We talk about the profoundness of the energy transition. Changes in perception of the sector through greater branding, individualisation and carbon cost-curves defining a greater cultural shift the industry is only just beginning to undergo. Thought is given to commodities as change facilitators, adjusting to an enhanced greening and decarbonising role. We talk about how Anglo Pacific’s recent portfolio deals have reflected this and how financing royalty streams in critical metals will enable wider electrification. You can view a video of the original interview here.
Adam Thompson: Well, hello to viewers tuning in to this virtual fireside chat. I’m delighted to be talking with Julian Treger, CEO of Anglo Pacific Group (LSE: APF, TSX: APY) and non-executive chairman of Audley Capital Advisors. Julian, thanks very much for taking time to speak with us today.
Julian Treger: Pleasure Adam, thanks for having me.
Adam Thompson: What is your view on the health of the metals in the mining sector at the moment?
Julian Treger: Well, I think out of the pandemic there will be some winners and losers in general. And I think the mining sector will be one of those winners because the tendency for governments coming out will be to invest in infrastructure projects globally, which green the world. We’ve seen that in the U.S., and China’s always been investing in infrastructure, and we’ll see some of these activities I think in the UK and Europe. So, for once, there’ll be a more synchronized spend in the spaces where the mining sector has a lot to contribute, and particularly as well there’ll be more emphasis on greening and obviously various aspects of the sector are integral to that future story about how we reduce the carbon footprint of the world. So on the whole whilst obviously it’s not something that has been a good thing for the globe, the mining sector will be a beneficiary of COVID-19.
Adam Thompson: Do we still have a long way to go in terms of the capital flows needed to come back into the sector before we can call this a supercycle or a boom period?
Julian Treger: I think probably for this physical cycle, it’s largely too late for people to bring new capacity online as it takes so long to bring a new mine on board. One of the things I’m interested in is how greenfields reprocessing and re-treatment would perhaps cover that gap in the short term. But obviously, in terms of the investment cycle, as that supply demand deficit for many commodities plays out with the high-on-high prices, it will start to bring more capital back into the sector and more generalists will return. And that process is probably in its infancy.
Studies suggest that unless copper demand grows, the world will not be able to meet its environmental targets
Adam Thompson: Where do you see some of the real supply tightness, and in which metal groups, at the moment?
Julian Treger: In my view, for large capex materials like gold or silver, generally the mines have quite short life and the capital expenditure involved in getting them up and running isn’t enormous. So I think you can still get those things to come online within the next couple of years and make a difference. Iron ore is difficult, obviously being very strong at present, but we’ll have to see how much general demand there is for new iron. I think one of the things we’re going to see much more of is recycling of scrap and reprocessing of tailings as sources of more short-term production in different commodities.
Adam Thompson: How profound will the energy transition be to methods of mining over the next decade?
Julian Treger: Well, I think it is quite profound and I think it will change the perception of the sector from being a 19th Century iron ore industrial revolution-type sector to being part of the future story of decarbonization. And I actually think that if played correctly, people won’t talk about metals and mining anymore. I think they’ll talk about the way in which we decarbonize the world, the way in which we green the world, and commodities will be part of that. So I think the mentality around our space is going to change a lot. It’s going to be more Silicon Valley-like, less command and control, more open, more diverse, more focusing on B2C, not just B2B.
You might find more branding, more individualization, and more interest in carbon footprints of each company. So I think there are fundamental shifts that are going to occur, and it’s going to be quite exciting for the sector if you are part of that, but there are people who will not see it and will also be victims of it, and you’ve got to be on the right side of that trade.
It really will require a different approach, a rethink, something different which we haven’t seen yet. And it’s going to be about becoming a subset of the decarbonization space. That’s where the flows are going to come from. Metals and mining will feel very 20th Century as a concept and it’s going to be about change, facilitators, greening, decarbonizing and within that commodities definitely have their place.
Adam Thompson: Do you think companies have responded now to some of the more stringent ESG requirements that are out there? How do you think generally the miners have performed in that respect?
Julian Treger: Well, I think as part of this cultural change the miners need to embrace ESG rather than resist it. I think it’s been seen culturally as some sort of bother in some parts of the mining sector, and I don’t think that it should be. For juniors, it’s very important also to do the communication piece and much more of it. But I also think it’s important to really position yourself appropriately on that carbon curve, make sure that you are doing the things that move you into a better place. And you have to not rely upon coal powered energy in a country but do something yourself with solar. People have to help themselves a bit to move along that curve.
Obviously one of the major themes we’ve been pursuing at Anglo Pacific for years has been making sure that whatever commodity you produce, you try and get the purest spec possible that there are less contaminants, less pollutants. And so that, I think, is going to be a differentiator going forward. And again, I think juniors need to work out how they capture that premium and not be on the wrong side of that trade, which increasingly will render low spec product unsellable.
People won’t talk about metals and mining anymore. They’ll talk about the way in which we decarbonize the world
Adam Thompson: Is it right in thinking that ESG has slowed capital down coming into the mining sector? Is it the case that these ESG-mandated funds or greener impact funds have seen how green technologies, EVs, can be part of the energy transition and greening society, but mining still carries quite an extractive reputation?
Julian Treger: I think that is true and that’s why the communication piece is very important. I remember a couple of years ago running into enormous European institutional investors who said, “We will not invest in mining, but we will invest in electric vehicles.” Those two statements were completely contradictory. It’s very important that the sector starts to communicate the way that they are integral to ESG. There have been some studies which I’ve seen, which said that unless copper demand grows the world will not be able to meet its environmental targets, because the lack of copper production will hold back the ability to get to the Paris Accord target.
I don’t think people understand how the world can’t do without some commodities and how important they are. And so that is a very significant thing for the sector to communicate. As coal becomes worked out of the system and as we move towards zero carbon steel, which I think is going to happen in the next decade, the image of the sector will automatically become much better and more acceptable to some of those ESG funds.
Adam Thompson: How have you seen the mining companies performing, in your view, whether that’s the majors or the junior tier? It seems that since the bearish years of the last decade, companies have started to really improve and show their value to equities investors.
Julian Treger: Yes. They’ve definitely shown better stewardship of assets and obviously there were a lot of financial people who took control of companies, and the miners weren’t in control. I think the sector though hasn’t been contrarian enough; everybody still behaves as a pack. I own some copper mines in part in Chile and we’ve just financed two huge expansion plans ahead of the pack.
Companies should be a bit more contrarian, it’s too much feast or famine and everybody behaving in the same way. So I think we do need to have a bit more contrarian behavior, people investing in bad times and selling in good times rather than investing in good times, which is what we are about to see happen again.
