Reflections from Mining Indaba 2019 – Part 2

One of the great things about Mining Indaba is the many opportunities to discuss the current state of the mining industry with a diverse range of mining professionals. Below are four topics discussed: 

Brumadinho tragedy

The Brumadinho dam, part of Vale’s Córrego do Feijão iron ore mine in Brazil, collapsed on 25 January 2019, just days before the Mining Indaba kicked off. 

All accidents are tragic but this one weighed down on the industry because something similar had happened to Vale in 2015 with the Mariana dam and the industry had been unable to come together and agree on how to improve its oversight of tailing storage facilities (TSFs). 

In almost every meeting, the topic of TSFs came up. This was especially the case with the buy-side. Many people wondered out loud if investors would consider TSF handling a criterium for future investments (in fact, investors have started asking for more information on tailings dams), how corporates would change their current processes and how to communicate them to the market.

Will the Bumadinho tragedy be the catalyst of positive change in the industry? We hope so as it will be to everyone’s benefit.  

Where are the IPOs?

Chatting with attendees of Mining Indaba, the feeling was there weren’t as many IPOs as expected but the ones coming online are hitting all the right notes:

  1. Good portfolio with organic growth optionality;
  2. In a jurisdiction with robust mining code and stable government;
  3. Near-term cash flow expectation; and
  4. Solid management team.

SA power outages 

South Africa’s government-run electricity provider, Eskom, was regularly in the news during Mining Indaba and consequently regularly on the minds of South African miners and those who invest in them. 

Eskom was mostly mentioned in the context of load shedding, which is its response to “unplanned events” and making sure the country’s electricity power system doesn’t suffer from a total blackout.

Eskom has agreements with industrial customers (e.g. mining companies) whereby it can instruct them to reduce electricity consumption when it is urgent to balance the system. As per the mine and senior management we spoke with, reducing electricity use by up to 20% does not adversely affect operations. However, what would affect miners is if Eskom went ahead with the tariff increase it because that would require reducing operations and, hence, job losses.

On the last day of Indaba, President Ramaphosa gave his State of the Nation speech. In it he said the African government is considering splitting up Eskom into three entities because of its debts (US$30.8 billion) and unreliability of supply. 

Big game M&A

Looks like the memo said, “Go big or go home” and the large-cap miners took it to heart. In mid-January it was announced Newmont would acquire Goldcorp in an all-share transaction valued at US$10 billion and of course there was the announcement in September 2018 that Barrick and Randgold would merge into a behemoth of a company. 

During Mining Indaba there was equal parts speculation of future M&A (though no one had given Barrick going hostile on Newmont much thought), if something similar would happen in the mid-cap space and what spin-outs would ensue once the majors consolidated and discarded their non-core assets. We have been in touch with those who went to PDAC (which is like Mining Indaba but caters to the global mining sector, not just Africa) and the themes are very much the same although, because the event takes place in Toronto, Canada (where it’s currently freezing), we expect the mood to be a little on the cooler side of things. Let’s see what 2019 brings – so far it’s been interesting to say the least.

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