Dec '12/Jan '13


On the record

By Anna Reitman

John Gravelle is PwC’s mining industry leader for Canada and the Americas, based in Toronto. He assists large mining companies with business issues.

CIM: Alternative finance is a hot topic, especially as PwC’s report shows a 43 per cent decline in market cap for the top 100 mining companies on the TSX Venture. But in accessing those dollars, is it who you know?

JG: Asian investment has received attention because the dollars are so big, and those tend to be vertical integration plays. The Labrador Trough, for example, has seen acquisitions by Chinese companies like Wisco and Indian companies like Tata Steel. These arrangements require people who have connections at senior levels and can access the right level of those organizations. A number of people have gone over to China and spent months, failing to speak to the right level.

Most of the action has been in iron ore, but there is also anticipation for some high-quality chrome deposits and other base metals. More low-­profile have been Chinese and private interests in potash. Another vertical integration play is rare earths; Toyota made a deal in Quebec, for example.

Steel and auto companies do not want to run mines, they want economic incentives. The formula tends to be a stake in the public company’s shares, a joint venture interest in the property and guaranteed off-take.

CIM: Is there positive news for juniors?

JG: 2013 should be more upbeat. For commodities, I think gold has already turned the corner, but base metals still need good news coming out of China. China has dealt with inflation problems and the government transition. It is important for a one-party system to show good economic results in the first year after a regime change, but the infrastructure spending announced in recent months is going to take time to translate into demand for resources.

The wild card out there is Europe. If Europe can avoid a meltdown as far as banking solvency and sovereign defaults, then things are looking good for base metals over the next quarter or two.

I have also seen optimistic signs in mergers and acquisitions in Colombia and Mexico – takeovers like Calvista by AUX.

Mark Bristow has been Randgold Resources’ chief executive since its incorporation. The company was founded on his exploration work in West Africa and he is a strong voice for a sustainable ­mining industry. Randgold has numerous operations and exploration programs across West and Central Africa.

CIM: What advantages does West Africa have?

MB: West Africa has in recent years emerged as one of the world’s major gold fields, and with global gold production flat or in decline, and the former leading producers such as South Africa in irreversible decline, the region is one of the few that is not only maintaining a robust production profile but also offers a great potential for new world-class discoveries. With the industry generally struggling to deliver growth elsewhere, Ghana, Mali, Senegal, Tanzania, the Ivory Coast and Burkina Faso hold the prospect of rich pickings for the astute gold miner. The same is true of Central Africa and notably the Democratic Republic of Congo, which is highly prospective for gold but still relatively underexplored.

CIM: What are some of the greatest challenges?

MB: The greatest risk factor in investing in West Africa is common to all emerging countries: a lack of infrastructure and limited skills. Our philosophy of investing for the long term, supported by the successful partnerships we have built with our host countries, has enabled us to address the infrastructure issue, and we are pursuing ways of expanding this approach. At present, for example, we are in discussion with a number of West African governments and power utilities about the development of a regional power grid. As far as political risk goes, this has diminished in recent years, although Mali and the Ivory Coast are still dealing with the after-effects of the earlier unrest there. This has not impacted, to any significant extent, on our operations there and we are confident that full stability will be restored. In recent months, some West African governments have shown an appetite for a larger slice of the mining cake, but again we believe that by demonstrating the development of a sustainably profitable gold mining industry – which will benefit all stakeholders, notably its host country – we will persuade them to join us in a long-term commitment to this goal.

CIM: What do you think the big stories will be?

MB: For gold, the real growth still sits with the Ivory Coast, Ghana, Mali, Senegal and Burkina Faso. For iron ore, it is Guinea and Liberia. These countries have new governments taking a fresh look at how a fiscal regime and accountability measures are applied at the same time as these jurisdictions undergo their own political evolution. I expect continued improvement in transparency.

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