Michael Rawlinson, Global Co-Head of Metals and Mining at Barclays joined Alec Hogg on the line from the UK to get an idea of what to expect from the upcoming Mining Indaba to be held in Cape Town next week.Â
This Mining Indaba podcast is brought to you in partnership with Absa, member of Barclays.

We’re looking ahead to the Mining Indaba, which takes place next week. Have you been a regular visitor?
Yes, I’ve been going for many years, so it’s firmly in the calendar.
What’s the attraction, then?
If you cover the sector, all of the big and small players are there from the corporate side, as well as some of the fund managers, so they cover a lot of ground. It’s also a good time of year because people have had time off, thought about what they want to do, and they’re ready to talk to you about it. It sets the agenda up for the year.
Hopefully, they’ve had a good enough holiday this year because the mining sector has underperformed for quite some time now. Is it perhaps getting to a bottom period?
Yes, maybe. Unlike oil and gas, there are many subsectors. Some people are emerging from a long winter of hardship, but others are in for a whole new world of pain.
Reading some of the research reports from Barclays, I saw that the mining sector’s underperformed the FTSE by 80 percent in the last five years.
You have to be quite selective. If you look at some of the valuations on some of these companies, they’re on very high PE’s on spot prices, so they’re baking in some cyclical, recovering commodities. From the supply side, I can see all of the elements looking for a cyclical recovery. If China continues to go backwards, prices may persist down here for longer.
How are you reading the relationship with the oil price for the mining sector, generally? Many people say it’s a reflection of demand falling out of bed. Is there more to it?
Oil stayed in that range for five years, around the $100.00 level. The demand growth was unspectacular, so it’s a clear case of oversupply there. In mining, it seems to be more about supply. The collapse of the oil price is good news for miners but generally, it’s bad news for prices because it really squashes the cost scales. On average people make less money.
What makes you believe that gold and platinum could have brighter times ahead?
The gold price obviously collapsed in 2013. Actually, the gold price just looks a bit more supported.  Gold is really another currency and so, if you invest in many of the European/Japanese currencies through the bond market, they’d have negative yields now, so buying something with zero yield like gold is not such a bad bet.
You could anticipate then that the executives from the precious metals sector would be in fair demand at Indaba.
I don’t know about that. It’s always darkest before the dawn. You are getting a situation where the consensus/forecast of gold are much lower than the price on the screen, so you have earnings upgrades. You have an environment where deals will be done, whether it’s weak balance sheets or M&A transactions, so this is going to be much more activity.
On a broader front, I see that your analysts are concerned about Anglo American. It was interesting to see another group tipping them as a good play for this year, primarily on the strength of diamonds.
Yes. I’m all for it from the banking side but I think they’re a bit cautious on Anglo because its market capped now. It’s been relying on cash flows from copper, diamonds, and iron ore to pay the bills. They’re under a bit of earnings pressure there. They have good liquidity and they have disposable programs under way, so I think it will be fine. However, your valuation on spot doesn’t show much support and the dividend looks tight on the current profitability.
You’ve been in this business for more than two decades. It’s highly cyclical and you’ve seen the ups and downs. Let’s start with the base metals companies or the mining majors around the world. Are they going to start coming out of this very depressing period they’ve just had?
I’m not sure. There are many cycles and there are super cycles.  No one ever talks about the exit runway for a super cycle. What tends to happen is you get declining, real prices for several decades before they have the declining, real prices again for another ten years. That’s my fear, and it’s driven by the industrial revolution in China right now. That’s the difficult bit to read now. Are you going to get a slow amount of investor spending there in housing etcetera? I think it could be tougher for longer.
From a banking perspective, you would perhaps be more cautious than even a couple of years ago.
Yes. Banking is difficult. We lend, we do M&A, and underwrite equities. There’s a lot of activity on equity underwriting in M&A, so I think there’s going to be more activity because the acceleration of the deterioration was something we didn’t see and it’s making boards think about what they’re going to do. You have some real spreads in terms of those with money and those without. This time last year, we didn’t have any desperation, so deals weren’t done but now, you can see that some of these companies have to do something. There are people with money on the other side, so maybe we’ll get some transactions done this year.
What about Africa? It has been in and out of fashion from time to time. At the World Economic Forum this year, I saw that there was very little interest in Africa compared with the most recent times. Are you still seeing deals being done on the continent?
Yes. I certainly think it’s become slightly out of fashion. The big buyers such as the Chinese, have reduced their external capital spend with problems at home and anti-corruption drives. In Africa itself, we’ve had very good, open governance and very pro-mining policies. They’ve wound some of that back if you now increase loyalty rates, such as resource nationalism. I’m very bullish on the underlying story of Africa. If anything, the demographic trend and democracies in many of these countries, and the longer they persist in the new democratic way, they are wealth-issuing generators.
They have many resources there. Well, it’s the last frontier in many ways, isn’t it?
Yes. If you take copper, we had the big rush into DRC. The electricity availability isn’t there yet to see some of those projects come off the ground. Zambia had the big resurgence and some of the changes in the royalty regime there has really put people off.
How are you reading that? Of course, an election is currently being fought. One party is saying they’ll adjust the royalties regime. The other party seems to be wedded with it. Are you finding your clients backing away already?
Yes. I haven’t been following it closely but clearly, the incumbent Government should change power so the old Finance Minister who promoted the new codes, is in power. Prima facie, the policy stands but since you still have some people putting a mine on care of maintenance, and talking about restructuring. I think the Government will look carefully at the careful phasing in of these things. It may well be watered down.
From a broader perspective, the Indaba next week: are you expecting the guys arriving there to be perhaps, a little more optimistic than they were a year ago?
No, a lot worse but then, it’s usually quite a good sign. It always used to be that you could see how successful the Indaba was by working out by which week people’s optimism would expire, because it’s such an optimistic and sunny atmosphere in Cape Town, that everyone’s optimistic when you’re there. But if it fades by late February/early March it hasn’t been a particularly good conference. But if it persists into Q2 then maybe it is all fine again.
This Mining Indaba podcast was brought to you in partnership with Absa, member of Barclays.