that on the focus charts we'll bring up right now by market tech. Yeah, I mean it's great to see them actually get a bit of love. So I'll give it an A for for that because so many of these companies their share price is in the in the doldrums for years and years and years. So you can expand that to McMman's like you mentioned mah parent as well. They're well north of two bucks now. So they're all having their kind of day in the sun and kind of see how they how they capitalize on this opportunity if they if they kind of can. >> Last last one to give a grade to um Willow. Two days ago was the 20th anniversary of um a very interesting kind of corporate corporate event in Australian mining history. It was the uh 26th of August 20 years ago was the the day in which Rio accidentally let their shavalana iron or project tenementss lapse. This junior Kazalei picked those up at the time. Now then there was this big court battle that played out. You know you were you were paying attention to Marcus. I'm sure you remember this. Um we had to learn about it in history books. But um Rio ended up kind of you know arguing about how this all played out. They apparently something got like they wanted to um you know renew their tenementss but something got caught up at a at a post station in like some remote part of Australia. Anyway, but it lapsed. They you know things in the and and Kazalei picked them up in in short order. Um now in the court battle that kind of played out um what what Rio did is they argued that it was in the public interest for the tenementss to be given back to them even though they they lapsed. Um and they suggested that they would they would develop these tenementss not themselves but they do an asset swap with BHP because Shavalana is in BHP territory surrounded by BHP um infrastructure not Rio's infrastructure right so okay we're going to develop it um and amazingly right the ministerial decision comes in the minister the minister kind of overrides everything and um gives the tenementss back to Riointo 20 years later oh by the way Kazali had to pay the Rio the the legal cost for for Rio. 20 years later, RI Riotinto is still not done an asset swap with BHP. The the project is undeveloped and it's and it's worthy of being developed. Like the grade this project is, you know, it's it's it's above the average grade that the majors are producing today by, you know, substantial margin and great impurities and the likes. So, how do you um how do you how do you rate Riotinto and uh and the government on on this uh on the decision to actually give the tenementss back to Riotinto? A+ for Rio obviously. Um and special mention to the lobbyists. Uh >> they earned their fees there. Yeah. >> And I don't think we need to mark the government, do we? That's you know that's uh above all of that. >> We can mark the government here. Yeah. That's an F for the Australian government. That was clearly not in the in the national interest and >> giant F >> for Cazi to have to pay the legal fees for for just being smart and on the ball. Yeah. Yeah. A fascinating one. All right, let's move into sweet and sour deal. We've got a few to to run through here. I want to start with capital raises because we've had a few juicy ones. First and foremost, Lionus, $750 million. These guys are kept at nearly $14 billion today. The share price has run dramatically. I'm kind of gobsmacked by this one. How do you sort of think about this sweet or sour deal and and what are your thoughts on it, Willow? great time to raise capital. So, so why not? Particularly when there's a whole bunch of public capital coming in to help a lot of the other potential competitors, and that's probably not going to be positive for Linus' profits, are they? So, um yeah, let's raise capital. >> I I think you're right. I mean, this is just over 5% dilution. That is, >> mate, it's a great deal for them. Raise the money while Yeah, like >> got to feed the ducks while they're quack. What' you say though? They they were trading on 24 times last 12 months revenue like >> just reported $8 million. >> A capital intensive business. Truly a truly remarkable valuation if you >> they trade on a big premium to the Chinese rare earth companies by the way. So that's fantastic. That's >> Yeah, >> there you go. >> Are they worth it? >> Good. I'm I'm not an equity, >> of course. Okay, Cyprium. this one um more in your in your wheelhouse in the sense that uh the Tanito Group took a 9.9% shareholding. They upsized this from a $60 million raise to an $80 million raise. They were a $60 million market cap coming into this raise. >> They did have a fair bit of debt though. There was a combination the con notes >> and they'll pay down some of that with this. >> Yeah. Yeah. >> Yeah. Sweet or sour deal? >> Sweet. >> Sweet for them. um raise the capital, organize a capital structure so that they can fight another day. Um if bringing in a family like that is is a better way to get a better outcome for the equity raise and lower your cost of capital, then that's what you got to do. Yeah. >> Do you think do you think doing the the the you know the equity raise at the the corporate level whereas you know and and the dilution involved and everything like that like could they have structured something differently at the asset level or or do you think do you think it's the structuring is fine as is? >> Maybe but there's a whole lot of um issues with the capital structure already with the offtake and and other parts of how they acquired that asset. So, I I think they were probably their hands were tied and and equity was the easiest way to address it. >> Josh, >> fair enough. >> I'll give it a Yeah, I'll give it a good deal as well. Um, yeah, I mean, it was it was done at a pretty tight discount and they've raised an enormous amount of equity relative to what their market cap like was. And you don't always get to do that at a pretty tight discount. >> Yeah, good deal. Markets are open and take take the capital and see if the the asset can move one step closer to production. I don't even want to mention the other two really, but um uh some more troubled kind of company. Cyprium is historically troubled company as well, don't worry. But um like Peninsula raising 70 million bucks. They've just had a whirlwind of issues in relation to production wos combined with you know contracted revenue and um core lithium they they raised 50 million bucks this week as well. Uh any thoughts on on either of those two, Willow? No, but um I when the ducks are quacking, you you you raise equity. That's uh and I I just question, you know, so for all of these companies that are raising a bit of equity, but maybe not enough to get them to the next step. I mean, what's what's the next step? You know, you've raised enough to kind of just keep it going. How do you get to the next step? You coming back to the market? Um >> bit of a hope strategy, right? like they are taking advantage in the core example that the lithium price has has kicked up kicked up, but do you just have to wait for the next kick up? >> Well, maybe you wait for the next kick up to raise the capital you really need to um uh to to to achieve all all your your plans. Um >> yeah, I think on that point you've kind of got to give them credit for taking the hit and getting the capital on board. Yeah, >> but it does leave you in a bit of no man's land there in a sense. The peninsula one was like a you know a coalescence of various debacles all coming headto-head. So kind of see how they they move forward from here. >> They've had a few final raises but um they have the strategy of keep coming back unfortunately. Uh so yeah hopefully this one is the last one for them. Um, I'm going to give I actually I'm gonna give these ones a a D just because when the ducks are cracking like you raise equity. I get that. But I do think when you have the preponderance of equity raises, it actually it actually dilutes the total capital like like there's there's so much capital willing to participate in the space. What can that capital do? can participate in in equity raises of like I don't know mediocre opportunities or it can find a home in companies and development opportunities that um that have legs and I don't love seeing huge raises for mediocre projects because like yeah it just kind of cannibalizes um long run capital availability in my opinion. So I give them I give him a D. >> Controversial. >> Yeah. >> Projects not. >> Yeah. >> All righty. Let's talk about a couple hidden gems. I know you've got a few thoughts on this front, Willow. Um, books or podcasts or places of interest that have sprung up recently that you you want to share? >> Perth weather's colder than I thought. Um, >> we're coming out the back end of it, don't worry. >> Uh, I well, not not really. I um you know I'm I'm a big reader uh and uh listen to podcasts a lot and um you know a few books came to mind that would might be helpful that I I thought were really good. >> Um Goliath >> what's what's that about? >> Goliath is um about the history of antitrust in uh the US which basically shows the long-term cycles from the mid 1800s through to now and how the governments have kind of managed you know to break up standard oil and put it back together >> busters. So, and and it goes just beyond blue and red, but but to much longer term cycles, and we're in one at the moment. It's fascinating to then, you know, to look at the 30s and look at now, and it's very, very similar. You know, in 1923, um, Andrew Melon had a monopoly over aluminium. Well, what's the first thing when he became, believe it or not, finance secretary? Well, put up tariffs for aluminium. That's easy. Yeah, >> that that is great. That one's going on the list. Any other >> Oh, sorry. Um, history of uranium. I mate, just give me one minute on this. It's fascinating. So, um, World War II, biggest producer of uranium in the world is DRC. Fine. It's owned by Belgium. Uh, Germany invade Belgium. First thing they do is bring down some ships to DRC and go, "Where's the uranium?" And they've gone, "Oh, no. They've taken it. They've flooding the mines. It's all all gone." And um couple of weeks later, the the Belgian delegation turns up in uh in the US and goes, "Um, we we've got something you might want. It's a whole bunch of urania." They go, "No, no, we got plenty. We don't need any of that." And they go, "That's fine. Here's my card. If you need some a bit later, you've got my number." About 6 months later, they go, "Yeah, okay. We get it. Um, we'd like that. Please, please come in. Let's talk about it." And so he he comes in and they negotiate price which I forget maybe it was $20 billion the biggest ever foreign deal that the US had done at the time. You know confirm that the money's changed hands and uh you know the US has gone right well where is it? Where is it? And he's thrown the keys across the table and gone down in dock 46. Uh >> that's such a great story. >> Yeah, >> that one's definitely going on the list. You you've got a few others there that stick out. Chip wars. >> Yeah. Well, most people have read chip wars, which kind of talks about uh the the the semiconductor supply chain, which is fascinating. It has a lot of um uh sim similarities or it rhymes a lot with a lot of the metals supply chains um choke points which is written by the same guy um which talks about the the financial or economic uh war that that um countries wage against each other other and you know the US China thing is pretty pretty interesting for that at the moment. um two that are kind of unrelated to mining. The brilliant abyss which is um all about uh uh under the sea which when when we think about seabed mining which I'm I I think is a good idea in some circumstances. Um we've destroyed so much of the sea uh thus far. It's just important to kind of understand what we're destroying before we just blindly go and do it. Um, I'm not saying seabed mining definitely does that cuz it doesn't in most cases, but um uh the other one is uh the hidden life of trees. I love this stuff. So, um it's about old growth forests and how they communicate over over thousands of years. You know, they support oh so they each tree has personalities and they support old stumps that died for, you know, sometimes 250 300 years and others that they don't like they'll just let die. It's pretty cool. That's remarkable. I'll have to I'll have to do a bit of reading myself there. >> You're student of history, Michael. So, how how how is how's the the history there going to, you know, inform any uh any decisions or oppositions you make right now? >> Um well, the sorry the book I don't have in here is called Range, which compares um I'll get back to your question, which compares Federa to Tiger Woods and how they were brought up. So Feder had played I don't know 20 different sports and then you know just decided oh well I might as well play tennis and and that's why he's so naturally skilled but Tiger Woods only ever played golf but um I think just all of these inputs so you know understanding equity markets understanding industrials not just mining because a lot of people in mining have only ever done mining they haven't understand different languages different countries different um systems and and and read broadly that gives you a lot more pieces of the puzzle that you can put together to form a solution that uh >> multi-disiplinary learning. >> Yeah. >> And a couple podcasts to to wrap it up. >> Oh, the rest is history and and Empire with great great stories, but they're running out of history now. Um >> 600 episodes in. >> Yeah. And multipolarity. Um pretty pretty honest take on on China US relativity and and EU politics. That's pretty cool. All right. On the theme of podcast, most people I've sort of speaken spoken with. I would have rambled about this one, but founders is a fantastic pod. And on the book front, recently read the big rich on the Texan oil families, the four families that dominated that over the last 150 years was fascinating. A lot of parallels with with uh resources. And with Texas, there's seemingly um uh a lot of relatability to to WA and our uniqueness, which is was fascinating. And read over the weekend, the rise and fall of Alan Bond. An interesting kind of take, but awesome to learn about WA in in the 70 or 60s7s and and 80s and and that kind of era. So there's a couple in the mix. Thank you so much for joining us, Willow. the the way you think and the experiences you sort of bring to the table are are fascinating and make for for such a rich conversation. So, I appreciate you making the time for us. >> Yeah, thanks for having me and congratulations on a great great show. >> Do you want to do you want to help us thank our partners? Willow, you can hang around for this outro. Thank you so much to our partners, mate. We've got Axis Mineral Services. They crush rocks from big to small. >> They do. Sanvic Ground Support, the the only name you need to know in the ground support industry. Africa Down Under. Tickets up for sale right now. Conference is next week from September 3rd to 5th. And last but not least, mate, >> focused by architectur. >> I'm an idiot. JD is an idiot. If you thought any of this was anything other than entertainment, you're an idiot and you need to read out a disclaimer.
Mining’s New World Order
Summary
Transcript
And that's why the mining sector in the west is capped. And that's the underlying problem for western markets is the incentivization is not the same as an emerging market which has a much more diverse pool of capital. Fascinating. I mean we we did a deep dive in the forest and as well been been reading about like sort of sino gold and that sort of the same sort of time when that kind of got started and >> it's crazy it's crazy to to to read about you know Jay Klein at the time speaking about journeys that would take 15 hours and by the time he sort of left the country in that venture it's taking 5 hours cuz there's highways crossing valleys there's you know plane trips going there's airports being built in places where barely a city before. >> Well, sometimes there's no cars. So, I remember we'd catch a train out from Beijing West train station like most Thursdays nights and we wouldn't even know where we were going. We'd get into third class. would just play poker, eat nuts, and drink beer in in the train. And like all all the all the passengers would come and play with us and talk to us. And um and then you'd get just get off somewhere and you know try and find a restaurant and somewhere to stay and you know the next day you'd have 500 people outside of wherever you were staying trying to sell you something and might get a couple of horses and away you go into the Yeah, that's amazing. Like you you'd knock on a door and say, you know, have you got dinner? And they go, what do you want? chicken, cow, pig, you know, okay, we'll have lamb. They build a fire on the road outside of the house and they'll they'll put the lamb on it, give you some beer. You're just sitting. There's no cars going past. It's um it's crazy. >> What an experience. >> All right, >> JD, we're uh we're joined by Willow today. And Willow, you're unlike any other guest I think we've ever had on our show. Not just because you're an investment banker and we you know we usually don't let investment bankers on the show but um but because I mean you're one of the you've got one of the most unusual um I guess stories or like your your own journey. You grew up in South Australia, went to high school in Japan, uni in China, 27 odd years um with JP Morgan, SCB and HSBC doing enormous kind of you know metals and mining M&A transactions. A lot of our listeners would be familiar with the likes of you know John Deep for Northern Star or Red Chris for Ukraansi Yanko Rio. I mean these were these were big big deals. You were a part of them. These days you've um you've kicked off uh Pacific one which is you know a business you own and continuing your career. I think you've got a pretty unique lens of the world. Not only your your history, your trajectory, but your insights into that the kind of Asian capital world having lived there, you know, speaking the the languages yourself. We're delighted that you're joining us and um as we're going to kind of reflect on the week that's gone and uh and some of the big themes that as we look ahead. Welcome to Money Mine. >> Great. Thank you. Thank you guys. It's a great service. I listen to you every week and I know a lot of other people do as well. It's fantastic. >> That's flattering Willow. We're very excited and I think for the the reasons that Trav just outlined, your background makes you pretty uh uniquely suited for the conversation we're going to have. So, >> although he's got to be cy when we ask him about companies, mate, because >> every investment banker will actually not really tell you what they really think when you ask him about companies. It's just it's good business good business. >> Not publicly. Yeah. On the theme of geopolitics and uh cost of capital, where funding is coming from in the resources world, where it might come from in 5 years and 10 years time though, you're you're pretty primed. So, I think we should start the conversation in that kind of spot because we caught up a little while ago and we spoke about the big shifts underway as well as your positioning in in Asia and how you sort of see the flows as well as your experience in working in junk bond markets in in debt markets. So I want to I want to sort of start this conversation at at a kind of broad level and understand what you think are the big trends in the cost of capital and how miners are getting financed as we sort of see it today. >> Yeah. So if if you're a western listed miner, you've you've always kind of done it one way. You you get project funding, you you go to the equity market and you raise equity. And when emerging markets were pretty small, you know, that was that was the only way did it. Um, some of the bigger projects the Japanese financed, you know, along with the majors, iron ore and coal and and copper and other things and and that was very effective. And you know over the last 10 years especially we've noticed that a lot of the western countries have really been hollowed out in terms of their industrial capacity and that includes uh mining and certainly processing. And one of the surprising things to me is a lot of the western politicians don't actually try and solve the problem. They just band-aid over it with you know handouts. Um I mean what what is the problem? The problem is that um the two things western equity capital is is now a lot more expensive than emerging market capital. I don't really like to call it emerging markets cuz China, Japan, Korea, they've emerged, you know, they're they're the industrial economy is not not the west anymore. So it's an average of 66% more expensive is Western equity capital when you look at um you know very similar companies and a number of them over the last 10 years. So that's that's a huge difference. And then debt capital, I mean that's very easy to to reference. You've got um Japanese and Chinese 5-year bond rates which are below 2%. You've got US and most Western countries about 4 and a half%. I mean that that makes a huge difference to your IR on a on a project. And so if you're just doing it with Western capital, you're competing against companies whether government sponsored or not that that are competing with far lower cost of capital and therefore much higher IRRs. And so how do you acquire a a you know a copper mine for example with a much higher cost of capital relative to your competitors? can't >> to to tap into that point because I think we start talking about cost of capital and we're at real risk of losing the people that are not from a finance kind of background. So >> it's everything it's everything in a capital intensive industry. >> Yeah, exactly. So if we can really break it down to to the nuts and bolts and what the ramifications of a high cost of capital are for, you know, from say an Australian perspective or from a minor perspective. >> Yeah. So if if you're a Zigin for example and you trade on 12 times EBIT DAR and you're you're buying something at four times EBIT DAR fantastic cuz that four that EBIT DA just goes straight to your 12 times and there's value created if you're trading on four times EBIT DAR and you're buying something for four times EIDA well pretty hard to create value off the bat from that and you certainly can't pay what Zigin can. So that that that's just a simple example and and the same applies to let's say you're investing a billion dollars of capital in into a project and you need a required rate of return. That's very hard when your cost of equity is is so low. Um so so high sorry um and we've skipped over a little bit because the key point is why why is that c I mean cost of debt you can probably understand you know the western countries are in a higher lever um but why is cost of equity uh so high for western companies given that all we hear is that oh you know the US market has higher multiples and and it does it it does for other industries it does certainly for tech and it does for infrastructure Well, why mining? Well, if the problem with the western equity markets is that they're now 85% institutionally owned, right? And what does that mean? That means you just crowd capital into where the LPS or the, you know, the ultimate al asset allocators want. And what do they want? Well, they want they're happy to have volatility and operational cash flows like tech, but it has to be capital light. So, I have to be able to invest in like 10 of them to to have two or three of them come off. Fantastic. And if it's capital heavy, well, it better not be volatile. So, infrastructure, love that. In fact, I don't really care what I pay for infrastructure as because I know the return that I'm getting. But mining's in between, isn't it? It's it's high capital intensity and it's very high volatility. And as a generalist, which I used to be, you know, that's the worst of both worlds. Why why am I going to bid more than four times EBIT DAR for a company like that? And that's why the mining sector in the west is capped. And that's the underlying problem for western markets is the incentivization is not the same as an emerging market which has a much more diverse pool of capital. So retail in China for example is 80% of the stock market. Completely different. I mean that's that's how western markets were 50 years ago. And that there in lies the difference in capital formation and the difference in capital cost. And then that um gives an advantage to those those companies and it's it's not just China it's it's it's Korea, Indonesia, India, Saudi um yeah >> so when you think about the the equity markets though the you know quite famously that the Chinese broader indices they haven't uh performed phenomenally well in in recent decades say the last 15 years since the the the GFC FC despite that they have gotten bigger there. There's more and more companies being being listed there. So the the kind of gross market cap is growing whilst the performance kind of hasn't. Is that something you think is part of the the natural evolution and in time will do well or because of the system there that that's not going to perform in time? >> Well, when it's a retail centric market um you know sometimes you don't get the valuations that you would in the US. So you know if you go back seven or eight years a lot of the um Chinese tech companies listed in the US for the higher valuations that that makes sense. Um but most of the manufacturing either directly or indirectly and heavy industrials have all gravitated towards those markets and and either it's you know chemicals I think China is twice the size of the US and EU combined in chemicals output. So you look at a hydroxide plant, you go, well, why can't it work in the west? We you don't have the supply chain backing it up. You don't have the cost of the inputs that can compete. >> And and if we think about these these sort of pools of money kind of traversing those two, east, east, and west with a specific example in mind, FMG a little while ago announced this, remember the uh US $2 billion bond bond deal. How do you think about those bits of financing because they're they're a relatively, you know, unique piece or maybe the first of that kind of type of financing. Do you think that's something we continue to see more of? >> So, you should be able to get a a lower interest rate because the underlying government bond is a lower interest rate in China. So, that's great. But then because you're reporting in Australian dollars or US dollars and that's your functional currency, you you're going to have to swap it back um into that Western currency and that's expensive and that's the reason why a lot of people don't do it. But in the case of Forscq, they sell to China and they can sell in R&B and that would naturally hedge their R&B exposure and thereby reduce their net cost of interest. So it can work. It's not for everyone, but in 5 years time it'll be a lot more popular to do that. >> Isn't that interesting? Right. So they they get a a 2% I mean it's like you look at it and you're like this is the lowest cost of capital you can have as a western miner. um to well lowest cost of debt borrowing a 2% coupon on a on a $2 billion loan but you know are they are they are they able to do that and because because like China has a a political or will to you know want to toddlerize as well like if um if they're selling in R&B is that is that is there some advantage and incentive for for that >> I think we all overestimate the government's hand in a lot of this and that is the Chinese banks wanting to expand outside of China. I mean, look at what they've done in Indonesia. The Chinese government, the Indonesian government didn't have much to do with that really. It was Sing Shan and a whole bunch of very private, very proud Chinese companies that put, you know, maybe 50 billion in capital now in Indonesia and nickel to build up all of that industrial um size. And and it's only now that the governments are kind of getting involved. >> The capital came in because of the >> the government goal setting. >> Yeah. I mean the the industrial park like tax tax breaks for you know big big windows of time and everything that was the the landscape that allowed capital to to accumulate though was it not >> that was that was part of it >> part of it but you know the the capital from tingan wasn't government capital sure like every government you have an industrial policy that encourages lending to certain sectors but it doesn't dictate oh we're going to go and spend450 billion dollars in Indonesia and and ruin the nickel market. >> Mate, we've just got to jump in with a quick public service announcement. We are one short week away from Africa Down Under ADU next week. >> Less than less than a week, mate. The conference starts on Wednesday next week. >> It's only a few sleeps to go. >> 3rd to the 5th. So, it's a Wednesday to the Friday. We're going to we're going to be there. Come come come check like we'll be there Wednesday morning. So, if you're going to buy your tickets to come to Africa Down Under, now is the time to pull the trigger if you're going to go. I don't I don't even think there's many tickets left, mate. They're selling like hot cakes. So, you >> hot cakes. There's a number of reasons why you want to get yourself down there. You've got the biggest African miners. You've got the up and cominging ones. You got the the juniors that are doing big things. We've seen deals. >> Don't forget the delegates are from all of the different countries, mate. >> A lot going on that front. When you invest in Africa, you need to understand the playing field. You want to get in front of the face of these delegates. You want to speak with them. >> The biggest African mining convention outside of India. Phenomenal. >> That's crazy. Right here in Perth. Get your tickets in the show notes. Africa down under September 3rd to 5th. Yeah, it it is a fascinating e example in in terms of more money that's coming into the metals and market space. Traders and the the commodity traders with a lot of these guys being, you know, energy first traders, they've entered the the space. We saw another example just recently with um uh Kapushi, the Ivanho mine, and a deal with Mccuria, who have always been an energy trader. Is is that another sort of source of capital? I mean, they're really musling in on one another now. Do do you see that trend continuing? >> That's fantastic, isn't it? Because go back maybe seven or eight years, there was a few big bankruptcies in in trading companies, particularly in Asia. Only I think was one of them and there was a few more. And um so a lot of the banks pulled back from financing the traders into particularly metals deals. Um and you you remember maybe 15 years ago there was all of that LME um all of those LME problems um with security over and then a lot of the banks got out of it. So it was very hard for the traders to get any size and the metals market is what 8 to 10 times smaller than oil. So it's like well let's just stay in oil and make money there which a lot of them have made huge amounts of money and now they need to expand outside of oil and so metals is obvious but Glinkor and Traf have had the lion share of the the best markets. Um so now you've got 8 to 10 others that are heritage oil but coming very very aggressively into providing funding. So either offtakes or prepay or hybrid type structures that's different from equity. um you can have equity warrants or or debt and it depends how it's structured, but the banks tend to sit behind those prepaid facilities and lever it to between 50 and 80%. So the trading company ends up not having to put so much equity into those facilities >> and and from another sort of source of capital, you've got the the streamers and the royalty players getting bigger and bigger. If if we kind of piece it all together, what what do you make of the this the statement that there's a a shortage of money for mining companies? >> There's definitely a shortage of capital for mining companies at certain stages of their development. So, right now, I mean, and it's fantastic that the the Perth retail brokers and brokers are raising all this money for for for mining development companies because that's really hard capital to to get. Um, so the exploration capital is a bit easier now to get, but the problem is when you come to actually funding the the the construction or or the bigger capital and you're a 50 million buck market cap company and you've got 400 million of capex to spend, you know, how do I do that? Um, and there's not necessarily capital available for that from traditional sources. And that's why, you know, we sit there going, you've got to you've got to look at layering your capital structure. So, how do I get a Japanese trading house in here? How do I get um a royalty structure in here? How do I do offtake? How do I then bring Japanese or Korean or XM bank debt in at the project financing level at a lower cost? And how do I layer all of those um capital structures so that the equity market understands what I'm doing? It's not too complex, which is very important in an Australian context. and and so my cost of capital is low enough that it justifies me doing the project. >> That Hud Bay example that we spoke about a couple weeks ago, that feels like a prime example to to put forward in in unlocking like the first kind of steps of that with the Japanese trading houses coming in, right? >> Yeah. Fantastic. I mean, what what a great result for Hud Bay, you know, both of them. Um but but Hud Bay in in particular. So, they've basically just taken all of the capital capex needs away from themselves. Mitsubishi comes in and funds it all. Pudbay was trading at, you know, round numbers, let's say seven times. They've brought in capital at 1.1 times MPV. Great value arbitrage. I mean, everyone that can do that should do that. Even if you don't even need the capital, you should be buying back shares to reduce your your equity count because you're replacing expensive equity with with cheap equity. >> The inevitability of um of the world's need for these metals, it's just like it's so compelling. It's so obvious. But where is the capital going to come from to bring you know these new developments online if it if it is you know scarce? So it's not going to come from western equity markets. That's where it's not going to come from. And where it is coming from is industrial i.e. Korea, Japan, China, Indonesia and emerging markets. I mean the the capital coming out of Indonesia now is enormous and a lot of it we don't see because they might not be public companies or they're not listed on ASX or NYC but that is huge capital. >> Is that because they understand like the the need for these materials because they have the know the industrial downstream component some respects or they're tied to it in some respects. So they're they've got the foresight to think you know 20 30 years in the future. I I well yes partly because if you you know live in Jakarta or you live in Shanghai or or um you live in Riad you see masses of construction every day and okay things are growing let's let's get on board that train but I think the the bigger issue is is when you're growing an economy those materials are really important and the security of those are really important but more than anything they're just arbitrageing the the higher cost of capital in the So they're saying, well, this is a gap in western markets where where it's too expensive for them to play. We, you know, and and maybe the the processing is too environmentally unfriendly and and there's a whole lot of other issues, but that's a gap that our capital can play in that we're not competing with the West. >> Tell me tell me more about like yeah, the ways in which you're seeing this capital um you know, find its way into into Western projects. Um, yeah. So, and and this is the thing. It's not it's you can't just go out to auction and say, you know, highest bit of wins to be my partner. That's not how it works. I mean, these are big sophisticated companies usually that that have their own checks and balances and their own systems and their, you know, every time table's different um and they're all looking for a different thing. So, it's a bit of a challenge particularly to a midcap or a small cap to Yeah. You can you can go to Japan and have a whole heap of meetings, but what does that mean? And then how do I compare that to Korea or Indonesia or China or Saudi or UAE or India? Um, there's no one you can go to that's that's going to compare all of those together and say that that's what makes sense for you because most of the service providers have they either want you to raise equity or they want you to do a high yield bond or they you know they've done a few deals in Japan so that's great. We want to go there but they don't know about the other side of it. So it's very, you know, they don't know about offtake agreements. So it's very hard to layer that capital structure efficiently. Um, that's the opportunity for P1, isn't it? >> I was going to say that's where that's where a great advisor would sort of fit in. How do you how do you piece in uh US junk bonds and that and that kind of market because they've um had an interesting history uh financing Aussie resource projects. Yeah. So I I was at um JP Morgan for a long time and you know they have a very powerful US um centric high your bond desk which is >> I've heard Chris Allison talk about it. Yeah. >> Right. So it's a it's it's a great market. You know it's not not something to be scared of it. Um because before you know you obviously had forescu right and that was that was a fantastic way of financing what what they achieved and >> and what no one else kind of would have financed >> right because because you can get capital it's just a it's just price right and I think I think actually min said that on on the call it you know execution risk is not big it's just a question of price and And that and that's great. It's bullet finance. So you you know for 5 years plus you can sit there and you've got the finance and the next 5 years cycle doesn't really matter so much. Um uh but then you then you just simply roll it over and whatever price you know it is at the time that's how you've got to time it. and and the the you know with regards to that priciness you know the cost of that how do you piece that in with what it might cost from these Asian kind of players that you think about. >> Yeah. So I mean that's purely debt. Um and usually it it's a little bit more costly than a loan. Um only a little bit and that changes over time. Um uh so that's debt from Asian players and and you know leaving R&B loans and debt aside um uh you know a lot of the capital's equity like so you know I guess the next step down is is kind of offtake and prepays with with warrants so equity warrants to to give a bit more of a return and then you go all the way down to a Liscoco equity investment minority or or an asset level investment um minority which the completely different style of of capital. >> Yeah. And the the I suppose like the growth of the Nordic bonds to to finance more spicy types of projects is is a is another trend that we're kind of pretty to at the moment as well. >> Well, I think I think given private capital is growing so fast that that sort of structure is is going to make a lot more sense and open other doors for for mining companies. So the Nordic bond is, you know, yes, I think originally it, you know, it was for Nordic moms and dads at home, but it's just a structure that then you can sell to lots of different credit funds and um and I think we'll see more structures like that over time. >> So where like where does the cap like let's say, you know, Minres raises money in the US junk bond market. Are they US investors or are they are they are they investors that are actually like Asian? Uh I I didn't set up that question but that is a good question. Um so that used to be principally US investors. So a book would usually be like 80 90% US very US-heavy but over time all of those US funds have established their offices in Hong Kong and Singapore and other other parts of the world. And so now the book is at least 50 50 you know US um Asia and sometimes a lot more Asia heavy. And the reason the reason for metals and mining in particular is that Asian um issuance is much larger in metals and mining than it is in the US because there's a lot of companies there's a lot of need. A lot of the Chinese companies raise short-term debt and bonds from markets and that's the way they've financed themselves. And so if you're a portfolio manager sitting in Hong Kong, you're going, "Yeah, I've I've seen this this sort of gold company, you know, a hundred times before. I've seen this sort of aluminium company. I know how the supply chain works because I already have investments in bonds in a in a bunch of the the peers. And that's why for metals and mining company companies, Asia is a really important part. So is the US. It's um but it's important to understand that they're two different buckets of capital. >> So the way the way in which the the I suppose the government forces in very recent history are trying to level the playing field from a cost of capital. It's um >> I I'll get angry kind of talking about it, but but it's it's frustrating in a lot of ways. is do you have the same frustration in in um in I suppose the you know the approaches we've seen today of government to lower the cost of capital of of western mining you know projects and companies >> yeah I mean look I mean and we could talk about geopolitics for a long time but clearly you know the US is not as strong as it was 10 years ago um and China on every objective measure is a superpower like it or not it it just is um I'd say the west bandaid some of these problems. You know, they're short-term sugar hit, get a good headline, photos are happy because something's being done, but no one really understand, you know, it doesn't appear that the governments really are even bothering to understand what the underlying problems are. What what are the causes for a lot of these things? And then I'm I'm sure some in the government are, but but if they did, then you would form policies, underlying policies to address some of those issues, not not handouts and band-aids and sugar hits. And the problem is the more we sugar hit, you know, the less economic it becomes. I mean, in rare earth, I I get it. you you need security of supply and and it's not that big an industry so it's you know it's relatively easy to solve but you've what have you really done you've now got a structurally higher cost supply of of inputs into the industrial complex you know and in the military I mean as we've seen in Ukraine you need very cheap production to to multiply your your forces and having high cost inputs is not the answer >> you you said we could kind of speak for hours about this this geopolitical theme and and I think we easily could. So, let's tap into it for for a bit because it's kind of implicit what we were talking about with with the funding there. You know, it's it's it's the kind of read through line and is it going to be that easy to have capital flow from from east to west and all these sorts of things. So, do do you see there being difficulty in, you know, countries like Indonesia, for instance, if we're trying to have that money come in to Australia, like they're in a a kind of funny middle ground between Asia, China and Australia and the US. Do you see there being blockages on a geopolitical front to that capital flowing? I hope not because what what is happening now is becoming a multipolar world and lots of bilateral negotiations between countries which are you know is different to what we've seen in the last you know since World War II. And if you're seeing that, I think you've as a company, you need to start to be multipolar as well. So if I'm thinking about my So what's the easiest way to equalize the cost of capital? Well, it's get a partner in with a lower cost of capital than I do and supplement my capital with that partner. Now, do I just pick one country and that's the country I want to go to? I don't think so. I think from now on you need to be multipolar. You need to have a Japanese partner, a Korean partner, a Chinese partner, a Indonesian partner, a Arab partner, an Indian partner. I mean, that would be fantastic. And then none of them have power over you, but you have access to each bucket of capital depending on what you want to build, expand, buy, because it's all different. It's all different costs and it's all different terms and they're all different cultures. When you think about the the mining companies that could potentially do something like this, you'd have to be of some sort of scale. And at least in the West, there's really not that many mining companies that are of sufficient scale that could have the bandwidth to set up relationships in all the countries you've just mentioned. Do you think I'm right in saying that? >> Yeah. So I think Simito met Metals just put 5.5 million into Miridor for example and and you know how how does that how does that form? How how how was that originated? How many counterparties would have Miridor talked to before they decided on on that? Um I I think it's really hard to navigate and then you know you go to the Middle East and you can fly around for weeks and I mean it's a big place. There's lots of cities and they're all different countries. you know, it's not a and and and you know, Asia is obviously very different depending on the countries as well and and it's for a lot of the companies they they they some some of them will see a lot of the the counterparties, but they'll often be the traders as opposed to the investment guys and so do you are you really talking to the people that you need to talk to to influence an investment decision? >> And and do you think one of the other sort of ramifications of this multipolar world is inflation? Yeah, un undoubtedly, you know, because if we're reducing the efficiency of the supply chain, then you're getting cost imposts at every point. And the more closed you get, the higher inflation you're going to get, particularly if you reduce interest rates. >> You you've got you've got some u some interesting views you shared with us when we caught up a couple weeks ago, mate. um just in relation to to how how people might choose to combat inflation and look for stores stores of value. Do you mind sharing that? >> Yeah. Right. I I'm I mean this is obviously all very personal um opinions, but uh you know if I'm a government anywhere else than the US, I I historically have just looked to US treasuries as my store of value. That's where most of the world uh look to store their value. and and now that's looking less certain and and certainly you don't want to have most of your wealth parked in that store of value. And so gold and bitcoin and maybe silver are the first first places to turn to because there's no real alternative like a digital R&B currency is not not ready and and people aren't ready to accept that wholesale yet. So, so where to next? Cuz gold's only a certain size and it's already gone up. Bitcoin, not sure whether that's a store of value or of a or a good way to transfer value. But if I was a Middle Eastern government, I would start buying and storing metals with positive contango. So, they're, you know, aluminium, copper, zinc, um, nickel. And I mean, that is a store of real wealth. It can't be taken away from me because the property laws change in a country. It it it can't it's not going to change because someone changes interest rates or I can't move my money from here to there. It is a real store of wealth. And I I think that's probably the next leg in in metals as everyone searches for somewhere to put to park uh their reserves >> that that has uh pretty real borders to it as well because of the the physical kind of constraints of of a lot of these things. And you speak about doing it with gold, but gold being a finite kind of market. It's the same issue with with a lot of these. So, we're not there yet, but they'll they'll touch a boundary and if you know a a number of countries of significant wealth try to do this, we touch that boundary pretty pretty soon as well, don't you think? >> Yeah, I think we're we're starting to see it. I mean the the there's a lot of economies that are slowing you know the industrial output of China for example has slowed steel's slowing you know that that naturally feeds into um copper and other metals but but we're not necessarily seeing those metal prices weak I think because we are seeing um a bit more storage that's off LME and off um yeah not public >> when when you say like like storing the ones with positive contango are you are you talking about any any financial trades to to go along with just buying the physical and storing it or you just you're just saying that the ones with positive contango would be more attractive general. >> Uh you you could do I I don't think you'd make it that complex necessarily. You you just want to store your wealth in a diverse set of assets particularly ones that can't be taken away or don't inflate away. So it doesn't really matter what inflation is when you've got metals because that's going to match or better inflation. This could have pretty pretty severe implications on metal prices in a in a pretty short period of time if if you know multiple uh yeah like Arab countries come to a similar conclusion at a a similar point of time and start doing that. >> Yeah. >> Even worse than that if you think multi-polarity could be bad for inflation. What this could do to the the price of a a computer, you know, anything, a fan, an air conditioner be pretty pretty huge, >> right? you know, I think we're living through the start of a of a massive change in geopolitics, which um is is exciting and terrifying at the same time. >> And I I tend to think with these things that people don't really act until the the problem is really in their face or the problem has started to happen. So the the >> we got to lower we got to lower interest rates, right? cuz people don't think inflation is going to be an issue like >> well the the value of treasuries really has to start deteriorating to a serious degree before people will act on on these things and maybe they diversify their measure to euros yen bitcoin gold and then you start to see the metals kind of move >> yeah I I think it's I mean look there's a natural status quo bias that you want things to remain the same because that's the easiest way to think about the future but ultimately they they never do and It's usually long cycles, but um that means when they they shift, they shift big. >> And and for the mining companies out there, this would in effect pull up the bridge behind them. The ones that have built the project would kind of get to the promised landish because they are now receiving higher prices, but the builds to build a new mine would go up significantly because >> the input costs go up. though it's it's got a kind of compounding effect. So how do you think about the the mining companies in this world? >> So that's right. So you'd have inflation of costs, but um you'd also have a lot more M&A where it's not just countries, it's going to be families and and and big companies with big reserves. They want to store that wealth. And for gold in particular, but also other metals, buying metal in the ground is still metal. It's just not mined yet. So that that's still a hedge against inflation and geopolitics. It's just that you're owning land. Um, so I I think it's got big big positive implications. So, you know, and bringing this back to maybe a mining company, running a mining company is hard. you know, it's not just the financials and it's, you know, it is native title, it is regulatory, it is you've got you've got so many moving pieces and you know it's very very difficult to go from a explorer and a developer to actually constructing a mine but but please keep going because you know I think the rewards will come. And I I feel like with all the topics we've spoken about, Willow, there's one we need to piece in here, and that's energy. Because energy, when you think about like the cost of energy in China versus the US and where that's kind of heading in a in a world trying to combat climate, um it it is a significantly moving part, especially if we pull in the the Arab states as well, which have a very cheap cost of of energy. So what ramifications do does the price of energy have on all these things that you've been thinking about? >> Well, I think it it it's so yes, it's energy, but it's more using that as a concept. So So what the US was really good at in the 40s, 50s, and 60s was underlying productive infrastructure, right? And that includes energy. And so, you know, let's just take a few of the the the building blocks. So the inputs into some of these um processing units. So, you know, China has twice the electricity capacity of of the US. That that is amazing. And building absolutely massive infrastructure um to to underline that advantage. It produces twice the chemical content that the US and EU does combined, right? That that is just such a big advantage in in unit cost. Um uh in in rail freight it's about twice as big as uh the US. I mean in mining engineers there's 20,000 mining engineers every year graduating in China. There's >> maybe a thousand in in you know in Australia. >> Way less. >> Yeah. Exactly right. The scale is just a completely different um size. And all of that is in productive capacity. It's not in super yachts and it's not in watches and it's not in handbags anymore. It is in productive capacity. That is very very powerful and it and then it multiplies over the rest of the economy. >> But China, you'd imagine would want to get to that that higher level where where brand attaches value and and you can become a a service type economy like this is what all these other countries did a while ago. So yes, and I guess we all sit here going, "Oh, well, labor cost is cheaper in China." It's not that much cheaper in in some ways it's it's more expensive, but labor is not a key input into a lot of this anymore because robotics is kind of taking out. So where do we do we care whether robotics are in China or the US or any other country? We don't. All we really care about is the input the other input costs like electricity, chemicals, copper. You know what? What makes robotics? Rare earths, copper, aluminium. You know, where does 60% of the world's copper go to? China. 6% goes to the US. >> Jeez, there's a a lot to think about there. it there's a lot to reflect on in uh the whole yeah that entire bit you know super fascinating I feel like that those are the themes that are going to kind of define the next next decade in in our industry geopolitics for sure um and yeah appreciate you sharing them we're going to pivot to talk about some some news of the week and um this is like a relatively new new thing we've been doing Willow but grade control is uh one of the segments where you know give a letter A to F on uh on on on a certain kind of corporate action of the week. Are you up for that? Are you are you actually going to give grades to companies or >> Yeah, because I'll give them all A's because they're either >> prospective clients. First up, BHB have signaled that Nickel West is up for sale again. Now, to give you a slight out, you can um yeah, you can get creative on on the grading. I I'll say I'll leave it at that. Well, I think all of the majors need to simplify like Rio just announced as well. And if they're not going to productively develop and harness these assets, then let's try and maximize value by by working out who's the best operator and owner of those assets. So, I think it's a great idea that concentrate on your most productive assets and give someone else a chance on the others. Yeah, I I I um I'll give them I'll give them an an A when they actually like transact here. I think they're going to have to pay someone to take Nickel West off of them because of the um the pretty inordinate rehab liability associated with um with what's happened at Camp Alberta there. But um but I mean this, you know, the return on capital they were getting at in the nickel business even in the years before the nickel market went to to ship were were like atrocious compared to the other parts of their business. This this wasn't like a um a game changer for for BHP. It's like a social project to to keep big employment in WA and I think they were kind of just stuck with it. You know, they're finally going to part ways with it. It'll be a change for West Australians, but it's kind of inevitable. >> So, yeah. So, what if no one buys it and and then the government's forced to keep it because why doesn't BHP just go to the government say, "Well, you gave a hand out to all of these guys." >> They already did. They already did, right? that was like, you know, they they put the foot on the on the government's neck in the leadup to them actually announcing that this would go into car maintainers. I mean, the cost involved to restart a smelter, >> but but since >> since then, to your point, like Nearstar and all these guys have have got handouts and likely more handouts to kind of come. So, it's a a really sort of poignant question to to frame and let's hope we don't get to that. So what if the government comes back and says sorry what if there's the only buyer is Chinese of the smelter not the mines and they've got the tech and the and the capital >> to fix it and and create jobs >> you know what you know >> that's a very interesting question the first big test of furb >> that would that that would be a that would be a big test >> yeah that would be a big test >> what the Chinese did with with us for 30 40 50 years was have joint ventures we would go there there would be JVS and we would learn and it's you know eating a bit of your own humble pie but bring them in and have it as a joint venture where we actually learn why they can do stuff so much cheaper and you know maybe some of those things actually aren't attainable for us but there sure as hell will be a few things that we can learn from and that could potentially be one way to to put forward a solution. Can you imagine the car industry in Australia without Toyota, Mitsubishi, Nissan, GM, and Ford? >> Don't have an industry. >> Yeah. >> So maybe maybe there's a bit of that. >> Yeah. >> We might need to get creative on a a solution and I'm sure BHB is already having to. >> I' I'd actually I'd actually prefer, you know, FB approved that than than see other form of like government hand out or bail out here. That happens, I'm changing my citizenship, mate. I'm I'm done. >> Welcome to Singapore. Does China need a new citizen? I may not join that. >> All right. Uh, next one that I want to talk about is W just very recently come out with the uh, trading halt that Bikina wants to up their stake in the Kiaka subsidiary. Uh, yeah. What do you grade this one? So it just underlines well that's greater an A because you know they might be a client later but uh it just underlines how dangerous emerging markets are. I mean e even so it's very hard for a junior to have any kind of political force in a country like that. But even if you look at EGA and their dispute with um uh Guinea I mean EGA's just pulled out and they they've had their license taken away. That's 1.4 4 billion in capital that the UAE put into Guinea. I mean, I think someone in the UAE is going to notice. And why did Guinea do that? Well, gee, there's a few other countries that have some influence over the Guinea government, don't they? So, >> well, as as I understand it, they they did fail to to meet a few promises. So, it's not completely black and white in in the Guinea Gana scenario. >> Yes. >> Yeah. I mean, I I think you're you're bang on right with with regards to to WAFT. Like the the EM risk is something we've all kind of been aware of and that's why they've traded at such a a low multiple. Like yeah, they've had a great run the last sort of three years, but we're they've executed phenomenally and they are on the cusp of doubling their kind of production. So very very curious to see what the outcome is. You love you love Wolf because you see the cash flow they make, but you always like the the true test, you talk about the true test of fair, but the true test for Wolf is like, can they ever get that money out? Well, they've had five of these types of things in the last few years and every time they just bounce back within a within a couple days, >> but they're like that's the you know, like there'll be a government coupe or whatever and they do you always buy the dip on the C coupe or the >> Yeah. Yeah. Whatever whatever. But there were was a change in mining code as well and this is like an, you know, hey, yeah, you're not being grandfathered, you're jumping on the new code and let's see what sort of valuable consideration turns out to be. If they can't if they can't spend the money like X like that they make it at um a Kiaka and Sabra if they can't spend that X Bikina Faso then all they inevitably do all they can inevitably do is just like reinvest in the country become a larger portion of Bikina Faraso's GDP and become more beholdent to the government in the process like that point >> Argentina >> exactly the same until recently >> next up what have we got mining services a bit of a slightly um change in tech here, but the mining services multiples have expanded dramatically in the last month to to two months. Curious to to hear how closely you pay attention to these ones, Willow. >> Um, sure. So, I I think it's a it's a wide variety of different companies, right? And if you're just doing dry hire, you know, big trucks that are capital intensive and you're a small cap, you're never going to win. That is never a win because your cost of capital is always going to be too high to compete with particularly McMahon which now get their money from Indonesia um Burma Indonesia um how long will T be around you know so that that big dump truck open pit stuff is is difficult and I suspect you'll see some other capital coming in to support um the existing players or or or form new players. Um the the the industry leader is is probably FLS Smith in which is a Danish company and that does a lot of the processing equipment and conveyor and whole bunch of different stuff. They trade on 9 and a half times debit d and it's 80% uh services mining services mainly but sorry the the um the the other bit of that is that underground services are completely different and it's really difficult to find skilled underground people. >> The skill set of being an underground you know mining service provider versus open pit is very different. It's more specialized being underground and that specialization is scarce. But the people who have that specialization JD of underground service providing or underground mining, they always repeat one thing to me whenever I talk to them. We use Sanvic ground support. It's the >> Sanvic ground support. Just like the best people want to work with the best people, the best people also want to use the best equipment in the industry. And that is provided by the team with the R&D squad at the cutting edge of technology. Sanvic ground support. >> Not just the best the best ground support, mate, but the safest ground support, most innovative like you talk about. And >> they too have the best team. >> It's true. And it goes one step further. They've also got manufacturing and distribution hubs in every corner of the world. So they can get on the phone with you quickly or you can just put your order in through the new app that they've got and they can get that out to you quick smart so that you keep getting the tons out of the ground and keep producing that metal that makes the world go round. I don't think there's ground that can't be supported by Sanvic ground support. >> Go Sanvic ground support >> and and management teams. Um, and when we're talking to non-Australian capital providers, we every conversation is stop looking at just the geology. Start looking at the management team that is going to produce the value because a a really good management team can produce huge value out of a average geology. A bad management team can destroy any geology. There's there's um not not all mining services companies are the same. Not all of them are are capital intensive. A lot of them are, but like some of some of them are capital light. >> Oinker you had zi on the other day. >> Yeah. Yeah. And like that's that's a you know great example. Parallel that is still listed on the ASX like um G&G like you bring up the chart four bucks 40 um trading on like I saw I saw one broken note trading on 24 times FY26 earnings now. like kind of remarkable multiples. But if you go back in time and you know back to when the period that Jimmy was talking about with the Senko, the multiples of that he was talking about with with the Senko at one point in time was just astronomical as well. Like we we have lived through an era where mining services multiples like were were crazy. >> Where are all the new mine >> builds? And and and now we're now we're seeing like ASX listed mining services companies both capital heavy and capital light um expanding pretty heavily on the uh you can see that on the focus charts we'll bring up right now by market tech. Yeah, I mean it's great to see them actually get a bit of love. So I'll give it an A for for that because so many of these companies their share price is in the in the doldrums for years and years and years. So you can expand that to McMman's like you mentioned mah parent as well. They're well north of two bucks now. So they're all having their kind of day in the sun and kind of see how they how they capitalize on this opportunity if they if they kind of can. >> Last last one to give a grade to um Willow. Two days ago was the 20th anniversary of um a very interesting kind of corporate corporate event in Australian mining history. It was the uh 26th of August 20 years ago was the the day in which Rio accidentally let their shavalana iron or project tenementss lapse. This junior Kazalei picked those up at the time. Now then there was this big court battle that played out. You know you were you were paying attention to Marcus. I'm sure you remember this. Um we had to learn about it in history books. But um Rio ended up kind of you know arguing about how this all played out. They apparently something got like they wanted to um you know renew their tenementss but something got caught up at a at a post station in like some remote part of Australia. Anyway, but it lapsed. They you know things in the and and Kazalei picked them up in in short order. Um now in the court battle that kind of played out um what what Rio did is they argued that it was in the public interest for the tenementss to be given back to them even though they they lapsed. Um and they suggested that they would they would develop these tenementss not themselves but they do an asset swap with BHP because Shavalana is in BHP territory surrounded by BHP um infrastructure not Rio's infrastructure right so okay we're going to develop it um and amazingly right the ministerial decision comes in the minister the minister kind of overrides everything and um gives the tenementss back to Riointo 20 years later oh by the way Kazali had to pay the Rio the the legal cost for for Rio. 20 years later, RI Riotinto is still not done an asset swap with BHP. The the project is undeveloped and it's and it's worthy of being developed. Like the grade this project is, you know, it's it's it's above the average grade that the majors are producing today by, you know, substantial margin and great impurities and the likes. So, how do you um how do you how do you rate Riotinto and uh and the government on on this uh on the decision to actually give the tenementss back to Riotinto? A+ for Rio obviously. Um and special mention to the lobbyists. Uh >> they earned their fees there. Yeah. >> And I don't think we need to mark the government, do we? That's you know that's uh above all of that. >> We can mark the government here. Yeah. That's an F for the Australian government. That was clearly not in the in the national interest and >> giant F >> for Cazi to have to pay the legal fees for for just being smart and on the ball. Yeah. Yeah. A fascinating one. All right, let's move into sweet and sour deal. We've got a few to to run through here. I want to start with capital raises because we've had a few juicy ones. First and foremost, Lionus, $750 million. These guys are kept at nearly $14 billion today. The share price has run dramatically. I'm kind of gobsmacked by this one. How do you sort of think about this sweet or sour deal and and what are your thoughts on it, Willow? great time to raise capital. So, so why not? Particularly when there's a whole bunch of public capital coming in to help a lot of the other potential competitors, and that's probably not going to be positive for Linus' profits, are they? So, um yeah, let's raise capital. >> I I think you're right. I mean, this is just over 5% dilution. That is, >> mate, it's a great deal for them. Raise the money while Yeah, like >> got to feed the ducks while they're quack. What' you say though? They they were trading on 24 times last 12 months revenue like >> just reported $8 million. >> A capital intensive business. Truly a truly remarkable valuation if you >> they trade on a big premium to the Chinese rare earth companies by the way. So that's fantastic. That's >> Yeah, >> there you go. >> Are they worth it? >> Good. I'm I'm not an equity, >> of course. Okay, Cyprium. this one um more in your in your wheelhouse in the sense that uh the Tanito Group took a 9.9% shareholding. They upsized this from a $60 million raise to an $80 million raise. They were a $60 million market cap coming into this raise. >> They did have a fair bit of debt though. There was a combination the con notes >> and they'll pay down some of that with this. >> Yeah. Yeah. >> Yeah. Sweet or sour deal? >> Sweet. >> Sweet for them. um raise the capital, organize a capital structure so that they can fight another day. Um if bringing in a family like that is is a better way to get a better outcome for the equity raise and lower your cost of capital, then that's what you got to do. Yeah. >> Do you think do you think doing the the the you know the equity raise at the the corporate level whereas you know and and the dilution involved and everything like that like could they have structured something differently at the asset level or or do you think do you think it's the structuring is fine as is? >> Maybe but there's a whole lot of um issues with the capital structure already with the offtake and and other parts of how they acquired that asset. So, I I think they were probably their hands were tied and and equity was the easiest way to address it. >> Josh, >> fair enough. >> I'll give it a Yeah, I'll give it a good deal as well. Um, yeah, I mean, it was it was done at a pretty tight discount and they've raised an enormous amount of equity relative to what their market cap like was. And you don't always get to do that at a pretty tight discount. >> Yeah, good deal. Markets are open and take take the capital and see if the the asset can move one step closer to production. I don't even want to mention the other two really, but um uh some more troubled kind of company. Cyprium is historically troubled company as well, don't worry. But um like Peninsula raising 70 million bucks. They've just had a whirlwind of issues in relation to production wos combined with you know contracted revenue and um core lithium they they raised 50 million bucks this week as well. Uh any thoughts on on either of those two, Willow? No, but um I when the ducks are quacking, you you you raise equity. That's uh and I I just question, you know, so for all of these companies that are raising a bit of equity, but maybe not enough to get them to the next step. I mean, what's what's the next step? You know, you've raised enough to kind of just keep it going. How do you get to the next step? You coming back to the market? Um >> bit of a hope strategy, right? like they are taking advantage in the core example that the lithium price has has kicked up kicked up, but do you just have to wait for the next kick up? >> Well, maybe you wait for the next kick up to raise the capital you really need to um uh to to to achieve all all your your plans. Um >> yeah, I think on that point you've kind of got to give them credit for taking the hit and getting the capital on board. Yeah, >> but it does leave you in a bit of no man's land there in a sense. The peninsula one was like a you know a coalescence of various debacles all coming headto-head. So kind of see how they they move forward from here. >> They've had a few final raises but um they have the strategy of keep coming back unfortunately. Uh so yeah hopefully this one is the last one for them. Um, I'm going to give I actually I'm gonna give these ones a a D just because when the ducks are cracking like you raise equity. I get that. But I do think when you have the preponderance of equity raises, it actually it actually dilutes the total capital like like there's there's so much capital willing to participate in the space. What can that capital do? can participate in in equity raises of like I don't know mediocre opportunities or it can find a home in companies and development opportunities that um that have legs and I don't love seeing huge raises for mediocre projects because like yeah it just kind of cannibalizes um long run capital availability in my opinion. So I give them I give him a D. >> Controversial. >> Yeah. >> Projects not. >> Yeah. >> All righty. Let's talk about a couple hidden gems. I know you've got a few thoughts on this front, Willow. Um, books or podcasts or places of interest that have sprung up recently that you you want to share? >> Perth weather's colder than I thought. Um, >> we're coming out the back end of it, don't worry. >> Uh, I well, not not really. I um you know I'm I'm a big reader uh and uh listen to podcasts a lot and um you know a few books came to mind that would might be helpful that I I thought were really good. >> Um Goliath >> what's what's that about? >> Goliath is um about the history of antitrust in uh the US which basically shows the long-term cycles from the mid 1800s through to now and how the governments have kind of managed you know to break up standard oil and put it back together >> busters. So, and and it goes just beyond blue and red, but but to much longer term cycles, and we're in one at the moment. It's fascinating to then, you know, to look at the 30s and look at now, and it's very, very similar. You know, in 1923, um, Andrew Melon had a monopoly over aluminium. Well, what's the first thing when he became, believe it or not, finance secretary? Well, put up tariffs for aluminium. That's easy. Yeah, >> that that is great. That one's going on the list. Any other >> Oh, sorry. Um, history of uranium. I mate, just give me one minute on this. It's fascinating. So, um, World War II, biggest producer of uranium in the world is DRC. Fine. It's owned by Belgium. Uh, Germany invade Belgium. First thing they do is bring down some ships to DRC and go, "Where's the uranium?" And they've gone, "Oh, no. They've taken it. They've flooding the mines. It's all all gone." And um couple of weeks later, the the Belgian delegation turns up in uh in the US and goes, "Um, we we've got something you might want. It's a whole bunch of urania." They go, "No, no, we got plenty. We don't need any of that." And they go, "That's fine. Here's my card. If you need some a bit later, you've got my number." About 6 months later, they go, "Yeah, okay. We get it. Um, we'd like that. Please, please come in. Let's talk about it." And so he he comes in and they negotiate price which I forget maybe it was $20 billion the biggest ever foreign deal that the US had done at the time. You know confirm that the money's changed hands and uh you know the US has gone right well where is it? Where is it? And he's thrown the keys across the table and gone down in dock 46. Uh >> that's such a great story. >> Yeah, >> that one's definitely going on the list. You you've got a few others there that stick out. Chip wars. >> Yeah. Well, most people have read chip wars, which kind of talks about uh the the the semiconductor supply chain, which is fascinating. It has a lot of um uh sim similarities or it rhymes a lot with a lot of the metals supply chains um choke points which is written by the same guy um which talks about the the financial or economic uh war that that um countries wage against each other other and you know the US China thing is pretty pretty interesting for that at the moment. um two that are kind of unrelated to mining. The brilliant abyss which is um all about uh uh under the sea which when when we think about seabed mining which I'm I I think is a good idea in some circumstances. Um we've destroyed so much of the sea uh thus far. It's just important to kind of understand what we're destroying before we just blindly go and do it. Um, I'm not saying seabed mining definitely does that cuz it doesn't in most cases, but um uh the other one is uh the hidden life of trees. I love this stuff. So, um it's about old growth forests and how they communicate over over thousands of years. You know, they support oh so they each tree has personalities and they support old stumps that died for, you know, sometimes 250 300 years and others that they don't like they'll just let die. It's pretty cool. That's remarkable. I'll have to I'll have to do a bit of reading myself there. >> You're student of history, Michael. So, how how how is how's the the history there going to, you know, inform any uh any decisions or oppositions you make right now? >> Um well, the sorry the book I don't have in here is called Range, which compares um I'll get back to your question, which compares Federa to Tiger Woods and how they were brought up. So Feder had played I don't know 20 different sports and then you know just decided oh well I might as well play tennis and and that's why he's so naturally skilled but Tiger Woods only ever played golf but um I think just all of these inputs so you know understanding equity markets understanding industrials not just mining because a lot of people in mining have only ever done mining they haven't understand different languages different countries different um systems and and and read broadly that gives you a lot more pieces of the puzzle that you can put together to form a solution that uh >> multi-disiplinary learning. >> Yeah. >> And a couple podcasts to to wrap it up. >> Oh, the rest is history and and Empire with great great stories, but they're running out of history now. Um >> 600 episodes in. >> Yeah. And multipolarity. Um pretty pretty honest take on on China US relativity and and EU politics. That's pretty cool. All right. On the theme of podcast, most people I've sort of speaken spoken with. I would have rambled about this one, but founders is a fantastic pod. And on the book front, recently read the big rich on the Texan oil families, the four families that dominated that over the last 150 years was fascinating. A lot of parallels with with uh resources. And with Texas, there's seemingly um uh a lot of relatability to to WA and our uniqueness, which is was fascinating. And read over the weekend, the rise and fall of Alan Bond. An interesting kind of take, but awesome to learn about WA in in the 70 or 60s7s and and 80s and and that kind of era. So there's a couple in the mix. Thank you so much for joining us, Willow. the the way you think and the experiences you sort of bring to the table are are fascinating and make for for such a rich conversation. So, I appreciate you making the time for us. >> Yeah, thanks for having me and congratulations on a great great show. >> Do you want to do you want to help us thank our partners? Willow, you can hang around for this outro. Thank you so much to our partners, mate. We've got Axis Mineral Services. They crush rocks from big to small. >> They do. Sanvic Ground Support, the the only name you need to know in the ground support industry. Africa Down Under. Tickets up for sale right now. Conference is next week from September 3rd to 5th. And last but not least, mate, >> focused by architectur. >> I'm an idiot. JD is an idiot. If you thought any of this was anything other than entertainment, you're an idiot and you need to read out a disclaimer.