Vice Chairman, Head of Metals and Mining Investment Banking,
"There has to be a reallocation of capital to the extractive end of the supply chain."
How significant is mining to Stifel?
Stifel is better known in the US than in Canada. We are the number one broker and banker to one million-dollar companies. Stifel acquired GMP Capital, a mining finance provider with a long history of financing and advising mining companies. Before that acquisition, Stifel had not historically focused on mining. I saw an opportunity to take the platform and develop a mining franchise based on what GMP had already done. The Stifel franchise in Europe had traditionally focused on oil and gas. Recently our UK office raised US$173 million for Adriatic, a UK-based company with assets in Serbia. By combining our strengths in oil and gas and add a mining component, based on our extensive knowledge we will create a strong platform that will be able to service our growing client base.
How do you foresee the electrification revolution unfolding?
Today the world is on the cusp of an electrification revolution and when it arrives, it will cause a noticeable shift as it will come more suddenly than the general population expects. The super-cycle that began in the early 2000s was fueled by China’s rapid growth, and was pivotal to the development of the world economy. However, this next phase is part of a process that resembles a planetary renovation which will result in much dislocation and will pose challenges since many of the technologies we will need do not yet fully exist.
The world has decided to move away from hydrocarbons and use different technologies involving metals. However, from a financial and engineering point of view, a reliance on batteries poses many storage and transport challenges. Becoming a fully electric-powered society is not likely to occur until maybe 2050. In the meantime the risk of significant supply deficits remains very real.
EVs rely on fossil fuels and increased extraction to function. Is this really a radical shift?
As a society, we need a clean energy source that is transportable and storable to protect the fragility of our planet. It appears that electrification has become the near unanimous option. In retrospect, when we met the fork in the road in the 1970s, the world ought to have built thousands of nuclear reactors globally and use that form of green energy to renovate the planet. At the time that it was an unpopular option. We as a society were not forward thinking enough. That build up would have resulted in a large demand surge in metals.
The world will have difficulty in overcoming its addiction to hydrocarbons unless dramatic action is taken. We believe that when we get to the point where truly green sources provide the majority of our power, the amount of metals that will have been required will have challenged our current capacity to produce metals. All industries associated with the greening of the planet are on a mission. The mining industry’s mission is to extract metals as efficiently and in as environmentally friendly a manner as possible. Ivanhoe, for example, relies exclusively on hydropower in the Congo, which is much better than burning coal and natural gas.
Will we be facing stagflation at some point?
The world cannot afford to be stuck in an era of stagflation. If stagflation takes hold, it may stall or impede this renovation that we have embarked upon. As a society, we have the means and infrastructure to allow us to reallocate resources without falling into stagflation.
How are mining markets improving and what are the main challenges?
The mining industry must increase production. The major companies and the entrepreneurial sector need to push projects forward. However, the main issue for the sector is the high cost of capital. When compared to companies like Tesla, the major miners have a cost of capital that is much, much too high. Part of the reason for this is the sector’s legacy of volatility and inconsistent capital allocation decisions. Nonetheless, the sector’s cost of capital needs to decrease significantly. The market is generally undervaluing mining assets. Individual mining companies must increase in size to utilize economies of scale and produce low-cost metals efficiently. There has to be a reallocation of capital to the extractive end of the supply chain.