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“We fund our business through partnerships, which allows us to participate in a lot of different opportunities, to fail often, quickly and, wherever possible, with other people’s money. It makes us a much more sustainable business.”
Freeport-McMoRan Copper & Gold NYE:FCX holds a 55% interest in the Timok project, one of two Reservoir JVs in Serbia, which hit the market with a maiden copper-gold resource earlier this week. Should Freeport-McMoRan take the project to feasibility, it will earn 75%.
[Private equity has] capital like you would not believe, ready to invest. But they’re very careful. That’s sticky money. But it’s an indication that the equity market’s not far behind.—Jim Mustard, VP of mining investment banking for PI Financial
Conceding that JVs have their critics, Thompson countered that “this stuff is expensive—45,000 metres of drilling. Ask Rick [Rule] for that kind of money. You’ll get a real short answer.”
OceanaGold TSX:OGC got through tough times partly by luck, although it didn’t seem that way at the time. Business development manager Darren Klinck joined the company in 2007, only to see markets fall apart the following year. “With our backs against the wall” the company tried to sell its Didipio project in the Philippines “just to keep the lights on.” Despite some interest, a deal never materialized.
“Thank goodness,” Klinck now says. In operation since April, Didipio produced 66,277 ounces gold and 23,059 tonnes copper last year. That’s in addition to 259,455 gold ounces from OceanaGold’s two New Zealand operations.
Noting that Didipio was discovered about 20 years ago, Klinck emphasized the long-term perspective necessary to stay in business. Even during downturns, a company can advance a project through community engagement, an OceanaGold priority, he added.
But when will business pick up? That question was addressed more bluntly by Jim Mustard, VP of mining investment banking for PI Financial. Fragile as the industry is, “I’m almost certain we’re through the worst of it,” he stated.
Pessimistic as gold bears have been, “the consensus seems to be rallying around $1,200 an ounce for 2014 and that’s fairly consistent from a lot of these large institutions. And I think that’s a really positive endorsement because I do believe gold is going to be much higher than that.”
As for mining equities, he echoes Rule: “This is a buy now, sell later session. You’ve got fire sales of equities you haven’t seen before.”
Fund managers are showing interest, although it’s mixed with caution. Mustard attributes a growing belief in “one year of recovery, that’s this year.” Then maybe two or three years more to move forward.
More salvation for cash-starved companies could come from private equity. “I’ve met these groups. They have capital like you would not believe, ready to invest. But they’re very careful. That’s sticky money. But it’s an indication that the equity market’s not far behind.”
One additional warning, though: “The mining sector needs to rebuild its trust with investors…. There’s been huge problems in the industry, whether it’s technical, whether it’s financial, whether it’s over-optimism…. We have to make investors money in this business again. I think this is a fantastic place to start.”
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